<PAGE>
VAN KAMPEN
AMERICAN VALUE FUND
ANNUAL REPORT
JUNE 30, 2000
[GRAPHIC]
VAN KAMPEN
FUNDS
<PAGE>
TABLE OF CONTENTS
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 4 IT IS TIMES
GROWTH OF A $10,000 INVESTMENT 5
LIKE THESE
PORTFOLIO AT A GLANCE WHEN MONEY-
TOP TEN HOLDINGS 6
TOP FIVE SECTORS 6 MANAGEMENT
Q&A WITH YOUR PORTFOLIO MANAGERS 7
GLOSSARY OF TERMS 10 EXPERIENCE
BY THE NUMBERS MAY MAKE
YOUR FUND'S INVESTMENTS 11
FINANCIAL STATEMENTS 20 A DIFFERENCE
NOTES TO FINANCIAL STATEMENTS 26
REPORT OF INDEPENDENT AUDITORS 32
VAN KAMPEN FUNDS
THE VAN KAMPEN FAMILY OF FUNDS 33
FUND OFFICERS AND IMPORTANT ADDRESSES 34
RESULTS OF SHAREHOLDER VOTES 35
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NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE.
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<PAGE>
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.
OVERVIEW
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,
/s/ Richard F. Powers, III
Richard F. Powers, III
President and CEO
Van Kampen Investments
1
<PAGE>
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>
U.S. GROSS DOMESTIC PRODUCT
SEASONALLY ADJUSTED ANNUALIZED RATES
(JUNE 30, 1998 - JUNE 30, 2000)
[CHART]
<TABLE>
<S> <C>
Jun-98 2.1%
Sep-98 3.8%
Dec-98 5.9%
Mar-99 3.5%
Jun-99 2.5%
Sep-99 5.7%
Dec-99 8.3%
Mar-00 4.8%
Jun-00 5.2%
</TABLE>
SOURCE: BUREAU OF ECONOMIC ANALYSIS
INTEREST RATES AND INFLATION
(JUNE 30, 1998 - JUNE 30, 2000)
[CHART]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
<S> <C> <C>
Jun-98 5.500 1.70
Jul-98 5.500 1.70
Aug-98 5.500 1.60
Sep-98 5.250 1.50
Oct-98 5.000 1.50
Nov-98 4.750 1.50
Dec-98 4.750 1.60
Jan-99 4.750 1.70
Feb-99 4.750 1.60
Mar-99 4.750 1.70
Apr-99 4.750 2.30
May-99 4.750 2.10
Jun-99 5.000 2.00
Jul-99 5.000 2.10
Aug-99 5.250 2.30
Sep-99 5.250 2.60
Oct-99 5.250 2.60
Nov-99 5.500 2.60
Dec-99 5.500 2.70
Jan-00 5.500 2.70
Feb-00 5.750 3.20
Mar-00 6.000 3.70
Apr-00 6.000 3.00
May-00 6.500 3.10
Jun-00 6.500 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>
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(AS OF JUNE 30, 2000)
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
One-year total return based on NAV(1) 4.62% 3.85% 3.80%
----------------------------------------------------------------------------------------
One-year total return(2) -1.40% -1.00% 2.83%
----------------------------------------------------------------------------------------
Five-year average annual total return(2) 17.90% N/A 18.39%
----------------------------------------------------------------------------------------
Life-of-Fund average annual total return(2) 15.27% 17.70% 15.40%
----------------------------------------------------------------------------------------
Commencement date 10/18/93 8/1/95 10/18/93
----------------------------------------------------------------------------------------
</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.
SEE THE COMPARATIVE PERFORMANCE SECTION OF THE CURRENT PROSPECTUS. 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.
BECAUSE THE PRICES OF COMMON STOCKS AND OTHER SECURITIES FLUCTUATE, THE
VALUE OF AN INVESTMENT IN THE FUND WILL VARY UPON THE FUND'S INVESTMENT
PERFORMANCE.
MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO PASS.
4
<PAGE>
GROWTH OF A $10,000 INVESTMENT
(OCTOBER 18, 1993 - JUNE 30, 2000)
[GRAPH]
<TABLE>
<CAPTION>
Russell 2500 Index
MEASURES THE PERFORMANCE
American Value OF 2500 SMALL- AND
Fund MID-SIZE COMPANIES' STOCKS.
<S> <C> <C>
10/93 $9,425 $10,000
6/94 $9,418 $9,409
6/95 $10,831 $11,560
6/96 $12,717 $14,355
6/97 $16,619 $17,239
6/98 $21,094 $20,539
6/99 $24,767 $22,569
6/00 $24,420 $25,911
<CAPTION>
<S> <C>
Fund's Total Return
1 Year Total Return -1.40%
5 Year Avg. Annual 17.90%
Inception Avg. Annual 15.27%
</TABLE>
THIS CHART COMPARES YOUR FUND'S PERFORMANCE TO THAT OF THE RUSSELL 2500
INDEX OVER TIME.
THIS IS AN UNMANAGED BROAD-BASED, STATISTICAL COMPOSITE THAT DOES NOT INCLUDE
ANY COMMISSIONS OR FEES THAT WOULD BE PAID BY AN INVESTOR PURCHASING THE
SECURITIES IT REPRESENTS. SUCH COSTS WOULD LOWER THE PERFORMANCE OF THIS INDEX.
THE HISTORICAL PERFORMANCE OF THE INDEX IS SHOWN FOR ILLUSTRATIVE PURPOSES ONLY;
IT IS NOT MEANT TO FORECAST, IMPLY, OR GUARANTEE THE FUTURE PERFORMANCE OF ANY
INVESTMENT VEHICLE. IT IS NOT POSSIBLE TO INVEST DIRECTLY IN AN INDEX.
THE ABOVE CHART REFLECTS THE PERFORMANCE OF CLASS A SHARES OF THE FUND. THE
PERFORMANCE OF CLASS A SHARES WILL DIFFER FROM THAT OF OTHER SHARE CLASSES OF
THE FUND BECAUSE OF THE DIFFERENCE IN SALES CHARGES AND/OR EXPENSES PAID BY
SHAREHOLDERS INVESTING IN THE DIFFERENT SHARE CLASSES. THE FUND'S PERFORMANCE
ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS, AND INCLUDES PAYMENT OF THE MAXIMUM
SALES CHARGE (5.75% FOR CLASS A SHARES).
WHILE PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THE ABOVE INFORMATION
PROVIDES A BROADER VANTAGE POINT FROM WHICH TO EVALUATE THE DISCUSSION OF THE
FUND'S PERFORMANCE FOUND IN THE FOLLOWING PAGES.
5
<PAGE>
PORTFOLIO AT A GLANCE
TOP TEN HOLDINGS
(AS A PERCENTAGE OF NET ASSETS--JUNE 30, 2000)
1. VALUEVISION 1.8%
Sells housewares, electronics, apparel,
and other goods through electronic
and print media.
2. SMITH INTERNATIONAL 1.6%
Supplies products and services to the
petroleum and petrochemical industries
worldwide.
3. TITAN 1.4%
Provides computer and communication
systems to businesses and governments
worldwide.
4. POTOMAC ELECTRIC POWER 1.3%
Generates and distributes power in the
Washington, D.C. area.
5. AMB PROPERTY 1.2%
Owns and manages industrial real
estate nationwide.
6. EFFICIENT NETWORKS 1.2%
Develops high-speed digital subscriber
lines (DSLs) for data transmission
worldwide.
7. RADIAN GROUP 1.1%
Provides private mortgage insurance
in the United States.
8. GLOBAL MARINE 1.0%
Provides offshore oil drilling services
worldwide.
9. DIGITAL MICROWAVE 1.0%
Manufactures digital microwave radios
for wireless communications systems.
10. UNIFY 0.9%
Develops Internet infrastructure
products and services.
TOP FIVE SECTORS *
(AS A PERCENTAGE OF NET ASSETS--JUNE 30, 2000)
[GRAPH]
<TABLE>
<CAPTION>
Financial Heavy Industry/
Technology Services Health Care Transportation Utilities
---------- --------- ----------- ----------------- ---------
<S> <C> <C> <C> <C> <C>
31.5% 12.5% 10.6% 8.9% 7.1%
</TABLE>
* THESE SECTORS REPRESENT BROAD GROUPINGS OF RELATED INDUSTRIES.
6
<PAGE>
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH THE MANAGEMENT TEAM OF THE VAN KAMPEN AMERICAN VALUE FUND
ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE MARKETS AND INFLUENCED
THE FUND'S RETURN DURING THE 12 MONTHS ENDED JUNE 30, 2000. THE TEAM IS
COMANAGED BY WILLIAM B. GERLACH, GARY G. SCHLARBAUM, AND VITALY KORCHEVSKY,
PORTFOLIO MANAGERS, MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT. MR.
GERLACH HAS COMANAGED THE FUND SINCE 1996 AND HAS BEEN IN THE INVESTMENT
INDUSTRY SINCE 1984, WHILE MR. SCHLARBAUM AND MR. KORCHEVSKY JOINED THE FUND AS
COMANAGERS IN 1997 AND 2000 AND HAVE BEEN IN THE INVESTMENT INDUSTRY SINCE 1984
AND 1993, RESPECTIVELY. 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 The market was quite volatile in the past 12 months. As value investors,
we've been challenged by the current bull market's preference for growth stocks.
(There can be no assurance that growth stocks will continue to be favored over
value stocks in the future.) Value stocks had a bit of a rally in early 2000,
though not enough for value to outperform growth by any means. At one point in
the first half of 2000, value stocks were performing slightly better than
growth, but in June growth stocks surged.
The TMT sector (telecommunications, media, and technology) has done very
well, although it was quite volatile in March and April before it rallied in
June. Health care has been another strong performer. Although it lagged in the
third and fourth quarters of 1999, health care, especially the biotechnology
industry, climbed during the first half of 2000. At a time when "new economy"
names were generating the most attention, energy was one "old economy" sector
that turned in good performance with less volatility than the TMT sector.
Finally, small- and medium-sized companies slightly outperformed large
companies in the past year. However, we believe that large companies' stocks are
still overvalued, which means the market is pricing them higher than what we
believe they should be worth, and smaller companies' valuations have a long way
to go to catch up.
For the 12-month period ended June 30, 2000, the fund achieved a total return
of 4.62 percent (CLASS A SHARES AT NET ASSET VALUE; IF THE MAXIMUM SALES CHARGE
OF 5.75 PERCENT WERE INCLUDED, THE RETURN WOULD HAVE BEEN LOWER). AS A RESULT OF
RECENT MARKET ACTIVITY, CURRENT PERFORMANCE MAY VARY FROM THE FIGURES SHOWN. BY
COMPARISON, THE RUSSELL 2500 INDEX GENERATED A TOTAL RETURN OF 18.33 PERCENT FOR
THE SAME PERIOD. OF COURSE, PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
THE RUSSELL 2500 INDEX IS AN UNMANAGED INDEX REPRESENTING THE PERFORMANCE OF
2500 SMALL- AND MID-SIZE COMPANIES' STOCKS. THIS INDEX IS A STATISTICAL
7
<PAGE>
COMPOSITE THAT DOES NOT INCLUDE ANY COMMISSIONS OR SALES CHARGES THAT WOULD BE
PAID BY AN INVESTOR PURCHASING THE SECURITIES IT REPRESENTS. SUCH COSTS WOULD
LOWER THE PERFORMANCE OF THE INDEX. IT IS NOT POSSIBLE TO INVEST DIRECTLY IN AN
INDEX. 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 We reduced the allocation in technology stocks in the fund's portfolio
relative to the Russell 2500 Index, the fund's benchmark index, in the third
quarter of 1999 because we were concerned about how Y2K-related issues would
affect their businesses. In the fourth quarter, we added to the fund's
technology holdings as we realized that Y2K's impact wasn't going to be as
negative as people feared, and we believed that if companies were going to
introduce new technology projects, they would start their spending before
year-end. The fund owned a heavier weighting in technology names than the
benchmark in the fourth quarter, and the fund remained overweighted in this
sector through the end of the reporting period. However, we trimmed some of the
technology holdings during March's extreme market volatility. Overall, the
fund's technology weighting helped performance during the reporting period.
The fund benefited from our decisions to reduce the fund's allocation to both
consumer durables and financial services relative to the benchmark, given that
these areas of the market are interest rate-sensitive. In addition to being
negatively affected by the Federal Reserve's interest-rate hikes, we saw
financial services companies' earnings begin to slow down.
Q WHICH STOCKS PERFORMED WELL DURING THE REPORTING PERIOD?
A Technology stocks continued to lead the way, despite volatility in the
sector. Two wireless communications companies, Digital Microwave and Powerwave,
were helped by a recent boom in wireless communications, particularly in Asia
and Europe. Also, Titan Corp. and Cell Pathways performed well during the year
thanks to new technologies in the food and drug industries. Titan is a holding
company that owns several different businesses, one of which has created a
technology that radiates meat, helping kill various bacteria. While there were
some initial concerns about safety, several tests proved that Titan's method for
pasteurizing meat was safe and less costly than other current methods. Cell
Pathways is a pharmaceutical company with a prostate cancer drug in the final
stages of FDA approval.
Finally, the fund owned stock in a financial company that has benefited from
the phenomenal growth of start-up technology companies. Silicon Valley
Bancshares is a bank whose focus has been on the small Internet firms that are
popping up all over Silicon Valley. This bank is unique because, in addition to
commercial checking and banking, it also provides "one-stop shopping" for small
companies needing 401(k) plans, investment management, checking, and lending.
Of course, it's important to keep in mind that not all stocks in the fund
performed favorably, and there is no guarantee that any of these stocks will
perform well or be held in the portfolio
8
<PAGE>
in the future. For additional fund highlights, please refer to page 6.
Q WHICH STOCKS WERE DISAPPOINTMENTS?
A The fund held several stocks that didn't perform up to our expectations.
Sunglass Hut, which was among the larger allocations in the portfolio, has been
losing market share recently because of a lack of consumer interest in its
products. We sold all of this stock because we were disappointed in its
performance.
Some of the poor performers in the portfolio were strong companies whose
stock prices suffered from what we believed to be an overreaction from the
market. One such company was Unify Corp., a database-management software
developer, which investors penalized for health concerns among its senior
management, despite the company's strong fundamentals. Our belief in those
fundamentals kept the stock in the portfolio. We also think MSI Holdings, a data
and Internet services provider, has strong fundamentals, but it is a small
company that had a hard time recovering from volatility in the technology sector
during March and April. The fund continues to own MSI stock because we believe
that the market unfairly punished its stock price.
In terms of sector allocations, our poorest decision was to increase
telephone services stocks relative to the fund's benchmark. One stock in
particular, Adelphia Business Solutions, a cable provider, dragged down fund
performance because it has lost business to satellite providers.
Q WHAT IS YOUR OUTLOOK FOR THE FUND AND THE MARKETS IN THE UPCOMING MONTHS?
A We're going to pay close attention to economic news. We think that with the
Fed raising rates and trying to slow the economy, the markets will continue to
be volatile. When interest rates rise and there is a slowdown in the economy,
the small companies and interest rate-sensitive stocks in which the fund invests
have tended to fall in price. However, once the economy adjusts, we believe
these stocks may again rise. In other areas of the market, we believe
technology, health care, and consumer non-durables will be less affected by an
economic slowdown.
Despite its extreme volatility, we still like the technology sector. We think
that companies will continue to focus on technology that improves productivity
and that Internet growth worldwide still has a lot of potential.
9
<PAGE>
GLOSSARY OF TERMS
A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.
CLASS A SHARES: A division of mutual fund shares, which are generally divided
into three groupings, called Class A, Class B, and Class C shares. The specific
features of each are dependent on varying fees and sales charges. In most cases,
Class A shares will have no redemption fee (contingent deferred sales charge).
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.
NEW ECONOMY: Refers to the electronic and high-tech sectors such as the
Internet, telecommunications, biochemicals, and semiconductors.
OLD ECONOMY: Refers to established companies focusing more on industrial and
manufacturing services.
PORTFOLIO: A collection of securities owned by an individual or an institution,
that may include stocks, bonds, and/or money-market securities.
VALUE INVESTING: A strategy that seeks to identify stocks that are sound
investments but are temporarily out of favor in the marketplace. As a result,
the stocks trade at prices below what value investors believe they are actually
worth.
VOLATILITY: A measure of the fluctuation in the market price of a security. A
security that is volatile has frequent and large swings in price.
10
<PAGE>
BY THE NUMBERS
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
THE FOLLOWING PAGES DETAIL YOUR FUND'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
COMMON STOCKS 95.5%
BASIC RESOURCES 4.3%
BASIC CHEMICALS 0.5%
Nova Chemicals Corp. (a) ......................... 245,600 $ 5,280,400
-------------
NON-FERROUS METALS 1.1%
Agnico-Eagle Mines Ltd. .......................... 468,300 3,014,681
Freeport-McMoRan Copper & Gold, Inc. (a) ......... 549,500 5,082,875
Phelps Dodge Corp. ............................... 58,600 2,179,188
-------------
10,276,744
-------------
PAPER 0.9%
Boise Cascade Corp................................ 93,000 2,406,375
Gaylord Container Corp. 'A' (a)...................1,398,000 3,757,125
Westvaco Corp. ................................... 120,400 2,987,425
-------------
9,150,925
-------------
SPECIALTY CHEMICALS 1.1%
Tetra Technologies, Inc. (a) ..................... 455,400 6,460,988
W.R. Grace & Co. (a) ............................. 380,400 4,612,350
-------------
11,073,338
-------------
STEEL 0.7%
Lone Star Technologies, Inc. ..................... 83,600 3,866,500
Steel Dynamics, Inc. (a) ......................... 274,500 2,487,656
-------------
6,354,156
-------------
TOTAL BASIC RESOURCES ..................................... 42,135,563
-------------
BEVERAGES & PERSONAL PRODUCTS 1.8%
BEVERAGES 1.1%
Pepsi Bottling Group, Inc. ....................... 207,700 6,062,244
Suiza Foods Corp. (a) ............................ 57,000 2,785,875
Triarc Cos., Inc. (a) ............................ 79,200 1,623,600
-------------
10,471,719
-------------
PERSONAL PRODUCTS 0.7%
Fortune Brands, Inc. ............................. 195,500 4,508,719
Salton, Inc. (a) ................................. 65,100 2,400,562
-------------
6,909,281
-------------
TOTAL BEVERAGES & PERSONAL PRODUCTS ....................... 17,381,000
-------------
SEE NOTES TO FINANCIAL STATEMENTS 11
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
CONSUMER DURABLES 2.2%
AUTOMOTIVE RELATED 1.5%
Lear Corp. (a) ................................... 194,500 $ 3,890,000
Magna International, Inc. 'A'..................... 117,900 5,570,775
Tower Automotive, Inc. (a) ....................... 407,500 5,093,750
-------------
14,554,525
-------------
BUILDING & HOUSING 0.2%
American Standard Cos., Inc. (a) ................. 51,600 2,115,600
-------------
RECREATION & TOYS 0.5%
Hasbro, Inc. ..................................... 231,200 3,482,450
JAKKS Pacific, Inc. (a) .......................... 90,700 1,337,825
-------------
4,820,275
-------------
TOTAL CONSUMER DURABLES ................................... 21,490,400
-------------
CONSUMER SERVICES 3.8%
ENTERTAINMENT & LEISURE 1.8%
ValueVision International, Inc. 'A' (a)........... 736,200 17,668,800
-------------
LODGING & CATERING 0.6%
Hilton Hotels Corp. .............................. 317,900 2,980,312
Starwood Hotels & Resorts Worldwide, Inc. ........ 95,500 3,085,844
-------------
6,066,156
-------------
OTHER 1.1%
Convergys Corp. (a) .............................. 141,400 7,335,125
Corinthian Colleges, Inc. (a) .................... 26,700 625,781
Lifeminders, Inc. (a) ............................ 106,200 3,139,538
-------------
11,100,444
-------------
PUBLISHING & BROADCASTING 0.3%
Infospace.com, Inc. (a) .......................... 54,800 3,027,700
-------------
TOTAL CONSUMER SERVICES ................................... 37,863,100
-------------
ENERGY 6.6%
OIL-DOMESTIC & CRUDE 1.0%
Ocean Energy, Inc. (a) ........................... 228,824 3,246,440
Tosco Corp. ...................................... 96,600 2,734,988
Valero Energy Corp. .............................. 116,300 3,692,525
-------------
9,673,953
-------------
OIL-OFFSHORE DRILLING 2.5%
Global Marine, Inc. (a) .......................... 360,600 10,164,412
Nabors Industries, Inc. (a) ...................... 171,100 7,111,344
Precision Drilling Corp. (a) ..................... 191,900 7,412,138
-------------
24,687,894
-------------
12 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
OIL-WELL EQUIPMENT & SERVICES 3.1%
Cooper Cameron Corp. (a) ......................... 95,500 $ 6,303,000
Global Industries, Ltd. (a) ...................... 381,100 7,193,262
Smith International, Inc. (a) .................... 209,900 15,283,344
Varco International, Inc. (a) .................... 72,748 1,691,391
-------------
30,470,997
-------------
TOTAL ENERGY .............................................. 64,832,844
-------------
FINANCIAL SERVICES 12.5%
BANKS 2.6%
Bank of Montreal ................................. 69,900 2,983,856
Bank United Corp. 'A'............................. 216,200 7,607,537
Golden State Bancorp, Inc. (a) ................... 90,900 1,636,200
Greater Bay Bancorp .............................. 21,300 995,775
Hudson United Bancorp ............................ 226,249 5,076,462
Silicon Valley Bancshares (a) .................... 62,400 2,659,800
TCF Financial Corp. .............................. 109,400 2,810,213
Trustmark Corp. .................................. 119,000 2,075,063
-------------
25,844,906
-------------
CREDIT & FINANCE 2.4%
Concord EFS, Inc. (a) ............................ 304,200 7,909,200
Metris Cos., Inc. ................................ 104,950 2,636,869
PMI Group, Inc. .................................. 48,800 2,318,000
Radian Group, Inc. ............................... 204,600 10,588,050
-------------
23,452,119
-------------
INSURANCE 1.6%
Allmerica Financial Corp. ........................ 103,300 5,410,337
Everest Reinsurance Holdings, Inc. ............... 159,200 5,233,700
MONY Group, Inc. (The) ........................... 71,900 2,431,119
Nationwide Financial Services, Inc. 'A'........... 98,000 3,221,750
-------------
16,296,906
-------------
INVESTMENT COMPANIES 1.8%
Catellus Development Corp. (a) ................... 228,800 3,432,000
E*TRADE Group, Inc. (a) .......................... 147,200 2,428,800
eSPEED, Inc. 'A' (a) ............................. 113,700 4,938,844
T. Rowe Price Associates, Inc. ................... 157,700 6,702,250
-------------
17,501,894
-------------
REAL ESTATE INVESTMENT TRUSTS 4.1%
AMB Property Corp. ............................... 528,600 12,058,687
Avalonbay Communities, Inc. ...................... 72,000 3,006,000
Boston Properties, Inc. .......................... 52,200 2,016,225
Camden Property Trust ............................ 64,800 1,903,500
SEE NOTES TO FINANCIAL STATEMENTS 13
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
REAL ESTATE INVESTMENT TRUSTS (CONTINUED)
Cousins Properties, Inc. ......................... 47,400 $ 1,824,900
Crown American Realty Trust ...................... 379,700 2,040,887
Duke Weeks Realty Corp. .......................... 195,000 4,363,125
Glenborough Realty Trust, Inc. ................... 26,500 462,094
Hospitality Properties Trust ..................... 276,300 6,234,019
Lasalle Hotel Properties REIT .................... 36,100 518,938
Liberty Property Trust REIT ...................... 46,000 1,193,125
Manufactured Home Communities, Inc. REIT ......... 78,700 1,883,881
Simon Property Group, Inc. ....................... 46,700 1,036,156
Vornado Realty Trust ............................. 53,500 1,859,124
-------------
40,400,661
-------------
TOTAL FINANCIAL SERVICES ................................... 123,496,486
-------------
FOOD & TOBACCO 2.2%
FOOD & TOBACCO 0.1%
Horizon Organic Holding Corp. (a) ................ 131,900 1,401,438
-------------
FOOD PRODUCTS 2.1%
Earthgrains Co. .................................. 134,600 2,616,287
Fresh Del Monte Produce, Inc. (a) ................ 183,900 1,264,313
General Mills, Inc. .............................. 134,800 5,156,100
Hain Celestial Group, Inc. (a) ................... 156,400 5,737,925
IBP, Inc. ........................................ 148,700 2,295,556
NBTY, Inc. (a) ................................... 565,800 3,606,975
-------------
20,677,156
-------------
TOTAL FOOD & TOBACCO ...................................... 22,078,594
-------------
HEALTH CARE 10.6%
DRUGS 5.4%
Alpharma, Inc. ................................... 124,700 7,762,575
Alza Corp., 'A' (a) .............................. 116,500 6,888,062
Celgene Corp. (a) ................................ 102,900 6,058,237
Cell Pathways, Inc. (a) .......................... 165,500 3,889,250
Genomic Solutions, Inc. (a) ...................... 96,200 1,406,925
Gilead Sciences, Inc. (a) ........................ 50,200 3,570,475
IDEC Pharmaceuticals Corp. (a) ................... 20,600 2,416,638
ImClone Systems, Inc. (a) ........................ 23,200 1,773,350
Intermune Pharmaceuticals, Inc. (a) .............. 135,000 5,577,188
MedImmune, Inc. (a) .............................. 53,700 3,973,800
Millennium Pharmaceuticals, Inc. (a) ............. 32,600 3,647,125
Teva Pharmaceutical Industries Ltd. ADR .......... 111,400 6,175,737
-------------
53,139,362
-------------
HEALTH SERVICES 1.7%
Beverly Enterprises, Inc. (a) .................... 568,100 1,597,781
14 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
HEALTH SERVICES (CONTINUED)
First Health Group Corp. (a) ..................... 82,300 $ 2,700,469
Omnicare, Inc. ................................... 252,900 2,291,906
Tenet Healthcare Corp. (a) ....................... 125,100 3,377,700
Trigon Healthcare, Inc. (a) ...................... 67,900 3,501,094
Universal Health Services, Inc. (a) .............. 56,300 3,715,800
-------------
17,184,750
-------------
HEALTH TECHNOLOGY 2.5%
Cephalon, Inc. (a) ............................... 116,300 6,963,462
COR Therapeutics, Inc. (a) ....................... 49,600 4,231,500
Human Genome Sciences, Inc. (a) .................. 1,200 160,050
PE Corp.-Celera Genomics Group (a) ............... 15,900 1,486,650
PerkinElmer, Inc. ................................ 56,200 3,716,225
QLT Phototherapeutics, Inc. (a) .................. 34,600 2,675,013
St. Jude Medical, Inc. (a) ....................... 108,100 4,959,088
-------------
24,191,988
-------------
HOSPITAL SUPPLIES 1.0%
Endocare, Inc. (a) ............................... 149,400 3,025,350
Sybron International Corp. (a) ................... 347,900 6,892,769
-------------
9,918,119
-------------
TOTAL HEALTH CARE ......................................... 104,434,219
-------------
HEAVY INDUSTRY/TRANSPORTATION 8.9%
AEROSPACE 1.8%
Alliant TechSystems, Inc. (a) .................... 56,700 3,823,707
Titan Corp. (a) .................................. 310,600 13,899,350
-------------
17,723,057
-------------
AIR TRANSPORTATION 1.1%
Airtran Holdings, Inc. (a) ....................... 695,200 2,889,425
Frontier Airlines, Inc. (a) ...................... 246,900 3,533,756
Mesa Air Group, Inc. (a) ......................... 422,100 2,334,741
SkyWest, Inc. .................................... 53,300 1,975,431
-------------
10,733,353
-------------
BUSINESS SERVICES 3.0%
AnswerThink Consulting Group, Inc. (a) ........... 149,900 2,492,088
Republic Services, Inc. 'A' (a) .................. 292,200 4,675,200
SCI Systems, Inc. (a) ............................ 235,600 9,232,575
United Rentals, Inc. (a) ......................... 253,000 4,332,625
Xceed, Inc. (a) .................................. 963,500 8,791,937
-------------
29,524,425
-------------
ELECTRICAL EQUIPMENT 0.3%
Black Box Corp. (a) .............................. 38,900 3,079,786
-------------
SEE NOTES TO FINANCIAL STATEMENTS 15
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
MACHINERY 0.4%
Manitowoc Co., Inc. .............................. 55,350 $ 1,480,613
Stewart & Stevenson Services, Inc. ............... 131,000 1,973,187
-------------
3,453,800
-------------
MISCELLANEOUS INDUSTRIALS 2.3%
GenCorp, Inc. .................................... 282,200 2,257,600
ITT Industries, Inc. ............................. 160,300 4,869,112
Litton Industries, Inc. (a) ...................... 129,500 5,439,000
Martin Marietta Materials, Inc. .................. 108,500 4,387,469
Mettler-Toledo International, Inc. (a) ........... 54,900 2,196,000
Wabash National Corp. ............................ 312,500 3,730,469
-------------
22,879,650
-------------
TOTAL HEAVY INDUSTRY/TRANSPORTATION ....................... 87,394,071
-------------
RETAIL 4.0%
APPAREL 1.7%
Chico's FAS, Inc. (a) ............................ 182,600 3,652,000
Factory 2-U Stores, Inc. (a) ..................... 124,200 4,696,313
Global Sports, Inc. (a) .......................... 601,600 3,872,800
Jones Apparel Group, Inc. (a) .................... 69,700 1,637,950
Vans, Inc. (a) ................................... 181,800 2,658,825
-------------
16,517,888
-------------
DEPARTMENT STORES 0.3%
Neiman-Marcus Group, Inc. 'A' (a) ................ 91,700 2,710,881
-------------
DISCOUNTERS 0.3%
BJ's Wholesale Club, Inc. (a) .................... 101,500 3,349,500
-------------
FOOD RETAILERS 0.3%
SYSCO Corp. ...................................... 76,300 3,214,138
-------------
RESTAURANTS 1.2%
Landry's Seafood Restaurants, Inc. ............... 261,500 2,222,750
Lone Star Steakhouse & Saloon, Inc. (a) .......... 403,600 4,086,450
Ruby Tuesday, Inc. ............................... 242,800 3,050,175
Wendy's International, Inc. ...................... 124,100 2,210,531
-------------
11,569,906
-------------
SPECIALTY SHOPS 0.2%
Sherwin-Williams Co. (The) ....................... 96,800 2,050,950
-------------
TOTAL RETAIL .............................................. 39,413,263
-------------
TECHNOLOGY 31.5%
COMPUTERS & OFFICE EQUIPMENT 2.9%
Accelerated Networks, Inc. (a) ................... 8,700 367,031
Extreme Networks, Inc. (a) ....................... 57,600 6,076,800
16 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
COMPUTERS & OFFICE EQUIPMENT (CONTINUED)
Network Appliance, Inc. (a) ...................... 64,300 $ 5,176,150
Oak Technology, Inc. (a) ......................... 189,200 4,079,625
QLogic Corp. (a) ................................. 108,200 7,147,962
Splash Technology Holdings, Inc. (a) ............. 662,400 5,216,400
Stratos Lightwave Inc. (a) ....................... 12,500 348,438
-------------
28,412,406
-------------
ELECTRONICS 10.1%
Aetrium, Inc. (a) ................................ 122,400 703,800
ANADIGICS, Inc. (a) .............................. 71,700 2,442,281
Applied Micro Circuits Corp. (a) ................. 4,600 454,250
Coherent, Inc. (a) ............................... 58,200 4,881,525
Concord Camera Corp. (a) ......................... 83,800 1,749,325
Conexant Systems, Inc. (a) ....................... 49,700 2,416,663
Cypress Semiconductor Corp. (a) .................. 64,000 2,704,000
Fairchild Semiconductor, Inc. 'A' (a)............. 105,000 4,252,500
Galileo Technology Ltd. (a) ...................... 302,800 6,510,200
Gasonics International Corp. (a) ................. 202,300 7,978,206
GSI Lumonics, Inc. (a) ........................... 190,200 6,680,775
Integrated Device Technology, Inc. (a) ........... 39,800 2,383,025
KLA-Tencor Corp. (a) ............................. 82,600 4,837,263
Lam Research Corp. (a) ........................... 65,300 2,448,750
Lattice Semiconductor Corp. (a) .................. 103,900 7,182,087
M-Systems Flash Disk Pioneers Ltd. (a) ........... 103,700 8,075,637
Microchip Technology, Inc. (a) ................... 44,700 2,604,474
National Semiconductor Corp. (a) ................. 85,200 4,835,100
Novellus Systems, Inc. (a) ....................... 98,400 5,565,750
Parlex Corp. (a) ................................. 84,800 3,572,200
PMC-Sierra, Inc. (a) ............................. 36,800 6,538,900
SanDisk Corp. (a) ................................ 57,700 3,530,519
Vishay Intertechnology, Inc. (a) ................. 62,300 2,363,506
Vitesse Semiconductor Corp. (a) .................. 61,600 4,531,450
-------------
99,242,186
-------------
SOFTWARE & SERVICES 10.6%
Akamai Technologies, Inc. (a) .................... 56,200 6,672,872
Allaire Corp. (a) ................................ 116,400 4,277,700
Applied Digital Solutions, Inc. (a) .............. 626,900 2,115,788
BEA Systems, Inc. (a) ............................ 145,300 7,183,269
Blue Wave Systems, Inc. (a) ...................... 729,400 7,521,937
Brio Technology, Inc. (a) ........................ 208,300 4,413,356
Cadence Design Systems, Inc. (a) ................. 126,000 2,567,250
Commerce One, Inc. (a) ........................... 137,500 6,241,212
i2 Technologies, Inc. (a) ........................ 4,800 500,475
SEE NOTES TO FINANCIAL STATEMENTS 17
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
SOFTWARE & SERVICES (CONTINUED)
Interwoven, Inc. (a) ............................. 24,600 $ 2,705,616
ISS Group, Inc. (a) .............................. 35,000 3,455,703
Level 8 Systems, Inc. (a) ........................ 30,900 650,831
Macromedia, Inc. (a) ............................. 56,600 5,472,512
MarchFirst, Inc. (a) ............................. 158,200 2,887,150
Mercury Interactive Corp. (a) .................... 58,500 5,659,875
MSI Holdings, Inc. (a,b,c) ....................... 563,100 4,082,475
Portal Software, Inc. (a) ........................ 122,500 7,824,687
Quest Software, Inc. (a) ......................... 63,900 3,538,463
Tanning Technology Corp. (a) ..................... 370,600 7,134,050
Unify Corp. (a) ..................................1,085,700 9,296,306
Vignette Corp. (a) ............................... 95,000 4,941,485
Zomax, Inc. (a) .................................. 398,500 5,230,313
-------------
104,373,325
-------------
TELECOMMUNICATIONS EQUIPMENT 7.9%
Advanced Fibre Communications, Inc. (a) .......... 40,600 1,839,688
CIENA Corp. (a) .................................. 37,800 6,300,787
Clarent Corp. (a) ................................ 69,600 4,976,400
Digital Lightwave, Inc. (a) ...................... 42,900 4,311,450
Digital Microwave Corp. (a) ...................... 249,800 9,523,625
Ditech Communications Corp. (a) .................. 16,200 1,531,913
DSET Corp. (a) ................................... 202,300 6,144,862
Efficient Networks, Inc. (a) ..................... 163,700 12,042,181
Finisar Corp. (a) ................................ 183,700 4,810,644
Powerwave Technologies, Inc. (a) ................. 161,600 7,110,400
REMEC, Inc. (a) .................................. 76,400 3,199,250
RF Micro Devices, Inc. (a) ....................... 13,100 1,147,888
Scientific-Atlanta, Inc. ......................... 78,700 5,863,150
SDL, Inc. (a) .................................... 31,900 9,097,481
-------------
77,899,719
-------------
TOTAL TECHNOLOGY .......................................... 309,927,636
-------------
UTILITIES 7.1%
ELECTRIC POWER 3.0%
Allegheny Energy, Inc. ........................... 83,700 2,291,287
Calpine Corp. (a) ................................ 46,400 3,050,800
DPL, Inc. ........................................ 114,666 2,515,485
Minnesota Power, Inc. ............................ 100,300 1,736,444
Pinnacle West Capital Corp. ...................... 89,200 3,021,650
Potomac Electric Power Co. ....................... 492,600 12,315,000
TXU Corp. ........................................ 140,400 4,141,800
-------------
29,072,466
-------------
18 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
TELEPHONE SERVICES 4.1%
Adelphia Business Solutions, Inc. (a) ............ 187,100 $ 4,338,381
Alamosa PCS Holdings, Inc. (a) ................... 279,300 5,830,387
Dobson Communications Corp. 'A' (a) .............. 214,300 4,125,275
FLAG Telecom Holdings Ltd. (a) ................... 169,400 2,519,825
Focal Communications Corp. (a) ................... 155,600 5,630,775
ITXC Corp. (a) ................................... 88,800 3,144,075
Leap Wireless International, Inc. (a) ............ 66,800 3,139,600
MGC Communications, Inc. (a) ..................... 94,400 5,658,100
Northeast Optic Network, Inc. (a) ................ 38,600 2,378,725
Viatel, Inc. (a) ................................. 92,600 2,644,888
Winstar Communications, Inc. (a) ................. 33,500 1,134,813
--------------
40,544,844
--------------
TOTAL UTILITIES ........................................... 69,617,310
--------------
TOTAL INVESTMENTS 95.5%
(Cost $893,880,555) ................................... 940,064,486
OTHER ASSETS IN EXCESS OF LIABILITIES 4.5% ............... 44,083,690
--------------
NET ASSETS 100% .......................................... $984,148,176
==============
</TABLE>
(a) NON-INCOME PRODUCING SECURITY
(b) SECURITY VALUED AT FAIR VALUE - SEE NOTE 1A TO FINANCIAL STATEMENTS.
(c) RETRICTED AS TO PUBLIC RESALE. TOTAL VALUE OF RESTRICTED SECURITIES AT
JUNE 30, 2000 WAS $4,082,475 OR 0.41% OF NET ASSETS (TOTAL COST
$3,378,600).
ADR AMERICAN DEPOSITARY RECEIPT
REIT REAL ESTATE INVESTMENT TRUST
SEE NOTES TO FINANCIAL STATEMENTS 19
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
JUNE 30, 2000
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at Value (Cost $893,880,555) .......................................................... $940,064,486
Cash .............................................................................................. 2,666,238
Receivable for:
Investments Sold ................................................................................ 49,732,995
Fund Shares Sold ................................................................................ 732,075
Dividends ....................................................................................... 614,588
Other ............................................................................................. 19,601
-------------
Total Assets .................................................................................. 993,829,983
-------------
LIABILITIES:
Payable for:
Investments Purchased ........................................................................... 5,676,343
Fund Shares Redeemed ............................................................................ 1,687,467
Distribution Fees ............................................................................... 1,049,248
Investment Advisory Fees ........................................................................ 696,355
Administrative Fees ............................................................................. 200,590
Shareholder Reporting Expenses .................................................................. 129,475
Transfer Agent Fees ............................................................................. 62,260
Professional Fees ............................................................................... 54,703
Custody Fees .................................................................................... 52,026
Directors' Fees and Expenses .................................................................... 48,202
Other ............................................................................................. 25,138
-------------
Total Liabilities ............................................................................. 9,681,807
-------------
NET ASSETS ........................................................................................ $984,148,176
=============
NET ASSETS CONSIST OF:
Capital Stock at Par ($.001 par value, Shares Authorized 2,625,000,000)............................ $ 43,308
Paid in Capital in Excess of Par .................................................................. 888,821,538
Accumulated Net Realized Gain ..................................................................... 49,148,244
Net Unrealized Appreciation on Investments ........................................................ 46,183,931
Accumulated Net Investment Loss ................................................................... (48,845)
-------------
NET ASSETS ........................................................................................ $984,148,176
=============
Class A Shares:
Net Asset Value and Redemption Price Per Share (Based on Net Assets of
$434,765,666 and 18,876,036 Shares Outstanding) ............................................... $ 23.03
=============
Maximum Sales Charge .......................................................................... 5.75%
Maximum Offering Price Per Share (Net Asset Value
Per Share x 100/(100% - maximum sales charge)) ................................................ $ 24.44
=============
Class B Shares:
Net Asset Value and Offering Price Per Share (Based on Net Assets of
$356,717,401 and 15,866,845 Shares Outstanding)* .............................................. $ 22.48
=============
Class C Shares:
Net Asset Value and Offering Price Per Share (Based on Net Assets of
$192,665,109 and 8,564,861 Shares Outstanding)* ............................................... $ 22.49
=============
</TABLE>
* REDEMPTION PRICE MAY BE SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE.
20 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
Statement of Operations
YEAR ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Dividends ........................................................................... $ 8,563,276
Interest ............................................................................ 2,722,469
--------------
Total Income..................................................................... 11,285,745
--------------
EXPENSES:
Investment Advisory Fees ............................................................ 8,354,616
Distribution Fees (Attributed to Classes A, B and C of $1,058,693,
$3,672,972 and $1,909,488, respectively) .......................................... 6,641,153
Administrative Fees ................................................................. 2,464,240
Shareholder Reports ................................................................. 435,871
Transfer Agent Fees ................................................................. 333,882
Filing and Registration Fees ........................................................ 111,006
Professional Fees ................................................................... 99,176
Custodian Fees ...................................................................... 90,486
Directors' Fees and Expenses ........................................................ 38,514
Other ............................................................................... 19,608
--------------
Net Expenses .................................................................... 18,588,552
--------------
NET INVESTMENT LOSS ................................................................. $ (7,302,807)
==============
NET REALIZED GAIN/LOSS ON:
Investments ......................................................................... $81,464,181
--------------
NET UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period ........................................................... 81,599,541
--------------
End of the Period:
Investments ..................................................................... 46,183,931
--------------
Net Change in Unrealized Appreciation/Depreciation .................................. (35,415,610)
--------------
NET REALIZED GAIN/LOSS AND NET CHANGE IN UNREALIZED
APPRECIATION/DEPRECIATION ......................................................... $46,048,571
==============
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ................................ $38,745,764
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS 21
<PAGE>
Statement of Changes in Net Assets
YEAR ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 2000 JUNE 30, 1999*
-------------- --------------
<S> <C> <C>
INCREASE/DECREASE IN NET ASSETS
OPERATIONS:
Net Investment Loss ......................................................... $ (7,302,807) $ (2,941,000)
Net Realized Gain ........................................................... 81,464,181 44,491,000
Net Change in Unrealized Appreciation/Depreciation .......................... (35,415,610) 64,853,000
--------------- ---------------
Net Increase in Net Assets Resulting from Operations ........................ 38,745,764 106,403,000
--------------- ---------------
DISTRIBUTIONS:
Net Realized Gain:
Class A ..................................................................... (27,087,328) (12,659,000)
Class B ..................................................................... (24,196,601) (17,437,000)
Class C ..................................................................... (12,447,392) (7,981,000)
--------------- ---------------
Net Decrease in Net Assets Resulting from Distributions ..................... (63,731,321) (38,077,000)
--------------- ---------------
CAPITAL SHARE TRANSACTIONS:
Subscribed .................................................................. 408,292,208 344,367,000
Distributions Reinvested .................................................... 46,273,947 31,597,000
Redeemed .................................................................... (295,695,701) (211,364,000)
--------------- ---------------
Net Increase in Net Assets Resulting from
Capital Share Transactions ............................................... 158,870,454 164,600,000
--------------- ---------------
Total Increase in Net Assets ................................................ 133,884,897 232,926,000
NET ASSETS--Beginning of Period ............................................. 850,263,279 617,337,000
--------------- ---------------
NET ASSETS--End of Period (Including accumulated
net investment loss of $(48,845) and $(22,000),
respectively) ............................................................ $ 984,148,176 $ 850,263,000
=============== ===============
</TABLE>
* AMOUNTS ROUNDED TO THE NEAREST (000).
22 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
Financial Highlights THE FOLLOWING SCHEDULE PRESENTS FINANCIAL
HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE
PERIOD INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------
CLASS A SHARES 2000# 1999# 1998# 1997 1996
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD ............................................ $ 23.58 $ 21.34 $ 17.59 $ 14.63 $ 12.89
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss ........................... (0.08) 0.01 (0.02) 0.20 0.27
Net Realized and
Unrealized Gain .................................... 1.09 3.43 4.84 4.05 1.94
--------- --------- --------- --------- ---------
Total from Investment Operations ....................... 1.01 3.44 4.82 4.25 2.21
--------- --------- --------- --------- ---------
DISTRIBUTIONS
Net Investment Income ................................ -- -- (0.03) (0.20) (0.27)
In Excess of Net Investment Income ................... -- -- (0.00)+ (0.00)+ (0.01)
Net Realized Gain .................................... (1.56) (1.20) (1.04) (1.09) (0.19)
--------- --------- --------- --------- ---------
Total Distributions .................................. (1.56) (1.20) (1.07) (1.29) (0.47)
--------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD ......................... $ 23.03 $ 23.58 $ 21.34 $ 17.59 $ 14.63
========= ========= ========= ========= =========
TOTAL RETURN (1) ....................................... 4.62% 17.41% 28.26% 30.68% 17.41%
========= ========= ========= ========= =========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) ...................... $434,766 $343,004 $220,100 $ 34,331 $ 19,674
Ratio of Expenses to Average
Net Assets ............................................. 1.47% 1.49% 1.50% 1.50% 1.50%
Ratio of Net Investment Income/Loss
to Average Net Assets ................................ (0.33%) 0.03% (0.09%) 1.25% 1.90%
Portfolio Turnover Rate ................................ 272% 283% 207% 73% 41%
-----------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Reductions
During the Period
Per Share Benefit to Net Investment
Income/Loss ........................................ $-- $-- $0.02 $0.04 $0.04
Ratios Before Expense Reductions:
Expenses to Average Net Assets ....................... -- -- 1.58% 1.76% 1.81%
Net Investment Income/Loss to
Average Net Assets ................................. -- -- (0.18%) 0.98% 1.59%
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
+ AMOUNT IS LESS THAN $0.01 PER SHARE.
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED SALES
CHARGES.
# CHANGES PER SHARE ARE BASED UPON DAILY AVERAGE SHARES OUTSTANDING.
SEE NOTES TO FINANCIAL STATEMENTS 23
<PAGE>
Financial Highlights THE FOLLOWING SCHEDULE PRESENTS FINANCIAL
HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE
PERIOD INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------- AUGUST 1, 1995+
CLASS B SHARES 2000# 1999# 1998# 1997 TO JUNE 30, 1996
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD ............................................ $ 23.23 $ 21.20 $ 17.59 $ 14.63 $ 13.37
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss ........................... (0.25) (0.14) (0.17) 0.09 0.15
Net Realized and
Unrealized Gain .................................... 1.06 3.37 4.83 4.05 1.46
--------- --------- --------- --------- ---------
Total from Investment Operations ....................... 0.81 3.23 4.66 4.14 1.61
--------- --------- --------- --------- ---------
DISTRIBUTIONS
Net Investment Income ................................ -- -- (0.01) (0.09) (0.15)
In Excess of Net Investment Income ................... -- -- (0.00)++ (0.00)++ (0.01)
Net Realized Gain .................................... (1.56) (1.20) (1.04) (1.09) (0.19)
--------- --------- --------- --------- ---------
Total Distributions .................................... (1.56) (1.20) (1.05) (1.18) (0.35)
--------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD ......................... $ 22.48 $ 23.23 $ 21.20 $ 17.59 $ 14.63
========= ========= ========= ========= =========
TOTAL RETURN (1) ....................................... 3.85% 16.50% 27.30% 29.77% 12.29%*
========= ========= ========= ========= =========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) ...................... $356,717 $341,908 $269,836 $ 15,331 $ 2,485
Ratio of Expenses to Average
Net Assets ........................................... 2.21% 2.24% 2.25% 2.25% 2.25%
Ratio of Net Investment Income/Loss
to Average Net Assets ................................ (1.06%) (0.72%) (0.84%) 0.40% 1.18%
Portfolio Turnover Rate ................................ 272% 283% 207% 73% 41%*
-----------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Reductions
During the Period
Per Share Benefit to Net Investment
Income/Loss ........................................ $-- $-- $0.02 $0.06 $0.04
Ratios Before Expense Reductions:
Expenses to Average Net Assets ....................... -- -- 2.33% 2.48% 2.61%
Net Investment Income/Loss to
Average Net Assets ................................. -- -- (0.93%) 0.14% 0.82%
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* NON-ANNUALIZED
+ THE FUND BEGAN OFFERING CLASS B SHARES ON AUGUST 1, 1995.
++ AMOUNT IS LESS THAN $0.01 PER SHARE.
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED SALES
CHARGES.
# CHANGES PER SHARE ARE BASED UPON DAILY AVERAGE SHARES OUTSTANDING.
24 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
Financial Highlights THE FOLLOWING SCHEDULE PRESENTS FINANCIAL
HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE
PERIOD INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------------
CLASS C SHARES 2000# 1999# 1998# 1997 1996
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD ............................................ $ 23.24 $ 21.20 $ 17.59 $ 14.64 $ 12.89
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss ........................... (0.25) (0.14) (0.17) 0.08 0.16
Net Realized and
Unrealized Gain .................................... 1.06 3.38 4.83 4.05 1.94
-------- -------- -------- -------- --------
Total from Investment Operations ....................... 0.81 3.24 4.66 4.13 2.10
-------- -------- -------- -------- --------
DISTRIBUTIONS
Net Investment Income ................................ -- -- (0.01) (0.09) (0.15)
In Excess of Net Investment Income ................... -- -- (0.00)+ (0.00)+ (0.01)
Net Realized Gain .................................... (1.56) (1.20) (1.04) (1.09) (0.19)
-------- -------- -------- -------- --------
Total Distributions .................................. (1.56) (1.20) (1.05) (1.18) (0.35)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD ......................... $ 22.49 $ 23.24 $ 21.20 $ 17.59 $ 14.64
======== ======== ======== ======== ========
TOTAL RETURN (1) ....................................... 3.80% 16.55% 27.28% 29.67% 16.50%
======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) ...................... $192,665 $165,351 $127,401 $ 32,425 $ 21,193
Ratio of Expenses to Average
Net Assets ........................................... 2.21% 2.24% 2.25% 2.25% 2.25%
Ratio of Net Investment Income/Loss
to Average Net Assets ................................ (1.06%) (0.72%) (0.84%) 0.49% 1.17%
Portfolio Turnover Rate ................................ 272% 283% 207% 73% 41%
-----------------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Reductions
During the Period
Per Share Benefit to Net Investment
Income/Loss ........................................ $-- $-- $0.02 $0.04 $0.04
Ratios Before Expense Reductions:
Expenses to Average Net Assets ....................... -- -- 2.33% 2.47% 2.58%
Net Investment Income/Loss to
Average Net Assets ................................. -- -- (0.92%) 0.22% 0.84%
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ AMOUNT IS LESS THAN $0.01 PER SHARE.
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED SALES
CHARGES.
# CHANGES PER SHARE ARE BASED UPON DAILY AVERAGE SHARES OUTSTANDING.
SEE NOTES TO FINANCIAL STATEMENTS 25
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
The Van Kampen American Value Fund (the "Fund") is organized as a separate
diversified fund of Van Kampen Series Fund, Inc., a Maryland corporation, which
is registered as an open-end management investment company under the Investment
Company Act of 1940, as amended. The Fund's investment objective seeks high
total return by investing in equity securities of small-to medium-sized
corporations. The Fund commenced operations on October 18, 1993. The Fund began
offering the current Class B shares on August 1, 1995. Class B shares held prior
to May 1, 1995 were renamed Class C shares.
1. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of the financial statements in conformity with accounting
principles accepted in the United States of America (hereafter "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
period. Actual results could differ from those estimates.
A. SECURITY VALUATION Equity securities listed on a U.S. exchange and equity
securities traded on NASDAQ are valued at the latest quoted sales price on the
valuation date. Unlisted securities and listed securities not traded on the
valuation date for which market quotations are readily available are valued at
the average between the bid and asked prices obtained from reputable brokers.
Debt securities purchased with remaining maturities of 60 days or less are
valued at amortized cost, which approximates market value. All other securities
and assets for which market quotations are not readily available are valued at
fair value as determined in good faith using procedures approved by the Board of
Directors.
B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen Investment Advisory Corp. or its affiliates, the
daily aggregate of which is invested in repurchase agreements. Repurchase
agreements are fully collateralized by the underlying debt security. A bank as
custodian for the Fund takes possession of the underlying securities, with a
market value at least equal to the amount of the repurchase transaction,
including principal and accrued interest. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to determine the adequacy of the collateral.
In the event of default on
26
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
the obligation to repurchase, the Fund has the right to liquidate the collateral
and apply the proceeds in satisfaction of the obligation. In the event of
default or bankruptcy by the counterparty to the agreement, realization and/or
retention of the collateral or proceeds may be subject to legal proceedings.
C. INCOME AND EXPENSES Interest income is recorded on an accrual basis and
dividend income is recorded net of applicable withholding taxes on the
ex-dividend date. Income, expenses, and realized and unrealized gains or losses
are allocated on a pro rata basis to each class of shares except for
distribution and service fees which are unique to each class of shares.
Distributions from the Fund are recorded on the ex-distribution date.
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 as a result of post October 31 losses which are not recognized for tax
purposes until the first day of the following fiscal year and losses relating to
wash sale transactions.
At June 30, 2000, for federal income tax purposes, cost of long-term
investments is $906,194,249; the aggregate gross unrealized appreciation is
$132,830,156 and the aggregate gross unrealized depreciation is $98,959,919
resulting in net unrealized appreciation on long-term investments of
$33,870,237.
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 which are included as ordinary income for
tax purposes.
Due to inherent differences in the recognition of income and expenses under
generally accepted accounting principles and federal income tax purposes,
permanent differences between book and tax basis reporting for the current
fiscal year have been identified and appropriately reclassified. A permanent
difference related to a net operating loss which may be used as an offset
against short-term gains for tax purposes totaling $7,768,997 has been
reclassified from accumulated net realized gain to accumulated net investment
loss. A permanent difference of $489,091 related to distributions from Real
Estate Investment Trusts was reclassified from accumulated net investment loss
to accumulated net realized gain. Permanent differences related to partnership
investments were reclassified from accumulated net investment loss ($3,773)and
paid in capital in excess of par ($95,663) to accumulated net realized gain. A
permanent difference of $7,166 related to a correction of the prior year net
operating loss was reclassified from accumulated net realized gain to paid in
capital in excess of par.
Permanent book to tax basis differences are not included in ending
undistrib-
27
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
uted/distributions in excess of net investment income for the purpose of
calculating net investment income/loss per share in the Financial Highlights.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Van Kampen Investment Advisory Corp. (the "Adviser"), a wholly owned subsidiary
of Van Kampen Investments Inc. (an indirect wholly owned subsidiary of Morgan
Stanley Dean Witter & Co.) and Miller Anderson & Sherrerd, LLP (a "Subadviser"),
a wholly owned subsidiary of Morgan Stanley Dean Witter & Co., provide the Fund
with investment advisory services at a fee paid monthly and calculated at the
annual rates based on average daily net assets indicated as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
<S> <C>
First $1 billion ............................................ .85 of 1%
Next $500 million............................................ .80 of 1%
Over $1.5 billion............................................ .75 of 1%
</TABLE>
The Adviser has agreed to reduce advisory fees payable to it and to
reimburse the Fund, if necessary, if the annual operating expenses, expressed as
a percentage of average daily net assets, exceed the maximum ratios indicated as
follows:
CLASS B
CLASS A AND CLASS C
MAX. OPERATING MAX. OPERATING
EXPENSE RATIO EXPENSE RATIO
1.50% 2.25%
For the period ended June 30, 2000, the Fund recognized expenses of $50,090
representing legal services provided by Skadden, Arps, Slate, Meagher & Flom
(Illinois), counsel to the Fund, of which a director of the Fund is an
affiliated person.
For the period ended June 30, 2000, the Fund recognized expenses of $12,903
representing Van Kampen's cost of providing legal services to the Fund.
Van Kampen Investment Advisory Corp. (the "Administrator") also provides
the Fund with administrative services pursuant to an administrative agreement
for a monthly fee which on an annual basis equals 0.25% of the average daily net
assets of the Fund, plus reimbursement of out-of-pocket expenses. Under an
agreement between the Adviser and The Chase Manhattan Bank ("Chase"), through
its corporate affiliate Chase Global Funds Services Company ("CGFSC"), Chase
provides certain administrative services to the Fund. Chase is compensated for
such services by the Adviser from the fee it receives from the Fund. Transfer
Agency services are provided to the Fund by Van Kampen Investor Services Inc.,
an affiliate of the Adviser.
Van Kampen Funds Inc. (the "Distributor") a wholly owned subsidiary of Van
Kampen Investments Inc., an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co., serves as the Distributor of the Fund's shares. The
Distributor is entitled to receive from the Fund a distribution fee, which is
accrued daily and paid
28
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
quarterly, of an amount of up to 0.25% of the Class A shares and up to 1.00% of
the Class B shares and Class C shares of the Fund, on an annualized basis, of
the average daily net assets attributable to each Class.
The Distributor may receive a front end sales charge for purchases of Class
A shares. In addition, the Distributor may receive a contingent deferred sales
charge for certain redemptions of Class B shares and Class C shares of the Fund
redeemed within one to five years following such purchase. For the period ended
June 30, 2000, the Distributor has advised the Fund that it earned initial sales
charges of $817,712 for Class A shares and deferred sales charges of $954,847
and $35,962 for Class B shares and Class C shares, respectively.
Certain officers and directors of the Fund are also officers and directors
of Van Kampen. The Fund does not compensate its officers or directors who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
directors who are not officers of Van Kampen. Under the deferred compensation
plan, directors 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 director's years of service to the Fund. The maximum
annual benefit per director under the plan is $2,500.
For the period ended June 30, 2000, the Fund incurred $46,859 as brokerage
commissions with Morgan Stanley & Co. Incorporated, an affiliated broker/dealer.
3. CAPITAL TRANSACTIONS
The Fund currently offers three classes of shares, Class A, Class B, and Class C
shares. All three classes of shares have identical voting, dividend, liquidation
and other rights. Class A shares are sold with a front-end sales charge of up to
5.75%. For certain purchases of Class A shares, the front-end sales charge may
be waived and a contingent deferred sales charge ("CDSC") of 1.00% imposed in
the event of certain redemptions within one year of the purchase. Class B and
Class C shares are offered without a front end sales charge, but are subject to
a 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 seven years after the end of the calendar month in
which the shares were purchased. For the period ended June 30, 2000, no Class B
shares converted to Class A shares. The CDSC will be imposed on most redemptions
made within five years of the purchase for Class B shares and one year of the
purchase for Class C shares as detailed in the following schedule:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE ON ASSETS SUBJECT TO
SALES CHARGE
---------------------------
<S> <C> <C>
YEAR OF REDEMPTION CLASS B CLASS C
First .................................................. 5.00% 1.00%
Second ................................................. 4.00% None
Third .................................................. 3.00% None
Fourth ................................................. 2.50% None
Fifth .................................................. 1.50% None
Thereafter ............................................. None None
</TABLE>
29
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 2000 JUNE 30, 1999*
---------------- -----------------
<S> <C> <C>
CAPITAL SHARE TRANSACTIONS
CLASS A:
Shares:
Subscribed ................................................. 11,878,707 8,979,000
Distributions Reinvested ................................... 777,244 579,000
Redeemed ................................................... (8,325,235) (5,327,000)
-------------- --------------
Net Increase in Class A Shares Outstanding ................... 4,330,716 4,231,000
============== ==============
Dollars:
Subscribed ................................................. $ 281,234,414 $ 190,079,000
Distributions Reinvested ................................... 17,309,218 11,025,000
Redeemed ................................................... (197,154,804) (104,033,000)
-------------- --------------
Net Increase ................................................. $ 101,388,828 $ 97,071,000
============== ==============
Ending Paid in Capital ....................................... $ 396,402,271+ $ 295,061,000+
============== ==============
CLASS B:
Shares:
Subscribed ................................................. 2,984,461 4,895,000
Distributions Reinvested ................................... 903,072 769,000
Redeemed ................................................... (2,742,195) (3,673,000)
-------------- --------------
Net Increase in Class B Shares Outstanding ................... 1,145,338 1,991,000
============== ==============
Dollars:
Subscribed ................................................. $ 68,496,278 $ 98,965,000
Distributions Reinvested ................................... 19,714,070 14,494,000
Redeemed ................................................... (63,715,963) (70,265,000)
-------------- --------------
Net Increase ................................................. $ 24,494,385 $ 43,194,000
============== ==============
Ending Paid in Capital ....................................... $ 325,531,802+ $ 301,083,000+
============== ==============
CLASS C:
Shares:
Subscribed ................................................. 2,526,613 2,707,000
Distributions Reinvested ................................... 423,565 322,000
Redeemed ................................................... (1,501,481) (1,921,000)
-------------- --------------
Net Increase in Class C Shares Outstanding ................... 1,448,697 1,108,000
============== ==============
Dollars:
Subscribed ................................................. $ 58,561,516 $ 55,323,000
Distributions Reinvested ................................... 9,250,659 6,078,000
Redeemed ................................................... (34,824,934) (37,066,000)
-------------- --------------
Net Increase ................................................. $ 32,987,241 $ 24,335,000
============== ==============
Ending Paid in Capital ....................................... $ 167,019,270+ $ 134,054,000+
============== ==============
</TABLE>
* AMOUNTS ROUNDED TO THE NEAREST (000).
+ ENDING PAID IN CAPITAL AMOUNTS DO NOT REFLECT PERMANENT BOOK TO TAX
DIFFERENCES-SEE NOTE 1E.
30
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
4. INVESTMENT TRANSACTIONS
For the period ended June 30, 2000, the Fund made purchases of $2,642,689,657
and sales of $2,497,094,740 of investment securities other than long-term U.S.
government securities and short-term investments. There were no purchases or
sales of long-term U.S. government securities.
5. 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 into a $650 million committed line of credit facility
with a group of banks which expires on November 28, 2000, but is renewable with
the consent of the participating banks. Each fund is permitted to utilize the
facility in accordance with the restrictions of its prospectus. In the event the
demand for the credit facility meets or exceeds $650 million on a complex-wide
basis, each fund will be limited to its pro-rata percentage based on the net
assets of each participating fund. Interest on borrowings is charged under the
agreement at a rate of 0.50% above the federal funds rate per annum. An annual
commitment fee of 0.09% per annum is charged on the unused portion of the credit
facility, which each fund incurs based on its pro-rata percentage of quarterly
net assets. The Fund has not borrowed against the credit facility during the
period.
31
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of Van Kampen American Value Fund
We have audited the accompanying statement of assets and liabilities of
Van Kampen American Value Fund (the "Fund"), a fund of Van Kampen Series Fund,
Inc., including the portfolio of investments, as of June 30, 2000, and the
related statements of operations, changes in net assets and the financial
highlights for the year then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit. The Fund's financial statements and financial highlights for
periods ended prior to June 30, 2000, were audited by other auditors whose
report, dated August 6, 1999, expressed an unqualified opinion on those
statements.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of June 30, 2000, by correspondence with the Fund's
custodian and brokers; where replies were not received from brokers, we
performed other auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen American Value Fund as of June 30, 2000, the results of its operations,
the changes in its net assets and the financial highlights for the year then
ended, in conformity with accounting principles generally accepted in the United
States of America.
DELOITTE & TOUCHE LLP
Chicago, Illinois
August 11, 2000
32
<PAGE>
VAN KAMPEN FUNDS
THE VAN KAMPEN
FAMILY OF FUNDS
GROWTH
Aggressive Growth
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth
Mid Cap Growth
Pace
Select Growth
Small Cap Value
Tax Managed Equity Growth
Technology
GROWTH AND INCOME
Comstock
Equity Income
Growth and Income
Harbor
Real Estate Securities
Utility
Value
GLOBAL/INTERNATIONAL
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
International Magnum
Latin American
Strategic Income
Tax Managed Global Franchise
Worldwide High Income
INCOME
Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return*
Limited Maturity Government
U.S. Government
U.S. Government Trust for Income
CAPITAL PRESERVATION
Reserve
Tax Free Money
SENIOR LOAN
Prime Rate Income Trust
Senior Floating Rate
TAX FREE
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal**
Insured Tax Free Income
Intermediate Term
Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
To find out more about any of these funds, ask your financial advisor for a
prospectus, which contains more complete information, including sales charges,
risks, and ongoing expenses. Please read it carefully before you invest or
send money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- visit our Web site at
www.vankampen.com --
to view a prospectus, select [COMPTUER ICON]
DOWNLOAD PROSPECTUS
- call us at 1-800-341-2911
weekdays from 7:00 a.m. to 7:00 p.m.
central time. Telecommunications [TELEPHONE ICON]
Device for the Deaf users,
call 1-800-421-2833.
- e-mail us by visiting
www.vankampen.com and [ENVELOPE ICON]
selecting CONTACT US
* Closed to new investors
** Open to new investors for a limited time
33
<PAGE>
FUND OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN AMERICAN VALUE FUND
BOARD OF DIRECTORS
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*
Chairman, Director, President,
Chief Executive Officer
STEPHEN L. BOYD*
Executive Vice President and
Chief Investment Officer
A. THOMAS SMITH III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Chief Financial Officer
and Treasurer
RICHARD A. CICCARONE*
JOHN R. REYNOLDSON*
MICHAEL H. SANTO*
JOSEPH P. STADLER*
JOHN H. ZIMMERMANN, III*
Vice Presidents
INVESTMENT ADVISER AND
ADMINISTRATOR
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
INVESTMENT SUBADVISERS
MORGAN STANLEY DEAN WITTER INVESTMENT
MANAGEMENT INC.
1221 Avenue of the Americas
New York, New York 10020
MILLER ANDERSON & SHERRERD, LLP
One Tower Bridge
West Conshohocken,
Pennsylvania 19428
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
CUSTODIAN
THE CHASE MANHATTAN BANK
3 MetroTech Center
Brooklyn, New York 11245
DIVIDEND DISBURSING AND TRANSFER AGENT
VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 218256
Kansas City, Missouri 64121-8256
LEGAL COUNSEL
SKADDEN, ARPS, SLATE, MEAGHER &
FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT AUDITORS
DELOITTE & TOUCHE LLP
180 N. Stetson Avenue
Chicago, IL 60601
--------------------------------------------------------------------------------
For federal income tax purposes, the following is furnished with respect to the
distributions paid by the Fund during its taxable year ended June 30, 2000. The
Fund designated and paid $1,028,247 as a 20% rate gain distribution. In January
2000, the Fund provided tax information to shareholders for the 1999 calendar
year. For corporate shareholders, 9% of the distribution qualifies for the
dividend received deduction.
--------------------------------------------------------------------------------
* "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.
34
<PAGE>
RESULTS OF
SHAREHOLDER VOTES
JUNE 30, 2000
A Joint Special Meeting of the Shareholders of the American Value Fund (the
"Fund") was held on December 15,1999. The description of each proposal and
number of shares voted are as follows:
1. To elect the following Directors to serve the Fund.
<TABLE>
<CAPTION>
VOTED FOR WITHHELD
<S> <C> <C>
J. Miles Branagan .................................. 29,364,025 276,578
Jerry D. Choate .................................... 29,364,369 276,234
Linda Hutton Heagy ................................. 29,363,616 276,987
R. Craig Kennedy ................................... 29,361,100 279,504
Mitchell M. Merin .................................. 29,363,765 276,839
Jack E. Nelson ..................................... 29,359,852 280,752
Richard F. Powers, III ............................. 29,365,512 275,092
Phillip B. Rooney .................................. 29,393,069 277,535
Fernando Sisto ..................................... 29,351,251 289,353
Wayne W. Whalen .................................... 29,358,710 281,894
Suzanne H. Woolsey ................................. 29,360,174 280,430
Paul G. Yovovich* .................................. 29,364,822 275,782
</TABLE>
* EFFECTIVE APRIL 14, 2000, PAUL G. YOVOVICH RESIGNED FROM THE BOARD OF
DIRECTORS.
2. To ratify PricewaterhouseCoopers LLP to act as independent public accountants
for the Fund.(1)
AFFIRMATIVE AGAINST ABSTAIN
29,162,296 126,248 352,059
(1) INDEPENDENT ACCOUNTANTS FOR THE FUND PERFORM AN ANNUAL AUDIT OF THE FUND'S
FINANCIAL STATEMENTS. THE BOARD OF DIRECTORS HAS ENGAGED DELOITTE & TOUCHE
LLP TO BE THE FUND'S INDEPENDENT ACCOUNTANTS.
PricewaterhouseCoopers LLP, located at 200 East Randolph Drive, Chicago, IL
60601 ("PWC"), ceased being the Fund's independent accountants effective May 18,
2000. The cessation of the client-auditor relationship between the Fund and PWC
was based solely on a possible future business relationship by PWC with an
affiliate of the Fund's investment adviser.
35
<PAGE>
YOUR NOTES:
<PAGE>
453,555,653 ---------------
MSAV ANR 08/00 PRESORTED
VAN KAMPEN FUNDS INC. STANDARD
1 Parkview Plaza U.S. Postage
P.O. Box 5555 PAID
Oakbrook Terrace, Illinois 60181-5555 VAN KAMPEN
FUNDS
---------------
<PAGE>
VAN KAMPEN
GLOBAL EQUITY FUND
ANNUAL REPORT
JUNE 30, 2000
[GRAPHIC]
VAN KAMPEN
FUNDS
<PAGE>
TABLE OF CONTENTS
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 4
GROWTH OF A $10,000 INVESTMENT 5
PORTFOLIO AT A GLANCE
TOP TEN HOLDINGS 6
TOP FIVE COUNTRIES 6
Q&A WITH YOUR PORTFOLIO MANAGERS 7
GLOSSARY OF TERMS 10
BY THE NUMBERS
YOUR FUND'S INVESTMENTS 11
FINANCIAL STATEMENTS 16
NOTES TO FINANCIAL STATEMENTS 22
REPORT OF INDEPENDENT AUDITORS 29
VAN KAMPEN FUNDS
THE VAN KAMPEN FAMILY OF FUNDS 30
FUND OFFICERS AND IMPORTANT ADDRESSES 31
RESULTS OF SHAREHOLDER VOTES 32
IT IS TIMES
LIKE THESE
WHEN MONEY-
MANAGEMENT
EXPERIENCE
MAY MAKE
A DIFFERENCE.
NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE.
<PAGE>
PRESORTED
STANDARD
U.S. Postage
PAID
VAN KAMPEN
FUNDS
465,565,665
MSGL ANR 08/00
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
<PAGE>
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.
OVERVIEW
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,
/s/Richard F. Powers, III
Richard F. Powers, III
President and CEO
Van Kampen Investments
1
<PAGE>
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>
U.S. GROSS DOMESTIC PRODUCT
SEASONALLY ADJUSTED ANNUALIZED RATES
(JUNE 30, 1998 - JUNE 30, 2000)
[BAR CHART]
<TABLE>
<CAPTION>
Jun Sep Dec Mar Jun Sep Dec Mar Jun
98 98 98 99 99 99 99 00 00
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2.1% 3.8% 5.9% 3.5% 2.5% 5.7% 8.3% 4.8% 5.2%
</TABLE>
SOURCE: BUREAU OF ECONOMIC ANALYSIS
INTEREST RATES AND INFLATION
(JUNE 30, 1998 - JUNE 30, 2000)
[LINE GRAPH]
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>
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(AS OF JUNE 30, 2000)
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
---------------------------------------------------------------------------
<S> <C> <C> <C>
One-year total return based on NAV(1) 3.22% 2.24% 2.24%
---------------------------------------------------------------------------
One-year total return(2) -2.72% -2.56% 1.28%
---------------------------------------------------------------------------
Life-of-Fund average annual total return(2) 4.60% 5.05% 6.08%
---------------------------------------------------------------------------
Commencement date 10/29/97 10/29/97 10/29/97
---------------------------------------------------------------------------
</TABLE>
(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.
SEE THE COMPARATIVE PERFORMANCE SECTION OF THE CURRENT PROSPECTUS. 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.
BECAUSE THE PRICES OF COMMON STOCKS AND OTHER SECURITIES FLUCTUATE, THE
VALUE OF AN INVESTMENT IN THE FUND WILL VARY UPON THE FUND'S INVESTMENT
PERFORMANCE. FOREIGN SECURITIES MAY MAGNIFY VOLATILITY DUE TO CHANGES IN
FOREIGN EXCHANGE RATES, THE POLITICAL AND ECONOMIC UNCERTAINTIES IN FOREIGN
COUNTRIES, AND THE POTENTIAL LACK OF LIQUIDITY, GOVERNMENT SUPERVISION, AND
REGULATION.
MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO PASS.
4
<PAGE>
GROWTH OF A $10,000 INVESTMENT
(OCTOBER 29, 1997 - JUNE 30, 2000)
[LINE CHART]
<TABLE>
<CAPTION>
MSCI World Net Dividends Index Measures the performance of securities with
reinvested dividends on the exchange of
Global Equity Fund North America, Europe and Asia.
<S> <C>
10/97 $9,500 $10,000
06/98 $10,495 $11,321
06/99 $10,923 $13,095
06/00 $10,626 $14,691
Fund's Total Return
1 Year Total Return (2.72%)
Inception Avg. Annual 4.60%
</TABLE>
THIS CHART COMPARES YOUR
FUND'S PERFORMANCE TO THAT
OF THE MSCI WORLD INDEX
WITH NET DIVIDENDS OVER
TIME.
THIS INDEX IS AN UNMANAGED BROAD-BASED, STATISTICAL COMPOSITE THAT DOES NOT
INCLUDE ANY COMMISSIONS OR FEES THAT WOULD BE PAID BY AN INVESTOR PURCHASING THE
SECURITIES IT REPRESENTS. SUCH COSTS WOULD LOWER THE PERFORMANCE OF THIS INDEX.
THE HISTORICAL PERFORMANCE OF THE INDEX IS SHOWN FOR ILLUSTRATIVE PURPOSES ONLY;
IT IS NOT MEANT TO FORECAST, IMPLY, OR GUARANTEE THE FUTURE PERFORMANCE OF ANY
INVESTMENT VEHICLE. IT IS NOT POSSIBLE TO INVEST DIRECTLY IN AN INDEX.
THE ABOVE CHART REFLECTS THE PERFORMANCE OF CLASS A SHARES OF THE FUND. THE
PERFORMANCE OF CLASS A SHARES WILL DIFFER FROM THAT OF OTHER SHARE CLASSES OF
THE FUND BECAUSE OF THE DIFFERENCE IN SALES CHARGES AND/OR EXPENSES PAID BY
SHAREHOLDERS INVESTING IN THE DIFFERENT SHARE CLASSES. THE FUND'S PERFORMANCE
ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS, AND INCLUDES PAYMENT OF THE MAXIMUM
SALES CHARGE (5.75% FOR CLASS A SHARES).
WHILE PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THE ABOVE INFORMATION
PROVIDES A BROADER VANTAGE POINT FROM WHICH TO EVALUATE THE DISCUSSION OF THE
FUND'S PERFORMANCE FOUND IN THE FOLLOWING PAGES.
5
<PAGE>
PORTFOLIO AT A GLANCE
TOP TEN HOLDINGS*
(AS A PERCENTAGE OF NET ASSETS--JUNE 30, 2000)
1. NTT 2.7%
Provides telecommunications
services in Japan.
2. PHILIP MORRIS 2.5%
Manufactures and sells various
consumer products.
3. TOTAL FINA ELF 2.1%
Explores for and produces oil and
natural gas worldwide.
4. CHASE MANHATTAN 2.0%
Offers diverse banking services
worldwide.
5. ALBERTSON'S 1.9%
Operates retail food- and drugstores
throughout the United States.
6. NESTLE 1.8%
Produces food and cosmetics, including
name brands Nestea, Nestle, and L'Oreal.
7. KONINKLIJKE PHILIPS ELECTRONICS 1.7%
Makes televisions, audio equipment,
phones, and other electronic devices.
8. GTE 1.7%
Provides local, long-distance, and wireless
telephone service, as well as internetworking
capabilities.
9. AVENTIS
(FORMERLY RHONE-POULENC) 1.7%
Develops chemicals, pharmaceuticals,
and other products.
10. TELEFONICA 1.6%
Provides telecommunications and
Internet products and services in
Spain and Latin America.
* EXCLUDES SHORT-TERM INVESTMENT
TOP FIVE COUNTRIES
(AS A PERCENTAGE OF NET ASSETS)
[BAR CHART]
<TABLE>
<CAPTION>
JUNE 30, 2000 JUNE 30, 1999
<S> <C> <C>
United States 31.9% 33.7%
United Kingdom 16.5% 11.0%
Japan 12.7% 9.3%
France 7.5% 10.1%
Netherlands 5.1% 4.4%
</TABLE>
6
<PAGE>
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH THE MANAGEMENT TEAM OF THE VAN KAMPEN GLOBAL EQUITY FUND
ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE MARKETS AND INFLUENCED
THE FUND'S RETURN DURING THE 12 MONTHS ENDED JUNE 30, 2000. THE TEAM IS LED BY
PORTFOLIO MANAGERS FRANCES CAMPION, RICHARD BOON, AND PAUL BOYNE, MORGAN STANLEY
DEAN WITTER INVESTMENT MANAGEMENT. THEY HAVE BEEN INVOLVED IN THE FUND'S
MANAGEMENT SINCE ITS INCEPTION IN 1997. 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 Liquidity was quite high toward the end of 1999, because banks wanted to
foster an environment of available cash as the Y2K event neared. This "easy
money" helped propel the technology investment craze of the past few years into
an unprecedented frenzy for a narrow slice of the market during late 1999. In
the United States, the Federal Reserve Board announced interest-rate hikes as
preemptive strikes against inflation triggered by the rapid growth in the U.S.
economy.
Rising interest rates in the United States sent ripples through Europe,
as European markets are sensitive to U.S. interest-rate changes, especially
in the banking sector. Although Japan and other Asian markets continued to
embrace economic reform and corporate restructuring, the world kept an eye on
the U.S. Federal Reserve, responding cautiously to positive growth in the
Asian markets.
In this atmosphere, value-oriented stocks fell out of favor to an
unprecedented degree. By mid-March, signs that the Internet bubble may finally
have burst brought classic "old economy" sectors such as pharmaceuticals,
consumer staples, and insurance back in favor. This helped offset some of the
negative returns many value investors experienced when growth stocks were
outperforming.
The fund's performance for the period was largely due to its small
position in global technology stocks compared to that of the Morgan Stanley
Capital International (MSCI) World Index with Net Dividends. We chose not to
invest heavily in the technology sector due to excessive valuations,
particularly in the fourth quarter of 1999 and going into 2000. In addition,
the portfolio had a significant position in global consumer staples, one of
the worst performing sectors for the reporting period. We were attracted to
consumer staples stocks because of their strong free cash flows and
attractive valuations. The market largely ignored these attributes during the
period as the focus on TMT (technology, media, and telecommunications) stocks
intensified at the end of 1999.
7
<PAGE>
In the last three months of the reporting period, technology stocks began
to weaken due to investor concerns about their excessive valuations and
deteriorating fundamentals. In this environment, the defensive characteristics
of consumer staples generally came back into favor and the portfolio performed
well. Unfortunately, this was not enough to offset the poor performance the
portfolio experienced during the TMT craze of late 1999.Therefore, the fund
achieved a total return of 3.22 percent for the 12-month period ended June 30,
2000 (CLASS A SHARES AT NET ASSET VALUE; IF THE MAXIMUM SALES CHARGE OF 5.75
PERCENT WERE INCLUDED, THE RETURN WOULD HAVE BEEN LOWER). AS A RESULT OF RECENT
MARKET ACTIVITY, CURRENT PERFORMANCE MAY VARY FROM THE FIGURES SHOWN. BY
COMPARISON, THE MSCI WORLD INDEX WITH NET DIVIDENDS GENERATED A TOTAL RETURN OF
12.19 PERCENT FOR THE SAME PERIOD. OF COURSE, PAST PERFORMANCE IS NO GUARANTEE
OF FUTURE RESULTS. THE MSCI WORLD INDEX WITH NET DIVIDENDS IS AN UNMANAGED,
BROAD-BASED INDEX THAT REFLECTS THE GENERAL PERFORMANCE OF DEVELOPED COUNTRIES'
STOCK MARKETS. THIS INDEX IS A STATISTICAL COMPOSITE THAT DOES NOT INCLUDE ANY
COMMISSIONS OR SALES CHARGES THAT WOULD BE PAID BY AN INVESTOR PURCHASING THE
SECURITIES IT REPRESENTS. SUCH COSTS WOULD LOWER THE PERFORMANCE OF THE INDEX.
IT IS NOT POSSIBLE TO INVEST DIRECTLY IN AN INDEX. 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 We follow a strict discipline of selecting stocks of quality business
franchises that we believe are trading at a discount to their intrinsic value.
This means we thoroughly evaluate a company by appraising its assets and
liabilities to determine its worth before buying the stock. We maintained this
philosophy during the adverse environment brought on by the continued narrow
leadership of the technology sector at the start of this year. Since the peak in
U.S. technology stock prices in early 2000, our disciplined adherence to this
philosophy appeared to pay off as value stocks were coming back into favor.
Although we recognize that we are living through a "technological
revolution," the market is generally granting excessively high valuations to
high-quality global technology companies--valuations that we simply cannot
justify. Therefore, the fund has held a small position in technology through
holdings in Alcatel (a network equipment manufacturer) and indirectly through
Philips (a diversified industrial firm whose main profit driver is a strong
semiconductor business).
However, we have opportunistically increased the fund's exposure to
technology through positions in certain Japanese stocks that we believe offered
relative value at a fair price, such as Fujitsu (a strong IBM competitor in the
technology hardware and software categories), Hitachi, and Toshiba (both
manufacturers of electronic equipment). All of these stocks were trading at
valuations much lower than their global peers. Of course, not all 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
8
<PAGE>
in the future. For additional fund highlights, please refer to page 6.
In addition, we bought First Data, an "old economy" U.S. technology
stock, and continue to own a number of global consumer-branded goods
companies such as Philip Morris, Nestle, and Danone (manufacturer of Dannon
and Evian brand products).
Regardless of high valuations in the technology sector and select
earnings disappointments, we believe that the companies in the fund's
portfolio offer attractive valuations, free cash flow, and strong balance
sheets. This should potentially position the fund well in a market that has
been increasingly favorable to our value style.
Q WERE YOU ABLE TO PURCHASE STOCKS IN THE HIGH-PRICED TMT SECTOR
(TELECOMMUNICATIONS, MEDIA, AND TECHNOLOGY) AND STILL REMAIN TRUE TO YOUR
VALUE PHILOSOPHY?
A We have been able to access quality companies in the telecommunications and
media sectors to a greater extent than in the technology sector, because the
valuation extremes of those two sectors didn't reach the levels seen within
technology. In addition, we were early to recognize the importance of brand
awareness to Internet companies and, in turn, the benefit that media companies
would derive from advertising expenditures to build that brand awareness for
these companies. While Internet ad spending isn't the largest portion of overall
ad spending, it is important, and we believe it will continue to grow, which is
significant to the revenues of the media companies and the fund's portfolio.
More recently, with the rise in European telecommunications stock prices, a
number of U.S. telecommunications companies, including SBC Communications and
GTE/Bell Atlantic, have become relatively cheap on a global basis. Through
analysis, we have also determined that NTT in Japan remains the cheapest quality
telecom due to its stake in NTT, the dominant cellular provider in Japan.
Q WHAT IS YOUR OUTLOOK FOR THE FUND IN THE MONTHS AHEAD?
A Looking forward, we anticipate continued volatility driven by uncertainty
about the direction of the Federal Reserve's monetary policy in the United
States. Although the U.S. economy continues to be red-hot, we expect that
creeping inflation and low savings rates among U.S. consumers may eventually
undermine that strength. Our stock-by-stock analysis has led us to reduce the
fund's holdings in stocks that are sensitive to interest-rate changes.
In addition, we think consolidation activity will continue in certain
sectors such as insurance and packaged goods. We have been adding to select
Japanese industrials, where our recent visits with management have increased our
conviction that structural change will occur. Overall, we think that the
abilities of the companies within our portfolio to generate free cash flow will
be recognized by the markets.
9
<PAGE>
GLOSSARY OF TERMS
A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.
CLASS A SHARES: A division of mutual fund shares, which are generally divided
into three groupings, called Class A, Class B, and Class C shares. The specific
features of each are dependent on varying fees and sales charges. In most cases,
Class A shares will have no redemption fee (contingent deferred sales charge).
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.
INTRINSIC VALUE: The basic worth of a corporation, as calculated by its past
record and potential earning power.
LIQUIDITY: The ease with which an investor can buy or sell a stock at a
reasonable price. Generally, it is easier to sell large-company stock than
small-company stock.
NEW ECONOMY: Refers to the electronic and high-tech sectors such as the
Internet, telecommunications, biochemicals, and semiconductors.
OLD ECONOMY: Refers to established companies focusing more on industrial and
manufacturing services.
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.
VALUE INVESTING: A strategy that seeks to identify stocks that are sound
investments but are temporarily out of favor in the marketplace. As a result,
the stocks trade at prices below what value investors believe they are actually
worth.
10
<PAGE>
BY THE NUMBERS
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
THE FOLLOWING PAGES DETAIL YOUR FUND'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
COMMON STOCKS 95.1%
AUSTRALIA 1.8%
CSR Ltd. ........................... 1,643,230 $ 4,553,787
Westpac Banking Corp., Ltd. ........ 808,178 5,816,348
-----------
10,370,135
-----------
BELGIUM 0.6%
Delhaize Freres et Cie 'Le Lion' S.A 56,390 3,369,610
-----------
CANADA 2.0%
Potash Corp. of Saskatchewan, Inc. . 84,460 4,624,660
TELUS Corp. ........................ 244,524 6,529,236
TELUS Corp. (Non-Voting) ........... 16,000 426,688
-----------
11,580,584
-----------
DENMARK 0.5%
Danisco A/S ........................ 79,800 2,662,346
-----------
FRANCE 7.5%
Alcatel ............................ 72,350 4,740,801
Aventis S.A ........................ 129,160 9,418,071
Groupe Danone ...................... 47,000 6,231,162
Lafarge S.A ........................ 36,030 2,797,339
Michelin (C.G.D.E.) 'B' (Registered) 64,270 2,060,313
Pernod-Ricard ...................... 96,340 5,237,667
Total Fina Elf S.A. 'B' ............ 77,550 11,879,106
-----------
42,364,459
-----------
GERMANY 3.0%
BASF AG ............................ 159,695 6,473,463
Bayer AG ........................... 146,460 5,601,700
E.On AG ............................ 106,500 5,129,764
-----------
17,204,927
-----------
HONG KONG 1.0%
Hong Kong Electric Holdings Ltd. ... 1,785,000 5,747,354
-----------
IRELAND 1.6%
Bank of Ireland .................... 647,795 4,077,913
Green Property plc ................. 847,930 4,973,837
-----------
9,051,750
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
ITALY 2.1%
ENI S.p.A .................................. 572,970 $ 3,306,311
Telecom Italia S.p.A ....................... 1,278,320 8,473,850
-----------
11,780,161
-----------
JAPAN 12.7%
Daiichi Pharmaceutical Co., Ltd. ........... 129,000 3,269,207
Fuji Photo Film Co. ........................ 186,000 7,605,068
Fujitsu Ltd. ............................... 47,000 1,625,041
Hitachi Ltd. ............................... 577,000 8,317,019
Matsushita Electric Industrial Co., Ltd. ... 117,000 3,031,231
Mitsubishi Electric Corp. .................. 397,000 4,293,711
Mitsui & Co. ............................... 376,000 2,869,283
NTT Corp. .................................. 1,163 15,448,961
Pioneer Electronic Corp. ................... 92,000 3,579,632
Sankyo Co., Ltd. ........................... 141,000 3,181,450
Sumitomo Bank Ltd. ......................... 247,000 3,025,107
Sumitomo Marine & Fire Insurance Co., Ltd. . 536,000 3,115,663
Tokyo Gas Co. .............................. 1,471,000 4,129,804
Toppan Printing Co., Ltd. .................. 402,000 4,249,319
Toshiba Corp. .............................. 359,000 4,048,453
-----------
71,788,949
-----------
NETHERLANDS 5.1%
Akzo Nobel N.V ............................. 104,480 4,434,550
ING Groep N.V .............................. 88,818 5,997,782
Koninklijke (Royal) Philips Electronics N.V 210,212 9,904,690
Royal Dutch Petroleum Co. .................. 137,120 8,441,450
-----------
28,778,472
-----------
SINGAPORE 0.3%
United Overseas Bank Ltd. (Foreign) ........ 272,000 1,779,218
-----------
SPAIN 2.4%
Iberdrola S.A .............................. 340,920 4,389,779
Telefonica S.A. (a) ........................ 432,554 9,282,806
-----------
13,672,585
-----------
SWEDEN 1.2%
Nordic Baltic Holding AB ................... 864,280 6,510,492
-----------
SWITZERLAND 4.9%
Cie Financiere Richemont AG 'A' ............ 2,205 5,934,098
Holderbank Financiere Glarus AG 'B' (Bearer) 3,548 4,345,110
Nestle S.A. (Registered) ................... 5,240 10,476,150
Swisscom AG (Registered) ................... 10,500 3,632,662
UBS AG (Registered) ........................ 24,780 3,626,489
-----------
28,014,509
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
UNITED KINGDOM 16.5%
Allied Domecq plc .......................... 1,675,690 $ 8,871,852
AstraZeneca Group plc ...................... 130,400 6,085,346
BAA plc .................................... 372,800 2,988,851
BAE SYSTEMS plc ............................ 897,600 5,594,131
Blue Circle Industries plc ................. 862,750 5,566,171
British Telecom plc ........................ 461,300 5,959,281
Burmah Castrol plc ......................... 178,887 4,508,233
Cadbury Schweppes plc ...................... 1,376,500 9,036,880
Diageo plc ................................. 663,780 5,954,310
Granada Group plc .......................... 149,000 1,487,588
Great Universal Stores plc ................. 460,400 2,959,898
Imperial Tobacco Group plc ................. 597,400 5,720,335
Matthews (Bernard) plc ..................... 982,400 2,095,367
Reckitt Benckiser plc ...................... 547,443 6,128,062
Royal & Sun Alliance Insurance Group plc ... 851,111 5,523,267
Sainsbury (J) plc .......................... 1,053,519 4,780,972
Vodafone AirTouch plc ...................... 527,100 2,128,908
WPP Group plc .............................. 553,900 8,085,581
-----------
93,475,033
-----------
UNITED STATES 31.9%
Albertson's, Inc. ..................... 317,028 10,541,181
Alcoa, Inc. ........................... 279,540 8,106,660
American Home Products Corp. .......... 33,100 1,944,625
BJ's Wholesale Club, Inc. (a) ......... 150,180 4,955,940
Boise Cascade Corp. ................... 209,410 5,418,484
Borg-Warner Automotive, Inc. .......... 132,470 4,653,009
Bristol-Myers Squibb Co. .............. 47,800 2,784,350
Cadiz, Inc. (a) ....................... 403,898 3,231,184
Chase Manhattan Corp. ................. 240,356 11,071,421
COMSAT Corp. .......................... 166,064 3,902,504
Deere & Co. ........................... 33,180 1,227,660
First Data Corp. ...................... 113,500 5,632,437
Fort James Corp. ...................... 236,540 5,469,988
General Dynamics Corp. ................ 134,350 7,019,787
GenRad, Inc. (a) ...................... 162,170 1,459,530
Georgia-Pacific Corp. ................. 113,210 2,971,763
Goodrich (B.F.) Co. ................... 117,440 4,000,300
GTE Corp. ............................. 156,360 9,733,410
Honeywell International, Inc. ......... 29,570 996,139
Houghton Mifflin Co. .................. 101,853 4,755,262
MBIA, Inc. ............................ 114,570 5,520,842
Mellon Financial Corp. ................ 237,700 8,661,194
MetLife, Inc. (a) ..................... 176,300 3,713,319
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
UNITED STATES (CONTINUED)
NCR Corp. (a) ................................... 182,580 $ 7,109,209
New York Times Co. 'A' .......................... 73,040 2,885,080
Pharmacia Corp. ................................. 102,390 5,292,283
Philip Morris Cos., Inc. ........................ 543,630 14,440,172
Rockwell International Corp. .................... 61,200 1,927,800
SBC Communications, Inc. ........................ 196,930 8,517,222
Sears, Roebuck & Co. ............................ 210,510 6,867,889
Tupperware Corp. ................................ 173,340 3,813,480
Unicom Corp. .................................... 209,010 8,086,074
U.S. Bancorp .................................... 199,180 3,834,215
-----------
180,544,413
-----------
Total Common Stocks (Cost $521,128,898) .................. 538,694,997
-----------
PREFERRED STOCK 0.5%
GERMANY 0.5%
Volkswagen AG (Cost $5,702,550) ................. 113,600 2,697,952
-----------
TOTAL LONG-TERM INVESTMENTS 95.6%
(Cost $526,831,448) .................................. 541,392,949
-----------
</TABLE>
<TABLE>
<CAPTION>
PAR
VALUE
<S> <C> <C>
SHORT-TERM INVESTMENT 6.7%
REPURCHASE AGREEMENT 6.7%
Chase Securities, Inc. 6.15%, dated 6/30/00,
due due 7/3/00, to be repurchased at $37,927,000
$37,946,438, collateralized by $37,975,000
U.S. Treasury Notes 6.25%, due 2/15/03,
valued at $38,737,173
(Cost $37,927,000) .......................... 37,927,000
-------------
TOTAL INVESTMENTS IN SECURITIES 102.3%
(Cost $564,758,448) ......................... 579,319,949
FOREIGN CURRENCY 0.1%
(Cost $670,702) ...................................... 675,931
-------------
TOTAL INVESTMENTS 102.4%
(Cost $565,429,150) .................................. 579,995,880
LIABILITIES IN EXCESS OF OTHER ASSETS -2.4% .............. (13,418,485)
-------------
NET ASSETS 100% ................................. $ 566,577,395
=============
</TABLE>
(A) NON-INCOME PRODUCING SECURITY
SEE NOTES TO FINANCIAL STATEMENTS
14
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
SUMMARY OF LONG-TERM INVESTMENTS BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
------------ ----------
<S> <C> <C>
Consumer Staples $110,181,334 19.4%
Financials 77,247,107 13.6
Telecommunication Services 74,035,529 13.1
Consumer Discretionary 73,591,931 13.0
Materials 54,893,687 9.7
Industrials 36,550,101 6.5
Health Care 31,975,332 5.6
Energy 28,135,100 5.0
Utilities 27,482,776 4.9
Information Technology 27,300,052 4.8
------------ ---
$541,392,949 95.6%
============ =====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
15
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000
<TABLE>
<S> <C>
ASSETS:
Investments in Securities, at Value (Cost $564,758,448) ................. $579,319,949
Foreign Currency (Cost $670,702) ......................................... 675,931
Receivable for:
Dividends .............................................................. 2,596,230
Investments Sold ....................................................... 1,341,279
Foreign Withholding Tax Reclaim ........................................ 677,786
Fund Shares Sold ....................................................... 198,167
Interest ............................................................... 6,479
Deferred Organizational Costs ............................................ 10,673
Other .................................................................... 20,503
--------------
Total Assets ......................................................... 584,846,997
--------------
LIABILITIES:
Payable for:
Investments Purchased .................................................. 10,591,752
Fund Shares Redeemed ................................................... 5,913,847
Distribution Fees ...................................................... 805,238
Investment Advisory Fees ............................................... 467,358
Administrative Fees .................................................... 117,442
Custody Fees ........................................................... 103,267
Shareholder Reporting Expenses ......................................... 91,648
Professional Fees ...................................................... 64,845
Transfer Agent Fees .................................................... 61,666
Directors' Fees and Expenses ........................................... 48,835
Bank Overdraft ......................................................... 3,704
--------------
Total Liabilities .................................................... 18,269,602
--------------
NET ASSETS ............................................................... $566,577,395
=============
NET ASSETS CONSIST OF:
Capital Stock at Par ($.001 par value,
Shares Authorized 2,625,000,000) ........................................ $ 51,606
Paid in Capital in Excess of Par ......................................... 512,909,677
Accumulated Net Realized Gain ............................................ 39,201,392
Net Unrealized Appreciation on Investments
and Foreign Currency Translations ...................................... 14,463,712
Accumulated Net Investment Loss .......................................... (48,992)
-------------
NET ASSETS ............................................................... $ 566,577,395
=============
Class A Shares:
Net Asset Value and Redemption Price Per Share (Based on Net Assets of
$81,714,098 and 7,360,193 Shares Outstanding) ........................ $ 11.10
=============
Maximum Sales Charge ................................................. 5.75%
Maximum Offering Price Per Share (Net Asset Value
Per Share x 100/ (100% - maximum sales charge)) ...................... $ 11.78
=============
Class B Shares:
Net Asset Value and Offering Price Per Share (Based on Net Assets of
$442,255,954 and 40,357,646 Shares Outstanding)* ..................... $ 10.96
=============
Class C Shares:
Net Asset Value and Offering Price Per Share (Based on Net Assets of
$42,607,343 and 3,888,444 Shares Outstanding)* ....................... $ 10.96
=============
</TABLE>
* REDEMPTION PRICE MAY BE SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE.
SEE NOTES TO FINANCIAL STATEMENTS
16
<PAGE>
STATEMENT OF OPERATIONS
YEAR ENDED JUN 30, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends ................................................................ $ 13,340,333
Interest ................................................................. 923,055
Less Foreign Taxes Withheld .............................................. (871,945)
--------------
Total Income ......................................................... 13,391,443
--------------
EXPENSES:
Investment Advisory Fees ................................................. 6,391,605
Distribution Fees (Attributed to Classes A, B and C
of $178,634, $5,155,374 and $524,825, respectively) .................... 5,858,833
Administrative Fees ...................................................... 1,609,507
Transfer Agent Fees ...................................................... 342,769
Shareholder Reports ...................................................... 293,883
Custodian Fees ........................................................... 277,557
Professional Fees ........................................................ 77,429
Filing and Registration Fees ............................................. 41,594
Directors' Fees and Expenses ............................................. 20,494
Amortization of Organizational Costs ..................................... 4,590
Other .................................................................... 19,456
--------------
Net Expenses ......................................................... 14,937,717
--------------
NET INVESTMENT LOSS ....................................................... $ (1,546,274)
==============
NET REALIZED GAIN/LOSS ON:
Investments ............................................................... $ 55,332,311
Foreign Currency Transactions ............................................. 929,509
--------------
Net Realized Gain ......................................................... 56,261,820
--------------
NET UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period ................................................. 61,356,214
--------------
End of the Period:
Investments ........................................................... 14,561,501
Foreign Currency Translations ........................................... (97,789)
--------------
14,463,712
--------------
Net Change in Unrealized Appreciation/Depreciation ........................ (46,892,502)
--------------
NET REALIZED GAIN/LOSS AND NET CHANGE IN UNREALIZED
APPRECIATION/DEPRECIATION ............................................... $ 9,369,318
==============
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ...................... $ 7,823,044
==============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
17
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
JUNE 30, 2000
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 2000 JUNE 30, 1999*
-------------- --------------
<S> <C> <C>
INCREASE/DECREASE IN NET ASSETS
OPERATIONS:
Net Investment Loss ....................................................... $ (1,546,274) $ (1,709,000)
Net Realized Gain ......................................................... 56,261,820 23,770,000
Net Change in Unrealized Appreciation/
Depreciation ........................................................... (46,892,502) 1,000
-------------- --------------
Net Increase in Net Assets Resulting
from Operations ........................................................ 7,823,044 22,062,000
-------------- --------------
DISTRIBUTIONS:
Net Investment Income:
Class A ................................................................... -- (532,000)
Class B ................................................................... -- (472,000)
Class C ................................................................... -- (52,000)
In Excess of Net Investment Income:
Class A ................................................................... -- (94,000)
Class B ................................................................... -- (83,000)
Class C ................................................................... -- (9,000)
-------------- --------------
-- (1,242,000)
-------------- --------------
Net Realized Gain:
Class A ................................................................... (3,981,600) (97,000)
Class B ................................................................... (32,257,364) (796,000)
Class C ................................................................... (3,351,236) (87,000)
-------------- --------------
(39,590,200) (980,000)
-------------- --------------
Net Decrease in Net Assets Resulting
from Distributions ..................................................... (39,590,200) (2,222,000)
-------------- --------------
CAPITAL SHARE TRANSACTIONS:
Subscribed ................................................................ 223,168,409 166,640,000
Distributions Reinvested .................................................. 37,021,039 2,068,000
Redeemed .................................................................. (398,054,833) (225,647,000)
-------------- --------------
Net Decrease in Net Assets Resulting from
Capital Share Transactions ............................................. (137,865,385) (56,939,000)
-------------- --------------
Total Decrease in Net Assets .............................................. (169,632,541) (37,099,000)
NET ASSETS--Beginning of Period ........................................... 736,209,936 773,309,000
-------------- --------------
NET ASSETS--End of Period
(Including accumulated/undistributed net investment
income/loss of $(48,992) and $188,000, respectively) $ 566,577,395 $ 736,210,000
============== ==============
</TABLE>
* AMOUNTS ROUNDED TO THE NEAREST (000).
SEE NOTES TO FINANCIAL STATEMENTS
18
<PAGE>
FINANCIAL HIGHLIGHTS
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------- OCTOBER 29, 1997*
CLASS A SHARES 2000# 1999# TO JUNE 30, 1998
------------------------- -----------------
<S> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD ................ $ 11.47 $ 11.12 $ 10.00
-------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income .............. 0.06 0.05 0.06
Net Realized and
Unrealized Gain ................... 0.25 0.40 1.08
-------- -------- --------
Total From Investment Operations ..... 0.31 0.45 1.14
-------- -------- --------
DISTRIBUTIONS
Net Investment Income .............. -- (0.08) (0.02)
In Excess of Net Investment Income . -- (0.01) --
Net Realized Gain .................. (0.68) (0.01) --
-------- -------- --------
Total Distributions .................. (0.68) (0.10) (0.02)
-------- -------- --------
NET ASSET VALUE, END OF PERIOD ....... $ 11.10 $ 11.47 $ 11.12
======== ======== ========
TOTAL RETURN (1) ..................... 3.22% 4.05% 11.38%**
======== ======== ========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) .... $81,714 $76,731 $80,508
Ratio of Expenses to
Average Net Assets ................. 1.66% 1.65% 1.70%
Ratio of Net Investment Income/Loss
to Average Net Assets .............. 0.53% 0.44% (0.88%)
Portfolio Turnover Rate .............. 47% 40% 4%**
</TABLE>
* COMMENCEMENT OF OPERATIONS
** NON-ANNUALIZED
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED SALES
CHARGES.
# CHANGES PER SHARE ARE BASED UPON DAILY AVERAGE SHARES OUTSTANDING.
SEE NOTES TO FINANCIAL STATEMENTS
19
<PAGE>
FINANCIAL HIGHLIGHTS
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------- OCTOBER 29, 1997*
CLASS B SHARES 2000# 1999# TO JUNE 30, 1998
------------------------- -----------------
<S> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD ................ $ 11.42 $ 11.08 $ 10.00
-------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss ......... (0.04) (0.03) 0.01
Net Realized and
Unrealized Gain ................... 0.26 0.39 1.07
-------- -------- --------
Total From Investment Operations ..... 0.22 0.36 1.08
-------- -------- --------
DISTRIBUTIONS
Net Investment Income .............. -- (0.01) --
In Excess of Net Investment Income . -- (0.00)+ --
Net Realized Gain .................. (0.68) (0.01) --
-------- -------- --------
Total Distributions .................. (0.68) (0.02) --
-------- -------- --------
NET ASSET VALUE, END OF PERIOD ....... $ 10.96 $ 11.42 $ 11.08
======== ======== ========
TOTAL RETURN (1) ..................... 2.24% 3.29% 10.84%**
======== ======== ========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) .... $442,256 $596,339 $623,229
Ratio of Expenses to
Average Net Assets ................. 2.41% 2.40% 2.45%
Ratio of Net Investment Income/Loss
to Average Net Assets .............. (0.34%) (0.31%) 0.12%
Portfolio Turnover Rate .............. 47% 40% 4%**
</TABLE>
* COMMENCEMENT OF OPERATIONS
** NON-ANNUALIZED
+ AMOUNT IS LESS THAN $0.01 PER SHARE.
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED SALES
CHARGES.
# CHANGES PER SHARE ARE BASED UPON DAILY AVERAGE SHARES OUTSTANDING.
SEE NOTES TO FINANCIAL STATEMENTS
20
<PAGE>
FINANCIAL HIGHLIGHTS
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------- OCTOBER 29, 1997*
CLASS C SHARES 2000# 1999# TO JUNE 30, 1998
------------------------- -----------------
<S> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD ................ $ 11.42 $ 11.07 $ 10.00
-------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss ......... (0.04) (0.03) 0.01
Net Realized and
Unrealized Gain ................... 0.26 0.40 1.06
-------- -------- --------
Total From Investment Operations ..... 0.22 0.37 1.07
-------- -------- --------
DISTRIBUTIONS
Net Investment Income .............. -- (0.01) --
In Excess of Net Investment Income . -- (0.00)+ --
Net Realized Gain .................. (0.68) (0.01) --
-------- -------- --------
Total Distributions .................. (0.68) (0.02) --
-------- -------- --------
NET ASSET VALUE, END OF PERIOD ....... $ 10.96 $ 11.42 $ 11.07
======== ======== ========
TOTAL RETURN (1) ..................... 2.24% 3.39% 10.74%**
======== ======== ========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) .... $ 42,607 $ 63,140 $ 69,572
Ratio of Expenses to
Average Net Assets ................. 2.41% 2.40% 2.45%
Ratio of Net Investment Income/Loss
to Average Net Assets .............. (0.36%) (0.32%) 0.13%
Portfolio Turnover Rate .............. 47% 40% 4%**
</TABLE>
* COMMENCEMENT OF OPERATIONS
** NON-ANNUALIZED
+ AMOUNT IS LESS THAN $0.01 PER SHARE.
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED SALES
CHARGES.
# CHANGES PER SHARE ARE BASED UPON DAILY AVERAGE SHARES OUTSTANDING.
SEE NOTES TO FINANCIAL STATEMENTS
21
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
The Van Kampen Global Equity Fund (the "Fund") is organized as a separate
diversified fund of Van Kampen Series Fund, Inc., a Maryland corporation, which
is registered as an open-end management investment company under the Investment
Company Act of 1940, as amended. The Fund's investment objective seeks long-term
capital appreciation by investing primarily in equity securities of issuers
throughout the world, including U.S. issuers. The Fund commenced operations on
October 29, 1997.
1. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of the financial statements in conformity with accounting principles
accepted in the United States of America (hereafter "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 period. Actual results
could differ from those estimates.
A. SECURITY VALUATION Equity securities listed on a U.S. exchange and equity
securities traded on NASDAQ are valued at the latest quoted sales price on the
valuation date. Securities listed on a foreign exchange are valued at their
closing price. Unlisted securities and listed securities not traded on the
valuation date for which market quotations are readily available are valued at
the average between the bid and asked prices obtained from reputable brokers.
Debt securities purchased with remaining maturities of 60 days or less are
valued at amortized cost, which approximates market value. All other securities
and assets for which market quotations are not readily available are valued at
fair value as determined in good faith using procedures approved by the Board of
Directors.
B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen Investment Advisory Corp. or its affiliates, the
daily aggregate of which is invested in repurchase agreements. Repurchase
agreements are fully collateralized by the underlying debt security. A bank as
custodian for the Fund takes possession of the underlying securities, with a
market value at least equal to the amount of the repurchase transaction,
including principal and accrued interest. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market
22
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
on a daily basis to determine the adequacy of the collateral. In the event of
default on the obligation to repurchase, the Fund has the right to liquidate the
collateral and apply the proceeds in satisfaction of the obligation. In the
event of default or bankruptcy by the counterparty to the agreement, realization
and/or retention of the collateral or proceeds may be subject to legal
proceedings.
C. INCOME AND EXPENSES Interest income is recorded on an accrual basis and
dividend income is recorded net of applicable withholding taxes on the
ex-dividend date. Income, expenses, and realized and unrealized gains or losses
are allocated on a pro rata basis to each class of shares except for
distribution and service fees which are unique to each class of shares.
Distributions from the Fund are recorded on the ex-distribution date.
D. ORGANIZATIONAL COSTS The organizational costs of the Fund are being amortized
on a straight line basis over the 60 month period ending October 28, 2002
beginning with the Fund's commencement of operations. The Adviser has agreed
that in the event any of the initial shares of the Fund originally purchased by
Van Kampen are redeemed by the Fund during the amortization period, the Fund
will be reimbursed for any unamortized organizational costs in the same
proportion as the number of shares redeemed bears to the number of initial
shares held at the time of redemption.
E. 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. The Fund may be
subject to taxes imposed by countries in which it invests. Such taxes are
generally based on income earned or gains realized or repatriated. Taxes are
accrued and applied to net investment income, net realized capital gains and net
unrealized appreciation, as applicable, as the income is earned or capital gains
are recorded.
Net realized gains or losses may differ for financial and tax reporting
purposes as a result of losses relating to wash sale transactions.
At June 30, 2000, for federal income tax purposes, cost of long- and
short-term investments is $565,411,558, the aggregate gross unrealized
appreciation is $68,389,201 and the aggregate gross unrealized depreciation is
$54,480,810, resulting in net unrealized appreciation on long- and short-term
investments of $13,908,391.
F. DISTRIBUTION OF INCOME AND GAINS The Fund declares and pays dividends
annually from net investment income and net realized gains, if any.
Distributions from net realized gains for book purposes may include short-term
capital gains which are included as ordinary income for tax purposes.
Due to inherent differences in the recognition of income and expenses under
generally accepted accounting principles and federal income tax purposes,
perma-
23
<PAGE>
nent differences between book and tax basis reporting for the current fiscal
year have been identified and appropriately reclassified. A permanent
difference related to a net operating loss which may be used as an offset
against short-term gains for tax purposes totaling $756,627 has been
reclassified from accumulated net realized gain to accumulated net investment
loss. A permanent difference related to the recognition of certain expenses
that are not deductible for tax purposes totaling $3,102 were reclassified
from accumulated net investment loss to paid in capital in excess of par. A
permanent difference of $373,964 related to a correction of the prior year
net operating loss was reclassified from accumulated net investment income to
paid in capital in excess of par. A permanent difference related to
recognized currency gains totaling $929,509 was reclassified from accumulated
net realized gain to accumulated net investment loss. A permanent difference
of $2,086 related to a correction of prior year amounts was reclassified from
paid in capital in excess of par to accumulated net realized gain.
Permanent book to tax basis differences are not included in ending
undistributed/distributions in excess of net investment income for the purpose
of presenting net investment income/loss per share in the Financial Highlights.
G. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS Assets and liabilities
denominated in foreign currencies and commitments under forward currency
contracts are translated into U.S. dollars at the mean of the quoted bid and
asked prices of such currencies against the U.S. dollar. Purchases and sales of
portfolio securities are translated at the rate of exchange prevailing when such
securities were acquired or sold. Income and expenses are translated at rates
prevailing when accrued. Realized and unrealized gains and losses on securities
resulting from changes in exchange rates are not segregated for financial
reporting purposes from amounts arising from changes in the market prices of
securities. Realized gains and losses on foreign currency transactions includes
the net realized amount from the sale of the currency and the amount realized
between trade date and settlement date on security and income transactions.
The Fund invests in issuers located in emerging markets. There are certain
risks inherent in these investments not typically associated with issuers in the
United States, including the smaller size of the markets themselves, lesser
liquidity, greater volatility, and potentially less publicly available
information. Emerging markets may be subject to a greater degree of government
involvement in the economy and greater economic and political uncertainty, which
has the potential to extend to government imposed restrictions on exchange
traded transactions and currency transactions. These restrictions may impact the
Fund's ability to buy or sell certain securities or to repatriate certain
currencies to U.S. dollars. Additionally, changes in currency exchange rates
will affect the value of and investment income from such securities.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Van Kampen Investment Advisory Corp. (the "Adviser"), a wholly owned
subsidiary of Van Kampen Investments Inc. (an indirect wholly owned
subsidiary of
24
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
Morgan Stanley Dean Witter & Co.) and Morgan Stanley Dean Witter Investment
Management Inc., a wholly owned subsidiary of Morgan Stanley Dean Witter &
Co., provide the Fund with investment advisory services at a fee paid monthly
and calculated at the annual rates based on average daily net assets
indicated as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
<S> <C> <C>
First $750 million .............. 1.00 of 1%
Next $500 million ............... .95 of 1%
Over $1.25 billion .............. .90 of 1%
</TABLE>
The Adviser has agreed to reduce advisory fees payable to it and to
reimburse the Fund, if necessary, if the annual operating expenses, expressed as
a percentage of average daily net assets, exceed the maximum ratios indicated as
follows:
<TABLE>
<CAPTION>
CLASS B
CLASS A AND CLASS C
MAX. OPERATING MAX. OPERATING
EXPENSE RATIO EXPENSE RATIO
<S> <C> <C>
1.80% 2.55%
</TABLE>
For the period ended June 30, 2000, the Fund recognized expenses of $38,974
representing legal services provided by Skadden, Arps, Slate, Meagher & Flom
(Illinois), counsel to the Fund, of which a director of the Fund is an
affiliated person.
For the period ended June 30, 2000, the Fund recognized expenses of $12,844
representing Van Kampen's cost of providing legal services to the Fund.
Van Kampen Investment Advisory Corp. (the "Administrator") also provides
the Fund with administrative services pursuant to an administrative agreement
for a monthly fee which on an annual basis equals 0.25% of the average daily net
assets of the Fund, plus reimbursement of out-of-pocket expenses. Under an
agreement between the Adviser and The Chase Manhattan Bank ("Chase"), through
its corporate affiliate Chase Global Funds Services Company ("CGFSC"), Chase
provides certain administrative services to the Fund. Chase is compensated for
such services by the Adviser from the fee it receives from the Fund. Transfer
Agency services are provided to the Fund by Van Kampen Investor Services Inc.,
an affiliate of the Adviser.
Van Kampen Funds Inc. (the "Distributor") a wholly owned subsidiary of Van
Kampen Investments Inc., an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co., serves as the Distributor of the Fund's shares. The
Distributor is entitled to receive from the Fund a distribution fee, which is
accrued daily and paid quarterly, of an amount of up to 0.25% of the Class A
shares and up to 1.00% of the Class B shares and Class C shares of the Fund, on
an annualized basis, of the average daily net assets attributable to each Class.
The Distributor may receive a front end sales charge for purchases of Class
A shares. In addition, the Distributor may receive a contingent deferred sales
charge for certain redemptions of Class B shares and Class C shares of the Fund
redeemed within
25
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
one to five years following such purchase. For the period ended June 30, 2000,
the Distributor has advised the Fund that it earned initial sales charges of
$215,551 for Class A shares and deferred sales charges of $2,581,073 and $8,726
for Class B shares and Class C shares, respectively.
Certain officers and directors of the Fund are also officers and directors
of Van Kampen. The Fund does not compensate its officers or directors who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
directors who are not officers of Van Kampen. Under the deferred compensation
plan, directors 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 director's years of service to the Fund. The maximum
annual benefit per director under the plan is $2,500.
For the period ended June 30, 2000, the Fund incurred $84,449 as brokerage
commissions with Morgan Stanley & Co. Incorporated, an affiliated broker dealer.
3. CAPITAL TRANSACTIONS
The Fund currently offers three classes of shares, Class A, Class B, and Class C
shares. All three classes of shares have identical voting, dividend, liquidation
and other rights. Class A shares are sold with a front-end sales charge of up to
5.75%. For certain purchases of Class A shares, the front-end sales charge may
be waived and a contingent deferred sales charge ("CDSC") of 1.00% imposed in
the event of certain redemptions within one year of the purchase. Class B and
Class C shares are offered without a front end sales charge, but are subject to
a 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 seven years after the end of the calendar month in
which the shares were purchased. For the period ended June 30, 2000, no Class B
shares converted to Class A shares. The CDSC will be imposed on most redemptions
made within five years of the purchase for Class B shares and one year of the
purchase for Class C shares as detailed in the following schedule:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE ON ASSETS SUBJECT TO
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
Thereafter ........................ None None
</TABLE>
26
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 2000 JUNE 30, 1999*
------------- ---------------
CAPITAL SHARE TRANSACTIONS
CLASS A:
Shares:
<S> <C> <C>
Subscribed ............................. 17,302,482 7,057,000
Distributions Reinvested ............... 336,380 60,000
Redeemed ............................... (16,969,125) (7,666,000)
-------------- -------------
Net Increase/Decrease in
Class A Shares Outstanding ............. 669,737 (549,000)
============== =============
Dollars:
Subscribed ............................. $ 188,823,212 $ 76,578,000
Distributions Reinvested ............... 3,521,901 652,000
Redeemed ............................... (185,892,793) (82,720,000)
-------------- -------------
Net Increase/Decrease .................... $ 6,452,320 $ (5,490,000)
============== =============
Ending Paid in Capital ................... $ 74,820,756+ $ 68,606,000+
============== =============
CLASS B:
Shares:
Subscribed ............................. 2,877,849 7,094,000
Distributions Reinvested ............... 2,931,584 118,000
Redeemed ............................... (17,652,678) (11,280,000)
-------------- -------------
Net Decrease in Class B Shares Outstanding (11,843,245) (4,068,000)
============== =============
Dollars:
Subscribed ............................. $ 30,744,324 $ 75,705,000
Distributions Reinvested ............... 30,429,833 1,280,000
Redeemed ............................... (188,036,986) (120,388,000)
-------------- -------------
Net Decrease ............................. $(126,862,829) $ (43,403,000)
============== =============
Ending Paid in Capital ................... $ 399,141,563+ $ 527,856,000+
============== =============
CLASS C:
Shares:
Subscribed ............................. 330,119 1,344,000
Distributions Reinvested ............... 295,694 13,000
Redeemed ............................... (2,264,840) (2,112,000)
-------------- -------------
Net Decrease in Class C Shares Outstanding (1,639,027) (755,000)
============== =============
Dollars:
Subscribed ............................. $ 3,600,873 $ 14,357,000
Distributions Reinvested ............... 3,069,305 136,000
Redeemed ............................... (24,125,054) (22,539,000)
-------------- -------------
Net Decrease ............................. $ (17,454,876) $ (8,046,000)
-------------- -------------
Ending Paid in Capital ................... $ 38,623,984+ $ 56,274,000+
============== =============
</TABLE>
* Amounts rounded to the nearest (000).
+ Ending Paid in Capital amounts do not reflect permanent book to tax
differences-See Note 1F.
27
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
4. INVESTMENT TRANSACTIONS
For the period ended June 30, 2000, the Fund made purchases of $288,862,056 and
sales of $470,381,415 of investment securities other than long-term U.S.
government securities and short-term investments. There were no purchases or
sales of long-term U.S. government securities.
5. 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 into a $650 million committed line of credit facility
with a group of banks which expires on November 28, 2000, but is renewable with
the consent of the participating banks. Each fund is permitted to utilize the
facility in accordance with the restrictions of its prospectus. In the event the
demand for the credit facility meets or exceeds $650 million on a complex-wide
basis, each fund will be limited to its pro-rata percentage based on the net
assets of each participating fund. Interest on borrowings is charged under the
agreement at a rate of 0.50% above the federal funds rate per annum. An annual
commitment fee of 0.09% per annum is charged on the unused portion of the credit
facility, which each fund incurs based on its pro-rata percentage of quarterly
net assets. The Fund has not borrowed against the credit facility during the
period.
28
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of Van Kampen Global Equity Fund
We have audited the accompanying statement of assets and liabilities of Van
Kampen Global Equity Fund (the "Fund"), a fund of Van Kampen Series Fund, Inc.,
including the portfolio of investments, as of June 30, 2000, and the related
statements of operations, changes in net assets and the financial highlights for
the year then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit. The Fund's financial statements and financial highlights for the periods
ended prior to June 30, 2000, were audited by other auditors whose report, dated
August 6, 1999, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of June 30, 2000, by correspondence with the Fund's
custodian and brokers; where replies were not received from brokers, we
performed other auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen Kampen Global Equity Fund as of June 30, 2000, the results of its
operations, the changes in its net assets and the financial highlights for the
year then ended, in conformity with accounting principles generally accepted in
the United States of America.
DELOITTE & TOUCHE LLP
Chicago, Illinois
August 11, 2000
29
<PAGE>
VAN KAMPEN FUNDS
THE VAN KAMPEN
FAMILY OF FUNDS
GROWTH
Aggressive Growth
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth
Mid Cap Growth
Pace
Select Growth
Small Cap Value
Tax Managed Equity Growth
Technology
GROWTH AND INCOME
Comstock
Equity Income
Growth and Income
Harbor
Real Estate Securities
Utility
Value
GLOBAL/INTERNATIONAL
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
International Magnum
Latin American
Strategic Income
Tax Managed Global Franchise
Worldwide High Income
INCOME
Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return*
Limited Maturity Government
U.S. Government
U.S. Government Trust for Income
CAPITAL PRESERVATION
Reserve
Tax Free Money
SENIOR LOAN
Prime Rate Income Trust
Senior Floating Rate
TAX FREE
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal**
Insured Tax Free Income
Intermediate Term
Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
To find out more about any of these funds, ask your financial advisor for a
prospectus, which contains more complete information, including sales charges,
risks, and ongoing expenses. Please read it carefully before you invest or send
money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- visit our Web site at
www.vankampen.com -- [ICON]
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. [ICON]
- e-mail us by visiting
www.vankampen.com and
selecting CONTACT US [ICON]
* Closed to new investors
**Open to new investors for a limited time
30
<PAGE>
FUND OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN GLOBAL EQUITY FUND
BOARD OF DIRECTORS
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*
Chairman, Director, President,
Chief Executive Officer
STEPHEN L. BOYD*
Executive Vice President and
Chief Investment Officer
A. THOMAS SMITH III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Chief Financial Officer and Treasurer
RICHARD A. CICCARONE*
JOHN R. REYNOLDSON*
MICHAEL H. SANTO*
JOSEPH P. STADLER*
JOHN H. ZIMMERMANN, III*
Vice Presidents
INVESTMENT ADVISER AND
ADMINISTRATOR
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
INVESTMENT SUBADVISER
MORGAN STANLEY DEAN WITTER INVESTMENT
MANAGEMENT INC.
1221 Avenue of the Americas
New York, New York 10020
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
CUSTODIAN
THE CHASE MANHATTAN BANK
3 MetroTech Center
Brooklyn, New York 11245
DIVIDEND DISBURSING AND
TRANSFER AGENT
VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 218256
Kansas City, Missouri 64121-8256
LEGAL COUNSEL
SKADDEN, ARPS, SLATE, MEAGHER &
FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT AUDITORS
DELOITTE & TOUCHE LLP
180 N. Stetson Avenue
Chicago, IL 60601
--------------------------------------------------------------------------------
The following information is furnished with respect to the distributions paid by
the Fund during its taxable year ended June 30, 2000. The Fund designated and
paid $39,227,357 as a 20% rate gain distribution. In January 2000, the Fund
provided tax information to shareholders for the 1999 calendar year. For
corporate shareholders 73% of the distributions qualifies for the dividends
received deduction. The Fund intends to pass through foreign tax credits of
$871,946 and has derived gross income from sources within foreign countries
amounting to $8,953,938.
--------------------------------------------------------------------------------
* "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.
31
<PAGE>
RESULTS OF
SHAREHOLDER VOTES
JUNE 30, 2000
A Joint Special Meeting of the Shareholders of the Global Equity Fund (the
"Fund") was held on December 15, 1999. The description of each proposal and
number of shares voted are as follows:
1. To elect the following Directors to serve the Fund.
<TABLE>
<CAPTION>
VOTED FOR WITHHELD
<S> <C> <C>
J. Miles Branagan ................................. 57,530,972 415,686
Jerry D. Choate ................................... 57,543,818 402,841
Linda Hutton Heagy ................................ 57,546,835 399,824
R. Craig Kennedy .................................. 57,575,042 371,617
Mitchell M. Merin ................................. 57,547,642 399,017
Jack E. Nelson .................................... 57,612,065 334,594
Richard F. Powers, III ............................ 57,556,796 389,863
Phillip B. Rooney ................................. 57,592,160 354,499
Fernando Sisto .................................... 57,513,240 433,419
Wayne W. Whalen ................................... 57,617,426 329,233
Suzanne H. Woolsey ................................ 57,566,351 380,307
Paul G. Yovovich* ................................. 57,550,244 396,415
</TABLE>
*EFFECTIVE APRIL 14, 2000, PAUL G. YOVOVICH RESIGNED FROM THE BOARD OF
DIRECTORS.
2. To ratify PricewaterhouseCoopers LLP to act as independent public
accountants for the Fund. (1)
<TABLE>
<CAPTION>
AFFIRMATIVE AGAINST ABSTAIN
<S> <C> <C> <C>
57,322,157 123,774 500,728
</TABLE>
(1)INDEPENDENT ACCOUNTANTS FOR THE FUND PERFORM AN ANNUAL AUDIT OF THE FUND'S
FINANCIAL STATEMENTS. THE BOARD OF DIRECTORS HAS ENGAGED DELOITTE & TOUCHE LLP
TO BE THE FUND'S INDEPENDENT ACCOUNTANTS.
PricewaterhouseCoopers LLP, located at 200 East Randolph Drive, Chicago, IL
60601 ("PWC"), ceased being the Fund's independent accountants effective May 18,
2000. The cessation of the client-auditor relationship between the Fund and PWC
was based solely on a possible future business relationship by PWC with an
affiliate of the Fund's investment adviser.
32
<PAGE>
VAN KAMPEN
GLOBAL EQUITY
ALLOCATION FUND
ANNUAL REPORT
JUNE 30, 2000
[PHOTO]
VAN KAMPEN
FUNDS
<PAGE>
TABLE OF CONTENTS
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 4
GROWTH OF A $10,000 INVESTMENT 5
PORTFOLIO AT A GLANCE
TOP TEN HOLDINGS 6
TOP FIVE COUNTRIES 6
Q&A WITH YOUR PORTFOLIO MANAGERS 7
GLOSSARY OF TERMS 9
BY THE NUMBERS
YOUR FUND'S INVESTMENTS 10
FINANCIAL STATEMENTS 39
NOTES TO FINANCIAL STATEMENTS 46
REPORT OF INDEPENDENT AUDITORS 55
FUND OFFICERS AND IMPORTANT ADDRESSES 56
RESULTS OF SHAREHOLDER VOTES 57
IT IS TIMES LIKE THESE WHEN MONEY-MANAGEMENT EXPERIENCE MAY MAKE A
DIFFERENCE.
-------------------------------------------------------------
NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE.
-------------------------------------------------------------
<PAGE>
PRESORTED
STANDARD
U.S. Postage
PAID
VAN KAMPEN
FUNDS
450, 550, 650
MSGE ANR 08/00
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
<PAGE>
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,
/s/ Richard F. Powers, III
Richard F. Powers, III
President and CEO
Van Kampen Investments
1
<PAGE>
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>
U.S. GROSS DOMESTIC PRODUCT
SEASONALLY ADJUSTED ANNUALIZED RATES
(JUNE 30, 1998 - JUNE 30, 2000)
[CHART]
<TABLE>
<S> <C>
Jun-98 2.1%
Sep-98 3.8%
Dec-98 5.9%
Mar-99 3.5%
Jun-99 2.5%
Sep-99 5.7%
Dec-99 8.3%
Mar-00 4.8%
Jun-00 5.2%
</TABLE>
SOURCE: BUREAU OF ECONOMIC ANALYSIS
INTEREST RATES AND INFLATION
(JUNE 30, 1998 - JUNE 30, 2000)
[CHART]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
<S> <C> <C>
Jun-98 5.500 1.70
Jul-98 5.500 1.70
Aug-98 5.500 1.60
Sep-98 5.250 1.50
Oct-98 5.000 1.50
Nov-98 4.750 1.50
Dec-98 4.750 1.60
Jan-99 4.750 1.70
Feb-99 4.750 1.60
Mar-99 4.750 1.70
Apr-99 4.750 2.30
May-99 4.750 2.10
Jun-99 5.000 2.00
Jul-99 5.000 2.10
Aug-99 5.250 2.30
Sep-99 5.250 2.60
Oct-99 5.250 2.60
Nov-99 5.500 2.60
Dec-99 5.500 2.70
Jan-00 5.500 2.70
Feb-00 5.750 3.20
Mar-00 6.000 3.70
Apr-00 6.000 3.00
May-00 6.500 3.10
Jun-00 6.500 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>
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(AS OF JUNE 30, 2000)
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
---------------------------------------------------------------------------
<S> <C> <C> <C>
One-year total return based on NAV(1) 12.83% 12.03% 12.02%
---------------------------------------------------------------------------
One-year total return(2) 6.33% 7.03% 11.02%
---------------------------------------------------------------------------
Five-year average annual total return(2) 15.02% N/A 15.53%
---------------------------------------------------------------------------
Life-of-Fund average annual total return(2) 13.60% 14.54% 13.66%
---------------------------------------------------------------------------
Commencement date 1/4/93 8/1/95 1/4/93
---------------------------------------------------------------------------
</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.
SEE THE COMPARATIVE PERFORMANCE SECTION OF THE CURRENT PROSPECTUS. 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.
BECAUSE THE PRICES OF COMMON STOCKS AND OTHER SECURITIES FLUCTUATE, THE
VALUE OF AN INVESTMENT IN THE FUND WILL VARY UPON THE FUND'S INVESTMENT
PERFORMANCE. FOREIGN SECURITIES MAY MAGNIFY VOLATILITY DUE TO CHANGES IN
FOREIGN EXCHANGE RATES, THE POLITICAL AND ECONOMIC UNCERTAINTIES IN FOREIGN
COUNTRIES, AND THE POTENTIAL LACK OF LIQUIDITY, GOVERNMENT SUPERVISION, AND
REGULATION.
MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO PASS.
4
<PAGE>
GROWTH OF A $10,000 INVESTMENT
(JANUARY 4, 1993 - JUNE 30, 2000)
[CHART]
<TABLE>
<CAPTION>
MSCI World Index With Net Dividends
MEASURES THE PERFORMANCE OF SECURITES
WITH REINVESTED DIVIDENDS ON THE EXCHANGES
GLOBAL EQUITY ALLOCATION FUND OF NORTH AMERICA, EUROPE, AND ASIA.
----------------------------- ------------------------------------------
<S> <C> <C>
1/93 $9,500 $10,000
6/93 $10,563 $11,515
6/94 $11,516 $12,696
6/95 $12,286 $14,050
6/96 $15,311 $16,640
6/97 $18,467 $20,346
6/98 $21,227 $21,840
6/99 $23,013 $25,262
6/00 $24,470 $28,341
</TABLE>
<TABLE>
<S> <C>
Fund's Total Return
1 Year Total Return 6.33%
5 Year Avg. Annual 15.02%
Inception Avg. Annual 13.60%
</TABLE>
THIS CHART COMPARES YOUR FUND'S PERFORMANCE TO THAT OF THE MSCI WORLD INDEX WITH
NET DIVIDENDS OVER TIME.
THIS IS AN UNMANAGED BROAD-BASED, STATISTICAL COMPOSITE THAT DOES NOT INCLUDE
ANY COMMISSIONS OR FEES THAT WOULD BE PAID BY AN INVESTOR PURCHASING THE
SECURITIES IT REPRESENTS. SUCH COSTS WOULD LOWER THE PERFORMANCE OF THIS
INDEX. THE HISTORICAL PERFORMANCE OF THE INDEX IS SHOWN FOR ILLUSTRATIVE
PURPOSES ONLY; IT IS NOT MEANT TO FORECAST, IMPLY, OR GUARANTEE THE FUTURE
PERFORMANCE OF ANY INVESTMENT VEHICLE. IT IS NOT POSSIBLE TO INVEST DIRECTLY
IN AN INDEX.
THE ABOVE CHART REFLECTS THE PERFORMANCE OF CLASS A SHARES OF THE FUND. THE
PERFORMANCE OF CLASS A SHARES WILL DIFFER FROM THAT OF OTHER SHARE CLASSES OF
THE FUND BECAUSE OF THE DIFFERENCE IN SALES CHARGES AND/OR EXPENSES PAID BY
SHAREHOLDERS INVESTING IN THE DIFFERENT SHARE CLASSES. THE FUND'S PERFORMANCE
ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS, AND INCLUDES PAYMENT OF THE
MAXIMUM SALES CHARGE (5.75% FOR CLASS A SHARES).
WHILE PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THE ABOVE
INFORMATION PROVIDES A BROADER VANTAGE POINT FROM WHICH TO EVALUATE THE
DISCUSSION OF THE FUND'S PERFORMANCE FOUND IN THE FOLLOWING PAGES.
5
<PAGE>
PORTFOLIO AT A GLANCE
TOP TEN HOLDINGS*
(AS A PERCENTAGE OF NET ASSETS--JUNE 30, 2000)
1. ROYAL DUTCH PETROLEUM 2.2%
Explores for and produces oil and natural gas, and manufactures chemicals.
2. BP AMOCO 1.9%
Explores for and produces oil and
natural gas, and manufactures petrochemicals.
3. GENERAL ELECTRIC 1.8%
Produces appliances, lighting products, aircraft engines, and plastics.
4. EXXON MOBIL 1.7%
Explores for and produces petroleum and petrochemicals worldwide.
5. NOKIA 1.3%
Manufactures digital wireless telephones and produces networks and
systems for wireless communications.
6. VODAFONE AIRTOUCH 1.3%
Operates wireless communications networks in the United Kingdom and the
United States.
7. MICROSOFT 1.2%
Develops and supports a range of software products.
8. ERICSSON 1.2%
Provides tele- and data-communication products and services worldwide.
9. PFIZER 1.0%
Manufactures pharmaceuticals, including Viagra and Lipitor, and consumer
products such as Certs, Listerine, and Visine.
10. MERCK 1.0%
Develops human and animal health-care products.
* EXCLUDES SHORT-TERM INVESTMENT
TOP FIVE COUNTRIES
(AS A PERCENTAGE OF NET ASSETS)
[CHART]
<TABLE>
<CAPTION>
June 30, 2000 June 30, 1999
------------- -------------
<S> <C> <C>
United States 38.4% 42.1%
Japan 10.4% 10.9%
United Kingdom 6.9% 10.6%
Germany 5.5% 3.5%
Netherlands 4.4% 3.5%
</TABLE>
6
<PAGE>
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH THE MANAGEMENT TEAM OF THE VAN KAMPEN GLOBAL EQUITY
ALLOCATION FUND ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE MARKETS
AND INFLUENCED THE FUND'S RETURN DURING THE 12 MONTHS ENDED JUNE 30, 2000. THE
TEAM IS LED BY PORTFOLIO MANAGERS BARTON BIGGS AND ANN THIVIERGE, MORGAN STANLEY
DEAN WITTER INVESTMENT MANAGEMENT, WHO HAVE MANAGED THE FUND SINCE 1995. THE
FOLLOWING DISCUSSION REFLECTS THEIR VIEWS ON THE FUND'S PERFORMANCE.
Q HOW WOULD YOU DESCRIBE THE MARKET ENVIRONMENT IN WHICH THE FUND OPERATED,
AND HOW DID THE FUND PERFORM IN THIS ENVIRONMENT?
A Two major components affected the market environment during the second
half of 1999. The explosion of TMT (telecommunications, media, and technology)
stocks dominated the global markets during the third and fourth quarters of
1999 as global markets began to study and mirror U.S. economic policy in
hopes that they too could create an environment of robust economic growth
with low interest rates. In 2000, as technology stocks--especially
dot-coms--around the world disappointed and European interest rates continued
to rise, the global markets fell on hard times.
The fund was not immune to this market downturn. However, the fund's TMT
holdings were limited, which helped protect the fund during the market
decline in the first quarter of 2000. As a result, the fund's performance
exceeded its benchmark, the MSCI World Index with Net Dividends. For the
12-month period ended June 30, 2000, the fund achieved a total return of
12.83 percent (CLASS A SHARES AT NET ASSET VALUE; IF THE MAXIMUM SALES CHARGE
OF 5.75 PERCENT WERE INCLUDED, THE RETURN WOULD HAVE BEEN LOWER). AS A RESULT
OF RECENT MARKET ACTIVITY, CURRENT PERFORMANCE MAY VARY FROM THE FIGURES
SHOWN. BY COMPARISON, THE MSCI WORLD INDEX WITH NET DIVIDENDS GENERATED A
TOTAL RETURN OF 12.19 PERCENT FOR THE SAME PERIOD. THIS BROAD-BASED,
UNMANAGED INDEX IS COMPOSED OF SECURITIES ON STOCK EXCHANGES OF THE UNITED
STATES, EUROPE, CANADA, AUSTRALIA, NEW ZEALAND, AND THE FAR EAST AND ASSUMES
DIVIDENDS ARE REINVESTED NET OF WITHHOLDING TAX. THIS INDEX DOES NOT REFLECT
ANY COMMISSIONS OR SALES CHARGES THAT WOULD BE PAID BY AN INVESTOR PURCHASING
THE SECURITIES IT REPRESENTS. IF SUCH CHARGES OR COMMISSIONS HAD BEEN
INCLUDED, THE TOTAL RETURN WOULD HAVE BEEN LOWER. IT IS NOT POSSIBLE TO
INVEST DIRECTLY IN AN INDEX. OF COURSE, PAST PERFORMANCE IS NO GUARANTEE OF
FUTURE RESULTS. Please refer to the chart and footnotes on page 4 for
additional fund performance results.
7
<PAGE>
Q WHAT STRATEGIES DID YOU USE TO MANAGE THE FUND IN THIS ENVIRONMENT?
A Our philosophy is to look for undervalued markets, and we believe the
fundamental prospects of companies and their industries are key indicators of
investment return potential. These indicators favored the international
markets during the reporting period. At 38.2 percent, the fund maintained a
relatively small position in U.S. stocks compared to the index's position of
49.2 percent, because we believed that, relative to the rest of the world,
U.S. stocks were expensive and the nation's economic and earnings cycles were
peaking. The United Kingdom's economic indicators were similar to those of
the United States, so we reduced the fund's position there as well. This
decision worked well for the fund, as the United Kingdom was down 8 percent
year-to-date at the end of the period.
The fund maintained a large position in Japan due to the TMT explosion
and our belief that Japan's economic growth and consumer demand for
electronic goods would be strong. Finally, 1.2 percent of the fund's holdings
were allocated to the Singapore market. A significant position in comparison
to the Index's allocation of .5 percent. Business policies and valuations
made the market attractive, therefore we allocated our holdings accordingly.
Q BEYOND TMT, WHAT SECTORS DID YOU LIKE?
A We liked the energy sector, specifically integrated oils and natural gas.
Commodity prices were rebounding from dramatic lows as demand was rising and
supply was tightening during the reporting period. We added positions in
energy, primarily integrated oils and natural gas stocks, and experienced
positive returns as a result. We also focused our holdings in the defensive
sectors of utilities, food, and real estate. Of course, there is no guarantee
that the fund will be in the same sectors or that the sectors mentioned above
will continue to perform as well in the future.
Q WHAT IS YOUR OUTLOOK FOR THE MONTHS AHEAD?
A Moving forward, we believe that foreign countries will continue to
attempt to replicate the U.S. economic policy successes, hoping to create their
own economic and market "promised land." Over the next few years, if the
international markets continue to grow and the U.S. economy slows, we expect
the international markets could outperform the United States. Due to the
current account deficit and as we expect the amount of investors' money
coming into the United States to slow, we expect the dollar to weaken.
Also, we will closely monitor how the U.S. economy responds to the
Federal Reserve Board's (Fed) interest-rate hikes. The United States
represents one-third of the world's economy, and, as such, is a leader in the
financial markets. Should there be a recession in the United States, it would
impact the economies of every foreign country that imports, exports, and
borrows from the United States. If the U.S. economy doesn't fall off
dramatically, the international markets will be able to trade on their own
fundamentals, which would be very positive.
Overseas, we will wait for signs of an increase in growth and consumer
demand in Japan before bolstering our holdings in that market. Overall, we
expect the international markets to take off once investors see the
opportunities they offer in the face of a potentially slowing U.S. economy.
8
<PAGE>
GLOSSARY OF TERMS A HELPFUL GUIDE TO SOME OF THE COMMON TERMS
YOU'RE LIKELY TO SEE IN THIS REPORT AND
OTHER FINANCIAL PUBLICATIONS.
ACCOUNT DEFICIT: A trade imbalance in which imports exceed exports.
CLASS A SHARES: A division of mutual fund shares, which are generally divided
into three groupings, called Class A, Class B, and Class C shares. The
specific features of each are dependent on varying fees and sales charges. In
most cases, Class A shares will have no redemption fee (contingent deferred
sales charge).
DEFENSIVE INVESTMENT STRATEGY: A method of portfolio allocation and
management aimed at minimizing the risk of losing principal. Defensive
investors place a high percentage of their investable assets in bonds, cash
equivalents, and stocks that are less volatile than average.
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.
NET ASSET VALUE (NAV): The value of a mutual fund share, calculated by
deducting a fund's liabilities from the total assets in its portfolio and
dividing this amount by the number of shares outstanding. The NAV does not
include any initial or contingent deferred sales charge.
SALES CHARGE: Also referred to as the load, this is a fee paid by a buyer to
acquire shares in a mutual fund or a limited partnership.
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.
9
<PAGE>
BY THE NUMBERS
YOUR FUND'S INVESTMENTS THE FOLLOWING PAGES DETAIL YOUR FUND'S
JUNE 30, 2000 PORTFOLIO OF INVESTMENTS AT THE END OF THE
REPORTING PERIOD.
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
COMMON STOCKS 84.3%
AUSTRALIA 1.1%
Amcor Ltd. .............................................. 29,493 $ 102,888
AMP Ltd. ................................................ 42,011 426,548
Australian Gas Light Co., Ltd. .......................... 21,082 125,283
Brambles Industries Ltd. ................................ 9,544 292,623
Broken Hill Proprietary Co., Ltd. ....................... 46,676 550,576
Coca-Cola Amatil Ltd. ................................... 27,979 54,309
Coles Myer Ltd. ......................................... 48,275 184,930
Commonwealth Bank of Australia .......................... 12,558 207,682
CSL Ltd. ................................................ 4,634 91,430
Faulding (F.H.) & Co., Ltd. ............................. 5,497 26,869
Fosters Brewing Ltd. .................................... 77,599 217,826
General Property Trust .................................. 62,037 99,669
Goodman Fielder Ltd. .................................... 53,358 39,516
Leighton Holdings Ltd. .................................. 11,930 38,334
Lend Lease Corp., Ltd. .................................. 23,809 302,998
Mayne Nickless Ltd. ..................................... 16,737 34,287
National Australia Bank Ltd. ............................ 62,297 1,037,998
News Corp., Ltd. ........................................ 82,071 1,127,389
Normandy Mining Ltd. .................................... 59,045 31,738
North Broken Hill Peko Ltd. ............................. 19,552 46,126
Orica Ltd. .............................................. 5,336 24,151
Pacific Dunlop Ltd. ..................................... 46,862 41,703
Paperlinx Ltd. .......................................... 9,831 18,613
QBE Insurance Group Ltd. ................................ 18,211 88,883
Rio Tinto Ltd. .......................................... 5,416 89,339
Santos Ltd. ............................................. 26,339 80,071
Schroders plc (a) ....................................... 17,133 23,842
Southcorp Ltd. .......................................... 27,923 80,383
Stockland Trust Group ................................... 14,035 29,548
Suncorp-Metway Ltd. ..................................... 13,823 71,181
TABCORP Holdings Ltd. ................................... 14,228 81,578
Telstra Corp., Ltd. ..................................... 2,531 10,249
Wesfarmers Ltd. ......................................... 8,127 64,556
Westfield Trust ......................................... 60,660 117,419
Westpac Banking Corp., Ltd. ............................. 81,063 583,400
WMC Ltd. ................................................ 78,621 350,905
Woolworths Ltd. ......................................... 50,579 186,234
------------
6,981,074
------------
</TABLE>
10 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
AUSTRIA 0.4%
Austria Tabakwerke AG ................................... 3,719 $ 137,630
Bank Austria AG ......................................... 11,436 556,508
Bau Holdings AG ......................................... 795 33,288
Boehler-Udderholm AG .................................... 1,232 43,067
BWT AG .................................................. 285 100,170
Flughafen Wein AG ....................................... 3,589 127,650
Generali AG ............................................. 1,197 192,376
Lenzing AG .............................................. 211 12,478
Mayr-Melnhof Karton AG .................................. 2,026 95,750
Oesterreichische Brau-Beteiligungs AG ................... 1,548 70,118
Oesterreichish Elektrizitaets 'A' ....................... 5,159 528,969
OMV AG .................................................. 4,711 408,894
VA Technologies AG ...................................... 2,535 133,419
Wienerberger Baustoffindustrie AG ....................... 11,680 265,029
------------
2,705,346
------------
BELGIUM 0.0%
Electrabel S.A. ......................................... 629 155,324
UCB S.A. ................................................ 600 22,021
------------
177,345
------------
CANADA 2.3%
Abitibi-Consolidated, Inc. .............................. 7,300 67,853
Agrium, Inc. ............................................ 5,400 46,360
Alberta Energy Co., Ltd. ................................ 6,900 278,929
Alcan Aluminum Ltd. ..................................... 8,500 264,314
Anderson Exploration Ltd. (a) ........................... 4,900 89,103
Bank of Montreal ........................................ 5,800 245,048
Bank of Nova Scotia ..................................... 10,500 257,656
Barrick Gold Corp. ...................................... 16,300 294,751
BCE, Inc. ............................................... 200 4,745
Bombardier, Inc. 'A' .................................... 24,000 652,200
Burlington Resources Canada, Inc. ....................... 800 30,528
Cameco Corp. ............................................ 2,100 25,695
Canadian Imperial Bank of Commerce ...................... 8,700 239,069
Canadian Natural Resources Ltd. (a) ..................... 5,500 159,873
Canadian Occidental Petroleum Ltd. ...................... 7,900 214,416
Canadian Pacific Ltd. ................................... 12,700 329,669
Canadian Tire Corp. 'A' ................................. 3,500 52,761
Cominco Ltd. ............................................ 3,300 45,396
Dofasco, Inc. ........................................... 3,800 62,550
Edperbarascan Corp. 'A' ................................. 6,300 74,103
Fairfax Financial Holdings Ltd. (a) ..................... 300 32,853
George Weston Ltd. ...................................... 5,000 219,699
Gulf Canada Resources Ltd. (a) .......................... 34,600 161,387
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS 11
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
CANADA (CONTINUED)
Imperial Oil Ltd. ....................................... 25,700 $ 628,037
Inco Ltd. (a) ........................................... 6,300 96,674
Magna International, Inc. 'A' ........................... 2,800 131,643
MDS, Inc. 'B' ........................................... 2,300 70,743
National Bank of Canada ................................. 3,900 58,264
Noranda, Inc. ........................................... 9,400 92,138
Nortel Networks Corp. ................................... 95,114 6,603,269
Petro-Canada ............................................ 16,000 299,060
Placer Dome, Inc. ....................................... 10,200 95,843
Placer Dome, Inc. ADR ................................... 4,460 42,649
Potash Corp. of Saskatchewan, Inc. ...................... 2,100 114,987
Power Corp. of Canada ................................... 6,300 129,467
Quebecor, Inc. 'B' ...................................... 3,000 87,203
Renaissance Energy Ltd. (a) ............................. 5,600 54,323
Rogers Communication, Inc. 'B' (a) ...................... 6,400 181,491
Royal Bank of Canada .................................... 6,800 348,205
Seagram Co., Ltd. ....................................... 12,900 758,670
Suncor Energy, Inc. (a) ................................. 12,700 293,612
Talisman Energy, Inc. (a) ............................... 6,700 222,156
Thomson Corp. ........................................... 21,900 749,838
TransAlta Corp. ......................................... 5,100 54,299
Transcanada Pipelines Ltd. .............................. 23,444 179,083
Westcoast Energy, Inc. .................................. 5,800 89,394
------------
15,230,006
------------
DENMARK 0.0%
Novo Nordisk A/S 'B' .................................... 300 51,003
------------
FINLAND 1.5%
Hartwall Wind Systems A/S ............................... 2,587 51,817
Kesko Oyj ............................................... 7,181 72,944
Metra Oyj 'B' ........................................... 2,750 47,344
Metso Oyj ............................................... 6,423 77,191
Nokia Oyj ............................................... 172,872 8,813,102
Nordic Baltic Holding AB GDR ............................ 41,179 299,287
Outokumpu Oyj ........................................... 5,090 48,548
Raisio Group plc ........................................ 6,660 13,149
Sampo Insurance Co., Ltd. 'A' ........................... 4,372 177,225
Sanitec Oyj ............................................. 557 5,578
Sonera Group Oyj ........................................ 330 15,030
Tieto Corp. ............................................. 2,951 98,372
UPM-Kymmene Corp. ....................................... 11,107 275,440
------------
9,995,027
------------
</TABLE>
12 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
FRANCE 2.4%
Accor S.A. .............................................. 1,980 $ 81,074
Alcatel ................................................. 18,803 1,232,084
Alcatel ADR ............................................. 3,159 210,073
Aventis S.A. ............................................ 11,009 802,753
Axa ..................................................... 3,452 543,264
BIC Corp. ............................................... 643 31,462
BNP Paribas ............................................. 2,881 276,987
Bouygues S.A. ........................................... 292 194,956
Canal Plus .............................................. 1,288 216,215
Cap Gemini S.A. ......................................... 1,817 319,748
Carrefour S.A. .......................................... 7,188 490,882
Casino Guichard Perrachon ............................... 800 74,015
Cie de Saint-Gobain (a) ................................. 1,041 140,595
Dassault Systemes S.A. .................................. 3,172 295,586
Eridania Beghin-Say S.A. ................................ 451 44,135
Essilor International ................................... 141 40,373
France Telecom S.A. ..................................... 176 24,576
Gecina .................................................. 3,970 424,475
Groupe Danone (a) ....................................... 6,932 919,030
Klepierre ............................................... 6,048 553,783
L'air Liquide ........................................... 1,054 137,324
L'Oreal ................................................. 688 595,185
Lagardere S.C.A. ........................................ 1,495 114,074
LVMH Moet Hennessy Louis Vuitton ........................ 921 379,402
Lyonnaise des Eaux S.A. ................................. 1,493 261,308
Michelin (C.G.D.E.) 'B' ................................. 2,247 72,032
Pernod-Ricard ........................................... 742 40,340
Pinault-Printemps-Redoute ............................... 1,235 274,107
PSA Peugeot Citroen S.A. ................................ 329 65,961
Sagem ................................................... 29 33,967
Sanofi-Synthelabo S.A. .................................. 7,696 366,287
Schneider S.A. .......................................... 1,810 126,025
Silic ................................................... 1,790 256,095
Simco S.A. (Registered) ................................. 9,480 691,713
Societe Fonciere Lyonnaise .............................. 2,775 291,411
Societe Generale ........................................ 2,408 144,695
Sodexho S.A. ............................................ 650 117,794
STMicroelectronics N.V. (a) ............................. 3,818 240,346
Thomson CSF S.A. ........................................ 1,735 68,279
Total Fina Elf S.A. 'B' ................................. 21,223 3,250,938
Unibail ................................................. 6,370 880,976
Usinor Sacilor .......................................... 1,988 24,233
Valeo S.A. .............................................. 935 49,941
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS 13
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
FRANCE (CONTINUED)
Vivendi ................................................. 4,941 $ 435,691
------------
15,834,190
------------
GERMANY 5.3%
Adidas-Salomon AG ....................................... 1,933 106,197
Allianz AG .............................................. 15,292 5,430,174
BASF AG ................................................. 25,900 1,049,893
Bayer AG ................................................ 31,150 1,191,403
Bayerishe Hypo-und Vereinsbank AG ....................... 15,475 1,011,062
Beiersdorf AG ........................................... 9,800 813,208
Bilfinger & Berger Bau AG ............................... 2,550 33,807
Buderus AG .............................................. 1,800 28,671
Continental AG .......................................... 4,633 77,774
Daimler-Chrysler AG ..................................... 70,379 3,732,281
Daimler-Chrysler AG ADR ................................. 1 52
Deutsche Bank AG ........................................ 21,750 1,816,234
Deutsche Telekom AG ..................................... 1,476 85,032
Douglas Holding AG ...................................... 3,600 105,070
Dresdner Bank AG ........................................ 16,967 686,163
EM.TV & Merchandising AG ................................ 3,000 177,406
E.On AG ................................................. 60,161 2,897,763
FAG Kugelfischer Georg Schaefer AG ...................... 5,850 43,075
Fresenius Medical Care AG ............................... 2,450 192,786
Heidelberger Zement AG .................................. 3,000 183,129
IVG Holding AG .......................................... 32,666 419,059
Karstadt AG ............................................. 5,200 144,329
Linde AG ................................................ 7,030 283,630
Lufthansa AG ............................................ 10,500 244,864
MAN AG .................................................. 5,150 159,642
Merck KGaA .............................................. 5,700 173,973
Metro AG ................................................ 16,407 555,538
Muenchener Rueckversicherungs-Gesellschaft AG (Registered) 10,544 3,298,646
Preussag AG ............................................. 9,400 302,144
RWE AG .................................................. 34,754 1,178,422
SAP AG .................................................. 11,031 1,666,581
Schering AG ............................................. 6,450 350,971
Siemens AG .............................................. 35,933 5,373,979
Thyssen AG .............................................. 24,360 387,319
Volkswagen AG ........................................... 14,730 566,193
WCM Beteiligungs-und Grundbesitz AG ..................... 4,600 106,616
------------
34,873,086
------------
</TABLE>
14 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
HONG KONG 0.1%
Bank of East Asia ....................................... 61,519 $ 143,627
CLP Holdings Ltd. ....................................... 24,000 111,757
Hong Kong & China Gas Co., Ltd. ......................... 54,000 60,612
------------
315,996
------------
INDIA 0.4%
Cipla Ltd. .............................................. 8,175 158,181
Container Corp. of India Ltd. ........................... 59,000 227,279
HDFC Bank Ltd. .......................................... 94,000 535,368
Hero Honda Motors Ltd. .................................. 14,000 309,631
Infosys Technologies Ltd. ............................... 3,400 633,462
Tata Engineering & Locomotive Co., Ltd. ................. 51,750 142,907
Tata Tea Ltd. ........................................... 31,000 230,296
Titan Industries Ltd. ................................... 52,000 75,816
------------
2,312,940
------------
ITALY 2.0%
Assicurazioni Generali S.p.A. ........................... 56,537 1,935,903
Autogrill S.p.A. ........................................ 9,498 101,191
Banca di Roma ........................................... 117,350 143,940
Banco Ambrosiano Veneto ................................. 133,149 595,617
Banco Popolare di Milano ................................ 9,262 66,697
Benetton Group S.p.A. ................................... 75,710 158,144
Credito Italiano S.p.A. ................................. 114,248 545,937
Enel S.p.A. ............................................. 470,366 2,081,663
Ente Nazionale Idrocarburi S.p.A. ....................... 464,933 2,682,886
Fiat S.p.A .............................................. 9,136 236,844
Impreglio S.p.A. ........................................ 16,292 9,261
Italgas ................................................. 28,337 125,139
La Rinascente S.p.A. (a) ................................ 9,764 55,319
Mediaset S.p.A. ......................................... 52,052 794,354
Mediobanca S.p.A. ....................................... 14,818 152,640
Olivetti Group (a) ...................................... 2,230 8,104
Parmalat Finanziaria S.p.A. ............................. 77,198 108,827
Pirelli S.p.A. .......................................... 98,315 258,344
R.A.S. .................................................. 25,860 283,650
Reno de Medici S.p.A. ................................... 5,208 10,531
S.A.I. .................................................. 3,112 55,060
S.A.I. RNC .............................................. 1 8
San Paolo-Imi S.p.A. .................................... 33,900 601,084
Sirti S.p.A. ............................................ 7,963 13,253
Snia BPD S.p.A. ......................................... 15,975 15,907
Telecom Italia Mobile S.p.A ............................. 154,724 1,579,057
Telecom Italia Mobile S.p.A. RNC ........................ 35,691 179,401
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS 15
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
ITALY (CONTINUED)
Telecom Italia S.p.A. ................................... 4,111 $ 56,463
Telecom Italia S.p.A. RNC ............................... 931 6,172
------------
12,861,396
------------
JAPAN 10.4%
Acom Co., Ltd. .......................................... 4,600 386,566
Advantest Corp. ......................................... 1,600 356,493
Ajinomoto Co., Inc. ..................................... 42,800 548,382
Asahi Bank Ltd. ......................................... 86,500 363,456
Asahi Breweries Ltd. .................................... 16,000 191,285
Asahi Chemical Industry Co., Ltd. ....................... 40,400 285,459
Asahi Glass Co. ......................................... 67,600 754,685
Bank of Fukuoka Ltd. .................................... 15,000 102,030
Bank of Tokyo-Mitsubishi Ltd. ........................... 145,600 1,757,159
Bank of Yokohama ........................................ 58,000 259,551
Benesse Corp. ........................................... 5,700 394,696
Bridgestone Corp. ....................................... 27,000 571,058
Canon, Inc. ............................................. 12,800 636,714
Casio Computer Co., Ltd. ................................ 30,000 336,332
Central Japan Railway Co. ............................... 84 474,822
Chugai Pharmaceutical Ltd. .............................. 16,800 317,339
Chuo Mitsui Trust & Banking Co., Ltd. (a) ............... 20,000 87,051
Credit Saison Co., Ltd. ................................. 1,000 23,176
Dai Nippon Printing Co., Ltd. ........................... 32,800 577,542
Daiei, Inc. ............................................. 36,800 137,985
Daiichi Pharmaceutical Co., Ltd. ........................ 4,000 101,371
Daikin Industries Ltd. .................................. 1,800 41,801
Daiwa Bank Ltd. ......................................... 98,000 253,898
Daiwa House Industry .................................... 31,800 231,883
Daiwa Securities Co., Ltd. .............................. 40,000 527,580
Denso Corp. ............................................. 15,600 379,179
East Japan Railway Co. .................................. 202 1,172,283
Ebara Corp. ............................................. 21,800 295,130
Eisai Co., Ltd. ......................................... 7,000 224,222
Fanuc Co. ............................................... 8,200 833,558
Fuji Bank ............................................... 104,000 789,712
Fuji Photo Film Co. ..................................... 22,000 899,524
Fuji Soft ABC, Inc. (First Section) ..................... 1,200 71,110
Fujitsu Ltd. ............................................ 27,600 954,279
Furukawa Electric Co., Ltd. ............................. 26,800 559,254
Gunma Bank Ltd. ......................................... 9,000 46,380
Hirose Electric Co., Ltd. ............................... 1,000 155,542
Hitachi Ltd. ............................................ 49,000 706,298
Honda Motor Co. ......................................... 17,000 578,171
</TABLE>
16 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
JAPAN (CONTINUED)
Hoya Corp. .............................................. 1,000 $ 89,500
Industrial Bank of Japan Ltd. ........................... 92,000 696,858
Ito-Yokado Co., Ltd. .................................... 15,000 901,597
Itochu Corp. ............................................ 3,000 15,121
Japan Airlines Co., Ltd. ................................ 21,000 79,731
Japan Energy Corp. ...................................... 5,000 5,370
Japan Tobacco, Inc. ..................................... 158 1,385,821
Joyo Bank, Ltd. ......................................... 6,000 23,063
Jusco Co. ............................................... 13,800 261,322
Kadokawa Shoten Publishing Co., Ltd. .................... 100 10,081
Kajima Corp. ............................................ 61,600 196,154
Kaneka Corp. ............................................ 3,000 33,040
Kansai Electric Power Co. ............................... 46,400 829,688
KAO Corp. ............................................... 28,800 879,099
Kawasaki Heavy Industries, Ltd. ......................... 6,000 9,157
Kawasaki Steel Corp. .................................... 57,000 81,624
Kinden Corp. ............................................ 1,000 6,274
Kinki Nippon Railway Co., Ltd. .......................... 54,600 221,188
Kirin Brewery Co., Ltd. ................................. 65,600 818,880
Komatsu Ltd. ............................................ 54,600 383,735
Konami Co., Ltd. ........................................ 500 31,561
Kubota Corp. ............................................ 82,400 298,874
Kuraray Co., Ltd. ....................................... 2,000 22,912
Kyocera Corp. ........................................... 3,100 525,404
Kyowa Hakko Kogyo Co., Ltd. ............................. 6,800 66,434
Marubeni Corp. .......................................... 4,200 14,442
Marui Co., Ltd. ......................................... 10,000 191,248
Matsushita Electric Industrial Co., Ltd. ................ 62,400 1,616,656
Minebea Co., Ltd. ....................................... 2,000 25,060
Mitsubishi Chemical Corp. ............................... 58,000 237,694
Mitsubishi Corp. ........................................ 10,000 90,348
Mitsubishi Electric Corp. ............................... 85,400 923,635
Mitsubishi Estate Co., Ltd. ............................. 33,000 387,998
Mitsubishi Heavy Industries Ltd. ........................ 162,000 717,321
Mitsubishi Materials Corp. .............................. 40,600 166,003
Mitsubishi Trust & Banking Corp. ........................ 44,000 341,156
Mitsui & Co. ............................................ 12,200 93,099
Mitsui Fire & Marine Insurance Co., Ltd. ................ 3,000 14,414
Mitsui Fudosan Co., Ltd. ................................ 22,000 238,353
Mitsukoshi Ltd. ......................................... 25,800 114,240
Murata Manufacturing Co., Inc. .......................... 4,000 573,555
Mycal Corp. ............................................. 10,800 36,934
NAMCO Ltd. .............................................. 500 17,994
NEC Corp. ............................................... 21,600 677,639
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS 17
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
JAPAN (CONTINUED)
New OJI Paper Co., Ltd. ................................. 67,600 $ 464,911
NGK Insulators Ltd. ..................................... 21,800 269,869
NGK Spark Plug Co., Ltd. ................................ 21,000 324,660
Nichiei Co., Ltd. (Kyoto) ............................... 2,700 44,260
Nidec Corp. ............................................. 1,500 130,011
Nikon Corp. ............................................. 1,000 37,025
Nintendo Co., Ltd. ...................................... 4,600 802,600
Nippon Express Co., Ltd. ................................ 33,000 202,393
Nippon Meat Packers, Inc. ............................... 13,800 201,517
Nippon Oil Co. .......................................... 90,600 414,825
Nippon Paper Industries Co., Ltd. ....................... 5,000 34,104
Nippon Sheet Glass Co., Ltd. ............................ 2,000 27,773
Nippon Steel Corp. ...................................... 269,000 565,142
Nippon Telegraph & Telephone Corp. ADR .................. 271 3,599,887
Nippon Yusen Kabushiki Kaisha ........................... 56,400 270,988
Nissan Motor Co., Ltd. .................................. 63,400 373,310
Nissin Food Products Co., Ltd. .......................... 400 10,175
Nitto Denko Corp. ....................................... 1,000 38,532
Nomura Securities Co., Ltd. ............................. 64,000 1,564,652
NSK Ltd. ................................................ 4,000 35,046
Obayashi Corp. .......................................... 7,000 30,929
Olympus Optical Co., Ltd. ............................... 2,000 35,819
Onward Kashiyama Co., Ltd. .............................. 11,000 149,230
Oriental Land Co., Ltd. ................................. 3,100 316,294
Orix Corp. .............................................. 2,200 324,368
Osaka Gas Co. ........................................... 99,200 285,044
Pioneer Electronic Corp. ................................ 7,000 272,363
Promise Co., Ltd ........................................ 3,700 292,110
Rohm Co. ................................................ 1,300 379,669
Sakura Bank Ltd. ........................................ 103,200 712,663
Sankyo Co., Ltd. ........................................ 25,800 582,138
Sanyo Electric Co., Ltd. ................................ 78,400 704,636
Secom Co. ............................................... 9,800 715,531
Sega Enterprises Ltd. (a) ............................... 6,100 93,674
Sekisui Chemical Co., Ltd. .............................. 2,000 7,688
Sekisui House Ltd. ...................................... 31,800 293,898
Sharp Corp. ............................................. 23,600 416,883
Shimamura Co., Ltd. ..................................... 100 11,673
Shimano, Inc. ........................................... 4,700 112,912
Shimizu Corp. ........................................... 45,800 130,740
Shin-Etsu Chemical Co. .................................. 6,000 304,112
Shionogi & Co., Ltd. .................................... 7,000 132,884
Shiseido Co., Ltd. ...................................... 14,000 216,308
Shizuoka Bank ........................................... 26,800 227,236
</TABLE>
18 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
JAPAN (CONTINUED)
Showa Shell Sekiyu K.K. ................................. 2,000 $ 9,873
Skylark Co., Ltd. ....................................... 9,000 355,269
SMC Corp. ............................................... 2,700 507,466
Softbank Corp. .......................................... 4,000 542,654
Sony Corp. .............................................. 12,800 1,193,839
Sumitomo Bank Ltd. ...................................... 102,000 1,249,234
Sumitomo Chemical Co. ................................... 60,200 361,841
Sumitomo Corp. .......................................... 6,400 71,932
Sumitomo Electric Industries Ltd. ....................... 48,800 835,823
Sumitomo Marine & Fire Insurance Co., Ltd. .............. 2,000 11,626
Sumitomo Metal Industries Ltd. (a) ...................... 20,400 14,030
Sumitomo Metal Mining Co. ............................... 19,000 89,500
Taisei Corp., Ltd. ...................................... 63,600 101,861
Taisho Pharmaceutical Co. ............................... 21,000 751,802
Taiyo Yuden Co., Ltd. ................................... 3,000 187,668
Takara Shuzo Co., Ltd. .................................. 1,000 24,919
Takeda Chemical Industries Ltd. ......................... 53,800 3,527,703
Takefuji Corp. .......................................... 4,700 567,215
Teijin Ltd. ............................................. 35,600 173,397
Terumo Corp. ............................................ 10,000 338,217
The 77 Bank Ltd. ........................................ 1,000 7,989
Tobu Railway Co. ........................................ 33,800 96,485
Tohoku Electric Power Co., Ltd. ......................... 16,400 220,943
Tokai Bank Ltd. ......................................... 74,600 367,571
Tokio Marine & Fire Insurance Co. ....................... 52,400 604,245
Tokyo Broadcasting System, Inc. ......................... 9,000 388,337
Tokyo Electric Power Co. ................................ 59,000 1,436,855
Tokyo Electron Ltd. ..................................... 2,000 273,588
Tokyo Gas Co. ........................................... 100,200 281,309
Tokyu Corp. ............................................. 38,800 191,542
Toppan Printing Co., Ltd. ............................... 26,800 283,288
Toray Industries, Inc. .................................. 40,500 164,068
Toshiba Corp. ........................................... 43,000 484,912
Tostem Corp. ............................................ 1,000 16,298
Toto Ltd. ............................................... 32,800 251,535
Toyo Seikan Kaisha, Ltd. ................................ 2,000 37,307
Toyota Motor Corp. ...................................... 75,000 3,412,784
Trans Cosmos, Inc. ...................................... 100 14,998
Ube Industries Ltd. ..................................... 61,600 192,672
Uni-Charm Corp.First Section ............................ 400 24,193
World Co., Ltd. ......................................... 400 17,335
Yamanouchi Pharmaceutical Co., Ltd. ..................... 20,000 1,090,960
Yamato Transport Co., Ltd. .............................. 2,000 49,649
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS 19
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
JAPAN (CONTINUED)
Yokogawa Electric Corp. ................................. 9,000 $ 89,877
------------
68,808,324
------------
KOREA 0.8%
Hyundai Motor Co., Ltd. ................................. 16,960 217,509
Kookmin Bank ............................................ 17,860 227,450
Korea Electric Power Corp. .............................. 27,710 859,861
LG Chemical Ltd. ........................................ 15,070 301,393
LG Electronics, Inc. .................................... 6,890 192,792
Pohang Iron & Steel Co., Ltd. ........................... 2,360 206,232
Samsung Electro-Mechanics Co. ........................... 8,690 544,769
Samsung Electronics Co. ................................. 6,410 2,121,289
Samsung Securities Co., Ltd. ............................ 11,422 250,971
Shinhan Bank ............................................ 39,720 374,036
SK Telecom Co., Ltd. .................................... 600 196,408
------------
5,492,710
------------
NETHERLANDS 4.4%
ABN Amro Holdings N.V. .................................. 35,875 878,021
Aegon N.V. (a) .......................................... 14 499
Aegon N.V. .............................................. 45,068 1,602,080
Akzo Nobel N.V. ......................................... 5,223 221,685
Buhrmann N.V. ........................................... 124 3,542
Elsevier N.V. ........................................... 24,030 290,852
Getronics N.V. .......................................... 8,613 132,673
Hagemeyer N.V. .......................................... 4,483 123,487
Heineken N.V. ........................................... 24,024 1,460,770
ING Groep N.V. .......................................... 38,254 2,583,251
Koninklijke Ahold N.V. .................................. 24,527 721,231
KPN N.V. ................................................ 674 30,118
Oce N.V. ................................................ 1,454 23,784
Philips Electronics N.V. ................................ 52,888 2,491,957
Rodamco Continental Europe N.V. ......................... 17,180 703,789
Royal Dutch Petroleum ................................... 231,391 14,367,588
Stork N.V. .............................................. 126 1,707
TNT Post Group N.V. ..................................... 19,836 534,477
Uni-Invest N.V. ......................................... 26,763 336,950
Unilever N.V. ........................................... 1 43
Unilever N.V. CVA ....................................... 44,465 2,037,831
Vedior N.V. ............................................. 2,980 36,808
Wolters Kluwer N.V. ..................................... 11,882 316,191
------------
28,899,334
------------
PORTUGAL 0.0%
Electricidade de Portugal S.A. .......................... 6,933 125,773
------------
</TABLE>
20 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
SINGAPORE 1.2%
Chartered Semiconductor Manufacturing Ltd. (a) .......... 65,000 $ 568,162
City Developments Ltd. .................................. 77,000 298,640
Creative Technology Ltd. ................................ 7,000 168,973
Cycle & Carriage Ltd. ................................... 26,000 61,106
DBS Group Holdings Ltd. ................................. 124,639 1,601,728
DBS Land Ltd. ........................................... 162,750 211,033
First Capital Corp. ..................................... 10,000 9,551
Fraser & Neave Ltd. ..................................... 36,000 128,162
Hotel Properties Ltd. ................................... 29,000 25,852
Keppel Corp. ............................................ 69,000 149,384
NatSteel Ltd. ........................................... 25,000 76,700
Neptune Orient Lines Ltd. (a) ........................... 105,000 97,250
OMNI Industries Ltd. .................................... 47,000 77,540
Oversea-Chinese Banking Corp., Ltd. ..................... 117,050 806,307
Parkway Holdings Ltd. ................................... 45,000 115,138
Sembcorp Industries Ltd. ................................ 162,235 176,557
Singapore Airlines Ltd. ................................. 121,000 1,197,742
Singapore Press Holdings Ltd. ........................... 36,000 562,663
Singapore Technology Engineering Ltd. ................... 289,000 424,926
Singapore Telecommunications Ltd. ....................... 387,490 567,496
United Industrial Corp., Ltd. ........................... 136,000 64,162
United Overseas Bank Ltd. ............................... 95,080 621,942
United Overseas Land Ltd. ............................... 21,000 18,721
Venture Manufacturing Ltd. .............................. 17,000 173,198
------------
8,202,933
------------
SPAIN 1.6%
Acerinox S.A. ........................................... 2,484 71,788
ACS S.A. ................................................ 2,802 78,840
Altadis S.A. ............................................ 8,964 137,567
Autopistas Concesionaria Espanola S.A. .................. 13,279 115,382
Azucarere Ebro Agricolas S.A. ........................... 3,766 44,900
Banco Bilbao Vizcaya S.A. (Registered) .................. 148,632 2,218,621
Banco Santander Central Hispano S.A. .................... 107,359 1,131,507
Corporacion Financiera Alba S.A. ........................ 4,518 118,936
Corporacion Mapfre S.A. ................................. 3,696 46,780
Empresa Nacional de Cellulosas S.A. ..................... 34 554
Endesa S.A. ............................................. 61,719 1,194,421
Fomento de Construcciones y Contratas S.A. .............. 7,528 142,168
Gas Natural SDG S.A. .................................... 27,755 497,686
Grupo Dragados S.A. ..................................... 8,955 64,145
Iberdrola S.A. .......................................... 55,625 716,243
Immobiliaria Metropolitana Vasco Central S.A. ........... 29,825 500,668
Inmobiliaria Colonial S.A. .............................. 12,700 169,585
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS 21
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
SPAIN (CONTINUED)
Prima Inmobiliaria S.A. (a) ............................. 29,360 $ 299,637
Repsol S.A. ............................................. 71,697 1,425,816
Sociedad General de Aguas de Barcelona S.A. ............. 8,737 116,667
Sol Melia S.A. (a) ...................................... 4,941 55,139
Telefonica S.A. (a) ..................................... 2,507 53,801
TelePizza S.A. (a) ...................................... 10,943 61,581
Union Electrica Fenosa S.A. ............................. 18,507 334,504
Vallehermoso S.A. ....................................... 115,795 690,281
Viscofan Industria Navarra de Envolturas Calulosicas S.A. 68 445
Zardoya-Otis S.A. ....................................... 2,528 22,376
------------
10,310,038
------------
SWEDEN 2.2%
Atlas Copco AB 'A' ....................................... 6,650 128,059
Atlas Copco AB 'B' ...................................... 3,600 67,286
Castellum AB ............................................ 38,110 410,110
Diligentia AB ........................................... 2,376 24,223
Drott AB 'B' ............................................ 32,820 353,183
Electrolux AB 'B' ....................................... 15,900 245,848
Fastighets AB Tornet .................................... 20,570 269,125
ForeningsSparbanken AB 'A' ............................... 16,350 238,916
Hennes & Mauritz AB 'B' ................................. 42,400 883,734
JM AB 'B' ............................................... 17,100 290,553
NetCom Systems AB 'B' (a) ............................... 10 737
OM Gruppen AB ........................................... 3,800 169,597
Sandvik AB .............................................. 14,400 301,767
SCA AB 'B' .............................................. 11,500 218,198
Securitas AB 'B' ........................................ 20,200 427,889
Skandia Forsakrings AB .................................. 53,400 1,409,402
Skandinaviska Enskilda Banken AB 'A' ..................... 18,600 220,174
Skanska AB 'B' .......................................... 6,500 230,092
SKF AB 'B' .............................................. 4,500 75,187
Svenska Handelsbanken 'A' ................................ 20,100 291,436
Svenskt Stal AB 'A' ...................................... 4,200 41,629
Telefonaktiebolaget LM Ericsson AB 'B' .................. 393,500 7,778,177
Trelleborg AB 'B' ....................................... 7,600 52,945
Volvo AB 'A' ............................................. 4,600 96,398
Volvo AB 'B' ............................................ 9,500 206,077
Wm-Data AB 'B' .......................................... 13,500 74,167
------------
14,504,909
------------
SWITZERLAND 3.1%
ABB Ltd. (New) .......................................... 10,571 1,263,846
Adecco S.A. (Registered) ................................ 670 568,624
</TABLE>
22 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
SWITZERLAND (CONTINUED)
Alusuisse-Lonza Holding AG (Registered) (a) ............. 145 $ 94,382
CS Holding AG (Registered) .............................. 5,850 1,162,406
Georg Fischer AG (Registered) ........................... 115 35,702
Givaudan (Registered) (a) ............................... 358 108,840
Nestle S.A. (Registered) ................................ 2,810 5,617,935
Novartis AG (Registered) ................................ 2,651 4,194,589
Roche Holding AG (Bearer) ............................... 58 612,816
Roche Holding AG-Genusshein ............................. 293 2,849,085
Schweizerische Rueckver (Registered) .................... 535 1,089,263
SMH AG (Bearer) ......................................... 185 234,946
Sulzer AG (Registered) (a) .............................. 150 99,657
Swisscom AG (Registered) ................................ 40 13,839
UBS AG .................................................. 8,862 1,296,931
Valora Holding AG ....................................... 235 65,186
Zurich Allied AG ........................................ 1,725 851,356
------------
20,159,403
------------
UNITED KINGDOM 6.9%
Abbey National plc ...................................... 8,441 100,873
Allied Zurich plc ....................................... 14,047 166,060
Amvescap plc ............................................ 6,073 97,378
Anglian Water plc (a) ................................... 3,144 29,011
Arjo Wiggins Appleton plc ............................... 10,942 42,540
ARM Holdings plc (a) .................................... 8,540 91,463
AstraZeneca Group plc ................................... 46,252 2,158,431
BAA plc ................................................. 12,317 98,749
Barclays plc ............................................ 9,430 234,370
Bass plc ................................................ 8,507 95,613
BG Group plc ............................................ 76,693 495,377
BICC plc ................................................ 8,434 9,760
BOC Group plc ........................................... 16,708 240,105
Boots Co. plc ........................................... 10,715 81,529
BP Amoco plc ............................................ 1,304,732 12,513,048
British Aerospace plc ................................... 33,276 207,387
British American Tobacco plc ............................ 80,563 537,436
British Land Co. plc .................................... 222,583 1,363,640
British Sky Broadcasting Group plc ...................... 16,353 319,604
British Telecommunications plc .......................... 810 10,464
Burford Holdings plc .................................... 135,210 198,907
Burmah Castrol plc ...................................... 5,702 143,699
Cadbury Schweppes plc ................................... 95,408 626,364
Canary Wharf Finance plc (a) ............................ 95,163 533,346
Capita Group plc ........................................ 1,858 45,447
Caradon plc ............................................. 7,551 17,248
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS 23
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
UNITED KINGDOM (CONTINUED)
Centrica plc ............................................ 93,324 $ 311,282
Commercial Union plc .................................... 11,049 183,852
Compass Group plc ....................................... 5,715 75,255
Corus Group plc (a) ..................................... 14,250 20,802
Diageo plc .............................................. 160,594 1,440,577
EMI Group plc ........................................... 8,651 78,518
GKN plc ................................................. 13,825 176,297
Glaxo Wellcome plc ...................................... 94,121 2,743,600
Granada Group plc ....................................... 15,448 154,230
Grantchester Holdings plc .............................. 308,370 793,001
Great Portland Estates plc .............................. 141,350 498,759
Great Universal Stores plc .............................. 9,352 60,124
Halifax plc ............................................. 13,399 128,503
Hammerson plc ........................................... 52,010 347,746
Hays plc ................................................ 16,030 89,356
Hilton Group plc ........................................ 16,186 56,804
HSBC Holdings plc ....................................... 46,011 525,834
Imperial Chemical Industries plc ........................ 3,023 23,985
Invensys plc ............................................ 38,979 146,230
Kingfisher plc .......................................... 15,045 136,893
Land Securities plc ..................................... 71,615 855,822
Lasmo plc ............................................... 21,525 45,748
Legal & General Group plc .............................. 103,897 242,820
Lloyds TSB Group plc .................................... 33,981 320,755
Logica plc .............................................. 3,584 84,793
Marconi plc ............................................. 32,888 427,847
Marks & Spencer plc ..................................... 30,267 106,335
MEPC plc ................................................ 4,116 33,871
Misys plc ............................................... 4,088 34,506
National Grid Group plc ................................. 27,376 215,755
National Power plc ...................................... 27,982 178,202
New Dixons Group plc (a) ................................ 15,349 62,458
Nycomed Amersham plc .................................... 5,746 57,019
Pearson plc ............................................. 6,042 191,934
Peninsular & Oriental Steam Navigation Co. .............. 6,878 58,889
Pilkington plc .......................................... 19,634 27,918
Prudential Corp. plc .................................... 19,979 292,551
Psion plc ............................................... 2,590 25,035
Railtrack Group plc ..................................... 5,250 81,521
Rank Group plc .......................................... 9,767 22,605
Reed International plc .................................. 12,578 109,404
Rentokil Initial plc .................................... 28,483 64,629
Reuters Holdings plc .................................... 12,729 217,006
Rexam plc ............................................... 5,206 20,239
</TABLE>
24 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
UNITED KINGDOM (CONTINUED)
Royal Bank of Scotland Group plc ........................ 19,774 $ 330,828
Rtz Corp. plc (Registered) .............................. 6,916 112,988
Sainsbury (J) plc ....................................... 18,316 83,120
Schroders Property Fund ................................. 1,775 31,898
Scottish Power plc ...................................... 35,174 297,963
SEMA Group plc .......................................... 4,172 59,323
Slough Estates plc ...................................... 109,654 607,097
Smith & Nephew plc ...................................... 10,109 37,312
SmithKline Beecham plc .................................. 144,385 1,889,256
Taylor Woodrow plc ...................................... 7,878 18,233
Tesco plc ............................................... 35,663 110,862
Thames Water plc ........................................ 8,573 110,880
The Sage Group plc ...................................... 10,990 88,941
3I Group plc ............................................ 5,379 110,579
TI Group plc ............................................ 5,966 32,489
Unilever plc ............................................ 136,609 826,593
United Utilities plc .................................... 6,715 66,432
Vodafone AirTouch plc ................................... 2,048,463 8,273,551
WPP Group plc ........................................... 6,935 101,234
------------
45,416,738
------------
UNITED STATES 38.2%
A.G. Edwards, Inc. ...................................... 2,500 97,500
A.H. Belo Corp. 'A' ...................................... 4,200 72,713
Abbott Laboratories ..................................... 67,400 3,003,512
Abercrombie & Fitch Co. 'A' (a) .......................... 3,000 36,563
ACNielsen Corp. (a) ..................................... 2,100 46,200
ADC Telecom, Inc. (a) ................................... 7,800 654,225
Adobe Systems, Inc. ..................................... 14,100 1,833,000
AES Corp. (a) ........................................... 8,800 401,500
AFLAC, Inc. ............................................. 7,400 339,937
Agilent Technologies, Inc. (a) .......................... 4,004 295,295
AGL Resources, Inc. ..................................... 2,100 33,469
Airborne Freight Corp. .................................. 2,000 37,875
AK Steel Holding Corp. .................................. 2,900 23,200
Alaska Air Group, Inc. (a) .............................. 1,100 29,838
Albertson's, Inc. ....................................... 15,000 498,750
Alcoa, Inc. ............................................. 38,800 1,125,200
Allegheny Energy, Inc. .................................. 3,100 84,863
Allegheny Technologies, Inc. ............................ 15,750 283,500
Alliant Energy Corp. .................................... 3,800 98,800
Allied Waste Industries, Inc. (a) ....................... 5,400 54,000
Allstate Corp. .......................................... 24,300 540,675
Alltel Corp. ............................................ 1,005 62,247
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS 25
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
UNITED STATES (CONTINUED)
Altera Corp. (a) ........................................ 4,800 $ 489,300
Amazon.com, Inc. (a) .................................... 4,900 177,931
AMBAC Finacial Group, Inc. .............................. 2,000 109,625
Amercian Electric Power Co., Inc. ....................... 6,040 178,935
America Online, Inc. (a) ................................ 27,700 1,461,175
American Express Co. .................................... 22,600 1,178,025
American Financial Group, Inc. .......................... 2,200 54,588
American Home Products Corp. ............................ 53,700 3,154,875
American International Group, Inc. ...................... 40,537 4,763,097
American Power Conversion Corp. (a) ..................... 13,800 563,212
American Standard Cos, Inc. (a) ......................... 2,400 98,400
American Telephone & Telegraph Co. ...................... 55,545 1,756,611
American Water Works, Inc. .............................. 2,400 60,000
Amgen, Inc. (a) ......................................... 13,100 920,275
AMR Corp. (a) ........................................... 11,600 306,675
Anadarko Petroleum Corp. ................................ 45,000 2,219,062
Analog Devices (a) ...................................... 8,600 653,600
Anheuser-Busch Cos., Inc. 'A' ............................ 18,900 1,411,594
Apache Corp. ............................................ 42,200 2,481,887
Apollo Group, Inc. 'A' (a) ............................... 2,600 72,800
Apple Computer, Inc. (a) ................................ 600 31,425
Applied Materials, Inc. (a) ............................. 9,300 842,812
Arch Chemicals, Inc. .................................... 1,200 26,250
Arrow Electronics, Inc. (a) ............................. 3,100 96,100
Arvin Industries, Inc. .................................. 1,500 26,063
Associated Banc-Corp. ................................... 2,640 57,585
Associates First Capital Corp. 'A' ....................... 1 22
AT&T Corp. Liberty Media Group 'A' (a) ................... 44,598 1,081,501
Atmel Corp. (a) ......................................... 7,100 261,812
Automatic Data Processing, Inc. ......................... 20,400 1,092,675
Avnet, Inc. ............................................. 1,200 71,100
Avon Products, Inc. ..................................... 10,700 476,150
Baker Hughes, Inc. ...................................... 21,000 672,000
Bank of America Corp. ................................... 37,400 1,608,200
Bank of New York Co., Inc. .............................. 14,100 655,650
Bank One Corp. .......................................... 24,700 656,094
Barnes & Noble, Inc. (a) ................................ 2,100 46,725
Barrett Resources Corp. (a) ............................. 11,900 362,206
Baxter International, Inc. .............................. 7,800 548,437
Beckman Coulter, Inc. ................................... 1,200 70,050
Bed Bath & Beyond, Inc. (a) ............................. 4,000 145,000
Bell Atlantic Corp. ..................................... 34,000 1,727,625
BellSouth Corp. ......................................... 27,700 1,180,712
Bergen Brunswig Corp. 'A' ................................ 3,000 16,500
</TABLE>
26 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
UNITED STATES (CONTINUED)
Best Buy Co., Inc. (a) .................................. 6,000 $ 379,500
Biogen, Inc. (a) ........................................ 4,200 270,900
BJ Services Co. (a) ..................................... 2,700 168,750
BJ's Wholesale Club, Inc. (a) ........................... 2,800 92,400
Boeing Co. .............................................. 26,700 1,116,394
Borg-Warner Automotive, Inc. ............................ 1,100 38,638
Bowater, Inc. ........................................... 2,000 88,250
Brinker International, Inc (a) .......................... 2,500 73,125
Bristol-Myers Squibb Co. ................................ 77,700 4,526,025
Broadwing, Inc. ......................................... 4,500 116,719
Burlington Northern Railroad Co. ........................ 23,300 534,444
Burlington Resources, Inc. .............................. 86,400 3,304,800
Cabot Corp. ............................................. 2,600 70,850
Cadence Design Systems, Inc. (a) ........................ 6,500 132,438
Cambridge Tech Partner, Inc. (a) ........................ 1,900 16,566
Campbell Soup Co. ....................................... 17,500 509,687
Cardinal Health, Inc. ................................... 1,058 78,292
Carlisle Cos., Inc. ..................................... 1,100 49,500
Carpenter Technology Corp. .............................. 1,200 25,350
Caterpillar, Inc. ....................................... 8,200 277,775
CBRL Group, Inc. ........................................ 2,500 36,719
Cendant Corp. (a) ....................................... 31,100 435,400
Century Telephone Enterprises, Inc. ..................... 3,900 112,125
Chase Manhattan Corp. ................................... 14,550 670,209
Chevron Corp. ........................................... 29,300 2,485,006
Chiron Corp. (a) ........................................ 5,500 261,250
Chris-Craft Industries, Inc. (a) ........................ 1,591 105,105
Cigna Corp. ............................................. 20,400 1,907,400
Cintas Corp. ............................................ 4,650 170,597
Circle.com (a) .......................................... 525 1,936
Cisco Systems, Inc. (a) ................................. 66,000 4,195,125
Citigroup, Inc. ......................................... 77,600 4,675,400
Citrix Systems, Inc. (a) ................................ 5,200 98,475
Clayton Homes, Inc. ..................................... 74,700 597,600
Clorox Co. .............................................. 8,276 370,868
CMS Energy Corp. ........................................ 2,800 61,950
CNF Transportation, Inc. ................................ 1,800 40,950
Coastal Corp. ........................................... 4,500 273,937
Coca-Cola Co. ........................................... 73,800 4,238,887
Columbia Energy Group ................................... 1,900 124,688
Comdisco, Inc. .......................................... 4,800 107,100
Computer Associates International, Inc. ................. 12,608 645,372
Comsat Corp. ............................................ 407 9,565
Comverse Technology, Inc. (a) ........................... 3,900 362,700
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS 27
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
UNITED STATES (CONTINUED)
Concord EFS, Inc. (a) ................................... 4,350 $ 113,100
Conectiv, Inc. .......................................... 4,100 63,806
Consolidated Edison, Inc. ............................... 4,400 130,350
Consolidated Papers, Inc. ............................... 3,900 142,594
Constellation Energy Group .............................. 39,800 1,295,987
Convergys Corp. (a) ..................................... 4,400 228,250
Corning, Inc. ........................................... 7,300 1,970,087
Covance, Inc. (a) ....................................... 1,800 15,863
COX Communications, Inc. 'A' (a) ........................ 831 37,862
CP&L, Inc. (a) .......................................... 2,900 92,619
Crompton Corp. .......................................... 2,800 34,300
Crown Cork & Seal Co., Inc. ............................. 15,500 232,500
CVS Corp. ............................................... 11,200 448,000
Dean Foods Co. .......................................... 1,200 38,025
Deere & Co. ............................................. 12,600 466,200
Dell Computer Corp. (a) ................................. 23,700 1,168,706
Delphi Automotive Systems Corp. ......................... 24,809 361,281
DENTSPLY International, Inc. ............................ 2,300 70,869
Devon Energy Corp. ...................................... 21,800 1,224,887
Dial Corp. .............................................. 3,200 33,200
Diebold, Inc. ........................................... 1,900 52,963
Dole Food Co., Inc. ..................................... 2,000 28,000
Dollar Tree Stores, Inc. (a) ............................ 2,850 112,753
Dominion Resources, Inc. ................................ 4,900 210,087
Donaldson Co., Inc. ..................................... 3,400 67,150
Dow Chemical Co. ........................................ 27,600 833,175
DPL, Inc. ............................................... 322 7,064
DTE Energy Co. .......................................... 2,900 88,631
Du Pont (EI) de Nemours Co. ............................. 19,400 848,750
Duke Power Co. .......................................... 42,700 2,407,212
Dynergy, Inc. 'A' ........................................ 2,900 198,106
Eastman Kodak Co. ....................................... 6,300 374,850
eBay, Inc. (a) .......................................... 6,800 369,325
Edison International .................................... 6,300 129,150
Edwards Lifesciences Corp. (a) .......................... 1,280 23,680
El Paso Energy Corp. .................................... 7,500 382,031
Electronic Data Systems Corp. ........................... 17,500 721,875
Electronic Arts, Inc. ................................... 2,000 145,875
Eli Lilly & Co. ......................................... 44,700 4,464,412
EMC Corp. (a) ........................................... 19,800 1,523,362
Energy East Corp. ....................................... 3,600 68,625
Enron Corp. ............................................. 31,100 2,005,950
Ensco International, Inc. ............................... 4,200 150,412
Entergy Corp. ........................................... 4,900 133,219
</TABLE>
28 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
UNITED STATES (CONTINUED)
EOG Resources, Inc. ..................................... 22,400 $ 750,400
Equity Office Properties Trust .......................... 17,000 468,562
Exxon Mobil Corp. ....................................... 140,309 11,014,256
Family Dollar Stores, Inc. .............................. 5,400 105,638
Fannie Mae Corp. ........................................ 19,900 1,038,531
Fastenal Co. ............................................ 1,400 70,875
Federal Signal Corp. .................................... 2,400 39,600
Federal-Mogul Corp. ..................................... 2,000 19,125
FedEx Corp (a). ......................................... 12,100 459,800
Finova Group, Inc. ...................................... 1,700 22,100
First Data Corp. ........................................ 18,900 937,912
First Union Corp. (N.C.) ................................ 19,400 481,362
First Virginia Banks, Inc. .............................. 1,500 52,219
FirstEnergy Corp. ....................................... 4,900 114,538
Fiserv, Inc. (a) ........................................ 3,300 142,725
FleetBoston Financial Corp. ............................. 1,500 51,000
Florida Progress Corp. .................................. 1,900 89,063
Flowers Industries, Inc. ................................ 3,700 73,769
Ford Motor Co. .......................................... 30,600 1,315,800
Forest Laboratories, Inc. 'A' (a) ........................ 2,500 252,500
Foundation Health Systems 'A' (a) ........................ 6,600 85,800
FPL Group, Inc. ......................................... 3,400 168,300
Furniture Brands International, Inc. (a) ................ 1,800 27,225
Gannett Co., Inc. ....................................... 9,200 550,275
Gap, Inc. ............................................... 23,325 728,906
Gatx Corp. .............................................. 2,600 88,400
General Dynamics Corp. .................................. 2,400 125,400
General Electric Co. .................................... 223,699 11,856,047
General Motors Corp. .................................... 17,000 987,062
Genuine Parts Co. ....................................... 22,800 456,000
Genzyme Corp. (a) ....................................... 2,400 142,650
Genzyme Surgical Products (a) ........................... 429 4,263
Georgia-Pacific Corp. (Timber Group) .................... 3,100 67,038
Gillette Co. ............................................ 35,400 1,236,787
Global Marine, Inc. (a) ................................. 7,900 222,681
Grant Prideco, Inc. (a) ................................. 3,500 87,500
H.J. Heinz Co. .......................................... 21,800 953,750
Halliburton Co. ......................................... 61,100 2,883,156
Hannaford Brothers Co. .................................. 1,900 136,563
Harley-Davidson, Inc. ................................... 9,400 361,900
Harsco Corp. ............................................ 1,500 38,250
Health Management Associates, Inc. 'A' (a) ............... 7,400 96,663
HEALTHSOUTH Corp. (a) ................................... 20,400 146,625
Herman Miller, Inc. ..................................... 2,500 64,688
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS 29
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
UNITED STATES (CONTINUED)
Hewlett-Packard Co. ..................................... 10,500 $ 1,311,187
Hibernia Corp. 'A' ....................................... 5,100 55,463
Hillenbrand Industries, Inc. ............................ 2,200 68,888
Hilton Hotels Corp. ..................................... 24,070 225,656
Home Depot, Inc. ........................................ 35,400 1,767,787
HON INDUSTRIES, Inc. .................................... 2,100 49,350
Hormel Foods Corp. ...................................... 4,800 80,700
Household Internaional, Inc. ............................ 11,600 482,125
Hubbell, Inc. 'B' ....................................... 2,900 73,950
IBP, Inc. ............................................... 3,200 49,400
ICN Pharmaceuticals, Inc. ............................... 2,800 77,875
Illinois Tool Works, Inc. ............................... 11,720 668,040
IMC Global, Inc. ........................................ 4,000 52,000
Informix Corp. (a) ...................................... 5,600 41,650
Intel Corp. ............................................. 33,300 4,451,794
International Business Machines Corp. ................... 17,700 1,939,256
International Game Technology (a) ....................... 4,000 106,000
International Paper Co. ................................. 12,665 377,575
Interstate Bakeries Corp. ............................... 2,300 32,200
Intuit, Inc. (a) ........................................ 5,100 211,012
IPALCO Enterprises, Inc. ................................ 3,400 68,425
Johnson & Johnson ....................................... 54,105 5,511,947
Jones Apparel Group, Inc. (a) ........................... 3,300 77,550
Kansas City Southern Industries, Inc. ................... 3,300 292,669
Kaydon Corp. ............................................ 1,300 27,300
Keane, Inc. (a) ......................................... 2,000 43,250
Kelly Services Inc. 'A' .................................. 1,600 37,000
Kerr-McGee Corp. ........................................ 39,000 2,298,562
Keyspan Energy Corp. .................................... 4,100 126,075
Keystone Financial, Inc. ................................ 1,800 38,250
Kimberly-Clark Corp. .................................... 18,000 1,032,750
Kinder Morgan, Inc. ..................................... 2,200 76,038
Kroger Co. (a) .......................................... 21,800 480,962
Lancaster Colony Corp. .................................. 1,900 36,456
Lear Corp. (a) .......................................... 2,100 42,000
Lee Enterprises ......................................... 2,700 62,944
Legato Systems, Inc. (a) ................................ 2,200 33,275
Leggett & Platt, Inc. ................................... 5,800 95,700
Lexmark International Group, Inc. (a) ................... 3,300 221,925
LG&E Energy Corp. ....................................... 2,900 69,238
Lincare Holdings, Inc. (a) .............................. 2,100 51,713
Linear Technology Corp. ................................. 7,600 485,925
Litton Industries, Inc. (a) ............................. 1,500 63,000
Lubrizol Corp. .......................................... 3,100 65,100
</TABLE>
30 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
UNITED STATES (CONTINUED)
Lucent Technologies, Inc. ............................... 29,645 $ 1,756,466
Lyondell Petrochemical Co. .............................. 2,900 48,575
Magna Entertainment Corp. 'A' (a) ........................ 560 3,691
Mandalay Resort Group (a) ............................... 3,700 74,000
Manpower, Inc. .......................................... 2,700 86,400
Marsh & McLennan Cos., Inc. ............................. 12,100 1,263,694
Marshall & Ilsley Corp. ................................. 2,900 120,350
Martin Marietta Corp. ................................... 1,700 68,744
Masco Corp. ............................................. 18,000 325,125
Maxim Integrated Products, Inc. (a) ..................... 6,600 448,387
MBNA Corp. .............................................. 27,200 737,800
McCormick & Co., Inc. ................................... 2,900 94,250
McDonald's Corp. ........................................ 42,200 1,389,962
Mckesson Corp. .......................................... 5,183 108,519
MCN Corp. ............................................... 2,400 51,300
Media General, Inc. 'A' .................................. 1,400 67,988
Medtronic, Inc. ......................................... 21,800 1,085,912
Mercantile Bankshares Corp. ............................. 2,600 77,513
Merck & Co., Inc. ....................................... 86,500 6,628,062
Merrill Lynch & Co., Inc. ............................... 16,000 1,840,000
Microchip Technology, Inc. (a) .......................... 2,400 139,838
Micron Technology, Inc. (a) ............................. 6,900 607,631
Microsoft Corp. (a) ..................................... 98,500 7,880,000
Midas, Inc. ............................................. 1 20
Minnesota Mining & Manufacturing Co. .................... 12,600 1,039,500
Minnesota Power & Light Co. ............................. 3,000 51,938
Modis Professional Services, Inc. (a) ................... 3,800 28,975
Molex, Inc. ............................................. 6,000 288,750
Montana Power Co. ....................................... 3,000 105,938
Morgan (J.P.) & Co., Inc. ............................... 14,100 1,552,762
Motorola, Inc. .......................................... 23,400 680,062
Murphy Oil Corp. ........................................ 2,500 148,594
Mylan Laboratories, Inc. ................................ 3,900 71,175
Nabors Industries, Inc. (a) ............................. 3,400 141,313
National City Corp. ..................................... 18,900 322,481
National Fuel Gas Co. ................................... 1,400 68,250
NCR Corp. (a) ........................................... 3,100 120,706
Networks Associates, Inc. (a) ........................... 3,700 75,388
Newmont Mining Corp. .................................... 17,500 378,437
Nike, Inc. 'B' .......................................... 11,600 461,825
NiSource, Inc. .......................................... 2,500 46,563
Noble Affiliates, Inc. .................................. 25,400 946,150
Noble Drilling Corp. (a) ................................ 4,000 164,750
Northeast Utilities ..................................... 4,000 87,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS 31
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
UNITED STATES (CONTINUED)
Nova Corp/Georgia (a) ................................... 2,200 $ 61,463
Occidental Petroleum Corp. .............................. 7,300 153,756
Office Depot, Inc. (a) .................................. 11,250 70,313
Ogden Corp. (a) ......................................... 2,000 18,000
OGE Energy Corp. ........................................ 4,400 81,400
Old Kent Financial Corp. ................................ 3,197 85,520
Old Republic International Corp. ........................ 3,100 51,150
Olin Corp. .............................................. 2,400 39,600
Omnicare, Inc. .......................................... 2,800 25,375
Omnicon Group, Inc. ..................................... 5,300 472,031
Oracle System Corp. (a) ................................. 59,200 4,976,500
Outback Steakhouse, Inc. (a) ............................ 2,400 70,200
Oxford Health Plans, Inc. (a) ........................... 2,600 61,913
Pacific Century Financial Corp. ......................... 3,400 49,725
Pacificare Health Systems (a) ........................... 1,400 84,263
Paine Webber Group, Inc. ................................ 4,000 182,000
PE Corp.-PE Biosystems Group ............................ 5,000 329,375
PECO Energy Co. ......................................... 3,400 137,063
Pentair, Inc. ........................................... 1,500 53,250
PeopleSoft, Inc. (a) .................................... 6,900 115,575
Pfizer, Inc. ............................................ 139,200 6,681,600
PG&E Corp. .............................................. 7,800 192,075
Pharmacia Corp. ......................................... 58,000 2,997,875
Philip Morris Cos., Inc. ................................ 65,500 1,739,844
Pinnacle West Capital Corp. ............................. 2,300 77,913
Pittston Brinks Group ................................... 1,800 24,638
PMI Group, Inc. ......................................... 1,500 71,250
PNC Bank Corp. .......................................... 9,200 431,250
Policy Management Systems Corp. (a) ..................... 1,200 18,450
Potomac Electric Power Co. .............................. 3,000 75,000
PPL Corp. ............................................... 2,900 63,619
Procter & Gamble Co. .................................... 19,900 1,139,275
Protective Life Corp. ................................... 2,300 61,238
Provident Financial Group ............................... 1,400 33,338
Public Service Co. of New Mexico ........................ 2,600 40,138
Public Service Enterprise Group, Inc. ................... 4,400 152,350
Puget Sound Energy, Inc. ................................ 3,000 63,938
QUALCOMM, Inc. (a) ...................................... 20,500 1,230,000
Quantum Corp. (a) ....................................... 4,600 44,563
Quantum Corp.-Hard Disk Drive (a) ....................... 2,250 24,891
Questar Corp. ........................................... 2,900 56,188
Quintiles Transnational Corp. (a) ....................... 2,400 33,900
Rayonier, Inc. .......................................... 1,400 50,225
Reader's Digest Association, Inc. (The) 'A' .............. 5,300 210,675
</TABLE>
32 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
UNITED STATES (CONTINUED)
Reliant Energy, Inc. .................................... 5,300 $ 156,681
Reliastar Financial Corp. ............................... 2,300 120,606
Reynolds & Reynolds Co. 'A' .............................. 2,700 49,275
Robert Half International, Inc. (a) ..................... 5,600 159,600
Ross Stores, Inc. ....................................... 2,800 47,775
RPM, Inc. ............................................... 4,700 47,588
Sabre Holdings Corp. .................................... 5,962 169,917
Saks, Inc. (a) .......................................... 4,100 43,050
Sara Lee Corp. .......................................... 42,200 814,987
SBC Communications, Inc. ................................ 18,398 795,713
Scana Corp. ............................................. 1,578 38,069
Schlumberger Ltd. ....................................... 6,600 492,525
Schwab (Charles) Corp. .................................. 25,500 857,437
SCI Systems, Inc. (a) ................................... 3,300 129,319
Sears, Roebuck & Co. .................................... 11,200 365,400
Sempra Energy ........................................... 4,400 74,800
Sepracor, Inc. (a) ...................................... 1,600 193,000
Shaw Industries, Inc. ................................... 4,400 55,000
Siebel Systems, Inc. (a) ................................ 5,000 817,812
Smith International, Inc. (a) ........................... 1,700 123,781
Snyder Communications, Inc. (a) ......................... 2,100 49,875
Solutia, Inc. ........................................... 3,400 46,750
Sonoco Products Co. ..................................... 3,100 63,744
Sotheby's Holdings, Inc. 'A' ............................. 2,100 36,750
Southdown, Inc. ......................................... 1,500 86,625
Southern Co. ............................................ 50,000 1,165,625
Southtrust Corp. ........................................ 4,600 104,075
Sovereign Bancorp, Inc. ................................. 5,800 40,781
SPX Corp. (a) ........................................... 1,200 145,125
St. Paul Cos., Inc. ..................................... 1 34
Staples, Inc. (a) ....................................... 4,350 66,881
Starbucks Corp. (a) ..................................... 5,400 206,212
Starwood Hotels & Resorts Worldwide, Inc. ............... 10,200 329,587
Steris Corp. (a) ........................................ 2,100 18,638
Stewart Enterprises, Inc. 'A' ............................ 3,600 12,713
Stone & Webster, Inc. ................................... 3,700 2,775
Storage Technology Corp. (a) ............................ 3,000 32,813
Stryker Corp. ........................................... 5,600 245,000
Sunguard Data Systems, Inc. (a) ......................... 3,000 93,000
Suntrust Banks, Inc. .................................... 11,200 511,700
Sybron International Corp. (a) .......................... 3,300 65,381
Symbol Technologies, Inc. ............................... 4,050 218,700
Synopsys, Inc. (a) ...................................... 2,000 69,125
T. Rowe Price Associates, Inc. .......................... 3,500 148,750
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS 33
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
UNITED STATES (CONTINUED)
Target Corp. ............................................ 11,200 $ 649,600
TCF Financial Corp. ..................................... 2,500 64,219
Technical Data Corp. (a) ................................ 1,400 60,988
Teco Energy, Inc. ....................................... 2,900 58,181
Teledyne Technologies, Inc. (a) ......................... 2,414 40,435
Teleflex, Inc. .......................................... 1,700 60,775
Telephone & Data Systems, Inc. .......................... 2,100 210,525
Tenet Healthcare Corp. (a) .............................. 12,600 340,200
Teradyne, Inc. (a) ...................................... 4,300 316,050
Texas Instruments, Inc. ................................. 14,400 989,100
Tidewater, Inc. ......................................... 2,000 72,000
Tiffany & Co. ........................................... 2,600 175,500
Time Warner, Inc. ....................................... 21,400 1,626,400
Tosco Corp. ............................................. 4,600 130,238
Total Renal Care Holdings, Inc. (a) ..................... 2,600 15,600
Transocean Offshore, Inc. ............................... 5,400 288,562
Trigon Healthcare, Inc. (a) ............................. 1,600 82,500
Trinity Industries, Inc. ................................ 1,500 27,750
TXU Corp. ............................................... 5,300 156,350
Tyson Foods, Inc. ....................................... 6,500 56,875
U.S. Bancorp ............................................ 10,200 196,350
UAL Corp. ............................................... 2,900 168,744
Ultramar Diamond Shamrock Corp. ......................... 2,900 71,956
Unicom Corp. ............................................ 4,400 170,225
United Technologies Corp. ............................... 19,348 1,139,113
Universal Corp. ......................................... 1,500 31,688
Universal Foods Corp. ................................... 2,600 48,100
Unocal Corp. ............................................ 4,800 159,000
UnumProvident Corp. ..................................... 9,700 194,606
USX-Marathon Group ...................................... 18,700 468,669
UtliCorp. United, Inc. .................................. 3,750 74,531
Ventiv Health, Inc. (a) ................................. 700 7,788
Viacom, Inc., 'B' (a) ................................... 19,123 1,303,950
Viad Corp. .............................................. 3,300 89,925
Visteon Corp. (a) ....................................... 4,007 48,585
Vulcan Materials Co. .................................... 4,900 209,169
Wachovia Corp. .......................................... 4,400 238,700
Wal-Mart Stores, Inc. ................................... 77,200 4,448,650
Walgreen Co. ............................................ 21,400 688,812
Wallace Computer Services, Inc. ......................... 2,100 20,738
Walt Disney Co. ......................................... 38,300 1,486,519
Warnaco Group ........................................... 2,100 16,275
Washington Mutual, Inc. ................................. 8,200 236,775
Washington Post Co. 'B' ................................. 400 191,200
</TABLE>
34 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
UNITED STATES (CONTINUED)
Waste Management, Inc. .................................. 31,100 $ 590,900
Water Pik Technologies, Inc. (a) ........................ 845 5,281
Watson Pharmaceuticals, Inc. (a) ........................ 2,600 139,750
Weatherford International, Inc. (a) ..................... 3,500 139,344
Wells Fargo Co. ......................................... 34,900 1,352,375
Westpoint Stevens, Inc. ................................. 2,300 25,588
Weyerhaeuser Co. ........................................ 1,400 60,200
Whirlpool Corp. ......................................... 4,400 205,150
Whitman Corp. ........................................... 3,800 47,025
Williams Cos., Inc. ..................................... 13,100 546,106
Wilmington Trust Corp. .................................. 1,200 51,300
Wisconsin Energy ........................................ 3,100 61,419
Worldcom, Inc. (a) ...................................... 38,300 1,757,012
Xerox Corp. ............................................. 9,600 199,200
Xilinx, Inc. (a) ........................................ 7,300 602,706
Yahoo!, Inc. (a) ........................................ 14,100 1,746,637
York International Corp. ................................ 2,200 57,475
------------
251,716,666
------------
TOTAL COMMON STOCKS
(Cost $513,214,737) .............................................. 554,974,237
------------
PREFERRED STOCKS 0.4%
AUSTRALIA 0.2%
News Corp., Ltd. ........................................ 72,791 876,662
------------
AUSTRIA 0.0%
Bau Holdings AG ......................................... 5 205
------------
GERMANY 0.2%
RWE AG .................................................. 950 25,824
SAP AG .................................................. 7,728 1,443,233
Volkswagen AG ........................................... 2,200 52,249
------------
1,521,306
------------
ITALY 0.0%
Fiat S.p.A. (Privilegiate) .............................. 1,625 26,426
------------
TOTAL PREFERRED STOCKS
(Cost $2,208,249) ............................................... 2,424,599
------------
INVESTMENT COMPANY 0.2%
UNITED STATES 0.2%
Latin American Discovery Fund (b) (Cost $2,614,831) ..... 160,800 1,638,150
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS 35
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
NO. OF MARKET
DESCRIPTION RIGHTS VALUE
<S> <C> <C>
RIGHTS 0.0%
GERMANY 0.0%
IVG Holding AG (a) ...................................... 32,661 $ 1,066
-----------
HONG KONG 0.0%
Sun Hung Kai Properties Ltd. (a) ........................ 105,000 5,356
-----------
SPAIN (0.0%)
Autopistas Concesionaria Espanola S.A. (a) .............. 13,279 --
-----------
TOTAL RIGHTS
(Cost $0) ..................................................... 6,422
-----------
<CAPTION>
NO. OF
WARRANTS
<S> <C> <C>
WARRANTS 0.0%
UNITED STATES 0.0%
Golden State Bancorp, Inc. expiring 1/1/01(a) (Cost $0) .. 1,000 1,125
-----------
<CAPTION>
PAR
VALUE
<S> <C> <C>
CONVERTIBLE DEBENTURES 0.0%
FRANCE 0.0%
Casino Guich-Perrachon 4.50%, 7/12/01 .................FRF 70,400 66,341
Sodexho S.A., 6.00%, 6/7/04 .............................. 3,811 3,662
-----------
70,003
-----------
PORTUGAL 0.0%
Jeromimo Martins (a) ..................................... $ 34,030 20,400
-----------
TOTAL CONVERTIBLE DEBENTURES
(Cost $26,431) ................................................. 90,403
-----------
TOTAL LONG-TERM INVESTMENTS 84.9%
(Cost $518,064,248) .................................. 559,134,936
-----------
</TABLE>
36 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
PAR MARKET
DESCRIPTION VALUE VALUE
<S> <C> <C>
SHORT-TERM INVESTMENT 13.9%
REPURCHASE AGREEMENT 13.9%
Chase Securities, Inc. 6.15%, dated .................... $91,816,000
6/30/00, due 7/3/00, to be repurchased at
$91,863,056, collateralized by $85,665,000
U.S. Treasury Bonds 6.25%-7.125%, due
2/15/23-8/15/23, valued at $93,400,757
(Cost $91,816,000) .................................. $ 91,816,000
------------
TOTAL INVESTMENTS IN SECURITIES 98.8%
(Cost $609,880,248) ................................. 650,950,936
FOREIGN CURRENCY 0.1%
(Cost $522,098) ..................................... 510,540
------------
TOTAL INVESTMENTS 98.9%
(Cost $610,402,346) ................................. 651,461,476
OTHER ASSETS IN EXCESS OF LIABILITIES 1.1% ............. 7,236,716
------------
NET ASSETS 100% ........................................ $658,698,192
============
</TABLE>
(a) NON-INCOME PRODUCING SECURITY
(b) THE FUND IS ADVISED BY AN AFFILIATE WHICH EARNS A MANAGEMENT FEE AS ADVISOR
TO THE FUND.
ADR AMERICAN DEPOSITARY RECEIPT
CVA SHARE CERTIFICATES
FRF FRENCH FRANC
GDR GLOBAL DEPOSITARY RECEIPT
RNC NON-CONVERTIBLE SAVINGS SHARES
SEE NOTES TO FINANCIAL STATEMENTS 37
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
SUMMARY OF LONG-TERM INVESTMENTS BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
<S> <C> <C>
Financials ......................................... $101,760,555 15.5%
Information Technology ............................. 90,861,009 13 8
Energy ............................................. 72,080,800 10.9
Health Care ........................................ 69,179,263 10.5
Consumer Discretionary ............................. 61,889,684 9 4
Industrials ........................................ 55,457,807 8.4
Consumer Staples ................................... 39,719,676 6.0
Utilities .......................................... 29,466,087 4.5
Telecommunications Services ........................ 22,443,985 3 4
Materials .......................................... 16,276,070 2.5
------------ -----
$559,134,936 84.9%
============ =====
</TABLE>
38 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000
<TABLE>
<S> <C>
ASSETS:
Investments in Securities, at Value (Cost $609,880,248) (including repurchase
agreement of $91,816,000) ................................................. $650,950,936
Foreign Currency (Cost $522,098) ............................................ 510,540
Margin Deposit on Futures ................................................... 11,690,495
Receivable for:
Fund Shares Sold .......................................................... 11,941,388
Investments Sold .......................................................... 968,727
Dividends ................................................................. 512,997
Foreign Withholding Tax Reclaim ........................................... 227,772
Interest .................................................................. 15,773
Net Unrealized Gain on Foreign Currency Exchange Contracts .................. 969,256
Other ....................................................................... 21,316
------------
Total Assets ............................................................ 677,809,200
------------
LIABILITIES:
Payable for:
Fund Shares Redeemed ...................................................... 15,431,035
Variation Margin of Futures Contracts ..................................... 1,002,605
Distribution Fees ......................................................... 738,983
Bank Overdraft ............................................................ 713,110
Investment Advisory Fees .................................................. 542,834
Custody Fees .............................................................. 152,331
Administrative Fees ....................................................... 150,002
Shareholder Reporting Expenses ............................................ 110,791
Directors' Fees and Expenses .............................................. 87,277
Transfer Agent Fees ....................................................... 72,532
Professional Fees ......................................................... 57,213
Other 52,295
------------
Total Liabilities ....................................................... 19,111,008
------------
NET ASSETS .................................................................. $658,698,192
============
NET ASSETS CONSIST OF:
Capital Stock at Par ($.001 par value, Shares Authorized 2,625,000,000) ..... $ 37,983
Paid in Capital in Excess of Par ............................................ 531,656,640
Accumulated Net Realized Gain ............................................... 91,868,708
Net Unrealized Appreciation on Investments, Foreign
Currency Translations and Futures ......................................... 41,016,509
Accumulated Net Investment Loss ............................................. (5,881,648)
------------
NET ASSETS .................................................................. $658,698,192
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS 39
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
JUNE 30, 2000
<TABLE>
<S> <C>
Class A Shares:
Net Asset Value and Redemption Price Per Share (Based on Net Assets
of $301,904,701 and 17,018,712 Shares Outstanding) ..................... $ 17.74
============
Maximum Sales Charge ................................................... 5.75%
Maximum Offering Price Per Share (Net Asset Value Per
Share x 100/(100% - maximum sales charge) .............................. $ 18.82
============
Class B Shares:
Net Asset Value and Offering Price Per Share (Based on Net Assets
of $252,077,800 and 14,863,155 Shares Outstanding)* .................... $ 16.96
============
Class C Shares:
Net Asset Value and Offering Price Per Share (Based on Net Assets
of $104,715,691 and 6,101,176 Shares Outstanding)* ..................... $ 17.16
============
</TABLE>
* REDEMPTION PRICE MAY BE SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE.
40 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
Statement of Operations
YEAR ENDED JUNE 30, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends ................................................................. $ 7,171,025
Interest .................................................................. 4,401,395
Less Foreign Taxes Withheld ............................................... (551,845)
------------
Total Income .......................................................... 11,020,575
------------
EXPENSES:
Investment Advisory Fees .................................................. 6,087,799
Distribution Fees (Attributed to Classes A, B and C of $661,522, $2,422,402
and $1,033,417, respectively) ........................................... 4,117,341
Administrative Fees ....................................................... 1,613,095
Transfer Agent Fees ....................................................... 378,328
Shareholder Reports ....................................................... 357,763
Custodian Fees ............................................................ 175,409
Professional Fees ......................................................... 81,559
Filing and Registration Fees .............................................. 61,039
Directors' Fees and Expenses .............................................. 51,364
Other ..................................................................... 17,794
------------
Total Expenses ........................................................ 12,941,491
------------
NET INVESTMENT LOSS ....................................................... $ (1,920,916)
============
NET REALIZED GAIN/LOSS ON:
Investments ............................................................... $101,417,015
Foreign Currency Transactions ............................................. (6,593,113)
Futures ................................................................... 12,192,219
------------
Net Realized Gain ......................................................... 107,016,121
------------
NET UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period ................................................. 77,821,678
------------
End of the Period:
Investments ........................................................... 41,070,688
Foreign Currency Translations ......................................... 934,236
Futures ............................................................... (988,415)
------------
41,016,509
------------
Net Change in Unrealized Appreciation/Depreciation ........................ (36,805,169)
------------
NET REALIZED GAIN/LOSS AND NET CHANGE IN UNREALIZED
APPRECIATION/DEPRECIATION ............................................... $ 70,210,952
============
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ......................................................... $ 68,290,036
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS 41
<PAGE>
Statement of Changes in Net Assets
YEAR ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 2000 JUNE 30, 1999*
-------------- -------------
<S> <C> <C>
INCREASE/DECREASE IN NET ASSETS
OPERATIONS:
Net Investment Income/Loss .......................... $ (1,920,916) $ 210,000
Net Realized Gain ................................... 107,016,121 40,543,000
Net Change in Unrealized Appreciation/Depreciation .. (36,805,169) (1,563,000)
-------------- ------------
Net Increase in Net Assets Resulting from Operations. 68,290,036 39,190,000
-------------- ------------
DISTRIBUTIONS:
Net Investment Income:
Class A .......................................... -- (1,038,000)
Class B .......................................... -- (488,000)
Class C .......................................... -- (217,000)
In Excess of Net Investment Income:
Class A .......................................... -- (2,120,000)
Class B .......................................... -- (996,000)
Class C .......................................... -- (444,000)
-------------- ------------
-- (5,303,000)
-------------- ------------
Net Realized Gain:
Class A .......................................... (17,161,695) (12,336,000)
Class B .......................................... (16,508,167) (12,000,000)
Class C .......................................... (7,198,264) (5,364,000)
-------------- ------------
(40,868,126) (29,700,000)
-------------- ------------
Net Decrease in Net Assets Resulting
from Distributions ................................ (40,868,126) (35,003,000)
-------------- ------------
CAPITAL SHARE TRANSACTIONS:
Subscribed .......................................... 389,767,569 172,653,000
Distributions Reinvested ............................ 37,345,275 31,543,000
Redeemed ............................................ (369,614,087) (230,685,000)
-------------- ------------
Net Increase/Decrease in Net Assets Resulting
from Capital Share Transactions ................... 57,498,757 (26,489,000)
-------------- ------------
Total Increase/Decrease in Net Assets ............... 84,920,667 (22,302,000)
NET ASSETS--Beginning of Period ..................... 573,777,525 596,080,000
-------------- ------------
NET ASSETS--End of Period (Including undistributed/
distributions in excess of net investment loss of
$(5,881,648) and $(217,000), respectively) ........ $658,698,192 $573,778,000
============== ============
</TABLE>
* AMOUNTS ROUNDED TO THE NEAREST (000).
42 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
Financial Highlights THE FOLLOWING SCHEDULE PRESENTS FINANCIAL
HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE
PERIOD INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------
CLASS A SHARES 2000# 1999# 1998# 1997 1996
------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD .......................... $ 16.86 $ 16.67 $ 16.57 $ 14.75 $ 12.60
-------- -------- -------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income .............. 0.02 0.07 0.21 0.10 0.19
Net Realized and Unrealized Gain ... 2.09 1.21 2.07 2.76 2.82
-------- -------- -------- ------- -------
Total From Investment Operations ..... 2.11 1.28 2.28 2.86 3.01
-------- -------- -------- ------- -------
DISTRIBUTIONS
Net Investment Income .............. -- (0.07) (0.35) (0.55) (0.39)
In Excess of Net Investment Income . -- (0.15) -- -- --
Net Realized Gain .................. (1.23) (0.87) (1.83) (0.49) (0.47)
-------- -------- -------- ------- -------
Total Distributions .................. (1.23) (1.09) (2.18) (1.04) (0.86)
-------- -------- -------- ------- -------
NET ASSET VALUE, END OF PERIOD ....... $ 17.74 $ 16.86 $ 16.67 $ 16.57 $ 14.75
======== ======== ======== ======= =======
TOTAL RETURN (1) ..................... 12.83% 8.41% 16.17% 20.61% 24.62%
======== ======== ======== ======= =======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) .... $301,905 $240,121 $261,633 $72,704 $63,706
Ratio of Expenses to Average
Net Assets ......................... 1.70% 1.70% 1.61% 1.70% 1.70%
Ratio of Net Investment Income
to Average Net Assets .............. 0.12% 0.47% 1.30% 0.59% 0.71%
Portfolio Turnover Rate .............. 99% 84% 108% 45% 44%
----------------------------------------------------------------------------------------
Effect of Voluntary Expense
Reductions During the Period
Per Share Benefit to Net Investment
Income ........................... -- $0.00+ $0.02 $0.03 $0.10
Ratios Before Expense Reductions:
Expenses to Average Net Assets ..... -- 1.73% 1.62% 1.90% 2.06%
Net Investment Income to
Average Net Assets ............... -- 0.44% 1.30% 0.40% 0.35%
----------------------------------------------------------------------------------------
</TABLE>
+ AMOUNT IS LESS THAN $0.01 PER SHARE.
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE SALE CHARGES OR DEFERRED SALES
CHARGES.
# CHANGES PER SHARE ARE BASED UPON DAILY AVERAGE SHARES OUTSTANDING.
SEE NOTES TO FINANCIAL STATEMENTS 43
<PAGE>
Financial Highlights THE FOLLOWING SCHEDULE PRESENTS FINANCIAL
HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE
PERIOD INDICATED.
<TABLE>
<CAPTION>
AUGUST 1,
YEAR ENDED JUNE 30, 1995** TO
------------------------------------- JUNE 30,
CLASS B SHARES 2000# 1999# 1998# 1997 1996
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD .......................... $ 16.28 $ 16.14 $ 16.15 $ 14.46 $ 13.01
-------- -------- -------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss ......... (0.11) (0.04) 0.09 (0.05) 0.30
Net Realized and Unrealized Gain ... 2.02 1.16 2.01 2.73 1.98
-------- -------- -------- ------- -------
Total From Investment Operations ..... 1.91 1.12 2.10 2.68 2.28
-------- -------- -------- ------- -------
DISTRIBUTIONS
Net Investment Income .............. -- (0.04) (0.28) (0.50) (0.35)
In Excess of Net Investment Income . -- (0.07) -- -- --
Net Realized Gain .................. (1.23) (0.87) (1.83) (0.49) (0.48)
-------- -------- -------- ------- -------
Total Distributions .................. (1.23) (0.98) (2.11) (0.99) (0.83)
-------- -------- -------- ------- -------
NET ASSET VALUE, END OF PERIOD ....... $ 16.96 $ 16.28 $ 16.14 $ 16.15 $ 14.46
======== ======== ======== ======= =======
TOTAL RETURN (1) ..................... 12.03% 7.50% 15.33% 19.64% 18.08%*
======== ======== ======== ======= =======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) .... $252,078 $232,644 $225,797 $38,962 $14,786
Ratio of Expenses to Average
Net Assets ......................... 2.45% 2.45% 2.35% 2.45% 2.45%
Ratio of Net Investment Income/Loss
to Average Net Assets .............. (0.65%) (0.27%) 0.60% (0.11%) 0.45%
Portfolio Turnover Rate .............. 99% 84% 108% 45% 44%*
---------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Reductions During the Period
Per Share Benefit to Net Investment
Income/Loss ...................... -- $0.00+ $0.02 $0.09 $0.22
Ratios Before Expense Reductions:
Expenses to Average Net Assets ..... -- 2.49% 2.36% 2.65% 2.81%
Net Investment Income/Loss to
Average Net Assets ............... -- (0.30%) 0.60% (0.30%) 0.09%
---------------------------------------------------------------------------------------------
</TABLE>
* NON-ANNUALIZED
** THE FUND BEGAN OFFERING CLASS B SHARES ON AUGUST 1, 1995.
+ AMOUNT IS LESS THAN $0.01 PER SHARE.
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE SALE CHARGES OR DEFERRED SALES CHARGES.
# CHANGES PER SHARE ARE BASED UPON DAILY AVERAGE SHARES OUTSTANDING.
44 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
Financial Highlights THE FOLLOWING SCHEDULE PRESENTS FINANCIAL
HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE
PERIOD INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------
CLASS C SHARES 2000# 1999# 1998# 1997 1996
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD ........................... $ 16.46 $ 16.30 $ 16.24 $ 14.49 $ 12.43
-------- -------- -------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss .......... (0.11) (0.04) 0.08 (0.03) 0.12
Net Realized and Unrealized Gain .... 2.04 1.18 2.05 2.73 2.75
-------- -------- -------- ------- -------
Total From Investment Operations ...... 1.93 1.14 2.13 2.70 2.87
-------- -------- -------- ------- -------
DISTRIBUTIONS
Net Investment Income ............... -- (0.04) (0.24) (0.46) (0.33)
In Excess of Net Investment Income .. -- (0.07) -- -- --
Net Realized Gain ................... (1.23) (0.87) (1.83) (0.49) (0.48)
-------- -------- -------- ------- -------
Total Distributions ................... (1.23) (0.98) (2.07) (0.95) (0.81)
-------- -------- -------- ------- -------
NET ASSET VALUE, END OF PERIOD ........ $ 17.16 $ 16.46 $ 16.30 $ 16.24 $ 14.49
======== ======== ======== ======= =======
TOTAL RETURN (1) ...................... 12.02% 7.61% 15.37% 19.69% 23.65%
======== ======== ======== ======= =======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) ..... $104,715 $101,013 $108,650 $78,199 $63,025
Ratio of Expenses to Average
Net Assets .......................... 2.45% 2.45% 2.55% 2.45% 2.45%
Ratio of Net Investment Income/Loss
to Average Net Assets ............... (0.66%) (0.28%) 0.52% (0.16%) (0.04%)
Portfolio Turnover Rate ............... 99% 84% 108% 45% 44%
---------------------------------------------------------------------------------------------
Effect of Voluntary Expense
Reductions During the Period
Per Share Benefit to Net Investment
Income/Loss ....................... -- $0.00+ $0.02 $0.03 $ 1.16
Ratios Before Expense Reductions:
Expenses to Average Net Assets ...... -- 2.48% 2.56% 2.65% 2.81%
Net Investment Income/Loss to
Average Net Assets ................ -- (0.30%) 0.52% (0.34%) (0.40%)
---------------------------------------------------------------------------------------------
</TABLE>
+ AMOUNT IS LESS THAN $0.01 PER SHARE.
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE SALE CHARGES OR DEFERRED SALES CHARGES.
# CHANGES PER SHARE ARE BASED UPON DAILY AVERAGE SHARES OUTSTANDING.
SEE NOTES TO FINANCIAL STATEMENTS 45
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
The Van Kampen Global Equity Allocation Fund (the "Fund") is organized
as a separate diversified fund of Van Kampen Series Fund, Inc., a Maryland
corporation, which is registered as an open-end management investment company
under the Investment Company Act of 1940, as amended. The Fund's investment
objective seeks long-term capital appreciation by investing in equity
securities of U.S. and non-U.S. issuers in accordance with country weightings
determined by the Adviser and with stock selection within each country
designed to replicate a broad market index. The Fund commenced operations on
January 4, 1993. The Fund began offering the current Class B shares on August
1, 1995. Class B shares held prior to May 1, 1995 were renamed Class C shares.
1. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of the financial statements in conformity with accounting
principles accepted in the United States of America (hereafter "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
period. Actual results could differ from those estimates.
A. SECURITY VALUATION Equity securities listed on a U.S. exchange and equity
securities traded on NASDAQ are valued at the latest quoted sales price on
the valuation date. Securities listed on a foreign exchange are valued at
their closing price. Unlisted securities and listed securities not traded on
the valuation date for which market quotations are readily available are
valued at the average between the bid and asked prices obtained from
reputable brokers. Bonds and other fixed income securities may be valued
according to the broadest and most representative market. Debt securities
purchased with remaining maturities of 60 days or less are valued at
amortized cost, which approximates market value. All other securities and
assets for which market quotations are not readily available are valued at
fair value as determined in good faith using procedures approved by the Board
of Directors.
B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified
price. The Fund may invest independently in repurchase agreements, or
transfer uninvested cash balances into a pooled
46
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
cash account along with other investment companies advised by Van Kampen
Investment Advisory Corp. or its affiliates, the daily aggregate of which is
invested in repurchase agreements. Repurchase agreements are fully
collateralized by the underlying debt security. A bank as custodian for the
Fund takes possession of the underlying securities, with a market value at
least equal to the amount of the repurchase transaction, including principal
and accrued interest. To the extent that any repurchase transaction exceeds
one business day, the value of the collateral is marked-to-market on a daily
basis to determine the adequacy of the collateral. In the event of default on
the obligation to repurchase, the Fund has the right to liquidate the
collateral and apply the proceeds in satisfaction of the obligation. In the
event of default or bankruptcy by the counterparty to the agreement,
realization and/or retention of the collateral or proceeds may be subject to
legal proceedings.
C. INCOME AND EXPENSES Interest income is recorded on an accrual basis and
dividend income is recorded net of applicable withholding taxes on the
ex-dividend date. Income, expenses, and realized and unrealized gains or
losses are allocated on a pro rata basis to each class of shares except for
distribution and service fees which are unique to each class of shares.
Distributions from the Fund are recorded on the ex-distribution date.
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.
The Fund may be subject to taxes imposed by countries in which it invests.
Such taxes are generally based on income earned or gains realized or
repatriated. Taxes are accrued and applied to net investment income, net
realized capital gains and net unrealized appreciation, as applicable, as the
income is earned or capital gains are recorded.
Net realized gains or losses may differ for financial and tax reporting
purposes as a result of losses relating to wash sale transactions.
At June 30, 2000, for federal income tax purposes, cost of long- and
short-term investments is $617,075,220, the aggregate gross unrealized
appreciation is $73,157,452 and the aggregate gross unrealized depreciation
is $39,281,736, resulting in net unrealized appreciation on long- and
short-term investments of $33,875,716.
E. DISTRIBUTION OF INCOME AND GAINS The Fund declares and pays dividends
annually from net investment income and net realized gains, if any.
Distributions from net realized gains for book purposes may include
short-term capital gains which are included as ordinary income for tax
purposes.
Due to inherent differences in the recognition of income and expenses
under generally accepted accounting principles and federal income tax
purposes, perma-
47
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
nent differences between book and tax basis reporting for the current fiscal
year have been identified and appropriately reclassified. A permanent
difference related to a net operating loss which may be used as an offset
against short-term gains for tax purposes totaling $5,595,623 has been
reclassified from accumulated net realized gain to accumulated net investment
loss. A permanent difference of $3,151,811 related to a correction of prior
year amounts was reclassified from accumulated net investment loss to
accumulated net realized gain ($3,052,174) and paid in capital in excess of
par ($99,637). A permanent difference related to the recognition of net
realized losses on foreign currency transactions totaling $6,593,113 was
reclassified from accumulated net investment loss to accumulated net realized
gain. Permanent differences related to the sale of Passive Foreign Investment
Company securities totaling $441,399 were reclassified from accumulated net
realized gain to accumulated net investment loss. A permanent difference
related to taxes paid to a foreign country totaling $33,443 was reclassified
from accumulated net investment loss to accumulated net realized gain. A
permanent difference of $3,112 related to distributions from Real Estate
Investment Trusts was reclassified from accumulated net investment loss to
accumulated net realized gain. Permanent differences relating to a correction
of prior year amounts were reclassified from accumulated net realized gain of
$40,880 to paid in capital in excess of par.
F. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS Assets and
liabilities denominated in foreign currencies and commitments under forward
currency contracts are translated into U.S. dollars at the mean of the quoted
bid and asked prices of such currencies against the U.S. Dollar. Purchases
and sales of portfolio securities are translated at the rate of exchange
prevailing when such securities were acquired or sold. Income and expenses
are translated at rates prevailing when accrued. Realized and unrealized
gains and losses on securities resulting from changes in exchange rates are
not segregated for financial reporting purposes from amounts arising from
changes in the market prices of securities. Realized gains and losses on
foreign currency transactions includes the net realized amount from the sale
of the currency and the amount realized between trade date and settlement
date on security and income transactions.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES Van
Kampen Investment Advisory Corp. (the "Adviser"), a wholly owned subsidiary
of Van Kampen Investments Inc. (an indirect wholly owned subsidiary of Morgan
Stanley Dean Witter & Co.) and Morgan Stanley Dean Witter Investment
Management Inc. ("MSDWIM" or a "Subadviser"), a wholly owned subsidiary of
Morgan Stanley Dean Witter & Co., provide the Fund with investment advisory
services at a fee paid monthly and calculated at the annual rates based on
average daily net assets indicated as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
<S> <C>
First $750 million .................................................. 1.00 of 1%
Next $500 million ................................................... .95 of 1%
Over $1.25 billion .................................................. .90 of 1%
</TABLE>
48
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
The Adviser has agreed to reduce advisory fees payable to it and to reimburse
the Fund, if necessary, if the annual operating expenses, expressed as a
percentage of average daily net assets, exceed the maximum ratios indicated
as follows:
<TABLE>
<CAPTION>
CLASS B
CLASS A AND CLASS C
MAX. OPERATING MAX. OPERATING
EXPENSE RATIO EXPENSE RATIO
<S> <C> <C>
1.70% 2.45%
</TABLE>
For the period ended June 30, 2000, the Fund recognized expenses of
$32,076 representing legal services provided by Skadden, Arps, Slate, Meagher
& Flom (Illinois), counsel to the Fund, of which a director of the Fund is
anaffiliated person.
For the period ended June 30, 2000, the Fund recognized expenses of
$11,189 representing Van Kampen's cost of providing legal services to the
Fund.
Van Kampen Investment Advisory Corp. (the "Administrator") also provides
the Fund with administrative services pursuant to an administrative agreement
for a monthly fee which on an annual basis equals 0.25% of the average daily
net assets of the Fund, plus reimbursement of out-of-pocket expenses. Under
an agreement between the Adviser and The Chase Manhattan Bank ("Chase"),
through its corporate affiliate Chase Global Funds Services Company
("CGFSC"), Chase provides certain administrative services to the Fund. Chase
is compensated for such services by the Adviser from the fee it receives from
the Fund. Transfer Agency services are provided to the Fund by Van Kampen
Investor Services Inc., an affiliate of the Adviser.
Van Kampen Funds Inc. (the "Distributor") a wholly owned subsidiary of
Van Kampen Investments Inc., an indirect wholly owned subsidiary of Morgan
Stanley Dean Witter & Co., serves as the Distributor of the Fund's shares.
The Distributor is entitled to receive from the Fund a distribution fee,
which is accrued daily and paid quarterly, of an amount of up to 0.25% of the
Class A shares and up to 1.00% of the Class B shares and Class C shares of
the Fund on an annualized basis, of the average daily net assets attributable
to each Class.
The Distributor may receive a front end sales charge for purchases of
Class A shares. In addition, the Distributor may receive a contingent
deferred sales charge for certain redemptions of Class B shares and Class C
shares of the Fund redeemed within one to five years following such purchase.
For the period ended June 30, 2000, the Distributor has advised the Fund that
it earned initial sales charges of $1,220,638 for Class A shares and deferred
sales charges of $429,845 and $11,545 for Class B shares and Class C shares,
respectively.
Certain officers and directors of the Fund are also officers and directors
of Van Kampen. The Fund does not compensate its officers or directors who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
directors who are not officers of Van Kampen. Under the deferred compensation
plan,
49
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
directors 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 director's years of service to the Fund. The
maximum annual benefit per director under the plan is $2,500.
For the period ended June 30, 2000, the Fund incurred $27,028 as
brokerage commissions with Morgan Stanley & Co. Incorporated, an affiliated
broker/dealer.
At June 30, 2000, the Fund owned shares of affiliated funds for which
the Fund earned dividend income of $34,474 during the period.
3. CAPITAL TRANSACTIONS
The Fund currently offers three classes of shares, Class A, Class B, and Class C
shares. All three classes of shares have identical voting, dividend, liquidation
and other rights. Class A shares are sold with a front-end sales charge of up to
5.75%. For certain purchases of Class A shares, the front-end sales charges may
be waived and a contingent deferred sales charge ("CDSC") of 1.00% imposed in
the event of certain redemptions within one year of the purchase. Class B and
Class C shares are offered without a front end sales charge, but are subject to
a 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 seven years after the end of the calendar month in
which the shares were purchased. For the period ended June 30, 2000, no Class B
shares converted to Class A shares. The CDSC will be imposed on most redemptions
made within five years of the purchase for Class B shares and one year of the
purchase for Class C shares as detailed in the following schedule:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE ON ASSETS SUBJECT TO
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
Thereafter ........................................... None None
</TABLE>
50
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 2000 JUNE 30, 1999*
-------------- --------------
<S> <C> <C>
CAPITAL SHARE TRANSACTIONS
CLASS A:
Shares:
Subscribed ................................ 16,429,387 6,401,000
Distributions Reinvested .................. 939,649 953,000
Redeemed .................................. (14,592,980) (8,806,000)
------------- -------------
Net Increase/Decrease in Class A
Shares Outstanding ........................ 2,776,056 (1,452,000)
============= =============
Dollars:
Subscribed ................................ $ 288,886,146 $ 102,532,000
Distributions Reinvested .................. 16,039,804 14,538,000
Redeemed .................................. (256,831,261) (139,451,000)
------------- -------------
Net Increase/Decrease ....................... $ 48,094,689 $ (22,381,000)
============= =============
Ending Paid in Capital ...................... $ 240,972,903+ $ 192,898,000+
============= =============
CLASS B:
Shares:
Subscribed ................................ 4,980,511 3,651,000
Distributions Reinvested .................. 902,307 790,000
Redeemed .................................. (5,306,787) (4,141,000)
------------- -------------
Net Increase in Class B
Shares Outstanding ........................ 576,031 300,000
============= =============
Dollars:
Subscribed ................................ $ 84,382,284 $ 56,414,000
Distributions Reinvested .................. 14,779,795 11,694,000
Redeemed .................................. (89,091,503) (64,043,000)
------------- -------------
Net Increase ................................ $ 10,070,576 $ 4,065,000
============= =============
Ending Paid in Capital ...................... $ 213,053,271+ $ 202,973,000+
============= =============
CLASS C:
Shares:
Subscribed ................................ 966,641 871,000
Distributions Reinvested .................. 393,587 355,000
Redeemed .................................. (1,395,666) (1,755,000)
------------- -------------
Net Decrease in Class C
Shares Outstanding ....................... (35,438) (529,000)
============= =============
Dollars:
Subscribed ................................ $ 16,499,139 $ 13,707,000
Distributions Reinvested .................. 6,525,676 5,311,000
Redeemed .................................. (23,691,323) (27,191,000)
------------- -------------
Net Decrease ................................ $ (666,508) $ (8,173,000)
============= =============
Ending Paid in Capital ...................... $ 77,527,932+ $ 78,195,000+
============= =============
</TABLE>
* AMOUNTS ROUNDED TO THE NEAREST (000).
+ ENDING PAID IN CAPITAL AMOUNTS DO NOT REFLECT PERMANENT BOOK TO TAX
DIFFERENCES-SEE NOTE 1E.
51
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
4. INVESTMENT TRANSACTIONS
For the period ended June 30, 2000, the Fund made purchases of $519,365,344
and sales of $529,204,922 of investment securities other than long-term U.S.
government securities and short-term investments. There were no purchases or
sales of long-term U.S. government securities.
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 and to manage the Fund's foreign currency exposure or generate
potential gain. All of the Fund's portfolio holdings, including derivative
instruments, are marked-to-market each day with the change in value reflected in
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 or forward contract. In these
instances, the recognition of gain or loss is postponed until the disposal of
the security underlying the option or forward contract. Risks may arise as a
result of the potential inability of the counterparties to meet the terms of
their contracts.
Summarized below are the specific types of derivative financial
instruments used by the Fund.
A. FORWARD CURRENCY CONTRACTS These instruments are commitments to purchase
or sell a foreign currency at a future date at a negotiated forward rate. The
gain or loss arising from the difference between the original value of the
contract and the closing value of such contract is included as a component of
realized gain/loss on foreign currency transactions.
52
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
At June 30, 2000, the Fund has outstanding forward currency contracts as
follows:
<TABLE>
<CAPTION>
UNREALIZED
CURRENT APPRECIATION/
FORWARD CURRENCY CONTRACTS VALUE DEPRECIATION
<S> <C> <C>
LONG CONTRACTS:
British Pound, 195,478 expiring 9/8/00 ............... $ 296,088 $ (340)
Euro, 762,861 expiring 9/8/00 ........................ 730,794 6,206
Japanese Yen, 2,394,624,842 expiring 7/21/00-9/11/00 . 22,653,905 341,110
----------- --------
$23,680,787 $346,976
=========== ========
SHORT CONTRACTS:
British Pound, 4,458,740 expiring 9/12/00 ............ $ 6,754,132 $(47,453)
Euro, 40,345,131 expiring 9/8/00 ..................... 38,649,204 114,042
Japanese Yen, 3,902,110,896 expiring 7/21/00 ......... 36,914,107 555,691
----------- --------
$82,317,443 $622,280
=========== ========
$969,256
========
</TABLE>
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 futures of equity indices and typically
closes the contract prior to the delivery date. These contracts are generally
used to manage the portfolio's effective maturity and duration.
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
potential risk of loss associated with a futures contract in excess of the
variation margin is reflected on the Statement of Assets and Liabilities. The
cost of securities acquired through delivery under a contract is adjusted by
the unrealized gain or loss on the contract.
53
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
Transactions in futures contracts for the period ended June 30, 2000, were as
follows:
<TABLE>
<CAPTION>
CONTRACTS
<S> <C>
Outstanding at June 30, 1999 ...................................... 515
Futures Opened .................................................... 4,858
Futures Closed .................................................... (4,374)
------
Outstanding at June 30, 2000 ...................................... 999
======
</TABLE>
The futures contracts outstanding as of June 30, 2000, and the descriptions and
the unrealized appreciation/depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
<S> <C> <C>
LONG CONTRACTS:
CAC 40 Index - September 2000
(Current notional value $6,492 per contract) ....... 509 $(858,208)
Goldman Sachs Index - August 2000
(Current notional value $6,357 per contract) ....... 67 (302,215)
Goldman Sachs Index - August 2000
(Current notional value $1,592 per contract) ....... 183 46,724
Hang Seng Index - July 2000
(Current notional value $16,240 per contract) ...... 66 10,579
IBEX Plus Index - July 2000
(Current notional value $10,498 per contract) ...... 56 (216,156)
MIB 30 Index - August 2000
(Current notional value $46,950 per contract) ...... 34 (36,299)
TOPIX Index - August 2000
(Current notional value $1,592 per contract) ....... 46 16,104
SHORT CONTRACTS:
DAX Index - September 2000
(Current notional value $6,950 per contract) ....... 35 341,827
FTSE 100 Index - August 2000
(Current notional value $6,357 per contract) ....... 3 9,229
--- ---------
999 $(988,415)
=== =========
</TABLE>
6. BORROWINGS
In accordance with its investment policies, the Fund may borrow from banks
for temporary purposes and is subject to certain other customary
restrictions. Effective November 30, 1999, the Fund, in conjunction with
certain other funds of Van Kampen, has entered into a $650 million committed
line of credit facility with a group of banks which expires on November 28,
2000, but is renewable with the consent of the participating banks. Each fund
is permitted to utilize the facility in accordance with the restrictions of
its prospectus. In the event the demand for the credit facility meets or
exceeds $650 million on a complex-wide basis, each fund will be limited to
its pro-rata percentage based on the net assets of each participating fund.
Interest on borrowings is charged under the agreement at a rate of 0.50%
above the federal funds rate per annum. An annual commitment fee of 0.09% per
annum is charged on the unused portion of the credit facility, which each
fund incurs based on its pro-rata percentage of quarterly net assets. The
Fund has not borrowed against the credit facility during the period.
54
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of Van Kampen Global Equity
Allocation Fund
We have audited the accompanying statement of assets and liabilities of
Van Kampen Global Equity Allocation Fund (the "Fund"), a fund of Van Kampen
Series Fund, Inc., including the portfolio of investments, as of June 30,
2000, and the related statements of operations, changes in net assets and the
financial highlights for the year then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit. The Fund's financial statements and
financial highlights for the periods ended prior to June 30, 2000, were
audited by other auditors whose report, dated August 6, 1999, expressed an
unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of June 30, 2000, by correspondence with the Fund's
custodian and brokers; where replies were not received from brokers, we
performed other auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen Global Equity Allocation Fund as of June 30, 2000, the results of its
operations, the changes in its net assets and the financial highlights for the
year then ended, in conformity with accounting principles generally accepted in
the United States of America.
DELOITTE & TOUCHE LLP
Chicago, Illinois
August 11, 2000
55
<PAGE>
FUND OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
BOARD OF DIRECTORS
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*
Chairman, Director, President,
Chief Executive Officer
STEPHEN L. BOYD*
Executive Vice President and
Chief Investment Officer
A. THOMAS SMITH III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Chief Financial Officer and Treasurer
RICHARD A. CICCARONE*
JOHN R. REYNOLDSON*
MICHAEL H. SANTO*
JOSEPH P. STADLER*
JOHN H. ZIMMERMANN, III*
Vice Presidents
INVESTMENT ADVISER AND
ADMINISTRATOR
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
INVESTMENT SUBADVISER
MORGAN STANLEY DEAN WITTER INVESTMENT
MANAGEMENT INC.
1221 Avenue of the Americas
New York, New York 10020
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
CUSTODIAN
THE CHASE MANHATTAN BANK
3 MetroTech Center
Brooklyn, New York 11245
DIVIDEND DISBURSING AND
TRANSFER AGENT
VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 218256
Kansas City, Missouri 64121-8256
LEGAL COUNSEL
SKADDEN, ARPS, SLATE, MEAGHER &
FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT AUDITORS
DELOITTE & TOUCHE LLP
180 N. Stetson Avenue
Chicago, IL 60601
-------------------------------------------------------------------------------
The following information is furnished with respect to the distributions paid
by the Fund during its taxable year ended June 30, 2000. The Fund designated
and paid $31,416,502 as a 20% rate gain distribution. In January 2000, the
Fund provided tax information to shareholders for the 1999 calendar year. For
corporate shareholders 36% of the distribution qualifies for the dividends
received deduction.
-------------------------------------------------------------------------------
* "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.
56
<PAGE>
RESULTS OF
SHAREHOLDER VOTES
JUNE 30, 2000
A Joint Special Meeting of the Shareholders of the Global Equity Allocation Fund
(the "Fund") was held on December 15, 1999. The description of each proposal and
number of shares voted are as follows:
1. To elect the following Directors to serve the Fund.
<TABLE>
<CAPTION>
VOTED FOR WITHHELD
<S> <C> <C>
J. Miles Branagan .............................. 18,478,727 212,614
Jerry D. Choate ................................ 18,475,810 215,531
Linda Hutton Heagy ............................. 18,481,724 209,617
R. Craig Kennedy ............................... 18,484,688 206,653
Mitchell M. Merin .............................. 18,475,639 215,702
Jack E. Nelson ................................. 18,479,378 211,963
Richard F. Powers, III ......................... 18,475,487 215,854
Phillip B. Rooney .............................. 18,478,392 212,948
Fernando Sisto ................................. 18,470,979 220,362
Wayne W. Whalen ................................ 18,480,021 211,319
Suzanne H. Woolsey ............................. 18,465,385 225,956
Paul G. Yovovich* .............................. 18,478,684 212,656
</TABLE>
* EFFECTIVE APRIL 14, 2000, PAUL G. YOVOVICH RESIGNED FROM THE BOARD OF
DIRECTORS.
2. To ratify PricewaterhouseCoopers LLP to act as independent public
accountants for the Fund.(1)
<TABLE>
<CAPTION>
AFFIRMATIVE AGAINST ABSTAIN
<S> <C> <C> <C>
18,369,368 67,639 254,334
</TABLE>
(1) INDEPENDENT ACCOUNTANTS FOR THE FUND PERFORM AN ANNUAL AUDIT OF THE
FUND'S FINANCIAL STATEMENTS. THE BOARD OF DIRECTORS HAS ENGAGED DELOITTE &
TOUCHE LLP TO BE THE FUND'S INDEPENDENT ACCOUNTANTS.
PricewaterhouseCoopers LLP, located at 200 East Randolph Drive, Chicago, IL
60601 ("PWC"), ceased being the Fund's independent accountants effective May
18, 2000. The cessation of the client-auditor relationship between the Fund
and PWC was based solely on a possible future business relationship by PWC
with an affiliate of the Fund's investment adviser.
57
<PAGE>
VAN KAMPEN
FOCUS EQUITY FUND
ANNUAL REPORT
JUNE 30, 2000
[PHOTO OF WALL STREET SIGN]
VAN KAMPEN
FUNDS
<PAGE>
TABLE OF CONTENTS
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 4 IT IS TIMES
GROWTH OF A $10,000 INVESTMENT 5
LIKE THESE
PORTFOLIO AT A GLANCE
TOP TEN HOLDINGS 6 WHEN MONEY-
TOP FIVE SECTORS 6
Q&A WITH YOUR PORTFOLIO MANAGERS 7 MANAGEMENT
GLOSSARY OF TERMS 10
EXPERIENCE
BY THE NUMBERS
YOUR FUND'S INVESTMENTS 11 MAY MAKE
FINANCIAL STATEMENTS 14
NOTES TO FINANCIAL STATEMENTS 21 A DIFFERENCE.
REPORT OF INDEPENDENT AUDITORS 28
VAN KAMPEN FUNDS
THE VAN KAMPEN FAMILY OF FUNDS 29
FUND OFFICERS AND IMPORTANT ADDRESSES 30
RESULTS OF SHAREHOLDER VOTES 31
-------------------------------------------------------
NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE.
-------------------------------------------------------
<PAGE>
-------------
474, 574, 674 PRESORTED
MSAE ANR 8/00 STANDARD
VAN KAMPEN FUNDS INC. U.S. Postage
1 Parkview Plaza PAID
P.O. Box 5555 VAN KAMPEN
Oakbrook Terrace, Illinois 60181-5555 FUNDS
-------------
<PAGE>
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
OVERVIEW 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,
/s/ Richard F. Powers, III
Richard F. Powers, III
President and CEO
Van Kampen Investments
1
<PAGE>
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>
U.S. GROSS DOMESTIC PRODUCT
SEASONALLY ADJUSTED ANNUALIZED RATES
(JUNE 30, 1998 - JUNE 30, 2000)
[CHART]
<TABLE>
<CAPTION>
<S> <C>
Jun-98 2.1%
Sep-98 3.8%
Dec-98 5.9%
Mar-99 3.5%
Jun-99 2.5%
Sep-99 5.7%
Dec-99 8.3%
Mar-00 4.8%
Jun-00 5.2%
</TABLE>
SOURCE: BUREAU OF ECONOMIC ANALYSIS
INTEREST RATES AND INFLATION
(JUNE 30, 1998 - JUNE 30, 2000)
[CHART]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
<S> <C> <C>
Jun-98 5.500 1.70
Jul-98 5.500 1.70
Aug-98 5.500 1.60
Sep-98 5.250 1.50
Oct-98 5.000 1.50
Nov-98 4.750 1.50
Dec-98 4.750 1.60
Jan-99 4.750 1.70
Feb-99 4.750 1.60
Mar-99 4.750 1.70
Apr-99 4.750 2.30
May-99 4.750 2.10
Jun-99 5.000 2.00
Jul-99 5.000 2.10
Aug-99 5.250 2.30
Sep-99 5.250 2.60
Oct-99 5.250 2.60
Nov-99 5.500 2.60
Dec-99 5.500 2.70
Jan-00 5.500 2.70
Feb-00 5.750 3.20
Mar-00 6.000 3.70
Apr-00 6.000 3.00
May-00 6.500 3.10
Jun-00 6.500 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>
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(AS OF JUNE 30, 2000)
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
---------------------------------------------------------------------------
<S> <C> <C> <C>
One-year total return based on NAV(1) 25.28% 24.42% 24.38%
---------------------------------------------------------------------------
One-year total return(2) 18.09% 19.42% 23.38%
---------------------------------------------------------------------------
Life-of-Fund average annual total return(2) 27.86% 28.49% 28.61%
---------------------------------------------------------------------------
Commencement date 1/2/96 1/2/96 1/2/96
---------------------------------------------------------------------------
</TABLE>
(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.
SEE THE COMPARATIVE PERFORMANCE SECTION OF THE CURRENT PROSPECTUS. 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.
BECAUSE THE PRICES OF COMMON STOCKS AND OTHER SECURITIES FLUCTUATE, THE
VALUE OF AN INVESTMENT IN THE FUND WILL VARY UPON THE FUND'S INVESTMENT
PERFORMANCE.
MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO PASS.
4
<PAGE>
GROWTH OF A $10,000 INVESTMENT
(JANUARY 2, 1996 - JUNE 30, 2000)
Focus Equity Fund................. $28,440
Standard & Poor's 500 Index
MEASURES THE PERFORMANCE OF
500 WIDELY HELD COMMON STOCKS
FROM 83 INDUSTRIAL GROUPS......... $25,184
Fund's Total Return
1 Year Total Return 18.09%
Inception Avg. Annual 27.86%
THIS CHART COMPARES YOUR FUND'S PERFORMANCE TO THAT OF THE STANDARD & POOR'S
500 INDEX OVER TIME.
THIS INDEX IS AN UNMANAGED BROAD-BASED, STATISTICAL COMPOSITE THAT DOES NOT
INCLUDE ANY COMMISSIONS OR FEES THAT WOULD BE PAID BY AN INVESTOR PURCHASING
THE SECURITIES IT REPRESENTS. SUCH COSTS WOULD LOWER THE PERFORMANCE OF THIS
INDEX. THE HISTORICAL PERFORMANCE OF THE INDEX IS SHOWN FOR ILLUSTRATIVE
PURPOSES ONLY; IT IS NOT MEANT TO FORECAST, IMPLY, OR GUARANTEE THE FUTURE
PERFORMANCE OF ANY INVESTMENT VEHICLE. IT IS NOT POSSIBLE TO INVEST DIRECTLY IN
AN INDEX.
THE ABOVE CHART REFLECTS THE PERFORMANCE OF CLASS A SHARES OF THE FUND. THE
PERFORMANCE OF CLASS A SHARES WILL DIFFER FROM THAT OF OTHER SHARE CLASSES OF
THE FUND BECAUSE OF THE DIFFERENCE IN SALES CHARGES AND/OR EXPENSES PAID BY
SHAREHOLDERS INVESTING IN THE DIFFERENT SHARE CLASSES. THE FUND'S PERFORMANCE
ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS, AND INCLUDES PAYMENT OF THE MAXIMUM
SALES CHARGE (5.75% FOR CLASS A SHARES).
WHILE PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THE ABOVE INFORMATION
PROVIDES A BROADER VANTAGE POINT FROM WHICH TO EVALUATE THE DISCUSSION OF THE
FUND'S PERFORMANCE FOUND IN THE FOLLOWING PAGES.
5
<PAGE>
PORTFOLIO AT A GLANCE
TOP TEN HOLDINGS*
(AS A PERCENTAGE OF NET ASSETS--JUNE 30, 2000)
<TABLE>
<S> <C> <C> <C> <C> <C>
1. TYCO INTERNATIONAl 6.7% 6. INTEL 4.5%
Manufactures electrical components, Designs, manufactures, and markets
communication systems, medical microcomputer components.
supplies, and fire-detection systems.
2. PFIZER 6.7% 7. HOME DEPOT 4.2%
Manufactures pharmaceuticals, including Sells building materials and home-
Viagra and Lipitor, and consumer products improvement products.
such as Certs, Listerine, and Visine.
3. UNITED TECHNOLOGIES 5.3% 8. NORTEL NETWORKS 4.1%
Manufactures building systems and Supplies network solutions to the
aerospace products, including elevators, communications industry worldwide.
engines, and helicopters.
4. GENERAL ELECTRIC 5.3% 9. AT&T CORP. LIBERTY MEDIA 3.3%
Produces appliances, lighting products, Owns and operates cable television
aircraft engines, and plastics. channels in the United States.
5. CISCO SYSTEMS 5.0% 10. MAXIM INTEGRATED PRODUCTS 3.3%
Provides solutions that connect computing Develops integrated circuits for
devices and computer networks. computers and communications equipment.
</TABLE>
*EXCLUDES SHORT-TERM INVESTMENT
TOP FIVE SECTORS*
(AS A PERCENTAGE OF NET ASSETS--JUNE 30, 2000)
<TABLE>
<S> <C>
Information Technology 34.6%
Industrials 18.6%
Health Care 14.1%
Consumer Discretionary 14.0%
Financials 6.7%
</TABLE>
* THESE SECTORS REPRESENT BROAD GROUPINGS OF RELATED INDUSTRIES.
6
<PAGE>
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH THE MANAGEMENT TEAM OF THE VAN KAMPEN FOCUS EQUITY FUND
ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE MARKETS AND INFLUENCED
THE FUND'S RETURN DURING THE 12 MONTHS ENDED JUNE 30, 2000. THE TEAM IS LED BY
PHILIP W. FRIEDMAN AND WILLIAM S. AUSLANDER, PORTFOLIO MANAGERS, MORGAN STANLEY
DEAN WITTER INVESTMENT MANAGEMENT, BOTH OF WHOM HAVE MANAGED THE FUND SINCE 1998
AND HAVE BEEN IN THE INDUSTRY SINCE 1983 AND 1985, RESPECTIVELY. 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 growth
stocks continued to outperform value stocks, as they have for the last six
years. (There can be no assurance that growth stocks will continue to be
favored over value stocks in the future.)
The Dow Jones Industrial Average started off the reporting period in a
slump, losing more than six percent of its value in the third quarter of 1999.
However, boosted by a market rally, it finished the year at a record high
level. The Dow's results paled in comparison to the technology-heavy NASDAQ
index, which finished the calendar year up an amazing 86 percent.
This strength continued into the first quarter of 2000, but then cracks
began to show in the market. The major indexes were unable to sustain their
performance as the strength of the economy caused investors to worry about
further interest-rate increases by the Federal Reserve Board (the Fed). Both
the S&P 500 and the NASDAQ fell sharply beginning in April, due to concerns
about technology stocks' high valuations and the effects of continued
interest-rate increases on U.S. corporate earnings. Late in the reporting
period, declines in housing starts and retail sales and increases in
unemployment claims seemed to point to the economic slowdown the Fed had been
trying to achieve with its interest-rate hikes.
While this volatility challenged performance, the fund's strong showing in
the first half of the reporting period allowed the fund to return 25.28 percent
for the 12-month period ended June 30, 2000 (CLASS A SHARES AT NET ASSET VALUE;
IF THE MAXIMUM SALES CHARGE OF 5.75 PERCENT WERE INCLUDED, THE RETURN WOULD
HAVE BEEN LOWER). DUE TO RECENT MARKET ACTIVITY, FUND PERFORMANCE MAY VARY FROM
FIGURES SHOWN. BY COMPARISON, THE STANDARD & POOR'S 500 INDEX RETURNED 7.25
PERCENT. OF COURSE, PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. THE S&P
500 INDEX IS AN UNMANAGED,
7
<PAGE>
BROAD-BASED INDEX THAT MEASURES THE PERFORMANCE OF 500 STOCKS FROM 83
INDUSTRIAL GROUPS AND REFLECTS THE GENERAL PERFORMANCE OF THE STOCK MARKET.
IT IS A STATISTICAL COMPOSITE THAT DOES NOT INCLUDE ANY COMMISSIONS OR SALES
CHARGES THAT WOULD BE PAID BY AN INVESTOR PURCHASING THE SECURITIES IT
REPRESENTS. 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 believe that identifying and investing in companies that
appear to have the potential to generate surprisingly strong earnings growth is
the best way to produce strong fund performance. We focus on three types of
stocks, regardless of market conditions: classic growth stocks; nontraditional,
lesser-known growth stocks; and growth stocks with strong fundamentals whose
prices may have been driven down by what we believe to be unfounded investor
fears. The volatility we saw in the markets in the past year did not change our
basic investment philosophy. Rather, it reinforced the value of what we do on a
day-to-day basis, which is conducting extensive research on each company and
strengthening our "information edge."
Q WHAT STOCKS DID THIS STRATEGY
IDENTIFY THAT HELPED FUND
PERFORMANCE?
A We were pleased with the success of our bottom-up stock picking, especially
because we had a technology weighting comparable to our benchmark index. The
fund's technology stocks, including Cisco Systems and Texas Instruments, helped
boost fund performance.
Portfolio positions in "old economy" stocks such as United Technologies,
Pfizer/Warner Lambert, and Tyco were positive contributors to performance. We
were especially pleased with the performance of Tyco, a diversified
manufacturing and service company, given the major downward move its stock
sustained in the fourth quarter of 1999 due to questions surrounding the firm's
accounting methods. Tyco's stock rebounded for a couple of reasons. Late in the
reporting period, the SEC inquiry into Tyco's accounting revealed that Tyco's
methods did not lead to a misstatement of earnings as some had believed. Tyco
also made a $4 billion acquisition of Mallinckrodt, a manufacturer and
distributor of health-care products and services. Both of these events boosted
Tyco's stock and helped fund performance. Keep in mind that not all stocks in
the portfolio performed favorably, and there is no guarantee that any of these
stocks will perform well or be held by the fund in the future.
Q CAN YOU TALK ABOUT THE
PFIZER/WARNER LAMBERT MERGER
AND YOUR OUTLOOK FOR THE STOCK OF
THE SURVIVING COMPANY, PFIZER?
A Large-cap pharmaceutical stocks dramatically outperformed the market late in
the reporting period and Pfizer outperformed its peers. Its acquisition of
Warner Lambert was formally completed in mid-June, but integration planning was
already well underway. As such, we believe Pfizer will hit its cost-cutting
targets earlier than expected. Prescription volume growth for most of the
company's major drugs remains robust, particularly for Viagra and Zyrtec.
8
<PAGE>
We believe Pfizer remains a compelling investment, and it is a core holding
in the fund's portfolio.
Q WHICH STOCKS HURT THE FUND'S
RETURN?
A Not all technology stocks could be counted on for positive performance, with
Microsoft detracting significantly from the fund's return. We were also
disappointed by Motorola, whose stock performed poorly when the company did not
do as well in the mobile handset market as expected.
Many of the holdings that hurt the fund's performance were in the retail
arena. One of our top holdings, Home Depot, the leading home improvement
retailer, was among several retail stocks punished by the market, despite no
change in its fundamentals. Although the company met Wall Street analysts'
earnings estimates, issues such as accelerating labor and infrastructure
expenses, rising interest rates, slower housing turnover, and the rising cost
of gas created pressure on the stock as well as the retail sector in general.
Further research led us to the conclusion that the stock's decline was an
overreaction to short-term issues; in fact, we viewed this dip in the stock's
price as a buying opportunity.
Q WHAT DO YOU SEE AHEAD FOR THE
MARKET AND THE FUND?
A We believe the Fed is in its seventh-inning stretch on interest-rate hikes
and that, combined with the surge of growth stocks late in the second quarter,
makes us extremely optimistic about the prospect for large-cap growth stocks
going forward. Signs of a soft landing for the economy, as well as strong
fundamentals and compelling business opportunities in corporate America, are
creating a favorable environment for growth stocks.
9
<PAGE>
GLOSSARY OF TERMS A HELPFUL GUIDE TO SOME OF THE COMMON
TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.
CLASS A SHARES: A division of mutual fund shares, which are generally divided
into three groupings, called Class A, Class B, and Class C shares. The specific
features of each are dependent on varying fees and sales charges. In most
cases, Class A shares will have no redemption fee (contingent deferred sales
charge).
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.
HARD LANDING: Occurs when economic growth slows to a recession.
OLD ECONOMY: Refers to established companies focusing more on industrial and
manufacturing services.
SALES CHARGE: Also referred to as the load, this is a fee paid by a buyer to
acquire shares in a mutual fund.
SOFT LANDING: Occurs when economic growth slows but remains fast enough to
prevent a recession. At the same time, growth slows enough to prevent inflation.
VALUATION: The estimated or determined worth of a stock, based on financial
measures such as the stock's current price relative to earnings, revenue, book
value, and cash flow.
VOLATILITY: A measure of the fluctuation in the market price of a security. A
security that is volatile has frequent and large swings in price.
10
<PAGE>
BY THE NUMBERS
YOUR FUND'S INVESTMENTS THE FOLLOWING PAGES DETAIL YOUR FUND'S
JUNE 30, 2000 PORTFOLIO OF INVESTMENTS AT THE END OF THE
REPORTING PERIOD.
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
COMMON STOCKS+ 96.8%
CONSUMER DISCRETIONARY 14.0%
MEDIA 8.3%
AMFM, Inc. (a).......................................... 75,800 $ 5,230,200
AT&T Corp. Liberty Media Group 'A' (a).................. 765,861 18,572,122
Clear Channel Communications, Inc. (a).................. 102,500 7,687,500
Time Warner, Inc........................................ 192,800 14,652,800
------------
46,142,622
------------
SPECIALTY RETAIL 5.7%
Home Depot, Inc......................................... 469,300 23,435,669
Intimate Brands, Inc.................................... 38,000 750,500
Limited, Inc. (The)..................................... 334,900 7,242,212
------------
31,428,381
------------
TOTAL CONSUMER DISCRETIONARY....................................... 77,571,003
------------
CONSUMER STAPLES 3.1%
BEVERAGES 1.0%
Anheuser-Busch Cos., Inc................................ 74,400 5,556,750
------------
FOOD & DRUG RETAILING 1.1%
Safeway, Inc. (a)....................................... 131,200 5,920,400
------------
FOOD PRODUCTS 1.0%
Quaker Oats Co.......................................... 77,400 5,814,675
------------
TOTAL CONSUMER STAPLES............................................ 17,291,825
------------
FINANCIALS 6.7%
BANKS 2.3%
Bank of New York Co., Inc............................... 279,600 13,001,400
------------
DIVERSIFIED FINANCIALS 4.4%
American Express Co..................................... 117,400 6,119,475
Citigroup, Inc.......................................... 190,900 11,501,725
Fannie Mae.............................................. 128,300 6,695,656
------------
24,316,856
------------
TOTAL FINANCIALS.................................................. 37,318,256
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
HEALTH CARE 14.1%
PHARMACEUTICALS 14.1%
American Home Products Corp............................. 227,300 $ 13,353,875
Johnson & Johnson....................................... 99,800 10,167,125
Merck & Co., Inc........................................ 75,200 5,762,200
Pfizer, Inc............................................. 769,325 36,927,600
Pharmacia Corp.......................................... 230,500 11,913,969
------------
78,124,769
------------
INDUSTRIALS 18.6%
AEROSPACE & DEFENSE 6.6%
General Dynamics Corp................................... 134,300 7,017,175
United Technologies Corp................................ 501,500 29,525,813
------------
36,542,988
------------
INDUSTRIAL CONGLOMERATES 12.0%
General Electric Co..................................... 554,300 29,377,900
Tyco International Ltd.................................. 784,800 37,179,900
------------
66,557,800
------------
TOTAL INDUSTRIALS................................................. 103,100,788
------------
INFORMATION TECHNOLOGY 34.6%
COMMUNICATIONS EQUIPMENT 14.9%
American Tower Corp.'A' (a)............................. 148,800 6,203,100
Cisco Systems, Inc. (a)................................. 439,800 27,954,787
JDS Uniphase Corp. (a).................................. 72,900 8,738,888
Lucent Technologies, Inc................................ 105,500 6,250,875
Motorola, Inc........................................... 370,400 10,764,750
Nortel Networks Corp.................................... 336,700 22,979,775
------------
82,892,175
------------
COMPUTERS & PERIPHERALS 2.8%
Hewlett-Packard Co...................................... 42,600 5,319,675
Sun Microsystems, Inc. (a).............................. 115,900 10,539,656
------------
15,859,331
------------
SEMICONDUCTOR EQUIPMENT & PRODUCTS 12.3%
Applied Materials, Inc. (a)............................. 137,200 12,433,750
Intel Corp.............................................. 185,800 24,839,137
Maxim Integrated Products, Inc. (a)..................... 273,100 18,553,731
Texas Instruments, Inc.................................. 180,200 12,377,488
------------
68,204,106
------------
</TABLE>
12 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
SOFTWARE 4.6%
Microsoft Corp. (a)..................................... 187,600 $ 15,008,000
Oracle System Corp. (a)................................. 123,500 10,381,719
------------
25,389,719
------------
TOTAL INFORMATION TECHNOLOGY...................................... 192,345,331
------------
TELECOMMUNICATION SERVICES 5.7%
DIVERSIFIED TELECOMMUNICATION SERVICES 4.8%
AT&T Corp.............................................. 152,308 4,816,737
GTE Corp............................................... 208,700 12,991,575
Sprint Corp............................................ 68,100 3,473,100
WorldCom, Inc. (a)..................................... 122,200 5,605,925
------------
26,887,337
------------
WIRELESS TELECOMMUNICATION SERVICES 0.9%
Crown Castle International Corp. (a)................... 136,900 4,996,850
------------
TOTAL TELECOMMUNICATION SERVICES.................................. 31,884,187
------------
TOTAL LONG-TERM INVESTMENTS 96.8%
(Cost $448,532,689)................................ 537,636,159
------------
<CAPTION>
PAR
VALUE
<S> <C> <C>
SHORT-TERM INVESTMENT 4.1%
REPURCHASE AGREEMENT 4.1%
CHASE SECURITIES, INC. 6.15%, DATED 6/30/00, DUE 7/3/00, $22,575,000
to be repurchased at $22,586,570, collateralized by
$24,400,000 U.S. Treasury Notes 4.25%, due 11/15/03,
valued at $23,027,500
(Cost $22,575,000).................................. 22,575,000
------------
TOTAL INVESTMENTS 100.9%
(Cost $471,107,689)................................. 560,211,159
LIABILITIES IN EXCESS OF OTHER ASSETS -0.9%............ (5,153,862)
------------
NET ASSETS 100%........................................ $555,057,297
============
</TABLE>
(a) NON-INCOME PRODUCING SECURITY
+ THE COMMON STOCKS ARE CLASSIFIED BY SECTORS WHICH REPRESENT BROAD GROUPINGS
OF RELATED INDUSTRIES.
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
JUNE 30, 2000
<TABLE>
<S> <C>
ASSETS:
Investments at Value (Cost $471,107,689)................ $560,211,159
Cash.................................................... 726
Receivable for:
Fund Shares Sold...................................... 3,958,290
Investments Sold...................................... 512,732
Dividends............................................. 255,335
Interest.............................................. 3,856
Deferred Organizational Costs........................... 5,447
Other................................................... 7,277
------------
Total Assets........................................ 564,954,822
------------
LIABILITIES:
Payable for:
Investments Purchased................................. 8,197,734
Distribution Fees..................................... 641,936
Investment Advisory Fees.............................. 374,983
Fund Shares Redeemed.................................. 348,293
Administrative Fees................................... 111,810
Shareholder Reporting Expenses........................ 54,443
Transfer Agent Fees................................... 43,130
Professional Fees..................................... 40,204
Directors' Fees and Expenses.......................... 34,253
Custody Fees.......................................... 20,922
Other................................................... 29,817
------------
Total Liabilities................................... 9,897,525
------------
NET ASSETS.............................................. $555,057,297
============
NET ASSETS CONSIST OF:
Capital Stock at Par ($.001 par value, Shares Authorized
2,625,000,000)........................................ $ 20,921
Paid in Capital in Excess of Par........................ 437,866,376
Net Unrealized Appreciation on Investments.............. 89,103,470
Accumulated Net Realized Gain........................... 28,101,166
Accumulated Net Investment Loss......................... (34,636)
------------
NET ASSETS.............................................. $555,057,297
============
Class A Shares:
Net Asset Value and Redemption Price Per Share (Based
on Net Assets of $185,983,372 and 6,844,207 Shares
Outstanding)........................................ $ 27.17
============
Maximum Sales Charge................................ 5.75%
Maximum Offering Price Per Share (Net Asset Value Per
Share X 100/ (100% - maximum sales charge))............. $ 28.83
============
</TABLE>
14 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
Statement of Assets and Liabilities
JUNE 30, 2000
<TABLE>
<S> <C>
Class B Shares:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $307,757,536 and 11,737,694 Shares Outstanding)* $ 26.22
============
Class C Shares:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $61,316,389 and 2,339,609 Shares Outstanding)* $ 26.21
============
</TABLE>
* REDEMPTION PRICE MAY BE SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE.
SEE NOTES TO FINANCIAL STATEMENTS 15
<PAGE>
Statement of Operations
YEAR ENDED JUNE 30, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends............................................... $ 2,377,674
Interest................................................ 725,047
------------
Total Income........................................ 3,102,721
------------
EXPENSES:
Investment Advisory Fees................................ 3,507,934
Distribution Fees (Attributed to Classes A, B and C of
$292,710, $2,312,479 and $414,005, respectively)...... 3,019,194
Administrative Fees..................................... 979,119
Shareholder Reports..................................... 197,974
Transfer Agent Fees..................................... 186,865
Filing and Registration Fees............................ 101,981
Professional Fees....................................... 58,488
Custodian Fees.......................................... 48,145
Directors' Fees and Expenses............................ 27,488
Amortization of Organizational Costs.................... 9,795
Other................................................... 8,890
------------
Total Expenses...................................... 8,145,873
Less Expense Reductions............................. (233,167)
------------
Net Expenses........................................ 7,912,706
------------
NET INVESTMENT LOSS..................................... $ (4,809,985)
============
NET REALIZED GAIN/LOSS ON:
Investments............................................. $35,176,501
------------
NET UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period............................... 38,496,198
------------
End of the Period:
Investments......................................... 89,103,470
------------
Net Change in Unrealized Appreciation/Depreciation...... 50,607,272
------------
NET REALIZED GAIN/LOSS AND NET CHANGE IN UNREALIZED
APPRECIATION/DEPRECIATION............................. $85,783,773
============
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.... $80,973,788
============
</TABLE>
16 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
Statement of Changes in Net Assets
YEAR ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 2000 JUNE 30, 1999*
------------- --------------
<S> <C> <C>
INCREASE/DECREASE IN NET ASSETS
OPERATIONS:
Net Investment Loss................................ $ (4,809,985) $ (2,961,000)
Net Realized Gain.................................. 35,176,501 24,593,000
Net Change in Unrealized Appreciation/
Depreciation..................................... 50,607,272 32,373,000
------------ ------------
Net Increase in Net Assets Resulting from
Operations....................................... 80,973,788 54,005,000
------------- ------------
DISTRIBUTIONS:
Net Realized Gain:
Class A............................................ (5,401,493) (4,962,000)
Class B............................................ (12,402,976) (11,751,000)
Class C............................................ (2,123,931) (2,021,000)
------------ ------------
Net Decrease in Net Assets Resulting from
Distributions.................................... (19,928,400) (18,734,000)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Subscribed......................................... 330,426,602 95,378,000
Distributions Reinvested........................... 18,264,016 17,353,000
Redeemed........................................... (131,885,226) (90,199,000)
------------ ------------
Net Increase in Net Assets Resulting from
Capital Share Transactions...................... 216,805,392 22,532,000
------------ ------------
Total Increase in Net Assets....................... 277,850,780 57,803,000
NET ASSETS--Beginning of Period.................... 277,206,517 219,404,000
------------ ------------
NET ASSETS--End of Period (Including accumulated
net investment loss of $(34,636) and $(15,000),
respectively)...................................... $555,057,297 $277,207,000
============ ============
</TABLE>
* AMOUNTS ROUNDED TO THE NEAREST (000).
SEE NOTES TO FINANCIAL STATEMENTS 17
<PAGE>
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL
Financial Highlights HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------- JANUARY 2, 1996*
CLASS A SHARES 2000# 1999# 1998# 1997 TO JUNE 30, 1996
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD......................... $22.98 $20.01 $16.98 $14.40 $12.00
------- ------- ------ ------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss........ (0.18) (0.14) (0.07) 0.01 0.06
Net Realized and
Unrealized Gain................. 5.82 4.70 5.03 3.95 2.40
------- ------- ------ ------- ---------
Total From Investment Operations.... 5.64 4.56 4.96 3.96 2.46
------- ------- ------ ------- ---------
DISTRIBUTIONS
Net Investment Income............. -- -- -- (0.03) (0.06)
Net Realized Gain................. (1.45) (1.59) (1.93) (1.35) --
------- ------- ------- ------- ---------
Total Distributions................. (1.45) (1.59) (1.93) (1.38) (0.06)
------- ------- ------- ------- ---------
NET ASSET VALUE, END OF PERIOD...... $27.17 $22.98 $20.01 $16.98 $14.40
======= ======= ====== ======= =========
TOTAL RETURN (1).................... 25.28% 25.57% 30.93% 28.93% 20.52%**
======= ======= ====== ======= =========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)... $185,983 $73,829 $64,035 $22,521 $5,382
Ratio of Expenses to Average
Net Assets........................ 1.50% 1.50% 1.50% 1.57% 2.03%
Ratio of Net Investment Income/Loss
to Average Net Assets............. (0.71%) (0.73%) (0.37%) (0.04%) 1.22%
Portfolio Turnover Rate............. 106% 282% 308% 241% 204%**
--------------------------------------------------------------------------------------------
Effect of Voluntary Expense Reductions
During the Period
Per Share Benefit to Net Investment
Income/Loss..................... $0.02 $0.02 $0.04 $0.02 $0.06
Ratios Before Expense Reductions:
Expenses to Average Net Assets.... 1.56% 1.61% 1.71% 2.38% 3.26%
Net Investment Income/Loss to Average
Net Assets...................... (0.77%) (0.84%) (0.59%) (0.85%) (0.01%)
Ratio of Expenses to Average
Net Assets excluding dividend
expense on securities sold short.. 1.50% 1.50% 1.50% 1.50% 1.50%
--------------------------------------------------------------------------------------------
</TABLE>
* COMMENCEMENT OF OPERATIONS
** NON-ANNUALIZED
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED SALES
CHARGES.
# CHANGES PER SHARE ARE BASED UPON DAILY AVERAGE SHARES OUTSTANDING.
18 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL
Financial Highlights HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------- JANUARY 2, 1996*
CLASS B SHARES 2000# 1999# 1998# 1997 TO JUNE 30, 1996
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD......................... $22.38 $19.67 $16.85 $14.38 $12.00
------- ------- ------ ------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss........ (0.36) (0.28) (0.21) (0.02) 0.03
Net Realized and
Unrealized Gain................. 5.65 4.58 4.96 3.86 2.39
------- ------- ------ ------- ---------
Total From Investment Operations.... 5.29 4.30 4.75 3.84 2.42
------- ------- ------ ------- ---------
DISTRIBUTIONS
Net Investment Income............. -- -- -- (0.02) (0.04)
Net Realized Gain................. (1.45) (1.59) (1.93) (1.35) --
------- ------- ------ ------- ---------
Total Distributions................. (1.45) (1.59) (1.93) (1.37) (0.04)
------- ------- ------ ------- ---------
NET ASSET VALUE, END OF PERIOD...... $26.22 $22.38 $19.67 $16.85 $14.38
======= ======= ====== ======= =========
TOTAL RETURN (1).................... 24.42% 24.59% 29.94% 28.01% 20.18%**
======= ======= ====== ======= =========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)... $307,758 $176,189 $130,497 $34,382 $2,426
Ratio of Expenses to Average
Net Assets........................ 2.25% 2.25% 2.25% 2.32% 2.67%
Ratio of Net Investment Income/Loss
to Average Net Assets............. (1.46%) (1.50%) (1.11%) (0.83%) 0.43%
Portfolio Turnover Rate............. 106% 282% 308% 241% 204%**
--------------------------------------------------------------------------------------------
Effect of Voluntary Expense Reductions
During the Period
Per Share Benefit to Net Investment
Income/Loss..................... $0.01 $0.02 $0.04 $0.02 $0.07
Ratios Before Expense Reductions:
Expenses to Average Net Assets.... 2.31% 2.36% 2.47% 2.88% 3.79%
Net Investment Income/Loss to Average
Net Assets...................... (1.52%) (1.61%) (1.34%) (1.43%) (0.69%)
Ratio of Expenses to Average
Net Assets excluding dividend
expense on securities sold short.. 2.25% 2.25% 2.25% 2.25% 2.25%
--------------------------------------------------------------------------------------------
</TABLE>
* COMMENCEMENT OF OPERATIONS
** NON-ANNUALIZED
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED SALES
CHARGES.
# CHANGES PER SHARE ARE BASED UPON DAILY AVERAGE SHARES OUTSTANDING.
SEE NOTES TO FINANCIAL STATEMENTS 19
<PAGE>
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL
Financial Highlights HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------- JANUARY 2, 1996*
CLASS C SHARES 2000# 1999# 1998# 1997 TO JUNE 30, 1996
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD......................... $22.36 $19.66 $16.83 $14.37 $12.00
------- ------- ------ ------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss........ (0.36) (0.28) (0.21) (0.06) 0.03
Net Realized and
Unrealized Gain................. 5.66 4.57 4.97 3.89 2.38
------- ------- ------ ------- ---------
Total From Investment Operations.... 5.30 4.29 4.76 3.83 2.41
------- ------- ------ ------- ---------
DISTRIBUTIONS
Net Investment Income............. -- -- -- (0.02) (0.04)
Net Realized Gain................. (1.45) (1.59) (1.93) (1.35) --
------- ------- ------ ------- ---------
Total Distributions................. (1.45) (1.59) (1.93) (1.37) (0.04)
------- ------- ------ ------- ---------
NET ASSET VALUE, END OF PERIOD...... $26.21 $22.36 $19.66 $16.83 $14.37
======= ======= ====== ======= =========
TOTAL RETURN (1).................... 24.38% 24.67% 29.90% 28.04% 20.10%**
======= ======= ====== ======= =========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)... $61,316 $27,189 $24,872 $9,410 $2,582
Ratio of Expenses to Average
Net Assets........................ 2.25% 2.25% 2.25% 2.32% 2.67%
Ratio of Net Investment Income/Loss
to Average Net Assets............. (1.46%) (1.48%) (1.13%) (0.77%) 0.44%
Portfolio Turnover Rate............. 106% 282% 308% 241% 204%**
--------------------------------------------------------------------------------------------
Effect of Voluntary Expense Reductions
During the Period
Per Share Benefit to Net Investment
Income/Loss..................... $0.01 $0.02 $0.04 $0.02 $0.07
Ratios Before Expense Reductions:
Expenses to Average Net Assets.... 2.31% 2.36% 2.25% 3.23% 3.80%
Net Investment Income/Loss to Average
Net Assets...................... (1.52%) (1.59%) (1.35%) (1.67%) (0.69%)
Ratio of Expenses to Average
Net Assets excluding dividend
expense on securities sold short.. 2.25% 2.25% 2.25% 2.25% 2.25%
--------------------------------------------------------------------------------------------
</TABLE>
* COMMENCEMENT OF OPERATIONS
** NON-ANNUALIZED
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED SALES
CHARGES.
# CHANGES PER SHARE ARE BASED UPON DAILY AVERAGE SHARES OUTSTANDING.
20 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
The Van Kampen Focus Equity Fund (formerly Van Kampen Aggressive Equity
Fund) (the "Fund") is organized as a separate non-diversified fund of Van
Kampen Series Fund, Inc., a Maryland corporation, which is registered as an
open-end management investment corporation, under the Investment Company Act of
1940, as amended. The Fund's investment objective is to seek capital
appreciation by investing primarily in a non-diversified portfolio of corporate
equity and equity linked securities. The Fund commenced operations on January
2, 1996.
1. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of the financial statements in conformity with accounting
principles accepted in the United States of America (hereafter Ogenerally
accepted accounting principlesO) 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 period.
Actual results could differ from those estimates.
A. SECURITY VALUATION Equity securities listed on a U.S. exchange and equity
securities traded on NASDAQ are valued at the latest quoted sales price on the
valuation date. Unlisted securities and listed securities not traded on the
valuation date for which market quotations are readily available are valued at
the average between the bid and asked prices obtained from reputable brokers.
Debt securities purchased with remaining maturities of 60 days or less are
valued at amortized cost, which approximates market value. All other securities
and assets for which market quotations are not readily available are valued at
fair value as determined in good faith using procedures approved by the Board
of Directors.
B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen Investment Advisory Corp. or its affiliates,
the daily aggregate of which is invested in repurchase agreements. Repurchase
agreements are fully collateralized by the underlying debt security. A bank as
custodian for the Fund takes possession of the underlying securities, with a
market value at least equal to the amount of the repurchase transaction,
including principal and accrued interest. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market
21
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
the obligation to repurchase, the Fund has the right to liquidate the collateral
and apply the proceeds in satisfaction of the obligation. In the event of
default or bankruptcy by the counterparty to the agreement, realization and/or
retention of the collateral or proceeds may be subject to legal proceedings.
C. INCOME AND EXPENSES Interest income is recorded on an accrual basis and
dividend income is recorded net of applicable withholding taxes on the
ex-dividend date. Income, expenses, and realized and unrealized gains or losses
are allocated on a pro rata basis to each class of shares except for
distribution and service fees which are unique to each class of shares.
Distributions from the Fund are recorded on the ex-distribution date.
D. SHORT SALES The Fund may sell securities short. A short sale is a
transaction in which the Fund sells securities it may or may not own, but has
borrowed, in anticipation of a decline in the market price of the securities.
The Fund is obligated to purchase securities at the market price to replace the
borrowed securities at the time of replacement. The Fund may have to pay a
premium to borrow the securities as well as pay dividends or interest payable
on the securities until they are replaced. The Fund's obligation to replace the
securities borrowed in connection with a short sale will generally be secured
by collateral deposited with the broker that consists of cash, U.S. government
securities, or other liquid, high grade debt obligations. In addition, the Fund
will place in a segregated account with its Custodian an amount of cash, U.S.
government securities, or other liquid high grade debt obligations equal to the
difference, if any, between (1) the market value of the securities sold at the
time they were sold short, and (2) any cash, U.S. government securities, or
other liquid high grade debt obligations deposited as collateral with the
broker in connection with the short sale (not including the proceeds of the
short sale). Short sales by the Fund involve certain risks and special
considerations. Possible losses from short sales differ from losses that could
be incurred from the purchase of a security, because losses from short sales
may be unlimited, whereas losses from purchases cannot exceed the total amount
invested.
E. ORGANIZATIONAL COSTS The organizational costs of the Fund are being
amortized on a straight line basis over the 60 month period ending January 2,
2001 beginning with the Fund's commencement of operations. The Adviser has
agreed that in the event any of the initial shares of the Fund originally
purchased by Van Kampen are redeemed by the Fund during the amortization
period, the Fund will be reimbursed for any unamortized organizational costs in
the same proportion as the number of shares redeemed bears to the number of
initial shares held at the time of redemption.
22
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
F. 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 as a result of losses relating to wash sale transactions.
At June 30, 2000, for federal income tax purposes, cost of long- and
short-term investments is $472,120,745; the aggregate gross unrealized
appreciation is $96,680,195 and the aggregate gross unrealized depreciation is
$8,589,781, resulting in net unrealized appreciation on long- and short-term
investments of $88,090,414.
G. 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 which are included as ordinary income for
tax purposes.
Due to inherent differences in the recognition of income and expenses
under generally accepted accounting principles and federal income tax purposes,
permanent differences between book and tax basis reporting for the current
fiscal year have been identified and appropriately reclassified. A permanent
difference related to a net operating loss which may be used as an offset
against short-term gains for tax purposes totaling $4,784,557 has been
reclassified from accumulated net realized gain to accumulated net investment
loss. A permanent difference of $5,764 related to a correction of the prior
year net operating loss was reclassified from accumulated net realized gain to
accumulated net investment loss.
Permanent book to tax basis differences are not included in ending
undistributed/distributions in excess of net investment income for the purpose
of calculating net investment income/loss per share in the Financial Highlights.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Van Kampen Investment Advisory Corp. (the "Adviser"), a wholly owned subsidiary
of Van Kampen Investments Inc. (an indirect wholly owned subsidiary of Morgan
Stanley Dean Witter & Co.) and Morgan Stanley Dean Witter Investment Management
Inc., a wholly owned subsidiary of Morgan Stanley Dean Witter & Co., provide
the Fund with investment advisory services at a fee paid monthly and calculated
at the annual rates based on average daily net assets indicated as follows:
AVERAGE DAILY NET ASSETS % PER ANNUM
First $500 million.......................................... .90 of 1%
Next $500 million........................................... .85 of 1%
Over $1 billion............................................. .80 of 1%
23
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
The Adviser has agreed to reduce advisory fees payable to it and to reimburse
the Fund, if necessary, if the annual operating expenses, expressed as a
percentage of average daily net assets, exceed the maximum ratios indicated as
follows:
CLASS B
CLASS A AND CLASS C
MAX. OPERATING MAX. OPERATING
EXPENSE RATIO EXPENSE RATIO
1.50% 2.25%
For the period ended June 30, 2000, the Adviser voluntarily waived
$233,167 of its investment advisory fees. This waiver is voluntary in nature
and can be discontinued at the Adviser's discretion.
For the period ended June 30, 2000, the Fund recognized expenses of
$19,086 representing legal services provided by Skadden, Arps, Slate, Meagher &
Flom (Illinois), counsel to the Fund, of which a director of the Fund is an
affiliated person.
For the period ended June 30, 2000, the Fund recognized expenses of $9,814
representing Van Kampen's cost of providing legal services to the Fund.
Van Kampen Investment Advisory Corp. (the "Administrator") also provides
the Fund with administrative services pursuant to an administrative agreement
for a monthly fee which on an annual basis equals 0.25% of the average daily
net assets of the Fund, plus reimbursement of out-of-pocket expenses. Under an
agreement between the Adviser and The Chase Manhattan Bank ("Chase"), through
its corporate affiliate Chase Global Funds Services Company ("CGFSC"), Chase
provides certain administrative services to the Fund. Chase is compensated for
such services by the Adviser from the fee it receives from the Fund. Transfer
Agency services are provided to the Fund by Van Kampen Investor Services Inc.,
an affiliate of the Adviser.
Van Kampen Funds Inc. (the "Distributor") a wholly owned subsidiary of Van
Kampen Investments Inc., an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co., serves as the Distributor of the Fund's shares. The
Distributor is entitled to receive from the Fund a distribution fee, which is
accrued daily and paid quarterly, of an amount of up to 0.25% of the Class A
shares and up to 1.00% of the Class B shares and Class C shares of the Fund, on
an annualized basis, of the average daily net assets attributable to each Class.
The Distributor may receive a front end sales charge for purchases of
Class A shares. In addition, the Distributor may receive a contingent deferred
sales charge for certain redemptions of Class B shares and Class C shares of
the Fund redeemed within one to five years following such purchase. For the
period ended June 30, 2000, the Distributor has advised the Fund that it earned
initial sales charges of $1,934,828 for Class A shares and deferred sales
charges of $503,252 and $9,130 for Class B shares and Class C shares,
respectively.
Certain officers and directors of the Fund are also officers and directors
of Van Kampen. The Fund does not compensate its officers or directors who are
officers of Van Kampen.
24
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
The Fund provides deferred compensation and retirement plans for its
directors who are not officers of Van Kampen. Under the deferred compensation
plan, directors 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 director's years of service to the Fund. The
maximum annual benefit per director under the plan is $2,500.
For the period ended June 30, 2000, the Fund incurred $56,610 as brokerage
commissions with Morgan Stanley & Co. Incorporated, an affiliated broker/dealer.
3. CAPITAL TRANSACTIONS
The Fund currently offers three classes of shares, Class A, Class B, and Class
C shares. All three classes of shares have identical voting, dividend,
liquidation and other rights. Class A shares are sold with a front-end sales
charge of up to 5.75%. For certain purchases of Class A shares, the front-end
sales charge may be waived and a contingent deferred sales charge (OCDSCO) of
1.00% imposed in the event of certain redemptions within one year of the
purchase. Class B and Class C shares are offered without a front end sales
charge, but are subject to a 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 seven years after the
end of the calendar month in which the shares were purchased. For the period
ended June 30, 2000, no Class B shares converted to Class A shares. The CDSC
will be imposed on most redemptions made within five years of the purchase for
Class B shares and one year of the purchase for Class C shares as detailed in
the following schedule:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE ON ASSETS SUBJECT TO
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
Thereafter............................................ None None
</TABLE>
25
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 2000 JUNE 30, 1999*
------------- --------------
<S> <C> <C>
CAPITAL SHARE TRANSACTIONS
CLASS A:
Shares:
Subscribed..................................... 6,445,252 1,623,000
Distributions Reinvested....................... 201,931 266,000
Redeemed....................................... (3,015,158) (1,877,000)
------------ ------------
Net Increase in Class A Shares Outstanding....... 3,632,025 12,000
============ ============
Dollars:
Subscribed..................................... $164,653,020 $ 31,396,000
Distributions Reinvested....................... 4,868,559 4,594,000
Redeemed....................................... (75,774,990) (34,991,000)
------------ ------------
Net Increase..................................... $ 93,746,589$ 999,000
============ ============
Ending Paid in Capital........................... $151,211,638 $ 57,462,000+
============ ============
CLASS B:
Shares:
Subscribed..................................... 4,942,210 2,694,000
Distributions Reinvested....................... 491,266 650,000
Redeemed....................................... (1,568,254) (2,106,000)
------------ ------------
Net Increase in Class B Shares Outstanding....... 3,865,222 1,238,000
============ ============
Dollars:
Subscribed..................................... $122,523,186 $ 50,034,000
Distributions Reinvested....................... 11,475,970 10,965,000
Redeemed....................................... (38,577,715) (38,411,000)
------------ ------------
Net Increase..................................... $ 95,421,441 $ 22,588,000
============ ============
Ending Paid in Capital........................... $238,109,018 $142,680,000+
============ ============
CLASS C:
Shares:
Subscribed..................................... 1,782,675 744,000
Distributions Reinvested....................... 82,205 106,000
Redeemed....................................... (741,092) (900,000)
------------ ------------
Net Increase/Decrease in Class C Shares
Outstanding.................................... 1,123,788 (50,000)
============ ============
Dollars:
Subscribed..................................... $ 43,250,396 $ 13,948,000
Distributions Reinvested....................... 1,919,487 1,794,000
Redeemed....................................... (17,532,521) (16,797,000)
------------ ------------
Net Increase/Decrease............................ $ 27,637,362$ (1,055,000)
============ ============
Ending Paid in Capital........................... $ 48,566,641 $ 20,928,000+
============ ============
</TABLE>
* Amounts rounded to the nearest (000).
+ Ending Paid in Capital amounts do not reflect permanent book to tax
differences-See Note 1G.
26
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
4. INVESTMENT TRANSACTIONS
For the period ended June 30, 2000, the Fund made purchases of $586,383,913 and
sales of $401,833,934 of investment securities other than long-term U.S.
government securities and short-term investments. There were no purchases or
sales of long-term U.S. government securities.
5. 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 into a $650 million committed line of credit
facility with a group of banks which expires on November 28, 2000, but is
renewable with the consent of the participating banks. Each fund is permitted
to utilize the facility in accordance with the restrictions of its prospectus.
In the event the demand for the credit facility meets or exceeds $650 million
on a complex-wide basis, each fund will be limited to its pro-rata percentage
based on the net assets of each participating fund. Interest on borrowings is
charged under the agreement at a rate of 0.50% above the federal funds rate per
annum. An annual commitment fee of 0.09% per annum is charged on the unused
portion of the credit facility, which each fund incurs based on its pro-rata
percentage of quarterly net assets. The Fund has not borrowed against the
credit facility during the period.
27
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and
Shareholders of Van Kampen Focus
Equity Fund
We have audited the accompanying statement of assets and liabilities of Van
Kampen Focus Equity Fund (the "Fund"), a fund of Van Kampen Series Fund, Inc.,
including the portfolio of investments, as of June 30, 2000, and the related
statements of operations, changes in net assets and the financial highlights
for the year then ended. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audit. The Fund's financial statements and financial highlights for the
periods ended prior to June 30, 2000, were audited by other auditors whose
report, dated August 6, 1999, expressed an unqualified opinion on those
statements.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of June 30, 2000, by
correspondence with the Fund's custodian and brokers; where replies were not
received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Van Kampen Focus Equity Fund as of June 30, 2000, the results of its
operations, the changes in its net assets and the financial highlights for the
year then ended, in conformity with accounting principles generally accepted in
the United States of America.
DELOITTE & TOUCHE LLP
Chicago, Illinois
August 11, 2000
28
<PAGE>
VAN KAMPEN FUNDS
THE VAN KAMPEN
FAMILY OF FUNDS
GROWTH
Aggressive Growth
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth
Mid Cap Growth
Pace
Select Growth
Small Cap Value
Tax Managed Equity Growth
Technology
GROWTH AND INCOME
Comstock
Equity Income
Growth and Income
Harbor
Real Estate Securities
Utility
Value
GLOBAL/INTERNATIONAL
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
International Magnum
Latin American
Strategic Income
Tax Managed Global Franchise
Worldwide High Income
INCOME
Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return*
Limited Maturity Government
U.S. Government
U.S. Government Trust for Income
CAPITAL PRESERVATION
Reserve
Tax Free Money
SENIOR LOAN
Prime Rate Income Trust
Senior Floating Rate
TAX FREE
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal**
Insured Tax Free Income
Intermediate Term
Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
To find out more about any of these funds, ask your financial advisor for a
prospectus, which contains more complete information, including sales charges,
risks, and ongoing expenses. Please read it carefully before you invest or send
money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- visit our Web site at
www.vankampen.com --
to view a prospectus, select [ICON OF COMPUTER]
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, [ICON OF TELEPHONE]
call 1-800-421-2833.
- e-mail us by visiting
www.vankampen.com and
selecting CONTACT US [ICON OF STAMPED ENVELOPES]
* Closed to new investors
** Open to new investors for a limited time
29
<PAGE>
FUND OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN FOCUS EQUITY FUND
BOARD OF DIRECTORS
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*
Chairman, Director, President,
Chief Executive Officer
STEPHEN L. BOYD*
Executive Vice President and
Chief Investment Officer
A. THOMAS SMITH III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Chief Financial Officer and Treasurer
RICHARD A. CICCARONE*
JOHN R. REYNOLDSON*
MICHAEL H. SANTO*
JOSEPH P. STADLER*
JOHN H. ZIMMERMANN, III*
Vice Presidents
INVESTMENT ADVISER AND
ADMINISTRATOR
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
INVESTMENT SUBADVISERS
MORGAN STANLEY DEAN WITTER INVESTMENT
MANAGEMENT INC.
1221 Avenue of the Americas
New York, New York 10020
MILLER ANDERSON & SHERRERD, LLP
One Tower Bridge
West Conshohocken,
Pennsylvania 19428
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
CUSTODIAN
THE CHASE MANHATTAN BANK
3 MetroTech Center
Brooklyn, New York 11245
DIVIDEND DISBURSING AND TRANSFER AGENT
VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 218256
Kansas City, Missouri 64121-8256
LEGAL COUNSEL
SKADDEN, ARPS, SLATE, MEAGHER &
FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT AUDITORS
DELOITTE & TOUCHE LLP
180 N. Stetson Avenue
Chicago, IL 60601
-------------------------------------------------------------------------------
For federal income tax purposes, the following is furnished with respect to the
distributions paid by the Fund during its taxable year ended June 30, 2000. The
Fund designated and paid $1,894,832 as a 20% rate gain distribution. For
corporate shareholders, 7% of the distribution qualifies for the dividend
received deduction. In January 2000, the Fund provided tax information to
shareholders for the 1999 calendar year.*
-------------------------------------------------------------------------------
* "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.
30
<PAGE>
RESULTS OF
SHAREHOLDER VOTES
JUNE 30, 2000
A Joint Special Meeting of the Shareholders of the Focus Equity Fund (the
"Fund") was held on December 15, 1999. The description of each proposal and
number of shares voted are as follows:
1. To elect the following Directors to serve the Fund.
<TABLE>
<CAPTION>
VOTED FOR WITHHELD
<S> <C> <C>
J. Miles Branagan.................................. 10,452,339 49,081
Jerry D. Choate.................................... 10,451,838 49,582
Linda Hutton Heagy................................. 10,451,617 49,804
R. Craig Kennedy................................... 10,452,490 48,931
Mitchell M. Merin.................................. 10,453,787 47,634
Jack E. Nelson..................................... 10,452,122 49,298
Richard F. Powers, III............................. 10,453,067 48,354
Phillip B. Rooney.................................. 10,451,718 49,703
Fernando Sisto..................................... 10,448,403 53,018
Wayne W. Whalen.................................... 10,452,243 49,177
Suzanne H. Woolsey................................. 10,450,887 50,534
Paul G. Yovovich*.................................. 10,452,523 48,897
</TABLE>
* EFFECTIVE APRIL 14, 2000, PAUL G. YOVOVICH RESIGNED FROM THE BOARD OF
DIRECTORS.
2. To ratify PricewaterhouseCoopers LLP to act as independent public accountants
for the Fund.(1)
AFFIRMATIVE AGAINST ABSTAIN
10,415,463 25,838 60,120
(1) INDEPENDENT ACCOUNTANTS FOR THE FUND PERFORM AN ANNUAL AUDIT OF THE FUND'S
FINANCIAL STATEMENTS. THE BOARD OF DIRECTORS HAS ENGAGED DELOITTE & TOUCHE LLP
TO BE THE FUND'S INDEPENDENT ACCOUNTANTS.
PricewaterhouseCoopers LLP, located at 200 East Randolph Drive, Chicago, IL
60601 ("PWC"), ceased being the Fund's independent accountants effective May
18, 2000. The cessation of the client-auditor relationship between the Fund and
PWC was based solely on a possible future business relationship by PWC with an
affiliate of the Fund's investment adviser.
31
<PAGE>
YOUR NOTES:
<PAGE>
VAN KAMPEN
ASIAN GROWTH FUND
ANNUAL REPORT
JUNE 30, 2000
[GRAPHIC]
VAN KAMPEN
FUNDS
<PAGE>
TABLE OF CONTENTS
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 4
GROWTH OF A $10,000 INVESTMENT 5
PORTFOLIO AT A GLANCE
TOP TEN HOLDINGS 6
TOP FIVE COUNTRIES 6
Q&A WITH YOUR PORTFOLIO MANAGERS 7
GLOSSARY OF TERMS 10
BY THE NUMBERS
YOUR FUND'S INVESTMENTS 11
FINANCIAL STATEMENTS 16
NOTES TO FINANCIAL STATEMENTS 23
REPORT OF INDEPENDENT AUDITORS 30
VAN KAMPEN FUNDS
THE VAN KAMPEN FAMILY OF FUNDS 31
FUND OFFICERS AND IMPORTANT ADDRESSES 32
RESULTS OF SHAREHOLDER VOTES 33
IT IS TIMES LIKE THESE WHEN MONEY-MANAGEMENT EXPERIENCE MAY MAKE A DIFFERENCE.
NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE.
<PAGE>
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,
/s/ Richard F. Powers, III
Richard F. Powers, III
President and CEO
Van Kampen Investments
1
<PAGE>
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>
U.S. GROSS DOMESTIC PRODUCT
SEASONALLY ADJUSTED ANNUALIZED RATES
(JUNE 30, 1998 - JUNE 30, 2000)
[CHART]
<TABLE>
<S> <C>
Jun-98 2.1%
Sep-98 3.8%
Dec-98 5.9%
Mar-99 3.5%
Jun-99 2.5%
Sep-99 5.7%
Dec-99 8.3%
Mar-00 4.8%
Jun-00 5.2%
</TABLE>
SOURCE: BUREAU OF ECONOMIC ANALYSIS
INTEREST RATES AND INFLATION
(JUNE 30, 1998 - JUNE 30, 2000)
[CHART]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
<S> <C> <C>
Jun-98 5.500 1.70
Jul-98 5.500 1.70
Aug-98 5.500 1.60
Sep-98 5.250 1.50
Oct-98 5.000 1.50
Nov-98 4.750 1.50
Dec-98 4.750 1.60
Jan-99 4.750 1.70
Feb-99 4.750 1.60
Mar-99 4.750 1.70
Apr-99 4.750 2.30
May-99 4.750 2.10
Jun-99 5.000 2.00
Jul-99 5.000 2.10
Aug-99 5.250 2.30
Sep-99 5.250 2.60
Oct-99 5.250 2.60
Nov-99 5.500 2.60
Dec-99 5.500 2.70
Jan-00 5.500 2.70
Feb-00 5.750 3.20
Mar-00 6.000 3.70
Apr-00 6.000 3.00
May-00 6.500 3.10
Jun-00 6.500 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>
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(AS OF JUNE 30, 2000)
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
-----------------------------------------------------------------------------
<S> <C> <C> <C>
One-year total return based on NAV(1) 13.49% 12.81% 12.76%
-----------------------------------------------------------------------------
One-year total return(2) 6.97% 7.81% 11.76%
-----------------------------------------------------------------------------
Five-year average annual total return(2) -5.20% N/A -4.80%
-----------------------------------------------------------------------------
Life-of-Fund average annual total return(2) 1.14% -4.85% 1.24%
-----------------------------------------------------------------------------
Commencement date 6/23/93 8/1/95 6/23/93
-----------------------------------------------------------------------------
</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.
SEE THE COMPARATIVE PERFORMANCE SECTION OF THE CURRENT PROSPECTUS. 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.
BECAUSE THE PRICES OF COMMON STOCKS AND OTHER SECURITIES FLUCTUATE, THE
VALUE OF AN INVESTMENT IN THE FUND WILL VARY UPON THE FUND'S INVESTMENT
PERFORMANCE. FOREIGN SECURITIES MAY MAGNIFY VOLATILITY DUE TO CHANGES IN
FOREIGN EXCHANGE RATES, THE POLITICAL AND ECONOMIC UNCERTAINTIES IN
FOREIGN COUNTRIES, AND THE POTENTIAL LACK OF LIQUIDITY, GOVERNMENT
SUPERVISION, AND REGULATION.
MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO PASS.
4
<PAGE>
GROWTH OF A $10,000 INVESTMENT
(JUNE 23, 1993 - JUNE 30, 2000)
[CHART]
<TABLE>
<CAPTION>
MSCI AC Far East Free ex-Japan Index
MEASURES PERFORMANCE OF COMMON
STOCKS IN HONG KONG AND SOUTHEAST ASIA. ASIAN GROWTH FUND
--------------------------------------- -----------------
<S> <C> <C>
6/93 $9,500 $10,000
6/94 $9,525 $10,000
6/95 $13,472 $15,055
6/96 $14,071 $16,286
6/97 $13,916 $16,441
6/98 $5,431 $6,544
6/99 $9,541 $11,345
6/00 $10,206 $10,829
<CAPTION>
<S> <C>
Fund's Total Return
1 Year Total Return 6.97%
5 Year Avg. Annual -5.20%
Inception Avg. Annual 1.14%
</TABLE>
THIS CHART COMPARES YOUR FUND'S PERFORMANCE TO THAT OF THE MSCI AC FAR EAST
FREE EX-JAPAN INDEX OVER TIME.
THIS IS AN UNMANAGED BROAD-BASED, STATISTICAL COMPOSITE THAT DOES NOT INCLUDE
ANY COMMISSIONS OR FEES THAT WOULD BE PAID BY AN INVESTOR PURCHASING THE
SECURITIES IT REPRESENTS. SUCH COSTS WOULD LOWER THE PERFORMANCE OF THIS
INDEX. THE HISTORICAL PERFORMANCE OF THE INDEX IS SHOWN FOR ILLUSTRATIVE
PURPOSES ONLY; IT IS NOT MEANT TO FORECAST, IMPLY, OR GUARANTEE THE FUTURE
PERFORMANCE OF ANY INVESTMENT VEHICLE. IT IS NOT POSSIBLE TO INVEST DIRECTLY
IN AN INDEX.
THE ABOVE CHART REFLECTS THE PERFORMANCE OF CLASS A SHARES OF THE FUND. THE
PERFORMANCE OF CLASS A SHARES WILL DIFFER FROM THAT OF OTHER SHARE CLASSES OF
THE FUND BECAUSE OF THE DIFFERENCE IN SALES CHARGES AND/OR EXPENSES PAID BY
SHAREHOLDERS INVESTING IN THE DIFFERENT SHARE CLASSES. THE FUND'S PERFORMANCE
ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS, AND INCLUDES PAYMENT OF THE
MAXIMUM SALES CHARGE (5.75% FOR CLASS A SHARES).
WHILE PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THE ABOVE
INFORMATION PROVIDES A BROADER VANTAGE POINT FROM WHICH TO EVALUATE THE
DISCUSSION OF THE FUND'S PERFORMANCE FOUND IN THE FOLLOWING PAGES.
5
<PAGE>
PORTFOLIO AT A GLANCE
TOP TEN HOLDINGS
(AS A PERCENTAGE OF NET ASSETS--JUNE 30, 2000)
<TABLE>
<C> <S> <C>
1. SAMSUNG ELECTRONICS 11.3%
Manufactures consumer and industrial
electronic equipment.
2. HUTCHISON WHAMPOA 7.7%
Holds diversified worldwide interests in
shipping, food processing, real estate,
and telecommunications.
3. TAIWAN SEMICONDUCTOR
MANUFACTURING 4.8%
Designs and manufactures integrated
circuits.
4. CHINA TELECOM 4.7%
Provides wireless-communications
services in China.
5. SK TELECOM 3.6%
Provides wireless telecommunications
services in Korea.
6. UNITED MICRO ELECTRONICS 3.4%
Manufactures integrated circuits and
other electronic products.
7. CABLE & WIRELESS 3.2%
Provides communications products and
services, including cable television,
telephone, and Internet access in the
United Kingdom and in China.
8. CHEUNG KONG HOLDINGS 2.2%
Holds diversified interests in China in-
cluding real estate, telecommunications,
and oil.
9. SUN HUNG KAI PROPERTIES 2.2%
Develops real estate in Hong Kong and
China.
10. DBS GROUP HOLDINGS 2.1%
Provides banking, mortgage financing,
and other financial services.
</TABLE>
TOP FIVE COUNTRIES
(AS A PERCENTAGE OF NET ASSETS)
[CHART]
<TABLE>
<CAPTION>
June 30, 2000 June 30, 1999
<S> <C> <C>
Hong Kong 33.6% 30.1%
Korea 25.8% 20.1%
Taiwan 20.2% 17.1%
Singapore 10.6% 10.9%
Malaysia 5.5% 5.4%
</TABLE>
6
<PAGE>
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH THE MANAGEMENT TEAM OF THE VAN KAMPEN ASIAN GROWTH
FUND ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE MARKETS AND
INFLUENCED THE FUND'S RETURN DURING THE 12 MONTHS ENDED JUNE 30, 2000. THE
TEAM IS LED BY PORTFOLIO MANAGER ASHUTOSH SINHA, MORGAN STANLEY DEAN WITTER
INVESTMENT MANAGEMENT INC., WHO HAS MANAGED THE FUND SINCE 1998. THE
FOLLOWING DISCUSSION REFLECTS HIS 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 During the past 12 months, Asian markets continued down the path of
recovery from the currency and economic problems that plagued the region in
the late 1990s. This recovery was aided by steady global growth, led by the
phenomenal economic growth in the United States over the past 12 months, as
well as regional corporate and governmental reforms that were beneficial to
trade.
Whereas in the past, investors analyzed Asian countries to assess those
countries' economic health and regional growth prospects, analysis now
encompasses corporate earnings numbers as well. Asian companies that have
been able to embrace change and reform, open up to foreign investment, adapt
to new technologies, and improve earnings growth have commanded investor
attention.
The TMT (telecommunications, media, and technology) mania that swept the
world in the fourth quarter of 1999 charged through the Asian region as well.
Manufacturers and exporters, particularly among providers of electronic
components and equipment, benefited from the technology revolution and high
consumer demand throughout the world. Overall, although the growth of
telecommunications and technology has had a strong impact on the developed
world, this growth has had the most pronounced impact on the emerging markets.
At the end of the first quarter of 2000 and into the second quarter, the
technology-heavy NASDAQ index's woes impacted investors in Asian markets. The
region's markets fell in value despite better-than-expected corporate
earnings for the first quarter and positive export statistics for the region.
Although global market conditions were volatile, emerging markets in
general remained relatively unscathed. For the 12-month period ended June 30,
2000, the fund achieved a total return of 13.49 percent (CLASS A SHARES AT
NET ASSET VALUE; IF THE MAXIMUM SALES CHARGE OF 5.75 PERCENT WERE INCLUDED,
THE RETURN WOULD HAVE BEEN LOWER). AS A RESULT OF RECENT MARKET ACTIVITY,
CURRENT PERFORMANCE MAY VARY FROM THE FIGURES SHOWN. BY COMPARISON, THE MSCI
AC FAR EAST FREE EX-JAPAN INDEX GENERATED A TOTAL RETURN OF -4.55 PERCENT FOR
THE SAME PERIOD. OF COURSE, PAST PERFORMANCE IS NO GUARANTEE
7
<PAGE>
OF FUTURE RESULTS. THIS BROAD-BASED, UNMANAGED INDEX IS COMPOSED OF COMMON
STOCKS FROM INDONESIA, HONG KONG, THE PHILIPPINES, KOREA, TAIWAN, AND
THAILAND, AND ASSUMES DIVIDENDS ARE REINVESTED. THIS INDEX DOES NOT REFLECT
ANY COMMISSIONS OR SALES CHARGES THAT WOULD BE PAID BY AN INVESTOR PURCHASING
THE SECURITIES IT REPRESENTS. SUCH COSTS WOULD LOWER THE PERFORMANCE OF THE
INDEX. IT IS NOT POSSIBLE TO INVEST DIRECTLY IN AN INDEX.
Q WHAT STRATEGIES DID YOU PURSUE IN THIS ENVIRONMENT?
A Our strategy and style do not change in reaction to market conditions. We
take a bottom-up approach to the whole region. Our sector allocations are a
result of stock analysis. During the past 12 months, our analysis led us to a
significant weighting in electronic components and equipment, where the fund
held stocks such as Samsung Electronics, Taiwan Semiconductor Manufacturing,
and United Micro Electronics.
Q CAN YOU GIVE SOME EXAMPLES OF TMT STOCKS THAT THE FUND HELD?
A The fund had significant positions in the TMT sector--but it's important
to note that we purchased these stocks for the fund not as a sector play, but
based upon stock-specific analysis. Certainly with the run-up in prices that
we've seen in the TMT sector, these stocks had a favorable impact on fund
performance. In fact, they were among the largest positions in the fund.
One of the fund's larger holdings was Samsung Electronics, a South Korean
company and leading semiconductor, telecommunications-equipment, and
consumer-electronics manufacturer. The fund has owned the company's stock for
some time. Another relatively large holding in this sector was China Telecom,
which is the leading wireless telecommunications provider in China and
currently the third-largest in the world (based on number of subscribers). We
believe China Telecom is attractive, as it is among the largest and
fastest-growing wireless companies in the world. It is tapping into the
world's largest population in a market that still offers great growth
potential because of low penetration of cellular phones in China.
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 IS YOUR OUTLOOK FOR THE MONTHS AHEAD?
A Japan has begun to show some signs of growth, which we expect to continue
in the coming months. This should help Asian markets to overcome some of the
expected economic slowing in the United States, which may have a ripple
effect throughout the global economies. If Japan can keep moving forward, it
could mean a considerable boom for Asia.
We have seen a huge trend of outsourcing to Asia--specifically, U.S.
companies are looking to Asian manufacturers to help them manufacture
products that can't be made cost-efficiently in the United States. For
example, U.S.-based Qualcomm is looking to Samsung Electronics to produce
their wireless phones in order to increase quality and decrease production
costs. We expect this trend to
8
<PAGE>
continue and believe it could mean increased growth and decreased
unemployment for Asian economies.
Asian suppliers are benefiting immensely from global growth, as they
become "enablers" for some of the great businesses that have been dominating
the markets in the developed world. Moving forward, our research has led us
toward regional companies that are the providers of labor and components to
developed world markets, due to their strong growth potential.
Overall, we evaluate country risk factors and opportunities with a
top-down philosophy when determining position sizes and overall exposure to
individual markets. However, from a country-specific standpoint, we believe
stocks in Hong Kong should gain support from strong export trends, declining
unemployment, easing inflation, and improving consumer sentiment. We
anticipate that China's entry into the World Trade Organization (WTO) should
support Chinese stocks. It should also boost sentiment for other markets such
as Hong Kong and Taiwan, which are likely to follow China into the WTO and
open up investment opportunities throughout Asia.
9
<PAGE>
GLOSSARY OF TERMS
A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS
REPORT AND OTHER FINANCIAL PUBLICATIONS.
BOTTOM-UP INVESTING: A management style that emphasizes the analysis of
individual stocks, rather than economic and market cycles.
CLASS A SHARES: A division of mutual fund shares, which are generally divided
into three groupings, called Class A, Class B, and Class C shares. The
specific features of each are dependent on varying fees and sales charges. In
most cases, Class A shares will have no redemption fee (contingent deferred
sales charge).
EMERGING MARKETS: The financial markets of developing economies. Many Asian
countries are considered emerging markets.
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.
PORTFOLIO: A portfolio, comprised of a collection of securities owned by an
individual or an institution, may include stocks, bonds, and/or money market
securities.
SALES CHARGE: Also referred to as the load, this is a fee paid by a buyer to
acquire shares in a mutual fund or a limited partnership.
TOP-DOWN INVESTING: A management style in which general asset allocation
decisions are based on the strength of various market sectors, industries, or
countries. Individual securities are then selected from within the favored
sectors.
10
<PAGE>
BY THE NUMBERS
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
THE FOLLOWING PAGES DETAIL YOUR FUND'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
COMMON STOCKS 99.0%
HONG KONG 33.6%
Asia Satellite Telecommunications Holdings Ltd. ........... 246,500 $ 842,695
ASM Pacific Technology Ltd. ............................... 226,000 846,540
Cable & Wireless HKT Ltd. ................................. 2,356,100 5,183,390
Cathay Pacific Airways Ltd. ............................... 770,000 1,427,298
Cheung Kong Holdings Ltd. ................................. 322,000 3,562,632
China.com Corp. 'A' (a) ................................... 20,000 408,750
China Merchants Holdings International Co., Ltd. .......... 570,000 391,187
China Telecom Ltd. (a) .................................... 859,000 7,575,685
China Unicom Ltd. (a) ..................................... 1,540,000 3,269,450
Citic Pacific Ltd. ........................................ 133,000 696,094
Cosco Pacific Ltd. ........................................ 645,000 508,851
Dao Heng Bank Group Ltd. .................................. 111,000 491,245
Great Wall Technology Co., Ltd. 'H' ....................... 1,930,000 1,336,925
Hang Seng Bank Ltd. ....................................... 86,400 820,166
Hong Kong & China Gas Co., Ltd. ........................... 1,022,900 1,148,146
Hong Kong Land Holdings Ltd. .............................. 205,000 328,000
Hutchison Whampoa Ltd. .................................... 986,930 12,407,048
Johnson Electric Holdings Ltd. ............................ 148,500 1,404,897
Legend Holdings Ltd. ...................................... 390,000 377,718
Li & Fung Ltd. ............................................ 520,000 2,601,501
Phoenix Satellite TV (a) .................................. 918,000 127,770
Sino-i.com Ltd. ........................................... 3,205,000 145,953
SmarTone Telecommunications Holdings Ltd. ................. 145,900 322,850
Soundwill Holdings Ltd. (a) ............................... 5,353,000 127,035
Sun Hung Kai Properties Ltd. .............................. 482,000 3,462,510
Swire Pacific Ltd. 'A' .................................... 354,000 2,070,733
TCL International Holdings Ltd. (a) ....................... 1,120,000 409,467
Television Broadcasts Ltd. ................................ 198,000 1,320,762
Timeless Software Ltd. (a) ................................ 970,000 438,619
------------
54,053,917
------------
INDIA 0.0%
Hero Honda Motors Ltd. .................................... 1,227 27,137
------------
INDONESIA 0.9%
PT Gudang Garam Tbk ....................................... 275,000 444,587
PT Semen Gresik Tbk ....................................... 288,000 261,594
PT Telekomunikasi Indonesia ADR ........................... 117,984 818,514
------------
1,524,695
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS 11
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
KOREA 25.8%
Cheil Communications, Inc. ................................ 9,750 $ 1,272,281
CJ39 Shopping Corp. ....................................... 13,460 440,609
Communication Network Interface, Inc. (a) ................. 37,930 209,206
Dongwon Securities Co. .................................... 15,675 113,026
Housing & Commercial Bank ................................. 68,184 1,596,020
Humax Co., Ltd. (a) ....................................... 50,560 700,569
Hyundai Electronics Industries Co. ........................ 38,127 752,265
Kookmin Bank .............................................. 94,505 1,203,535
Korea Electric Power Corp. ADR ............................ 107,110 1,974,841
Korea Telecom Corp. ....................................... 1,990 175,259
Korea Telecom Corp. ADR ................................... 49,830 2,410,526
Korea Telecom Freetel (a) ................................. 8,170 544,410
LG Home Shopping, Inc. .................................... 7,180 682,568
LG Information & Communication Ltd. ....................... 1,400 78,725
Locus Corp. (a) ........................................... 4,510 366,050
Pohang Iron & Steel Co., Ltd. ADR ......................... 34,900 837,600
Prochips Technology, Inc. (a) ............................. 60,961 241,105
Samsung Electro-Mechanics Co. ............................. 30,541 1,914,590
Samsung Electronics Co. ................................... 55,096 18,233,155
Shinhan Bank Co., Ltd. .................................... 114,880 1,081,805
SK Telecom Co., Ltd. ...................................... 2,540 831,461
SK Telecom Co., Ltd. ADR .................................. 135,790 4,930,874
Telson Electronics Co., Ltd. .............................. 50,800 539,880
Tong Yang Confectionery Corp. ............................. 18,060 392,776
------------
41,523,136
------------
MALAYSIA 5.5%
British American Tabacco Bhd. ............................. 85,000 693,421
Carlsberg Brewery Bhd. .................................... 178,000 599,579
Commerce Asset-Holdings Bhd. .............................. 121,000 350,263
Digi.com Bhd. (a) ......................................... 349,000 638,303
Malayan Banking Bhd. ...................................... 437,400 1,772,621
Malaysian Pacific Industries Bhd. ......................... 98,000 1,005,790
Public Bank Bhd. .......................................... 804,000 740,526
Resorts World Bhd ......................................... 259,000 708,842
Tanjong Public Co., Ltd. .................................. 218,000 522,053
Telekom Malaysia Bhd. ..................................... 334,000 1,151,421
Tenaga Nasional Bhd. ...................................... 197,000 642,842
------------
8,825,661
------------
SINGAPORE 10.6%
Chartered Semiconductor Manufacturing Ltd. (a) ............ 120,000 1,048,915
City Developments Ltd. .................................... 135,000 523,589
Datacraft Asia Ltd. ....................................... 111,280 979,264
DBS Group Holdings Ltd. ................................... 266,661 3,426,845
</TABLE>
12 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
SINGAPORE (CONTINUED)
Keppel Corp., Ltd. ........................................ 124,000 $ 268,457
NatSteel Electronics Ltd. ................................. 131,000 401,910
Neptune Orient Lines Ltd. (a) ............................. 581,000 538,119
OMNI Industries Ltd. ...................................... 529,000 872,735
Oversea-Chinese Banking Corp., Ltd. ....................... 283,150 1,950,498
Overseas Union Bank Ltd. .................................. 160,300 621,714
Sembcorp Logistics Ltd. ................................... 175,900 987,688
SIA Engineering Co., Ltd. (a) ............................. 396,000 444,712
Singapore Airlines Ltd. ................................... 178,000 1,761,968
Singapore Press Holdings Ltd. ............................. 110,200 1,722,373
ST Assembly Test Services Ltd. (a) ........................ 342,000 879,004
Venture Manufacturing Ltd. ................................ 69,800 711,132
------------
17,138,923
------------
TAIWAN 20.2%
Accton Technology Corp. (a) ............................... 16,200 36,117
Acer Peripherals, Inc. .................................... 390,456 1,105,604
Acer, Inc. (a) ............................................ 241,550 452,046
Advanced Semiconductor Engineering, Inc. (a) .............. 278,219 851,183
Advantech Co., Ltd. ....................................... 94,800 502,926
Ambit Microsystems Corp. .................................. 33,000 327,584
ASE Test Ltd. ADR (a) ..................................... 20,300 597,581
Asustek Computer, Inc. .................................... 228,538 1,889,297
China Steel Corp. ......................................... 734,100 501,745
Chinatrust Commercial Bank (a) ............................ 595,560 517,541
Compal Electronics, Inc. .................................. 274,429 674,350
Delta Electronics, Inc. ................................... 236,000 1,117,592
Far Eastern Textile Ltd. .................................. 518,805 645,024
GigaMedia Ltd. (a) ........................................ 7,700 93,363
Hon Hai Precision Industry (a) ............................ 228,760 2,069,822
Macronix International Co., Ltd. (a) ...................... 254,550 637,928
Microelectronics Technology, Inc. (a) ..................... 128,200 425,595
Nan Ya Plastics Corp. ..................................... 774,340 1,562,541
President Chain Store Corp. ............................... 161,360 603,951
ProMos Technologies, Inc. (a) ............................. 72,000 291,749
Ritek Corp. (a) ........................................... 91,350 365,697
Siliconware Precision Industries Co. ADR (a) .............. 29,300 271,025
Siliconware Precision Industries Co. (a) .................. 451,695 1,014,384
Taishin International Bank ................................ 828,031 530,910
Taiwan Semiconductor Manufacturing Co., Ltd. (a) .......... 1,632,035 7,755,154
United Micro Electronics Corp. (a) ........................ 1,941,980 5,404,045
United World Chinese Commercial Bank ...................... 414,640 394,060
Universal Scientific Industrial Co., Ltd. ................. 181,000 441,823
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS 13
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
TAIWAN (CONTINUED)
Winbond Electronics Corp. (a) ............................. 490,350 $ 1,420,379
------------
32,501,016
------------
THAILAND 2.4%
Advanced Info Services Public Co., Ltd. ................... 85,800 1,068,804
BEC World Public Co., Ltd. ................................ 77,600 463,520
Delta Electronics Public Co., Ltd. ........................ 50,100 352,970
Golden Land Property Development Public Co., Ltd. (a) ..... 945,700 140,015
Hana Microelectronics Public Co., Ltd. .................... 41,600 327,066
Siam City Cement Public Co., Ltd. (a) ..................... 190,633 720,196
Thai Farmers Bank Public Co., Ltd. ........................ 734,100 618,387
Total Access Communication Public Co., Ltd. (a) ........... 31,200 125,424
------------
3,816,382
------------
TOTAL COMMON STOCKS (Cost $134,420,406) .............................. 159,410,867
------------
WARRANTS 0.1%
THAILAND 0.1%
Siam Commercial Bank Public Co., Ltd., expiring 5/10/02 (a)
(Cost $46,564) ........................................ 1,023,700 120,205
------------
TOTAL LONG-TERM INVESTMENTS 99.1%
(Cost $134,466,970) ................................... 159,531,072
------------
</TABLE>
14 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
PAR MARKET
DESCRIPTION VALUE VALUE
<S> <C> <C>
SHORT-TERM INVESTMENT 0.3%
REPURCHASE AGREEMENT 0.3%
Chase Securities, Inc. 6.15%, dated 6/30/00,
due 7/3/00, to be repurchased at $588,301,
collateralized by $585,000 U.S. Treasury Bonds
6.25%, due 8/15/23, valued at $602,226
(Cost $588,000) ....................................... $588,000 $ 588,000
------------
TOTAL INVESTMENTS IN SECURITIES 99.4%
(Cost $135,054,970) .............................................. 160,119,072
FOREIGN CURRENCY 0.9%
(Cost $1,429,622) ................................................ 1,430,555
------------
TOTAL INVESTMENTS 100.3%
(Cost $136,484,592) .............................................. 161,549,627
LIABILITIES IN EXCESS OF OTHER ASSETS -0.3% ......................... (535,358)
------------
NET ASSETS 100% ..................................................... $161,014,269
============
</TABLE>
(a) NON-INCOME PRODUCING SECURITY
ADR AMERICAN DEPOSITARY RECEIPT
SUMMARY OF LONG-TERM INVESTMENTS BY INDUSTRY CLASSIFICATION+
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
-------- ----- ----------
<S> <C> <C>
Information Technology ........... $ 59,796,493 37.1%
Financials ....................... 39,239,382 24.4
Telecommunications Services ...... 29,046,371 18.1
Consumer Discretionary ........... 11,786,601 7.3
Industrials ...................... 9,278,405 5.8
Materials ........................ 3,883,676 2.4
Utilities ........................ 3,765,829 2.3
Consumer Staples ................. 2,734,315 1.7
------------ ---
$159,531,072 99.1%
============ ====
</TABLE>
+ CLASSIFIED BY SECTORS WHICH REPRESENT BROAD GROUPINGS OF RELATED INDUSTRIES.
SEE NOTES TO FINANCIAL STATEMENTS 15
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
JUNE 30, 2000
<TABLE>
<S> <C>
ASSETS:
Investments in Securities, at Value (Cost $135,054,970) ................... $160,119,072
Foreign Currency (Cost $1,429,622) ........................................ 1,430,555
Receivable for:
Investments Sold ........................................................ 3,664,761
Fund Shares Sold ........................................................ 1,448,003
Dividends ............................................................... 205,335
Interest ................................................................ 100
Other ..................................................................... 18,375
------------
Total Assets .......................................................... 166,886,201
------------
LIABILITIES:
Payable for:
Fund Shares Redeemed .................................................... 4,232,530
Investments Purchased ................................................... 826,996
Bank Overdraft .......................................................... 164,281
Distribution Fees ....................................................... 163,832
Custody Fees ............................................................ 145,607
Investment Advisory Fees ................................................ 126,218
Shareholder Reporting Expenses .......................................... 69,904
Professional Fees ....................................................... 38,083
Administrative Fees ..................................................... 35,516
Directors' Fees and Expenses ............................................ 33,188
Transfer Agent Fees ..................................................... 23,668
Deferred Country Tax .................................................... 2,437
Other ..................................................................... 9,672
------------
Total Liabilities ..................................................... 5,871,932
------------
NET ASSETS ................................................................ $161,014,269
============
NET ASSETS CONSIST OF:
Capital Stock at Par ($.001 par value, Shares Authorized 2,625,000,000) .. $ 12,669
Paid in Capital in Excess of Par ......................................... 216,987,625
Net Unrealized Appreciation on Investments and
Foreign Currency Translations* ....................................... 25,059,791
Accumulated Net Investment Loss .......................................... (178,131)
Accumulated Net Realized Loss ............................................ (80,867,685)
------------
NET ASSETS ............................................................... $161,014,269
============
</TABLE>
16 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
Statement of Assets and Liabilities
JUNE 30, 2000
<TABLE>
<S> <C>
Class A Shares:
Net Asset Value and Redemption Price Per Share (Based on Net Assets of
$76,254,366 and 5,839,478 Shares Outstanding) ........................ $ 13.06
============
Maximum Sales Charge ................................................. 5.75%
Maximum Offering Price Per Share (Net Asset Value
Per Share x 100/ (100% - maximum sales charge)) ...................... $ 13.86
============
Class B Shares:
Net Asset Value and Offering Price Per Share (Based on Net Assets of
$45,837,306 and 3,687,316 Shares Outstanding)** ...................... $ 12.43
============
Class C Shares:
Net Asset Value and Offering Price Per Share (Based on Net Assets of
$38,922,597 and 3,142,243 Shares Outstanding)** ...................... $ 12.39
============
</TABLE>
* NET OF ACCRUAL FOR DEFERRED COUNTRY TAX OF U.S. $2,437.
** REDEMPTION PRICE MAY BE SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE.
SEE NOTES TO FINANCIAL STATEMENTS 17
<PAGE>
Statement of Operations
YEAR ENDED JUNE 30, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends ........................................................... $ 2,175,047
Interest ............................................................ 126,880
Less Foreign Taxes Withheld ......................................... (158,856)
-----------
Total Income .................................................... 2,143,071
-----------
EXPENSES:
Investment Advisory Fees ............................................ 1,718,406
Distribution Fees (Attributed to Classes A, B and C of
$207,290, $471,600 and $419,730, respectively) .................... 1,098,620
Administrative Fees ................................................. 441,202
Custodian Fees ...................................................... 371,920
Shareholder Reports ................................................. 226,545
Transfer Agent Fees ................................................. 118,631
Filing & Registration Fees .......................................... 58,525
Professional Fees ................................................... 43,978
Directors' Fees and Expenses ........................................ 26,662
Country Tax Expense ................................................. 16,390
Other ............................................................... 16,489
-----------
Total Expenses .................................................. 4,137,368
Less Expense Reductions ........................................... (172,743)
-----------
Net Expenses ...................................................... 3,964,625
-----------
NET INVESTMENT LOSS ................................................. $(1,821,554)
===========
NET REALIZED GAIN/LOSS ON:
Investments ....................................................... $46,382,500
Foreign Currency Transactions ..................................... (281,789)
-----------
Net Realized Gain ................................................... 46,100,711
-----------
NET UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period ........................................... 44,849,761
-----------
End of the Period:
Investments ..................................................... 25,064,102
Foreign Currency Translations ................................... (4,311)
-----------
25,059,791
-----------
Net Change in Unrealized Appreciation/Depreciation .................. (19,789,970)
-----------
NET REALIZED GAIN/LOSS AND NET CHANGE IN UNREALIZED
APPRECIATION/DEPRECIATION ......................................... $26,310,741
===========
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ................ $24,489,187
===========
</TABLE>
18 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
Statement of Changes in Net Assets
YEAR ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 2000 JUNE 30, 1999*
------------- --------------
<S> <C> <C>
INCREASE/DECREASE IN NET ASSETS
OPERATIONS:
Net Investment Loss .................................... $ (1,821,554) $ (125,000)
Net Realized Gain/Loss ................................. 46,100,711 (5,000)
Net Change in Unrealized Appreciation/Depreciation ..... (19,789,970) 68,333,000
------------ ------------
Net Increase in Net Assets Resulting from Operations ... 24,489,187 68,203,000
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Subscribed ............................................. 246,008,180 84,305,000
Redeemed ............................................... (281,902,284) (82,166,000)
------------ ------------
Net Increase/Decrease in Net Assets Resulting from
Capital Share Transactions ........................... (35,894,104) 2,139,000
------------ ------------
Total Increase/Decrease in Net Assets .................. (11,404,917) 70,342,000
NET ASSETS--Beginning of Period ........................ 172,419,186 102,077,000
------------ ------------
NET ASSETS--End of Period (Including accumulated
net investment loss of $(178,131) and $(25,000),
respectively) ........................................ $161,014,269 $172,419,000
============ ============
</TABLE>
* AMOUNTS ROUNDED TO THE NEAREST (000).
SEE NOTES TO FINANCIAL STATEMENTS 19
<PAGE>
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE
FUND OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------
CLASS A SHARES 2000# 1999# 1998# 1997 1996
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD ......................... $ 11.48 $ 6.53 $ 16.62 $ 17.15 $ 16.42
------- ------- ------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss ........ (0.08) 0.02 (0.04) (0.06) (0.04)
Net Realized and
Unrealized Gain/Loss ............ 1.66 4.93 (10.03) (0.14) 0.77
------- ------- ------- -------- --------
Total From Investment Operations .... 1.58 4.95 (10.07) (0.20) 0.73
------- ------- ------- -------- --------
DISTRIBUTIONS
In Excess of Net Realized Gain .... -- -- (0.02) (0.33) --
------- ------- ------- -------- --------
NET ASSET VALUE, END OF PERIOD ...... $ 13.06 $ 11.48 $ 6.53 $ 16.62 $ 17.15
======= ======= ======= ======== ========
TOTAL RETURN (1) .................... 13.49% 75.69% (60.57%) (1.10%) 4.45%
======= ======= ======= ======== ========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) ... $76,254 $88,808 $47,128 $175,440 $248,009
Ratio of Expenses to Average
Net Assets ........................ 1.92% 1.95% 1.90% 1.84% 1.88%
Ratio of Net Investment Income/Loss
to Average Net Assets ............. (0.66%) 0.28% (0.39%) (0.31%) (0.16%)
Portfolio Turnover Rate ............. 108% 138% 130% 74% 38%
------------------------------------------------------------------------------------------
Effect of Voluntary Expense Reductions
During the Period
Per Share Benefit to Net Investment
Income/Loss ..................... $0.01 $0.01 $0.01 $-- $--
Ratios Before Expense Reductions:
Expenses to Average Net Assets .... 2.02% 2.03% 2.21% -- --
Net Investment Income/Loss to
Average Net Assets .............. (0.76%) 0.20% (0.53%) -- --
Ratio of Expenses to Average
Net Assets excluding country
tax expense and interest expense .. 1.90% 1.90% 1.90% -- --
------------------------------------------------------------------------------------------
</TABLE>
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED SALES
CHARGES.
# CHANGES PER SHARE ARE BASED UPON DAILY AVERAGE SHARES OUTSTANDING.
20 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE
FUND OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------- AUGUST 1, 1995+
CLASS B SHARES 2000# 1999# 1998# 1997 TO JUNE 30, 1996
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD ......................... $ 11.01 $ 6.31 $ 16.17 $ 16.81 $ 16.51
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Loss ............... (0.17) (0.03) (0.10) (0.16) (0.03)
Net Realized and
Unrealized Gain/Loss ............ 1.59 4.73 (9.74) (0.15) 0.33
------- ------- ------- ------- -------
Total From Investment Operations .... 1.42 4.70 (9.84) (0.31) 0.30
------- ------- ------- ------- -------
DISTRIBUTIONS
Net Realized Gain ................. -- -- -- (0.33) --
In Excess of Net Realized Gain .... -- -- (0.02) -- --
------- ------- ------- ------- -------
Total Distributions ................. -- -- (0.02) (0.33) --
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD ...... $ 12.43 $ 11.01 $ 6.31 $ 16.17 $ 16.81
======= ======= ======= ======= =======
TOTAL RETURN (1) .................... 12.81% 74.48% (60.89%) (1.79%) 1.82%*
======= ======= ======= ======= =======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) ... $45,837 $42,905 $26,126 $62,786 $52,853
Ratio of Expenses to Average
Net Assets ........................ 2.67% 2.70% 2.65% 2.59% 2.61%
Ratio of Net Investment Loss
to Average Net Assets ............. (1.42%) (0.44%) (1.01%) (1.04%) (0.52%)
Portfolio Turnover Rate ............. 108% 138% 130% 74% 38%*
--------------------------------------------------------------------------------------------
Effect of Voluntary Expense Reductions
During the Period
Per Share Benefit to Net Investment
Loss ............................ $0.01 $0.01 $0.02 $-- $--
Ratios Before Expense Reductions:
Expenses to Average Net Assets .... 2.77% 2.78% 2.96% -- --
Net Investment Loss to
Average Net Assets .............. (1.52%) (0.52%) (1.15%) -- --
Ratio of Expenses to Average
Net Assets excluding country
tax expense and interest expense .. 2.65% 2.65% 2.65% -- --
--------------------------------------------------------------------------------------------
</TABLE>
* NON-ANNUALIZED
+ THE FUND BEGAN OFFERING CLASS B SHARES ON AUGUST 1, 1995.
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED SALES
CHARGES.
# CHANGES PER SHARE ARE BASED UPON DAILY AVERAGE SHARES OUTSTANDING.
SEE NOTES TO FINANCIAL STATEMENTS 21
<PAGE>
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE
FUND OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------
CLASS C SHARES 2000# 1999# 1998# 1997 1996
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD ......................... $ 10.97 $ 6.29 $ 16.14 $ 16.78 $ 16.19
------- ------- ------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Loss ............... (0.17) (0.04) (0.12) (0.21) (0.13)
Net Realized and
Unrealized Gain/Loss ............ 1.59 4.72 (9.71) (0.10) 0.72
------- ------- ------- -------- --------
Total From Investment Operations .... 1.42 4.68 (9.83) (0.31) 0.59
------- ------- ------- -------- --------
DISTRIBUTIONS
In Excess of Net Realized Gain .... -- -- (0.02) (0.33) --
------- ------- ------- -------- --------
NET ASSET VALUE, END OF PERIOD ...... $ 12.39 $ 10.97 $ 6.29 $ 16.14 $ 16.78
======= ======= ======= ======== ========
TOTAL RETURN (1) .................... 12.76% 74.13% (60.88%) (1.79%) 3.64%
======= ======= ======= ======== ========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) ... $38,923 $40,706 $28,823 $114,460 $168,070
Ratio of Expenses to Average
Net Assets ........................ 2.67% 2.70% 2.65% 2.59% 2.63%
Ratio of Net Investment Loss
to Average Net Assets ............. (1.43%) (0.48%) (1.17%) (1.06%) (0.94%)
Portfolio Turnover Rate ............. 108% 138% 130% 74% 38%
------------------------------------------------------------------------------------------
Effect of Voluntary Expense Reductions
During the Period
Per Share Benefit to Net Investment
Loss ............................ $0.01 $0.01 $0.01 $-- $--
Ratios Before Expense Reductions:
Expenses to Average Net Assets .... 2.77% 2.78% 2.96% -- --
Net Investment Loss to
Average Net Assets .............. (1.53%) (0.56%) (1.31%) -- --
Ratio of Expenses to Average
Net Assets excluding country
tax expense and interest expense .. 2.65% 2.65% 2.65% -- --
------------------------------------------------------------------------------------------
</TABLE>
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED SALES
CHARGES.
# CHANGES PER SHARE ARE BASED UPON DAILY AVERAGE SHARES OUTSTANDING.
22 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
The Van Kampen Asian Growth Fund (the "Fund") is organized as a separate
diversified fund of Van Kampen Series Fund, Inc., a Maryland corporation
which is registered as an open-end management investment company under the
Investment Company Act of 1940, as amended. The Fund's investment objective
seeks long-term capital appreciation through investment primarily in equity
securities of Asian issuers, excluding Japan. The Fund commenced operations
on June 23, 1993. The Fund began offering the current Class B shares on
August 1, 1995. Class B shares held prior to May 1, 1995 were renamed Class C
shares.
1. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of the financial statements in conformity with accounting
principles accepted in the United States of America (hereafter "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
period. Actual results could differ from those estimates.
A. SECURITY VALUATION Equity securities listed on a U.S. exchange and equity
securities traded on NASDAQ are valued at the latest quoted sales price on
the valuation date. Securities listed on a foreign exchange are valued at
their closing price. Unlisted securities and listed securities not traded on
the valuation date for which market quotations are readily available are
valued at the average between the bid and asked prices obtained from
reputable brokers. Bonds and other fixed income securities may be valued
according to the broadest and most representative market. In addition, bonds
and other fixed income securities may be valued on the basis of prices
provided by a pricing service which takes into account institutional size
trading in similar groups of securities. Debt securities purchased with
remaining maturities of 60 days or less are valued at amortized cost, which
approximates market value. All other securities and assets for which market
quotations are not readily available are valued at fair value as determined
in good faith using procedures approved by the Board of Directors.
B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified
price. The Fund may invest independently in repurchase agreements, or
transfer uninvested cash balances into a pooled cash account along with other
investment companies advised by Van Kampen Invest-
23
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
ment Advisory Corp. or its affiliates, the daily aggregate of which is
invested in repurchase agreements. Repurchase agreements are fully
collateralized by the underlying debt security. A bank as custodian for the
Fund takes possession of the underlying securities, with a market value at
least equal to the amount of the repurchase transaction, including principal
and accrued interest. To the extent that any repurchase transaction exceeds
one business day, the value of the collateral is marked-to-market on a daily
basis to determine the adequacy of the collateral. In the event of default on
the obligation to repurchase, the Fund has the right to liquidate the
collateral and apply the proceeds in satisfaction of the obligation. In the
event of default or bankruptcy by the counterparty to the agreement,
realization and/or retention of the collateral or proceeds may be subject to
legal proceedings.
C. INCOME AND EXPENSES Interest income is recorded on an accrual basis and
dividend income is recorded net of applicable withholding taxes on the
ex-dividend date. Income, expenses, and realized and unrealized gains or
losses are allocated on a pro rata basis to each class of shares except for
distribution and service fees which are unique to each class of shares.
Distributions from the Fund are recorded on the ex-distribution date.
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.
The Fund may be subject to taxes imposed by countries in which it invests.
Such taxes are generally based on income earned or gains realized or
repatriated. Taxes are accrued and applied to net investment income, net
realized capital gains and net unrealized appreciation, as applicable, as the
income is earned or capital gains are recorded.
The Fund intends to utilize provisions of the federal income tax laws
which allow it to carry a realized capital loss forward for eight years
following the year of the loss and offset such losses against any future
realized capital gains. At June 30, 2000, the Fund had an accumulated capital
loss carryforward for tax purposes of $80,258,778, which will expire between
June 30, 2006 and June 30, 2007. Net realized gains or losses may differ for
financial and tax reporting purposes as a result of losses relating to wash
sale transactions.
At June 30, 2000, for federal income tax purposes, cost of long- and
short-term investments is $135,663,878, the aggregate gross unrealized
appreciation is $34,397,099 and the aggregate gross unrealized depreciation
is $9,941,905, resulting in net unrealized appreciation on long- and
short-term investments of $24,455,194.
24
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
E. DISTRIBUTION OF INCOME AND GAINS The Fund declares and pays dividends
annually from net investment income and net realized gains, if any.
Distributions from net realized gains for book purposes may include
short-term capital gains which are included as ordinary income for tax
purposes.
Due to inherent differences in the recognition of income and expenses
under generally accepted accounting principles and federal income tax
purposes, permanent differences between book and tax bases reporting for the
current fiscal year have been identified and appropriately reclassified. A
permanent difference related to a net operating loss totaling $1,583,589 has
been reclassified from paid in capital in excess of par to accumulated net
investment loss. Permanent differences relating to a correction of prior year
amounts were reclassified from accumulated net investment loss ($152,434) and
accumulated net realized loss ($135,518) to paid in capital in excess of par.
A permanent difference related to the recognition of net realized gains on
foreign currency transactions totaling $281,789 was reclassified from
accumulated net realized loss to accumulated net investment loss. Permanent
differences related to the sale of Passive Foreign Investment Company
securities totaling $213,049 were reclassified from accumulated net realized
loss to accumulated net investment loss. A permanent difference related to
taxes accrued against capital gains totaling $257,710 was reclassified from
accumulated net investment loss to accumulated net realized loss.
Permanent book to tax basis differences are not included in ending
undistributed/distributions in excess of net investment income for the
purpose of calculating net investment income/loss per share in the Financial
Highlights.
F. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS Assets and
liabilities denominated in foreign currencies and commitments under forward
currency contracts are translated into U.S. dollars at the mean of the quoted
bid and asked prices of such currencies against the U.S. dollar. Purchases
and sales of portfolio securities are translated at the rate of exchange
prevailing when such securities were acquired or sold. Income and expenses
are translated at rates prevailing when accrued. Realized and unrealized
gains and losses on securities resulting from changes in exchange rates are
not segregated for financial reporting purposes from amounts arising from
changes in the market prices of securities. Realized gains and losses on
foreign currency transactions includes the net realized amount from the sale
of the currency and the amount realized between trade date and settlement
date on security and income transactions.
The Fund invests in issuers located in emerging markets. There are
certain risks inherent in these investments not typically associated with
issuers in the United States, including the smaller size of the markets
themselves, lesser liquidity, greater volatility, and potentially less
publicly available information. Emerging markets may be subject to a greater
degree of government involvement in the economy and greater economic and
political uncertainty, which has the potential to extend to government imposed
25
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
restrictions on exchange traded transactions and currency transactions. These
restrictions may impact the Fund's ability to buy or sell certain securities
or to repatriate certain currencies to U.S. dollars. Additionally, changes in
currency exchange rates will affect the value of and investment income from
such securities.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Van Kampen Investment Advisory Corp. (the "Adviser"), a wholly owned
subsidiary of Van Kampen Investments Inc. (an indirect wholly owned
subsidiary of Morgan Stanley Dean Witter & Co.) and Morgan Stanley Dean
Witter Investment Management Inc., a wholly owned subsidiary of Morgan
Stanley Dean Witter & Co., provide the Fund with investment advisory services
at a fee paid monthly and calculated at the annual rates based on average
daily net assets indicated as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
<S> <C>
First $500 million ...................................... 1.00 of 1%
Next $500 million ....................................... .95 of 1%
Over $1 billion ......................................... .90 of 1%
</TABLE>
The Adviser has agreed to reduce advisory fees payable to it and to reimburse
the Fund, if necessary, if the annual operating expenses, expressed as a
percentage of average daily net assets, exceed the maximum ratios indicated
as follows:
<TABLE>
<CAPTION>
CLASS B
CLASS A AND CLASS C
MAX. OPERATING MAX. OPERATING
EXPENSE RATIO EXPENSE RATIO
<S> <C>
1.90% 2.65%
</TABLE>
For the period ended June 30, 2000, the Adviser voluntarily waived
$172,743 of its investment advisory fees. This waiver is voluntary in nature
and can be discontinued at the Adviser's discretion.
For the period ended June 30, 2000, the Fund recognized expenses of
$10,459 representing legal services provided by Skadden, Arps, Slate, Meagher
& Flom (Illinois), counsel to the Fund, of which a director of the Fund is an
affiliated person.
For the period ended June 30, 2000, the Fund recognized expenses of
$7,123 representing Van Kampen's cost of providing legal services to the Fund.
Van Kampen Investment Advisory Corp. (the "Administrator") also provides
the Fund with administrative services pursuant to an administrative agreement
for a monthly fee which on an annual basis equals 0.25% of the average daily
net assets of the Fund, plus reimbursement of out-of-pocket expenses. Under
an agreement between the Adviser and The Chase Manhattan Bank ("Chase"),
through its corporate affiliate Chase Global Funds Services Company
("CGFSC"), Chase provides certain ad-
26
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
ministrative services to the Fund. Chase is compensated for such services by
the Adviser from the fee it receives from the Fund. Transfer Agency services
are provided to the Fund by Van Kampen Investor Services Inc., an affiliate
of the Adviser.
Van Kampen Funds Inc. (the "Distributor") a wholly owned subsidiary of
Van Kampen Investments Inc., an indirect wholly owned subsidiary of Morgan
Stanley Dean Witter & Co., serves as the Distributor of the Fund's shares.
The Distributor is entitled to receive from the Portfolio a distribution fee,
which is accrued daily and paid quarterly, of an amount of up to 0.25% of the
Class A shares and up to 1.00% of the Class B shares and Class C shares of
the Fund, on an annualized basis, of the average daily net assets
attributable to each Class.
The Distributor may receive a front end sales charge for purchases of
Class A shares. In addition, the Distributor may receive a contingent
deferred sales charge for certain redemptions of Class B shares and Class C
shares of the Fund redeemed within one to five years following such purchase.
For the period ended June 30, 2000, the Distributor has advised the Fund that
it earned initial sales charges of $253,592 for Class A shares and deferred
sales charges of $237,262 and $15,980 for Class B shares and Class C shares,
respectively.
Certain officers and directors of the Fund are also officers and
directors of Van Kampen. The Fund does not compensate its officers or
directors who are officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
directors who are not officers of Van Kampen. Under the deferred compensation
plan, directors 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 director's years of service to the Fund. The
maximum annual benefit per director under the plan is $2,500.
For the period ended June 30, 2000, the Fund incurred $121,099 as
brokerage commissions with Morgan Stanley & Co. Incorporated, an affiliated
broker/dealer.
3. CAPITAL TRANSACTIONS
The Fund currently offers three classes of shares, Class A, Class B, and
Class C shares. All three classes of shares have identical voting, dividend,
liquidation and other rights. Class A shares are sold with a front-end sales
charge of up to 5.75%. For certain purchases of Class A shares, the front-end
sales charge may be waived and a contingent deferred sales charge ("CDSC") of
1.00% imposed in the event of certain redemptions within one year of the
purchase. Class B and Class C shares are offered without a front end sales
charge, but are subject to a 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,
27
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
1996, and any dividend reinvestment plan Class B shares received on such
shares, automatically convert to Class A shares seven years after the end of
the calendar month in which the shares were purchased. For the period ended
June 30, 2000, no Class B shares converted to Class A shares. The CDSC will
be imposed on most redemptions made within five years of the purchase for
Class B shares and one year of the purchase for Class C shares as detailed in
the following schedule:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE ON ASSETS SUBJECT TO
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
Thereafter ............................................... None None
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 2000 JUNE 30, 1999*
-------------- --------------
<S> <C> <C>
CAPITAL SHARE TRANSACTIONS
CLASS A:
Shares:
Subscribed .......................................... 17,452,932 8,906,000
Redeemed ............................................ (19,346,665) (8,391,000)
------------- ------------
Net Increase/Decrease in Class A Shares Outstanding ... (1,893,733) 515,000
============= ============
Dollars:
Subscribed .......................................... $ 222,661,067 $ 70,587,000
Redeemed ............................................ (249,142,808) (61,673,000)
------------- ------------
Net Increase/Decrease ................................. $ (26,481,741) $ 8,914,000
============= ============
Ending Paid in Capital ................................ $ 94,617,222+ $121,936,000+
============= ============
CLASS B:
Shares:
Subscribed .......................................... 1,262,910 944,000
Redeemed ............................................ (1,473,492) (1,189,000)
------------- ------------
Net Decrease in Class B Shares Outstanding ............ (210,582) (245,000)
============= ============
Dollars:
Subscribed .......................................... $ 15,484,002 $ 7,734,000
Redeemed ............................................ (17,962,378) (8,813,000)
------------- ------------
Net Decrease .......................................... $ (2,478,376) $ (1,079,000)
============= ============
Ending Paid in Capital ................................ $ 60,041,721+ $ 62,911,000+
============= ============
</TABLE>
28
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 2000 JUNE 30, 1999*
-------------- --------------
<S> <C> <C>
CAPITAL SHARE TRANSACTIONS (CONTINUED)
CLASS C:
Shares:
Subscribed ........................................... 635,714 807,000
Redeemed ............................................. (1,203,170) (1,680,000)
------------- ------------
Net Decrease in Class C Shares Outstanding ............. (567,456) (873,000)
============= ============
Dollars:
Subscribed ........................................... $ 7,863,111 $ 5,984,000
Redeemed ............................................. (14,797,098) (11,680,000)
------------- ------------
Net Decrease .............................................. $ (6,933,987) $ (5,696,000)
============= ============
Ending Paid in Capital .................................... $ 63,636,988+ $ 70,942,000+
============= ============
</TABLE>
* AMOUNTS ROUNDED TO THE NEAREST (000).
+ ENDING PAID IN CAPITAL AMOUNTS DO NOT REFLECT PERMANENT BOOK TO TAX
DIFFERENCES-SEE NOTE 1E.
4. INVESTMENT TRANSACTIONS
For the period ended June 30, 2000, the Fund made purchases of $180,101,264
and sales of $207,912,555 of investment securities other than long-term U.S.
government securities and short-term investments. There were no purchases or
sales of long-term U.S. government securities.
5. 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 into a $650 million committed
line of credit facility with a group of banks which expires on November 28,
2000, but is renewable with the consent of the participating banks. Each fund
is permitted to utilize the facility in accordance with the restrictions of
its prospectus. In the event the demand for the credit facility meets or
exceeds $650 million on a complex-wide basis, each fund will be limited to
its pro-rata percentage based on the net assets of each participating fund.
Interest on borrowings is charged under the agreement at a rate of 0.50%
above the federal funds rate per annum. An annual commitment fee of 0.09% per
annum is charged on the unused portion of the credit facility, which each
fund incurs based on its pro-rata percentage of quarterly net assets. The
Fund has not borrowed against the credit facility during the period.
29
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of Van Kampen Asian Growth Fund
We have audited the accompanying statement of assets and liabilities of
Van Kampen Asian Growth Fund (the "Fund"), a fund of Van Kampen Series Fund,
Inc., including the portfolio of investments, as of June 30, 2000, and the
related statements of operations, changes in net assets and the financial
highlights for the year then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit. The Fund's financial statements and
financial highlights for the periods ended prior to June 30, 2000, were
audited by other auditors whose report, dated August 6, 1999, expressed an
unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of June 30, 2000, by
correspondence with the Fund's custodian and brokers; where replies were not
received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Van
Kampen Asian Growth Fund as of June 30, 2000, the results of its operations,
the changes in its net assets and the financial highlights for the year then
ended, in conformity with accounting principles generally accepted in the
United States of America.
DELOITTE & TOUCHE LLP
Chicago, Illinois
August 11, 2000
30
<PAGE>
VAN KAMPEN FUNDS
THE VAN KAMPEN
FAMILY OF FUNDS
GROWTH
Aggressive Growth
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth
Mid Cap Growth
Pace
Select Growth
Small Cap Value
Tax Managed Equity Growth
Technology
GROWTH AND INCOME
Comstock
Equity Income
Growth and Income
Harbor
Real Estate Securities
Utility
Value
GLOBAL/INTERNATIONAL
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
International Magnum
Latin American
Strategic Income
Tax Managed Global Franchise
Worldwide High Income
INCOME
Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return*
Limited Maturity Government
U.S. Government
U.S. Government Trust for Income
CAPITAL PRESERVATION
Reserve
Tax Free Money
SENIOR LOAN
Prime Rate Income Trust
Senior Floating Rate
TAX FREE
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal**
Insured Tax Free Income
Intermediate Term
Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
To find out more about any of these funds, ask your financial advisor for a
prospectus, which contains more complete information, including sales
charges, risks, and ongoing expenses. Please read it carefully before you
invest or send money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- visit our Web site at
www.vankampen.com -- [GRAPHIC]
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, [GRAPHIC]
call 1-800-421-2833.
- e-mail us by visiting
www.vankampen.com and
selecting CONTACT US [GRAPHIC]
* Closed to new investors
** Open to new investors for a limited time
31
<PAGE>
FUND OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN ASIAN GROWTH FUND
BOARD OF DIRECTORS
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*
Chairman, Director, President,
Chief Executive Officer
STEPHEN L. BOYD*
Executive Vice President and
Chief Investment Officer
A. THOMAS SMITH III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Chief Financial Officer
and Treasurer
RICHARD A. CICCARONE*
JOHN R. REYNOLDSON*
MICHAEL H. SANTO*
JOSEPH P. STADLER*
JOHN H. ZIMMERMANN, III*
Vice Presidents
INVESTMENT ADVISER AND
ADMINISTRATOR
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
INVESTMENT SUBADVISER
MORGAN STANLEY DEAN WITTER INVESTMENT
MANAGEMENT INC.
1221 Avenue of the Americas
New York, New York 10020
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
CUSTODIAN
THE CHASE MANHATTAN BANK
3 MetroTech Center
Brooklyn, New York 11245
DIVIDEND DISBURSING AND TRANSFER AGENT
VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 218256
Kansas City, Missouri 64121-8256
LEGAL COUNSEL
SKADDEN, ARPS, SLATE, MEAGHER &
FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT AUDITORS
DELOITTE & TOUCHE LLP
180 N. Stetson Avenue
Chicago, IL 60601
-------------------------------------------------------------------------------
For federal income tax purposes, the following is furnished with respect to
potential distributions to be paid by the Fund during the remainder of
calendar year 2000. During the taxable year ended June 30, 2000, the Fund did
not pay any distributions. Provided the Fund makes a distribution in December
2000, the Fund intends to pass through foreign tax credits of $416,566 and
has derived gross income from sources within foreign countries amounting to
$2,432,757
-------------------------------------------------------------------------------
* "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.
32
<PAGE>
RESULTS OF SHAREHOLDER VOTES
JUNE 30, 2000
A Joint Special Meeting of the Shareholders of the Asian Growth Fund (the
"Fund") was held on December 15, 1999. The description of each proposal and
number of shares voted are as follows:
1. To elect the following Directors to serve the Fund.
<TABLE>
<CAPTION>
VOTED FOR WITHHELD
<S> <C> <C>
J. Miles Branagan ................................ 9,696,423 73,083
Jerry D. Choate .................................. 9,700,789 68,717
Linda Hutton Heagy ............................... 9,696,555 72,951
R. Craig Kennedy ................................. 9,699,888 69,618
Mitchell M. Merin ................................ 9,695,883 73,622
Jack E. Nelson ................................... 9,700,707 68,799
Richard F. Powers, III ........................... 9,701,033 68,473
Phillip B. Rooney ................................ 9,699,096 70,409
Fernando Sisto ................................... 9,686,581 82,925
Wayne W. Whalen .................................. 9,697,829 71,676
Suzanne H. Woolsey ............................... 9,694,695 74,810
Paul G. Yovovich* ................................ 9,695,273 74,233
</TABLE>
* EFFECTIVE APRIL 14, 2000, PAUL G. YOVOVICH RESIGNED FROM THE BOARD OF
DIRECTORS.
2. To ratify PricewaterhouseCoopers LLP to act as independent public
accountants for the Fund.(1)
<TABLE>
<CAPTION>
Affirmative Against Abstain
<S> <C> <C>
9,695,334 18,967 55,204
</TABLE>
(1) INDEPENDENT ACCOUNTANTS FOR THE FUND PERFORM AN ANNUAL AUDIT OF THE
FUND'S FINANCIAL STATEMENTS. THE BOARD OF DIRECTORS HAS ENGAGED DELOITTE &
TOUCHE LLP TO BE THE FUND'S INDEPENDENT ACCOUNTANTS.
PricewaterhouseCoopers LLP, located at 200 East Randolph Drive, Chicago, IL
60601 ("PWC"), ceased being the Fund's independent accountants effective May
18, 2000. The cessation of the client-auditor relationship between the Fund
and PWC was based solely on a possible future business relationship by PWC
with an affiliate of the Fund's investment adviser.
33
<PAGE>
------------------
452, 552, 652 | PRESORTED |
MSAG ANR 08/00 | STANDARD |
VAN KAMPEN FUNDS INC. | U.S. Postage |
1 Parkview Plaza | PAID |
P.O. Box 5555 | VAN KAMPEN |
Oakbrook Terrace, Illinois 60181-5555 | FUNDS |
-------------------
<PAGE>
VAN KAMPEN
EMERGING MARKETS FUND
ANNUAL REPORT
JUNE 30, 2000
[GRAPHIC]
VAN KAMPEN
FUNDS
<PAGE>
TABLE OF CONTENTS
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 4 IT IS TIMES
GROWTH OF A $10,000 INVESTMENT 5
LIKE THESE
PORTFOLIO AT A GLANCE
TOP TEN HOLDINGS 6 WHEN MONEY-
TOP FIVE COUNTRIES 6
Q&A WITH YOUR PORTFOLIO MANAGERS 7 MANAGEMENT
GLOSSARY OF TERMS 10
EXPERIENCE
BY THE NUMBERS
YOUR FUND'S INVESTMENTS 11 MAY MAKE
FINANCIAL STATEMENTS 21
NOTES TO FINANCIAL STATEMENTS 27 A DIFFERENCE.
REPORT OF INDEPENDENT AUDITORS 36
VAN KAMPEN FUNDS
THE VAN KAMPEN FAMILY OF FUNDS 37
FUND OFFICERS AND IMPORTANT ADDRESSES 38
RESULTS OF SHAREHOLDER VOTES 39
-----------------------------------------------------
NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE.
-----------------------------------------------------
<PAGE>
--------------
455, 555, 655 PRESORTED
MSEM ANR 08/00 STANDARD
VAN KAMPEN FUNDS INC. U.S. Postage
1 Parkview Plaza PAID
P.O. Box 5555 VAN KAMPEN
Oakbrook Terrace, Illinois 60181-5555 FUNDS
--------------
<PAGE>
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.
OVERVIEW
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,
/s/ Richard F. Powers, III
Richard F. Powers, III
President and CEO
Van Kampen Investments
1
<PAGE>
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>
U.S. GROSS DOMESTIC PRODUCT
SEASONALLY ADJUSTED ANNUALIZED RATES
(JUNE 30, 1998 - JUNE 30, 2000)
[CHART]
<TABLE>
<S> <C>
Jun-98 2.1%
Sep-98 3.8%
Dec-98 5.9%
Mar-99 3.5%
Jun-99 2.5%
Sep-99 5.7%
Dec-99 8.3%
Mar-00 4.8%
Jun-00 5.2%
</TABLE>
SOURCE: BUREAU OF ECONOMIC ANALYSIS
INTEREST RATES AND INFLATION
(JUNE 30, 1998 - JUNE 30, 2000)
[CHART]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
<S> <C> <C>
Jun-98 5.500 1.70
Jul-98 5.500 1.70
Aug-98 5.500 1.60
Sep-98 5.250 1.50
Oct-98 5.000 1.50
Nov-98 4.750 1.50
Dec-98 4.750 1.60
Jan-99 4.750 1.70
Feb-99 4.750 1.60
Mar-99 4.750 1.70
Apr-99 4.750 2.30
May-99 4.750 2.10
Jun-99 5.000 2.00
Jul-99 5.000 2.10
Aug-99 5.250 2.30
Sep-99 5.250 2.60
Oct-99 5.250 2.60
Nov-99 5.500 2.60
Dec-99 5.500 2.70
Jan-00 5.500 2.70
Feb-00 5.750 3.20
Mar-00 6.000 3.70
Apr-00 6.000 3.00
May-00 6.500 3.10
Jun-00 6.500 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>
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(AS OF JUNE 30, 2000)
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
------------------------------------------------------------------------------
<S> <C> <C> <C>
One-year total return based on NAV(1) 35.36% 34.35% 34.38%
------------------------------------------------------------------------------
One-year total return(2) 27.60% 29.35% 33.38%
------------------------------------------------------------------------------
Five-year average annual total return(2) 6.12% N/A 6.62%
------------------------------------------------------------------------------
Life-of-Fund average annual total return(2) 2.95% 5.74% 3.23%
------------------------------------------------------------------------------
Commencement date 7/6/94 8/1/95 7/6/94
------------------------------------------------------------------------------
</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.
SEE THE COMPARATIVE PERFORMANCE SECTION OF THE CURRENT PROSPECTUS. 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.
BECAUSE THE PRICES OF COMMON STOCKS AND OTHER SECURITIES FLUCTUATE, THE VALUE
OF AN INVESTMENT IN THE FUND WILL VARY UPON THE FUND'S INVESTMENT
PERFORMANCE. FOREIGN SECURITIES MAY MAGNIFY VOLATILITY DUE TO CHANGES IN
FOREIGN EXCHANGE RATES, THE POLITICAL AND ECONOMIC UNCERTAINTIES IN FOREIGN
COUNTRIES, AND THE POTENTIAL LACK OF LIQUIDITY, GOVERNMENT SUPERVISION, AND
REGULATION.
MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO
PASS.
4
<PAGE>
GROWTH OF A $10,000 INVESTMENT
(JULY 6, 1994 - JUNE 30, 2000)
[CHART]
<TABLE>
<CAPTION>
IFC Global Total Return Composite Index
MEASURES PERFORMANCE OF COMPANIES IN
LATIN AMERICA, EAST AND SOUTH ASIA, EUROPE,
THE MIDDLE EAST, AND AFRICA EMERGING MARKETS FUND
------------------------------------------- ---------------------
<S> <C> <C>
7/94 $9,500 $10,000
6/95 $8,422 $9,868
6/96 $9,614 $10,698
6/97 $10,915 $11,908
6/98 $7,096 $7,314
6/99 $8,793 $9,899
6/00 $11,220 $10,849
</TABLE>
<TABLE>
<S> <C>
Fund's Total Return
1 Year Total Return 27.60%
5 Year Avg. Annual 6.12%
Inception Avg. Annual 2.95%
</TABLE>
THIS
CHART COMPARES YOUR
FUND'S PERFORMANCE TO THAT
OF THE IFC GLOBAL TOTAL
RETURN COMPOSITE INDEX
OVER TIME.
THIS IS AN UNMANAGED BROAD-BASED, STATISTICAL COMPOSITE THAT DOES NOT INCLUDE
ANY COMMISSIONS OR FEES THAT WOULD BE PAID BY AN INVESTOR PURCHASING THE
SECURITIES IT REPRESENTS. SUCH COSTS WOULD LOWER THE PERFORMANCE OF THIS
INDEX. THE HISTORICAL PERFORMANCE OF THE INDEX IS SHOWN FOR ILLUSTRATIVE
PURPOSES ONLY; IT IS NOT MEANT TO FORECAST, IMPLY, OR GUARANTEE THE FUTURE
PERFORMANCE OF ANY INVESTMENT VEHICLE. IT IS NOT POSSIBLE TO INVEST DIRECTLY
IN AN INDEX.
THE ABOVE CHART REFLECTS THE PERFORMANCE OF CLASS A SHARES OF THE FUND. THE
PERFORMANCE OF CLASS A SHARES WILL DIFFER FROM THAT OF OTHER SHARE CLASSES OF
THE FUND BECAUSE OF THE DIFFERENCE IN SALES CHARGES AND/OR EXPENSES PAID BY
SHAREHOLDERS INVESTING IN THE DIFFERENT SHARE CLASSES. THE FUND'S PERFORMANCE
ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS, AND INCLUDES PAYMENT OF THE
MAXIMUM SALES CHARGE (5.75% FOR CLASS A SHARES).
WHILE PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THE ABOVE
INFORMATION PROVIDES A BROADER VANTAGE POINT FROM WHICH TO EVALUATE THE
DISCUSSION OF THE FUND'S PERFORMANCE FOUND IN THE FOLLOWING PAGES.
5
<PAGE>
PORTFOLIO AT A GLANCE
TOP TEN HOLDINGS*
(AS A PERCENTAGE OF NET ASSETS--JUNE 30, 2000)
1. SAMSUNG ELECTRONICS 7.9%
Manufactures consumer and industrial electronic equipment.
2. KOREA TELECOM 4.3%
Provides telecommunications and Internet services to Korea.
3. TELMEX 3.9%
Provides telecommunications services to residents of Mexico.
4. TAIWAN SEMICONDUCTOR MANUFACTURING 3.3%
Designs and manufactures integrated circuits.
5. CHINA TELECOM 2.9%
Provides wireless-communications services in China.
6. SK TELECOM 2.7%
Provides wireless-telecommunications services in Korea.
7. OTE 2.2%
Provides data and telecommunications services in Greece and Eastern Europe.
8. ECI TELECOMMUNICATIONS 2.1%
Creates telecommunications and data transmission systems to improve service
through existing and new networks.
9. INFOSYS TECHNOLOGIES 2.1%
Develops software and provides software services for businesses around the
world.
10. UNITED MICROELECTRONICS 2.0%
Manufactures integrated circuits and other electronic products.
* EXCLUDES SHORT-TERM INVESTMENT
TOP FIVE COUNTRIES
(AS A PERCENTAGE OF NET ASSETS)
[CHART]
[EDGAR REPRESENTATION OF PLOT POINT DATA USED IN PRINTED GRAPHIC]
<TABLE>
<CAPTION>
June 30, 2000 June 30, 1999
<S> <C>
Korea 20.9% 16.7%
Taiwan 13.2% 10.8%
Mexico 9.2% 12.9%
Brazil 8.7% 10.8%
Israel 8.3% 2.9%
</TABLE>
6
<PAGE>
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH THE MANAGEMENT TEAM OF THE VAN KAMPEN EMERGING MARKETS
FUND ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE MARKETS AND
INFLUENCED THE FUND'S RETURN DURING THE 12 MONTHS ENDED JUNE 30, 2000. THE TEAM
IS LED BY PORTFOLIO MANAGERS ROBERT MEYER AND ANDY SKOV, MORGAN STANLEY DEAN
WITTER INVESTMENT MANAGEMENT INC., WHO HAVE MANAGED THE FUND SINCE 1997 AND
1998, RESPECTIVELY. 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 The emerging markets continued the general rebound that began in late 1998.
This rebound was boosted by a combination of fundamental economic reforms in
many emerging-market countries and a supportive global environment.
By the end of 1999, there was an extremely high degree of activity in
telecommunications and technology stocks in emerging markets that paralleled the
developed world. However, for much of the first half of 2000, many positive
economic and political developments within the emerging-market countries were
overshadowed by the sharp decline in the technology-heavy NASDAQ index in April,
volatility in developed markets, and heightened investor caution regarding U.S.
interest rates.
Toward the end of June, most emerging markets rebounded as economic numbers
pointed to a soft landing for the U.S. economy. This allayed investors' fears of
further-escalating U.S. interest rates, and promising signs of economic
recovery appeared from various emerging countries.
As the technology sector began to rebound to some degree, signs of
increasing fiscal discipline, industrial growth, and consumer recovery surfaced
from Brazil and Mexico. Many countries in Asia showed indications that the
benefits of robust exports, strong economic growth, and global outsourcing
trends were not abating. In emerging Europe and the Middle East, Israel and
Turkey reflected supportive economic environments, even in the face of
heightened political tensions.
Overall, emerging markets' growth helped offset the performance problems in
the telecommunications and technology sector and helped produce strong returns
for the fund. In fact, the fund outperformed its benchmark index for the
12-month period ended June 30, 2000, achieving a total return of 35.36 percent
(CLASS A SHARES AT NET ASSET VALUE; IF THE MAXIMUM SALES CHARGE OF 5.75 PERCENT
WERE INCLUDED, THE RETURN WOULD HAVE BEEN LOWER). THE FUND'S PERFORMANCE DURING
THE ONE-YEAR PERIOD ENDED JUNE 30, 2000, WAS LARGELY ATTRIBUTABLE TO INVESTMENTS
IN THE TELECOMMUNICATION AND TECHNOLOGY SECTORS
7
<PAGE>
WHICH PERFORMED FAVORABLY FOR THE PERIOD. THERE IS NO GUARANTEE THAT THIS
PERFORMANCE RECORD OR THE CIRCUMSTANCES LEADING TO IT CAN BE REPLICATED IN THE
FUTURE. AS A RESULT OF RECENT MARKET ACTIVITY, CURRENT PERFORMANCE MAY VARY FROM
THE FIGURES SHOWN. BY COMPARISON, THE IFC GLOBAL TOTAL RETURN COMPOSITE INDEX
GENERATED A TOTAL RETURN OF 9.60 PERCENT FOR THE SAME PERIOD. THIS BROAD-BASED,
UNMANAGED INDEX IS COMPOSED OF SECURITIES ON STOCK EXCHANGES IN LATIN AMERICA,
EAST AND SOUTH ASIA, EUROPE, THE MIDDLE EAST, AND AFRICA, AND ASSUMES DIVIDENDS
ARE REINVESTED. THIS INDEX DOES NOT REFLECT ANY COMMISSIONS OR SALES CHARGES
THAT WOULD BE PAID BY AN INVESTOR PURCHASING THE SECURITIES IT REPRESENTS. SUCH
COSTS WOULD LOWER THE PERFORMANCE OF THE INDEX. IT IS NOT POSSIBLE TO INVEST
DIRECTLY IN AN INDEX. OF COURSE, PAST PERFORMANCE IS NO GUARANTEE OF FUTURE
RESULTS. PLEASE REFER TO THE CHART AND FOOTNOTES ON PAGE 4 FOR ADDITIONAL FUND
PERFORMANCE RESULTS. AS A RESULT OF RECENT MARKET ACTIVITY, CURRENT PERFORMANCE
MAY VARY FROM THE FIGURES SHOWN.
Q WHAT STRATEGIES DID YOU USE TO MANAGE THE FUND, GIVEN THE RECOVERY YOU SAW IN
MANY EMERGING MARKETS?
A Our strategy and style do not change due to market conditions. We always look
for stocks of emerging-markets issuers with strong earnings growth, trading at
reasonable valuations. In searching for these stocks, we use a "top-down"
country criteria to determine which regions and countries are demonstrating
positive change. Next, we use a "bottom-up" analysis to narrow our search to the
best companies within those countries, and then do extensive research on those
companies, their management, and their potential.
We were heavily exposed to technology and telecommunications before the
large explosion in the fourth quarter of 1999, as many of these companies had
the highest growth prospects with reasonable valuations. We increased the fund's
position in Telmex (a Mexican integrated telecommunications service provider),
Locus (a South Korean communications equipment company), and Humax (a South
Korean digital satellite manufacturer).
Korea Telecom is a good example of how our investment strategy works, as
the stock trades at a very significant discount to its peers yet maintains good
growth prospects. Recently, it rolled out DSL (Digital Subscriber Line, which
allows fast Internet access), which will add a new revenue stream to its
already-solid business. Due to Korea Telecom's attractive valuations, we bought
more of it late in the reporting period. 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.
The fund's overall strategy led to a rather pleasant problem: the price
appreciation of the fund's top-performing stocks caused them to become a
disproportionately large part of the portfolio. In fact, for the reporting
period, two-thirds of the fund's portfolio was made up of telecommunications and
technology stocks. Therefore, we sold a portion of them to reduce the
portfolio's overall risk.
In other emerging markets, we sold some Israeli technology-related stocks
for
8
<PAGE>
a profit, and we added oil stocks Lukoil and Surgutneftegaz in Russia due to the
strength in oil prices.
Q WHAT EFFECT MIGHT RISING INTEREST RATES IN THE UNITED STATES HAVE ON EMERGING
MARKETS?
A Many emerging-market countries are net borrowers, so when interest rates in
the United States rise, the cost of borrowing has tended to rise internationally
as well. Rising interest rates in the United States have typically had a greater
ripple effect in emerging markets such as Latin America, where there is a
tendency to run current-account deficits. Asian countries, on the other hand,
are generally savers and large exporters, which generates a surplus of money
coming into those countries. Since their need for external financing is minimal,
the impact of U.S. interest-rake hikes on Asian economies has usually been less
pronounced.
Q WHAT IS YOUR OUTLOOK FOR THE MONTHS AHEAD?
A We continue to be optimistic regarding the long-term prospects within the
emerging markets. We are likely to add to Brazilian and Mexican equities in
the media, telecommunications, and conglomerate industries--we believe stocks
in these markets will continue to fare well, supported by positive economic
trends coupled with attractive valuations and great earnings-growth
potential. Politically speaking, with the recent victory of the PAN party in
Mexico, the reigning PRI party was voted out for the first time in 70 years.
This should serve as an eye-opener to the Mexican government and other Latin
American governments seeking to embrace democracy, indicating that they will
be held accountable for their decisions and removed from office if they don't
serve the voting populace.
We will continue to add to the fund's large Asian position. We are
encouraged by trends in improving economic fundamentals and global outsourcing
of production, which enhance prospects for the region.
Our biggest concern for the emerging markets is whether the U.S. economy
will experience a soft or hard landing. The United States represents one-third
of the world's economy and, as such, is a leader in the financial markets. A
hard landing would mean a significant slowdown in global growth, which would
have a negative impact on the economies that export to the United States.
Finally, if U.S. interest rates stabilize over the next six months, emerging
markets will have the opportunity to perform based on their own fundamentals.
9
<PAGE>
GLOSSARY OF TERMS
A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.
ACCOUNT DEFICIT: A trade imbalance in which imports exceed exports.
CLASS A SHARES: A division of mutual fund shares, which are generally divided
into three groupings, called Class A, Class B, and Class C shares. The specific
features of each are dependent on varying fees and sales charges. In most cases,
Class A shares will have no redemption fee (contingent deferred sales charge).
DIVIDEND: A distribution of earnings. Dividends may be in the form of cash,
stock, or property. The board of directors must declare all dividends.
FUNDAMENTALS: Characteristics of a company, such as revenue growth, earnings
growth, financial strength, market share, and quality of management.
HARD LANDING: Occurs when economic growth slows to a recession.
NET ASSET VALUE (NAV): The value of a mutual fund share, calculated by deducting
a fund's liabilities from the total assets in its portfolio and dividing this
amount by the number of shares outstanding. The NAV does not include any initial
or contingent deferred sales charge.
SALES CHARGE: Also referred to as the load, this is a fee paid by a buyer to
acquire shares in a mutual fund or a limited partnership.
SOFT LANDING: Occurs when economic growth slows but remains fast enough to
prevent a recession. At the same time, growth slows enough to prevent inflation.
VALUATION: The estimated or determined worth of a stock, based on financial
measures such as the stock's current price relative to earnings, revenue, book
value, and cash flow.
VOLATILITY: A measure of the fluctuation in the market price of a security. A
security that is volatile has frequent and large swings in price.
10
<PAGE>
BY THE NUMBERS
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
THE FOLLOWING PAGES DETAIL YOUR FUND'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
COMMON STOCKS 92.1%
BRAZIL 5.3%
<S> <C> <C>
CEMIG ADR .............................................. 15,827 $ 273,821
Coteminas .............................................. 1,365,800 79,441
Coteminas ADR (c) ...................................... 12,645 36,764
CRT 'A' (a) ............................................ 4,957,486 2,171,563
CVRD ADR ............................................... 33,089 934,764
Embratel 'A' ADR ....................................... 48,980 1,157,152
Lojas Arupau S.A. ADR (a) .............................. 14,225 --
Petrobras ADR .......................................... 9,700 293,052
Tele Celular Sul ADR ................................... 11,294 511,054
Tele Centro Sul ADR .................................... 10,418 761,165
Tele Nordeste Celular ADR .............................. 2,895 200,479
Tele Norte Leste ADR ................................... 47,479 1,121,691
Telemig Celular ADR .................................... 2,079 148,649
Telesp Celular ADR ..................................... 21,117 947,625
Unibanco GDR ........................................... 56,226 1,616,497
Votorantim Celulose e Papel S.A. ADR ................... 18,100 332,588
-----------
10,586,305
-----------
CHILE 0.2%
Cia Telecom ADR ........................................ 19,300 349,813
-----------
CHINA 3.2%
AsiaInfo Holdings, Inc. (a) ............................ 190 8,491
China Merchants Holdings International Co., Ltd. ....... 521,000 357,559
China Unicom Ltd. (a) .................................. 1,007,000 2,137,881
China Unicom Ltd. ADR (a) .............................. 7,800 165,750
Cosco Pacific Ltd. ..................................... 588,000 463,883
Guangdong Kelon Electrical Holdings Co. Ltd. ........... 147,000 79,671
Legend Holdings Ltd. ................................... 847,000 820,326
Nanjing Panda Electronics Co., Ltd. 'H' (a) ............ 888,000 318,953
Netease.com, Inc. ADR .................................. 2,500 30,312
PetroChina Company Ltd. 'H' (a) ........................ 8,492,000 1,764,741
PetroChina Company Ltd. ADR (a) ........................ 2,500 52,344
Yanzhou Coal Mining Co., Ltd. ADR ...................... 13,928 139,280
Zhenhai Refining & Chemical Co., Ltd. 'H' .............. 565,400 87,760
-----------
6,426,951
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS 11
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
CZECH REPUBLIC 0.4%
Cesky Telecom a.s. (a) .................................. 29,878 $ 501,630
Cesky Telecom a.s. GDR (a) .............................. 14,318 238,633
-----------
740,263
-----------
EGYPT 1.0%
Al-Ahram Beverages Co. S.A.E. GDR (a) ................... 9,871 169,534
Eastern Tobacco ......................................... 5,198 113,385
Egypt Gas Co. ........................................... 2,900 131,453
Egyptian Co. for Mobile Services (a) .................... 47,915 1,559,351
-----------
1,973,723
-----------
GREECE 2.2%
OTE S.A. ................................................ 109,352 2,666,064
OTE S.A. ADR ............................................ 154,356 1,881,214
-----------
4,547,278
-----------
HONG KONG 4.9%
Asia Satellite Telecommunications Holdings Ltd. ......... 67,000 229,049
China Telecom Ltd. (a) .................................. 407,000 3,589,411
China Telecom Ltd. ADR (a) .............................. 13,200 2,347,125
Citic Pacific Ltd. ...................................... 137,000 717,029
Founder Holdings Ltd. (a) ............................... 560,000 249,631
Great Wall Technology Co., Ltd. .........................1,929,100 1,336,302
Phoenix Satellite Television Holdings Ltd. (a) .......... 702,000 97,706
SINA.com (a) ............................................ 1,700 43,562
TCL International Holdings Ltd. (a) .....................2,032,000 742,890
Timeless Software Ltd. (a) .............................. 416,000 188,109
Yue Yuen Industrial Holdings Ltd. ....................... 132,000 292,938
-----------
9,833,752
-----------
HUNGARY 0.7%
Matav Rt. ............................................... 60,618 421,345
Matav Rt. ADR ........................................... 28,188 970,724
-----------
1,392,069
-----------
INDIA 6.6%
Aptech Ltd. ............................................. 8,200 155,359
Bharat Heavy Electricals Ltd. ........................... 105,300 314,721
BSES Ltd. ............................................... 47,000 258,421
Container Corp. of India Ltd. ........................... 114,500 441,075
Dabur India Ltd. ........................................ 9,800 143,280
Gujarat Ambuja Cements Ltd. ............................. 79,000 345,017
HCL Technologies Ltd. (a) ............................... 11,200 323,182
Hero Honda Motors Ltd. .................................. 14,600 322,900
Hindustan Lever Ltd. .................................... 9,924 630,413
</TABLE>
12 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
INDIA (CONTINUED)
Housing Development Finance Corp., Ltd. ................. 48,440 $ 606,504
India Info.com Ltd. (a,b) ............................... 47,630 204,814
Indo Gulf Corp., Ltd. ................................... 79,750 75,731
Infosys Technologies Ltd. ............................... 23,100 4,303,817
ITC Ltd. ................................................ 1,250 22,247
Larson & Tourbo Ltd. 'A' ................................ 15,700 86,746
Lupin Laboratories Ltd. ................................. 25,500 112,109
Mahanagar Telephone Nigam Ltd. .......................... 150,750 724,377
Mahanagar Telephone Nigam Ltd. GDR ...................... 23,300 214,069
NIIT Ltd. ............................................... 9,200 455,436
Reliance Industries Ltd. ................................ 56,250 429,465
Reliance Industries Ltd. GDR ............................ 10,000 210,000
Satyam Computer Services Ltd. (a) ....................... 21,350 1,426,027
Sterlite Industries Ltd. ................................ 9,500 177,287
Strides Arcolab Ltd. .................................... 11,000 60,851
Tata Engineering & Locomotive Co., Ltd. ................. 74,700 206,282
Tata Tea Ltd. ........................................... 35,850 266,326
Videsh Sanchar Nigam Ltd. ............................... 11,950 323,787
Zee Telefilms Ltd. ...................................... 48,200 483,673
-----------
13,323,916
-----------
INDONESIA 0.6%
PT Gudang Garam Tbk ..................................... 437,925 707,985
PT Indah Kiat Pulp & Paper Corp. (a) .................... 707,580 143,497
PT Semen Gresik Tbk ..................................... 204,200 185,477
PT TELEKOMUNIKASI INDONESIA ADR ......................... 31,484 218,420
-----------
1,255,379
-----------
ISRAEL 8.3%
Aladdin Knowledge Systems (a) ........................... 17,270 273,082
Amdocs Ltd. (a) ......................................... 6,428 493,349
BATM Advanced Communications Ltd. ....................... 5,608 489,270
BreezeCom Ltd. (a) ...................................... 7,920 344,520
Check Point Software Technologies Ltd. (a) .............. 10,206 2,161,120
Comverse Technology, Inc. (a) ........................... 6,526 606,918
DSP Group, Inc. (a) ..................................... 15,495 867,720
ECI Telecommunications Ltd. ............................. 121,553 4,345,520
Elbit Systems Ltd. ...................................... 1 15
Galileo Technology Ltd. (a) ............................. 52,668 1,132,362
Gilat Satellite Networks Ltd. (a) ....................... 17,431 1,209,276
MIH Ltd. (a) ............................................ 5,500 165,172
M-Systems Flash Disk Pioneers Ltd. (a) .................. 5,473 426,210
NICE-Systems Ltd. (a) ................................... 3,792 294,964
NICE-Systems Ltd. ADR (a) ............................... 4,730 365,097
Optibase Ltd. (a) ....................................... 23,590 414,299
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS 13
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
ISRAEL (CONTINUED)
Orckit Communications Ltd. (a) .......................... 14,277 $ 430,095
Precise Software Solutions Ltd. ......................... 2,260 54,240
RADWARE Ltd. (a) ........................................ 8,908 236,062
Tecnomatix Technologies Ltd. (a) ........................ 17,317 235,944
Teva Pharmaceutical Industries Ltd. ADR ................. 7,900 437,956
TTI Team Telecom International Ltd. (a) ................. 30,606 1,101,816
VCON Telecommunications Ltd. (a) ........................ 7,384 77,823
Zoran Corp. (a) ......................................... 9,880 651,462
-----------
16,814,292
-----------
KOREA 20.9%
Chel Jedang Corp. ....................................... 8,600 1,122,217
CJ39 Shopping Corp. ..................................... 7,820 255,985
Communication Network Interface, Inc. (a) ............... 39,904 220,093
Daou Technology, Inc. ................................... 106 1,027
Dreamline Corp. (a) ..................................... 1,318 36,289
Hana Bank ............................................... 14,950 93,184
Hanvit Bank ............................................. 125,320 320,318
Hanvit Bank GDR (a) ..................................... 66,050 330,250
Housing & Commercial Bank ............................... 25,291 592,000
Humax Co., Ltd. (a) ..................................... 44,883 621,908
Hyundai Electronics Industries Co. ...................... 54,350 1,072,353
Hyundai Securities Co. .................................. 391 3,892
Kookmin Bank ............................................ 45,877 584,250
Korea Electric Power Corp. .............................. 33,960 1,053,802
Korea Electric Power Corp. ADR .......................... 31,050 572,484
Korea Technology Banking Co. ............................ 25,630 275,832
Korea Telecom Corp. ..................................... 70,180 6,180,737
Korea Telecom Corp. ADR ................................. 52,710 2,549,846
Korea Telecom Freetel (a) ............................... 6,560 437,127
LG Electronics, Inc. .................................... 14,980 419,162
LG Home Shopping, Inc. .................................. 5,600 532,365
LG Information & Communication Ltd. ..................... 2,330 131,020
LG Securities Co. ....................................... 31,290 406,901
Locus Corp. (A) ......................................... 1,840 149,342
Pantech Co., Ltd. ....................................... 15,117 116,324
Pohang Iron & Steel Co., Ltd. ........................... 2,716 237,341
Samsung Electro-Mechanics Co. ........................... 28,749 1,802,251
Samsung Electronics Co. ................................. 45,901 15,190,215
Samsung Securities Co., Ltd. ............................ 25,410 558,324
Shinhan Bank ............................................ 42,460 399,839
SK Telecom Co., Ltd. .................................... 14,610 4,782,538
SK Telecom Co., Ltd. ADR ................................ 16,870 612,592
Telson Electronics Co., Ltd. ............................ 44,264 470,419
</TABLE>
14 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
KOREA (CONTINUED)
Tong Yang Confectionery Corp. ........................... 8,140 $ 177,032
Trigem Computer, Inc. ................................... 590 11,826
-----------
42,321,085
-----------
MALAYSIA 1.9%
British American Tobacco Bhd. ........................... 73,000 595,526
Commerce Asset Holdings Bhd. ............................ 70,000 202,632
Digi.com Bhd. (a) ....................................... 140,000 256,053
Malayan Banking Bhd. .................................... 178,000 721,368
Malaysian Pacific Industries Bhd. ....................... 38,000 390,000
Public Bank Bhd. (a) .................................... 384,000 353,684
Resorts World Bhd. ...................................... 106,000 290,105
Telekom Malaysia Bhd. ................................... 222,000 765,316
Tenaga Nasional Bhd. .................................... 111,000 362,211
-----------
3,936,895
-----------
MEXICO 9.2%
Alfa 'A' ................................................ 134,498 308,178
Banacci 'L' (a) ......................................... 177,316 717,083
Banacci 'O' ............................................. 85,243 363,787
Cemex CPO ............................................... 122,937 576,492
Cemex CPO ADR ........................................... 42,020 982,218
Cifra 'C' ............................................... 198,564 458,000
Cifra 'V' ............................................... 115,493 271,086
FEMSA (a) ............................................... 237,261 1,012,545
FEMSA ADR (a) ........................................... 15,313 659,416
Grupo Carso 'A1' (a) .................................... 183,784 651,736
Grupo Financiero Bancomer S.A. de C.V. 'O' (a) .......... 644,106 327,240
Grupo Financiero Bancomer S.A. de C.V. 'O' ADR (a,c) .... 31,915 324,234
Grupo Mexico S.A. 'B' (a) ............................... 500 1,407
Grupo Modelo S.A. 'C' ................................... 34,200 76,626
Grupo Sanborns S.A. 'B1' (a) ............................ 9,025 14,489
Grupo Televisa S.A. GDR (a) ............................. 3,450 237,834
Kimberly 'A' ............................................ 142,453 405,292
Soriana 'B' (a) ......................................... 5,900 23,500
Televisa CPO GDR (a) .................................... 42,927 2,959,280
Telmex ADR .............................................. 138,651 7,920,438
Wal-Mart de Mexico S.A. ADR (a) ......................... 9,780 229,517
-----------
18,520,398
-----------
POLAND 0.9%
Elektrim S.A. (a) ....................................... 19,339 222,063
Polski Koncern Naftowy S.A. GDR ......................... 3,100 29,898
Telekomunikacja Polska GDR .............................. 240,523 1,660,811
-----------
1,912,772
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS 15
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
RUSSIA 3.6%
Lukoil Holding ADR ..................................... 42,313 $ 2,163,041
Lukoil Holding ADR ..................................... 9,500 191,140
Mustcom (a,b) .......................................... 8,129,779 1,695,059
Rostelecom ADR ......................................... 10,210 139,111
Storyfirst Communications, Inc. (a,b,d) ................ 600 511,308
Surgutneftegaz ADR (a) ................................. 161,489 2,151,841
Unified Energy Systems GDR (a) ......................... 52,700 606,050
Vimpel-Communications ADR (a) .......................... 170 3,761
-----------
7,461,311
-----------
SOUTH AFRICA 3.7%
Anglo American Platinum Corp., Ltd. .................... 23,877 688,644
Bidvest Group Ltd. ..................................... 76,329 527,262
BoE Ltd. ............................................... 167,416 95,137
De Beers Centenary AG .................................. 14,961 364,364
De Beers Consolidated Mines ADR ........................ 1,200 29,175
Dimension Data Holdings Ltd. (a) ....................... 93,935 777,823
Ellerine Holdings Ltd. ................................. 55,710 239,286
Impala Platinum Holdings Ltd. .......................... 4,848 180,467
Liberty Life Association of Africa Ltd. ................ 20,360 193,833
M-Cell Ltd. ............................................ 256,520 1,243,791
Naspers Ltd. 'N' ....................................... 22,431 187,063
Nedcor Ltd. ............................................ 31,302 657,920
New Africa Investments Ltd. 'N' (a) .................... 417,910 104,863
Rembrant Group Ltd. .................................... 104,898 990,918
RMB Holdings Ltd. (a) .................................. 1 1
Sappi Ltd. ............................................. 31,240 235,165
Sasol Ltd. ............................................. 144,467 970,221
-----------
7,485,933
-----------
TAIWAN 13.2%
Accton Technology Corp. (a) ............................ 336,400 749,989
Acer Peripherals, Inc. ................................. 404,784 1,146,174
Advanced Semiconductor Engineering, Inc. (a) ........... 221,116 676,482
Advantech Co., Ltd. .................................... 40,300 213,797
Ambit Microsystems Corp. ............................... 47,000 466,558
ASE Test Ltd. ADR (a) .................................. 14,900 438,619
Asustek Computer, Inc. ................................. 204,531 1,690,834
Chinatrust Commercial Bank (a) ......................... 330,640 287,326
Compal Electronics, Inc. ............................... 68,600 168,569
D-Link Corp. ........................................... 314,500 736,989
Delta Electronics, Inc. ................................ 176,000 833,458
Dialer and Business (a) ................................ 193,000 364,329
Far Eastern Textile Ltd. ............................... 447,320 556,147
Far Eastern Textile Ltd. GDR (a,c) ..................... 4,800 60,000
</TABLE>
16 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
TAIWAN (CONTINUED)
Faraday Technology Corp. (a) ................................. 13,000 $ 143,434
GigaMedia Ltd. (a) ........................................... 5,000 60,625
Hon Hai Precision Industry (a) ............................... 205,200 1,856,651
Hon Hai Precision Industry GDR (a) ........................... 14,100 338,400
International Commercial Bank of China ....................... 324,500 274,597
Macronix International Co., Ltd. (a) ......................... 214,310 537,083
Microelectronics Technology, Inc. (a) ........................ 50,200 166,652
President Chain Store Corp.................................... 201,000 752,319
ProMos Technologies, Inc. (a) ................................ 64,000 259,333
Ritek Corp. (a) .............................................. 11,550 46,238
Ritek Corp. GDR (a) .......................................... 36,612 292,431
Siliconware Precision Industries Co. (a) ..................... 293,350 658,784
Taishin International Bank ................................... 176,380 113,090
Taiwan Semiconductor Manufacturing Co. (a) ................... 1,392,280 6,615,879
United MicroElectronics Corp. Ltd. (a) ....................... 1,462,800 4,070,607
Universal Scientific Industrial Co., Ltd...................... 201,600 492,107
Winbond Electronics Corp. (a) ................................ 430,110 1,245,884
WYSE Technology Taiwan Ltd.................................... 160,000 286,412
Zinwell Corp. (a) ............................................ 28,000 138,519
-----------
26,738,316
-----------
THAILAND 1.2%
Advanced Information Services Co., Ltd. (a) .................. 78,400 976,623
BEC World Public Co., Ltd..................................... 53,200 317,774
Delta Electronics Public Co., Ltd............................. 70,160 494,299
Shinawatra Computer Co., Ltd.................................. 61,580 323,816
Thai Farmers Bank Public Co., Ltd............................. 228,300 192,314
Total Access Communications Public Co., Ltd. (a) ............. 18,800 75,576
-----------
2,380,402
-----------
TURKEY 4.1%
Alcatel Teletas Telekomunikasyon Endustri ve Ticaret A.S. (a) 1,061,000 230,858
Dogan Sirketler Grupo Holdings A.S............................ 36,116,200 873,152
Dogan Yayin Holdings A.S. (a) ................................ 21,699,000 367,219
Ege Biracilik Ve Malt Sanayii ................................ 11,744,500 766,631
Erciyas Biracilik Ve Malt Sanayii (a) ........................ 1,843,488 86,166
Netas Northern Electric Telekomunikasyon A.S.................. 2,582,702 287,224
Turkiye Garanti Bankasi A.S. (a) ............................. 67,243,000 812,840
Vestel Elektronik Sanayii ve Ticaret A.S. (a) ................ 5,042,031 1,523,714
Yapi Ve Kredi Bankasi A.S. (a) ...............................291,192,714 3,238,369
Yapi Ve Kredi Bankasi A.S. GDR (a) ........................... 4,000 40,200
-----------
8,226,373
-----------
TOTAL COMMON STOCKS
(Cost $171,705,315) ...................................... 186,227,226
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS 17
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
PREFERRED STOCKS 3.4%
BRAZIL 3.4%
Banco Nacional (a,b) ................................. 11,156,000 $ 309
CEMIG ................................................ 8,328,381 145,464
CRT (a) .............................................. 3,733,045 1,262,632
CVRD 'A' ............................................. 18,938 534,485
Embratel 'A' ......................................... 39,146,000 935,510
Lojas Arapua S.A. (a) ................................ 12,437,000 --
Petrobras ............................................ 36,118 1,091,451
Tele Celular Sul ADR ................................. 58,590,452 282,638
Tele Centro Sul ...................................... 56,130,952 812,319
Tele Nordeste Celular ................................ 11,378,752 42,272
Tele Norte Leste ..................................... 10,258,875 240,331
Telebras ADR ......................................... 550 53,419
Telemig Celular ...................................... 76,699,752 276,009
Telesp Celular ....................................... 64,898,132 1,173,096
-----------
6,849,935
-----------
COLOMBIA 0.0%
BanColombia (a) ...................................... 7,150 5,228
-----------
TOTAL PREFERRED STOCKS
(Cost $6,850,386) 6,855,163
-----------
INVESTMENT COMPANY 0.0%
UNITED STATES 0.0%
Morgan Stanley Dean Witter Africa Investment Fund, Inc. (e)
(Cost $57,769) ................................... 4,470 35,481
-----------
TOTAL LONG-TERM INVESTMENTS 95.5%
(Cost $178,613,470) .............................. 193,117,870
-----------
</TABLE>
18 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION PAR VALUE VALUE
<S> <C> <C>
SHORT-TERM INVESTMENT 2.5%
REPURCHASE AGREEMENT 2.5%
Chase Securities, Inc. 6.15%, dated $5,048,000
6/30/00, due 7/3/00, to be repurchased at $5,050,587,
collateralized by $5,350,000 U.S. Treasury Notes 5.50%,
due 5/15/09, valued at $5,156,063
(Cost $5,048,000) ....................................................... $ 5,048,000
------------
TOTAL INVESTMENTS IN SECURITIES 98.0%
(Cost $183,661,470) ..................................................... 198,165,870
FOREIGN CURRENCY 0.3%
(Cost $598,367) ......................................................... 599,512
------------
TOTAL INVESTMENTS 98.3%
(Cost $184,259,837) ..................................................... 198,765,382
OTHER ASSETS IN EXCESS OF LIABILITIES 1.7% ................................. 3,516,278
------------
NET ASSETS 100% ............................................................ $202,281,660
============
</TABLE>
(a) NON-INCOME PRODUCING SECURITY
(b) SECURITY VALUED AT FAIR VALUE--SEE NOTE 1A TO FINANCIAL STATEMENTS.
(c) 144A SECURITY--CERTAIN CONDITIONS FOR PUBLIC SALE MAY EXIST.
(d) RESTRICTED AS TO PUBLIC RESALE. TOTAL VALUE OF RESTRICTED SECURITIES AT
JUNE 30, 2000 WAS $511,308 OR 0.25% OF NET ASSETS (TOTAL COST $1,500,000).
(e) THE FUND IS ADVISED BY AN AFFILIATE WHICH EARNS A MANAGEMENT FEE AS ADVISOR
TO THE FUND.
ADR--AMERICAN DEPOSITARY RECEIPT
CPO--CERTIFICATE OF PARTICIPATION
GDR--GLOBAL DEPOSITARY RECEIPT
SEE NOTES TO FINANCIAL STATEMENTS 19
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
SUMMARY OF LONG-TERM INVESTMENTS BY INDUSTRY CLASSIFICATION+
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
<S> <C> <C>
Information Technology ..................... $ 69,736,834 34.5%
Telecommunication Services ................. 61,731,797 30.5
Financials ................................. 17,240,774 8.5
Consumer Discretionary ..................... 13,676,869 6.8
Energy ..................................... 8,794,488 4.3
Materials .................................. 7,169,307 3.6
Consumer Staples ........................... 6,036,150 3.0
Industrials ................................ 4,573,749 2.2
Utilities .................................. 3,403,706 1.7
Health Care ................................ 754,196 0.4
------------ ----
$193,117,870 95.5%
============ ====
</TABLE>
+ CLASSIFIED BY SECTORS WHICH REPRESENT BROAD GROUPINGS OF RELATED INDUSTRIES.
20 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
JUNE 30, 2000
<TABLE>
<S> <C>
ASSETS:
Investments in Securities, at Value (Cost $183,661,470)............. $198,165,870
Foreign Currency (Cost $598,367).................................... 599,512
Receivable for:
Fund Shares Sold.................................................. 5,494,736
Investments Sold.................................................. 1,810,588
Dividends......................................................... 236,632
Interest.......................................................... 862
Other............................................................... 18,234
------------
Total Assets.................................................... 206,326,434
------------
LIABILITIES:
Payable for:
Investments Purchased............................................. 2,143,471
Fund Shares Redeemed.............................................. 642,798
Bank Overdraft.................................................... 266,450
Investment Advisory Fees.......................................... 241,284
Deferred Country Tax.............................................. 222,346
Distribution Fees................................................. 198,914
Custody Fees...................................................... 156,695
Shareholder Reporting Expenses.................................... 50,188
Professional Fees................................................. 46,774
Administrative Fees............................................... 42,603
Directors' Fees and Expenses...................................... 31,897
Other............................................................... 1,354
------------
Total Liabilities............................................... 4,044,774
------------
NET ASSETS.......................................................... $202,281,660
============
NET ASSETS CONSIST OF:
Capital Stock at Par
($.001 par value, Shares Authorized 2,625,000,000)................ $ 15,429
Paid in Capital in Excess of Par.................................... 208,695,492
Net Unrealized Appreciation on Investments and Foreign Currency
Translations*...................................................... 14,283,475
Accumulated Net Investment Loss..................................... (544,187)
Accumulated Net Realized Loss....................................... (20,168,549)
------------
NET ASSETS.......................................................... $202,281,660
============
Class A Shares:
Net Asset Value and Redemption Price Per Share (Based on Net Assets
of $106,161,257 and 7,942,708 Shares Outstanding)............... $ 13.37
============
Maximum Sales Charge............................................ 5.75%
Maximum Offering Price Per Share (Net Asset Value Per
Share x 100/(100% - maximum sales charge))...................... 14.19
============
Class B Shares:
Net Asset Value and Offering Price Per Share (Based on Net Assets
of $62,786,836 and 4,894,844 Shares Outstanding)**.............. $ 12.83
============
Class C Shares:
Net Asset Value and Offering Price Per Share (Based on Net Assets
of $33,333,567 and 2,591,008 Shares Outstanding)**.............. $ 12.87
============
</TABLE>
* NET OF ACCRUAL FOR DEFERRED COUNTRY TAX OF U.S. $222,346.
** REDEMPTION PRICE MAY BE SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE.
SEE NOTES TO FINANCIAL STATEMENTS
21
<PAGE>
Statement of Operations
YEAR ENDED JUNE 30, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends.......................................................... 1,250,061
Less Foreign Taxes Withheld........................................ (68,888)
------------
Total Income................................................... 1,181,173
------------
EXPENSES:
Investment Advisory Fees........................................... 2,014,326
Distribution Fees (Attributed to Classes A, B and C of
$203,080, $510,966 and $281,972, respectively)................... 996,018
Administrative Fees................................................ 416,988
Custodian Fees..................................................... 309,307
Shareholder Reports................................................ 194,202
Professional Fees.................................................. 73,814
Transfer Agent Fees................................................ 63,551
Filing and Registration Fees....................................... 51,201
Country Tax Expense................................................ 45,931
Directors' Fees and Expenses....................................... 25,068
Other.............................................................. 5,317
------------
Total Expenses................................................. 4,195,723
Less Expense Reductions........................................ (79,539)
------------
Net Expenses................................................... 4,116,184
------------
NET INVESTMENT LOSS................................................ $ (2,935,011)
============
NET REALIZED GAIN/LOSS ON:
Investments........................................................ $38,435,508
Foreign Currency Transactions...................................... (443,161)
------------
Net Realized Gain.................................................. 37,992,347
------------
NET UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period.......................................... 10,264,407
------------
End of the Period:
Investments.................................................... 14,504,400
Foreign Currency Translations.................................. (220,925)
------------
14,283,475
------------
Net Change in Unrealized Appreciation/Depreciation................. 4,019,068
------------
NET REALIZED GAIN/LOSS AND NET CHANGE IN
UNREALIZED APPRECIATION/DEPRECIATION............................. $42,011,415
============
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............... $39,076,404
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
22
<PAGE>
Statement of Changes in Net Assets
YEAR ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 2000 JUNE 30, 1999*
------------- ------------
<S> <C>
INCREASE/DECREASE IN NET ASSETS
OPERATIONS:
Net Investment Income/Loss...................... $ (2,935,011) $ 94,000
Net Realized Gain/Loss.......................... 37,992,347 (31,365,000)
Net Change in Unrealized Appreciation/Depreciation 4,019,068 47,616,000
------------- ------------
Net Increase in Net Assets Resulting from Operations 39,076,404 16,345,000
------------- ------------
DISTRIBUTIONS:
In Excess of Net Realized Gain:
Class A...................................... -- (1,000)
Class B...................................... -- (1,000)
Class C...................................... -- (1,000)
------------- ------------
-- (3,000)
------------- ------------
Return of Capital:
Class A...................................... -- (29,000)
Class B...................................... -- (14,000)
Class C...................................... -- (9,000)
------------- ------------
-- (52,000)
------------- ------------
Net Decrease in Net Assets Resulting from
Distributions.................................. -- (55,000)
------------- ------------
CAPITAL SHARE TRANSACTIONS:
Subscribed...................................... 162,638,033 59,525,000
Distributions Reinvested........................ -- 54,000
Redeemed........................................ (122,901,021) (92,463,000)
------------- ------------
Net Increase/Decrease in Net Assets Resulting from
Capital Share Transactions................... 39,737,012 (32,884,000)
------------- ------------
Total Increase/Decrease in Net Assets........... 78,813,416 (16,594,000)
NET ASSETS--Beginning of Period................. 123,468,244 140,062,000
------------- ------------
NET ASSETS--End of Period (Including accumulated net
investment loss of $(544,187) and $(554,000),
respectively)................................ $ 202,281,660 $123,468,000
============= ============
</TABLE>
* AMOUNTS ROUNDED TO THE NEAREST (000).
SEE NOTES TO FINANCIAL STATEMENTS
23
<PAGE>
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL
HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE
PERIOD INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------
CLASS A SHARES 2000# 1999# 1998# 1997 1996
--------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD...................... $ 9.87 $ 7.98 $ 13.47 $ 12.06 $ 10.61
-------- ------- ------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss..... (0.18) 0.03 -- 0.01 0.05
Net Realized and
Unrealized Gain/Loss......... 3.68 1.86 (4.49) 1.57 1.44
-------- ------- ------- -------- --------
Total From Investment Operations 3.50 1.89 (4.49) 1.58 1.49
-------- ------- ------- -------- --------
DISTRIBUTIONS
Net Investment Income.......... -- -- -- -- (0.04)
In Excess of Net Investment
Income....................... -- -- -- (0.04) --
Net Realized Gain.............. -- -- (0.73) (0.13) --
In Excess of Net Realized Gain. -- (0.00)+ (0.27) -- --
Return of Capital.............. -- (0.00)+ -- -- --
-------- ------- ------- -------- --------
Total Distributions.............. -- (0.00)+ (1.00) (0.17) (0.04)
-------- ------- ------- -------- --------
NET ASSET VALUE, END OF PERIOD... $ 13.37 $ 9.87 $ 7.98 $ 13.47 $ 12.06
======== ======= ======= ======== ========
TOTAL RETURN (1).................. 35.36% 23.92% (34.31%) 13.54% 14.16%
======== ======= ======= ======== ========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's). $106,161 $63,273 $74,959 $119,022 $114,850
Ratio of Expenses to Average
Net Assets...................... 2.20% 2.34% 2.27% 2.21% 2.16%
Ratio of Net Investment Income/
Loss to Average Net Assets...... (1.43%) 0.44% 0.04% (0.06%) 0.93%
Portfolio Turnover Rate........... 102% 132% 99% 82% 42%
-------------------------------------------------------------------------------------
Effect of Voluntary Expense Reductions
During the Period
Per Share Benefit to Net Investment
Income/Loss..................... $0.01 $0.02 $0.03 $0.03 $0.02
Ratios Before Expense Reductions:
Expenses to Average Net Assets.... 2.25% 2.56% 2.60% 2.41% 2.56%
Net Investment Income/Loss to
Average Net Assets.............. (1.48%) 0.22% (0.24%) (0.27%) 0.53%
Ratio of Expenses to Average
Net Assets excluding country tax
expense and interest expense...... 2.15% 2.15% 2.15% 2.15% 2.15%
-------------------------------------------------------------------------------------
</TABLE>
+ AMOUNT IS LESS THAN $0.01 PER SHARE.
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED SALES
CHARGES.
# CHANGES PER SHARE ARE BASED UPON DAILY AVERAGE SHARES OUTSTANDING.
24 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL
HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE
PERIOD INDICATED.
<TABLE>
<CAPTION>
AUGUST 1,
YEAR ENDED JUNE 30, 1995+ TO
-------------------------------------- JUNE 30,
CLASS B SHARES 2000# 1999# 1998# 1997 1996
--------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD......................... $ 9.55 $ 7.78 $ 13.24 $ 11.94 $ 10.91
------- ------- -------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss........ (0.26) (0.02) (0.07) (0.03) 0.01
Net Realized and
Unrealized Gain/Loss............ 3.54 1.79 (4.39) 1.50 1.02
------- ------- -------- ------- -------
Total From Investment Operations.... 3.28 1.77 (4.46) 1.47 1.03
------- ------- -------- ------- -------
DISTRIBUTIONS
In Excess of Net Investment
Income.......................... -- -- -- (0.04) --
Net Realized Gain................. -- -- (0.73) (0.13) --
In Excess of Net Realized Gain.... -- (0.00)++ (0.27) -- --
Return of Capital................. -- (0.00)++ -- -- --
------- ------- -------- ------- -------
Total Distributions................. -- (0.00)++ (1.00) (0.17) --
------- ------- -------- ------- -------
NET ASSET VALUE, END OF PERIOD...... $ 12.83 $ 9.55 $ 7.78 $ 13.24 $ 11.94
======= ======= ======== ======= =======
TOTAL RETURN (1).................... 34.35% 22.99% (34.76%) 12.67% 9.45%*
======= ======= ======== ======= =======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)... $62,787 $38,313 $ 36,423 $35,966 $10,416
Ratio of Expenses to Average
Net Assets........................ 2.95% 3.09% 3.02% 2.96% 2.91%
Ratio of Net Investment Income/
Loss to Average Net Assets........ (2.21%) (0.29%) (0.67%) (0.64%) 0.30%
Portfolio Turnover Rate............. 102% 132% 99% 82% 42%*
----------------------------------------------------------------------------------------
Effect of Voluntary Expense Reductions
During the Period
Per Share Benefit to Net Investment
Income/Loss..................... $0.01 $0.02 $0.03 $0.01 $0.02
Ratios Before Expense Reductions:
Expenses to Average Net Assets.... 3.00% 3.31% 3.35% 3.17% 3.31%
Net Investment Income/Loss to
Average Net Assets.............. (2.26%) (0.51%) (0.97%) (0.87%) (0.10%)
Ratio of Expenses to Average
Net Assets excluding country tax
expense and interest expense..... 2.90% 2.90% 2.90% 2.90% 2.90%
----------------------------------------------------------------------------------------
</TABLE>
* NON-ANNUALIZED
+ THE FUND BEGAN OFFERING CLASS B SHARES ON AUGUST 1, 1995.
++ AMOUNT IS LESS THAN $0.01 PER SHARE.
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED
SALES CHARGES.
# CHANGES PER SHARE ARE BASED UPON DAILY AVERAGE SHARES OUTSTANDING.
SEE NOTES TO FINANCIAL STATEMENTS 25
<PAGE>
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL
HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE
PERIOD INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------
CLASS C SHARES 2000# 1999# 1998# 1997 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD....................... $ 9.57 $ 7.79 $ 13.26 $ 11.93 $ 10.53
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss...... (0.27) (0.02) (0.08) (0.08) (0.01)
Net Realized and
Unrealized Gain/Loss.......... 3.57 1.80 (4.39) 1.55 1.41
------- ------- ------- ------- -------
Total From Investment Operations.. 3.30 1.78 (4.47) 1.47 1.40
------- ------- ------- ------- -------
DISTRIBUTIONS
In Excess of Net Investment
Income........................ -- -- -- (0.01) --
Realized Gain................... -- -- (0.73) (0.13) --
In Excess of Net Realized Gain.. -- (0.00)+ (0.27) -- --
Return of Capital............... -- (0.00)+ -- -- --
------- ------- ------- ------- -------
Total Distributions............... -- (0.00)+ (1.00) (0.14) --
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD.... $ 12.87 $ 9.57 $ 7.79 $ 13.26 $ 11.93
======= ======= ======== ======= =======
Total Return (1)................. 34.38% 23.09% (34.73%) 12.66% 13.30%
======= ======= ======== ======= =======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's).. $33,334 $21,882 $28,680 $57,958 $43,601
Ratio of Expenses to Average
Net Assets....................... 2.95% 3.09% 3.01% 2.96% 2.91%
Ratio of Net Investment Income/
Loss to Average Net Assets....... (2.24%) (0.32%) (0.76%) (0.79%) (0.11%)
Portfolio Turnover Rate............ 102% 132% 99% 82% 42%
-----------------------------------------------------------------------------------
Effect of Voluntary Expense
Reductions
During the Period
Per Share Benefit to Net Investment
Income/Loss.................... $0.01 $0.02 $0.03 $0.02 $0.03
Ratios Before Expense Reductions:
Expenses to Average Net Assets... 3.00% 3.31% 3.34% 3.17% 3.34%
Net Investment Income/Loss to
Average Net Assets............. (2.29%) (0.54%) (1.03%) (1.00%) (0.54%)
Ratio of Expenses to Average
Net Assets excluding country tax
expense and interest expense..... 2.90% 2.90% 2.90% 2.90% 2.90%
-----------------------------------------------------------------------------------
</TABLE>
+ AMOUNT IS LESS THAN $0.01 PER SHARE.
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED
SALES CHARGES.
# CHANGES PER SHARE ARE BASED UPON DAILY AVERAGE SHARES OUTSTANDING.
26 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
The Van Kampen Emerging Markets Fund, (the "Fund") is organized as a
separate non-diversified fund of Van Kampen Series Fund, Inc., a Maryland
corporation, which is registered as an open-end management investment company
under the Investment Company Act of 1940, as amended. The Fund's investment
objective seeks long-term capital appreciation by investing primarily in
equity securities of emerging country issuers. The Fund commenced operations
on July 6, 1994. The Fund began offering the current Class B shares on August
1, 1995. Class B shares held prior to May 1, 1995 were renamed Class C shares.
1. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of the financial statements in conformity with accounting principles
accepted in the United States of America (hereafter "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 period.
Actual results could differ from those estimates.
A. SECURITY VALUATION Equity securities listed on a U.S. exchange and equity
securities traded on NASDAQ are valued at the latest quoted sales price on the
valuation date. Securities listed on a foreign exchange are valued at their
closing price. Unlisted securities and listed securities not traded on the
valuation date for which market quotations are readily available are valued at
the average between the bid and asked prices obtained from reputable brokers.
Debt securities purchased with remaining maturities of 60 days or less are
valued at amortized cost, which approximates market values. All other securities
and assets for which market quotations are not readily available are valued at
fair value as determined in good faith using procedures approved by the Board of
Directors.
B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen Investment Advisory Corp. or its affiliates, the
daily aggregate of which is invested in repurchase agreements. Repurchase
agreements are fully collateralized by the underlying debt security. A bank as
custodian for the Fund takes possession of the underlying se-
27
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
curities, with a market value at least equal to the amount of the repurchase
transaction, including principal and accrued interest. To the extent that any
repurchase transaction exceeds one business day, the value of the collateral
is marked-to-market on a daily basis to determine the adequacy of the
collateral. In the event of default on the obligation to repurchase, the Fund
has the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation. In the event of default or bankruptcy by the
counterparty to the agreement, realization and/or retention of the collateral
or proceeds may be subject to legal proceedings.
C. INCOME AND EXPENSES Interest income is recorded on an accrual basis and
dividend income is recorded net of applicable withholding taxes on the
ex-dividend date. Income, expenses, and realized and unrealized gains or
losses are allocated on a pro rata basis to each class of shares except for
distribution and service fees which are unique to each class of shares.
Distributions from the Fund are recorded on the ex-distribution date.
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. The Fund may be
subject to taxes imposed by countries in which it invests. Such taxes are
generally based on income earned or gains realized or repatriated. Taxes are
accrued and applied to net investment income, net realized capital gains and net
unrealized appreciation, as applicable, as the income is earned or capital gains
are recorded.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At June 30, 2000, the Fund had an accumulated capital loss carryforward
for tax purposes of $18,133,162, which will expire on June 30, 2007. Net
realized gains or losses may differ for financial and tax reporting purposes as
a result of losses relating to wash sale transactions.
At June 30, 2000, for federal income tax purposes, cost of long- and
short-term investments is $185,911,512, the aggregate gross unrealized
appreciation is $35,130,161 and the aggregate gross unrealized depreciation is
$22,875,803, resulting in net unrealized appreciation on long- and short-term
investments of $12,254,358.
28
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
E. DISTRIBUTION OF INCOME AND GAINS The Fund declares and pays dividends
annually from net investment income and net realized gains, if any.
Distributions from net realized gains for book purposes may include short-term
capital gains which are included as ordinary income for tax purposes.
Due to inherent differences in the recognition of income and expenses under
generally accepted accounting principles and federal income tax purposes,
permanent differences between book and tax basis reporting for the current
fiscal year have been identified and appropriately reclassified. A permanent
difference related to a net operating loss totaling $4,235,594 has been
reclassified from paid in capital in excess of par to accumulated net investment
loss. A permanent difference related to the recognition of certain expenses that
are not deductible for tax purposes totaling $6,217 were reclassified from paid
in capital in excess of par to accumulated net investment loss. A permanent
difference of $346,631 related to a correction of the prior year capital loss
was reclassified from accumulated net realized loss to paid in capital in excess
of par. A permanent difference related to the recognition of net realized gains
on foreign currency transactions totaling $443,161 was reclassified from
accumulated net investment loss to accumulated net realized loss. Permanent
differences related to the sale of Passive Foreign Investment Company securities
totaling $8,825 were reclassified from accumulated net realized loss to
accumulated net investment loss. A permanent difference related to taxes accrued
against capital gains totaling $862,653 was reclassified from accumulated net
investment loss to accumulated net realized loss.
Permanent book to tax basis differences are not included in ending
undistributed/distributions in excess of net investment income for the purpose
of calculating net investment income/loss per share in the Financial Highlights.
F. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS Assets and liabilities
denominated in foreign currencies and commitments under forward currency
contracts are translated into U.S. dollars at the mean of the quoted bid and
asked prices of such currencies against the U.S. dollar. Purchases and sales of
portfolio securities are translated at the rate of exchange prevailing when such
securities were acquired or sold. Income and expenses are translated at rates
prevailing when accrued. Realized and unrealized gains and losses on securities
resulting from changes in exchange rates are not segregated for financial
reporting purposes from amounts arising from changes in the market prices of
securities. Realized gains and losses on foreign currency transactions includes
the net realized amount from the sale of the currency and the amount realized
between trade date and settlement date on security and income transactions.
The Fund invests in issuers located in emerging markets. There are certain
risks inherent in these investments not typically associated with issuers in the
United States, including the smaller size of the markets themselves, lesser
liquidity, greater volatility and potentially less publicly available
information. Emerging markets may be subject
29
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
to a greater degree of government involvement in the economy and greater
economic and political uncertainty, which has the potential to extend to
government imposed restrictions on exchange traded transactions and currency
transactions. These restrictions may impact the Fund's ability to buy or sell
certain securities or to repatriate certain currencies to U.S. dollars.
Additionally, changes in currency exchange rates will affect the value of and
investment income from such securities.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Van Kampen Investment Advisory Corp. (the "Adviser"), a wholly owned subsidiary
of Van Kampen Investments Inc. (an indirect wholly owned subsidiary of Morgan
Stanley Dean Witter & Co.) and Morgan Stanley Dean Witter Investment Management
Inc., a wholly owned subsidiary of Morgan Stanley Dean Witter & Co., provide the
Fund with investment advisory services at a fee paid monthly and calculated at
the annual rates based on average daily net assets indicated as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
<S> <C>
First $500 million......................... 1.25 of 1%
Next $500 million.......................... 1.20 of 1%
Over $1 billion............................ 1.15 of 1%
</TABLE>
The Adviser has agreed to reduce advisory fees payable to it and to
reimburse the Fund, if necessary, if the annual operating expenses, expressed
as a percentage of average daily net assets, exceed the maximum ratios
indicated as follows:
<TABLE>
<CAPTION>
CLASS B
CLASS A AND CLASS C
MAX. OPERATING MAX. OPERATING
EXPENSE RATIO EXPENSE RATIO
<S> <C>
2.15% 2.90%
</TABLE>
For the period ended June 30, 2000, the Adviser voluntarily waived $79,539
of its investment advisory fees. This waiver is voluntary in nature and can be
discontinued at the Adviser's discretion.
For the period ended June 30, 2000, the Fund recognized expenses of $8,740
representing legal services provided by Skadden, Arps, Slate, Meagher & Flom
(Illinois), counsel to the Fund, of which a director of the Fund is an
affiliated person.
For the period ended June 30, 2000, the Fund recognized expenses of $6,972
representing Van Kampen's cost of providing legal services to the Fund.
Van Kampen Investment Advisory Corp. (the "Administrator") also provides
the Fund with administrative services pursuant to an administrative agreement
for a monthly fee which on an annual basis equals 0.25% of the average daily net
assets of the portfolio, plus reimbursement of out-of-pocket expenses. Under an
agreement between the Adviser and The Chase Manhattan Bank ("Chase"), through
its corporate
30
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
affiliate Chase Global Funds Services Company ("CGFSC"), Chase provides
certain administrative services to the Fund. Chase is compensated for such
services by the Adviser from the fee it receives from the Fund. Transfer
Agency services are provided to the Fund by Van Kampen Investor Services
Inc., an affiliate of the Adviser.
Van Kampen Funds Inc. (the "Distributor") a wholly owned subsidiary of Van
Kampen Investments Inc., an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co., serves as the Distributor of the Fund's shares. The
Distributor is entitled to receive from the Fund a distribution fee, which is
accrued daily and paid quarterly, of an amount of up to 0.25% of the Class A
shares and up to 1.00% of the Class B and Class C shares of the Fund, on an
annualized basis, of the average daily net assets attributable to each Class.
The Distributor may receive a front end sales charge for purchases of Class
A shares. In addition, the Distributor may receive a contingent deferred sales
charge for certain redemptions of Class B and Class C shares of the Fund
redeemed within one to five years following such purchase. For the period ended
June 30, 2000, the Distributor has advised the Fund that it earned initial sales
charges of $510,820 for Class A shares and deferred sales charges of $172,407,
and $4,766 for Class B shares and Class C shares, respectively.
Certain officers and directors of the Fund are also officers and directors
of Van Kampen. The Fund does not compensate its officers or directors who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
directors who are not officers of Van Kampen. Under the deferred compensation
plan, directors 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 director's years of service to the Fund. The
maximum annual benefit per director under the plan is $2,500.
For the period ended June 30, 2000, the Fund incurred $14,845 as brokerage
commissions with Morgan Stanley & Co. Incorporated, an affiliated broker/dealer.
At June 30, 2000, the Fund owned shares of affiliated funds for which the
Fund earned dividend income of $1,102 during the period.
31
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
3. CAPITAL TRANSACTIONS
The Fund currently offers three classes of shares, Class A, Class B, and Class C
shares. All three classes of shares have identical voting, dividend, liquidation
and other rights. Class A shares are sold with a front-end sales charge of up to
5.75%. For certain purchases of Class A shares, the front-end sales charge may
be waived and a contingent deferred sales charge ("CDSC") of 1.00% imposed in
the event of certain redemptions within one year of the purchase. Class B and
Class C shares are offered without a front end sales charge, but are subject to
a 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 seven years after the end of the calendar month in
which the shares were purchased. For the period ended June 30, 2000, no Class B
shares converted to Class A shares. The CDSC will be imposed on most redemptions
made within five years of the purchase for Class B shares and one year of the
purchase for Class C shares as detailed in the following schedule:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE ON ASSETS SUBJECT TO
SALES CHARGE
---------------------------
<S> <C> <C>
YEAR OF REDEMPTION CLASS B CLASS C
First.............................. 5.00% 1.00%
Second............................. 4.00% None
Third.............................. 3.00% None
Fourth............................. 2.50% None
Fifth.............................. 1.50% None
Thereafter......................... None None
</TABLE>
32
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 2000 JUNE 30, 1999*
------------- --------------
<S> <C> <C>
CAPITAL SHARE TRANSACTIONS
CLASS A:
Shares:
Subscribed....................................... 9,539,735 6,660,000
Distributions Reinvested......................... -- 4,000
Redeemed......................................... (8,010,633) (9,639,000)
------------ ------------
Net Increase/Decrease in Class A Shares Outstanding 1,529,102 (2,975,000)
============ ============
Dollars:
Subscribed....................................... $121,961,746 $ 48,869,000
Distributions Reinvested......................... -- 30,000
Redeemed......................................... (98,726,701) (68,213,000)
------------ ------------
Net Increase/Decrease.............................. $ 23,235,045 $ (19,314,000)
============ ============
Ending Paid in Capital............................. $111,252,782+ $ 88,430,000+
============ ============
CLASS B:
Shares:
Subscribed....................................... 2,175,642 935,000
Distributions Reinvested......................... -- 2,000
Redeemed......................................... (1,291,562) (1,605,000)
------------ ------------
Net Increase/Decrease in Class B Shares Outstanding 884,080 (668,000)
============ ============
Dollars:
Subscribed....................................... $ 27,137,813 $ 7,223,000
Distributions Reinvested......................... -- 14,000
Redeemed......................................... (15,165,855) (11,281,000)
------------ ------------
Net Increase/Decrease.............................. $ 11,971,958 $ (4,044,000)
============ ============
Ending Paid in Capital............................. $ 64,130,625+ $ 52,409,000+
============ ============
CLASS C:
Shares:
Subscribed....................................... 1,049,694 462,000
Distributions Reinvested......................... -- 1,000
Redeemed......................................... (745,457) (1,857,000)
------------ ------------
Net Increase/Decrease in Class C Shares Outstanding 304,237 (1,394,000)
============ ============
Dollars:
Subscribed....................................... $ 13,538,474 $ 3,433,000
Distributions Reinvested......................... -- 10,000
Redeemed......................................... (9,008,465) (12,969,000)
------------ ------------
Net Increase/Decrease.............................. $ 4,530,009 $ (9,526,000)
============ ============
Ending Paid in Capital............................. $ 37,222,694+ $ 32,835,000+
============ ============
</TABLE>
* AMOUNTS ROUNDED TO THE NEAREST (000).
+ ENDING PAID IN CAPITAL AMOUNTS DO NOT REFLECT PERMANENT BOOK TO TAX
DIFFERENCES--SEE NOTE 1E.
33
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
4. INVESTMENT TRANSACTIONS
For the period ended June 30, 2000, the Fund made purchases of $189,037,140
and sales of $159,820,509 of investment securities other than long-term U.S.
government securities and short-term investments. There were no purchases or
sales of long-term U.S. government securities.
5. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to 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 and to manage the portfolio's effective yield, foreign currency
exposure, maturity and duration, or generate potential gain. All of the
Fund's portfolio holdings, including derivative instruments, are
marked-to-market each day with the change in value reflected in 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 or forward contract. In
these instances, the recognition of gain or loss is postponed until the
disposal of the security underlying the option or forward contract. Risks may
arise as a result of the potential inability of the counterparties to meet
the terms of their contracts.
Summarized below are the specific types of derivative financial instruments
used by the Fund.
A. FORWARD CURRENCY CONTRACTS These instruments are commitments to purchase or
sell a foreign currency at a future date at a negotiated forward rate. The gain
or loss arising from the difference between the original value of the contract
and the closing value of such contract is included as a component of realized
gain/loss on foreign currency transactions.
At June 30, 2000, the Fund had no outstanding forward currency contracts.
B. SWAP TRANSACTIONS The Fund may enter into total return swap agreements to
exchange the return generated by one security, instrument or basket of
instruments for the return generated by another security, instrument or basket
of instruments. Total return swaps involve commitments to pay interest in
exchange for a market-linked return based on a notional amount. To the extent
the total return of the security or index underlying the transactions exceeds or
falls short of the offsetting interest obligation, the Fund will receive a
payment from or make a payment to the counterparty, respectively. Total return
swaps are marked-to-market daily based upon quotations from market makers and
the change, if any, is recorded as unrealized gains or losses in the Statement
of Operations. Periodic payments received or made at the end of each measurement
period, but prior to termination, are recorded as realized gains or losses in
the Statement of Operations.
34
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
Realized gains or losses on maturity or termination of total return swaps
are presented in the Statement of Operations. Because there is no organized
market for these swap agreements, the value reported in the Statement of Net
Assets may differ from that which would be realized in the event the Fund
terminated its position in the agreement. Risks may arise upon entering into
these agreements from the potential inability of the counterparties to meet the
terms of the agreements and are generally limited to the amount of net interest
payments to be received and/or favorable movements in the value of the
underlying security, if any, at the date of default.
At June 30, 2000, the Fund had no open swap agreements.
6. BORROWINGS
In accordance with its investment policies, the Fund may borrow from banks for
temporary purposes and is subject to certain other customary restrictions.
Effective November 30, 1999, the Fund, in conjunction with certain other funds
of Van Kampen, has entered into a $650 million committed line of credit facility
with a group of banks which expires on November 28, 2000, but is renewable with
the consent of the participating banks. Each fund is permitted to utilize the
facility in accordance with the restrictions of its prospectus. In the event the
demand for the credit facility meets or exceeds $650 million on a complex-wide
basis, each fund will be limited to its pro-rata percentage based on the net
assets of each participating fund. Interest on borrowings is charged under the
agreement at a rate of 0.50% above the federal funds rate per annum. An annual
commitment fee of 0.09% per annum is charged on the unused portion of the credit
facility, which each fund incurs based on its pro-rata percentage of quarterly
net assets. The Fund has not borrowed against the credit facility during the
period.
35
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and
Shareholders of Van Kampen Emerging Markets Fund
We have audited the accompanying statement of assets and liabilities of Van
Kampen Emerging Markets Fund (the "Fund"), a fund of Van Kampen Series Fund,
Inc., including the portfolio of investments, as of June 30, 2000, and the
related statements of operations, changes in net assets and the financial
highlights for the year then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit. The Fund's financial statements and financial highlights for
the periods ended prior to June 30, 2000, were audited by other auditors whose
report, dated August 6, 1999, expressed an unqualified opinion on those
statements.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of June 30, 2000, by correspondence with the Fund's
custodian and brokers; where replies were not received from brokers, we
performed other auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen Emerging Markets Fund as of June 30, 2000, the results of its operations,
the changes in its net assets and the financial highlights for the year then
ended, in conformity with accounting principles generally accepted in the United
States of America.
DELOITTE & TOUCHE LLP
Chicago, Illinois
August 11, 2000
36
<PAGE>
VAN KAMPEN FUNDS
THE VAN KAMPEN
FAMILY OF FUNDS
GROWTH
Aggressive Growth
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth
Mid Cap Growth
Pace
Select Growth
Small Cap Value
Tax Managed Equity Growth
Technology
GROWTH AND INCOME
Comstock
Equity Income
Growth and Income
Harbor
Real Estate Securities
Utility
Value
GLOBAL/INTERNATIONAL
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
International Magnum
Latin American
Strategic Income
Tax Managed Global Franchise
Worldwide High Income
INCOME
Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return*
Limited Maturity Government
U.S. Government
U.S. Government Trust for Income
CAPITAL PRESERVATION
Reserve
Tax Free Money
SENIOR LOAN
Prime Rate Income Trust
Senior Floating Rate
TAX FREE
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal**
Insured Tax Free Income
Intermediate Term
Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
To find out more about any of these funds, ask your financial advisor for a
prospectus, which contains more complete information, including sales
charges, risks, and ongoing expenses. Please read it carefully before you
invest or send money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- visit our Web site at
www.vankampen.com --
to view a prospectus, select
DOWNLOAD PROSPECTUS [ICON]
- call us at 1-800-341-2911
weekdays from 7:00 a.m. to 7:00 p.m. central time. Telecommunications
Device for the Deaf users,
call 1-800-421-2833. [ICON]
- e-mail us by visiting
www.vankampen.com and
selecting CONTACT US [ICON]
* Closed to new investors
**Open to new investors for a limited time
37
<PAGE>
FUND OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN EMERGING MARKETS FUND
BOARD OF DIRECTORS
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*
Chairman, Director, President,
Chief Executive Officer
STEPHEN L. BOYD*
Executive Vice President and
Chief Investment Officer
A. THOMAS SMITH III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Chief Financial Officer and Treasurer
RICHARD A. CICCARONE*
JOHN R. REYNOLDSON*
MICHAEL H. SANTO*
JOSEPH P. STADLER*
JOHN H. ZIMMERMANN, III*
Vice Presidents
INVESTMENT ADVISER AND
ADMINISTRATOR
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
INVESTMENT SUBADVISER
MORGAN STANLEY DEAN WITTER INVESTMENT
MANAGEMENT INC.
1221 Avenue of the Americas
New York, New York 10020
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
CUSTODIAN
THE CHASE MANHATTAN BANK
3 MetroTech Center
Brooklyn, New York 11245
DIVIDEND DISBURSING AND
TRANSFER AGENT
VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 218256
Kansas City, Missouri 64121-8256
LEGAL COUNSEL
SKADDEN, ARPS, SLATE, MEAGHER &
FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT AUDITORS
DELOITTE & TOUCHE LLP
180 N. Stetson Avenue
Chicago, IL 60601
-----------------------------------------------------------------------------
For federal income tax purposes, the following is furnished with respect to
potential distributions to be paid by the Fund during the remainder of
calendar year 2000. During the taxable year ended June 30, 2000, the Fund did
not pay any distributions. Provided the Fund makes a distribution in December
2000, the Fund intends to pass through foreign tax credits of $931,541 and
has derived gross income from sources within foreign countries amounting to
$2,111,612.
-----------------------------------------------------------------------------
* "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.
38
<PAGE>
RESULTS OF SHAREHOLDER VOTES
JUNE 30, 2000
A Joint Special Meeting of the Shareholders of the Emerging
Markets Fund (the "Fund") was held on December 15, 1999. The description of each
proposal and number of shares voted are as follows:
1. To elect the following Directors to serve the Fund.
<TABLE>
<CAPTION>
VOTED FOR WITHHELD
<S> <C> <C>
J. Miles Branagan 7,357,916 30,417
Jerry D. Choate 7,356,916 31,417
Linda Hutton Heagy 7,356,916 31,417
R. Craig Kennedy 7,357,488 30,845
Mitchell M. Merin 7,355,909 32,424
Jack E. Nelson 7,356,916 31,417
Richard F. Powers, III 7,355,909 32,424
Phillip B. Rooney 7,356,676 31,657
Fernando Sisto 7,358,298 32,035
Wayne W. Whalen 7,356,744 31,589
Suzanne H. Woolsey 7,354,715 33,618
Paul G. Yovovich* 7,356,916 31,417
</TABLE>
*EFFECTIVE APRIL 14, 2000, PAUL G. YOVOVICH RESIGNED FROM THE BOARD OF
DIRECTORS.
2. To ratify PricewaterhouseCoopers LLP to act as independent public accountants
for the Fund.(1)
<TABLE>
<CAPTION>
AFFIRMATIVE AGAINST ABSTAIN
<S> <C> <C> <C>
7,350,180 12,611 25,532
</TABLE>
(1) INDEPENDENT ACCOUNTANTS FOR THE FUND PERFORM AN ANNUAL AUDIT OF THE FUND'S
FINANCIAL STATEMENTS. THE BOARD OF DIRECTORS HAS ENGAGED DELOITTE & TOUCHE LLP
TO BE THE FUND'S INDEPENDENT ACCOUNTANTS.
PricewaterhouseCoopers LLP, located at 200 East Randolph Drive, Chicago, IL
60601 ("PWC"), ceased being the Fund's independent accountants effective May 18,
2000. The cessation of the client-auditor relationship between the Fund and PWC
was based solely on a possible future business relationship by PWC with an
affiliate of the Fund's investment adviser.
39
<PAGE>
YOUR NOTES:
<PAGE>
VAN KAMPEN
EQUITY GROWTH FUND
ANNUAL REPORT
JUNE 30, 2000
VAN KAMPEN
F U N D S
<PAGE>
TABLE OF CONTENTS
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 4
GROWTH OF A $10,000 INVESTMENT 5 IT IS TIMES
PORTFOLIO AT A GLANCE LIKE THESE
TOP TEN HOLDINGS 6
TOP FIVE SECTORS 6 WHEN MONEY-
Q&A WITH YOUR PORTFOLIO MANAGERS 7
GLOSSARY OF TERMS 10 MANAGEMENT
BY THE NUMBERS EXPERIENCE
YOUR FUND'S INVESTMENTS 11
FINANCIAL STATEMENTS 16 MAY MAKE
NOTES TO FINANCIAL STATEMENTS 23
REPORT OF INDEPENDENT AUDITORS 30 A DIFFERENCE.
VAN KAMPEN FUNDS
THE VAN KAMPEN FAMILY OF FUNDS 31
FUND OFFICERS AND IMPORTANT ADDRESSES 32
RESULT OF SHAREHOLDER VOTES 33
----------------------------------------------------
NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE.
----------------------------------------------------
<PAGE>
-----------------
PRESORTED
STANDARD
U.S. Postage
PAID
VAN KAMPEN
FUNDS
-----------------
468,568,668
EQG ANR 08/00
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
<PAGE>
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.
OVERVIEW
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,
/s/Richard F. Powers, III
Richard F. Powers, III
President and CEO
Van Kampen Investments
1
<PAGE>
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>
U.S. GROSS DOMESTIC PRODUCT
SEASONALLY ADJUSTED ANNUALIZED RATES
(JUNE 30, 1998 - JUNE 30, 2000)
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
<TABLE>
<CAPTION>
Jun Sep Dec Mar Jun Sep Dec Mar Jun
98 98 98 99 99 99 99 00 00
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2.1% 3.8% 5.9% 3.5% 2.5% 5.7% 8.3% 4.8% 5.2%
</TABLE>
SOURCE: BUREAU OF ECONOMIC ANALYSIS
INTEREST RATES AND INFLATION
(JUNE 30, 1998 - JUNE 30, 2000)
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
<TABLE>
<CAPTION>
Jun 98 Sep 98 Dec 98 Mar 99 Jun 99 Sep 99 Dec 99 Mar 00 Jun 00
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST RATES 5.50% 5.25% 4.75% 4.75% 5.00% 5.25% 5.50% 6.00% 6.50%
INFLATION 1.70% 1.50% 1.60% 1.70% 2.00% 2.60% 2.70% 3.70% 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>
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(AS OF JUNE 30, 2000)
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
-----------------------------------------------------------------------------
<S> <C> <C> <C>
One-year total return based on NAV(1) 27.26% 26.32% 26.34%
-----------------------------------------------------------------------------
One-year total return(2) 19.90% 21.32% 25.34%
-----------------------------------------------------------------------------
Life-of-Fund average annual total return(2) 21.58% 23.06% 24.16%
-----------------------------------------------------------------------------
Commencement date 5/29/98 5/29/98 5/29/98
-----------------------------------------------------------------------------
</TABLE>
(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.
SEE THE COMPARATIVE PERFORMANCE SECTION OF THE CURRENT PROSPECTUS. 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.
BECAUSE THE PRICES OF COMMON STOCKS AND OTHER SECURITIES FLUCTUATE, THE
VALUE OF AN INVESTMENT IN THE FUND WILL VARY UPON THE FUND'S INVESTMENT
PERFORMANCE.
MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO PASS.
4
<PAGE>
GROWTH OF A $10,000 INVESTMENT
(MAY 29, 1998--JUNE 30, 2000)
[LINE CHART]
<TABLE>
<CAPTION>
STANDARD & POOR'S 500 INDEX
MEASURES THE PERFORMANCE OF 500 WIDELY
EQUITY GROWTH FUND HELD COMMON STOCKS FROM 83 INDUSTRIAL GROUPS.
<S> <C>
5/98 $ 9,425 $10,000
6/99 $11,822 $12,275
6/00 $14,591 $13,165
Fund's Total Return
1 Year Total Return 19.90%
Inception Avg. Annual 21.58%
</TABLE>
THIS CHART COMPARES YOUR
FUND'S PERFORMANCE TO THAT
OF THE STANDARD & POOR'S
500 INDEX OVER TIME.
THIS INDEX IS AN UNMANAGED BROAD-BASED, STATISTICAL COMPOSITE THAT DOES NOT
INCLUDE ANY COMMISSIONS OR FEES THAT WOULD BE PAID BY AN INVESTOR PURCHASING THE
SECURITIES IT REPRESENTS. SUCH COSTS WOULD LOWER THE PERFORMANCE OF THIS INDEX.
THE HISTORICAL PERFORMANCE OF THE INDEX IS SHOWN FOR ILLUSTRATIVE PURPOSES ONLY;
IT IS NOT MEANT TO FORECAST, IMPLY, OR GUARANTEE THE FUTURE PERFORMANCE OF ANY
INVESTMENT VEHICLE. IT IS NOT POSSIBLE TO INVEST DIRECTLY IN AN INDEX.
THE ABOVE CHART REFLECTS THE PERFORMANCE OF CLASS A SHARES OF THE FUND. THE
PERFORMANCE OF CLASS A SHARES WILL DIFFER FROM THAT OF OTHER SHARE CLASSES OF
THE FUND BECAUSE OF THE DIFFERENCE IN SALES CHARGES AND/OR EXPENSES PAID BY
SHAREHOLDERS INVESTING IN THE DIFFERENT SHARE CLASSES. THE FUND'S PERFORMANCE
ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS, AND INCLUDES PAYMENT OF THE MAXIMUM
SALES CHARGE (5.75% FOR CLASS A SHARES).
WHILE PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THE ABOVE INFORMATION
PROVIDES A BROADER VANTAGE POINT FROM WHICH TO EVALUATE THE DISCUSSION OF THE
FUND'S PERFORMANCE FOUND IN THE FOLLOWING PAGES.
5
<PAGE>
PORTFOLIO AT A GLANCE
TOP TEN HOLDINGS*
(AS A PERCENTAGE OF NET ASSETS--JUNE 30, 2000)
1. TYCO INTERNATIONAL 6.0%
Manufactures electrical components,
communication systems, medical
supplies, and fire-detection systems.
2. PFIZER 5.7%
Manufactures pharmaceuticals, including
Viagra and Lipitor, and consumer
products such as Certs, Listerine, and
Visine.
3. GENERAL ELECTRIC 4.4%
Produces appliances, lighting products,
aircraft engines, and plastics.
4. INTEL 4.3%
Designs, manufactures, and markets
microcomputer components.
5. CISCO SYSTEMS 4.3%
Provides solutions that connect computing
devices and computer networks.
6. UNITED TECHNOLOGIES 3.9%
Manufactures building systems and
aerospace products, including elevators,
engines, and helicopters.
7. MICROSOFT 2.8%
Develops and supports a range of
software products.
8. HOME DEPOT 2.8%
Sells building materials and home-
improvement products.
9. NORTEL NETWORKS 2.4%
Supplies network solutions to the
communications industry worldwide.
10. TIME WARNER 2.0%
The world's largest media company;
operates a vast range of media and
entertainment interests.
*EXCLUDES SHORT-TERM INVESTMENT
TOP FIVE SECTORS*
(AS A PERCENTAGE OF NET ASSETS--JUNE 30, 2000)
[BAR CHART]
<TABLE>
<S> <C>
Information Technology 34.8%
Industrials 16.6%
Consumer Discretionary 14.9%
Health Care 14.4%
Financials 7.0%
</TABLE>
* THESE SECTORS REPRESENT BROAD GROUPINGS OF RELATED INDUSTRIES.
6
<PAGE>
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH THE MANAGEMENT TEAM OF THE VAN KAMPEN EQUITY GROWTH FUND
ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE MARKETS AND INFLUENCED
THE FUND'S RETURN DURING THE 12 MONTHS ENDED JUNE 30, 2000. THE TEAM IS LED BY
PHILIP W. FRIEDMAN AND WILLIAM S. AUSLANDER, PORTFOLIO MANAGERS, MORGAN STANLEY
DEAN WITTER INVESTMENT MANAGEMENT, INC., BOTH OF WHOM HAVE MANAGED THE FUND
SINCE SEPTEMBER, 1998. 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 stocks over value stocks, as they have for the last
six years. (There can be no assurance that growth stocks will continue to be
favored over value stocks in the future.)
The Dow Jones Industrial Average started off the reporting period in a
slump, losing more than six percent of its value in the third quarter of 1999.
However, boosted by a market rally, it finished the year at a record high level.
The Dow's results paled in comparison to the technology-heavy NASDAQ index,
which finished the calendar year up an amazing 86 percent.
This strength continued into the first quarter of 2000, but then cracks
began to show in the market. The major indexes were unable to sustain their
performance as the strength of the economy caused investors to worry about
further interest-rate increases by the Federal Reserve Board (the Fed). Both the
S&P 500 Index and the NASDAQ fell sharply beginning in April, due to concerns
about technology stocks' high valuations and the effects of continued
interest-rate increases on U.S. corporate earnings. Late in the reporting
period, declines in housing starts and retail sales and increases in
unemployment claims seemed to point to the economic slowdown the Fed had been
trying to achieve with its interest-rate hikes.
While this volatility challenged performance, the fund's strong showing in
the first half of the reporting period allowed the fund to return 27.26 percent
for the 12-month period ended June 30, 2000 (CLASS A SHARES AT NET ASSET VALUE;
IF THE MAXIMUM SALES CHARGE OF 5.75 PERCENT WERE INCLUDED, THE RETURN WOULD HAVE
BEEN LOWER). DUE TO RECENT MARKET ACTIVITY, FUND PERFORMANCE MAY VARY FROM THE
FIGURES SHOWN. BY COMPARISON, THE STANDARD & POOR'S 500 INDEX RETURNED 7.25
PERCENT. OF COURSE, PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. THE S&P
500 INDEX IS AN UNMANAGED, BROAD-BASED INDEX THAT MEASURES THE PERFORMANCE OF
500 STOCKS FROM 83 INDUSTRIAL GROUPS AND REFLECTS THE GENERAL PERFORMANCE OF THE
7
<PAGE>
STOCK MARKET. IT IS A STATISTICAL COMPOSITE THAT DOES NOT INCLUDE ANY
COMMISSIONS OR SALES CHARGES THAT WOULD BE PAID BY AN INVESTOR PURCHASING THE
SECURITIES IT REPRESENTS. 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 believe that identifying and investing in companies that
appear to have the potential to generate surprisingly strong earnings growth is
the best way to produce strong fund performance. We focus on three types of
stocks, regardless of market conditions: classic growth stocks; nontraditional,
lesser-known growth stocks; and growth stocks with strong fundamentals whose
prices have been driven down by what we believe to be unfounded investor fears.
The volatility we saw in the markets in the past year did not change our basic
investment philosophy. Rather, it reinforced the value of what we do on a
day-to-day basis, which is conducting extensive research on each company and
strengthening our "information edge."
Q WHAT STOCKS DID THIS STRATEGY IDENTIFY THAT HELPED FUND PERFORMANCE?
A We were pleased with the success of our bottom-up stock picking, especially
since we had a technology weighting comparable to our benchmark index. The
fund's technology stocks, including Cisco Systems and Texas Instruments, helped
boost fund performance.
Portfolio positions in "old economy" stocks such as United Technologies,
Pfizer/Warner Lambert, and Tyco were positive contributors to performance. We
were especially pleased with the performance of Tyco, a diversified
manufacturing and service company, given the major downward move its stock
sustained in the fourth quarter of 1999 due to questions surrounding the firm's
accounting methods. Tyco's stock rebounded for a couple of reasons. Late in the
reporting period, the SEC inquiry into Tyco's accounting revealed that Tyco's
methods did not lead to a misstatement of earnings, as some had believed. This
was exactly what we had expected. Tyco also made a $4 billion acquisition of
Mallinckrodt, a manufacturer and distributor of health-care products and
services. Both of these events boosted Tyco's stock and helped fund performance.
Keep in mind that not all stocks in the portfolio performed favorably, and there
is no guarantee that any of these stocks will perform well or will be held by
the fund in the future.
Q CAN YOU TALK ABOUT THE PFIZER/WARNER LAMBERT MERGER AND YOUR OUTLOOK FOR
THE STOCK OF THE SURVIVING COMPANY, PFIZER?
A Large-cap pharmaceutical stocks dramatically outperformed the market late
in the reporting period, and Pfizer outperformed its peers. Its acquisition of
Warner Lambert was formally completed in mid-June, but integration planning was
already well underway. As such, we believe Pfizer will hit its cost-cutting
targets earlier than expected. Prescription volume growth for most of the
company's major drugs remains robust, particularly for Viagra and Zyrtec.
8
<PAGE>
We believe Pfizer remains a compelling investment, and it is a core holding
in the fund's portfolio.
Q WHICH STOCKS HURT THE FUND'S RETURN?
A Not all technology stocks could be counted on for positive performance,
with Microsoft detracting significantly from the fund's return. We were also
disappointed by Motorola, whose stock performed poorly when the company did not
do as well in the mobile handset market as expected.
Many of the holdings that hurt the fund's performance were in the retail
arena. One of our top holdings, Home Depot, the leading home improvement
retailer, was among several retail stocks punished by the market, despite no
change in its fundamentals. Although the company met Wall Street analysts'
earnings estimates, issues such as accelerating labor and infrastructure
expenses, rising interest rates, slower housing turnover, and the rising cost of
gas created pressure on the stock as well as the retail sector in general.
Further research led us to the conclusion that the stock's decline was an
overreaction to short-term issues; in fact, we viewed this dip in the stock's
price as a buying opportunity.
Q WHAT DO YOU SEE AHEAD FOR THE MARKET AND THE FUND?
A We believe the Fed is in its seventh-inning stretch on interest-rate hikes
and that, combined with the surge of growth stocks late in the second quarter,
makes us extremely optimistic about the prospect for large-cap growth stocks
going forward. Signs of a soft landing for the economy, as well as strong
fundamentals and compelling business opportunities in corporate America, are
creating a favorable environment for growth stocks.
9
<PAGE>
GLOSSARY OF TERMS
A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.
CLASS A SHARES: A division of mutual fund shares, which are generally divided
into three groupings, called Class A, Class B, and Class C shares. The specific
features of each are dependent on varying fees and sales charges. In most cases,
Class A shares will have no redemption fee (contingent deferred sales charge).
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.
OLD ECONOMY: Refers to established companies focusing more on industrial and
manufacturing services.
SALES CHARGE: Also referred to as the load, this is a fee paid by a buyer to
acquire shares in a mutual fund or a limited partnership.
SOFT LANDING: Occurs when economic growth slows but remains fast enough to
prevent a recession.
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.
VOLATILITY: A measure of the fluctuation in the market price of a security. A
security that is volatile has frequent and large swings in price.
10
<PAGE>
BY THE NUMBERS
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
THE FOLLOWING PAGES DETAIL YOUR FUND'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
COMMON STOCKS+ 97.0%
CONSUMER DISCRETIONARY 14.9%
HOTELS RESTAURANTS & LEISURE 0.2%
<S> <C> <C>
Brinker International, Inc. (a) ............... 6,000 $ 175,500
-----------
MEDIA 9.1%
AMFM, Inc. (a) ................................ 14,700 1,014,300
AT&T Corp. Liberty Media Group 'A' (a) ........ 60,500 1,467,125
Clear Channel Communications, Inc. (a) ........ 18,300 1,372,500
Comcast Corp. 'A' (a) ......................... 2,100 81,637
Comcast Corp. 'A' (Special) (a) ............... 20,900 846,450
MediaOne Group, Inc. (a) ...................... 17,600 1,170,224
Omnicon Group, Inc. ........................... 5,900 525,469
Time Warner, Inc. ............................. 28,800 2,188,800
TV Guide, Inc. (a) ............................ 7,200 246,600
Viacom, Inc.'B' (a) ........................... 13,194 899,666
-----------
9,812,771
-----------
MULTILINE RETAIL 1.7%
Costco Wholesale Corp. (a) .................... 13,700 452,100
Wal-Mart Stores, Inc. ......................... 24,000 1,383,000
-----------
1,835,100
-----------
SPECIALTY RETAIL 3.9%
Home Depot, Inc. .............................. 60,200 3,006,238
Intimate Brands, Inc. ......................... 27,200 537,200
Limited, Inc. (The) ........................... 15,000 324,375
Tiffany & Co. ................................. 5,600 378,000
-----------
4,245,813
-----------
TOTAL CONSUMER DISCRETIONARY .................. 16,069,184
-----------
CONSUMER STAPLES 4.5%
BEVERAGES 2.0%
Anheuser-Busch Cos., Inc. ..................... 14,200 1,060,563
PepsiCo, Inc. ................................. 23,900 1,062,056
-----------
2,122,619
-----------
FOOD & DRUG RETAILING 0.7%
Safeway, Inc. (a) ............................. 15,800 712,975
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS 11
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
FOOD PRODUCTS 0.5%
<S> <C> <C>
Keebler Foods Co. ........................... 4,800 $ 178,200
Quaker Oats Co. ............................. 5,500 413,187
-----------
591,387
-----------
HOUSEHOLD PRODUCTS 0.5%
Procter & Gamble Co. ........................ 10,200 583,950
-----------
TOBACCO 0.8%
Philip Morris Cos., Inc ..................... 31,700 842,031
-----------
TOTAL CONSUMER STAPLES ...................... 4,852,962
-----------
FINANCIALS 7.0%
BANKS 2.3%
Bank of New York Co., Inc. .................. 37,300 1,734,450
FleetBoston Financial Corp. ................. 21,600 734,400
-----------
2,468,850
-----------
DIVERSIFIED FINANCIALS 3.6%
American Express Co. ........................ 23,300 1,214,513
Citigroup, Inc. ............................. 31,250 1,882,812
Fannie Mae .................................. 15,700 819,344
-----------
3,916,669
-----------
INSURANCE 1.1%
American International Group, Inc. .......... 9,800 1,151,500
-----------
TOTAL FINANCIALS ............................ 7,537,019
-----------
HEALTH CARE 14.4%
BIOTECHNOLOGY 0.9%
Amgen, Inc. (a) ............................. 6,750 474,187
Genentech, Inc. (a) ......................... 1,000 172,000
MedImmune, Inc. (a) ......................... 4,400 325,600
-----------
971,787
-----------
HEALTH CARE EQUIPMENT & SUPPLIES 0.3%
PE Corp.-PE Biosystems Group ................ 5,500 362,313
-----------
HEALTH CARE PROVIDERS & SERVICES 0.3%
HCA-The Healthcare Corp. (a) ................ 12,100 367,537
-----------
PHARMACEUTICALS 12.9%
Abbott Laboratories ......................... 8,900 396,606
American Home Products Corp. ................ 26,800 1,574,500
Bristol-Myers Squibb Co. .................... 13,300 774,725
Eli Lilly & Co. ............................. 4,700 469,413
Johnson & Johnson ........................... 16,100 1,640,188
Merck & Co., Inc. ........................... 14,800 1,134,050
Pfizer, Inc. ................................ 127,450 6,117,600
</TABLE>
12 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
PHARMACEUTICALS (CONTINUED)
<S> <C> <C>
Pharmacia Corp. ........................... 26,418 $ 1,365,480
Schering-Plough Corp. ..................... 7,200 363,600
Tularik, Inc. (a) ......................... 2,500 73,750
-----------
13,909,912
-----------
TOTAL HEALTH CARE ......................... 15,611,549
-----------
INDUSTRIALS 16.6%
AEROSPACE & DEFENSE 5.2%
General Dynamics Corp. .................... 26,100 1,363,725
United Technologies Corp. ................. 71,700 4,221,338
-----------
5,585,063
-----------
COMMERCIAL SERVICES & SUPPLIES 0.1%
VeriSign, Inc. (a) ........................ 900 158,850
-----------
ELECTRICAL EQUIPMENT 0.1%
Capstone Turbine Corp. (a) ................ 1,100 49,569
-----------
INDUSTRIAL CONGLOMERATES 11.2%
General Electric Co. ...................... 90,500 4,796,500
Textron, Inc. ............................. 15,500 841,843
Tyco International Ltd. ................... 136,600 6,471,425
-----------
12,109,768
-----------
TOTAL INDUSTRIALS ......................... 17,903,250
-----------
INFORMATION TECHNOLOGY 34.8%
COMMUNICATIONS EQUIPMENT 14.1%
American Tower Corp. 'A' (a) .............. 25,800 1,075,538
CIENA Corp. (a) ........................... 3,900 650,081
Cisco Systems, Inc. (a) ................... 72,700 4,620,994
Corning, Inc. ............................. 3,400 917,575
General Motors Corp. 'H' (a) .............. 4,400 386,100
JDS Uniphase Corp. (a) .................... 11,700 1,402,537
Juniper Networks, Inc. (a) ................ 4,100 596,806
Lucent Technologies, Inc. ................. 18,300 1,084,275
Motorola, Inc. ............................ 48,000 1,395,000
Nortel Networks Corp. ..................... 37,900 2,586,675
Pinnacle Holdings, Inc. (a) ............... 6,700 361,800
Spectrasite Holdings, Inc. (a) ............ 4,900 139,038
Stratos Lightwave, Inc. (a) ............... 1,800 50,175
-----------
15,266,594
-----------
COMPUTERS & PERIPHERALS 4.1%
EMC Corp. (a) ..................................... 9,100 700,131
Hewlett-Packard Co. ............................... 5,500 686,813
International Business Machines Corp. ............. 8,900 975,106
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS 13
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
COMPUTERS & PERIPHERALS (CONTINUED)
<S> <C> <C>
Seagate Technology, Inc. (a) ...................... 5,100 $ 280,500
StorageNetworks, Inc. (a) ......................... 2,900 261,725
Sun Microsystems, Inc. (a) ........................ 16,200 1,473,188
----------
4,377,463
----------
INTERNET SOFTWARE & SERVICES 0.8%
ASM Lithography Holding N.V. (a) .................. 6,600 291,225
Exfo Electro Optical Engineering, Inc. (a) ........ 2,400 105,300
Genuity, Inc. (a) ................................. 11,100 101,634
Yahoo!, Inc. ...................................... 3,100 384,013
----------
882,172
----------
SEMICONDUCTOR EQUIPMENT & PRODUCTS 10.9%
Analog Devices, Inc. (a) .......................... 2,800 212,800
Applied Materials, Inc. (a) ....................... 23,200 2,102,500
Broadcom Corp. 'A' (a) ............................ 2,600 569,238
Infineon Technologies AG ADR (a) .................. 5,000 396,250
Intel Corp. ....................................... 34,600 4,625,587
Intersil Holding Corp. (a) ........................ 8,800 475,750
Maxim Integrated Products, Inc. (a) ............... 19,300 1,311,194
PMC-Sierra, Inc. (a) .............................. 1,200 213,225
Texas Instruments, Inc. ........................... 28,200 1,936,987
----------
11,843,531
----------
SOFTWARE 4.9%
Inktomi Corp. (a) ................................. 2,900 342,925
Microsoft Corp. (a) ............................... 37,800 3,024,000
Oracle Corp. (a) .................................. 22,900 1,925,031
----------
5,291,956
----------
TOTAL INFORMATION TECHNOLOGY ..................................... 37,661,716
----------
TELECOMMUNICATION SERVICES 4.6%
DIVERSIFIED TELECOMMUNICATION SERVICES 3.4%
BellSouth Corp. ................................... 5,100 217,388
Global Crossing Ltd. (a) .......................... 9,927 261,204
GTE Corp. ......................................... 24,700 1,537,575
NEXTLINK Communications, Inc. (a) ................. 2,900 110,019
Sprint Corp. ...................................... 12,200 622,200
WorldCom, Inc. (a) ................................ 20,300 931,262
----------
3,679,648
----------
WIRELESS TELECOMMUNICATION SERVICES 1.2%
AT&T Wireless Group (a) ........................... 8,800 245,300
Crown Castle International Corp. (a) .............. 17,600 642,400
</TABLE>
14 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
WIRELESS TELECOMMUNICATION SERVICES (CONTINUED)
Nextel Communications, Inc. 'A' (a) .............. 6,300 $ 385,481
-----------
1,273,181
-----------
TOTAL TELECOMMUNICATION SERVICES ............................... 4,952,829
-----------
UTILITIES 0.2%
ELECTRIC UTILITIES 0.2%
Montana Power Co. ................................ 7,000 247,187
-----------
TOTAL LONG-TERM INVESTMENTS 97.0%
(Cost $86,714,673) ......................................... 104,835,696
-----------
<CAPTION>
PAR
VALUE
<S> <C> <C>
SHORT-TERM INVESTMENT 3.4%
REPURCHASE AGREEMENT 3.4%
Chase Securities, Inc. 6.15%, dated $ 3,629,000
6/30/00, due 7/3/00, to be repurchased at $3,630,860,
collateralized by $2,860,000 U.S. Treasury Bonds 8.75%,
due 5/15/20, valued at $3,696,550
(Cost $3,629,000) ........................................... 3,629,000
-----------
TOTAL INVESTMENTS 100.4%
(Cost $90,343,673) .......................................... 108,464,696
LIABILITIES IN EXCESS OF OTHER ASSETS -0.4% (428,473)
-----------
NET ASSETS 100%.................................................. $ 108,036,223
=============
</TABLE>
(a) NON-INCOME PRODUCING SECURITY
ADR--AMERICAN DEPOSITARY RECEIPT
+ THE COMMON STOCKS ARE CLASSIFIED BY SECTORS WHICH REPRESENT BROAD GROUPINGS
OF RELATED INDUSTRIES.
SEE NOTES TO FINANCIAL STATEMENTS 15
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000
<TABLE>
<S> <C>
ASSETS:
Investments at Value (Cost $90,343,673) ............................... $ 108,464,696
Cash .................................................................. 66,495
Receivable for:
Fund Shares Sold .................................................... 847,254
Investments Sold .................................................... 295,963
Dividends ........................................................... 41,929
Interest ............................................................ 620
Deferred Organizational Costs ......................................... 3,439
Other ................................................................. 7,707
-----------
Total Assets ...................................................... 109,728,103
-----------
LIABILITIES:
Payable for:
Investments Purchased ............................................... 1,296,222
Distribution Fees ................................................... 119,280
Fund Shares Redeemed ................................................ 100,448
Investment Advisory Fees ............................................ 40,642
Shareholder Reporting Expenses ...................................... 36,768
Directors' Fees and Expenses ........................................ 23,603
Administrative Fees ................................................. 22,482
Professional Fees ................................................... 19,129
Custody Fees ........................................................ 18,648
Transfer Agent Fees ................................................. 8,304
Dividends Declared .................................................. 54
Other ................................................................. 6,300
-----------
Total Liabilities ................................................. 1,691,880
-----------
NET ASSETS ............................................................ $ 108,036,223
===========
NET ASSETS CONSIST OF:
Capital Stock at Par ($.001 par value, Shares Authorized 2,625,000,000) $ 7,073
Paid in Capital in Excess of Par ...................................... 84,503,476
Net Unrealized Appreciation on Investments ............................ 18,121,023
Accumulated Net Realized Gain ......................................... 5,428,497
Accumulated Net Investment Loss ....................................... (23,846)
-----------
NET ASSETS ............................................................ $ 108,036,223
===========
</TABLE>
16 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000
<TABLE>
<S> <C>
Class A Shares:
Net Asset Value and Redemption Price Per Share (Based on Net Assets
of $41,624,995 and 2,699,624 Shares Outstanding) ................... $ 15.42
==========
Maximum Sales Charge ............................................... 5.75%
Maximum Offering Price Per Share (Net Asset Value
Per Share x 100/(100% - maximum sales charge)) ..................... $ 16.36
==========
Class B Shares:
Net Asset Value and Offering Price Per Share (Based on Net Assets of
$49,213,639 and 3,239,921 Shares Outstanding)* ..................... $ 15.19
==========
Class C Shares:
Net Asset Value and Offering Price Per Share (Based on Net Assets of
$17,197,589 and 1,133,103 Shares Outstanding)* ..................... $ 15.18
==========
</TABLE>
* REDEMPTION PRICE MAY BE SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE.
SEE NOTES TO FINANCIAL STATEMENTS 17
<PAGE>
STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends .............................................................. $ 407,060
Interest ............................................................... 119,478
------------
Total Income ....................................................... 526,538
------------
EXPENSES:
Investment Advisory Fees ............................................... 581,509
Distribution Fees (Attributed to Classes A, B and C of $67,201, $343,818
and $114,059, respectively) .......................................... 525,078
Administrative Fees .................................................... 188,161
Shareholder Reports .................................................... 89,547
Filing and Registration Fees ........................................... 59,593
Transfer Agent Fees .................................................... 39,281
Custodian Fees ......................................................... 28,957
Directors' Fees and Expenses ........................................... 24,292
Professional Fees ...................................................... 19,584
Amortization of Organizational Costs ................................... 11,193
Other .................................................................. 2,462
------------
Total Expenses ..................................................... 1,569,657
Less Expense Reductions ............................................ (136,048)
------------
Net Expenses ....................................................... 1,433,609
------------
NET INVESTMENT LOSS .................................................... $ (907,071)
============
NET REALIZED GAIN/LOSS ON:
Investments ............................................................ $ 8,312,381
------------
NET UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period .............................................. 9,174,665
------------
End of the Period:
Investments ........................................................ 18,121,023
------------
Net Change in Unrealized Appreciation/Depreciation ..................... 8,946,358
------------
NET REALIZED GAIN/LOSS AND NET CHANGE IN UNREALIZED
APPRECIATION/DEPRECIATION ............................................ $ 17,258,739
============
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ................... $ 16,351,668
============
</TABLE>
18 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 2000 JUNE 30, 1999*
------------- -------------
<S> <C> <C>
INCREASE/DECREASE IN NET ASSETS
OPERATIONS:
Net Investment Loss ................................... $ (907,071) $ (364,000)
Net Realized Gain ..................................... 8,312,381 502,000
Net Change in Unrealized Appreciation/Depreciation .... 8,946,358 9,036,000
------------- -------------
Net Increase in Net Assets Resulting from Operations .. 16,351,668 9,174,000
------------- -------------
DISTRIBUTIONS:
NET REALIZED GAIN:
Class A ............................................... (773,283) (3,000)
Class B ............................................... (1,057,330) (4,000)
Class C ............................................... (336,667) (1,000)
------------- --------------
Net Decrease in Net Assets Resulting from Distributions (2,167,280) (8,000)
------------- --------------
CAPITAL SHARES TRANSACTIONS:
Subscribed ............................................ 61,360,897 47,489,000
Distributions Reinvested .............................. 1,959,132 8,000
Redeemed .............................................. (18,066,080) (13,208,000)
------------- -------------
Net Increase in Net Assets Resulting from
Capital Share Transactions ......................... 45,253,949 34,289,000
------------- -------------
Total Increase in Net Assets .......................... 59,438,337 43,455,000
NET ASSETS--Beginning of Period ....................... 48,597,886 5,143,000
------------- -------------
NET ASSETS--End of Period (Including accumulated
net investment loss of $(23,846) and $(8,000),
respectively) ...................................... $ 108,036,223 $ 48,598,000
============== =============
</TABLE>
* AMOUNTS ROUNDED TO THE NEAREST (000).
SEE NOTES TO FINANCIAL STATEMENTS 19
<PAGE>
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, MAY 29, 1998*
--------------------
CLASS A SHARES 2000# 1999# TO JUNE 30, 1998
-----------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD .................. $ 12.54 $ 10.29 $ 10.00
--------- --------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Loss ................................. (0.11) (0.06) --
Net Realized and Unrealized Gain .................... 3.47 2.31 0.29
--------- --------- --------
Total From Investment Operations ...................... 3.36 2.25 0.29
--------- --------- --------
DISTRIBUTIONS
Net Realized Gain ................................... (0.48) (0.00)+ --
--------- --------- --------
NET ASSET VALUE, END OF PERIOD ........................ $ 15.42 $ 12.54 $ 10.29
========= ========= ========
TOTAL RETURN (1) ...................................... 27.26% 21.90% 2.90%**
========= ========= ========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) ..................... $ 41,625 $ 17,185 $ 2,057
Ratio of Expenses to Average Net Assets ............... 1.50% 1.50% 1.50%
Ratio of Net Investment Income/Loss to
Average Net Assets .................................. (0.77%) (0.57%) 0.51%
Portfolio Turnover Rate ............................... 73% 126% 19%**
------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Reductions
During the Period
Per Share Benefit to Net Investment Loss ............ $ 0.03 $ 0.05 $ 0.02
Ratios Before Expense Reductions:
Expenses to Average Net Assets ...................... 1.69% 1.98% 4.06%
Net Investment Loss to Average
Net Assets ........................................ (0.96%) (1.05%) (2.05%)
------------------------------------------------------------------------------------------------------
</TABLE>
* COMMENCEMENT OF OPERATIONS
** NON-ANNUALIZED
+ AMOUNT IS LESS THAN $0.01 PER SHARE.
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED SALES
CHARGES.
# CHANGES PER SHARE ARE BASED UPON DAILY AVERAGE SHARES OUTSTANDING.
20 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------- MAY 29, 1998*
CLASS B SHARES 2000# 1999# TO JUNE 30, 1998
--------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ..... $ 12.45 $ 10.28 $ 10.00
---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Loss .................... (0.21) (0.14) --
Net Realized and Unrealized Gain ....... 3.43 2.31 0.28
---------- ---------- ----------
Total From Investment Operations ......... 3.22 2.17 0.28
---------- ---------- ----------
DISTRIBUTIONS
Net Realized Gain ...................... (0.48) (0.00)+ --
---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD ........... $ 15.19 $ 12.45 $ 10.28
========== ========== ==========
TOTAL RETURN (1) ......................... 26.32% 21.14% 2.80%**
========== ========== ==========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) ........ $ 49,214 $ 23,978 $ 1,543
Ratio of Expenses to Average Net Assets .. 2.25% 2.25% 2.25%
Ratio of Net Investment Loss to
Average Net Assets ..................... (1.52%) (1.34%) (0.25%)
Portfolio Turnover Rate .................. 73% 126% 19%**
------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Reductions
During the Period
Per Share Benefit to Net Investment Loss $ 0.03 $ 0.05 $ 0.02
Ratios Before Expense Reductions:
Expenses to Average Net Assets ......... 2.44% 2.72% 4.81%
Net Investment Loss to Average
Net Assets ........................... (1.71%) (1.81%) (2.81%)
------------------------------------------------------------------------------------------------------
</TABLE>
* COMMENCEMENT OF OPERATIONS
** NON-ANNUALIZED
+ AMOUNT IS LESS THAN $0.01 PER SHARE.
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE
OF SALES CHARGES OR DEFERRED SALES
CHARGES.
# CHANGES PER SHARE ARE BASED UPON DAILY AVERAGE SHARES OUTSTANDING.
SEE NOTES TO FINANCIAL STATEMENTS 21
<PAGE>
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, MAY 29, 1998*
----------------------------
CLASS C SHARES 2000# 1999# TO JUNE 30, 1998
--------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ..... $ 12.44 $ 10.28 $ 10.00
--------- ---------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Loss .................... (0.21) (0.14) --
Net Realized and Unrealized Gain ....... 3.43 2.30 0.28
--------- ---------- ---------
Total From Investment Operations ......... 3.22 2.16 0.28
--------- ---------- ---------
DISTRIBUTIONS
Net Realized Gain ...................... (0.48) (0.00)+ --
--------- ---------- ---------
NET ASSET VALUE, END OF PERIOD ........... $ 15.18 $ 12.44 $ 10.28
========= ========== =========
TOTAL RETURN (1) ......................... 26.34% 21.04% 2.80%**
========= ========== =========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) ........ $ 17,197 $ 7,435 $ 1,543
Ratio of Expenses to Average Net Assets .. 2.25% 2.25% 2.25%
Ratio of Net Investment Loss to
Average Net Assets ..................... (1.52%) (1.32%) (0.25%)
Portfolio Turnover Rate .................. 73% 126% 19%**
--------------------------------------------------------------------------------------
Effect of Voluntary Expense Reductions
During the Period
Per Share Benefit to Net Investment Loss $ 0.03 $ 0.05 $ 0.02
Ratios Before Expense Reductions:
Expenses to Average Net Assets ......... 2.44% 2.75% 4.81%
Net Investment Loss to Average
Net Assets ........................... (1.71%) (1.81%) (2.81%)
--------------------------------------------------------------------------------------
</TABLE>
* COMMENCEMENT OF OPERATIONS
** NON-ANNUALIZED
+ AMOUNT IS LESS THAN $0.01 PER SHARE.
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED SALES
CHARGES.
# CHANGES PER SHARE ARE BASED UPON DAILY AVERAGE SHARES OUTSTANDING.
22 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
The Van Kampen Equity Growth Fund (the "Fund") is organized as a separate
diversified fund of Van Kampen Series Fund, Inc., a Maryland corporation, which
is registered as an open-end management investment company under the Investment
Company Act of 1940, as amended. The Fund's investment objective is to seek
long-term capital appreciation by investing primarily in growth-oriented equity
securities of medium and large capitalization companies. The Fund commenced
operations on May 29, 1998.
1. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of the financial statements in conformity with accounting principles
accepted in the United States of America (hereafter "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 period. Actual
results could differ from those estimates.
A. SECURITY VALUATION Equity securities listed on a U.S. exchange and equity
securities traded on NASDAQ are valued at the latest quoted sales price on the
valuation date. Unlisted securities and listed securities not traded on the
valuation date for which market quotations are readily available are valued at
the average between the bid and asked prices obtained from reputable brokers.
Debt securities purchased with remaining maturities of 60 days or less are
valued at amortized cost, which approximates market value. All other securities
and assets for which market quotations are not readily available are valued at
fair value as determined in good faith using procedures approved by the Board of
Directors.
B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen Investment Advisory Corp. or its affiliates, the
daily aggregate of which is invested in repurchase agreements. Repurchase
agreements are fully collateralized by the underlying debt security. A bank as
custodian for the Fund takes possession of the underlying securities, with a
market value at least equal to the amount of the repurchase transac-
23
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
tion, including principal and accrued interest. To the extent that any
repurchase transaction exceeds one business day, the value of the collateral
is marked-to-market on a daily basis to determine the adequacy of the
collateral. In the event of default on the obligation to repurchase, the Fund
has the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation. In the event of default or bankruptcy by the
counterparty to the agreement, realization and/or retention of the collateral
or proceeds may be subject to legal proceedings.
C. INCOME AND EXPENSES Interest income is recorded on an accrual basis and
dividend income is recorded net of applicable withholding taxes on the
ex-dividend date. Income, expenses, and realized and unrealized gains or losses
are allocated on a pro rata basis to each class of shares except for
distribution and service fees which are unique to each class of shares.
Distributions from the Fund are recorded on the ex-distribution date.
D. ORGANIZATIONAL COSTS The organizational costs of the Fund are being amortized
on a straight line basis over the 60 month period ending May 27, 2003 beginning
with the Fund's commencement of operations. The Adviser has agreed that in the
event any of the initial shares of the Fund originally purchased by Van Kampen
are redeemed by the Fund during the amortization period, the Fund will be
reimbursed for any unamortized organizational costs in the same proportion as
the number of shares redeemed bears to the number of initial shares held at the
time of redemption.
E. 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 as a result of losses relating to wash sale transactions.
At June 30, 2000, for federal income tax purposes, cost of long- and
short-term investments is $90,765,670; the aggregate gross unrealized
appreciation is $19,925,266 and the aggregate gross unrealized depreciation is
$2,226,240, resulting in net unrealized appreciation on long- and short-term
investments of $17,699,026.
24
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
F. DISTRIBUTION OF INCOME AND GAINS The Fund declares and pays dividends
annually from net investment income and net realized gains, if any.
Distributions from net realized gains for book purposes may include short-term
capital gains which are included as ordinary income for tax purposes.
Due to inherent differences in the recognition of income and expenses under
generally accepted accounting principles and federal income tax purposes,
permanent differences between book and tax basis reporting for the current
fiscal year have been identified and appropriately reclassified. A permanent
difference related to a net operating loss which may be used as an offset
against short-term gains for tax purposes totaling $879,902 has been
reclassified from accumulated net realized gain to accumulated net investment
loss. A permanent difference of $19,122 related to a correction of the prior
year net operating loss was reclassified from paid in capital in excess of par
to accumulated net realized gain. A permanent difference of $11,193 related to
non-deductible organization costs has been reclassified from paid in capital in
excess of par to accumulated net investment loss. A permanent difference of
$1,779 related to a partnership investment was reclassified from paid in capital
in excess of par to accumulated net realized gain.
Permanent book to tax basis differences are not included in ending
undistributed/distributions in excess of net investment income for the purpose
of calculating net investment income/loss per share in the Financial Highlights.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Van Kampen Investment Advisory Corp. (the "Adviser"), a wholly owned
subsidiary of Van Kampen Investments Inc. (an indirect wholly owned
subsidiary of Morgan Stanley Dean Witter & Co.) and Morgan Stanley Dean
Witter Investment Management Inc., a wholly owned subsidiary of Morgan
Stanley Dean Witter & Co., provide the Fund with investment advisory services
at a fee paid monthly and calculated at the annual rates based on average
daily net assets indicated as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
<S> <C>
First $500 million.................... .80 of 1%
Next $500 million..................... .75 of 1%
Over $1 billion....................... .70 of 1%
</TABLE>
The Adviser has agreed to reduce advisory fees payable to it and to reimburse
the Fund if necessary, if the annual operating expenses, expressed as a
percentage of average daily net assets, exceed the maximum ratios indicated as
follows:
<TABLE>
<CAPTION>
CLASS A CLASS B AND CLASS C
MAX. OPERATING MAX. OPERATING
EXPENSE RATIO EXPENSE RATIO
--------------- --------------------
<S> <C>
1.50% 2.25%
</TABLE>
25
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
For the period ended June 30, 2000, the Adviser voluntarily waived $136,048
of its investment advisory fees. This waiver is voluntary in nature and can be
discontinued at the Adviser's discretion.
For the period ended June 30, 2000, the Fund recognized expenses of $4,565
representing legal services provided by Skadden, Arps, Slate, Meagher & Flom
(Illinois), counsel to the Fund, of which a director of the Fund is an
affiliated person.
For the period ended June 30, 2000, the Fund recognized expenses of $6,449
representing Van Kampen's cost of providing legal services to the Fund.
Van Kampen Investment Advisory Corp. (the "Administrator") also provides
the Fund with administrative services pursuant to an administrative agreement
for a monthly fee which on an annual basis equals 0.25% of the average daily net
assets of the Fund, plus reimbursement of out-of-pocket expenses. Under an
agreement between the Adviser and The Chase Manhattan Bank ("Chase"), through
its corporate affiliate Chase Global Funds Services Company ("CGFSC"), Chase
provides certain administrative services to the Fund. Chase is compensated for
such services by the Adviser from the fee it receives from the Fund. Transfer
Agency services are provided to the Fund by Van Kampen Investor Services Inc.,
an affiliate of the Adviser.
Van Kampen Funds Inc. (the "Distributor") a wholly owned subsidiary of Van
Kampen Investments Inc., an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co., serves as the Distributor of the Fund's shares. The
Distributor is entitled to receive from the Fund a distribution fee, which is
accrued daily and paid quarterly, of an amount of up to 0.25% of the Class A
shares and up to 1.00% of the Class B and Class C shares of the Fund, on an
annualized basis, of the average daily net assets attributable to each Class.
The Distributor may receive a front end sales charge for purchases of
Class A shares. In addition, the Distributor may receive a contingent
deferred sales charge for certain redemptions of Class B and Class C shares
of the Fund redeemed within one to five years following such purchase. For
the period ended June 30, 2000, the Distributor has advised the Fund that it
earned initial sales charges of $503,923 for Class A shares and deferred
sales charges of $91,356 and $2,256 for Class B shares and Class C shares,
respectively.
Certain officers and directors of the Fund are also officers and directors
of Van Kampen. The Fund does not compensate its officers or directors who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
directors who are not officers of Van Kampen. Under the deferred compensation
plan, directors 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 director's years of service to the Fund. The maximum
annual benefit per director under the plan is $2,500.
For the period ended June 30, 2000, the Fund incurred $4,580 as brokerage
commissions with Morgan Stanley & Co. Incorporated, an affiliated broker/dealer.
26
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
3. CAPITAL TRANSACTIONS
The Fund currently offers three classes of shares, Class A, Class B, and Class C
shares. All three classes of shares have identical voting, dividend, liquidation
and other rights. Class A shares are sold with a front-end sales charge of up to
5.75%. For certain purchases of Class A shares, the front-end sales charge may
be waived and a contingent deferred sales charge ("CDSC") of 1.00% imposed in
the event of certain redemptions within one year of the purchase. Class B and
Class C shares are offered without a front end sales charge, but are subject to
a CDSC. Class B shares automatically convert to Class A shares eight years after
the end of the calendar month in which the shares were purchased. For the period
ended June 30, 2000, no Class B shares converted to Class A shares. The CDSC
will be imposed on most redemptions made within five years of the purchase for
Class B shares and one year of the purchase for Class C shares as detailed in
the following schedule:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE ON ASSETS SUBJECT TO
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
Thereafter ............... None None
</TABLE>
27
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 2000 JUNE 30, 1999*
-------------- ---------------
<S> <C> <C>
CAPITAL SHARE TRANSACTIONS
CLASS A:
Shares:
Subscribed ............................. 1,789,258 1,629,000
Distributions Reinvested ............... 52,968 --
Redeemed ............................... (512,671) (459,000)
----------- -------------
Net Increase in Class A Shares Outstanding 1,329,555 1,170,000
============ =============
Dollars:
Subscribed ............................. $25,853,358 $ 16,596,000
Distributions Reinvested ............... 724,074 3,000
Redeemed ............................... (7,382,190) (4,778,000)
----------- -------------
Net Increase ............................. $19,195,242 $ 11,821,000
============ =============
Ending Paid in Capital ................... $33,016,419+ $ 13,821,000+
============ =============
CLASS B:
Shares:
Subscribed ............................. 1,879,249 2,258,000
Distributions Reinvested ............... 70,232 --
Redeemed ............................... (635,631) (482,000)
----------- -------------
Net Increase in Class B Shares Outstanding 1,313,850 1,776,000
============ =============
Dollars:
Subscribed ............................. $26,489,423 $ 23,038,000
Distributions Reinvested ............... 949,535 4,000
Redeemed ............................... (8,938,128) (5,054,000)
----------- -------------
Net Increase ............................. $18,500,830 $ 17,988,000
============ =============
Ending Paid in Capital ................... $37,988,069+ $ 19,488,000+
============ =============
CLASS C:
Shares:
Subscribed ............................. 640,134 788,000
Distributions Reinvested ............... 21,372 --
Redeemed ............................... (125,973) (340,000)
----------- -------------
Net Increase in Class C Shares Outstanding 535,533 448,000
============ =============
Dollars:
Subscribed ............................. $ 9,018,116 $ 7,855,000
Distributions Reinvested ............... 285,523 1,000
Redeemed ............................... (1,745,762) (3,376,000)
----------- -------------
Net Increase ............................. $ 7,557,877 $ 4,480,000
============ =============
Ending Paid in Capital ................... $13,538,155+ $ 5,980,000+
============ =============
</TABLE>
* AMOUNTS ROUNDED TO THE NEAREST (000).
+ ENDING PAID IN CAPITAL AMOUNTS DO NOT REFLECT PERMANENT BOOK TO TAX
DIFFERENCES--SEE NOTE 1F.
28
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
4. INVESTMENT TRANSACTIONS
For the period ended June 30, 2000, the Fund made purchases of $91,653,934 and
sales of $51,789,326 of investment securities other than long-term U.S.
government securities and short-term investments. There were no purchases or
sales of long-term U.S. government securities.
5. 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 into a $650 million committed line of credit facility
with a group of banks which expires on November 28, 2000, but is renewable with
the consent of the participating banks. Each fund is permitted to utilize the
facility in accordance with the restrictions of its prospectus. In the event the
demand for the credit facility meets or exceeds $650 million on a complex-wide
basis, each fund will be limited to its pro-rata percentage based on the net
assets of each participating fund. Interest on borrowings is charged under the
agreement at a rate of 0.50% above the federal funds rate per annum. An annual
commitment fee of 0.09% per annum is charged on the unused portion of the credit
facility, which each fund incurs based on its pro-rata percentage of quarterly
net assets. The Fund has not borrowed against the credit facility during the
period.
29
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of Van Kampen Equity Growth Fund
We have audited the accompanying statement of assets and liabilities of Van
Kampen Equity Growth Fund (the "Fund"), a fund of Van Kampen Series Fund, Inc.,
including the portfolio of investments, as of June 30, 2000, and the related
statements of operations, changes in net assets and the financial highlights for
the year then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit. The Fund's financial statements and financial highlights for the periods
ended prior to June 30, 2000, were audited by other auditors whose report, dated
August 6, 1999, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of June 30, 2000, by correspondence with the Fund's
custodian and brokers; where replies were not received from brokers, we
performed other auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen Equity Growth Fund as of June 30, 2000, the results of its operations,
the changes in its net assets and the financial highlights for the year then
ended, in conformity with accounting principles generally accepted in the United
States of America.
DELOITTE & TOUCHE LLP
Chicago, Illinois
August 11, 2000
30
<PAGE>
VAN KAMPEN FUNDS
THE VAN KAMPEN
FAMILY OF FUNDS
GROWTH
Aggressive Growth
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth
Mid Cap Growth
Pace
Select Growth
Small Cap Value
Tax Managed Equity Growth
Technology
GROWTH AND INCOME
Comstock
Equity Income
Growth and Income
Harbor
Real Estate Securities
Utility
Value
GLOBAL/INTERNATIONAL
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
International Magnum
Latin American
Strategic Income
Tax Managed Global Franchise
Worldwide High Income
INCOME
Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return*
Limited Maturity Government
U.S. Government
U.S. Government Trust for Income
CAPITAL PRESERVATION
Reserve
Tax Free Money
SENIOR LOAN
Prime Rate Income Trust
Senior Floating Rate
TAX FREE
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal**
Insured Tax Free Income
Intermediate Term
Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
To find out more about any of these funds, ask your financial advisor for a
prospectus, which contains more complete information, including sales charges,
risks, and ongoing expenses. Please read it carefully before you invest or send
money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- visit our Web site at
www.vankampen.com --
to view a prospectus, select
DOWNLOAD PROSPECTUS
[GRAPHIC]
- 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.
[GRAPHIC]
- e-mail us by visiting
www.vankampen.com and
selecting CONTACT US
[GRAPHIC]
* Closed to new investors
** Open to new investors for a limited time
31
<PAGE>
FUND OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN EQUITY GROWTH FUND
BOARD OF DIRECTORS
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*
Chairman, Director, President,
Chief Executive Officer
STEPHEN L. BOYD*
Executive Vice President and
Chief Investment Officer
A. THOMAS SMITH III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Chief Financial Officer and
Treasurer
RICHARD A. CICCARONE*
JOHN R. REYNOLDSON*
MICHAEL H. SANTO*
JOSEPH P. STADLER*
JOHN H. ZIMMERMANN, III*
Vice Presidents
INVESTMENT ADVISER AND
ADMINISTRATOR
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
INVESTMENT SUBADVISER
MORGAN STANLEY DEAN WITTER INVESTMENT
MANAGEMENT INC.
1221 Avenue of the Americas
New York, New York 10020
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
CUSTODIAN
THE CHASE MANHATTAN BANK
3 MetroTech Center
Brooklyn, New York 11245
DIVIDEND DISBURSING AND
TRANSFER AGENT
VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 218256
Kansas City, Missouri 64121-8256
LEGAL COUNSEL
SKADDEN, ARPS, SLATE, MEAGHER &
FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT AUDITORS
DELOITTE & TOUCHE LLP
180 N. Stetson Avenue
Chicago, IL 60601
For federal income tax purposes, the following is furnished with respect to the
distributions paid by the Fund during its taxable year ended June 30, 2000. The
Fund designated and paid $622,042 as a 20% rate gain distribution. In January
2000, the Fund provided tax information to shareholders for the 1999 calendar
year. For corporate shareholders 22% of the distribution qualifies for the
dividend received deduction.
* "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.
32
<PAGE>
RESULTS OF
SHAREHOLDER VOTES
JUNE 30, 2000
A Joint Special Meeting of the Shareholders of the Equity Growth
Fund (the "Fund") was held on December 15, 1999. The description of each
proposal and number of shares voted are as follows:
1. To elect the following Directors to serve the Fund.
<TABLE>
<CAPTION>
VOTED FOR WITHHELD
<S> <C> <C>
J. Miles Branagan..................... 3,598,779 15,722
Jerry D. Choate ...................... 2,598,276 16,226
Linda Hutton Heagy ................... 2,598,429 16,072
R. Craig Kennedy ..................... 2,598,781 15,720
Mitchell M. Merin .................... 2,598,781 15,720
Jack E. Nelson ....................... 2,598,781 15,720
Richard F. Powers, III ............... 2,598,781 15,720
Phillip B. Rooney .................... 2,596,679 17,822
Fernando Sisto ...................... 2,598,429 16,072
Wayne W. Whalen ...................... 2,598,732 15,770
Suzanne H. Woolsey ................... 2,598,021 16,480
Paul G. Yovovich* .................... 2,598,781 15,720
</TABLE>
*EFFECTIVE APRIL 14, 2000, PAUL G. YOVOVICH RESIGNED FROM THE BOARD OF
DIRECTORS.
2. To ratify PricewaterhouseCoopers LLP to act as independent public accountants
for the Fund.(1)
<TABLE>
<CAPTION>
AFFIRMATIVE AGAINST ABSTAIN
<S> <C> <C>
2,594,648 7,826 12,027
</TABLE>
(1)INDEPENDENT ACCOUNTANTS FOR THE FUND PERFORM AN ANNUAL AUDIT OF THE FUND'S
FINANCIAL STATEMENTS. THE BOARD OF DIRECTORS HAS ENGAGED DELOITTE & TOUCHE LLP
TO BE THE FUND'S INDEPENDENT ACCOUNTANTS.
PricewaterhouseCoopers LLP, located at 200 East Randolph Drive, Chicago, IL
60601 ("PWC"), ceased being the Fund's independent accountants effective May 18,
2000. The cessation of the client-auditor relationship between the Fund and PWC
was based solely on a possible future business relationship by PWC with an
affiliate of the Fund's investment adviser.
33
<PAGE>
VAN KAMPEN
EUROPEAN EQUITY FUND
ANNUAL REPORT
JUNE 30, 2000
[GRAPHIC]
VAN KAMPEN
F U N D S
<PAGE>
TABLE OF CONTENTS
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 4
GROWTH OF A $10,000 INVESTMENT 5
PORTFOLIO AT A GLANCE
TOP TEN HOLDINGS 6 IT IS TIMES
TOP FIVE COUNTRIES 6
Q&A WITH YOUR PORTFOLIO MANAGERS 7 LIKE THESE
GLOSSARY OF TERMS 10
WHEN MONEY-
BY THE NUMBERS
YOUR FUND'S INVESTMENTS 11 MANAGEMENT
FINANCIAL STATEMENTS 15
NOTES TO FINANCIAL STATEMENTS 21 EXPERIENCE
REPORT OF INDEPENDENT AUDITORS 28
MAY MAKE
VAN KAMPEN FUNDS
THE VAN KAMPEN FAMILY OF FUNDS 29 A DIFFERENCE.
FUND OFFICERS AND IMPORTANT ADDRESSES 30
RESULTS OF SHAREHOLDER VOTES 31
----------------------------------------------------
NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE.
----------------------------------------------------
<PAGE>
472,572,672 -------------
EEQ ANR 08/00 PRESORTED
VAN KAMPEN FUNDS INC. STANDARD
1 Parkview Plaza U.S. Postage
P.O. Box 5555 PAID
Oakbrook Terrace, Illinois 60181-5555 VAN KAMPEN
FUNDS
-------------
<PAGE>
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.
OVERVIEW
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,
/s/Richard F. Powers, III
Richard F. Powers, III
President and CEO
Van Kampen Investments
1
<PAGE>
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>
U.S. GROSS DOMESTIC PRODUCT
SEASONALLY ADJUSTED ANNUALIZED RATES
(JUNE 30, 1998 - JUNE 30, 2000)
<TABLE>
<S> <C>
Jun 98 2.1%
Sep 98 3.8%
Dec 98 5.9%
Mar 99 3.5%
Jun 99 2.5%
Sep 99 5.7%
Dec 99 8.3%
Mar 00 4.8%
Jun 00 5.2%
</TABLE>
SOURCE: BUREAU OF ECONOMIC ANALYSIS
INTEREST RATES AND INFLATION
(JUNE 30, 1998 - JUNE 30, 2000)
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
<S> <C> <C>
Jun-98 5.500 1.70
Jul-98 5.500 1.70
Aug-98 5.500 1.60
Sep-98 5.250 1.50
Oct-98 5.000 1.50
Nov-98 4.750 1.50
Dec-98 4.750 1.60
Jan-99 4.750 1.70
Feb-99 4.750 1.60
Mar-99 4.750 1.70
Apr-99 4.750 2.30
May-99 4.750 2.10
Jun-99 5.000 2.00
Jul-99 5.000 2.10
Aug-99 5.250 2.30
Sep-99 5.250 2.60
Oct-99 5.250 2.60
Nov-99 5.500 2.60
Dec-99 5.500 2.70
Jan-00 5.500 2.70
Feb-00 5.750 3.20
Mar-00 6.000 3.70
Apr-00 6.000 3.00
May-00 6.500 3.10
Jun-00 6.500 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>
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(AS OF JUNE 30, 2000)
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
--------------------------------------------------------------------------------
<S> <C> <C> <C>
One-year total return based on NAV(1) 13.15% 12.43% 12.37%
--------------------------------------------------------------------------------
One-year total return(2) 6.64% 7.43% 11.37%
--------------------------------------------------------------------------------
Life-of-Fund average annual total return(2) 7.64% 8.50% 10.41%
--------------------------------------------------------------------------------
Commencement date 9/25/98 9/25/98 9/25/98
--------------------------------------------------------------------------------
</TABLE>
(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.
SEE THE COMPARATIVE PERFORMANCE SECTION OF THE CURRENT PROSPECTUS. 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.
BECAUSE THE PRICES OF COMMON STOCKS AND OTHER SECURITIES FLUCTUATE, THE
VALUE OF AN INVESTMENT IN THE FUND WILL VARY UPON THE FUND'S INVESTMENT
PERFORMANCE. FOREIGN SECURITIES MAY MAGNIFY VOLATILITY DUE TO CHANGES IN
FOREIGN EXCHANGE RATES, THE POLITICAL AND ECONOMIC UNCERTAINTIES IN FOREIGN
COUNTRIES, AND THE POTENTIAL LACK OF LIQUIDITY, GOVERNMENT SUPERVISION, AND
REGULATION.
MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO PASS.
4
<PAGE>
GROWTH OF A $10,000 INVESTMENT
(SEPTEMBER 25, 1998 - JUNE 30, 2000)
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
<TABLE>
<CAPTION>
MSCI Europe Index
MEASURES THE PERFORMANCE OF SECURITIES
WITH REINVESTED DIVIDENDS ON THE
EXCHANGES OF EUROPEAN COUNTRIES. EUROPEAN EQUITY FUND
<S> <C>
$13,139 $10,729
</TABLE>
<TABLE>
<CAPTION>
Fund's Total Return
<S> <C>
1 Year Total Return 6.64%
Inception Avg. Annual 7.64%
</TABLE>
THIS CHART COMPARES YOUR
FUND'S PERFORMANCE TO THAT
OF THE MSCI EUROPE INDEX
OVER TIME.
THIS INDEX IS AN UNMANAGED BROAD-BASED, STATISTICAL COMPOSITE THAT DOES NOT
INCLUDE ANY COMMISSIONS OR FEES THAT WOULD BE PAID BY AN INVESTOR PURCHASING THE
SECURITIES IT REPRESENTS. SUCH COSTS WOULD LOWER THE PERFORMANCE OF THIS INDEX.
THE HISTORICAL PERFORMANCE OF THE INDEX IS SHOWN FOR ILLUSTRATIVE PURPOSES ONLY;
IT IS NOT MEANT TO FORECAST, IMPLY, OR GUARANTEE THE FUTURE PERFORMANCE OF ANY
INVESTMENT VEHICLE. IT IS NOT POSSIBLE TO INVEST DIRECTLY IN AN INDEX.
THE ABOVE CHART REFLECTS THE PERFORMANCE OF CLASS A SHARES OF THE FUND. THE
PERFORMANCE OF CLASS A SHARES WILL DIFFER FROM THAT OF OTHER SHARE CLASSES OF
THE FUND BECAUSE OF THE DIFFERENCE IN SALES CHARGES AND/OR EXPENSES PAID BY
SHAREHOLDERS INVESTING IN THE DIFFERENT SHARE CLASSES. THE FUND'S PERFORMANCE
ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS, AND INCLUDES PAYMENT OF THE MAXIMUM
SALES CHARGE (5.75% FOR CLASS A SHARES).
WHILE PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THE ABOVE INFORMATION
PROVIDES A BROADER VANTAGE POINT FROM WHICH TO EVALUATE THE DISCUSSION OF THE
FUND'S PERFORMANCE FOUND IN THE FOLLOWING PAGES.
5
<PAGE>
PORTFOLIO AT A GLANCE
TOP TEN HOLDINGS*
(AS A PERCENTAGE OF NET ASSETS--JUNE 30, 2000)
1. NESTLE 3.5%
Produces food and cosmetics, including
name brands Nestea, Nestle, and
L'Oreal.
2. AVENTIS (FORMERLY
RHONE-POULENC) 2.9%
Develops chemicals, pharmaceuticals,
and other products.
3. SHELL TRANSPORT & TRADING 2.9%
Explores for and produces oil and
natural gas and manufactures chemicals.
4. VODAFONE AIRTOUCH 2.8%
Operates wireless communications
networks in the United Kingdom
and the United States.
5. TOTAL FINA ELF 2.8%
Explores for and produces oil and
natural gas worldwide.
6. RECKITT BENCKISER 2.6%
Manufactures household, pharmaceutical,
and food products.
7. KONINKLIJKE PHILIPS ELECTRONICS 2.1%
Makes televisions, audio equipment,
phones, and other electronic devices.
8. CIE FINANCIERE RICHEMONT 1.9%
Markets luxury goods, including brands
such as Cartier jewelry, Piaget
watches, and Montblanc pens.
9. ING GROEP 1.8%
Provides banking, insurance, and asset
management services worldwide.
10. GLAXO WELLCOME 1.8%
Develops and markets pharmaceuticals
worldwide.
* EXCLUDES SHORT-TERM INVESTMENT
[EDGAR REPRESENTATION OF PLOT POINTS USED IN PRINTED GRAPHIC]
TOP FIVE COUNTRIES
(AS A PERCENTAGE OF NET ASSETS)
<TABLE>
<CAPTION>
June 30, 2000 June 30, 1999
<S> <C> <C>
United Kingdom 40.2% 29.0%
France 14.9% 14.3%
Switzerland 9.9% 12.1%
Germany 7.8% 11.2%
Netherlands 7.5% 5.8%
</TABLE>
6
<PAGE>
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH THE MANAGEMENT TEAM OF THE VAN KAMPEN EUROPEAN EQUITY
FUND ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE MARKETS AND
INFLUENCED THE FUND'S RETURN DURING THE 12 MONTHS ENDED JUNE 30, 2000. THE TEAM
IS LED BY MARGARET NAYLOR, SENIOR PORTFOLIO MANAGER, WHO HAS MANAGED THE FUND
SINCE 1999 AND HAS WORKED IN THE INVESTMENT INDUSTRY SINCE 1984. SHE IS JOINED
BY PORTFOLIO MANAGERS AMR DIAB AND ALASTAIR ANDERSON. THE FOLLOWING DISCUSSION
REFLECTS THEIR VIEWS ON THE FUND'S PERFORMANCE.
Q HOW WOULD YOU DESCRIBE THE MARKET ENVIRONMENT IN WHICH THE FUND OPERATED,
AND HOW DID THE FUND PERFORM IN THIS ENVIRONMENT?
A During the past 12 months, there was an extraordinary 180-degree change in
European market sentiment from an all-encompassing TMT (telecommunications,
media, and technology) focus to the pursuit of value stocks.
From late 1999 through early 2000, the market gave almost unprecedented
attention to the TMT sector. This attention in the European markets was largely
attributable to the performance of the U.S.'s technology-heavy NASDAQ index. Its
1999 return of 86 percent caused many investors to look to the European markets
for stocks with similar themes and potential. However, because there weren't
many large, high-quality, heavily traded technology stocks in Europe, a large
amount of money chased a relatively small number of European TMT stocks. With
little supply and great demand, it seemed that these stocks had nowhere to go
but up. Investors flocked to those stocks with the proceeds from pharmaceutical
and consumer staples stocks, which they sold in huge numbers. This selling
activity created an opportunity for value investors to buy stocks of some very
high-quality, rapidly growing businesses at reduced prices.
By the end of the first quarter, investors around the world began to
question the merit of these TMT stocks in light of disappointing earnings and
excessive valuations. This skepticism turned sentiment for the TMT sector on a
dime. As the value of the NASDAQ fell, the European markets stopped chasing
their homegrown TMT stocks, and their performance began to suffer. In the second
quarter of 2000, investors sold TMT stocks, particularly Internet-related
issues, in waves. Many of the heavyweights among European telecommunication
stocks--such as French Telecom and British Telecom--were hurt as well. Worried
about overvalued stocks and rising interest rates in the United States, European
investors began to buy more defensive, value-oriented stocks.
Because the fund avoided TMT stocks in favor of value-oriented stocks such
as consumer staples, it was well positioned to take advantage of the value
sector's return to favor, gaining 13.15 percent for the 12-month
7
<PAGE>
reporting period ended June 30, 2000 (CLASS A SHARES AT NET ASSET VALUE; IF THE
MAXIMUM SALES CHARGE OF 5.75 PERCENT WERE INCLUDED, THE RETURN WOULD HAVE BEEN
LOWER). AS A RESULT OF RECENT MARKET ACTIVITY, CURRENT PERFORMANCE MAY VARY FROM
THE FIGURES SHOWN. BY COMPARISON, THE MORGAN STANLEY CAPITAL INTERNATIONAL
EUROPE INDEX GENERATED A TOTAL RETURN OF 15.10 PERCENT FOR THE SAME PERIOD. OF
COURSE, PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. THE MSCI EUROPE
INDEX IS AN UNMANAGED, MARKET-VALUE WEIGHTED INDEX OF COMMON STOCKS LISTED ON
THE STOCK EXCHANGES OF COUNTRIES IN EUROPE (ASSUMES DIVIDENDS ARE REINVESTED).
THE INDEX IS A STATISTICAL COMPOSITE THAT DOES NOT INCLUDE ANY COMMISSIONS OR
SALES CHARGES THAT WOULD BE PAID BY AN INVESTOR PURCHASING THE SECURITIES IT
REPRESENTS. IT IS NOT POSSIBLE TO INVEST DIRECTLY IN AN INDEX. PLEASE REFER TO
THE CHART AND FOOTNOTES ON PAGE 4 FOR ADDITIONAL FUND PERFORMANCE INFORMATION.
Q HOW DID THE FUND'S STOCK SELECTION COMPARE TO THAT OF ITS BENCHMARK, THE
MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE INDEX, DURING THIS "TMT
CRAZE" IN LATE 1999?
A We believed that the benchmark was becoming increasingly risky in late 1999
because of its heavy weighting in TMT. So, when we added to the fund's value
positions in the consumer staples sector in late 1999, we were actually moving
further away from the benchmark's sector weightings because we sought to reduce
the risk to the fund's portfolio. No matter how popular the TMT sector was
becoming, many of its stocks didn't fit our strategy of investing in stocks with
strong fundamentals at discounted prices. Although this strategy increased our
relative risk in the portfolio, we felt that by sticking to our strategy, we
would reduce the fund's absolute risk and increase its return in the long run.
Our confidence was rewarded when the TMT sector fell toward the end of the
reporting period.
Q WHAT STRATEGIES DID YOU USE TO MANAGE THE FUND GIVEN THE FLUCTUATIONS YOU
SAW IN THE TMT AND VALUE SECTORS?
A During the TMT craze of late 1999, heavy selling activity in some very
high-quality value stocks created a buying opportunity that we were able to
capitalize on. We increased the fund's position in consumer staples such as
Nestle, Danone (manufacturer of Dannon and Evian brand products), and Reckitt
Benckiser (manufacturer of well-known cleansing products Lysol, Woolite, and
Mop-N-Glow). 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.
Although this move caused the fund's performance to dip temporarily while
the market was still favoring TMT stocks, it allowed for increased
diversification away from the highly valued sectors within the European index,
and for increasing positions in stocks that we felt had good long-term
performance potential.
In the first quarter of 2000, when investors were scared out of the TMT
sector, the fund was well positioned in defensive stocks and rode their
performance up. Although this strategy hurt the
8
<PAGE>
fund's performance in the first half of the reporting period when TMT took off,
the fund's heavy defensive position compensated when TMT took a dive and value
rallied.
Q WHAT IS YOUR OUTLOOK FOR THE MONTHS AHEAD?
A Investor interest in value stocks has really increased, and we expect it to
continue. We believe that earnings estimates are low and that we should continue
to see growth and restructuring in Europe. However, with stock valuations as
high as they are, earnings disappointments are a risk.
With regard to the U.S. economy, we do not anticipate a recession; in fact,
we are forecasting a gradual slowdown this year. However, this will be an
impressive accomplishment for the Federal Reserve Board to pull off. Should the
U.S. economy experience a hard landing, the impact on Europe could be
significant.
Taking all of this into account, we feel that stock valuations make an
offensive strategy a pretty big risk. Therefore, we are looking to defensive
sectors such as consumer staples and pharmaceuticals for attractive buys, and we
are generally taking a cautious stance in the months to come.
9
<PAGE>
GLOSSARY OF TERMS
A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.
CLASS A SHARES: A division of mutual funds, which are generally divided into
three groupings, called Class A, Class B, and Class C shares. The specific
features of each are dependent on varying fees and sales charges. In most cases,
Class A shares will have no redemption fee (contingent deferred sales charge).
DEFENSIVE INVESTMENT STRATEGY: A method of portfolio allocation and management
aimed at minimizing the risk of losing principal. Defensive investors place a
high percentage of their investable assets in bonds, cash equivalents, and
stocks that are less volatile than average.
EARNINGS ESTIMATE: A forecast for a company's net income during a given period.
An earnings estimate can come from the company's management as well as from
independent analysts.
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.
PORTFOLIO: A collection of securities owned by an individual or an institution
that may include stocks, bonds, and/or money-market securities.
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.
VALUE INVESTING: A strategy that seeks to identify stocks that are sound
investments but are temporarily out of favor in the marketplace. As a result,
the stocks trade at prices below what value investors believe they are actually
worth.
VOLATILITY: A measure of the fluctuation in the market price of a security. A
security that is volatile has frequent and large swings in price.
10
<PAGE>
BY THE NUMBERS
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
THE FOLLOWING PAGES DETAIL YOUR FUND'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
COMMON STOCKS 93.0%
BELGIUM 0.5%
<S> <C> <C>
Mobistar S.A. (a) ........................................ 2,590 $ 85,894
-----------
FINLAND 0.6%
Sampo Insurance Co., Ltd. 'A' ............................ 2,400 97,288
-----------
FRANCE 14.9%
Alcatel .................................................. 3,350 219,512
Aventis S.A. ............................................. 6,400 466,674
AXA ...................................................... 1,235 194,360
BNP Paribas .............................................. 510 49,033
CNP Assurances ........................................... 7,610 259,125
Groupe Danone ............................................ 1,860 246,595
Michelin (C.G.D.E.) 'B' (Registered) ..................... 3,210 102,903
Pernod-Ricard S.A. ....................................... 2,630 142,984
Schneider S.A. ........................................... 3,260 226,985
Total Fina Elf S.A. 'B' .................................. 2,927 448,358
-----------
2,356,529
-----------
GERMANY 4.9%
Adidas-Salomon AG ........................................ 1,665 91,473
BASF AG .................................................. 2,345 95,058
Bayer AG ................................................. 1,231 47,082
Bayerische Motoren Werke AG .............................. 3,350 101,928
Deutsche Telekom AG (Registered) ......................... 3,743 215,632
Bayerische Hypo-und Vereinsbank AG ....................... 2,083 136,093
Schering AG .............................................. 1,500 81,621
----------
768,887
----------
ITALY 5.0%
Banca Popolare di Bergamo S.p.A. ......................... 7,760 143,441
ENI S.p.A. ............................................... 25,060 144,608
Marzotto (Gaetano) S.p.A. ................................ 3,630 29,603
Mediaset S.p.A ........................................... 5,900 90,038
Telecom Italia Mobile S.p.A .............................. 9,405 95,984
Telecom Italia S.p.A. .................................... 13,800 189,539
UniCredito Italiano S.p.A. ............................... 21,730 103,837
----------
797,050
----------
NETHERLANDS 7.5%
ABN Amro Holding N.V. .................................... 3,300 80,766
Akzo Nobel N.V. .......................................... 5,660 240,233
SEE NOTES TO FINANCIAL STATEMENTS 11
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
NETHERLANDS (CONTINUED)
<S> <C> <C>
Buhrmann N.V. ............................................ 3,672 $ 104,895
ING Groep N.V. ........................................... 4,326 292,130
Koninklijke (Royal) Philips Electronics N.V. ............. 7,024 330,954
Laurus N.V. .............................................. 8,440 101,028
Royal Dutch Petroleum Co. ................................ 700 43,465
----------
1,193,471
----------
PORTUGAL 1.1%
Banco Comercial Portugues S.A. (Registered) .............. 17,070 88,733
Telecel-Comunicacaoes Pessoais S.A. (a) .................. 5,400 81,893
----------
170,626
----------
SPAIN 2.8%
Banco Popular Espanol S.A. ............................... 3,590 110,942
Endesa S.A. .............................................. 7,340 142,048
Telefonica S.A. (a) ...................................... 9,060 194,432
----------
447,422
----------
SWEDEN 5.6%
Autoliv, Inc. SDR ........................................ 5,730 140,199
ForeningsSparbanken AB 'A' ............................... 8,440 123,330
Nordic Baltic Holding AB ................................. 24,442 184,118
Scandic Hotels AB ........................................ 6,650 79,848
Svedala Industri AB ...................................... 6,610 125,791
Svenska Cellulosa Free AB 'B' ............................ 4,080 77,413
Svenska Handelsbanken 'A' ................................ 10,770 156,158
----------
886,857
----------
SWITZERLAND 9.9%
Cie Financiere Richemont AG 'A' .......................... 111 298,723
Holderbank Financiere Glarus AG 'B' (Bearer) ............. 150 183,700
Nestle S.A. (Registered) ................................. 278 555,796
Novartis AG (Registered) ................................. 162 256,327
Schindler Holding AG (Registered) ........................ 80 122,466
UBS AG (Registered) ...................................... 990 144,884
----------
1,561,896
----------
UNITED KINGDOM 40.2%
Allied Domecq plc ........................................ 51,430 272,293
Allied Zurich plc ........................................ 10,680 126,256
AstraZeneca Group plc .................................... 4,250 198,334
BAA plc .................................................. 14,600 117,053
BAE SYSTEMS plc .......................................... 21,900 136,488
Barclays plc ............................................. 5,690 141,417
BG Group plc ............................................. 15,038 97,134
Blue Circle Industries plc ............................... 15,500 100,001
12 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
UNITED KINGDOM (CONTINUED)
<S> <C> <C>
BOC Group plc ............................................ 7,830 $ 112,522
British American Tobacco plc ............................. 22,700 151,432
British Telecom plc ...................................... 18,850 243,513
Cadbury Schweppes plc .................................... 35,600 233,718
Capital Radio plc ........................................ 850 19,866
Centrica plc ............................................. 25,600 85,389
Diageo plc ............................................... 28,070 251,796
GKN plc .................................................. 6,600 84,164
Glaxo Wellcome plc ....................................... 9,950 290,040
Granada Group plc ........................................ 20,404 203,710
Great Universal Stores plc ............................... 28,850 185,476
Halma plc ................................................ 18,000 27,773
Imperial Tobacco Group plc ............................... 23,570 225,692
Lloyds TSB Group plc ..................................... 10,100 95,336
Prudential Corp. plc ..................................... 17,200 251,858
Reckitt Benckiser plc .................................... 36,734 411,199
Rentokil Initial plc ..................................... 40,600 92,123
RMC Group plc ............................................ 5,500 71,551
Rolls-Royce plc .......................................... 45,900 162,820
Bank of Scotland ......................................... 10,417 99,038
Sainsbury (J) plc ........................................ 8,900 40,389
Scottish & Southern Energy plc ........................... 19,500 178,756
Shell Transport & Trading Co. plc ........................ 55,222 460,691
Smith & Nephew plc ....................................... 25,973 95,866
SmithKline Beecham plc ................................... 5,000 65,424
SSL International plc .................................... 21,640 234,054
Vodafone AirTouch plc .................................... 111,434 450,071
Wolseley plc ............................................. 16,200 86,995
WPP Group plc ............................................ 18,480 269,763
----------
6,370,001
----------
TOTAL COMMON STOCKS
(Cost $13,671,600) ................................... 14,735,921
----------
PREFERRED STOCKS 2.9%
GERMANY 2.9%
Fresenius AG ............................................. 1,018 233,129
Henkel KGaA .............................................. 3,989 228,282
----------
TOTAL PREFERRED STOCKS
(Cost $450,200) ...................................... 461,411
----------
TOTAL LONG-TERM INVESTMENTS 95.9%
(Cost $14,121,800) ................................... 15,197,332
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS 13
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
SHORT-TERM INVESTMENT 5.6%
REPURCHASE AGREEMENT 5.6%
<S> <C> <C>
Chase Securities, Inc. 6.15%, dated 6/30/00, due 7/3/00, $887,000
to be repurchased at $887,455, collateralized by $940,000
U.S. Treasury Notes 5.50%, due 5/15/09, valued at $905,925
(Cost $887,000) ...................................... $ 887,000
----------
TOTAL INVESTMENTS IN SECURITIES 101.5%
(Cost $15,008,800) ................................... 16,084,332
----------
FOREIGN CURRENCY 0.6%
(Cost $97,883) ....................................... 97,687
----------
TOTAL INVESTMENTS 102.1%
(Cost $15,106,683) ................................... 16,182,019
----------
LIABILITIES IN EXCESS OF OTHER ASSETS -2.1% ............. (330,162)
----------
NET ASSETS 100% ......................................... $15,851,857
===========
</TABLE>
(a) NON-INCOME PRODUCING SECURITY
SDR SWEDISH DEPOSITARY RECEIPT
SUMMARY OF LONG-TERM INVESTMENTS BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
------------ -----------
<S> <C> <C>
Consumer Staples ................. $ 2,931,646 18.5%
Financials ....................... 2,878,143 18.1
Health Care ...................... 1,921,469 12.1
Consumer Discretionary ........... 1,816,920 11.5
Telecommunications Services ...... 1,556,958 9.8
Materials ........................ 1,155,842 7.3
Energy ........................... 1,097,122 6.9
Industrials ...................... 1,088,621 6.9
Utilities ........................ 503,326 3.2
Information Technology ........... 247,285 1.6
------------ ---
$15,197,332 95.9%
============ =====
</TABLE>
14 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
JUNE 30, 2000
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments in Securities, at Value (Cost $15,008,800) ............... $16,084,332
Foreign Currency (Cost $97,883) ...................................... 97,687
Cash ................................................................. 900
Receivable for:
Investments Sold ................................................... 149,797
Fund Shares Sold ................................................... 44,935
Dividends .......................................................... 26,750
Foreign Withholding Tax Reclaim .................................... 9,370
Interest ........................................................... 152
-----------
Total Assets ..................................................... 16,413,923
-----------
LIABILITIES:
Payable for:
Investments Purchased .............................................. 418,441
Shareholder Reporting Expenses ..................................... 36,113
Custody Fees ....................................................... 27,893
Professional Fees .................................................. 23,238
Directors' Fees and Expenses ....................................... 19,650
Distribution Fees .................................................. 17,171
Advisory Expense ................................................... 13,135
Administrative Fees ................................................ 3,215
Transfer Agent Fees ................................................ 1,554
Fund Shares Redeemed ............................................... 520
Other ................................................................ 1,136
-----------
Total Liabilities ................................................ 562,066
-----------
NET ASSETS ........................................................... $15,851,857
============
NET ASSETS CONSIST OF:
Capital Stock at Par ($.001 par value, Shares Authorized 2,625,000,000) $ 1,347
Paid in Capital in Excess of Par ..................................... 14,403,919
Net Unrealized Appreciation on Investments ........................... 1,073,653
Accumulated Net Realized Gain ........................................ 298,544
Accumulated Net Investment Income .................................... 74,394
-----------
NET ASSETS ........................................................... $15,851,857
============
Class A Shares:
Net Asset Value and Redemption Price Per Share (Based on Net Assets of
$6,649,047 and 563,973 Shares Outstanding) ....................... $ 11.79
============
Maximum Sales Charge ............................................. 5.75%
Maximum Offering Price Per Share (Net Asset Value Per
Share x 100/ (100% - maximum sales charge)) ...................... $ 12.51
============
Class B Shares:
Net Asset Value and Offering Price Per Share (Based on Net Assets of
$7,176,969 and 610,152 Shares Outstanding)* ...................... $ 11.76
============
Class C Shares:
Net Asset Value and Offering Price Per Share (Based on Net Assets of
$2,025,841 and 172,805 Shares Outstanding)* ...................... $ 11.72
============
</TABLE>
* REDEMPTION PRICE MAY BE SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE.
SEE NOTES TO FINANCIAL STATEMENTS 15
<PAGE>
Statement of Operations
YEAR ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Dividends ............................................................ $ 282,849
Interest ............................................................. 39,270
Less Foreign Taxes Withheld .......................................... (33,104)
------------
Total Income ..................................................... 289,015
------------
EXPENSES:
Investment Advisory Fees ............................................. 106,237
Distribution Fees (Attributed to Classes A, B and C of $11,224, $43,988
and $17,173, respectively) ......................................... 72,385
Shareholder Reports .................................................. 71,461
Filing and Registration Fees ......................................... 68,654
Custodian Fees ....................................................... 59,106
Administrative Fees .................................................. 30,149
Directors' Fees and Expenses ......................................... 22,482
Professional Fees .................................................... 10,458
Transfer Agent Fees .................................................. 5,511
Other ................................................................ 1,039
------------
Total Expenses ................................................... 447,482
Less Expense Reductions .......................................... (218,616)
------------
Net Expenses ..................................................... 228,866
------------
NET INVESTMENT INCOME ................................................ $ 60,149
============
NET REALIZED GAIN/LOSS ON:
Investments .......................................................... $ 359,359
Foreign Currency Transactions ........................................ 19,136
------------
Net Realized Gain .................................................... 378,495
------------
NET UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period ............................................ 168,193
------------
End of the Period:
Investments ...................................................... 1,075,532
Foreign Currency Translations .................................... (1,879)
------------
1,073,653
------------
Net Change in Unrealized Appreciation/Depreciation ................... 905,460
------------
NET REALIZED GAIN/LOSS AND NET CHANGE IN UNREALIZED
APPRECIATION/DEPRECIATION .......................................... $ 1,283,955
============
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ................. $ 1,344,104
============
</TABLE>
16 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
Statement of Changes in Net Assets
YEAR ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 25, 1998*
JUNE 30, 2000 TO JUNE 30, 1999**
------------- -------------------
INCREASE/DECREASE IN NET ASSETS
OPERATIONS:
<S> <C> <C>
Net Investment Income .......................... $ 60,149 $ 44,000
Net Realized Gain .............................. 378,495 11,000
Net Change in Unrealized Appreciation/
Depreciation ................................ 905,460 169,000
------------ ------------
Net Increase in Net Assets Resulting
from Operations ............................. 1,344,104 224,000
------------ ------------
DISTRIBUTIONS:
Net Investment Income:
Class A ........................................ (50,832) (3,000)
Class B ........................................ (18,315) (1,000)
Class C ........................................ (8,828) (1,000)
------------ ------------
(77,975) (5,000)
------------ ------------
Net Realized Gain:
Class A ........................................ (35,198) --
Class B ........................................ (30,836) --
Class C ........................................ (14,787) --
------------ ------------
(80,821) --
------------ ------------
Net Decrease in Net Assets Resulting
from Distributions .......................... (158,796) (5,000)
------------ ------------
CAPITAL SHARES TRANSACTIONS:
Subscribed ..................................... 10,836,506 4,084,000
Distributions Reinvested ....................... 97,499 1,000
Redeemed ....................................... (2,826,056) (745,000)
------------ ------------
Net Increase in Net Assets Resulting from
Capital Share Transactions .................. 8,107,949 3,340,000
------------ ------------
Total Increase in Net Assets ................... 9,293,257 3,559,000
NET ASSETS--Beginning of Period ................ 6,558,600 3,000,000
------------ ------------
NET ASSETS--End of Period
(Including accumulated net investment
income of $74,394 and $73,000, respectively). $15,851,857 $6,559,000
============ ============
</TABLE>
* COMMENCEMENT OF OPERATIONS
** AMOUNTS ROUNDED TO THE NEAREST (000).
SEE NOTES TO FINANCIAL STATEMENTS 17
<PAGE>
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 25, 1998* TO
CLASS A SHARES JUNE 30, 2000# JUNE 30,1999#
-------------- ----------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ........... $ 10.65 $10.00
------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income ........................ 0.11 0.13
Net Realized and Unrealized Gain ............. 1.27 0.54
------- ------
Total From Investment Operations ............... 1.38 0.67
------- ------
DISTRIBUTIONS
Net Investment Income ........................ (0.14) (0.02)
Net Realized Gain ............................ (0.10) --
------- ------
Total Distributions ............................ (0.24) (0.02)
------- ------
NET ASSET VALUE, END OF PERIOD ................. $ 11.79 $10.65
======= ======
TOTAL RETURN (1) ............................... 13.15% 6.75%**
======= ======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) .............. $ 6,649 $2,020
Ratio of Expenses to Average Net Assets ........ 1.70% 1.70%
Ratio of Net Investment Income to Average
Net Assets ................................... 0.99% 1.64%
Portfolio Turnover Rate ........................ 49% 51%**
-----------------------------------------------------------------------------------------
Effect of Voluntary Expense Reductions
During the Period
Per Share Benefit to Net Investment Income ... $ 0.23 $ 0.36
Ratios Before Expense Reductions:
Expenses to Average Net Assets ............... 3.80% 6.20%
Net Investment Income/Loss to Average
Net Assets ................................. (1.11%) (2.87%)
-----------------------------------------------------------------------------------------
</TABLE>
* COMMENCEMENT OF OPERATIONS
** NON-ANNUALIZED
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED SALES
CHARGES.
# CHANGES PER SHARE ARE BASED UPON DAILY AVERAGE SHARES OUTSTANDING.
18 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 25, 1998* TO
CLASS B SHARES JUNE 30, 2000# JUNE 30,1999#
-------------- ---------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ........... $ 10.62 $10.00
------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income ........................ 0.04 0.08
Net Realized and Unrealized Gain ............. 1.26 0.55
------- ------
Total From Investment Operations ............... 1.30 0.63
------- ------
DISTRIBUTIONS
Net Investment Income ........................ (0.06) (0.01)
Net Realized Gain ............................ (0.10) --
------- ------
Total Distributions ............................ (0.16) (0.01)
------- ------
NET ASSET VALUE, END OF PERIOD ................. $ 11.76 $10.62
======= ======
TOTAL RETURN (1) ............................... 12.43% 6.26%**
======= ======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) .............. $ 7,177 $3,082
Ratio of Expenses to Average Net Assets ........ 2.45% 2.45%
Ratio of Net Investment Income to Average
Net Assets ................................... 0.45% 0.96%
Portfolio Turnover Rate ........................ 49% 51%**
--------------------------------------------------------------------------------------
Effect of Voluntary Expense Reductions
During the Period
Per Share Benefit to Net Investment Income ... $ 0.23 $ 0.34
Ratios Before Expense Reductions:
Expenses to Average Net Assets ............... 4.55% 6.61%
Net Investment Income/Loss to Average
Net Assets ................................. (1.65%) (3.20%)
--------------------------------------------------------------------------------------
</TABLE>
* COMMENCEMENT OF OPERATIONS
** NON-ANNUALIZED
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED SALES
CHARGES.
# CHANGES PER SHARE ARE BASED UPON DAILY AVERAGE SHARES OUTSTANDING.
SEE NOTES TO FINANCIAL STATEMENTS 19
<PAGE>
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 25, 1998* TO
CLASS C SHARES JUNE 30, 2000# JUNE 30,1999#
-------------- ----------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ........... $ 10.59 $10.00
------- ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income ........................ 0.01 0.07
Net Realized and Unrealized Gain ............. 1.28 0.53
------- ------
Total From Investment Operations ............... 1.29 0.60
------- ------
DISTRIBUTIONS
Net Investment Income ........................ (0.06) (0.01)
Net Realized Gain ............................ (0.10) --
------- ------
Total Distributions ............................ (0.16) (0.01)
------- ------
NET ASSET VALUE, END OF PERIOD ................. $ 11.72 $10.59
======= ======
TOTAL RETURN (1) ............................... 12.37% 5.96%**
======= ======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) .............. $ 2,026 $1,457
Ratio of Expenses to Average Net Assets ........ 2.45% 2.45%
Ratio of Net Investment Income to Average
Net Assets ................................... 0.01% 0.81%
Portfolio Turnover Rate ........................ 49% 51%**
------------------------------------------------------------------------------------
Effect of Voluntary Expense Reductions
During the Period
Per Share Benefit to Net Investment Income ... $ 0.24 $ 0.40
Ratios Before Expense Reductions:
Expenses to Average Net Assets ............... 4.55% 7.33%
Net Investment Income/Loss to Average
Net Assets ................................. (2.09%) (4.13%)
------------------------------------------------------------------------------------
</TABLE>
* COMMENCEMENT OF OPERATIONS
** NON-ANNUALIZED
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED SALES
CHARGES.
# CHANGES PER SHARE ARE BASED UPON DAILY AVERAGE SHARES OUTSTANDING.
20 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
The Van Kampen European Equity Fund (the "Fund") is organized as a separate
diversified fund of Van Kampen Series Fund, Inc., a Maryland corporation, which
is registered as an open-end management investment company under the Investment
Company Act of 1940, as amended. The Fund's investment objective seeks long-term
capital appreciation. The Fund commenced operations on September 25, 1998.
1. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of the financial statements in conformity with accounting
principles accepted in the United States of America (hereafter "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
period. Actual results could differ from those estimates.
A. SECURITY VALUATION Equity securities listed on a U.S. exchange and equity
securities traded on NASDAQ are valued at the latest quoted sales price on the
valuation date. Securities listed on a foreign exchange are valued at their
closing price. Unlisted securities and listed securities not traded on the
valuation date for which market quotations are readily available are valued at
the average between the bid and asked prices obtained from reputable brokers.
Debt securities purchased with remaining maturities of 60 days or less are
valued at amortized cost, which approximates market value. All other securities
and assets for which market quotations are not readily available are valued at
fair value as determined in good faith using procedures approved by the Board of
Directors.
B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen Investment Advisory Corp. or its affiliates, the
daily aggregate of which is invested in repurchase agreements. Repurchase
agreements are fully collateralized by the underlying debt security. A bank as
custodian for the Fund takes possession of the underlying securities, with a
market value at least equal to the amount of the repurchase transaction,
including principal and accrued interest. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to determine the adequacy of the collateral.
In the event of default on
21
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
the obligation to repurchase, the Fund has the right to liquidate the collateral
and apply the proceeds in satisfaction of the obligation. In the event of
default or bankruptcy by the counterparty to the agreement, realization and/or
retention of the collateral or proceeds may be subject to legal proceedings.
C. INCOME AND EXPENSES Interest income is recorded on an accrual basis and
dividend income is recorded net of applicable withholding taxes on the
ex-dividend date. Income, expenses, and realized and unrealized gains or losses
are allocated on a pro rata basis to each class of shares except for
distribution and service fees which are unique to each class of shares.
Distributions from the Fund are recorded on the ex-distribution date.
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. The Fund may be
subject to taxes imposed by countries in which it invests. Such taxes are
generally based on income earned or gains realized or repatriated. Taxes are
accrued and applied to net investment income, net realized capital gains and net
unrealized appreciation, as applicable, as the income is earned or capital gains
are recorded.
Net realized gains or losses may differ for financial and tax reporting
purposes as a result of losses relating to wash sale transactions.
At June 30, 2000, for federal income tax purposes, cost of long- and
short-term investments is $15,058,315, the aggregate gross unrealized
appreciation is $1,529,568 and the aggregate gross unrealized depreciation is
$503,551, resulting in net unrealized appreciation on long- and short-term
investments of $1,026,017.
E. DISTRIBUTION OF INCOME AND GAINS The Fund declares and pays dividends
annually from net investment income and net realized gains, if any.
Distributions from net realized gains for book purposes may include short-term
capital gains which are included as ordinary income for tax purposes.
Due to inherent differences in the recognition of income and expenses under
generally accepted accounting principles and federal income tax purposes,
permanent differences between book and tax basis reporting for the current
fiscal year have been identified and appropriately reclassified. A permanent
difference related to recognized currency gains totaling $19,135 was
reclassified from accumulated net realized gain to accumulated net investment
income.
Permanent book to tax basis differences are not included in ending
undistributed/distributions in excess of net investment income for the purpose
of calculating net investment income/loss per share in the Financial Highlights.
22
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
F. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS The Fund may enter into
foreign currency exchange contracts to attempt to protect securities and related
receivables and payables against changes in future foreign currency exchange
rates. A currency exchange contract is an agreement between two parties to buy
or sell currency at a set price on a future date. The market value of the
contract will fluctuate with changes in currency exchange rates. The contract is
marked-to-market daily and the change in market value is recorded by the Fund as
unrealized gain or loss on foreign currency translation.
Assets and liabilities denominated in foreign currencies and commitments
under forward currency contracts are translated into U.S. dollars at the mean of
the quoted bid and asked prices of such currencies against the U.S. dollar.
Purchases and sales of portfolio securities are translated at the rate of
exchange prevailing when such securities were acquired or sold. Income and
expenses are translated at rates prevailing when accrued. Realized and
unrealized gains and losses on securities resulting from changes in exchange
rates are not segregated for financial reporting purposes from amounts arising
from changes in the market prices of securities. Realized gains and losses on
foreign currency transactions includes the net realized amount from the sale of
the currency and the amount realized between trade date and settlement date on
security and income transactions. Risks may arise upon entering into these
contracts from the potential inability of counterparties to meet the terms of
their contracts. Risks may also arise from the unanticipated movements in the
value of a foreign currency relative to the U.S. dollar.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Van Kampen Investment Advisory Corp. (the "Adviser"), a wholly owned subsidiary
of Van Kampen Investments Inc. (an indirect wholly owned subsidiary of Morgan
Stanley Dean Witter & Co.), and Morgan Stanley Dean Witter Investment Management
Inc., a wholly owned subsidiary of Morgan Stanley Dean Witter & Co., provide the
Fund with investment advisory services at a fee paid monthly and calculated at
the annual rates based on average daily net assets indicated as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
<S> <C>
First $500 million .................................................. 1.00 of 1%
Next $500 million ................................................... .95 of 1%
Over $1 billion ..................................................... .90 of 1%
</TABLE>
23
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
The Adviser has agreed to reduce advisory fees payable to it and to reimburse
the Fund, if necessary, if the annual operating expenses, expressed as a
percentage of average daily net assets, exceed the maximum ratios indicated as
follows:
<TABLE>
<CAPTION>
CLASS B
CLASS A AND CLASS C
MAX. OPERATING MAX. OPERATING
EXPENSE RATIO EXPENSE RATIO
<S> <C>
1.70% 2.45%
</TABLE>
For the period ended June 30, 2000, the Adviser voluntarily waived $218,616
of its investment advisory fees. This waiver is voluntary in nature and can be
discontinued at the Adviser's discretion.
For the period ended June 30, 2000, the Fund recognized expenses of $2,008
representing legal services provided by Skadden, Arps, Slate, Meagher & Flom
(Illinois), counsel to the Fund, of which a director of the Fund is an
affiliated person.
For the period ended June 30, 2000, the Fund recognized expenses of $6,087
representing Van Kampen's cost of providing legal services to the Fund.
At June 30, 2000, Van Kampen Funds, Inc. owned 18%, 16%, and 58% of the
shares outstanding of each Class A, B, and C shares in the Fund.
Van Kampen Investment Advisory Corp. (the "Administrator") also provides
the Fund with administrative services pursuant to an administrative agreement
for a monthly fee which on an annual basis equals 0.25% of the average daily net
assets of the Fund, plus reimbursement of out-of-pocket expenses. Under an
agreement between the Adviser and The Chase Manhattan Bank ("Chase"), through
its corporate affiliate Chase Global Funds Services Company ("CGFSC"), Chase
provides certain administrative services to the Fund. Chase is compensated for
such services by the Adviser from the fee it receives from the Fund. Transfer
Agency services are provided to the Fund by Van Kampen Investor Services Inc.,
an affiliate of the Adviser.
Van Kampen Funds Inc. (the "Distributor") a wholly owned subsidiary of Van
Kampen Investments Inc., an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co., serves as the Distributor of the Fund's shares. The
Distributor is entitled to receive from the Fund a distribution fee, which is
accrued daily and paid quarterly, of an amount of up to 0.25% of the Class A
shares and up to 1.00% of the Class B shares and Class C shares of the Fund, on
an annualized basis, of the average daily net assets attributable to each Class.
The Distributor may receive a front end sales charge for purchases of Class
A shares. In addition, the Distributor may receive a contingent deferred sales
charge for certain redemptions of Class B shares and Class C shares of the Fund
redeemed within one to five years following such purchase. For the period ended
June 30, 2000, the Distributor has advised the Fund that it earned initial sales
charges of $36,692 for Class A
24
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
shares and deferred sales charges of $10,062 and $256 for Class B shares and
Class C shares, respectively.
Certain officers and directors of the Fund are also officers and directors
of Van Kampen. The Fund does not compensate its officers or directors who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
directors who are not officers of Van Kampen. Under the deferred compensation
plan, directors 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 director's years of service to the Fund. The maximum
annual benefit per director under the plan is $2,500.
For the period ended June 30, 2000, the Fund incurred $3,913 as brokerage
commissions with Morgan Stanley & Co. Incorporated, an affiliated broker/dealer.
3. CAPITAL TRANSACTIONS
The Fund currently offers three classes of shares, Class A, Class B, and Class C
shares. All three classes of shares have identical voting, dividend, liquidation
and other rights. Class A shares are sold with a front-end sales charge of up to
5.75%. For certain purchases of Class A shares, the front-end sales charge may
be waived and a contingent deferred sales charge ("CDSC") of 1.00% imposed in
the event of certain redemptions within one year of the purchase. Class B and
Class C shares are offered without a front end sales charge, but are subject to
a CDSC. Class B shares automatically convert to Class A shares eight years after
the end of the calendar month in which the shares were purchased. For the period
ended June 30, 2000, no Class B shares converted to Class A shares. The CDSC
will be imposed on most redemptions made within five years of the purchase for
Class B shares and one year of the purchase for Class C shares as detailed in
the following schedule:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE ON ASSETS SUBJECT TO
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
Thereafter .................................... None None
</TABLE>
25
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 25, 1998*
JUNE 30, 2000 TO JUNE 30, 1999**
-------------- -------------------
<S> <C> <C>
CAPITAL SHARE TRANSACTIONS
CLASS A:
Shares:
Subscribed (Initial Shares of 100,000) ............... 498,680 205,000
Distributions Reinvested ............................. 5,381 --
Redeemed ............................................. (129,831) (15,000)
---------- ----------
Net Increase in Class A Shares Outstanding .............. 374,230 190,000
========== ==========
Dollars:
Subscribed ........................................... $5,479,269 $1,098,000
Distributions Reinvested ............................. 59,192 1,000
Redeemed ............................................. (1,424,127) (157,000)
---------- ----------
Net Increase ............................................ $4,114,334 $ 942,000
========== ==========
Beginning Paid in Capital ............................... $1,942,000 $1,000,000
========== ==========
Ending Paid in Capital .................................. $6,043,378 $1,942,000+
========== ==========
CLASS B:
Shares:
Subscribed (Initial Shares of 100,000) ............... 407,690 305,000
Distributions Reinvested ............................. 2,787 --
Redeemed ............................................. (90,497) (15,000)
---------- ----------
Net Increase in Class B Shares Outstanding .............. 319,980 290,000
========== ==========
Dollars:
Subscribed ............................................ $4,582,733 $2,142,000
Distributions Reinvested .............................. 30,685 --
Redeemed .............................................. (1,007,931) (152,000)
---------- ----------
Net Increase ............................................ $3,605,487 $1,990,000
========== ==========
Beginning Paid in Capital ............................... $2,990,000 $1,000,000
========== ==========
Ending Paid in Capital .................................. $6,575,332 $2,990,000+
========== ==========
CLASS C:
Shares: (Initial Shares of 100,000)
Subscribed ........................................... 70,319 179,000
Distributions Reinvested ............................. 694 --
Redeemed ............................................. (35,701) (42,000)
---------- ----------
Net Increase in Class C Shares Outstanding .............. 35,312 137,000
========== ==========
Dollars:
Subscribed ........................................... $ 774,504 $ 844,000
Distributions Reinvested ............................. 7,622 --
Redeemed ............................................. (393,998) (436,000)
---------- ----------
Net Increase ............................................ $ 388,128 $ 408,000
========== ==========
Beginning Paid in Capital ............................... $1,408,000 $1,000,000
========== ==========
Ending Paid in Capital .................................. $1,786,556 $1,408,000+
========== ==========
</TABLE>
* COMMENCEMENT OF OPERATIONS
** AMOUNTS ROUNDED TO THE NEAREST (000).
+ ENDING PAID IN CAPITAL AMOUNTS DO NOT REFLECT PERMANENT BOOK TO TAX
DIFFERENCES--SEE NOTE 1E.
26
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
4. INVESTMENT TRANSACTIONS
For the period ended June 30, 2000, the Fund made purchases of $12,555,323 and
sales of $4,979,617 of investment securities other than long-term U.S.
government securities and short-term investments. There were no purchases or
sale of long-term U.S. government securities.
5. 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 into a $650 million committed line of credit facility
with a group of banks which expires on November 28, 2000, but is renewable with
the consent of the participating banks. Each fund is permitted to utilize the
facility in accordance with the restrictions of its prospectus. In the event the
demand for the credit facility meets or exceeds $650 million on a complex-wide
basis, each fund will be limited to its pro-rata percentage based on the net
assets of each participating fund. Interest on borrowings is charged under the
agreement at a rate of 0.50% above the federal funds rate per annum. An annual
commitment fee of 0.09% per annum is charged on the unused portion of the credit
facility, which each fund incurs based on its pro-rata percentage of quarterly
net assets. The Fund has not borrowed against the credit facility during the
period.
27
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of Van Kampen European
Equity Fund
We have audited the accompanying statement of assets and liabilities of Van
Kampen European Equity Fund (the "Fund"), a fund of Van Kampen Series Fund,
Inc., including the portfolio of investments, as of June 30, 2000, and the
related statements of operations, changes in net assets and the financial
highlights for the year then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit. The Fund's financial statements and financial highlights for
the period ended prior to June 30, 2000, were audited by other auditors whose
report, dated August 6, 1999, expressed an unqualified opinion on those
statements.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of June 30, 2000, by correspondence with the Fund's
custodian and brokers; where replies were not received from brokers, we
performed other auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen European Equity Fund as of June 30, 2000, the results of its operations,
the changes in its net assets and the financial highlights for the year then
ended, in conformity with accounting principles generally accepted in the United
States of America.
DELOITTE & TOUCHE LLP
Chicago, Illinois
August 11, 2000
28
<PAGE>
VAN KAMPEN FUNDS
THE VAN KAMPEN
FAMILY OF FUNDS
GROWTH
Aggressive Growth
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth
Mid Cap Growth
Pace
Select Growth
Small Cap Value
Tax Managed Equity Growth
Technology
GROWTH AND INCOME
Comstock
Equity Income
Growth and Income
Harbor
Real Estate Securities
Utility
Value
GLOBAL/INTERNATIONAL
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
International Magnum
Latin American
Strategic Income
Tax Managed Global Franchise
Worldwide High Income
INCOME
Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return*
Limited Maturity Government
U.S. Government
U.S. Government Trust for Income
CAPITAL PRESERVATION
Reserve
Tax Free Money
SENIOR LOAN
Prime Rate Income Trust
Senior Floating Rate
TAX FREE
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal**
Insured Tax Free Income
Intermediate Term
Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
To find out more about any of these funds, ask your financial advisor for a
prospectus, which contains more complete information, including sales charges,
risks, and ongoing expenses. Please read it carefully before you invest or send
money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- visit our Web site at
www.vankampen.com --
to view a prospectus, select
DOWNLOAD PROSPECTUS [GRAPHIC]
- 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. [GRAPHIC]
- e-mail us by visiting
www.vankampen.com and
selecting CONTACT US [GRAPHIC]
*Closed to new investors
**Open to new investors for a limited time
29
<PAGE>
FUND OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN EUROPEAN EQUITY FUND
BOARD OF DIRECTORS
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*
Chairman, Director, President,
Chief Executive Officer
STEPHEN L. BOYD*
Executive Vice President and
Chief Investment Officer
A. THOMAS SMITH III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Chief Financial Officer and Treasurer
RICHARD A. CICCARONE*
JOHN R. REYNOLDSON*
MICHAEL H. SANTO*
JOSEPH P. STADLER*
JOHN H. ZIMMERMANN, III*
Vice Presidents
INVESTMENT ADVISER AND
ADMINISTRATOR
VAN KAMPEN INVESTMENT
ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
INVESTMENT SUBADVISER
MORGAN STANLEY DEAN WITTER INVESTMENT
MANAGEMENT INC.
1221 Avenue of the Americas
New York, New York 10020
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
CUSTODIAN
THE CHASE MANHATTAN BANK
3 MetroTech Center
Brooklyn, New York 11245
DIVIDEND DISBURSING AND
TRANSFER AGENT
VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 218256
Kansas City, Missouri 64121-8256
LEGAL COUNSEL
SKADDEN, ARPS, SLATE, MEAGHER &
FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT AUDITORS
DELOITTE & TOUCHE LLP
180 N. Stetson Avenue
Chicago, IL 60601
--------------------------------------------------------------------------------
For federal income tax purposes, the following is furnished with respect to the
distributions paid by the Fund during its taxable year ended June 30, 2000. The
Fund designated and paid $18,032 as a 20% rate gain distribution. In January
2000, the Fund provided tax information to shareholders for the 1999 calendar
year. The Fund intends to pass through foreign tax credits of $33,104 and has
derived gross income from sources within foreign countries amounting to
$282,907.
--------------------------------------------------------------------------------
* "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.
30
<PAGE>
RESULTS OF
SHAREHOLDER VOTES
JUNE 30, 2000
A Joint Special Meeting of the Shareholders of the European Equity Fund (the
"Fund") was held on December 15, 1999. The description of each proposal and
number of shares voted are as follows:
1. To elect the following Directors to serve the Fund.
<TABLE>
<CAPTION>
VOTED FOR WITHHELD
<S> <C> <C>
J. Miles Branagan ................................. 612,971 1,434
Jerry D. Choate ................................... 612,971 1,434
Linda Hutton Heagy ................................ 612,971 1,434
R. Craig Kennedy .................................. 612,971 1,434
Mitchell M. Merin ................................. 612,971 1,434
Jack E. Nelson .................................... 612,971 1,434
Richard F. Powers, III ............................ 612,971 1,434
Phillip B. Rooney ................................. 612,971 1,434
Fernando Sisto .................................... 612,971 1,434
Wayne W. Whalen ................................... 612,971 1,434
Suzanne H. Woolsey ................................ 612,971 1,434
Paul G. Yovovich* ................................. 612,971 1,434
</TABLE>
* EFFECTIVE APRIL 14, 2000, PAUL G. YOVOVICH RESIGNED FROM THE BOARD OF
DIRECTORS.
2. To ratify PricewaterhouseCoopers LLP to act as independent public accountants
for the Fund.(1)
<TABLE>
<CAPTION>
AFFIRMATIVE AGAINST ABSTAIN
<S> <C> <C>
614,056 -- 349
</TABLE>
(1) INDEPENDENT ACCOUNTANTS FOR THE FUND PERFORM AN ANNUAL AUDIT OF THE FUND'S
FINANCIAL STATEMENTS. THE BOARD OF DIRECTORS HAS ENGAGED DELOITTE & TOUCHE LLP
TO BE THE FUND'S INDEPENDENT ACCOUNTANTS.
PricewaterhouseCoopers LLP, located at 200 East Randolph Drive, Chicago, IL
60601 ("PWC"), ceased being the Fund's independent accountants effective May 18,
2000. The cessation of the client-auditor relationship between the Fund and PWC
was based solely on a possible future business relationship by PWC with an
affiliate of the Fund's investment adviser.
31
<PAGE>
YOUR NOTES:
<PAGE>
VAN KAMPEN
MID CAP GROWTH FUND
ANNUAL REPORT
JUNE 30, 2000
[GRAPHIC]
VAN KAMPEN
FUNDS
<PAGE>
TABLE OF CONTENTS
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2 IT IS TIMES
PERFORMANCE SUMMARY LIKE THESE
RETURN HIGHLIGHTS 4
GROWTH OF A $10,000 INVESTMENT 5 WHEN MONEY-
PORTFOLIO AT A GLANCE MANAGEMENT
TOP TEN HOLDINGS 6
TOP FIVE SECTORS 6 EXPERIENCE
Q&A WITH YOUR PORTFOLIO MANAGERS 7
GLOSSARY OF TERMS 10 MAY MAKE
BY THE NUMBERS A DIFFERENCE.
YOUR FUND'S INVESTMENTS 11
FINANCIAL STATEMENTS 16
NOTES TO FINANCIAL STATEMENTS 22
REPORT OF INDEPENDENT AUDITORS 28
FUND OFFICERS AND IMPORTANT ADDRESSES 29
----------------------------------------------------
NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE.
----------------------------------------------------
<PAGE>
------------
PRESORTED
STANDARD
U.S. Postage
PAID
VAN KAMPEN
FUNDS
------------
74,174,274
MCG AR 08/00
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
<PAGE>
LETTER TO SHAREHOLDERS
JULY 20, 2000
Dear Shareholder,
Whether you have invested 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.
OVERVIEW
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,
/s/Richard F. Powers, III
Richard F. Powers, III
President and CEO
Van Kampen Investments
1
<PAGE>
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>
U.S. GROSS DOMESTIC PRODUCT
SEASONALLY ADJUSTED ANNUALIZED RATES
(JUNE 30, 1998 - JUNE 30, 2000)
[BAR CHART]
<TABLE>
<S> <C>
Jun-98 2.1%
Sep-98 3.8%
Dec-98 5.9%
Mar-99 3.5%
Jun-99 2.5%
Sep-99 5.7%
Dec-99 8.3%
Mar-00 4.8%
Jun-00 5.2%
</TABLE>
INTEREST RATES AND INFLATION
(JUNE 30, 1998 - JUNE 30, 2000)
[LINE GRAPH]
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>
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(AS OF JUNE 30, 2000)
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Life-of-Fund return based on NAV(1) 33.70% 33.10% 33.30%
----------------------------------------------------------------------------------
Life-of-Fund average annual total return(2) 26.01% 28.10% 32.30%
----------------------------------------------------------------------------------
Commencement date 10/25/99 10/25/99 10/25/99
----------------------------------------------------------------------------------
</TABLE>
(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.
See the Comparative Performance section of the current prospectus. 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.
Because the prices of common stocks and other securities fluctuate, the
value of an investment in the Fund will vary upon the Fund's investment
performance.
Market forecasts provided in this report may not necessarily come to pass.
4
<PAGE>
GROWTH OF A $10,000 INVESTMENT
(OCTOBER 25, 1999 - JUNE 30, 2000)
[LINE GRAPH]
THIS CHART COMPARES YOUR
FUND'S PERFORMANCE TO THAT
OF THE STANDARD & POOR'S
MIDCAP 400 INDEX OVER
TIME.
This index is an unmanaged broad-based, statistical composite that does not
include any commissions or fees that would be paid by an investor purchasing the
securities it represents. Such costs would lower the performance of this index.
The historical performance of the index is shown for illustrative purposes only;
it is not meant to forecast, imply, or guarantee the future performance of any
investment vehicle. It is not possible to invest directly in an index.
The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of other share classes of
the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions, and includes payment of the maximum
sales charge (5.75% for Class A shares).
While past performance is no guarantee of future results, the above information
provides a broader vantage point from which to evaluate the discussion of the
Fund's performance found in the following pages.
5
<PAGE>
PORTFOLIO AT A GLANCE
TOP TEN HOLDINGS*
(AS A PERCENTAGE OF NET ASSETS--JUNE 30, 2000)
1. SDL 2.1%
Sells bandwidth-enhancing products for
fiber-optic and satellite communication
networks.
2. EXODUS COMMUNICATIONS 2.0%
Offers services that allow businesses
to outsource management of their
Internet sites.
3. ADC TELECOMMUNICATIONS 1.9%
Creates hardware and software products
used to build communications
networks.
4. JABIL CIRCUIT 1.7%
Manufactures circuit boards and
electronic components used in
computer and telecommunications
products.
5. RATIONAL SOFTWARE 1.6%
Develops systems to help automate and
simplify the software-development
process.
6. SCIENTIFIC-ATLANTA 1.5%
Manufactures set-top cable-television
boxes and television transmission
equipment.
7. VITESSE SEMICONDUCTOR 1.5%
Manufactures specialized integrated
circuits for high-speed communications
products.
8. VOICESTREAM WIRELESS 1.5%
Provides digital wireless communications
services throughout the United States.
9. FOREST LABORATORIES 1.4%
Develops and manufactures
pharmaceutical products.
10. MILLENNIUM PHARMACEUTICALS 1.4%
Forms strategic alliances with other
pharmaceutical and biotechnology
companies to develop medicines.
* EXCLUDES SHORT-TERM INVESTMENT
TOP FIVE SECTORS*
(AS A PERCENTAGE OF NET ASSETS--JUNE 30, 2000)
[BAR CHART]
<TABLE>
<S> <C>
Technology 33.1%
Heavy Industry/Transportation 14.2%
Consumer Services 13.8%
Health Care 11.5%
Utilities 10.7%
</TABLE>
* THESE SECTORS REPRESENT BROAD GROUPINGS OF RELATED INDUSTRIES.
6
<PAGE>
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH THE MANAGEMENT TEAM OF THE VAN KAMPEN MID CAP GROWTH FUND
ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE MARKETS AND INFLUENCED
THE FUND'S RETURN SINCE ITS INCEPTION ON OCTOBER 25, 1999. THE TEAM IS LED BY
ARDEN C. ARMSTRONG, SENIOR PORTFOLIO MANAGER, MORGAN STANLEY DEAN WITTER
INVESTMENT MANAGEMENT, WHO HAS MANAGED THE FUND SINCE ITS INCEPTION AND HAS
WORKED IN THE INVESTMENT INDUSTRY SINCE 1982. SHE IS JOINED BY PORTFOLIO
MANAGERS DAVID P. CHU AND STEVEN B. CHULIK. 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 It's hard to imagine a better time during which to launch the fund. The
fourth quarter of 1999 saw a huge market rally driven primarily by technology
stocks. This environment continued into January and February, but the market
started showing some weakness outside the technology sector. In the early part
of the year, the market grew increasingly narrow, meaning that a smaller and
smaller number of stocks were performing well. When the market narrows, we
believe it's a sign that the market is going to correct and stock prices will
fall.
This narrowing trend continued into March, when the technology-heavy NASDAQ
index hit its all-time peak on March 10. After that peak, the market was very
edgy as investors worried about the effect the Federal Reserve Board's (the
Fed's) interest-rate hikes would have on stock prices. Stock prices did indeed
start to decline, and that trend picked up speed in April, when the correction
we anticipated finally occurred and all the major stock indexes experienced
double-digit percentage losses. They rebounded by the end of the month, but May
and June saw continued volatility as a number of indicators pointed to the
economic slowdown the Fed had been trying to achieve.
This volatility affected short-term performance, but the fund's strong
performance during the market rally helped offset those losses. The fund
returned 33.70 percent for the period from its inception on October 25, 1999,
through June 30, 2000 (CLASS A SHARES AT NET ASSET VALUE; IF THE MAXIMUM SALES
CHARGE OF 5.75 PERCENT WERE INCLUDED, THE RETURN WOULD HAVE BEEN LOWER). AS A
RESULT OF RECENT MARKET ACTIVITY, CURRENT PERFORMANCE MAY VARY FROM THE FIGURES
SHOWN. BY COMPARISON, THE STANDARD & POOR'S MIDCAP 400 INDEX RETURNED 26.86
PERCENT FOR THE SAME PERIOD. OF COURSE, PAST PERFORMANCE IS NO GUARANTEE OF
FUTURE RESULTS. THE S&P 400 MIDCAP INDEX IS AN UNMANAGED,
CAPITALIZATION-WEIGHTED MEASURE OF 400 STOCKS IN THE MID-RANGE SECTOR OF THE
MARKET. THIS INDEX IS A STATISTICAL COMPOSITE THAT DOES NOT INCLUDE ANY
COMMISSIONS OR SALES CHARGES THAT WOULD BE PAID BY AN INVESTOR PURCHASING THE
SECURITIES IT REPRESENTS. IF THESE COSTS HAD BEEN INCLUDED, PERFORMANCE WOULD
HAVE BEEN LESS FAVORABLE. IT IS NOT POSSI-
7
<PAGE>
BLE TO INVEST DIRECTLY IN AN INDEX. PLEASE REFER TO THE CHART AND FOOTNOTES
ON PAGE 4 FOR ADDITIONAL FUND PERFORMANCE RESULTS.
Q WHAT STRATEGIES DID YOU USE TO MANAGE THE FUND THROUGH THIS VOLATILE
PERIOD?
A We use the same four-step investment process regardless of market
conditions. First, we use objective research to screen out companies that don't
meet our investment criteria because of their market capitalization or their
earnings-growth rates. This step narrows the number of stocks on which we do
fundamental research. Then we scrutinize factors such as sales growth, profit
margins, management quality, and strategic position. Next, we examine the
valuations of the remaining stocks to eliminate those we believe to be more
expensive than they're worth. Finally, we analyze how a stock will fit in with
other stocks the fund already owns in order to avoid overlap and keep the
portfolio diversified. We also try to balance between aggressive growers--stocks
growing much more rapidly than 25 percent a year--and stable growers.
This concept of a balance between stable and aggressive growers allows us
to potentially capitalize on market movements by tilting the balance in favor of
one kind of stock or the other. In March, when we saw the market continuing to
narrow, we decided to position the fund more conservatively. So, we started
selling portions of the fund's aggressive-growth technology stocks like Veritas
and Siebel Systems, and we tried to buy stocks in historically stable-growth
areas like radio to better balance the portfolio and increase its
diversification. We believed that after the market corrected, the ensuing rally
would be broad-based and would include more than just technology stocks.
Finally, we increased the amount of biotechnology stocks in the portfolio. We
believe that if the economy slows, biotechnology stocks have the potential to
perform better than the semiconductor stocks we've favored.
Q LET'S TALK ABOUT THE PERFORMANCE OF SPECIFIC STOCKS. WHICH ONES HELPED
BOOST FUND PERFORMANCE?
A Despite the sector's volatility, many of the stocks that helped fund
performance were technology or technology- related issues. We were very pleased
with the fund's investments in fiber-optic stocks. SDL Inc., a fiber-optic
equipment manufacturer, and Exodus Communications, an Internet outsourcing firm,
both performed well for the fund and stood out from the rest of the technology
pack due to their strong earnings and cash flows. The fund benefited from having
ADC Telecommunications in its portfolio, as the stock weathered the technology
correction unscathed. Ciena also performed well. Semiconductor stocks also
boosted fund returns. LSI Logic turned in positive performance because of the
role it will play in the new Sony Playstation 2. We've been very happy with the
performance of Hispanic Broadcasting, a radio broadcaster targeting the quickly
growing demographic of Spanish-speaking people in the United States. 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 be held in the portfolio in the future.
8
<PAGE>
Q WHAT STOCKS HURT FUND PERFORMANCE DURING THE PERIOD?
A Not all technology stocks could be counted on for positive performance, and
we sold many of them during the reporting period. We were not pleased with the
performance of consumer Internet stocks and sold most of the fund's holdings in
that arena, including Neoforma and eBay. Homestore, MyPoints, and Liberty
Digital also performed poorly but remained in the portfolio because their
businesses were good and getting better. In fact, we saw the decline in their
stock prices as buying opportunities. If the fundamentals of a company remain
strong and its stock price goes down, we generally buy more of it. Intermedia
was another disappointment, as the company's earnings fell short of what Wall
Street analysts predicted. The stock's price fell on the heels of that
announcement, and we sold it.
Q WHAT DO YOU SEE AHEAD FOR THE MARKET AND THE FUND?
A We think the key question going forward is "Has the Fed succeeded in
slowing down the economy?" Economic data is just starting to show signs of
slowing, and despite some contradictory evidence, we do think the economy is
going to be weaker than it has been in the recent past and are positioning the
fund accordingly.
As a result, we've done some tactical maneuvering to make the portfolio a
bit more defensive--favoring software companies over hardware companies in the
technology arena and adding conservative, stable holdings like drug stores to
the portfolio. We also believe this economic slowdown will make P/E ratios
increasingly more important to investors as the market becomes more
discriminating and separates truly good growth companies from the simply
expensive. This will benefit the fund since we are unwilling to pay high
valuations for companies that don't warrant them.
9
<PAGE>
GLOSSARY OF TERMS
A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.
CLASS A SHARES: A division of mutual funds, which are generally divided into
three groupings, called Class A, Class B, and Class C shares. The specific
features of each are dependent on varying fees and sales charges. In most cases,
Class A shares will have no redemption fee (contingent deferred sales charge).
DEFENSIVE INVESTMENT STRATEGY: A method of portfolio allocation and management
aimed at minimizing the risk of losing principal. Defensive investors place a
high percentage of their investable assets in bonds, cash equivalents, and
stocks that are less volatile than average.
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.
NET ASSET VALUE (NAV): The value of a mutual fund share, calculated by
deducting a fund's liabilities from the total assets in its portfolio and
dividing this amount by the number of shares outstanding. The NAV does not
include any initial or contingent deferred sales charge.
P/E RATIO: The price-to-earnings ratio shows the "multiple" of earnings at
which a stock is selling. The P/E ratio is calculated by dividing a stock's
current price by its current annual earnings per share. A high multiple means
that investors are optimistic about future growth and have bid up the stock's
price.
PORTFOLIO: A portfolio, comprised of a collection of securities owned by an
individual or an institution, may include stocks, bonds, and/or money-market
securities.
VOLATILITY: A measure of the fluctuation in the market price of a security. A
security that is volatile has frequent and large swings in price.
10
<PAGE>
BY THE NUMBERS
YOUR FUND'S INVESTMENTS THE FOLLOWING PAGES DETAIL YOUR FUND'S
JUNE 30, 2000 PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
COMMON STOCKS + 97.3%
BEVERAGES & PERSONAL PRODUCTS 1.2%
PERSONAL PRODUCTS 1.2%
Estee Lauder Cos. 'A' ........................... 23,300 $1,151,894
----------
CONSUMER DURABLES 0.9%
AUTOMOTIVE RELATED 0.9%
Harley-Davidson, Inc. ........................... 23,200 893,200
----------
CONSUMER SERVICES 13.8%
ENTERTAINMENT & LEISURE 4.1%
AT&T Corp. Liberty Media Group 'A' (a) .......... 51,500 1,248,875
Liberty Digital, Inc. 'A' (a) ................... 20,400 612,000
MGM Grand, Inc. ................................. 28,200 905,925
Premier Parks, Inc. (a) ......................... 37,300 848,575
Ticketmaster Online-CitySearch, Inc. 'B' (a) .... 29,800 474,937
----------
4,090,312
----------
OTHER 0.8%
Homestore.com, Inc. (a) ......................... 15,100 440,731
MyPoints.com, Inc. (a) .......................... 19,400 367,691
----------
808,422
----------
PUBLISHING & BROADCASTING 8.9%
Acxiom Corp. (a) ................................ 26,100 711,225
Cablevision Systems Corp. 'A' (a) ............... 14,800 1,004,550
Citadel Communications Corp. (a) ................ 26,300 918,856
Hispanic Broadcasting Corp. (a) ................. 24,800 821,500
Lamar Advertising Co. (a) ....................... 16,700 723,319
Reader's Digest Association, Inc. (The) 'A' ..... 29,800 1,184,550
TV Guide, Inc. (a) .............................. 33,900 1,161,075
Univision Communications, Inc. (a) .............. 9,200 952,200
Young & Rubicam, Inc. ........................... 23,300 1,332,469
----------
8,809,744
----------
TOTAL CONSUMER SERVICES ......................... 13,708,478
----------
ENERGY 6.8%
NATURAL GAS 0.9%
Dynegy, Inc. 'A' ................................ 12,655 864,495
----------
OIL--DOMESTIC & CRUDE 1.2%
Noble Affiliates, Inc. .......................... 25,100 934,975
Triton Energy Ltd. (a) .......................... 7,000 275,187
----------
1,210,162
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS 11
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
OIL--OFFSHORE DRILLING 2.3%
<S> <C> <C>
Global Marine, Inc. (a) ......................... 34,600 $ 975,288
Nabors Industries, Inc. (a) ..................... 30,900 1,284,281
----------
2,259,569
----------
OIL--WELL EQUIPMENT & SERVICES 2.4%
BJ Services Co. (a) ............................. 12,300 768,750
Smith International, Inc. (a) ................... 10,400 757,250
Varco International, Inc. (a) ................... 36,408 846,486
----------
2,372,486
----------
TOTAL ENERGY .................................... 6,706,712
----------
FINANCIAL SERVICES 1.3%
CREDIT & FINANCE 1.3%
Concord EFS, Inc. (a) ........................... 49,200 1,279,200
----------
HEALTH CARE 11.5%
DRUGS 5.7%
Biovail Corp. (a) ............................... 14,100 781,669
Celgene Corp. (a) ............................... 14,000 824,250
Forest Laboratories, Inc. 'A' (a) ............... 14,100 1,424,100
MedImmune, Inc. (a) ............................. 15,500 1,147,000
Millennium Pharmaceuticals, Inc. (a) ............ 12,700 1,420,812
----------
5,597,831
----------
HEALTH SERVICES 2.3%
Health Management Associates, Inc. 'A' (a) ...... 94,100 1,229,181
Lincare Holdings, Inc. (a) ...................... 43,000 1,058,875
----------
2,288,056
----------
HEALTH TECHNOLOGY 3.5%
Human Genome Sciences, Inc. (a) ................. 5,900 786,913
PerkinElmer, Inc. ............................... 17,700 1,170,412
QLT Phototherapeutics, Inc. (a) ................. 10,500 811,781
Waters Corp. (a) ................................ 5,500 686,469
----------
3,455,575
----------
TOTAL HEALTH CARE ............................... 11,341,462
----------
HEAVY INDUSTRY/TRANSPORTATION 14.2%
AEROSPACE 4.0%
Bombardier, Inc. 'B' ............................ 33,500 910,363
Gilat Satellite Networks Ltd. (a) ............... 9,400 652,125
Titan Corp. (a) ................................. 29,700 1,329,075
ViaSat, Inc. (a) ................................ 18,900 1,025,325
----------
3,916,888
----------
</TABLE>
12 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
AIR TRANSPORTATION 0.8%
<S> <C> <C>
Southwest Airlines Co. ........................ 43,600 $ 825,675
----------
BUSINESS SERVICES 8.6%
Crown Castle International Corp. (a) .......... 32,900 1,200,850
Dycom Industries, Inc. (a) .................... 22,850 1,051,100
Fiserv, Inc. (a) .............................. 28,400 1,228,300
Jabil Circuit, Inc. (a) ....................... 33,100 1,642,587
MasTec, Inc. (a) .............................. 24,500 935,594
Quanta Services, Inc. (a) ..................... 12,800 704,000
SCI Systems, Inc. (a) ......................... 25,300 991,444
TMP Worldwide, Inc. (a) ....................... 10,700 789,794
----------
8,543,669
----------
MISCELLANEOUS INDUSTRIALS 0.8%
Dover Corp. ................................... 20,000 811,250
----------
TOTAL HEAVY INDUSTRY/TRANSPORTATION ........... 14,097,482
----------
RETAIL 3.8%
RESTAURANTS 1.1%
Starbucks Corp. (a) ........................... 28,000 1,069,250
----------
SPECIALTY SHOPS 2.7%
CVS Corp. ..................................... 25,600 1,024,000
RadioShack Corp. (a) .......................... 15,800 748,525
Tiffany & Co. ................................. 13,200 891,000
----------
2,663,525
----------
TOTAL RETAIL .................................. 3,732,775
----------
TECHNOLOGY 33.1%
COMPUTERS & OFFICE EQUIPMENT 0.9%
QLogic Corp. (a) .............................. 13,400 885,238
----------
ELECTRONICS 9.6%
Applied Micro Circuits Corp. (a) .............. 10,200 1,007,250
ATMI, Inc. (a) ................................ 19,700 916,050
Flextronics International Ltd. (a) ............ 16,700 1,147,603
GlobeSpan, Inc. (a) ........................... 8,600 1,049,872
Integrated Device Technology, Inc. (a) ........ 17,300 1,035,838
Lattice Semiconductor Corp. (a) ............... 19,100 1,320,287
LSI Logic Corp. (a) ........................... 23,500 1,271,937
Novellus Systems, Inc. (a) .................... 5,000 282,813
Vitesse Semiconductor Corp. (a) ............... 20,300 1,493,319
----------
9,524,969
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS 13
<PAGE>
SEE NOTES TO FINANCIAL STATEMENTS
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
SOFTWARE & SERVICES 11.7%
<S> <C> <C>
Art Technology Group, Inc. (a) .................... 12,100 $ 1,221,344
Exodus Communications, Inc. (a) ................... 43,400 1,999,112
Genuity, Inc (a) .................................. 40,200 368,081
Inktomi Corp. (a) ................................. 11,100 1,312,575
ISS Group, Inc. (a) ............................... 13,700 1,352,661
Macromedia, Inc. (a) .............................. 11,300 1,092,569
Mercury Interactive Corp. (a) ..................... 14,300 1,383,525
Rational Software Corp. (a) ....................... 16,900 1,570,644
VeriSign, Inc. (a) ................................ 7,590 1,339,635
----------
11,640,146
----------
TELECOMMUNICATIONS EQUIPMENT 10.9%
ADC Telecommunications, Inc. (a) .................. 22,300 1,870,412
Alpha Industries, Inc. (a) ........................ 14,000 616,875
Andrew Corp. (a) .................................. 24,700 828,994
Bookham Technology plc ADR (a) .................... 13,900 823,575
CIENA Corp. (a) ................................... 7,800 1,300,162
Powerwave Technologies, Inc. (a)................... 19,700 866,800
RF Micro Devices, Inc. (a) ........................ 9,400 823,675
Scientific-Atlanta, Inc. .......................... 20,500 1,527,250
SDL, Inc. (a) ..................................... 7,300 2,081,869
----------
10,739,612
----------
TOTAL TECHNOLOGY .................................. 32,789,965
----------
UTILITIES 10.7%
ELECTRIC POWER 1.2%
Calpine Corp. (a) ................................. 18,500 1,216,375
----------
TELEPHONE SERVICES 9.5%
FLAG Telecom Holdings Ltd. (a) .................... 32,800 487,900
GT Group Telecom, Inc. 'B' (a) .................... 12,800 202,400
IDT Corp. (a) ..................................... 29,200 990,975
McLeodUSA, Inc. 'A' (a) ........................... 63,800 1,319,862
Microcell Telecommunications, Inc. (a) ............ 21,600 780,300
NEXTLINK Communications, Inc. (a) ................. 29,900 1,134,331
Time Warner Telecom, Inc. 'A' (a) ................. 10,700 688,813
Tritel, Inc. (a) .................................. 32,000 950,000
VoiceStream Wireless Corp. (a) .................... 12,554 1,459,991
Western Wireless Corp. 'A' (a) .................... 24,600 1,340,700
----------
9,355,272
----------
TOTAL UTILITIES ................................... 10,571,647
----------
TOTAL LONG-TERM INVESTMENTS 97.3%
(Cost $94,157,849) ............................ 96,272,815
------------
</TABLE>
14 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
PAR MARKET
DESCRIPTION VALUE VALUE
<S> <C> <C>
SHORT-TERM INVESTMENT 3.0%
REPURCHASE AGREEMENT 3.0%
Chase Securities, Inc. 6.15%, dated 6/30/00, due
7/3/00, to be repurchased at $2,923,498, collateralized
by $3,100,000 U.S. Treasury Notes 5.50%, due
5/15/09, valued at $2,987,625
(Cost $2,922,000) ................................. $ 2,922,000 $ 2,922,000
------------
TOTAL INVESTMENTS 100.3%
(Cost $97,079,849) ................................ 99,194,815
LIABILITIES IN EXCESS OF OTHER ASSETS -0.3% ........... (248,783)
------------
NET ASSETS 100% ....................................... $ 98,946,032
============
</TABLE>
------------------
(a) NON-INCOME PRODUCING SECURITY
+ THE COMMON STOCKS ARE CLASSIFIED BY SECTORS WHICH REPRESENT BROAD GROUPINGS
OF RELATED INDUSTRIES.
SEE NOTES TO FINANCIAL STATEMENTS 15
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
JUNE 30, 2000
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments at Value (Cost $97,079,849) .................................. $ 99,194,815
Cash ..................................................................... 48
Receivable for:
Investments Sold ....................................................... 854,159
Fund Shares Sold ....................................................... 531,513
Dividends .............................................................. 2,575
Interest ............................................................... 499
--------------
Total Assets ......................................................... 100,583,609
--------------
LIABILITIES:
Payable for:
Investments Purchased .................................................. 1,366,934
Distribution Fees ...................................................... 105,520
Investment Advisory Fees ............................................... 59,640
Administrative Fees .................................................... 20,095
Custody Fees ........................................................... 17,500
Shareholder Reporting Expenses ......................................... 16,741
Fund Shares Redeemed ................................................... 15,146
Professional Fees ...................................................... 11,732
Transfer Agent Fees .................................................... 6,772
Directors' Fees and Expenses ........................................... 3,994
Other .................................................................... 13,503
--------------
Total Liabilities .................................................... 1,637,577
--------------
NET ASSETS ............................................................... $ 98,946,032
==============
NET ASSETS CONSIST OF:
Capital Stock at Par ($.001 par value, Shares Authorized 2,625,000,000) .. $ 7,417
Paid in Capital in Excess of Par ......................................... 95,350,920
Net Unrealized Appreciation on Investments ............................... 2,114,966
Accumulated Net Realized Gain ............................................ 1,476,972
Accumulated Net Investment Loss .......................................... (4,243)
==============
NET ASSETS ............................................................... $ 98,946,032
==============
Class A Shares:
Net Asset Value and Redemption Price Per Share (Based on Net Assets of
$38,401,033 and 2,871,211 Shares Outstanding) ........................ $ 13.37
==============
Maximum Sales Charge ................................................. 5.75%
Maximum Offering Price Per Share (Net Asset Value Per
Share x 100/ (100% - maximum sales charge)) .......................... $ 14.19
==============
Class B Shares:
Net Asset Value and Offering Price Per Share (Based on Net Assets of
$40,499,159 and 3,041,628 Shares Outstanding)* ....................... $ 13.31
==============
Class C Shares:
Net Asset Value and Offering Price Per Share (Based on Net Assets of
$20,045,840 and 1,504,083 Shares Outstanding)* ....................... $ 13.33
==============
</TABLE>
* REDEMPTION PRICE MAY BE SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE.
16 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
Statement of Operations
OCTOBER 25, 1999* TO JUNE 30, 2000
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Dividends ............................................ $ 28,552
Interest ............................................. 190,339
-----------
Total Income ....................... 218,891
-----------
EXPENSES:
Investment Advisory Fees ............................. 291,595
Distribution Fees (Attributed to Classes A, B and C of
$39,776, $140,729 and $86,826, respectively) ....... 267,331
Administrative Fees .................................. 98,702
Shareholder Reports .................................. 48,521
Filing and Registration Fees ......................... 29,626
Custodian Fees ....................................... 26,624
Transfer Agent Fees .................................. 16,218
Professional Fees .................................... 15,081
Directors' Fees and Expenses ......................... 6,986
Other ................................................ 1,166
-----------
Total Expenses ................................... 801,850
-----------
NET INVESTMENT LOSS .................................. $ (582,959)
===========
NET REALIZED GAIN/LOSS ON:
Investments .......................................... $ 2,055,688
-----------
NET UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period ............................ --
-----------
End of the Period:
Investments ...................................... 2,114,966
-----------
Net Change in Unrealized Appreciation/Depreciation ... 2,114,966
-----------
NET REALIZED GAIN/LOSS AND NET CHANGE IN UNREALIZED
APPRECIATION/DEPRECIATION .......................... $ 4,170,654
===========
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS . $ 3,587,695
===========
</TABLE>
* COMMENCEMENT OF OPERATIONS
SEE NOTES TO FINANCIAL STATEMENTS 17
<PAGE>
Statement of Changes in Net Assets
OCTOBER 25, 1999* TO JUNE 30, 2000
<TABLE>
<CAPTION>
OCTOBER 25, 1999* TO
JUNE 30, 2000
---------------------
INCREASE/DECREASE IN NET ASSETS
OPERATIONS:
<S> <C>
Net Investment Loss ................................................ $ (582,959)
Net Realized Gain .................................................. 2,055,688
Net Change in Unrealized Appreciation/Depreciation ................. 2,114,966
-------------
Net Increase in Net Assets Resulting from Operations ............... 3,587,695
-------------
CAPITAL SHARES TRANSACTIONS:
Subscribed ......................................................... 103,620,869
Redeemed ........................................................... (10,262,532)
-------------
Net Increase in Net Assets Resulting from Capital Share Transactions 93,358,337
-------------
Total Increase in Net Assets ....................................... 96,946,032
NET ASSETS--Beginning of Period .................................... 2,000,000
-------------
NET ASSETS--End of Period (Including accumulated net investment
loss of $(4,243) at June 30, 2000) .............................. $ 98,946,032
=============
</TABLE>
* COMMENCEMENT OF OPERATIONS
18 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
<TABLE>
<CAPTION>
OCTOBER 25, 1999* TO
CLASS A SHARES JUNE 30, 2000#
---------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ............. $ 10.00
--------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Loss ............................ (0.09)
Net Realized and Unrealized Gain ............... 3.46
--------
Total From Investment Operations ................. 3.37
--------
NET ASSET VALUE, END OF PERIOD ................... $ 13.37
========
TOTAL RETURN (1) ................................. 33.70%**
========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) ................ $ 38,401
Ratio of Expenses to Average Net Assets .......... 1.63%
Ratio of Net Investment Loss to Average Net Assets (1.04%)
Portfolio Turnover Rate .......................... 103%**
</TABLE>
* COMMENCEMENT OF OPERATIONS
** NON-ANNUALIZED
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED SALES
CHARGES.
# CHANGES PER SHARE ARE BASED UPON DAILY AVERAGE SHARES OUTSTANDING.
SEE NOTES TO FINANCIAL STATEMENTS 19
<PAGE>
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
<TABLE>
<CAPTION>
OCTOBER 25, 1999* TO
CLASS B SHARES JUNE 30, 2000#
---------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ............. $ 10.00
----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Loss ............................ (0.16)
Net Realized and Unrealized Gain ............... 3.47
----------
Total From Investment Operations ................. 3.31
----------
NET ASSET VALUE, END OF PERIOD ................... $ 13.31
==========
TOTAL RETURN (1) ................................. 33.10%**
==========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) ................ $ 40,499
Ratio of Expenses to Average Net Assets .......... 2.38%
Ratio of Net Investment Loss to Average Net Assets (1.83%)
Portfolio Turnover Rate .......................... 103%**
</TABLE>
* COMMENCEMENT OF OPERATIONS
** NON-ANNUALIZED
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED SALES
CHARGES.
# CHANGES PER SHARE ARE BASED UPON DAILY AVERAGE SHARES OUTSTANDING.
20 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
<TABLE>
<CAPTION>
OCTOBER 25, 1999* TO
CLASS C SHARES JUNE 30, 2000#
---------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ............. $ 10.00
----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Loss ............................ (0.16)
Net Realized and Unrealized Gain ............... 3.49
----------
Total From Investment Operations ................. 3.33
----------
NET ASSET VALUE, END OF PERIOD ................... $ 13.33
==========
TOTAL RETURN (1) ................................. 33.30%**
==========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) ................ $ 20,046
Ratio of Expenses to Average Net Assets .......... 2.38%
Ratio of Net Investment Loss to Average Net Assets (1.81%)
Portfolio Turnover Rate .......................... 103%**
</TABLE>
* COMMENCEMENT OF OPERATIONS
** NON-ANNUALIZED
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED SALES
CHARGES.
# CHANGES PER SHARE ARE BASED UPON DAILY AVERAGE SHARES OUTSTANDING.
SEE NOTES TO FINANCIAL STATEMENTS 21
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
The Van Kampen Mid Cap Growth Fund (the "Fund") is organized as a separate
diversified fund of Van Kampen Series Fund, Inc., a Maryland corporation, which
is registered as an open-end management investment company under the Investment
Company Act of 1940, as amended. The Fund's investment objective seeks to
achieve long-term growth. The Fund commenced operations on October 25, 1999.
1. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of the financial statements in conformity with accounting principles
accepted in the United States of America (hereafter "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 period. Actual results
could differ from those estimates.
A. SECURITY VALUATION Equity securities listed on a U.S. exchange and equity
securities traded on NASDAQ are valued at the latest quoted sales price on
the valuation date. Unlisted securities and listed securities not traded on
the valuation date for which market quotations are readily available are
valued at the average between the bid and asked prices obtained from
reputable brokers. Debt securities purchased with remaining maturities of 60
days or less are valued at amortized cost, which approximates market value.
All other securities and assets for which market quotations are not readily
available are valued at fair value as determined in good faith using
procedures approved by the Board of Directors.
B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen Investment Advisory Corp. or its affiliates, the
daily aggregate of which is invested in repurchase agreements. Repurchase
agreements are fully collateralized by the underlying debt security. A bank as
custodian for the Fund takes possession of the underlying securities, with a
market value at least equal to the amount of the repurchase transaction,
including principal and accrued interest. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to determine the adequacy of the collateral.
In the event of default on the obligation to repurchase, the Fund has the right
to liquidate the collateral and
22
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
apply the proceeds in satisfaction of the obligation. In the event of default or
bankruptcy by the counterparty to the agreement, realization and/or retention of
the collateral or proceeds may be subject to legal proceedings.
C. INCOME AND EXPENSES Interest income is recorded on an accrual basis and
dividend income is recorded net of applicable withholding taxes on the
ex-dividend date. Income, expenses, and realized and unrealized gains or
losses are allocated on a pro rata basis to each class of shares except for
distribution and service fees which are unique to each class of shares.
Distributions from the Fund are recorded on the ex-distribution date.
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 as a result of losses relating to wash sale transactions.
At June 30, 2000, for federal income tax purposes, cost of long- and
short-term investments is $97,359,593, the aggregate gross unrealized
appreciation is $9,724,739 and the aggregate gross unrealized depreciation is
$7,889,517, resulting in net unrealized appreciation on long- and short-term
investments of $1,835,222.
E. DISTRIBUTION OF INCOME AND GAINS The Fund declares and pays dividends
annually from net investment income and net realized gains, if any.
Distributions from net realized gains for book purposes may include short-term
capital gains which are included as ordinary income for tax purposes.
Due to inherent differences in the recognition of income and expenses under
generally accepted accounting principles and federal income tax purposes,
permanent differences between book and tax basis reporting for the current
fiscal year have been identified and appropriately reclassified. A permanent
difference related to a net operating loss which may be used as an offset
against short-term gains for tax purposes totaling $578,735 has been
reclassified from accumulated net realized gain to accumulated net investment
loss. A permanent difference related to recognized currency gains totaling $19
was reclassified from accumulated net investment loss to accumulated net
realized gain.
Permanent book to tax basis differences are not included in ending
undistributed/distributions in excess of net investment income for the purpose
of calculating net investment income/loss per share in the Financial Highlights.
23
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Van Kampen Investment Advisory Corp. (the "Adviser"), a wholly owned subsidiary
of Van Kampen Investments Inc. (an indirect wholly owned subsidiary of Morgan
Stanley Dean Witter & Co.) and Miller Anderson & Sherrerd LLP (a "Subadviser"),
a wholly owned subsidiary of Morgan Stanley Dean Witter & Co., provide the Fund
with investment advisory services paid monthly and calculated at the annual
rates based on average daily net assets indicated as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
<S> <C>
First $500 million .................. .75 of 1%
Next $500 million ................... .70 of 1%
Over $1 billion ..................... .65 of 1%
</TABLE>
For the period ended June 30, 2000, the Fund recognized expenses of $4,559
representing legal services provided by Skadden, Arps, Slate, Meagher & Flom
(Illinois), counsel to the Fund, of which a director of the Fund is an
affiliated person.
For the period ended June 30, 2000, the Fund recognized expenses of $1,500
representing Van Kampen's cost of providing legal services to the Fund.
Van Kampen Investment Advisory Corp. (the "Administrator") also provides
the Fund with administrative services pursuant to an administrative agreement
for a monthly fee which on an annual basis equals 0.25% of the average daily net
assets of the Fund, plus reimbursement of out-of-pocket expenses. Under an
agreement between the Adviser and The Chase Manhattan Bank ("Chase"), through
its corporate affiliate Chase Global Funds Services Company ("CGFSC"), Chase
provides certain administrative services to the Fund. Chase is compensated for
such services by the Adviser from the fee it receives from the Fund. Transfer
Agency services are provided to the Fund by Van Kampen Investor Services Inc.,
an affiliate of the Adviser.
Van Kampen Funds Inc. (the "Distributor") a wholly owned subsidiary of Van
Kampen Investments Inc., an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co., serves as the Distributor of the Fund's shares. The
Distributor is entitled to receive from the Fund a distribution fee, which is
accrued daily and paid quarterly, of an amount of up to 0.25% of the Class A
shares and up to 1.00% of the Class B shares and Class C shares of the Fund, on
an annualized basis, of the average daily net assets attributable to each Class.
The Distributor may receive a front end sales charge for purchases of Class
A shares. In addition, the Distributor may receive a contingent deferred sales
charge for certain redemptions of Class B shares and Class C shares of the Fund
redeemed within one to five years following such purchase. For the period ended
June 30, 2000, the Distributor has advised the Fund that it earned initial sales
charges of $707,722 for Class A shares and deferred sales charges of $17,040 and
$5,028 for Class B shares and Class C shares, respectively.
24
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
Certain officers and directors of the Fund are also officers and directors
of Van Kampen. The Fund does not compensate its officers or directors who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
directors who are not officers of Van Kampen. Under the deferred compensation
plan, directors 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 director's years of service to the Fund. The maximum
annual benefit per director under the plan is $2,500.
For the period ended June 30, 2000, the Fund incurred $2,271 as brokerage
commissions with Morgan Stanley Co. Incorporated, an affiliated broker/dealer.
3. CAPITAL TRANSACTIONS
The Fund currently offers three classes of shares, Class A, Class B, and Class C
shares. All three classes of shares have identical voting, dividend, liquidation
and other rights. Class A shares are sold with a front-end sales charge of up to
5.75%. For certain purchases of Class A shares, the front-end sales charge may
be waived and a contingent deferred sales charge ("CDSC") of 1.00% imposed in
the event of certain redemptions within one year of the purchase. Class B and
Class C shares are offered without a front end sales charge, but are subject to
a CDSC. Class B shares automatically convert to Class A shares eight years after
the end of the calendar month in which the shares were purchased. For the period
ended June 30, 2000, no Class B shares converted to Class A shares. The CDSC
will be imposed on most redemptions made within five years of the purchase for
Class B shares and one year of the purchase for Class C shares as detailed in
the following schedule:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE ON ASSETS SUBJECT TO
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
Thereafter None None
</TABLE>
25
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
OCTOBER 25, 1999*
TO JUNE 30, 2000
-------------------
CAPITAL SHARES TRANSACTIONS
CLASS A:
Shares:
<S> <C>
Subscribed (Initial Shares of 70,000) ...... 3,339,022
Redeemed ................................... (467,811)
-------------
Net Increase in Class A Shares Outstanding .......... 2,871,211
==============
Dollars:
Subscribed ................................. $ 42,433,265
Redeemed ................................... (6,006,453)
-------------
Net Increase ........................................ $ 36,426,812
==============
Beginning Paid in Capital ........................... $ 700,000
==============
Ending Paid in Capital .............................. $ 37,126,812
==============
CLASS B:
Shares:
Subscribed (Initial Shares of 70,000) ...... 3,237,074
Redeemed ................................... (195,446)
-------------
Net Increase in Class B Shares Outstanding ... 3,041,628
==============
Dollars:
Subscribed ................................. $ 41,534,880
Redeemed ................................... (2,566,709)
-------------
Net Increase ................................. $ 38,968,171
==============
Beginning Paid in Capital .................... $ 700,000
==============
Ending Paid in Capital ....................... $ 39,668,171
==============
CLASS C:
Shares:
Subscribed (Initial Shares of 60,000) 1,633,460
Redeemed ............................ (129,377)
-------------
Net Increase in Class C Shares Outstanding ... 1,504,083
==============
Dollars:
Subscribed .......................... $ 19,652,724
Redeemed ............................ (1,689,370)
-------------
Net Increase ................................. $ 17,963,354
==============
Beginning Paid in Capital .................... $ 600,000
==============
Ending Paid in Capital ....................... $ 18,563,354
==============
</TABLE>
* COMMENCEMENT OF OPERATIONS
26
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
4. INVESTMENT TRANSACTIONS
For the period ended June 30, 2000, the Fund made purchases of $149,684,420 and
sales of $48,553,779 of investment securities other than long-term U.S.
government securities and short-term investments. There were no purchases or
sales of long-term U.S. government securities.
5. 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 into a $650 million committed line of credit facility
with a group of banks which expires on November 28, 2000, but is renewable with
the consent of the participating banks. Each fund is permitted to utilize the
facility in accordance with the restrictions of its prospectus. In the event the
demand for the credit facility meets or exceeds $650 million on a complex-wide
basis, each fund will be limited to its pro-rata percentage based on the net
assets of each participating fund. Interest on borrowings is charged under the
agreement at a rate of 0.50% above the federal funds rate per annum. An annual
commitment fee of 0.09% per annum is charged on the unused portion of the credit
facility, which each fund incurs based on its pro-rata percentage of quarterly
net assets. The Fund has not borrowed against the credit facility during the
period.
27
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and
Shareholders of Van Kampen
Mid Cap Growth Fund
We have audited the accompanying statement of assets and liabilities of Van
Kampen Mid Cap Growth Fund (the "Fund"), a fund of Van Kampen Series Fund, Inc.,
including the portfolio of investments, as of June 30, 2000, and the related
statements of operations, changes in net assets and the financial highlights for
the period then ended. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of June 30, 2000, by correspondence with the Fund's
custodian and brokers; where replies were not received from brokers, we
performed other auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen Mid Cap Growth Fund as of June 30, 2000, the results of its operations,
the changes in its net assets and the financial highlights for the period then
ended, in conformity with accounting principles generally accepted in the United
States of America.
DELOITTE & TOUCHE LLP
Chicago, Illinois
August 11, 2000
28
<PAGE>
FUND OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN MID CAP GROWTH FUND
BOARD OF DIRECTORS
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*
Chairman, Director, President,
Chief Executive Officer
STEPHEN L. BOYD*
Executive Vice President and
Chief Investment Officer
A. THOMAS SMITH III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Chief Financial Officer
and Treasurer
RICHARD A. CICCARONE*
JOHN R. REYNOLDSON*
MICHAEL H. SANTO*
JOSEPH P. STADLER*
JOHN H. ZIMMERMANN, III*
Vice Presidents
INVESTMENT ADVISER AND
ADMINISTRATOR
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
INVESTMENT SUBADVISER
MORGAN STANLEY DEAN WITTER INVESTMENT
MANAGEMENT INC.
1221 Avenue of the Americas
New York, New York 10020
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
CUSTODIAN
THE CHASE MANHATTAN BANK
3 MetroTech Center
Brooklyn, New York 11245
DIVIDEND DISBURSING AND TRANSFER AGENT
VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 218256
Kansas City, Missouri 64121-8256
LEGAL COUNSEL
SKADDEN, ARPS, SLATE, MEAGHER &
FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT AUDITORS(1)
DELOITTE & TOUCHE LLP
180 N. Stetson Avenue
Chicago, IL 60601
(1) Independent auditors for the Fund perform an annual audit of the Fund's
financial statements. The Board of Directors has engaged Deloitte & Touche
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.
29
<PAGE>
VAN KAMPEN
TAX MANAGED
GLOBAL FRANCHISE FUND
ANNUAL REPORT
JUNE 30, 2000
[GRAPHIC]
VAN KAMPEN
FUNDS
<PAGE>
TABLE OF CONTENTS
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 4
GROWTH OF A $10,000 INVESTMENT 5
PORTFOLIO AT A GLANCE
TOP TEN HOLDINGS 6
TOP FIVE COUNTRIES 6
Q&A WITH YOUR PORTFOLIO MANAGERS 7
GLOSSARY OF TERMS 10
BY THE NUMBERS
YOUR FUND'S INVESTMENTS 11
FINANCIAL STATEMENTS 13
NOTES TO FINANCIAL STATEMENTS 19
REPORT OF INDEPENDENT AUDITORS 27
FUND OFFICERS AND IMPORTANT ADDRESSES 28
RESULTS OF SHAREHOLDER VOTES 29
IT IS TIMES
LIKE THESE
WHEN MONEY-
MANAGEMENT
EXPERIENCE
MAY MAKE
A DIFFERENCE.
----------------------------------------------------
NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE.
----------------------------------------------------
<PAGE>
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.
OVERVIEW
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,
/s/ Richard F. Powers, III
Richard F. Powers, III
President and CEO
Van Kampen Investments
1
<PAGE>
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>
U.S. GROSS DOMESTIC PRODUCT
SEASONALLY ADJUSTED ANNUALIZED RATES
(JUNE 30, 1998 - JUNE 30, 2000)
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
<TABLE>
<S> <C>
Jun 98 2.1%
Sep 98 3.8%
Dec 98 5.9%
Mar 99 3.5%
Jun 99 2.5%
Sep 99 5.7%
Dec 99 8.3%
Mar 00 4.8%
Jun 00 5.2%
</TABLE>
SOURCE: BUREAU OF ECONOMIC ANALYSIS
INTEREST RATES AND INFLATION
(JUNE 30, 1998 - JUNE 30, 2000)
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
<S> <C>
Jun-98 5.500 1.70
Jul-98 5.500 1.70
Aug-98 5.500 1.60
Sep-98 5.250 1.50
Oct-98 5.000 1.50
Nov-98 4.750 1.50
Dec-98 4.750 1.60
Jan-99 4.750 1.70
Feb-99 4.750 1.60
Mar-99 4.750 1.70
Apr-99 4.750 2.30
May-99 4.750 2.10
Jun-99 5.000 2.00
Jul-99 5.000 2.10
Aug-99 5.250 2.30
Sep-99 5.250 2.60
Oct-99 5.250 2.60
Nov-99 5.500 2.60
Dec-99 5.500 2.70
Jan-00 5.500 2.70
Feb-00 5.750 3.20
Mar-00 6.000 3.70
Apr-00 6.000 3.00
May-00 6.500 3.10
Jun-00 6.500 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>
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(AS OF JUNE 30, 2000)
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
One-year total return based on NAV(1) 19.83% 19.09% 18.92%
--------------------------------------------------------------------------------------
One-year total return(2) 12.95% 14.09% 17.92%
--------------------------------------------------------------------------------------
Life-of-Fund average annual total return(2) 19.52% 20.74% 23.18%
--------------------------------------------------------------------------------------
Commencement date 9/25/98 9/25/98 9/25/98
--------------------------------------------------------------------------------------
</TABLE>
(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.
SEE THE COMPARATIVE PERFORMANCE SECTION OF THE CURRENT PROSPECTUS. 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.
BECAUSE THE PRICES OF COMMON STOCKS AND OTHER SECURITIES FLUCTUATE, THE
VALUE OF AN INVESTMENT IN THE FUND WILL VARY UPON THE FUND'S INVESTMENT
PERFORMANCE. FOREIGN SECURITIES MAY MAGNIFY VOLATILITY DUE TO CHANGES IN
FOREIGN EXCHANGE RATES, THE POLITICAL AND ECONOMIC UNCERTAINTIES IN FOREIGN
COUNTRIES, AND THE POTENTIAL LACK OF LIQUIDITY, GOVERNMENT SUPERVISION, AND
REGULATION.
MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO PASS.
4
<PAGE>
GROWTH OF A $10,000 INVESTMENT
(SEPTEMBER 25, 1998 - JUNE 30, 2000)
[CHART]
<TABLE>
<CAPTION>
MSCI World Index with Net Dividends
MEASURES THE PERFORMANCE OF SECURITIES
WITH REINVESTED DIVIDENDS ON THE
TAX MANAGED EXCHANGES OF NORTH AMERICA,
GLOBAL FRANCHISE FUND EUROPE, AND ASIA
<S> <C> <C>
9/98 $9,428 $10,000
12/98 $10,408 $10,591
3/99 $10,581 $10,477
6/99 $11,425 $12,882
6/00 $12,905 $14,452
Fund's Total Return
1 Year Total Return 12.95%
Inception Avg. Annual 19.52%
</TABLE>
THIS CHART COMPARES YOUR
FUND'S PERFORMANCE TO THAT
OF THE MSCI WORLD INDEX
WITH NET DIVIDENDS OVER
TIME.
THIS IS AN UNMANAGED, BROAD-BASED, STATISTICAL COMPOSITE THAT DOES NOT INCLUDE
ANY COMMISSIONS OR FEES THAT WOULD BE PAID BY AN INVESTOR PURCHASING THE
SECURITIES IT REPRESENTS. SUCH COSTS WOULD LOWER THE PERFORMANCE OF THIS INDEX.
THE HISTORICAL PERFORMANCE OF THE INDEX IS SHOWN FOR ILLUSTRATIVE PURPOSES ONLY;
IT IS NOT MEANT TO FORECAST, IMPLY, OR GUARANTEE THE FUTURE PERFORMANCE OF ANY
INVESTMENT VEHICLE. IT IS NOT POSSIBLE TO INVEST DIRECTLY IN AN INDEX.
THE ABOVE CHART REFLECTS THE PERFORMANCE OF CLASS A SHARES OF THE FUND. THE
PERFORMANCE OF CLASS A SHARES WILL DIFFER FROM THAT OF OTHER SHARE CLASSES OF
THE FUND BECAUSE OF THE DIFFERENCE IN SALES CHARGES AND/OR EXPENSES PAID BY
SHAREHOLDERS INVESTING IN THE DIFFERENT SHARE CLASSES. THE FUND'S PERFORMANCE
ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS, AND INCLUDES PAYMENT OF THE MAXIMUM
SALES CHARGE (5.75% FOR CLASS A SHARES).
WHILE PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THE ABOVE INFORMATION
PROVIDES A BROADER VANTAGE POINT FROM WHICH TO EVALUATE THE DISCUSSION OF THE
FUND'S PERFORMANCE FOUND IN THE FOLLOWING PAGES.
5
<PAGE>
PORTFOLIO AT A GLANCE
TOP TEN HOLDINGS*
(AS A PERCENTAGE OF NET ASSETS--JUNE 30, 2000)
1. CADBURY SCHWEPPES 6.3%
Manufactures candy and soft drinks, including such brands as 7 UP, Canada
Dry, Cadbury, and York.
2. CIE FINANCIERE RICHEMONT 5.3%
Markets luxury goods, including brands such as Cartier jewelry, Piaget
watches, and Montblanc pens.
3. BESTFOODS 4.9%
Manufactures food products, including such brands as Hellmann's, Skippy,
and Entenmann's.
4. WPP GROUP 4.7%
Offers creative advertising, public relations, market research, and
consulting services worldwide.
5. ALLIED DOMECQ 4.7%
Distills spirits and wines, including Kahlua liqueur, and operates retail
food chains including Dunkin' Donuts.
6. RECKITT BENCKISER 4.6%
Manufactures household, pharmaceutical, and food products.
7. BRITISH AMERICAN TOBACCO 4.5%
Distributes cigarettes and other tobacco products worldwide.
8. RALSTON-RALSTON PURINA GROUP 4.5%
Produces Purina pet food and manufactures Eveready dry cell batteries.
9. NEW YORK TIMES 4.5%
Publishes newspapers and magazines and operates television and radio
stations.
10. NESTLE 4.3%
Produces food and cosmetics, including name brands Nestea, Nestle, and
L'Oreal.
* EXCLUDES SHORT-TERM INVESTMENT
TOP FIVE COUNTRIES
(AS A PERCENTAGE OF NET ASSETS)
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
<TABLE>
<CAPTION>
June 30, 2000 June 30, 1999
<S> <C> <C>
United Kingdom 39.5% 33.4%
United States 24.8% 23.2%
Switzerland 9.6% 13.6%
France 6.3% 9.9%
Finland 3.8% 4.4%
</TABLE>
6
<PAGE>
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH THE PORTFOLIO MANAGER OF THE VAN KAMPEN TAX MANAGED
GLOBAL FRANCHISE FUND ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE
MARKETS AND INFLUENCED THE FUND'S RETURN DURING THE 12 MONTHS ENDED JUNE 30,
2000. PORTFOLIO MANAGER ANDREW BROWN, MORGAN STANLEY DEAN WITTER INVESTMENT
MANAGEMENT HAS MANAGED THE FUND SINCE ITS INCEPTION ON SEPTEMBER 25, 1998,* AND
HAS WORKED IN THE FINANCIAL INDUSTRY SINCE 1986. THE FOLLOWING DISCUSSION
REFLECTS HIS VIEWS ON THE FUND'S PERFORMANCE.
*THE FUND ADDED TAX-SENSITIVE INVESTMENT STRATEGIES EFFECTIVE APRIL 3, 2000.
Q HOW WOULD YOU DESCRIBE THE MARKET ENVIRONMENT IN WHICH THE FUND OPERATED,
AND HOW DID THE FUND PERFORM IN THAT ENVIRONMENT?
A In the United States, the Federal Reserve Board hoped to slow the pace of
the domestic economy by raising rates six times during the reporting period.
This sent ripples through Europe and depressed its stocks, as European markets
are sensitive to U.S. interest-rate changes. As Japan and other Asian markets
continued to embrace economic reform and corporate restructuring, the global
economy in general continued to grow. After swelling during the last six months
of 1999 and the first quarter of 2000, the technology bubble finally burst this
spring. This was not good news for growth stocks, many of which are technology
names. "Old economy" value stocks performed better than their growth
counterparts during the first half of 2000, which helped shrink the performance
gap between the two sectors.
The fund achieved a total return of 19.83 percent for the 12-month period
ended June 30, 2000 (CLASS A SHARES AT NET ASSET VALUE; IF THE MAXIMUM SALES
CHARGE OF 5.75 PERCENT WERE INCLUDED, THE RETURN WOULD HAVE BEEN LOWER). AS A
RESULT OF RECENT MARKET ACTIVITY, CURRENT PERFORMANCE MAY VARY FROM THE FIGURES
SHOWN. BY COMPARISON, THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) WORLD
INDEX WITH NET DIVIDENDS GENERATED A TOTAL RETURN OF 12.19 PERCENT FOR THE SAME
PERIOD. OF COURSE, PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. THE MSCI
WORLD INDEX WITH NET DIVIDENDS IS AN UNMANAGED, BROAD-BASED INDEX THAT REFLECTS
THE GENERAL PERFORMANCE OF DEVELOPED COUNTRIES' STOCK MARKETS. THIS INDEX IS A
STATISTICAL COMPOSITE THAT DOES NOT INCLUDE ANY COMMISSIONS OR SALES CHARGES
THAT WOULD BE PAID BY AN INVESTOR PURCHASING THE SECURITIES IT REPRESENTS. SUCH
COSTS WOULD LOWER THE PERFORMANCE OF THE INDEX. IT IS NOT POSSIBLE TO INVEST
DIRECTLY IN AN INDEX. 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 We are more concerned with what companies are doing than what the markets
or broad economies are doing. We seek companies that are unlikely to fluctuate
sharply in volatile markets. Therefore, we don't vary the fund's strategy when
market conditions shift.
Typically, the fund pursues a long-term investment focus and seeks
companies with
7
<PAGE>
what we believe are resilient business franchises and growth potential. These
companies tend to produce some product or service that is continuously
purchased, consumed, or required--simple things that are part of everyday life
like chocolate bars, newspapers, or television networks.
We seek to buy these companies' stocks at what we believe are good prices,
and then hold the stocks. Therefore, a lot of work goes into selecting and
monitoring these companies. We don't seek to add value by frequent
stock-trading, because trading can be costly from a tax point of view.
Q HOW DID THIS STRATEGY AFFECT THE FUND'S PERFORMANCE THROUGH THE END OF THE
REPORTING PERIOD?
A Because we try to find companies that we believe will be solid consistently
through both up and down markets, rather than trying to find high-flying
momentum stocks, the fund has historically tended to do a satisfactory job of
capital preservation when markets have fallen. The fund's performance over the
last year, and particularly since the technology correction in April 2000, has
definitely been consistent with that.
Q WHICH STOCKS PERFORMED WELL, AND WHICH STOCKS WERE DISAPPOINTMENTS DURING
THE REPORTING PERIOD?
A The top four contributors to the fund's performance during the reporting
period were:
- British American Tobacco--the second largest worldwide tobacco company
- Bestfoods--a food manufacturer whose brands include Hellmann's mayonnaise
and Knorr soups and sauces
- Reckitt Benckiser--a leading maker of household products, such as Lysol,
Woolite, and Electrasol, among others
- Television Francaise (TF1)--a leading French TV broadcaster
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.
Performance was hurt most significantly by two stocks: Fortune Brands and
New York Times. We didn't see any reason to trim or sell Fortune Brands, a U.S.
holding company whose subsidiaries produce a variety of products, including
Titleist golf balls and Jim Beam beverages. Most of its underlying businesses
are very attractive, in our view, and the stock is very cheap. We also didn't
trim or sell New York Times, which was one of the fund's top holdings. We
believe it owns one of the strongest newspaper franchises in the world, its
circulation is growing, and we don't believe it's overvalued.
Q WHAT MAJOR CHANGES DID YOU MAKE TO THE FUND'S PORTFOLIO DURING THE
REPORTING PERIOD?
A In the first quarter of 2000, market conditions presented an unusual
opportunity that generated more trading than what is typical for the fund. In
Europe, some of the traditional media companies got caught up in the
telecommunications-media-technology (TMT) frenzy during late February and early
March. These media companies were perceived as the great beneficiaries of the
Internet, and their share prices went through the roof. We took advantage of
this overvaluation and locked in the price appreciation by selling the fund's
8
<PAGE>
position in TF1 and reducing its holdings in other European media companies.
We used the proceeds to invest in a number of "old economy" stocks that had
become extremely low-priced as investors abandoned them in their rush to buy TMT
stocks. One of these was British American Tobacco, which turned out to be the
biggest contributor to fund performance in the last six months. Another was
Diageo, the world's largest wine and spirits company, whose brands include
Johnnie Walker, Smirnoff, and Bailey's. We think the market ignored the fact
that spirits consumption in the world's most important market, the United
States, has started to rise after a generation of decline. We also added to our
existing positions in Allied Domecq, the world's second-largest spirits company,
and Brown-Forman, the owner of Jack Daniel's brand products.
Q WHEN THE FUND'S TAX-MANAGED STRATEGY WAS INCORPORATED ON APRIL 3, 2000,
SHAREHOLDERS RECEIVED UPDATED PROSPECTUSES AND LETTERS EXPLAINING THE
CHANGE. HOW DOES THIS NEW STRATEGY AFFECT THE WAY YOU MANAGE THE FUND?
A Although the tax-managed strategy was not officially incorporated until
recently, we have typically pursued a buy and hold strategy. This strategy helps
to minimize turnover, which generally reduces the fund's capital gains, upon
which shareholders must pay tax.
We also manage the portfolio with an eye on short-term capital gains, which
are taxed at a higher rate than long-term gains. Here's an example of how we try
to manage for tax efficiency: Bestfoods, one of the biggest contributors to
performance in 2000, announced recently that it had agreed to be acquired by
Unilever. Arguably, we could sell the fund's Bestfoods shares now and invest the
cash in other stocks. However, we purchased Bestfoods shares over time, and we
don't want to sell the shares until they have been held by the fund for a year,
thereby qualifying as long-term capital gains. That way, the bulk of the
proceeds from the sale of Bestfoods shares would be taxed at the long-term rate,
and only a small portion will be taxed at the short-term rate. Keep in mind
there is no guarantee that the fund will hold Bestfoods for the necessary
period.
Q WHAT IS YOUR OUTLOOK FOR THE FUND AND THE GLOBAL MARKETS IN THE MONTHS
AHEAD?
A Looking ahead, there seems to be a backdrop of monetary tightening and
inflation around the world and especially in the United States. We believe this
will increase volatility in the global markets as central banks worldwide try to
figure out how much tightening is required to control inflation. These economic
conditions tend to be challenging for economically sensitive companies, and make
it difficult for high-priced growth companies to sustain their lofty stock
prices. It's also tough for companies that rely heavily on borrowed money to
operate their businesses. Finally, we do not believe that the downward lurch in
technology stocks is over. Given these factors, the coming months may be
challenging for equity investors in general.
However, the fund's strategy seeks companies that do not require borrowed
money to prosper, are generally not economically sensitive, and tend not to be
expensive growth stocks. We believe the fund's shareholders will be rewarded by
this approach over the long term.
9
<PAGE>
GLOSSARY OF TERMS A HELPFUL GUIDE TO SOME OF THE COMMON
TERMS YOU'RE LIKELY TO SEE IN THIS
REPORT AND OTHER FINANCIAL PUBLICATIONS.
CLASS A SHARES: A division of mutual fund shares, which are generally divided
into three groupings, called Class A, Class B, and Class C shares. The specific
features of each are dependent on varying fees and sales charges. In most cases,
Class A shares will have no redemption fee (contingent deferred sales charge).
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.
NET ASSET VALUE (NAV): The value of a mutual fund share, calculated by deducting
a fund's liabilities from the total assets in its portfolio and dividing this
amount by the number of shares outstanding. The NAV does not include any initial
or contingent deferred sales charge.
NEW ECONOMY: Refers to the electronic and high-tech sectors such as the
Internet, telecommunications, biochemicals, and semiconductors.
OLD ECONOMY: Refers to established companies focusing more on industrial and
manufacturing services.
SALES CHARGE: Also referred to as the load, this is a fee paid by a buyer to
acquire shares in a mutual fund or a limited partnership.
VALUE INVESTING: A strategy that seeks to identify stocks that are sound
investments but are temporarily out of favor in the marketplace. As a result,
the stocks trade at prices below what value investors believe the stocks are
actually worth.
10
<PAGE>
BY THE NUMBERS
YOUR FUND'S INVESTMENTS THE FOLLOWING PAGES DETAIL YOUR FUND'S
JUNE 30, 2000 PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
COMMON STOCKS 91.6%
CANADA 3.0%
Torstar Corp. 'B' ............................. 14,480 $ 166,403
-------------
FINLAND 3.8%
Kone Corp. Oy 'B' ............................. 2,803 168,430
Rapala Normark Corp. .......................... 8,100 47,900
-------------
216,330
-------------
FRANCE 6.3%
Groupe Danone ................................. 1,514 200,723
Pernod-Ricard ................................. 2,820 153,314
-------------
354,037
-------------
ITALY 1.3%
Mediaset S.p.A ................................ 4,710 71,878
-------------
SPAIN 3.3%
Zardoya-Otis S.A. ............................. 20,935 185,301
-------------
SWITZERLAND 9.6%
Cie Financiere Richemont AG 'A' ............... 110 296,032
Nestle S.A. (Registered) ...................... 122 243,910
-------------
539,942
-------------
UNITED KINGDOM 39.5%
Allied Domecq plc ............................. 49,600 262,605
British American Tobacco plc .................. 38,100 254,165
Cadbury Schweppes plc ......................... 54,000 354,516
Capital Radio plc ............................. 3,400 79,462
Diageo plc .................................... 21,982 197,185
Great Universal Stores plc .................... 16,100 103,506
Imperial Tobacco Group plc .................... 24,787 237,345
Reckitt Benckiser plc ......................... 23,204 259,745
SMG plc (a) ................................... 36,808 198,497
Ulster Television plc ......................... 3,086 13,865
WPP Group plc ................................. 18,150 264,946
-------------
2,225,837
-------------
UNITED STATES 24.8%
Bestfoods ..................................... 3,950 273,537
Brown-Forman Corp. 'B' ........................ 4,425 237,844
Fortune Brands, Inc. .......................... 7,520 173,430
New York Times Co. 'A' ........................ 6,425 253,788
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS 11
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
UNITED STATES (CONTINUED)
Philip Morris Cos., Inc. ...................... 4,710 $ 125,109
Ralston-Ralston Purina Group .................. 12,730 253,804
WD-40 Co. ..................................... 3,890 80,718
-------------
1,398,230
-------------
TOTAL LONG-TERM INVESTMENTS 91.6%
(Cost $4,728,446) ........................................ 5,157,958
-------------
<CAPTION>
PAR
VALUE
<S> <C> <C>
SHORT-TERM INVESTMENT 10.1%
REPURCHASE AGREEMENT 10.1%
Chase Securities, Inc. 6.15%, dated ........... $ 566,000
6/30/00, due due 7/3/00, to be
repurchased at $566,290
collateralized by $600,000 U.S.
Treasury Notes 5.50%, due 5/15/09,
valued at $578,250
(Cost $566,000) .......................................... 566,000
-------------
TOTAL INVESTMENTS IN SECURITIES 101.7%
(Cost $5,294,446) ........................................ 5,723,958
FOREIGN CURRENCY 0.0%
(Cost $1,206) ............................................ 1,207
-------------
TOTAL INVESTMENTS 101.7%
(Cost $5,295,652) ........................................ 5,725,165
LIABILITIES IN EXCESS OF OTHER ASSETS -1.7% .................. (95,194)
-------------
NET ASSETS 100% .............................................. $5,629,971
=============
</TABLE>
(a) NON-INCOME PRODUCING SECURITY
SUMMARY OF LONG-TERM INVESTMENTS BY INDUSTRY CLASSIFICATION+
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
<S> <C> <C>
Consumer Staples ............. $3,349,835 59.5%
Consumer Discretionary ....... 1,373,674 24.4
Industrials .................. 353,731 6.3
Materials .................... 80,718 1.4
---------- ----
$5,157,958 91.6%
========== ====
</TABLE>
+ THE COMMON STOCKS ARE CLASSIFIED BY SECTORS WHICH REPRESENT BROAD GROUPINGS OF
RELATED INDUSTRIES
12 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
JUNE 30, 2000
<TABLE>
<S> <C>
ASSETS:
Investments at Value (Cost $5,294,446) (Including repurchase
agreement of $566,000) ......................................... $5,723,958
Foreign Currency (Cost $1,206) ................................... 1,207
Cash ............................................................. 753
Receivable for:
Fund Shares Sold ............................................... 63,642
Dividends ...................................................... 8,062
Foreign Withholding Tax Reclaim ................................ 1,452
Interest ....................................................... 97
Receivable from Investment Adviser ............................... 38,105
Net Unrealized Gain on Foreign Currency Exchange Contracts ....... 2,855
Other ............................................................ 38,515
----------
Total Assets ................................................. 5,878,646
----------
LIABILITIES:
Payable for:
Investments Purchased .......................................... 164,864
Professional Fees .............................................. 45,589
Directors' Fees and Expenses ................................... 22,703
Distribution Fees .............................................. 6,180
Custody Fees ................................................... 4,306
Administrative Fees ............................................ 2,511
Transfer Agent Fees ............................................ 1,087
Fund Shares Redeemed ........................................... 1,076
Other ............................................................ 359
----------
Total Liabilities ............................................ 248,675
----------
NET ASSETS ....................................................... $5,629,971
==========
NET ASSETS CONSIST OF:
Capital Stock at Par ($.001 par value, Shares
Authorized 2,625,000,000) ...................................... $ 409
Paid in Capital in Excess of Par ................................. 4,691,711
Accumulated Net Realized Gain .................................... 460,818
Net Unrealized Appreciation on Investments
and Foreign Currency Translations .............................. 431,340
Accumulated Net Investment Income ................................ 45,693
----------
NET ASSETS ....................................................... $5,629,971
==========
Class A Shares:
Net Asset Value and Redemption Price Per Share (Based on Net
Assets of $1,902,238 and 138,012 Shares Outstanding) ......... $ 13.78
==========
Maximum Sales Charge ......................................... 5.75%
Maximum Offering Price Per Share (Net Asset Value
Per Share x 100/ (100% - maximum sales charge)) .............. $ 14.62
==========
Class B Shares:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $1,949,477 and 142,027 Shares Outstanding)* ........ $ 13.73
==========
Class C Shares:
Net Asset Value and Offering Price Per Share (Based on Net
Assets of $1,778,256 and 128,616 Shares Outstanding)* ........ $ 13.83
==========
</TABLE>
* REDEMPTION PRICE MAY BE SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE.
SEE NOTES TO FINANCIAL STATEMENTS 13
<PAGE>
Statement of Operations
YEAR ENDED JUNE 30, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends ........................................................ $ 89,979
Interest ......................................................... 10,622
Less Foreign Taxes Withheld ...................................... (7,299)
----------
Total Income ................................................. 93,302
----------
EXPENSES:
Filing and Registration Fees ..................................... 67,744
Shareholder Reports .............................................. 50,215
Professional Fees ................................................ 48,293
Investment Advisory Fees ......................................... 36,821
Distribution Fees (Attributed to Classes A, B and C
of $3,434, $9,909 and $13,179, respectively) ................... 26,522
Directors' Fees and Expenses ..................................... 22,542
Administrative Fees .............................................. 13,674
Custodian Fees ................................................... 7,330
Other ............................................................ 768
----------
Total Expenses ............................................... 273,909
Less Expense Reductions ...................................... (189,166)
----------
Net Expenses ................................................. 84,743
----------
NET INVESTMENT INCOME ............................................ $ 8,559
==========
NET REALIZED GAIN/LOSS ON:
Investments ...................................................... $ 483,286
Foreign Currency Transactions .................................... 49,912
----------
Net Realized Gain ................................................ 533,198
----------
NET UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period ........................................ 252,540
----------
End of the Period:
Investments .................................................. 429,512
Foreign Currency Translations ................................ 1,828
----------
431,340
----------
Net Change in Unrealized Appreciation/Depreciation ............... 178,800
----------
NET REALIZED GAIN/LOSS AND NET CHANGE IN UNREALIZED
APPRECIATION/DEPRECIATION ...................................... $ 711,998
==========
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ............. $ 720,557
==========
</TABLE>
14 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
Statement of Changes in Net Assets
YEAR ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 25, 1998*
JUNE 30, 2000 TO JUNE 30, 1999**
------------- -------------------
<S> <C> <C>
INCREASE/DECREASE IN NET ASSETS
OPERATIONS:
Net Investment Income ..................................... $ 8,559 $ 14,000
Net Realized Gain ......................................... 533,198 22,000
Net Change in Unrealized Appreciation/Depreciation ........ 178,800 253,000
---------- ----------
Net Increase in Net Assets Resulting from Operations ...... 720,557 289,000
---------- ----------
DISTRIBUTIONS:
Net Investment Income:
Class A ................................................. (33,675) (7,000)
Class B ................................................. (16,964) (4,000)
Class C ................................................. (23,967) (5,000)
---------- ----------
(74,606) (16,000)
---------- ----------
Net Realized Gain:
Class A ................................................. (18,765) --
Class B ................................................. (13,405) --
Class C ................................................. (18,999) --
---------- ----------
(51,169) --
---------- ----------
Net Decrease in Net Assets Resulting
from Distributions ...................................... (125,775) (16,000)
---------- ----------
CAPITAL SHARES TRANSACTIONS:
Subscribed ................................................ 3,148,771 1,012,000
Distributions Reinvested .................................. 74,281 3,000
Redeemed ............................[caad 234]I...................... (471,121) (5,000)
---------- ----------
Net Increase in Net Assets Resulting from
Capital Share Transactions .............................. 2,751,931 1,010,000
---------- ----------
Total Increase in Net Assets .............................. 3,346,713 1,283,000
NET ASSETS--Beginning of Period ........................... 2,283,258 1,000,000
---------- ----------
NET ASSETS--End of Period (Including accumulated
net investment income of $45,693 and
$48,000, respectively) .................................. $5,629,971 $2,283,000
========== ==========
</TABLE>
* COMMENCEMENT OF OPERATIONS
** AMOUNTS ROUNDED TO THE NEAREST (000).
SEE NOTES TO FINANCIAL STATEMENTS 15
<PAGE>
Financial Highlights THE FOLLOWING SCHEDULE PRESENTS
FINANCIAL HIGHLIGHTS FOR ONE SHARE OF
THE FUND OUTSTANDING THROUGHOUT THE
PERIOD INDICATED.
<TABLE>
<CAPTION>
SEPTEMBER 25,
YEAR ENDED 1998* TO
JUNE 30, 2000# JUNE 30, 1999#
-------------- --------------
<S> <C> <C>
CLASS A SHARES
NET ASSET VALUE, BEGINNING OF PERIOD ....................... $ 11.98 $ 10.00
------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income .................................... 0.08 0.14
Net Realized and Unrealized Gain ......................... 2.22 1.97
------- -------
Total From Investment Operations ........................... 2.30 2.11
------- -------
DISTRIBUTIONS
Net Investment Income .................................... (0.32) (0.13)
Net Realized Gain ........................................ (0.18) --
------- -------
Total Distributions ........................................ (0.50) (0.13)
------- -------
NET ASSET VALUE, END OF PERIOD ............................. $ 13.78 $ 11.98
------- -------
TOTAL RETURN (1) ........................................... 19.83% 21.22%**
======= =======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) .......................... $1,902 $1,189
Ratio of Expenses to Average Net Assets .................... 1.80% 1.80%
Ratio of Net Investment Income to Average Net Assets ....... 0.70% 1.57%
Portfolio Turnover Rate .................................... 29% 9%**
----------------------------------------------------------------------------------------------
Effect of Voluntary Expense Reductions During the Period
Per Share Benefit to Net Investment Income ............... $0.66 $1.02
Ratios Before Expense Reductions:
Expenses to Average Net Assets ........................... 7.17% 13.55%
Net Investment Income/Loss to Average Net Assets ......... (4.67%) (10.17%)
----------------------------------------------------------------------------------------------
</TABLE>
* COMMENCEMENT OF OPERATIONS
** NON-ANNUALIZED
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED SALES
CHARGES.
# CHANGES PER SHARE ARE BASED UPON DAILY AVERAGE SHARES OUTSTANDING.
16 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
Financial Highlights THE FOLLOWING SCHEDULE PRESENTS
FINANCIAL HIGHLIGHTS FOR ONE SHARE OF
THE FUND OUTSTANDING THROUGHOUT THE
PERIOD INDICATED.
<TABLE>
<CAPTION>
SEPTEMBER 25,
YEAR ENDED 1998* TO
JUNE 30, 2000# JUNE 30, 1999#
-------------- --------------
<S> <C> <C>
CLASS B SHARES
NET ASSET VALUE, BEGINNING OF PERIOD ....................... $ 11.92 $ 10.00
------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss ............................... (0.01) 0.07
Net Realized and Unrealized Gain ......................... 2.22 1.96
------- -------
Total From Investment Operations ........................... 2.21 2.03
------- -------
DISTRIBUTIONS
Net Investment Income .................................... (0.22) (0.11)
Net Realized Gain ........................................ (0.18) --
------- -------
Total Distributions (0.40) (0.11)
------- -------
NET ASSET VALUE, END OF PERIOD ............................. $ 13.73 $ 11.92
------- -------
TOTAL RETURN (1) ........................................... 19.09% 20.40%**
======= =======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) .......................... $ 1,950 $ 614
Ratio of Expenses to Average Net Assets .................... 2.55% 2.55%
Ratio of Net Investment Income/Loss to Average Net Assets .. (0.04%) 0.77%
Portfolio Turnover Rate .................................... 29% 9%**
----------------------------------------------------------------------------------------------
Effect of Voluntary Expense Reductions During the Period
Per Share Benefit to Net Investment Income/Loss .......... $0.69 $1.02
Ratios Before Expense Reductions:
Expenses to Average Net Assets ........................... 8.17% 14.45%
Net Investment Income/Loss to Average Net Assets ......... (5.93%) (11.12%)
----------------------------------------------------------------------------------------------
</TABLE>
* COMMENCEMENT OF OPERATIONS
** NON-ANNUALIZED
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED SALES
CHARGES.
# CHANGES PER SHARE ARE BASED UPON DAILY AVERAGE SHARES OUTSTANDING.
SEE NOTES TO FINANCIAL STATEMENTS 17
<PAGE>
Financial Highlights THE FOLLOWING SCHEDULE PRESENTS
FINANCIAL HIGHLIGHTS FOR ONE SHARE OF
THE FUND OUTSTANDING THROUGHOUT THE
PERIOD INDICATED.
<TABLE>
<CAPTION>
SEPTEMBER 25,
YEAR ENDED 1998* TO
JUNE 30, 2000# JUNE 30, 1999#
-------------- --------------
<S> <C> <C>
CLASS C SHARES
NET ASSET VALUE, BEGINNING OF PERIOD ....................... $ 12.02 $ 10.00
------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss ............................... 0.00+ 0.06
Net Realized and Unrealized Gain ......................... 2.21 2.07
------- -------
Total From Investment Operations ........................... 2.21 2.13
------- -------
DISTRIBUTIONS
Net Investment Income .................................... (0.22) (0.11)
Net Realized Gain ........................................ (0.18) --
------- -------
Total Distributions ........................................ (0.40) (0.11)
------- -------
NET ASSET VALUE, END OF PERIOD ............................. $ 13.83 $ 12.02
------- -------
TOTAL RETURN (1) ........................................... 18.92% 21.40%**
======= =======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) .......................... $ 1,778 $ 480
Ratio of Expenses to Average Net Assets .................... 2.55% 2.55%
Ratio of Net Investment Income/Loss to Average Net Assets .. (0.02%) 0.69%
Portfolio Turnover Rate .................................... 29% 9%**
----------------------------------------------------------------------------------------------
Effect of Voluntary Expense Reductions During the Period
Per Share Benefit to Net Investment Income/Loss .......... $0.57 $1.16
Ratios Before Expense Reductions:
Expenses to Average Net Assets ........................... 7.15% 16.07%
Net Investment Income/Loss to Average Net Assets ......... (4.59%) (12.83%)
----------------------------------------------------------------------------------------------
</TABLE>
* COMMENCEMENT OF OPERATIONS
** NON-ANNUALIZED
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED SALES
CHARGES.
# CHANGES PER SHARE ARE BASED UPON DAILY AVERAGE SHARES OUTSTANDING.
+ AMOUNT IS LESS THAN $0.01 PER SHARE.
18 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
The Van Kampen Tax Managed Global Franchise Fund (formerly Van Kampen
Global Franchise Fund) (the "Fund") is organized as a separate diversified fund
of Van Kampen Series Fund, Inc., a Maryland corporation, which is registered as
an open-end management investment company under the Investment Company Act of
1940, as amended. The Fund's investment objective seeks long-term capital
appreciation. The Fund commenced operations on September 25, 1998. The Fund
added tax sensitive investment strategies on April 3, 2000.
1. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of the financial statements in conformity with accounting principles
accepted in the United States of America (hereafter "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 period. Actual results
could differ from those estimates.
A. SECURITY VALUATION Equity securities listed on a U.S. exchange and equity
securities traded on NASDAQ are valued at the latest quoted sales price on the
valuation date. Securities listed on a foreign exchange are valued at their
closing price. Unlisted securities and listed securities not traded on the
valuation date for which market quotations are readily available are valued at
the average between the bid and asked prices obtained from reputable brokers.
Debt securities purchased with remaining maturities of 60 days or less are
valued at amortized cost, which approximates market value. All other securities
and assets for which market quotations are not readily available are valued at
fair value as determined in good faith using procedures approved by the Board of
Directors.
B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen Investment Advisory Corp. or its affiliates, the
daily aggregate of which is invested in repurchase agreements. Repurchase
agreements are fully collateralized by the underlying debt security. A bank as
custodian for the Fund takes possession of the underlying securities, with a
market value at least equal to the amount of the repurchase transac-
19
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
tion, including principal and accrued interest. To the extent that any
repurchase transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to determine the adequacy of the collateral.
In the event of default on the obligation to repurchase, the Fund has the right
to liquidate the collateral and apply the proceeds in satisfaction of the
obligation. In the event of default or bankruptcy by the counterparty to the
agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
C. INCOME AND EXPENSES Interest income is recorded on an accrual basis and
dividend income is recorded net of applicable withholding taxes on the
ex-dividend date. Income, expenses, and realized and unrealized gains or losses
are allocated on a pro rata basis to each class of shares except for
distribution and service fees which are unique to each class of shares.
Distributions from the Fund are recorded on the ex-distribution date.
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. The Fund may be
subject to taxes imposed by countries in which it invests. Such taxes are
generally based on income earned or gains realized or repatriated. Taxes are
accrued and applied to net investment income, net realized capital gains and net
unrealized appreciation, as applicable, as the income is earned or capital gains
are recorded.
At June 30, 2000, for federal income tax purposes, cost of long- and
short-term investments is $5,294,446; the aggregate gross unrealized
appreciation is $729,408 and the aggregate gross unrealized depreciation is
$299,896, resulting in net unrealized appreciation on long- and short-term
investments of $429,512.
E. DISTRIBUTION OF INCOME AND GAINS The Fund declares and pays dividends
annually from net investment income and net realized gains, if any.
Distributions from net realized gains for book purposes may include short-term
capital gains which are included as ordinary income for tax purposes.
Due to inherent differences in the recognition of income and expenses under
generally accepted accounting principles and federal income tax purposes,
permanent differences between book and tax basis reporting for the current
fiscal year have been identified and appropriately reclassified. A permanent
difference of $13,425 related to non-deductible organization costs has been
reclassified from paid in capital in excess of par to accumulated undistributed
net investment income. A permanent difference related to recognized currency
gains totaling $49,912 was reclassified from accumulated net realized gain to
accumulated net investment income.
20
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
Permanent book to tax basis differences are not included in ending
undistributed/distributions in excess of net investment income for the purpose
of calculating net investment income/loss per share in the Financial Highlights.
F. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS Assets and liabilities
denominated in foreign currencies and commitments under forward currency
contracts are translated into U.S. dollars at the mean of the quoted bid and
asked prices of such currencies against the U.S. dollar. Purchases and sales of
portfolio securities are translated at the rate of exchange prevailing when such
securities were acquired or sold. Income and expenses are translated at rates
prevailing when accrued. Realized and unrealized gains and losses on securities
resulting from changes in exchange rates are not segregated for financial
reporting purposes from amounts arising from changes in the market prices of
securities. Realized gains and losses on foreign currency transactions includes
the net realized amount from the sale of the currency and the amount realized
between trade date and settlement date on security and income transactions.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Van Kampen Investment Advisory Corp. (the "Adviser"), a wholly owned subsidiary
of Van Kampen Investments Inc. (an indirect wholly owned subsidiary of Morgan
Stanley Dean Witter & Co.) and Morgan Stanley Dean Witter Investment Management
Inc., a wholly owned subsidiary of Morgan Stanley Dean Witter & Co., provide the
Fund with investment advisory services at a fee paid monthly and calculated at
the annual rates based on average daily net assets indicated as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
<S> <C>
First $500 million .............................................. 1.00 of 1%
Next $500 million ............................................... .95 of 1%
Over $1 billion ................................................. .90 of 1%
</TABLE>
The Adviser has agreed to reduce advisory fees payable to it and to
reimburse the Fund, if necessary, if the annual operating expenses, expressed as
a percentage of average daily net assets, exceed the maximum ratios indicated as
follows:
<TABLE>
<CAPTION>
CLASS B
CLASS A AND CLASS C
MAX. OPERATING MAX. OPERATING
EXPENSE RATIO EXPENSE RATIO
<S> <C>
1.80% 2.55%
</TABLE>
For the period ended June 30, 2000, the Adviser voluntarily waived $189,166
of its investment advisory fees. This waiver is voluntary in nature and can be
discontinued at the Adviser's discretion.
21
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
For the period ended June 30, 2000, the Fund recognized expenses of $43,782
representing legal services provided by Skadden, Arps, Slate, Meagher & Flom
(Illinois), counsel to the Fund, of which a director of the Fund is an
affiliated person.
For the period ended June 30, 2000, the Fund recognized expenses of $6,041
representing Van Kampen's cost of providing legal services to the Fund.
At June 30, 2000, Van Kampen Funds, Inc. owned 29%, 21%, and 23% of the
shares outstanding of each Class A, B, and C shares in the Fund.
Van Kampen Investment Advisory Corp. (the "Administrator") also provides
the Fund with administrative services pursuant to an administrative agreement
for a monthly fee which on an annual basis equals 0.25% of the average daily net
assets of the portfolio, plus reimbursement of out-of-pocket expenses. Under an
agreement between the Adviser and The Chase Manhattan Bank ("Chase"), through
its corporate affiliate Chase Global Funds Services Company ("CGFSC"), Chase
provides certain administrative services to the Fund. Chase is compensated for
such services by the Adviser from the fee it receives from the Fund. Transfer
Agency services are provided to the Fund by Van Kampen Investor Services Inc.,
an affiliate of the Adviser.
Van Kampen Funds Inc. (the "Distributor") a wholly owned subsidiary of Van
Kampen Investments Inc., an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co., serves as the Distributor of the Fund's shares. The
Distributor is entitled to receive from the Fund a distribution fee, which is
accrued daily and paid quarterly, of an amount of up to 0.25% of the Class A
shares and up to 1.00% of the Class B shares and Class C shares of the Fund, on
an annualized basis, of the average daily net assets attributable to each Class.
The Distributor may receive a front end sales charge for purchases of
Class A shares. In addition, the Distributor may receive a contingent deferred
sales charge for certain redemptions of Class B shares and Class C shares of the
Fund redeemed within one to five years following such purchase. For the period
ended June 30, 2000, the Distributor has advised the Fund that it earned initial
sales charges of $13,422 for Class A shares and a deferred sales charge of
$4,954 and $10 for Class B shares and Class C shares, respectively.
Certain officers and directors of the Fund are also officers and directors
of Van Kampen. The Fund does not compensate its officers or directors who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
directors who are not officers of Van Kampen. Under the deferred compensation
plan, Directors 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 Director's years of service to the Fund. The maximum
annual benefit per director under the plan is $2,500.
For the period ended June 30, 2000, the Fund incurred $1,664 as brokerage
commissions with Morgan Stanley & Co. Incorporated, an affiliated broker/dealer.
22
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
3. CAPITAL TRANSACTIONS
The Fund currently offers three classes of shares, Class A, Class B, and Class C
shares. All three classes of shares have identical voting, dividend, liquidation
and other rights. Class A shares are sold with a front-end sales charge of up to
5.75%. For certain purchases of Class A shares, the front-end sales charge may
be waived and a contingent deferred sales charge ("CDSC") of 1.00% imposed in
the event of certain redemptions within one year of the purchase. Class B and
Class C shares are offered without a front end sales charge, but are subject to
a 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 automatically convert to Class A shares
seven years after the end of the calendar month in which the shares were
purchased. For the period ended June 30, 2000, no Class B shares converted to
Class A shares. The CDSC will be imposed on most redemptions made within five
years of the purchase for Class B shares and one year of the purchase for
Class C shares as detailed in the following schedule:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE ON ASSETS SUBJECT TO
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
Thereafter ..................................... None None
</TABLE>
23
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 25, 1998*
JUNE 30, 2000 TO JUNE 30, 1999**
-------------- -------------------
<S> <C> <C>
CAPITAL SHARE TRANSACTIONS
CLASS A:
Shares:
Subscribed (Initial Shares of 40,000) ................ 49,508 99,000
Distributions Reinvested ............................. 2,480 --
Redeemed ............................................. (13,256) --
---------- ----------
Net Increase in Class A Shares Outstanding .............. 38,732 99,000
========== ==========
Dollars:
Subscribed ........................................... $ 634,093 $ 667,000
Distributions Reinvested ............................. 29,563 2,000
Redeemed ............................................. (165,730) (2,000)
---------- ----------
Net Increase ............................................ $ 497,926 $ 667,000
========== ==========
Beginning Paid in Capital ............................... $1,067,082 $ 400,000
========== ==========
Ending Paid in Capital .................................. $1,535,322+ $1,067,000+
========== ==========
CLASS B:
Shares:
Subscribed (Initial Shares of 30,000) ................ 108,584 52,000
Distributions Reinvested ............................. 1,442 --
Redeemed ............................................. (19,521) --
---------- ----------
Net Increase in Class B Shares Outstanding .............. 90,505 52,000
========== ==========
Dollars:
Subscribed ........................................... $1,382,290 $ 242,000
Distributions Reinvested ............................. 17,184 1,000
Redeemed ............................................. (241,657) --
---------- ----------
Net Increase ............................................ $1,157,817 $ 243,000
========== ==========
Beginning Paid in Capital ............................... $ 543,685 $ 300,000
========== ==========
Ending Paid in Capital .................................. $1,686,169+ $ 543,000+
========== ==========
CLASS C:
Shares:
Subscribed (Initial Shares of 30,000) ................ 91,462 40,000
Distributions Reinvested ............................. 2,292 --
Redeemed ............................................. (5,052) --
---------- ----------
Net Increase in Class C Shares Outstanding .............. 88,702 40,000
========== ==========
Dollars:
Subscribed ........................................... $1,132,388 $ 103,000
Distributions Reinvested ............................. 27,534 --
Redeemed ............................................. (63,734) (3,000)
---------- ----------
Net Increase ............................................ $1,096,188 $ 100,000
========== ==========
Beginning Paid in Capital ............................... $ 399,839 $ 300,000
========== ==========
Ending Paid in Capital .................................. $1,484,054+ $ 400,000+
========== ==========
</TABLE>
* COMMENCEMENT OF OPERATIONS
** AMOUNTS ROUNDED TO THE NEAREST (000).
+ ENDING PAID IN CAPITAL AMOUNTS DO NOT REFLECT PERMANENT BOOK TO TAX
DIFFERENCES--SEE NOTE 1E.
24
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
4. INVESTMENT TRANSACTIONS
For the period ended June 30, 2000, the Fund made purchases of $3,189,508 and
sales of $1,001,603 of investment securities other than long-term U.S.
government securities and short-term investments. There were no purchases or
sales of long-term U.S. government securities.
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 and to manage the portfolio's foreign currency exposure or generate
potential gain. All of the Fund's portfolio holdings, including derivative
instruments, are marked-to-market each day with the change in value reflected in
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 or forward contract. In these
instances, the recognition of gain or loss is postponed until the disposal of
the security underlying the option or forward contract. Risks may arise as a
result of the potential inability of the counterparties to meet the terms of
their contracts.
Summarized below are the specific types of derivative financial instruments
used by the Fund.
A. FORWARD CURRENCY CONTRACTS These instruments are commitments to purchase or
sell a foreign currency at a future date at a negotiated forward rate. The gain
or loss arising from the difference between the original value of the contract
and the closing value of such contract is included as a component of realized
gain/loss on foreign currency transactions.
At June 30, 2000, the Fund has outstanding forward currency contracts as
follows:
<TABLE>
<CAPTION>
CURRENT UNREALIZED
FORWARD CURRENCY CONTRACTS VALUE APPRECIATION
<S> <C> <C>
SHORT CONTRACTS:
British Pounds, 600,002
expiring 8/2/00 $908,186 $2,855
</TABLE>
25
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
6. BORROWINGS
In accordance with its investment policies, the Fund may borrow from banks for
temporary purposes and is subject to certain other customary restrictions.
Effective November 30, 1999, the Fund, in conjunction with certain other funds
of Van Kampen, has entered into a $650 million committed line of credit facility
with a group of banks which expires on November 28, 2000, but is renewable with
the consent of the participating banks. Each fund is permitted to utilize the
facility in accordance with the restrictions of its prospectus. In the event the
demand for the credit facility meets or exceeds $650 million on a complex-wide
basis, each fund will be limited to its pro-rata percentage based on the net
assets of each participating fund. Interest on borrowings is charged under the
agreement at a rate of 0.50% above the federal funds rate per annum. An annual
commitment fee of 0.09% per annum is charged on the unused portion of the credit
facility, which each fund incurs based on its pro-rata percentage of quarterly
net assets. The Fund has not borrowed against the credit facility during the
period.
26
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and
Shareholders of Van Kampen Tax
Managed Global Franchise Fund
We have audited the accompanying statement of assets and liabilities of Van
Kampen Tax Managed Global Franchise Fund (the "Fund"), a fund of Van Kampen
Series Fund, Inc., including the portfolio of investments, as of June 30, 2000,
and the related statements of operations, changes in net assets and the
financial highlights for the year then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit. The Fund's financial statements and
financial highlights for the period ended prior to June 30, 2000, were audited
by other auditors whose report, dated August 6, 1999, expressed an unqualified
opinion on those statements.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of June 30, 2000, by correspondence with the Fund's
custodian and brokers; where replies were not received from brokers, we
performed other auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen Tax Managed Global Franchise Fund as of June 30, 2000, the results of its
operations, the changes in its net assets and the financial highlights for the
year then ended, in conformity with accounting principles generally accepted in
the United States of America.
DELOITTE & TOUCHE LLP
Chicago, Illinois
August 11, 2000
27
<PAGE>
FUND OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN TAX MANAGED GLOBAL FRANCHISE FUND
BOARD OF DIRECTORS
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*
Chairman, Director, President,
Chief Executive Officer
STEPHEN L. BOYD*
Executive Vice President and
Chief Investment Officer
A. THOMAS SMITH III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Chief Financial Officer
and Treasurer
RICHARD A. CICCARONE*
JOHN R. REYNOLDSON*
MICHAEL H. SANTO*
JOSEPH P. STADLER*
JOHN H. ZIMMERMANN, III*
Vice Presidents
INVESTMENT ADVISER AND
ADMINISTRATOR
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
INVESTMENT SUBADVISER
MORGAN STANLEY DEAN WITTER INVESTMENT
MANAGEMENT INC.
1221 Avenue of the Americas
New York, New York 10020
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
CUSTODIAN
THE CHASE MANHATTAN BANK
3 MetroTech Center
Brooklyn, New York 11245
DIVIDEND DISBURSING AND TRANSFER
AGENT
VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 218256
Kansas City, Missouri 64121-8256
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT AUDITORS
DELOITTE & TOUCHE LLP
180 N. Stetson Avenue
Chicago, IL 60601
--------------------------------------------------------------------------------
For federal income tax purposes, the following is furnished with respect to the
distributions paid by the Fund during its taxable year ended June 30, 2000. The
Fund designated and paid $8,270 as a 20% rate gain distribution. In January
2000, the Fund provided tax information to shareholders for the 1999 calendar
year. For corporate shareholders 8% of the distribution qualifies for the
dividend received deduction. The Fund intends to pass through foreign tax
credits of $7,299 and has derived gross income from sources within foreign
countries amounting to $63,870.
--------------------------------------------------------------------------------
* "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.
28
<PAGE>
RESULTS OF
SHAREHOLDER VOTES
JUNE 30, 2000
A Joint Special Meeting of the Shareholders of the Tax Managed Global Franchise
Fund (the "Fund") was held on December 15, 1999. The description of each
proposal and number of shares voted are as follows:
1. To elect the following Directors to serve the Fund.
<TABLE>
<CAPTION>
VOTED FOR WITHHELD
<S> <C> <C>
J. Miles Branagan ................................ 170,091 --
Jerry D. Choate .................................. 170,091 --
Linda Hutton Heagy ............................... 170,091 --
R. Craig Kennedy ................................. 170,091 --
Mitchell M. Merin ................................ 170,091 --
Jack E. Nelson ................................... 170,091 --
Richard F. Powers, III ........................... 170,091 --
Phillip B. Rooney ................................ 170,091 --
Fernando Sisto ................................... 170,091 --
Wayne W. Whalen .................................. 170,091 --
Suzanne H. Woolsey ............................... 170,091 --
Paul G. Yovovich* ................................ 170,091 --
</TABLE>
* EFFECTIVE APRIL 14, 2000, PAUL G. YOVOVICH RESIGNED FROM THE BOARD OF
DIRECTORS.
2. To ratify PricewaterhouseCoopers LLP to act as independent public accountants
for the Fund.(1)
<TABLE>
<CAPTION>
AFFIRMATIVE AGAINST ABSTAIN
<S> <C> <C>
166,858 2,280 953
</TABLE>
(1) INDEPENDENT ACCOUNTANTS FOR THE FUND PERFORM AN ANNUAL AUDIT OF THE FUND'S
FINANCIAL STATEMENTS. THE BOARD OF DIRECTORS HAS ENGAGED DELOITTE & TOUCHE LLP
TO BE THE FUND'S INDEPENDENT ACCOUNTANTS.
PricewaterhouseCoopers LLP, located at 200 East Randolph Drive, Chicago, IL
60601 ("PWC"), ceased being the Fund's independent accountants effective May 18,
2000. The cessation of the client-auditor relationship between the Fund and PWC
was based solely on a possible future business relationship by PWC with an
affiliate of the Fund's investment adviser.
29
<PAGE>
475, 575, 675 --------------
GLF ANR 08/00 PRESORTED
VAN KAMPEN FUNDS INC. STANDARD
1 Parkview Plaza U.S. Postage
P.O. Box 5555 PAID
Oakbrook Terrace, Illinois 60181-5555 VAN KAMPEN
FUNDS
--------------
<PAGE>
VAN KAMPEN
HIGH YIELD &
TOTAL RETURN FUND
Annual Report
June 30, 2000
VAN KAMPEN
FUNDS
<PAGE>
TABLE OF CONTENTS
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 4 IT IS TIMES
GROWTH OF A $10,000 INVESTMENT 5
LIKE THESE
PORTFOLIO AT A GLANCE
TOP TEN HOLDINGS 6 WHEN MONEY-
TOP FIVE SECTORS 6
Q&A WITH YOUR PORTFOLIO MANAGERS 7 MANAGEMENT
GLOSSARY OF TERMS 10
EXPERIENCE
BY THE NUMBERS
YOUR FUND'S INVESTMENTS 11 MAY MAKE
FINANCIAL STATEMENTS 18
NOTES TO FINANCIAL STATEMENTS 24 A DIFFERENCE.
REPORT OF INDEPENDENT AUDITORS 31
FUND OFFICERS AND IMPORTANT ADDRESSES 32
RESULTS OF SHAREHOLDER VOTES 33
NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE.
<PAGE>
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
OVERVIEW 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,
/s/ Richard F. Powers, III
--------------------------
Richard F. Powers, III
President and CEO
Van Kampen Investments
1
<PAGE>
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>
U.S. GROSS DOMESTIC PRODUCT
SEASONALLY ADJUSTED ANNUALIZED RATES
(JUNE 30, 1998 - JUNE 30, 2000)
[CHART]
<TABLE>
<S> <C>
Jun-98 2.1%
Sep-98 3.8%
Dec-98 5.9%
Mar-99 3.5%
Jun-99 2.5%
Sep-99 5.7%
Dec-99 8.3%
Mar-00 4.8%
Jun-00 5.2%
</TABLE>
SOURCE: BUREAU OF ECONOMIC ANALYSIS
INTEREST RATES AND INFLATION
(JUNE 30, 1998 - JUNE 30, 2000)
[CHART]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
<S> <C> <C>
Jun-98 5.500 1.70
Jul-98 5.500 1.70
Aug-98 5.500 1.60
Sep-98 5.250 1.50
Oct-98 5.000 1.50
Nov-98 4.750 1.50
Dec-98 4.750 1.60
Jan-99 4.750 1.70
Feb-99 4.750 1.60
Mar-99 4.750 1.70
Apr-99 4.750 2.30
May-99 4.750 2.10
Jun-99 5.000 2.00
Jul-99 5.000 2.10
Aug-99 5.250 2.30
Sep-99 5.250 2.60
Oct-99 5.250 2.60
Nov-99 5.500 2.60
Dec-99 5.500 2.70
Jan-00 5.500 2.70
Feb-00 5.750 3.20
Mar-00 6.000 3.70
Apr-00 6.000 3.00
May-00 6.500 3.10
Jun-00 6.500 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>
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(AS OF JUNE 30, 2000)
<TABLE>
<CAPTION>
A Shares B Shares C Shares
<S> <C> <C> <C>
One-year total return based on NAV(1) 1.17% 0.34% 0.43%
One-year total return(2) -3.61% -3.38% -0.50%
Life-of-Fund average annual total return(2) 6.27% 6.44% 6.73%
Commencement date 5/1/96 5/1/96 5/1/96
Distribution rate(3) 8.73% 8.41% 8.41%
SEC yield(4) 11.41% 10.65% 10.63%
</TABLE>
(1) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge (4.75% 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 4% 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 (4.75% 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 4%
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) Distribution rate represents the monthly annualized distributions of the
Fund at The end of the period and not the earnings of the Fund.
(4) SEC yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio
should theoretically generate for the 30-day period ending June 30,
2000. Had certain expenses of the Fund not been assumed by Van Kampen,
total returns would have been lower and the SEC yield would have been
11.17%, 10.41%, and 10.40% for Classes A, B, and C, respectively.
See the Comparative Performance section of the current prospectus. 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.
Investing in either high yield, high risk, or junk bond securities
involves certain risks, which may include the potential for greater
sensitivity to general economic downturns and greater market price
volatility.
Foreign securities may magnify volatility due to changes in foreign
exchange rates, the political and economic uncertainties in foreign
countries, and the potential lack of liquidity, government supervision,
and regulation.
Market forecasts provided in this report may not necessarily come to
pass.
4
<PAGE>
GROWTH OF A $10,000 INVESTMENT
(MAY 1, 1996 - JUNE 30, 2000)
[GRAPH]
<TABLE>
<CAPTION>
Credit Suisse First Boston High Yield Index
IS AN UNMANAGED INDEX OF
HIGH-YIELD CORPORATE BONDS. High Yield & Total Return Fund
-------------------------------------------- ------------------------------
<S> <C> <C>
5/96 $9,500 $10,000
6/96 $9,553 $10,501
6/97 $11,284 $12,040
6/98 $12,493 $13,362
6/99 $12,730 $13,248
6/00 $12,270 $13,127
<CAPTION>
<S> <C>
Fund's Total Return
1 Year Total Return -3.61%
Inception Avg. Annual 6.27%
</TABLE>
THIS CHART COMPARES YOUR FUND'S PERFORMANCE TO THAT OF THE CREDIT SUISSE
FIRST BOSTON HIGH YIELD INDEX OVER TIME.
THIS IS AN UNMANAGED BROAD-BASED, STATISTICAL COMPOSITE THAT DOES NOT INCLUDE
ANY COMMISSIONS OR FEES THAT WOULD BE PAID BY AN INVESTOR PURCHASING THE
SECURITIES IT REPRESENTS. SUCH COSTS WOULD LOWER THE PERFORMANCE OF THIS
INDEX. THE HISTORICAL PERFORMANCE OF THE INDEX IS SHOWN FOR ILLUSTRATIVE
PURPOSES ONLY; IT IS NOT MEANT TO FORECAST, IMPLY, OR GUARANTEE THE FUTURE
PERFORMANCE OF ANY INVESTMENT VEHICLE. IT IS NOT POSSIBLE TO INVEST DIRECTLY
IN AN INDEX.
THE ABOVE CHART REFLECTS THE PERFORMANCE OF CLASS A SHARES OF THE FUND. THE
PERFORMANCE OF CLASS A SHARES WILL DIFFER FROM THAT OF OTHER SHARE CLASSES OF
THE FUND BECAUSE OF THE DIFFERENCE IN SALES CHARGES AND/OR EXPENSES PAID BY
SHAREHOLDERS INVESTING IN THE DIFFERENT SHARE CLASSES. THE FUND'S PERFORMANCE
ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS, AND INCLUDES PAYMENT OF THE
MAXIMUM SALES CHARGE (4.75% FOR CLASS A SHARES).
WHILE PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THE ABOVE
INFORMATION PROVIDES A BROADER VANTAGE POINT FROM WHICH TO EVALUATE THE
DISCUSSION OF THE FUND'S PERFORMANCE FOUND IN THE FOLLOWING PAGES.
5
<PAGE>
PORTFOLIO AT A GLANCE
<TABLE>
TOP TEN HOLDINGS*
(AS A PERCENTAGE OF NET ASSETS--JUNE 30, 2000)
<S> <C>
Nextel Communications, Inc. 0.00% Coupon, 9/15/07 Maturity.................... 2.6%
-----------------------------------------------------------------------------------
Adelphia Communications, Series B, 7.75% Coupon, 1/15/09 Maturity............. 1.9%
-----------------------------------------------------------------------------------
Tenet Healthcare Corp. 8.625% Coupon, 1/15/07 Maturity........................ 1.9%
-----------------------------------------------------------------------------------
Winstar Communications, Inc. 0.00% Coupon, 4/15/10 Maturity................... 1.8%
-----------------------------------------------------------------------------------
Intermedia Communications, Series B, 0.00% Coupon, 7/15/07 Maturity........... 1.8%
-----------------------------------------------------------------------------------
Smithfield Foods, Inc. 7.625% Coupon, 2/15/08 Maturity........................ 1.6%
-----------------------------------------------------------------------------------
Chancellor Media Corp., Series B, 8.125% Coupon, 12/15/07 Maturity............ 1.6%
-----------------------------------------------------------------------------------
HCA--The Healthcare Corp. 8.85% Coupon, 1/1/07 Maturity....................... 1.6%
-----------------------------------------------------------------------------------
Global Crossing Holdings Ltd. 9.625% Coupon, 5/15/08 Maturity................. 1.5%
-----------------------------------------------------------------------------------
Hyperion Telecommunications 0.00% Coupon, 4/15/03 Maturity.................... 1.5%
-----------------------------------------------------------------------------------
* EXCLUDES SHORT-TERM INVESTMENT
</TABLE>
TOP FIVE SECTORS
(AS A PERCENTAGE OF NET ASSETS--JUNE 30, 2000)
[GRAPH]
<TABLE>
<S> <C>
Communications: Fixed 21.6%
Cable 10.7%
Communications: Mobile 9.4%
Media 7.1%
Gaming 6.5%
</TABLE>
6
<PAGE>
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH THE MANAGEMENT TEAM OF THE VAN KAMPEN HIGH YIELD & TOTAL
RETURN FUND ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE MARKETS AND
INFLUENCED THE FUND'S RETURN DURING THE YEAR ENDED JUNE 30, 2000. THE TEAM IS
LED BY ROBERT ANGEVINE, SENIOR PORTFOLIO MANAGER, MORGAN STANLEY DEAN WITTER
INVESTMENT MANAGEMENT, WHO HAS MANAGED THE FUND SINCE MAY 1996 AND HAS WORKED IN
THE INVESTMENT INDUSTRY SINCE 1975. HE IS JOINED BY PORTFOLIO MANAGERS STEPHEN
ESSER AND GORDON LOERY. 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 Several factors combined to create a difficult environment for high-yield
bonds during the reporting period. First, the Federal Reserve Board embarked
on a campaign to slow the overheating U.S. economy through a series of
interest-rate hikes. Between June 1999 and June 2000, policymakers raised the
key federal funds lending rate (the benchmark for most types of credit in the
United States) from 4.75 percent to 6.50 percent. As short-term interest rates
inched higher, bonds came under pressure, particularly in the lower-quality
sector of the market. Weakness in high-yield bonds is a normal response to
attempts by the Fed to slow the economy, because investors tend to remain
cautious until the full extent of an economic slowdown becomes clear.
The high-yield sector also was plagued by high default rates. In general,
the defaults were industry-specific and concentrated among smaller companies.
For example, some energy firms had difficulty refinancing debt during the period
of low oil prices that prevailed during most of 1999. In addition, several
nursing homes were negatively affected by changes in the U.S. government's
reimbursement policy.
Finally, the high-yield sector suffered as investors withdrew money from
high-yield mutual funds. This had the effect of limiting demand for high-yield
securities, thus pushing their prices downward. As the reporting period ended,
net flows into high-yield funds had stabilized.
For the 12-month period ended June 30, 2000, the fund returned
1.17 percent (CLASS A SHARES AT NET ASSET VALUE; IF THE MAXIMUM SALES CHARGE OF
4.75 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 CREDIT SUISSE FIRST BOSTON HIGH YIELD INDEX RETURNED -0.91
PERCENT FOR THE SAME PERIOD. THE CREDIT SUISSE FIRST BOSTON HIGH YIELD INDEX IS
A BROAD-BASED, UNMANAGED INDEX THAT REFLECTS THE GENERAL PERFORMANCE OF A WIDE
RANGE OF SELECTED BONDS WITHIN THE PUBLIC HIGH-YIELD DEBT MARKET.
7
<PAGE>
THIS INDEX DOES NOT REFLECT ANY COMMISSIONS OR FEES THAT WOULD BE PAID BY AN
INVESTOR PURCHASING THE SECURITIES IT REPRESENTS. SUCH COSTS WOULD LOWER THE
PERFORMANCE OF THE INDEX. IT IS NOT POSSIBLE TO INVEST DIRECTLY IN AN INDEX.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Please refer to the chart
and footnotes on page 4 for additional fund performance results.
Q WHAT HAPPENED TO HIGH-YIELD SECURITIES DURING THIS TIME?
A The yield differential or "spread" between high-yield and Treasury
securities widened substantially throughout the reporting period. The
widening of spreads primarily reflected investor concerns regarding credit
risk in an environment of rising interest rates and slowing economic growth.
Factors not directly related to the business cycle or the high-yield market
also played a role in the sector's underperformance. The government's plan to
reduce the national debt required the buyback of significant amounts of
longer-term Treasury bonds. The reduced supply of Treasuries, in turn, made
existing bonds more valuable. As a result, investors rushed to purchase
remaining long-term Treasuries, causing other portions of the fixed-income
market to suffer by comparison.
Q HOW DID YOU MANAGE THE FUND IN LIGHT OF THESE CONDITIONS?
A The fund continued to pursue its strategy of focusing on higher-quality
credits from larger issuers within the high-yield/high-risk universe. Although
we sold some of the fund's holdings in emerging markets, we nonetheless
maintained a position in that sector. We also reduced the fund's exposure to
zero-coupon bonds, which are highly interest-rate sensitive. We expected that
the Fed would continue to raise interest rates until clear indications of a
growth slowdown had emerged. In that environment, we believed that minimizing
exposure to longer-term bonds would improve relative performance.
Q HOW DID THE FUND'S STRATEGIES CONTRIBUTE TO PERFORMANCE?
A I believe the fund's strategies resulted in solid performance relative to its
peers during a problematic period for the high-yield market. Our emphasis on
higher-quality bonds helped to keep the fund's default rate significantly
below average for the sector, as did our preference for bonds issued by larger
companies. In addition, the fund's move out of some zero-coupon bonds in 1999
helped minimize the negative impact of rising interest rates on the portfolio.
The fund also benefited from its diversified exposure to emerging markets,
which outperformed their U.S. counterparts during the period.
Q WHAT IS YOUR OUTLOOK FOR THE COMING MONTHS?
A We are optimistic about the outlook for high-yield securities. With the yield
on the fund's benchmark, the Credit Suisse First Boston High Yield Index,
over 13 percent, and with sizable credit spreads, we expect that demand for
high-yield bonds will improve in coming months. Also, it is likely that bonds
could benefit from increased demand from investors as returns from the U.S.
stock market revert to more sustainable levels.
8
<PAGE>
We expect that conditions will improve on the supply side of the market
as well. While the high-yield sector has experienced a significant rise in
defaults, we believe that there is a "self-correcting" element at work. For
example, new bond issuance tends to decline as defaults increase. That has been
the case in recent quarters, as banks raised lending standards and investors
became more risk-averse in the rising default environment.
Often, the result of this process is a healthier market from a credit
standpoint. We are now seeing tentative indications that the high-yield sector
is moving into this more favorable environment.
Finally, we expect that the Fed's campaign to slow the U.S. economy will
be successful, and that an end to the year-long series of interest-rate
increases is close at hand. As always, we believe that credit discipline will
remain the key to success.
9
<PAGE>
GLOSSARY OF TERMS
A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.
BOND: A debt security issued by a government or corporation that pays a
bondholder a stated rate of interest and repays the principal at the
maturity date.
CLASS A SHARES: A division of mutual fund shares, which are generally divided
into three groupings, called Class A, Class B, and Class C shares. The specific
features of each are dependent on varying fees and sales charges. In most cases,
Class A shares will have no redemption fee (contingent deferred sales charge).
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.
NET ASSET VALUE (NAV): The value of a mutual fund share, calculated by
deducting a fund's liabilities from the total assets in its portfolio and
dividing this amount by the number of shares outstanding. The NAV does not
include any initial or contingent deferred sales charge.
SALES CHARGE: Also referred to as the load, this is a fee paid by a buyer to
acquire shares in a mutual fund or a limited partnership.
YIELD: The annual rate of return on an investment, expressed as a percentage.
YIELD SPREAD: The additional yield investors can earn by either investing in
bonds with longer maturities or by investing in bonds with lower ratings. The
spread is the difference in yield between bonds with short versus long
maturities or the difference in yield between high-quality bonds and
lower-quality bonds.
ZERO-COUPON BOND: A corporate or municipal bond that is traded at a deep
discount to face value and pays no interest. It may be redeemed at maturity for
full face value.
10
<PAGE>
BY THE NUMBERS
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
THE FOLLOWING PAGES DETAIL YOUR FUND'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.
<TABLE>
<CAPTION>
PAR MARKET
DESCRIPTION VALUE VALUE
<S> <C> <C>
CORPORATE BONDS & NOTES+ 89.8%
AUTOMOTIVE 2.1%
Hayes Lemmerz International, Inc. 8.25%, 12/15/08...... $ 405,000 $ 342,225
Tenneco, Inc., Series B, 11.625%, 10/15/09............. 385,000 341,688
---------
683,913
---------
CABLE 10.7%
Adelphia Communications, Series B, 7.75%, 1/15/09...... 750,000 631,875
Adelphia Communications, Series B, 8.375%, 2/1/08...... 250,000 221,250
Callahan Nordrhein Corp. 14.00%, 7/15/10 (b,c)......... 175,000 175,000
Charter Commincations Holdings 10.25%, 1/15/10......... 325,000 314,194
CSC Holdings, Inc. 9.875%, 5/15/06..................... 255,000 257,869
Echostar DBS Corp. 9.375%, 2/1/09...................... 410,000 396,675
NTL, Inc. 0.00%, 4/1/08................................ 660,000 415,800
OnePoint Communications Corp. 14.50%, 6/1/08........... 195,000 97,500
RCN Corp. 0.00%, 10/15/07 (c).......................... 150,000 93,000
RCN Corp. Sr. Discount Notes 0.00%, 2/15/08 (c)........ 370,000 209,512
Telewest Communications plc 0.00%, 4/15/09 (c)......... 700,000 388,500
United Pan-Europe Communications N.V. 10.875%, 8/1/09.. 320,000 280,800
---------
3,481,975
---------
CHEMICALS 3.0%
Huntsman ICI Chemicals 10.125%, 7/1/09.................. 325,000 325,813
ISP Holdings, Inc., Series B, 9.00%, 10/15/03........... 470,000 437,100
Lyondell Chemical Co. 9.625%, 5/1/07.................... 200,000 198,000
---------
960,913
---------
COMMUNICATIONS: FIXED 20.2%
Bayan Telecommunications 13.50%, 7/15/06 (b)............ 410,000 258,300
Exodus Communications, Inc. 11.625%, 7/15/10 (b)........ 250,000 251,250
Global Crossing Holdings Ltd. 9.625%, 5/15/08........... 500,000 486,250
Globix Corp. 12.50%, 2/1/10............................. 250,000 207,500
GT Group Telecom 0.00%, 2/1/10 (b,c).................... 375,000 208,125
Hermes Europe Railtel BV 11.50%, 8/15/07................ 275,000 239,250
Hermes Europe Railtel BV 10.375%, 1/15/09............... 325,000 270,562
Hyperion Telecommunications 0.00%, 4/15/03 (c).......... 520,000 482,300
Intermedia Communications 8.50%, 1/15/08................ 50,000 46,000
Intermedia Communications, Series B, 0.00%, 7/15/07 (c). 750,000 585,465
Level 3 Communications, Inc. 0.00%, 3/15/10 (b,c)....... 300,000 163,500
Maxcom Telecommunications 13.75%, 4/1/07 (b)............ 250,000 221,875
NEXTLINK Communications, Inc. 0.00%, 4/15/08 (c)........ 465,000 292,950
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS 11
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
PAR MARKET
DESCRIPTION VALUE VALUE
<S> <C> <C>
COMMUNICATIONS: FIXED (CONTINUED)
NEXTLINK Communications, Inc. 10.75%, 11/15/08......... $ 90,000 $ 89,550
NEXTLINK Communications, Inc. 0.00%, 12/1/08 (c)....... 100,000 58,500
Primus Telecommunications Group 11.25%, 1/5/09......... 45,000 36,675
Primus Telecommunications Group, Series B,
9.875%, 5/15/08...................................... 370,000 286,750
PSINet, Inc. 10.00%, 2/15/05........................... 365,000 339,450
PSINet, Inc., Series B, 11.00%, 8/1/09................. 60,000 56,550
Rhythms Netconnections, Inc. 14.00%, 2/15/10 (b)....... 125,000 90,625
Rhythms Netconnections, Inc., Series B,
0.00%, 5/15/08 (c)................................... 555,000 227,550
RSL Communications plc 0.00%, 3/1/08 (c)............... 675,000 280,125
RSL Communications plc 12.25%, 11/15/06................ 17,000 13,600
RSL Communications plc 9.125%, 3/1/08.................. 225,000 146,250
Tele1 Europe BV 13.00%, 5/15/09........................ 295,000 297,211
Viatel, Inc., Series A, 0.00%, 4/15/08 (c)............. 425,000 195,500
Wam!Net, Inc., Series B, 0.00%, 3/1/05 (c)............. 300,000 168,000
Winstar Communications, Inc. 0.00%, 4/15/10 (b,c)...... 1,280,000 588,800
---------
6,588,463
---------
COMMUNICATIONS: MOBILE 8.4%
Centennial Cellular Holdings 10.75%, 12/15/08.......... 285,000 277,163
CTI Holdings 0.00%, 4/15/08 (c)........................ 425,000 244,906
Dolphin Telecommunications plc 0.00%, 6/1/08 (c)....... 405,000 149,850
Dolphin Telecommunications plc 0.00%, 5/15/09 (c)...... 325,000 115,375
Globalstar LP/Capital 11.375%, 2/15/04................. 305,000 86,925
Globalstar LP/Capital 11.50%, 6/1/05................... 45,000 12,375
Motient Corp. 12.25%, 4/1/08........................... 300,000 226,500
Nextel Communications, Inc. 0.00%, 9/15/07 (c)......... 1,100,000 862,125
Occidente Y Caribe 0.00%, 3/15/04 (c).................. 400,000 282,000
PTC International Finance BV 0.00%, 7/1/07 (c)......... 380,000 270,750
Total Access Communications PCL 2.00%, 5/31/06......... 180,000 219,600
---------
2,747,569
---------
ENERGY 1.5%
Husky Oil Ltd. 8.90%, 8/15/28 (c)...................... 205,000 194,561
Vintage Petroleum, Inc. 8.625%, 2/1/09................. 160,000 152,800
Vintage Petroleum, Inc. 9.75%, 6/30/09................. 150,000 151,875
---------
499,236
---------
FINANCIAL 1.1%
Golden State Holdings 7.125%, 8/1/05................... 385,000 345,364
---------
FOOD & BEVERAGE 1.6%
Smithfield Foods, Inc. 7.625%, 2/15/08................. 600,000 534,000
---------
GAMING 6.5%
Harrahs Operating Co., Inc. 7.875%, 12/15/05........... 500,000 470,625
Horseshoe Gaming Holdings 8.625%, 5/15/09.............. 400,000 376,000
International Game Technology 8.375%, 5/15/09.......... 300,000 285,159
</TABLE>
12 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
PAR MARKET
DESCRIPTION VALUE VALUE
<S> <C> <C>
GAMING (CONTINUED)
Park Place Entertainment 7.875%, 12/15/05............. $ 360,000 $ 337,500
Station Casinos, Inc. 8.875%, 12/1/08................. 200,000 190,500
Station Casinos, Inc. 9.75%, 4/15/07.................. 60,000 60,000
Station Casinos, Inc. 10.125%, 3/15/06................ 405,000 410,062
---------
2,129,846
---------
GENERAL INDUSTRIAL 1.1%
Applied Power, Inc. 8.75%, 4/1/09..................... 185,000 192,863
Axia, Inc. 10.75%, 7/15/08............................ 200,000 156,000
---------
348,863
---------
HEALTH CARE 6.0%
Fresenius Medical Capital Trust II 7.875%, 2/1/08..... 370,000 336,700
HCA-The Healthcare Corp. 6.91%, 6/15/05............... 125,000 114,134
HCA-The Healthcare Corp. 7.69%, 6/15/25............... 275,000 224,007
HCA-The Healthcare Corp. 8.13%, 8/4/03 MTN............ 130,000 126,384
HCA-The Healthcare Corp. 8.85%, 1/1/07................ 525,000 514,411
Tenet Healthcare Corp. 8.125%, 12/1/08................ 50,000 45,750
Tenet Healthcare Corp. 8.625%, 1/15/07................ 635,000 603,250
---------
1,964,636
---------
HOTELS & LODGING 2.3%
Hilton Hotels 7.95%, 4/15/07.......................... 350,000 327,870
HMH Properties, Inc., Series A, 7.875%, 8/1/05........ 450,000 414,000
---------
741,870
---------
MEDIA 6.0%
Chancellor Media Corp. 9.00%, 10/1/08................. 140,000 142,450
Chancellor Media Corp., Series B, 8.125%, 12/15/07.... 525,000 527,625
Multicanal S.A. 10.50%, 2/1/07........................ 445,000 378,148
Outdoor Systems, Inc. 8.875%, 6/15/07................. 350,000 353,500
Satelites Mexicanos S.A., Series B, 10.125%, 11/1/04.. 160,000 105,600
TV Azteca S.A. de C.V., Series B, 10.50%, 2/15/07..... 350,000 309,750
XM Satellite Radio, Inc. 14.00%, 3/15/10 (b).......... 175,000 153,125
---------
1,970,198
---------
METALS 2.6%
Glencore Nickel Property Ltd. 9.00%, 12/1/14.......... 80,000 67,600
Murrin Murrin Holdings 9.375%, 8/31/07................ 445,000 387,150
National Steel Corp., Series D, 9.875%, 3/1/09........ 400,000 340,000
Republic Technology Capital 13.75%, 7/15/09........... 250,000 37,500
---------
832,250
---------
PAPER & PACKAGING 1.4%
Indah Kiat Financial Mauritius 10.00%, 7/1/07......... 750,000 453,750
---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS 13
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
PAR MARKET
DESCRIPTION VALUE VALUE
<S> <C> <C>
REAL ESTATE 3.0%
Centex Corp. 9.75%, 6/15/05........................... $ 230,000 $ 232,834
D.R. Horton, Inc. 8.00%, 2/1/09....................... 195,000 168,675
Lennar Corp. 9.95%, 5/1/10 (b)........................ 195,000 191,100
Nortek, Inc. 8.875%, 8/1/08........................... 410,000 370,537
---------
963,146
---------
RETAIL 4.7%
DR Securitized Lease Trust, Series 1994-K1, Class A1,
7.60%, 8/15/07...................................... 397,718 362,727
DR Securitized Lease Trust, Series 1994-K1, Class A2,
8.375%, 8/15/05..................................... 100,000 81,889
HMV Media Group plc 10.25%, 5/15/08................... 400,000 270,000
Kmart Funding Corp., Series F, 8.80%, 7/1/10.......... 375,000 346,241
Musicland Group, Inc. 9.00%, 6/15/03.................. 150,000 136,500
Musicland Group, Inc. 9.875%, 3/15/08................. 400,000 334,000
---------
1,531,357
---------
SERVICES 3.1%
Norcal Waste Systems, Series B, 13.50%, 11/15/05...... 295,000 306,800
USA Waste Services 7.125%, 10/1/07.................... 160,000 146,072
USA Waste Services 7.125%, 12/15/17................... 100,000 82,958
Waste Management, Inc. 6.875%, 5/15/09................ 135,000 119,437
Waste Management, Inc. 7.65%, 3/15/11................. 85,000 77,637
WMX Technologies, Inc. 7.00%, 10/15/06................ 305,000 281,354
---------
1,014,258
---------
SUPERMARKET/DRUG 0.9%
Stater Brothers Holdings 10.75%, 8/15/06.............. 325,000 282,750
---------
TRANSPORTATION 1.7%
Jet Equipment Trust, Series 1995-D, 11.44%, 11/1/14 (b) 300,000 330,729
Jet Equipment Trust, Series C-1, 11.79%, 6/15/13 (b).. 200,000 224,562
---------
555,291
---------
UTILITIES 1.9%
AES Corp. 8.50%, 11/1/07.............................. 300,000 275,250
CMS Energy 7.50%, 1/15/09............................. 395,000 354,362
---------
629,612
---------
TOTAL CORPORATE BONDS & NOTES
(Cost $32,807,030) ............................................... 29,259,260
----------
ASSET BACKED SECURITIES+ 1.5%
FINANCIAL 0.4%
Federal Mortgage Acceptance Corp., Series 1996-B, Class C,
7.883%, 11/15/18 (b)................................ 121,526 41,320
Long Beach Acceptance Auto Grantor Trust, Series 1997-1,
Class B, 14.22%, 10/26/03........................... 29,318 29,178
</TABLE>
14 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
PAR MARKET
DESCRIPTION VALUE VALUE
<S> <C> <C>
FINANCIAL (CONTINUED)
Securitized Multiple Asset Rated Trust, 1997-5, Class A1
7.72%, 6/15/05..................................... $225,609 $ 56,402
---------
126,900
---------
SUPERMARKET/DRUG 0.6%
CA FM Lease Trust, Senior Notes 8.50%, 7/15/17 (b).... 224,225 206,801
---------
TRANSPORTATION 0.5%
Aircraft Lease Portfolio Securitization Ltd.,
Series 1996-1, Class DX 12.75%, 6/15/06........... 150,463 144,450
---------
TOTAL ASSET BACKED SECURITIES
(Cost $738,628)................................................ 478,151
---------
<CAPTION>
SHARES
<S> <C> <C>
Preferred Stocks+ 3.4%
COMMUNICATIONS: FIXED 0.8%
IXC Communications, Inc. PIK 9.00%.................... 277 276,537
---------
COMMUNICATIONS: MOBILE 0.9%
Dobson Communications Corp. 13.00% (a)................ 2,273 234,140
Nextel Communications, Inc. 13.00% (a)................ 62 65,100
---------
299,240
---------
MEDIA 1.1%
Paxson Communications 11.625% (a)..................... 3,637 349,152
---------
RETAIL 0.4%
Kmart Financing 7.75%................................. 3,950 144,175
---------
UTILITIES 0.2%
Tele1 Europe AB ADR 13.00%............................ 5,195 62,665
---------
TOTAL PREFERRED STOCK
(Cost $939,535)................................................ 1,131,769
---------
<CAPTION>
NO. OF
UNITS
<S> <C> <C>
UNITS+ 0.8%
UTILITIES 0.8%
TNP Enterprises, Inc. 14.50%, 4/1/11
(Cost $247,500)..................................... 25,000 247,500
---------
<CAPTION>
NO. OF
WARRANTS
<S> <C> <C>
WARRANTS+ 0.7%
CABLE 0.0%
OnePoint Communications Corp., expiring 6/1/08 (a).... 1,950 3,900
---------
COMMUNICATIONS: FIXED 0.6%
NEXTLINK Communications, Inc. expiring 11/15/08 (a)... 2,077 205,623
Wam!Net, Inc., expiring 3/1/05 (a).................... 9,000 9,900
---------
215,523
---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS 15
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
NO. OF MARKET
DESCRIPTION WARRANTS VALUE
<S> <C> <C>
COMMUNICATIONS: MOBILE 0.1%
Globalstar Telecom, expiring 2/15/04 (a,b).............. 285 $ 2,850
Motient Corp. expiring 4/1/08 (a,b)..................... 3,000 10,500
Occidente Y Caribe, expiring 3/15/04 (a,b).............. 20,850 7,819
---------
21,169
---------
METALS 0.0%
Republic Technology, expiring 7/15/09 (a)............... 250 2
---------
TOTAL WARRANTS
(Cost $197,138)................................................. 240,594
---------
TOTAL LONG-TERM INVESTMENTS 96.2%
(Cost $34,929,831).............................................. 31,357,274
----------
<CAPTION>
PAR
VALUE
<S> <C> <C>
SHORT-TERM INVESTMENT 3.3%
REPURCHASE AGREEMENT 3.3%
Chase Securities, Inc. 6.15%, dated 6/30/00, $1,067,000
due 7/3/00, to be repurchased at $1,067,547,
collateralized by $1,125,000 U.S. Treasury Notes
4.75%, due 2/15/04, valued at $1,089,595
(Cost $1,067,000)................................................ 1,067,000
----------
TOTAL INVESTMENTS 99.5%
(Cost $35,996,831)............................................... 32,424,274
OTHER ASSETS IN EXCESS OF LIABILITIES 0.5%........................ 154,072
----------
NET ASSETS 100%................................................... $32,578,346
-----------
-----------
</TABLE>
(a) NON-INCOME PRODUCING SECURITY
(b) 144A SECURITY-CERTAIN CONDITIONS FOR PUBLIC SALE MAY EXIST.
(c) STEP BOND-COUPON RATE INCREASES IN INCREMENTS TO MATURITY. RATE DISCLOSED IS
AS OF JUNE 30, 2000. MATURITY DATE DISCLOSED IS THE ULTIMATE MATURITY DATE.
ADR AMERICAN DEPOSITARY RECEIPT
MTN MEDIUM TERM NOTE
PCL PUBLIC COMPANY LIMITED
PIK PAYMENT-IN-KIND. INCOME MAY BE RECEIVED IN ADDITIONAL SECURITIES OR CASH AT
THE DISCRETION OF THE ISSUER.
+ CLASSIFIED BY SECTORS WHICH REPRESENT BROAD GROUPINGS OF RELATED INDUSTRIES.
16 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
SUMMARY OF LONG-TERM INVESTMENTS BY COUNTRY
<TABLE>
<CAPTION>
PERCENT OF
COUNTRY VALUE NET ASSETS
<S> <C> <C>
United States ....................................... $25,971,476 79.7%
Netherlands ......................................... 1,358,575 4.2
United Kingdom ...................................... 658,500 2.0
Mexico .............................................. 637,225 1.9
Argentina ........................................... 623,054 1.9
Australia ........................................... 454,750 1.4
Indonesia ........................................... 453,750 1.4
Colombia ............................................ 289,818 0.9
Philippines ......................................... 258,300 0.8
Thailand ............................................ 219,600 0.7
Canada .............................................. 194,561 0.6
Denmark ............................................. 175,000 0.5
Sweden .............................................. 62,665 0.2
----------- -----
$31,357,274 96.2%
----------- -----
----------- -----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS 17
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
JUNE 30, 2000
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at Value (Cost $35,996,831)........................... $32,424,274
Cash.............................................................. 8,619
Receivable for:
Interest........................................................ 679,204
Investments Sold................................................ 294,255
Fund Shares Sold................................................ 116,646
Deferred Organizational Costs..................................... 5,423
-----------
Total Assets................................................... 33,528,421
-----------
LIABILITIES:
Payable for:
Investments Purchased........................................... 425,156
Dividends Declared.............................................. 230,341
Fund Shares Redeemed............................................ 127,491
Distribution Fees............................................... 44,779
Shareholder Reporting Expense................................... 37,286
Professional Fees............................................... 30,931
Directors' Fees and Expenses.................................... 29,659
Investment Advisory Fees........................................ 10,767
Administrative Fees............................................. 7,325
Custody Fees.................................................... 3,260
Transfer Agent Fees............................................. 3,080
-----------
Total Liabilities............................................. 950,075
-----------
NET ASSETS ....................................................... $32,578,346
-----------
-----------
NET ASSETS CONSIST OF:
Capital Stock at Par ($.001 par value, Shares Authorized 2,625,000,000).... $ 3,003
Paid in Capital in Excess of Par........................................... 37,211,134
Accumulated Net Investment Income.......................................... 359,540
Accumulated Net Realized Loss.............................................. (1,422,774)
Net Unrealized Depreciation on Investments................................. (3,572,557)
-----------
NET ASSETS................................................................. $32,578,346
-----------
-----------
Class A Shares:
Net Asset Value and Redemption Price Per Share (Based on Net Assets of
$7,016,774 and 645,533 Shares Outstanding)............................. $ 10.87
-----------
-----------
Maximum Sales Charge................................................... 4.75%
Maximum Offering Price Per Share (Net Asset Value
Per Share x 100/ (100% - maximum sales charge))........................ $ 11.41
-----------
-----------
Class B Shares:
Net Asset Value and Offering Price Per Share (Based on Net Assets of
$20,081,637 and 1,852,025 Shares Outstanding)*......................... $ 10.84
-----------
-----------
Class C Shares:
Net Asset Value and Offering Price Per Share (Based on Net Assets of
$5,479,935 and 505,294 Shares Outstanding)*............................ $ 10.85
-----------
-----------
</TABLE>
* REDEMPTION PRICE MAY BE SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE.
18 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Dividends........................................................... $ 26,792
Interest............................................................ 3,712,337
-----------
Total Income...................................................... 3,739,129
-----------
EXPENSES:
Distribution Fees (Attributed to Classes A, B and C of $19,493, $218,868
and $68,565, respectively)........................................ 306,926
Investment Advisory Fees............................................ 273,924
Administrative Fees................................................. 95,513
Shareholder Reports................................................. 86,045
Professional Fees................................................... 36,127
Filing and Registration Fees........................................ 30,871
Directors' Fees and Expenses........................................ 23,962
Transfer Agent Fees................................................. 18,140
Custodian Fees...................................................... 5,436
Other............................................................... 14,946
-----------
Total Expenses.................................................... 891,890
Less Expense Reductions........................................... (219,278)
-----------
Net Expenses...................................................... 672,612
-----------
NET INVESTMENT INCOME............................................... $ 3,066,517
-----------
-----------
NET REALIZED GAIN/LOSS ON:
Investments......................................................... $ (992,468)
------------
NET UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period........................................... (1,794,264)
-------------
End of the Period:
Investments...................................................... (3,572,557)
-------------
Net Change in Unrealized Appreciation/Depreciation.................. (1,778,293)
-------------
NET REALIZED GAIN/LOSS AND NET CHANGE IN UNREALIZED
APPRECIATION/DEPRECIATION......................................... $(2,770,761)
-------------
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................ $ 295,756
-------------
-------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS 19
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 2000 JUNE 30,1999*
------------- --------------
<S> <C> <C>
INCREASE/DECREASE IN NET ASSETS
OPERATIONS:
Net Investment Income................................. $ 3,066,517 $ 2,996,000
Net Realized Loss..................................... (992,468) (344,000)
Net Change in Unrealized Appreciation/
Depreciation........................................ (1,778,293) (2,004,000)
----------- -----------
Net Increase in Net Assets Resulting from Operations... 295,756 648,000
----------- -----------
DISTRIBUTIONS:
Net Investment Income:
Class A................................................ (639,735) (749,000)
Class B................................................ (1,650,095) (1,540,000)
Class C................................................ (514,549) (603,000)
----------- -----------
(2,804,379) (2,892,000)
----------- -----------
Net Realized Gain:
Class A............................................... -- (61,000)
Class B............................................... -- (152,000)
Class C............................................... -- (59,000)
In Excess of Net Realized Gain:
Class A............................................... -- (97,000)
Class B............................................... -- (244,000)
Class C............................................... -- (94,000)
----------- -----------
-- (707,000)
----------- -----------
Net Decrease in Net Assets Resulting from
Distributions...................................... (2,804,379) (3,599,000)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Subscribed........................................... 13,347,730 27,018,000
Distributions Reinvested............................. 1,569,619 2,061,000
Redeemed............................................. (18,496,002) (21,840,000)
----------- -----------
Net Increase/Decrease in Net Assets Resulting from
Capital Share Transactions......................... (3,578,653) 7,239,000
----------- -----------
Total Increase/Decrease in Net Assets................ (6,087,276) 4,288,000
NET ASSETS--Beginning of Period...................... 38,665,622 34,378,000
----------- -----------
NET ASSETS--End of Period (Including accumulated
net investment income of $359,540 and $95,000,
respectively)...................................... $ 32,578,346 $ 38,666,000
============ ============
</TABLE>
* AMOUNTS ROUNDED TO THE NEAREST (000).
20 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
FINANCIAL HIGHLIGHTS
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE
FUND OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------- MAY 1, 1996* TO
CLASS A SHARES 2000# 1999# 1998# 1997 JUNE 30, 1996
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD ..................... $11.68 $12.66 $12.86 $11.92 $12.00
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income ......... 1.02 1.01 0.97 1.07 0.13
Net Realized and
Unrealized Gain/Loss ........ (0.89) (0.79) 0.35 0.99 (0.09)
------ ------ ------ ------ ------
Total From Investment Operations. 0.13 0.22 1.32 2.06 0.04
------ ------ ------ ------ ------
DISTRIBUTIONS
Net Investment Income ......... (0.94) (0.97) (0.97) (1.07) (0.12)
Net Realized Gain ............. -- (0.09) (0.55) (0.05) --
In Excess of Net Realized Gain. -- (0.14) -- -- --
------ ------ ------ ------ ------
Total Distributions ............. (0.94) (1.20) (1.52) (1.12) (0.12)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD .. $10.87 $11.68 $12.66 $12.86 $11.92
====== ====== ====== ====== ======
TOTAL RETURN (1) ................ 1.17% 1.90% 10.81% 18.12% 0.29%**
====== ====== ====== ====== ======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $7,017 $8,120 $7,813 $8,980 $3,907
Ratio of Expenses to Average
Net Assets .................... 1.25% 1.25% 1.25% 1.25% 1.25%
Ratio of Net Investment Income to
Average Net Assets ............ 8.99% 8.39% 7.42% 8.83% 6.85%
Portfolio Turnover Rate ......... 37% 41% 81% 104% 10%**
--------------------------------------------------------------------------------------
Effect of Voluntary Expense Reductions
During the Period
Per Share Benefit to
Net Investment Income ....... $ 0.07 $ 0.06 $ 0.08 $ 0.10 $ 0.04
Ratios Before Expense Reductions:
Expenses to Average Net Assets. 1.85% 1.72% 1.89% 2.04% 3.51%
Net Investment Income to Average
Net Assets .................. 8.39% 7.93% 6.78% 8.04% 4.59%
--------------------------------------------------------------------------------------
</TABLE>
* COMMENCEMENT OF OPERATIONS
** NON-ANNUALIZED
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED SALES
CHARGES.
# CHANGES PER SHARE ARE BASED UPON DAILY AVERAGE SHARES OUTSTANDING.
SEE NOTES TO FINANCIAL STATEMENTS 21
<PAGE>
FINANCIAL HIGHLIGHTS
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE
FUND OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------- MAY 1, 1996* TO
CLASS B SHARES 2000# 1999# 1998# 1997 JUNE 30, 1996
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD ..................... $ 11.66 $ 12.63 $ 12.86 $11.93 $12.00
------- ------- ------- ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income ......... 0.93 0.91 0.87 0.98 0.12
Net Realized and
Unrealized Gain/Loss ........ (0.90) (0.77) 0.34 0.99 (0.09)
------- ------- ------- ------ ------
Total From Investment Operations. 0.03 0.14 1.21 1.97 0.03
------- ------- ------- ------ ------
DISTRIBUTIONS
Net Investment Income ......... (0.85) (0.88) (0.89) (0.99) (0.10)
Net Realized Gain ............. -- (0.09) (0.55) (0.05) --
In Excess of Net Realized Gain. -- (0.14) -- -- --
------- ------- ------- ------ ------
Total Distributions ............. (0.85) (1.11) (1.44) (1.04) (0.10)
------- ------- ------- ------ ------
NET ASSET VALUE, END OF PERIOD .. $ 10.84 $ 11.66 $ 12.63 $12.86 $11.93
======= ======= ======= ====== ======
TOTAL RETURN (1) ................ 0.34% 1.28% 9.86% 17.22% 0.21%**
======= ======= ======= ====== ======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $20,081 $22,667 $18,420 $8,617 $3,421
Ratio of Expenses to Average
Net Assets .................... 2.00% 2.00% 2.00% 2.00% 2.00%
Ratio of Net Investment Income to
Average Net Assets ............ 8.24% 7.63% 6.70% 7.99% 6.08%
Portfolio Turnover Rate ......... 37% 41% 81% 104% 10%**
--------------------------------------------------------------------------------------
Effect of Voluntary Expense Reductions
During the Period
Per Share Benefit to
Net Investment Income ....... $ 0.07 $ 0.06 $ 0.08 $ 0.10 $ 0.04
Ratios Before Expense Reductions:
Expenses to Average Net Assets. 2.60% 2.48% 2.64% 2.82% 4.25%
Net Investment Income to Average
Net Assets .................. 7.64% 7.16% 6.04% 7.17% 3.83%
--------------------------------------------------------------------------------------
</TABLE>
* COMMENCEMENT OF OPERATIONS
** NON-ANNUALIZED
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED SALES
CHARGES.
# CHANGES PER SHARE ARE BASED UPON DAILY AVERAGE SHARES OUTSTANDING.
SEE NOTES TO FINANCIAL STATEMENTS 22
<PAGE>
FINANCIAL HIGHLIGHTS
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE
FUND OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------- MAY 1, 1996* TO
CLASS C SHARES 2000# 1999# 1998# 1997 JUNE 30, 1996
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD ..................... $11.66 $12.63 $12.86 $11.93 $12.00
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income ......... 0.93 0.91 0.86 0.99 0.12
Net Realized and
Unrealized Gain/Loss ........ (0.89) (0.77) 0.35 0.98 (0.09)
------ ------ ------ ------ ------
Total From Investment Operations. 0.04 0.14 1.21 1.97 0.03
------ ------ ------ ------ ------
DISTRIBUTIONS
Net Investment Income ......... (0.85) (0.88) (0.89) (0.99) (0.10)
Net Realized Gain ............. -- (0.09) (0.55) (0.05) --
In Excess of Net Realized Gain. -- (0.14) -- -- --
------ ------ ------ ------ ------
Total Distributions ............. (0.85) (1.11) (1.44) (1.04) (0.10)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD .. $10.85 $11.66 $12.63 $12.86 $11.93
====== ====== ====== ====== ======
TOTAL RETURN (1) ................ 0.43% 1.28% 9.86% 17.21% 0.21%**
====== ====== ====== ====== ======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) $5,480 $7,879 $8,145 $4,970 $3,316
Ratio of Expenses to Average
Net Assets .................... 2.00% 2.00% 2.00% 2.00% 2.00%
Ratio of Net Investment Income to
Average Net Assets ............ 8.20% 7.61% 6.63% 8.03% 6.07%
Portfolio Turnover Rate ......... 37% 41% 81% 104% 10%**
--------------------------------------------------------------------------------------
Effect of Voluntary Expense Reductions
During the Period
Per Share Benefit to
Net Investment Income ....... $ 0.07 $ 0.06 $ 0.08 $ 0.11 $ 0.04
Ratios Before Expense Reductions:
Expenses to Average Net Assets. 2.60% 2.48% 2.64% 2.88% 4.25%
Net Investment Income to Average
Net Assets .................. 7.60% 7.14% 6.01% 7.15% 3.82%
--------------------------------------------------------------------------------------
</TABLE>
* COMMENCEMENT OF OPERATIONS
** NON-ANNUALIZED
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED SALES
CHARGES.
# CHANGES PER SHARE ARE BASED UPON DAILY AVERAGE SHARES OUTSTANDING.
SEE NOTES TO FINANCIAL STATEMENTS 23
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
The Van Kampen High Yield & Total Return Fund (the "Fund") is
organized as a separate diversified fund of Van Kampen Series Fund, Inc., a
Maryland corporation, which is registered as an open-end management
investment Company under the Investment Company Act of 1940, as amended. The
Fund's investment objective seeks to maximize total return by investing in a
diversified portfolio of high-yield, high-risk income securities that offer a
yield above what is generally available on debt securities in the four
highest categories of the recognized rating services. The Fund commenced
operations on May 1, 1996.
1. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of the financial statements in conformity with accounting principles
accepted in the United States of America (hereafter "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 period.
Actual results could differ from those estimates.
A. SECURITY VALUATION Equity securities listed on a U.S. exchange and equity
securities traded on NASDAQ are valued at the latest quoted sales price on
the valuation date. Unlisted securities and listed securities not traded on
the valuation date for which market quotations are readily available are
valued at the average between the bid and asked prices obtained from
reputable brokers. Bonds and other fixed income securities may be valued
according to the broadest and most representative market. In addition, bonds
and other fixed income securities may be valued on the basis of prices
provided by a pricing service which takes into account institutional size
trading in similar groups of securities. Debt securities purchased with
remaining maturities of 60 days or less are valued at amortized cost, which
approximates market values. All other securities and assets for which market
quotations are not readily available are valued at fair value as determined
in good faith using procedures approved by the Board of Directors.
At June 30, 2000, approximately 83% of the net assets of the Fund
consisted of high-yield securities rated below investment grade. Investments
in high-yield securities are accompanied by a greater degree of credit risk,
and the risk tends to be more sensitive to economic conditions than higher
rated securities. Certain securities may be valued on the basis of bid prices
provided by one principal market maker.
B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
24
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
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 Investment Advisory Corp. or its
affiliates, the daily aggregate of which is invested in repurchase
agreements. Repurchase agreements are fully collateralized by the underlying
debt security. A bank as custodian for the Fund takes possession of the
underlying securities, with a market value at least equal to the amount of
the repurchase transaction, including principal and accrued interest. To the
extent that any repurchase transaction exceeds one business day, the value of
the collateral is marked-to-market on a daily basis to determine the adequacy
of the collateral. In the event of default on the obligation to repurchase,
the Fund has the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation. In the event of default or bankruptcy by the
counterparty to the agreement, realization and/or retention of the collateral
or proceeds may be subject to legal proceedings.
C. INCOME AND EXPENSES Interest income is recorded on an accrual basis and
dividend income is recorded net of applicable withholding taxes on the
ex-dividend date. Income, expenses, and realized and unrealized gains or
losses are allocated on a pro rata basis to each class of shares except for
distribution and service fees which are unique to each class of shares.
Distributions from the Fund are recorded on the ex-distribution date.
D. ORGANIZATIONAL COSTS The organizational costs of the Fund are being
amortized on a straight line basis over the 60 month period ending April 30,
2001 beginning with the Fund's commencement of operations. The Adviser has
agreed that in the event any of the initial shares of the Fund originally
purchased by Van Kampen are redeemed by the Fund during the amortization
period, the Fund will be reimbursed for any unamortized organizational costs
in the same proportion as the number of shares redeemed bears to the number
of initial shares at the time of redemption.
E. 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 shareholders. Therefore,
no provision for federal income taxes is required.
The Fund intends to utilize provisions of the federal income tax laws
which allow it to carry a realized capital loss forward for eight years
following the year of the loss and offset such losses against any future
realized capital gains. At June 30, 2000, the Fund had an accumulated capital
loss carryforward for tax purposes of $554,570, which will expire on June 30,
2008. Net realized gains or losses may differ for financial
25
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
and tax reporting purposes as a result of post October 31 losses which are
not recognized for tax purposes until the first day of the following fiscal
year and losses relating to wash sale transactions.
At June 30, 2000, for federal income tax purposes, cost of long- and
short-term investments is $36,033,780, the aggregate gross unrealized
appreciation is $430,202 and the aggregate gross unrealized depreciation is
$4,039,708, resulting in net unrealized depreciation on long- and short-term
investments of $3,609,506.
F. DISTRIBUTION OF INCOME AND GAINS The Fund declares daily and pays monthly
dividends 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 which are included as ordinary income for
tax purposes.
Due to inherent differences in the recognition of income and expenses
under generally accepted accounting principles and federal income tax
purposes, permanent differences between book and tax basis reporting for the
current fiscal year have been identified and appropriately reclassified. A
permanent difference related to the recognition of certain expenses that are
not deductible for tax purposes totaling $7,079 were reclassified from paid
in capital in excess of par to accumulated net investment income. A permanent
difference of $9,154 related to a correction of prior year amounts was
reclassified from accumulated net investment income to accumulated net
realized loss. A permanent difference related to the recognition of net
realized gains on paydowns of mortgage pool obligations totaling $4,322 was
reclassified from accumulated net realized loss to accumulated net investment
income.
Permanent book to tax basis differences are not included in ending
undistributed/distribution in excess of net investment income for the purpose
of calculating net investment income/loss per share in the Financial
Highlights.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Van Kampen Investment Advisory Corp. (the "Adviser"), a wholly owned
subsidiary of Van Kampen Investments Inc. (an indirect wholly owned
subsidiary of Morgan Stanley Dean Witter & Co.) and Morgan Stanley Dean
Witter Investment Management Inc., a wholly owned subsidiary of Morgan
Stanley Dean Witter & Co., provide the Fund with investment advisory services
at a fee paid monthly and calculated at the annual rates based on average
daily net assets indicated as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
<S> <C>
First $500 million................................................... .75 of 1%
Next $500 million.................................................... .70 of 1%
Over $1 billion...................................................... .65 of 1%
</TABLE>
26
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
The Adviser has agreed to reduce advisory fees payable to it and to reimburse
the Fund, if necessary, if the annual operating expenses, expressed as a
percentage of average daily net assets, exceed the maximum ratios indicated
as follows:
<TABLE>
<CAPTION>
CLASS B
CLASS A AND CLASS C
MAX. OPERATING MAX. OPERATING
EXPENSE RATIO EXPENSE RATIO
<S> <C>
1.25% 2.00%
</TABLE>
For the period ended June 30, 2000, the Adviser voluntarily waived
$219,278 of its investment advisory fees. This waiver is voluntary in nature
and can be discontinued at the Adviser's discretion.
For the period ended June 30, 2000, the Fund recognized expenses of
$3,790 representing legal services provided by Skadden, Arps, Slate, Meagher
& Flom (Illinois), counsel to the Fund, of which a director of the Fund is an
affiliated person.
For the period ended June 30, 2000, the Fund recognized expenses of
$6,408 representing Van Kampen's cost of providing legal services to the
Fund.
Van Kampen Investment Advisory Corp. (the "Administrator") also
provides the Fund with administrative services pursuant to an administrative
agreement for a monthly fee which on an annual basis equals 0.25% of the
average daily net assets of the Fund, plus reimbursement of out-of-pocket
expenses. Under an agreement between the Adviser and The Chase Manhattan Bank
("Chase"), through its corporate affiliate Chase Global Funds Services
Company ("CGFSC"), Chase provides certain administrative services to the
Fund. Chase is compensated for such services by the Adviser from the fee it
receives from the Fund. Transfer Agency services are provided to the Fund by
Van Kampen Investor Services Inc., an affiliate of the Adviser.
Van Kampen Funds Inc. (the "Distributor") a wholly owned subsidiary of
Van Kampen Investments Inc., an indirect wholly owned subsidiary of Morgan
Stanley Dean Witter & Co., serves as the Distributor of the Fund's shares.
The Distributor is entitled to receive from the Fund a distribution fee,
which is accrued daily and paid quarterly, of an amount of up to 0.25% of the
Class A shares and up to 1.00% of the Class B shares and Class C shares of
the Fund, on an annualized basis, of the average daily net assets
attributable to each Class.
The Distributor may receive a front end sales charge for purchases of
Class A shares. In addition, the Distributor may receive a contingent
deferred sales charge for certain redemptions of Class B shares and Class C
shares of the Fund redeemed within one to five years following such purchase.
For the period ended June 30, 2000, the Distributor has advised the Fund that
it earned initial sales charges of $45,370 for Class A shares and deferred
sales charges of $95,248 and $1,177 for Class B shares and Class C shares,
respectively.
27
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
Certain officers and directors of the Fund are also officers and
directors of Van Kampen. The Fund does not compensate its officers or
directors who are officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
directors who are not officers of Van Kampen. Under the deferred compensation
plan, directors 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 director's years of service to the Fund. The
maximum annual benefit per director under the plan is $2,500.
3. INVESTMENT TRANSACTIONS
The Fund currently offers three classes of shares, Class A, Class B, and
Class C shares. All three classes of shares have identical voting, dividend,
liquidation and other rights. Class A shares are sold with a front-end sales
charge of up to 4.75%. For certain purchases of Class A shares, the front-end
sales charge may be waived and a contingent deferred sales charge ("CDSC") of
1.00% imposed in the event of certain redemptions within one year of the
purchase. Class B and Class C shares are offered without a front end sales
charge, but are subject to a 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 seven
years after the end of the calendar month in which the shares were purchased.
For the period ended June 30, 2000, no Class B shares converted to Class A
shares. The CDSC will be imposed on most redemptions made within five years
of the purchase for Class B shares and one year of the purchase for Class C
shares as detailed in the following schedule:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE ON ASSETS SUBJECT TO
SALES CHARGE
YEAR OF REDEMPTION CLASS B CLASS C
<S> <C> <C>
First .................................................... 4.00% 1.00%
Second ................................................... 4.00% None
Third .................................................... 3.00% None
Fourth ................................................... 2.50% None
Fifth .................................................... 1.50% None
Thereafter ............................................... None None
</TABLE>
28
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 2000 JUNE 30, 1999*
------------- -------------
<S> <C> <C>
CAPITAL SHARE TRANSACTIONS:
CLASS A:
Shares:
Subscribed.............................. 613,337 1,215,000
Distributions Reinvested................ 37,321 43,000
Redeemed................................ (700,219) (1,180,000)
--------- ----------
Net Increase/Decrease in Class A Shares
Outstanding............................. (49,561) 78,000
--------- ----------
--------- ----------
Dollars:
Subscribed............................... $ 6,959,492 $ 14,702,000
Distributions Reinvested................. 424,413 520,000
Redeemed................................. (7,958,056) (14,249,000)
----------- ----------
Net Increase/Decrease...................... $ (574,151) $ 973,000
----------- ----------
----------- ----------
Ending Paid in Capital..................... $ 7,811,587+ $ 8,385,000+
----------- ----------
----------- ----------
CLASS B:
Shares:
Subscribed............................... 433,045 768,000
Distributions Reinvested................. 71,709 89,000
Redeemed................................. (597,480) (371,000)
----------- -----------
Net Increase/Decrease in Class B Shares
Outstanding.............................. (92,726) 486,000
----------- -----------
----------- -----------
Dollars:
Subscribed............................... $ 4,926,319 $ 9,251,000
Distributions Reinvested................. 812,805 1,068,000
Redeemed................................. (6,791,336) (4,454,000)
----------- -----------
Net Increase/Decrease...................... $ (1,052,212) $ 5,865,000
----------- -----------
----------- -----------
Ending Paid in Capital..................... $ 23,134,059+ $ 24,185,000+
----------- -----------
----------- -----------
CLASS C:
Shares:
Subscribed............................... 127,995 255,000
Distributions Reinvested................. 29,271 40,000
Redeemed................................. (327,670) (264,000)
----------- -----------
Net Increase/Decrease in Class C Shares
Outstanding.............................. (170,404) 31,000
----------- -----------
----------- -----------
Dollars:
Subscribed............................... $ 1,461,919 $ 3,065,000
Distributions Reinvested................. 332,401 473,000
Redeemed................................. (3,746,610) (3,137,000)
----------- -----------
Net Increase/Decrease ..................... $ (1,952,290) $ 401,000
----------- -----------
----------- -----------
Ending Paid in Capital .................... $ 6,275,570+ $ 8,227,000+
----------- -----------
----------- -----------
</TABLE>
* AMOUNTS ROUNDED TO THE NEAREST (000).
+ ENDING PAID IN CAPITAL AMOUNTS DO NOT REFLECT PERMANENT BOOK TO TAX
DIFFERENCES--SEE NOTE 1F.
29
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
4. INVESTMENT TRANSACTIONS
For the period ended June 30, 2000, the Fund made purchases of $12,883,686
and sales of $16,570,319 of investment securities other than long-term U.S.
government securities and short-term investments. There were no purchases or
sales of long-term U.S. government securities.
5. 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 into a $650 million committed
line of credit facility with a group of banks which expires on November 28,
2000, but is renewable with the consent of the participating banks. Each fund
is permitted to utilize the facility in accordance with the restrictions of
its prospectus. In the event the demand for the credit facility meets or
exceeds $650 million on a complex-wide basis, each fund will be limited to
its pro-rata percentage based on the net assets of each participating fund.
Interest on borrowings is charged under the agreement at a rate of 0.50%
above the federal funds rate per annum. An annual commitment fee of 0.09% per
annum is charged on the unused portion of the credit facility, which each
fund incurs based on its pro-rata percentage of quarterly net assets. The
Fund has not borrowed against the credit facility during the period.
30
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of Van Kampen High Yield & Total
Return Fund
We have audited the accompanying statement of assets and liabilities of
Van Kampen High Yield & Total Return Fund (the "Fund"), a fund of Van Kampen
Series Fund, Inc., including the portfolio of investments, as of June 30, 2000,
and the related statements of operations, changes in net assets and the
financial highlights for the year then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit. The Fund's financial statements and
financial highlights for the periods ended prior to June 30, 2000, were
audited by other auditors whose report, dated August 6, 1999, expressed an
unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of June 30, 2000, by
correspondence with the Fund's custodian and brokers; where replies were not
received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Van Kampen High Yield & Total Return Fund as of June 30, 2000,
the results of its operations, the changes in its net assets and the
financial highlights for the year then ended, in conformity with accounting
principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Chicago, Illinois
August 11, 2000
31
<PAGE>
FUND OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN HIGH YIELD & TOTAL RETURN FUND
BOARD OF DIRECTORS
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*
Chairman, Director, President,
Chief Executive Officer
STEPHEN L. BOYD*
Executive Vice President and
Chief Investment Officer
A. THOMAS SMITH III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Chief Financial Officer and
Treasurer
RICHARD A. CICCARONE*
JOHN R. REYNOLDSON*
MICHAEL H. SANTO*
JOSEPH P. STADLER*
JOHN H. ZIMMERMANN, III*
Vice Presidents
INVESTMENT ADVISER AND
ADMINISTRATOR
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
INVESTMENT SUBADVISERS
MORGAN STANLEY DEAN WITTER INVESTMENT
MANAGEMENT INC.
1221 Avenue of the Americas
New York, New York 10020
MILLER ANDERSON & SHERRERD, LLP
One Tower Bridge
West Conshohocken,
Pennsylvania 19428
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
CUSTODIAN
THE CHASE MANHATTAN BANK
3 MetroTech Center
Brooklyn, New York 11245
DIVIDEND DISBURSING AND TRANSFER AGENT
VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 218256
Kansas City, Missouri 64121-8256
LEGAL COUNSEL
SKADDEN, ARPS, SLATE, MEAGHER &
FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT AUDITORS
DELOITTE & TOUCHE LLP
180 N. Stetson Avenue
Chicago, IL 60601
-----------------------------------------------------------------------------
| The following information is furnished with respect to the distributions |
| paid by the Fund during its taxable year ended June 30, 2000. For corporate|
| shareholders 1% of the distribution qualifies for the dividends received |
| deduction. |
-----------------------------------------------------------------------------
* "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.
32
<PAGE>
RESULT OF
SHAREHOLDER VOTES
JUNE 30, 2000
A Joint Special Meeting of the Shareholders of the High Yield & Total Return
Fund (the "Fund") was held on December 15, 1999. The description of each
proposal and number of shares voted are as follows:
1. To elect the following Directors to serve the Fund.
<TABLE>
<CAPTION>
VOTED FOR WITHHELD
<S> <C> <C>
J. Miles Branagan............................... 1,886,464 14,493
Jerry D. Choate................................. 1,882,461 18,496
Linda Hutton Heagy.............................. 1,887,121 13,836
R. Craig Kennedy................................ 1,887,121 13,836
Mitchell M. Merin............................... 1,882,432 18,524
Jack E. Nelson.................................. 1,887,121 13,836
Richard F. Powers, III.......................... 1,882,466 18,491
Phillip B. Rooney............................... 1,887,121 13,836
Fernando Sisto.................................. 1,881,809 19,148
Wayne W. Whalen................................. 1,887,121 13,836
Suzanne H. Woolsey.............................. 1,887,116 13,841
Paul G. Yovovich*............................... 1,887,116 13,841
</TABLE>
*EFFECTIVE APRIL 14, 2000, PAUL G. YOVOVICH RESIGNED FROM THE BOARD OF
DIRECTORS.
2. To ratify PricewaterhouseCoopers LLP to act as independent public
accountants for the Fund.(1)
<TABLE>
<CAPTION>
AFFIRMATIVE AGAINST ABSTAIN
<S> <C> <C>
1,882,873 232 17,851
</TABLE>
(1) INDEPENDENT ACCOUNTANTS FOR THE FUND PERFORM AN ANNUAL AUDIT OF THE FUND'S
FINANCIAL STATEMENTS. THE BOARD OF DIRECTORS HAS ENGAGED DELOITTE & TOUCHE
LLP TO BE THE FUND'S INDEPENDENT ACCOUNTANTS.
PricewaterhouseCoopers LLP, located at 200 East Randolph Drive, Chicago, IL
60601 ("PWC"), ceased being the Fund's independent accountants effective
May 18, 2000. The cessation of the client-auditor relationship between the
Fund and PWC was based solely on a possible future business relationship by
PWC with an affiliate of the Fund's investment adviser.
33
<PAGE>
456, 556, 656 --------------
MSHY ANR 08/00 | PRESORTED |
| STANDARD |
VAN KAMPEN FUNDS INC. | U.S. Postage |
1 Parkview Plaza | PAID |
P.O. Box 5555 | VAN KAMPEN |
Oakbroak Terrace, Illinois 60181-5555 | FUNDS |
--------------
<PAGE>
VAN KAMPEN
INTERNATIONAL
MAGNUM FUND
ANNUAL REPORT
JUNE 30, 2000
VAN KAMPEN
F U N D S
<PAGE>
TABLE OF CONTENTS
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 4 IT IS TIMES
GROWTH OF A $10,000 INVESTMENT 5
LIKE THESE
PORTFOLIO AT A GLANCE
TOP TEN HOLDINGS 6 WHEN MONEY-
TOP FIVE COUNTRIES 6
Q&A WITH YOUR PORTFOLIO MANAGERS 7 MANAGEMENT
GLOSSARY OF TERMS 10
EXPERIENCE
BY THE NUMBERS
YOUR FUND'S INVESTMENTS 11 MAY MAKE
FINANCIAL STATEMENTS 20
NOTES TO FINANCIAL STATEMENTS 26 A DIFFERENCE.
REPORT OF INDEPENDENT AUDITORS 35
VAN KAMPEN FUNDS
FUND OFFICERS AND IMPORTANT ADDRESSES 36
RESULTS OF SHAREHOLDER VOTES 37
----------------------------------------------------
NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE.
----------------------------------------------------
<PAGE>
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>
U.S. GROSS DOMESTIC PRODUCT
SEASONALLY ADJUSTED ANNUALIZED RATES
(JUNE 30, 1998 - JUNE 30, 2000)
<TABLE>
<S> <C>
Jun-98 2.1%
Sep-98 3.8%
Dec-98 5.9%
Mar-99 3.5%
Jun-99 2.5%
Sep-99 5.7%
Dec-99 8.3%
Mar-00 4.8%
Jun-00 5.2%
</TABLE>
SOURCE: BUREAU OF ECONOMIC ANALYSIS
INTEREST RATES AND INFLATION
(JUNE 30, 1998 - JUNE 30, 2000)
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Jun-98 5.500 1.70
Jul-98 5.500 1.70
Aug-98 5.500 1.60
Sep-98 5.250 1.50
Oct-98 5.000 1.50
Nov-98 4.750 1.50
Dec-98 4.750 1.60
Jan-99 4.750 1.70
Feb-99 4.750 1.60
Mar-99 4.750 1.70
Apr-99 4.750 2.30
May-99 4.750 2.10
Jun-99 5.000 2.00
Jul-99 5.000 2.10
Aug-99 5.250 2.30
Sep-99 5.250 2.60
Oct-99 5.250 2.60
Nov-99 5.500 2.60
Dec-99 5.500 2.70
Jan-00 5.500 2.70
Feb-00 5.750 3.20
Mar-00 6.000 3.70
Apr-00 6.000 3.00
May-00 6.500 3.10
Jun-00 6.500 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>
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(AS OF JUNE 30, 2000)
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
-------- -------- --------
<S> <C> <C> <C>
One-year total return based on NAV(1) 14.81% 14.12% 14.13%
One-year total return(2) 8.19% 9.12% 13.13%
Life-of-Fund average annual
total return(2) 6.76% 7.07% 7.57%
Commencement date 7/1/96 7/1/96 7/1/96
</TABLE>
--------
(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.
SEE THE COMPARATIVE PERFORMANCE SECTION OF THE CURRENT PROSPECTUS. 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.
BECAUSE THE PRICES OF COMMON STOCKS AND OTHER SECURITIES FLUCTUATE,
THE VALUE OF AN INVESTMENT IN THE FUND WILL VARY UPON THE FUND'S
INVESTMENT PERFORMANCE. FOREIGN SECURITIES MAY MAGNIFY VOLATILITY DUE
TO CHANGES IN FOREIGN EXCHANGE RATES, THE POLITICAL AND ECONOMIC
UNCERTAINTIES IN FOREIGN COUNTRIES, AND THE POTENTIAL LACK OF
LIQUIDITY, GOVERNMENT SUPERVISION, AND REGULATION.
MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO
PASS.
4
<PAGE>
GROWTH OF A $10,000 INVESTMENT
(JULY 1, 1996 - JUNE 30, 2000)
<TABLE>
<CAPTION>
MSCI EAFE Index IS AN
UNMANAGED INDEX OF
COMMON STOCKS FROM
EUROPE, AUSTRALASIA,
INTERNATIONAL MAGNUM FUND AND THE FAR EAST
<S> <C> <C>
7/96 $ 9,500 $10,000
6/97 $11,173 $11,284
6/98 $11,977 $11,613
6/99 $11,339 $12,498
6/00 $12,238 $14,643
<CAPTION>
<S> <C>
Fund's Total Return
1 Year Total Return 8.19%
Inception Avg. Annual 6.76%
</TABLE>
THIS CHART COMPARES YOUR
FUND'S PERFORMANCE TO THAT
OF THE MSCI EAFE INDEX
OVER TIME.
THIS IS AN UNMANAGED BROAD-BASED, STATISTICAL COMPOSITE THAT DOES NOT INCLUDE
ANY COMMISSIONS OR FEES THAT WOULD BE PAID BY AN INVESTOR PURCHASING THE
SECURITIES IT REPRESENTS. SUCH COSTS WOULD LOWER THE PERFORMANCE OF THIS
INDEX. THE HISTORICAL PERFORMANCE OF THE INDEX IS SHOWN FOR ILLUSTRATIVE
PURPOSES ONLY; IT IS NOT MEANT TO FORECAST, IMPLY, OR GUARANTEE THE FUTURE
PERFORMANCE OF ANY INVESTMENT VEHICLE. IT IS NOT POSSIBLE TO INVEST DIRECTLY
IN AN INDEX.
THE ABOVE CHART REFLECTS THE PERFORMANCE OF CLASS A SHARES OF THE FUND. THE
PERFORMANCE OF CLASS A SHARES WILL DIFFER FROM THAT OF OTHER SHARE CLASSES OF
THE FUND BECAUSE OF THE DIFFERENCE IN SALES CHARGES AND/OR EXPENSES PAID BY
SHAREHOLDERS INVESTING IN THE DIFFERENT SHARE CLASSES. THE FUND'S PERFORMANCE
ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS, AND INCLUDES PAYMENT OF THE
MAXIMUM SALES CHARGE (5.75% FOR CLASS A SHARES).
WHILE PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THE ABOVE
INFORMATION PROVIDES A BROADER VANTAGE POINT FROM WHICH TO EVALUATE THE
DISCUSSION OF THE FUND'S PERFORMANCE FOUND IN THE FOLLOWING PAGES.
5
<PAGE>
PORTFOLIO AT A GLANCE
TOP TEN HOLDINGS*
(AS A PERCENTAGE OF NET ASSETS--JUNE 30, 2000)
1. VODAFONE AIRTOUCH 2.4%
Operates wireless communications networks in the United Kingdom and the
United States.
2. AVENTIS (FORMERLY
RHONE-POULENC) 1.9%
Develops chemicals, pharmaceuticals, and other products.
3. NESTLE 1.8%
Produces food and cosmetics, including name brands Nestea, Nestle, and
L'Oreal.
4. TOTAL FINA ELF 1.7%
Explores for and produces oil and natural gas worldwide.
5. KONINKLIJKE PHILIPS ELECTRONICS 1.5%
Makes televisions, audio equipment,
phones, and other electronic devices.
6. CIE FINANCIERE RICHEMONT 1.2%
Markets luxury goods, including brands such as Cartier jewelry, Piaget
watches, and Montblanc pens.
7. RECKITT BENCKISER 1.2%
Manufactures household, pharmaceutical, and food products.
8. BRITISH TELECOM 1.2%
Provides telephone and Internet services to the United Kingdom.
9. NEC 1.2%
Manufactures semiconductors, computers, and other industrial and commercial
electronic equipment.
10. PRUDENTIAL 1.1%
Provides insurance and banking services in the United Kingdom, China,
and the United States.
* EXCLUDES SHORT-TERM INVESTMENT
TOP FIVE COUNTRIES
(AS A PERCENTAGE OF NET ASSETS)
[CHART]
<TABLE>
<CAPTION>
June 30, 2000 June 30, 1999
<S> <C> <C>
Japan 28.1% 24.9%
United Kingdom 23.1% 19.7%
France 9.0% 10.3%
Switzerland 6.1% 8.6%
Netherlands 4.7% 4.2%
</TABLE>
6
<PAGE>
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH THE MANAGEMENT TEAM OF THE VAN KAMPEN
INTERNATIONAL MAGNUM FUND ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT
SHAPED THE MARKETS AND INFLUENCED THE FUND'S RETURN DURING THE 12 MONTHS
ENDED JUNE 30, 2000. THE TEAM IS LED BY FRANCINE J. BOVICH, SENIOR
PORTFOLIO MANAGER, MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT, WHO
HAS MANAGED THE FUND SINCE 1999 AND HAS WORKED IN THE INVESTMENT
INDUSTRY FOR OVER 20 YEARS. THE FOLLOWING DISCUSSION REFLECTS HER VIEWS
ON THE FUND'S PERFORMANCE.
Q HOW WOULD YOU DESCRIBE THE MARKET ENVIRONMENT IN WHICH THE FUND OPERATED,
AND HOW DID THE FUND PERFORM IN THIS ENVIRONMENT?
A During the past 12 months, the most important factor that
impacted the market was the attention given to international stocks in general
and technology stocks in particular. Stocks in the MSCI EAFE Index (Morgan
Stanley Capital International--Europe, Australasia, and the Far East) returned
17.16 percent during the reporting period. Within the index, telecommunications
stocks were up 26.8 percent and information technology stocks were up 97.8
percent for the reporting period. These favorable results meant that investing
in those sectors was critical for the fund's positive performance.
In fact, market sectors became increasingly more important than a stock's
country of origin as the global economy continued to grow, bringing down trade
barriers and increasing competition worldwide. Nowhere was this more prevalent
than in the TMT (technology, media, and telecommunications) sector. The fund's
small position in what we believed to be an overpriced TMT sector in late 1999
was the biggest detractor to fund performance during the reporting period.
For the 12-month period ended June 30, 2000, the fund achieved a total
return of 14.81 percent (CLASS A SHARES AT NET ASSET VALUE; IF THE MAXIMUM
SALES CHARGE OF 5.75 PERCENT WERE INCLUDED, THE RETURN WOULD HAVE BEEN
LOWER). AS A RESULT OF RECENT MARKET ACTIVITY, CURRENT PERFORMANCE MAY VARY
FROM THE FIGURES SHOWN. BY COMPARISON, THE MSCI EAFE INDEX GENERATED A TOTAL
RETURN OF 16.71 PERCENT FOR THE SAME PERIOD. THIS BROAD-BASED, UNMANAGED
INDEX IS COMPOSED OF SECURITIES ON THE STOCK EXCHANGES OF EUROPE,
AUSTRALASIA, NEW ZEALAND, AND THE FAR EAST AND ASSUMES REINVESTMENT OF
DIVIDENDS. THIS INDEX DOES NOT REFLECT ANY COMMISSIONS OR SALES CHARGES THAT
WOULD BE PAID BY AN INVESTOR PURCHASING THE SECURITIES IT REPRESENTS. SUCH
CHARGES WOULD LOWER THE PERFORMANCE OF THE INDEX. IT IS NOT POSSIBLE TO
INVEST DIRECTLY IN AN INDEX. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE
RESULTS.
7
<PAGE>
Q WHAT STRATEGIES DID YOU PURSUE FOR THE FUND IN THIS ENVIRONMENT?
A In mid-1999, the fund was heavily positioned in consumer staples and
banking, with a small position in TMT. Much of the fund's technology position
was concentrated in Japanese securities, where stock selections such as NEC
and Toshiba (both manufacturers of electronic products) helped fund
performance. Because we believed that the economic recovery in Japan would
lead to higher levels of consumer demand and spending, we increased the
fund's position in domestic consumer-related companies.
As the importance of sector selection grew in the marketplace, our
investment strategy was to make adjustments accordingly. Therefore, in
February 2000, we added a group of analysts to the fund's management team who
specialize in the higher-growth areas of the market, including the TMT
sector. These analysts led us to increase the fund's investments in TMT
stocks, but we still maintained a small weighting in this sector relative to
the fund's benchmark, the MSCI EAFE index. Finally, we trimmed the fund's
small-cap investments in Europe when those securities began to represent a
disproportionate amount of the portfolio relative to their value.
In March and April, our cautious position helped the fund significantly
as investors sold out of the pricey TMT sector--largely the Internet-related
stocks--and the fund's performance was much improved during the last four
months of the reporting period.
The fund's position in TMT was offset by a large position in consumer
staples, including Nestle and Danone (manufacturer of consumer brands Dannon
and Evian), which performed well during the spring of 2000 when TMT stocks
fell from favor. In turn, this performance helped compensate for the
opportunities that the fund missed by holding a significantly smaller
position in the TMT sector when it was dominating the markets earlier in the
period.
Finally, of the few TMT stocks the fund did hold, several Japanese
holdings such as NTT and Toshiba Corporation were major contributors to the
fund's performance for the period. The Japanese securities generally weren't
as highly priced by the market as TMT stocks from other regions, and these
stocks performed well as Japan rebounded and the TMT sector exploded. Of
course, past performance is no guarantee of future results, and 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 IS YOUR OUTLOOK FOR THE MONTHS AHEAD?
A The fund has never been in a better position to respond to the events of
the marketplace, thanks to the flexibility and experience provided by its
expanded management team.
As the U.S. economy starts to slow, the European economy will likely
become the lead engine for world growth--a position that the United States
has held for years. However, the single most important factor in the next
several months will be whether the Fed is able to engineer a slowdown of the
U.S. economy
8
<PAGE>
while avoiding a recession. The questions remain: What will the Fed do with
interest rates to bring the U.S. economy back to more sustainable levels of
growth? How will the U.S. economy respond, and how will consumer spending be
affected? Finally, how will foreign markets respond to future Fed actions, or
the lack thereof?
As the U.S. economy slows, we anticipate that the U.S. dollar will weaken,
which will result in a decline in the number of international investors who want
to own U.S. investments. As this happens, the Euro could start to climb, which
in turn should increase returns for investors with European holdings. We will be
watching world markets carefully to see how investors react as the United States
may no longer be the first choice for global investment.
In Asia, investors are concerned about the yen, which has depreciated
significantly, and some investors believe that Asian governments won't allow the
yen to depreciate much more. If the yen holds steady or appreciates relative to
a declining U.S. dollar, this could open another avenue for investors seeking
opportunities outside of the United States. Although the non-Japan Asian
countries are not our first choice for investments due to what we believe are
high valuations and risk levels, we do believe that they are well positioned to
take advantage of U.S. rate increases, because most of these countries have
relatively strong current-account balances and low debt.
Overall, we believe that international markets are well positioned
relative to the U.S. market, and that overseas investments may outperform
their U.S. counterparts in the near term, which could be positive for this
internationally invested fund.
9
<PAGE>
GLOSSARY OF TERMS A HELPFUL GUIDE TO SOME OF THE COMMON
TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.
CLASS A SHARES: A division of mutual fund shares, which are generally divided
into three groupings, called Class A, Class B, and Class C shares. The
specific features of each are dependent on varying fees and sales charges. In
most cases, Class A shares will have no redemption fee (contingent deferred
sales charge).
DIVIDEND: A distribution of earnings. Dividends may be in the form of cash,
stock, or property. The board of directors must declare all dividends.
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.
NET ASSET VALUE (NAV): The value of a mutual fund share, calculated by
deducting a fund's liabilities from the total assets in its portfolio and
dividing this amount by the number of shares outstanding. The NAV does not
include any initial or contingent deferred sales charge.
PORTFOLIO: A collection of securities owned by an individual or an
institution that may include stocks, bonds, and/or money-market securities.
SALES CHARGE: Also referred to as the load, this is a fee paid by a buyer to
acquire shares in a mutual fund or a limited partnership.
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.
10
<PAGE>
BY THE NUMBERS
YOUR FUND'S INVESTMENTS THE FOLLOWING PAGES DETAIL YOUR FUND'S
JUNE 30, 2000 PORTFOLIO OF INVESTMENTS AT THE END OF THE
REPORTING PERIOD.
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
COMMON STOCKS 90.4%
AUSTRALIA 1.9%
AMP Ltd. ................................................ 6,750 $ 68,534
Brambles Industries Ltd. ................................ 3,500 107,312
Broken Hill Proprietary Co., Ltd. ....................... 15,800 186,372
Commonwealth Bank of Australia .......................... 14,500 239,799
CSL Ltd. ................................................ 3,000 59,190
Fosters Brewing Group Ltd. .............................. 57,100 160,284
Lend Lease Corp., Ltd. .................................. 8,350 106,264
Macquarie Corporate Telecommunications Holdings Ltd. (a) 68,200 83,502
National Australia Bank Ltd. ............................ 18,350 305,749
News Corp., Ltd. ........................................ 31,740 436,005
Normandy Mining Ltd. .................................... 142,200 76,436
Qantas Airways Ltd. ..................................... 29,200 58,946
Rio Tinto Ltd. .......................................... 11,750 193,822
Solution 6 Holdings Ltd. (a) ............................ 48,450 94,045
Telstra Corp., Ltd. ..................................... 50,500 204,492
Westpac Banking Corp., Ltd. ............................. 29,700 213,747
----------
2,594,499
----------
BELGIUM 0.2%
Mobistar S.A. (a) ....................................... 7,770 257,681
----------
DENMARK 0.1%
Tele Danmark A/S ........................................ 2,285 153,636
----------
FINLAND 1.3%
Nokia Oyj ............................................... 27,760 1,415,219
Sampo Insurance Co., Ltd. 'A' ........................... 7,245 293,686
----------
1,708,905
----------
FRANCE 9.0%
Alcatel ................................................. 22,690 1,486,783
Aventis S.A. ............................................ 33,981 2,477,822
AXA ..................................................... 7,397 1,164,115
BNP Paribus ............................................. 9,310 895,090
Castorama Dubois Investissement S.A. .................... 970 239,623
CNP Assurances .......................................... 22,490 765,798
Groupe Danone (a) ....................................... 5,460 723,875
Michelin (C.G.D.E.) 'B' (Registered) .................... 9,860 316,084
Pernod-Ricard ........................................... 8,010 435,476
Sanofi-Synthelabo S.A. .................................. 4,400 209,416
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS. 11
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
FRANCE (CONTINUED)
Schneider Electric S.A. ................................. 9,960 $ 693,487
Societe Television Francaise 1 (a) ...................... 1,660 115,581
Thomson Multimedia (a) .................................. 3,250 210,169
Total Fina Elf S.A. 'B' ................................. 15,113 2,315,009
-----------
12,048,328
-----------
GERMANY 3.2%
Adidas-Salomon AG ....................................... 5,320 292,274
BASF AG ................................................. 7,225 292,875
Bayer AG ................................................ 3,659 139,947
Bayerische Hypo-und Vereinsbank AG ...................... 9,772 638,455
Bayerische Motoren Werke AG ............................. 9,320 283,572
Deutsche Telekom AG ..................................... 19,839 1,142,913
SAP AG .................................................. 3,850 581,664
Schering AG ............................................. 4,860 264,453
Siemens AG .............................................. 3,440 514,471
Software AG ............................................. 2,050 186,730
-----------
4,337,354
-----------
HONG KONG 1.9%
Asia Satellite Telecommunications Holdings Ltd. ......... 41,400 141,532
Cable & Wireless HKT Ltd. ............................... 94,000 206,799
Cathay Pacific Airways Ltd. ............................. 52,700 97,686
Cheung Kong Holdings Ltd. ............................... 15,100 167,068
China Telecom Ltd. (a) .................................. 49,100 433,022
Hong Kong & China Gas Co., Ltd. ......................... 98,000 109,999
HSBC Holdings plc ....................................... 13,300 151,844
Hutchison Whampoa Ltd. .................................. 45,870 576,648
Li & Fung Ltd. .......................................... 57,200 286,165
SmarTone Telecommunications Holdings Ltd. ............... 22,400 49,567
Sun Hung Kai Properties Ltd. ............................ 22,700 163,068
Swire Pacific Ltd. 'A' .................................. 9,000 52,646
Television Broadcasts Ltd. .............................. 15,000 100,058
-----------
2,536,102
-----------
ITALY 2.6%
Banca Popolare di Bergamo S.p.A. ........................ 28,940 534,944
ENI S.p.A. .............................................. 120,180 693,496
Marzotto (Gaetano) S.p.A. ............................... 9,970 81,305
Mediaset S.p.A .......................................... 18,100 276,220
Telecom Italia Mobile S.p.A ............................. 31,500 321,478
Telecom Italia S.p.A. ................................... 82,090 1,127,481
UniCredito Italiano S.p.A. .............................. 83,660 399,772
-----------
3,434,696
-----------
</TABLE>
12 SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
JAPAN 28.1%
Aiwa Co., Ltd. .......................................... 14,000 $ 223,958
Amada Co., Ltd. ......................................... 62,000 525,696
Bank of Tokyo-Mitsubishi Ltd. ........................... 9,000 108,616
Canon, Inc. ............................................. 25,000 1,243,582
Casio Computer Co., Ltd. ................................ 48,000 538,132
Dai Nippon Printing Co., Ltd. ........................... 35,000 616,280
Daicel Chemical Industries Ltd. ......................... 92,000 296,425
Daifuku Co., Ltd. ....................................... 51,000 565,038
Daikin Industries Ltd. .................................. 44,000 1,021,810
FamilyMart Co., Ltd. .................................... 12,300 472,787
Fuji Machine Manufacturing Co. .......................... 13,700 718,913
Fuji Photo Film Co. ..................................... 26,000 1,063,074
Fujitec Co., Ltd. ....................................... 29,000 252,174
Fujitsu Ltd. ............................................ 42,000 1,452,165
Furukawa Electric Co., Ltd. ............................. 24,000 500,824
Hitachi Credit Corp. .................................... 31,300 846,305
Hitachi Ltd. ............................................ 87,000 1,254,039
House Foods Corp. ....................................... 11,000 169,956
Kaneka Corp. ............................................ 65,000 715,860
Kurita Water Industries Ltd. ............................ 26,000 571,953
Kyocera Corp. ........................................... 5,800 983,014
Kyudenko Co., Ltd. ...................................... 25,000 75,133
Lintec Corp. ............................................ 38,000 395,591
Matsushita Electric Industrial Co., Ltd. ................ 44,000 1,139,950
Minebea Co., Ltd. ....................................... 46,000 576,381
Mitsubishi Chemical Corp. ............................... 96,000 393,424
Mitsubishi Estate Co., Ltd. ............................. 30,000 352,725
Mitsubishi Heavy Industries Ltd. ........................ 136,000 602,195
Mitsubishi Logistics Corp. .............................. 10,000 90,442
Mitsumi Electric Co., Ltd. .............................. 26,000 955,297
NEC Corp. ............................................... 50,000 1,568,609
Nifco, Inc. ............................................. 31,000 395,440
Nintendo Co., Ltd. ...................................... 7,800 1,360,931
Nippon Meat Packers, Inc. ............................... 23,000 335,861
Nissan Motor Co., Ltd. .................................. 95,000 559,376
Nissei Sangyo Co., Ltd. ................................. 13,000 189,835
Nissha Printing Co., Ltd. ............................... 20,000 138,113
NTT Corp. ............................................... 87 1,155,683
Ono Pharmaceutical Co., Ltd. ............................ 17,000 728,720
Ricoh Co., Ltd. ......................................... 55,000 1,163,267
Rinnai Corp. ............................................ 13,900 309,704
Rohm Co. ................................................ 3,000 876,160
Ryosan Co. .............................................. 15,000 339,159
Sangetsu Co., Ltd. ...................................... 9,000 148,382
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS. 13
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
JAPAN (CONTINUED)
Sankyo Co., Ltd. ........................................ 30,000 $ 676,904
Sanwa Shutter Corp. ..................................... 55,000 178,247
Sekisui Chemical Co. .................................... 61,000 234,472
Sekisui House Ltd. ...................................... 55,000 508,314
Shin-Etsu Polymer Co., Ltd. ............................. 51,000 421,857
Sony Corp. .............................................. 14,200 1,324,415
Suzuki Motor Co., Ltd. .................................. 42,000 541,297
TDK Corp. ............................................... 9,000 1,292,195
Tokyo Electric Power Co. ................................ 15,000 365,302
Toshiba Corp. ........................................... 119,000 1,341,966
Toyota Motor Corp. ...................................... 16,000 728,061
Tsubakimoto Chain Co. ................................... 76,000 386,641
Yamaha Corp. ............................................ 36,000 393,085
Yamanouchi Pharmaceutical Co., Ltd. ..................... 20,000 1,090,960
-----------
37,474,695
-----------
NETHERLANDS 4.7%
ABN Amro Holding N.V. ................................... 9,830 240,584
Akzo Nobel N.V. ......................................... 15,965 677,619
ASM Lithography Holding N.V. (a) ........................ 4,040 173,478
Buhrmann N.V. ........................................... 11,055 315,800
Fortis (NL) N.V. ........................................ 9,470 275,400
Getronics N.V. .......................................... 13,660 210,416
Heineken N.V. ........................................... 3,450 209,776
ING Groep N.V. .......................................... 12,502 844,246
Koninklijke (Royal) Philips Electronics N.V. ............ 42,350 1,995,431
Koninklijke KPN N.V. (a) ................................ 8,280 369,996
Laurus N.V. ............................................. 28,610 342,466
Royal Dutch Petroleum Co. ............................... 7,620 473,143
United Pan-Europe Communications N.V. 'A' (a) ........... 6,700 175,034
-----------
6,303,389
-----------
NEW ZEALAND 0.1%
Telecom Corp. of New Zealand Ltd. ....................... 28,500 99,612
-----------
PORTUGAL 0.4%
Banco Comercial Portugues S.A. (Registered) ............. 48,650 252,893
Telecel-Comunicacaoes Pessoais S.A. (a) ................. 18,570 281,621
-----------
534,514
-----------
SINGAPORE 1.4%
Chartered Semiconductor Manufacturing Ltd. (a) .......... 12,000 104,892
Chartered Semiconductor Manufacturing Ltd. ADR (a) ...... 300 27,000
City Developments Ltd. .................................. 21,900 84,938
DBS Group Holdings Ltd. ................................. 26,564 341,372
Keppel Corp. Ltd. ....................................... 23,000 49,795
</TABLE>
14 SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
SINGAPORE (CONTINUED)
NatSteel Electronics Ltd. ............................... 21,000 $ 64,428
Neptune Orient Lines Ltd. (a) ........................... 59,000 54,645
Oversea-Chinese Banking Corp., Ltd. (Foreign) ........... 15,800 108,839
Overseas Union Bank Ltd. (Foreign) ...................... 11,124 43,144
Sembcorp Logistics Ltd. ................................. 20,000 112,301
Singapore Airlines Ltd. (Foreign) ....................... 12,000 118,784
Singapore Press Holdings Ltd. ........................... 12,000 187,554
Singapore Telecommunications Ltd. ....................... 69,000 101,054
ST Assembly Test Services Ltd. (a) ...................... 37,000 95,097
United Overseas Bank Ltd. (Foreign) ..................... 18,896 123,603
Venture Manufacturing Ltd. .............................. 20,000 203,763
-----------
1,821,209
-----------
SPAIN 2.2%
Amadeus Global Travel Distribution S.A. 'A' (a) ......... 27,490 313,328
Banco Bilbao Vizcaya S.A. ............................... 32,290 481,991
Banco Popular Espanol S.A. .............................. 9,470 292,652
Endesa S.A. ............................................. 23,440 453,624
Telefonica Publicidad e Informacion S.A. (a) ............ 4,470 42,165
Telefonica S.A. (a) ..................................... 62,553 1,342,416
-----------
2,926,176
-----------
SWEDEN 4.1%
Assa Abloy AB 'B' ....................................... 26,914 539,622
Autoliv, Inc. SDR ....................................... 17,500 428,183
Ericsson LM AB 'B' ...................................... 42,980 849,571
ForeningsSparbanken AB 'A' .............................. 24,230 354,063
Nordic Baltic Holding AB ............................... 138,587 1,043,955
Scandic Hotels AB ....................................... 22,260 267,281
Securitas AB 'B' ........................................ 32,310 684,410
Skandia Forsakrings AB (a) .............................. 7,400 195,310
Svedala Industri AB ..................................... 19,830 377,372
Svenska Cellulosa Free AB 'B' ........................... 11,720 222,372
Svenska Handelsbanken 'A' ............................... 32,740 474,708
Tele1 Europe Holding AB (a) ............................. 4,350 53,217
-----------
5,490,064
-----------
SWITZERLAND 6.1%
Adecco S.A. (Registered) ................................ 450 381,912
Cie Financiere Richemont AG 'A' ......................... 605 1,628,177
Givaudan (Registered) (a) ............................... 436 132,554
Holderbank Financiere Glarus AG 'B' (Bearer) ............ 476 582,940
Nestle S.A. (Registered) ................................ 1,215 2,429,107
Novartis AG (Registered) ................................ 680 1,075,941
Roche Holding AG (Registered) ........................... 46 447,297
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS. 15
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
SWITZERLAND (CONTINUED)
Schindler Holding AG (Registered) ....................... 224 $ 342,906
UBS AG (Registered) ..................................... 7,370 1,078,581
-----------
8,099,415
-----------
UNITED KINGDOM 23.1%
Allied Domecq plc ....................................... 247,800 1,311,964
Allied Zurich plc ....................................... 29,300 346,377
AstraZeneca Group plc ................................... 16,185 755,302
AstraZeneca Group plc ................................... 14,370 667,388
BAA plc ................................................. 42,900 343,942
BAE SYSTEMS plc ......................................... 60,700 378,302
Bank of Scotland ........................................ 30,903 293,805
Barclays plc ............................................ 42,400 1,053,795
BBA Group plc ........................................... 40,100 262,655
BG Group plc ............................................ 94,958 613,355
Blue Circle Industries plc .............................. 60,300 389,035
BOC Group plc ........................................... 23,950 344,177
BP Amoco plc ............................................ 77,700 745,183
British American Tobacco plc ............................ 72,000 480,312
British Telecom plc ..................................... 124,000 1,601,888
Cadbury Schweppes plc ................................... 109,200 716,910
Capital Radio plc ....................................... 3,500 81,799
Centrica plc ............................................ 74,440 248,295
Diageo plc .............................................. 112,337 1,007,697
Egg plc (a) ............................................. 63,300 164,697
EMAP plc ................................................ 12,100 194,568
GKN plc ................................................. 20,200 257,591
Glaxo Wellcome plc ...................................... 50,900 1,483,720
Granada Group plc ....................................... 119,400 1,192,067
Great Universal Stores plc .............................. 89,020 572,307
Halma plc ............................................... 93,300 143,958
Imperial Tobacco Group plc .............................. 83,600 800,502
Kingfisher plc .......................................... 19,200 174,699
Lloyds TSB Group plc .................................... 30,100 284,121
Marconi plc ............................................. 36,900 480,040
Prudential Corp. plc .................................... 102,100 1,495,043
Reckitt Benckiser plc ................................... 144,629 1,618,973
Reed International plc .................................. 38,700 336,613
Rentokil Initial plc .................................... 126,200 286,354
RMC Group plc ........................................... 16,400 213,351
Rolls-Royce plc ......................................... 139,700 495,555
Sainsbury (J) plc ....................................... 26,700 121,167
Scottish & Southern Energy plc .......................... 61,100 560,101
Shell Transport & Trading Co. plc ....................... 159,365 1,329,508
</TABLE>
16 SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
UNITED KINGDOM (CONTINUED)
Smith & Nephew plc ...................................... 34,444 $ 127,132
SmithKline Beecham plc .................................. 47,000 614,988
Smiths Industries plc ................................... 22,700 295,309
SSL International plc ................................... 65,000 703,027
Telewest Communications plc (a) ......................... 82,834 285,691
Tesco plc ............................................... 80,300 249,620
Vodafone AirTouch plc ................................... 792,338 3,200,179
Wolseley plc ............................................ 49,600 266,356
Woolwich plc ............................................ 51,100 216,244
WPP Group plc ........................................... 74,000 1,080,218
-----------
30,885,880
-----------
TOTAL COMMON STOCKS
(Cost $103,149,339) .......................................... 120,706,155
-----------
PREFERRED STOCKS 1.3%
GERMANY 1.3%
Fresenius AG ............................................ 3,085 706,486
Henkel KGaA ............................................. 11,987 685,991
Hugo Boss AG ............................................ 2,134 370,444
-----------
TOTAL PREFERRED STOCKS
(Cost $1,629,153) ............................................ 1,762,921
-----------
TOTAL LONG-TERM INVESTMENTS 91.7%
(Cost $104,778,492) .......................................... 122,469,076
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS. 17
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
PAR MARKET
DESCRIPTION VALUE VALUE
<S> <C> <C>
SHORT-TERM INVESTMENT 7.9%
REPURCHASE AGREEMENT 7.9%
Chase Securities, Inc. 6.15%, dated $10,533,000
6/30/00, due 7/3/00, to be repurchased at $10,538,398,
collateralized by $11,760,000 U.S. Treasury Notes
4.75%, due 11/15/08, valued at $10,753,050
(Cost $10,533,000) .............................. $ 10,533,000
------------
TOTAL INVESTMENTS IN SECURITIES 99.6%
(Cost $115,311,492) .......................................... 133,002,076
FOREIGN CURRENCY 0.1%
(Cost $78,492) ............................................... 78,444
------------
TOTAL INVESTMENTS 99.7%
(Cost $115,389,984) .......................................... 133,080,520
OTHER ASSETS IN EXCESS OF LIABILITIES 0.3% ...................... 426,328
------------
NET ASSETS (100%) ................................................ $133,506,848
------------
------------
</TABLE>
(a) - NON-INCOME PRODUCING SECURITY
ADR - AMERICAN DEPOSITARY RECEIPT
SDR - SWEDISH DEPOSITARY RECEIPT
18 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
SUMMARY OF LONG-TERM INVESTMENTS BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
<S> <C> <C>
Consumer Discretionary ........... $ 20,334,678 15.2%
Information Technology ........... 18,586,534 13.9
Financials ....................... 18,020,331 13.5
Industrials ...................... 13,594,940 10.2
Consumer Staples ................. 13,347,467 10.0
Telecommunication Services ....... 12,361,271 9.2
Health Care ...................... 12,088,747 9.1
Materials ........................ 6,228,093 4.6
Energy ........................... 5,556,339 4.2
Utilities ........................ 2,350,676 1.8
------------ ----
$122,469,076 91.7%
------------ ----
------------ ----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS 19
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
JUNE 30, 2000
<TABLE>
<S> <C>
ASSETS:
Investments at Value (Cost $115,311,492) ................................ $133,002,076
Foreign Currency (Cost $78,492) ......................................... 78,444
Margin Deposit on Futures ............................................... 1,063,546
Receivable for:
Fund Shares Sold ...................................................... 1,814,379
Investments Sold ...................................................... 473,173
Dividends ............................................................. 203,582
Foreign Withholding Tax Reclaim ....................................... 62,476
Interest .............................................................. 1,842
Net Unrealized Gain on Foreign Currency Exchange Contracts .............. 25,377
Other ................................................................... 10,141
------------
Total Assets ........................................................ 136,735,036
------------
LIABILITIES:
Payable for:
Investments Purchased ................................................. 1,873,449
Fund Shares Redeemed .................................................. 635,771
Bank Overdraft ........................................................ 199,178
Investment Advisory Fees .............................................. 112,966
Distribution Fees ..................................................... 103,573
Variation Margin of Futures Contracts ................................. 92,038
Custody Fees .......................................................... 56,408
Shareholder Reporting Expense ......................................... 44,933
Professional Fees ..................................................... 33,662
Directors' Fees and Expenses .......................................... 31,789
Administrative Fees ................................................... 30,704
Transfer Agent Fees ................................................... 12,521
Other ................................................................... 1,196
------------
Total Liabilities ................................................... 3,228,188
------------
NET ASSETS .............................................................. $133,506,848
------------
------------
NET ASSETS CONSIST OF:
Capital Stock at Par ($.001 par value, Shares Authorized 2,625,000,000).. $ 8,631
Paid in Capital in Excess of Par ........................................ 116,238,154
Net Unrealized Appreciation on Investments,
Foreign Currency Translations and Futures ............................. 17,603,066
Accumulated Net Realized Gain ........................................... 163,162
Accumulated Net Investment Loss ......................................... (506,165)
------------
NET ASSETS .............................................................. $133,506,848
------------
------------
Class A Shares:
Net Asset Value and Redemption Price Per Share (Based on Net Assets
of $62,699,511 and 4,023,896 Shares Outstanding) .................... $ 15.58
------------
------------
Maximum Sales Charge ................................................ 5.75%
Maximum Offering Price Per Share (Net Asset Value Per
Share x 100/ (100% - maximum sales charge)) ......................... $ 16.53
------------
------------
Class B Shares:
Net Asset Value and Offering Price Per Share (Based on Net Assets
of $55,572,512 and 3,619,532 Shares Outstanding)* ................... $ 15.35
------------
------------
Class C Shares:
Net Asset Value and Offering Price Per Share (Based on Net Assets
of $15,234,825 and 987,453 Shares Outstanding)* ..................... $ 15.43
------------
------------
</TABLE>
* REDEMPTION PRICE MAY BE SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE.
20 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
Statement of Operations
YEAR ENDED JUNE 30, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends ............................................................... $ 1,873,752
Interest ................................................................ 408,240
Less Foreign Taxes Withheld ............................................. (106,022)
------------
Total Income ........................................................ 2,175,970
------------
EXPENSES:
Investment Advisory Fees ................................................ 930,786
Distribution Fees (Attributed to Classes A, B and C of $124,816, $514,434
and $149,447, respectively) ........................................... 788,697
Administrative Fees ..................................................... 316,241
Shareholder Reports ..................................................... 122,977
Custodian Fees .......................................................... 106,507
Transfer Agent Fees ..................................................... 66,942
Professional Fees ....................................................... 43,974
Filing and Registration Fees ............................................ 37,789
Directors' Fees and Expenses ............................................ 25,219
Amortization of Organizational Costs .................................... 6,890
Other ................................................................... 4,211
------------
Total Expenses ...................................................... 2,450,233
Less Expense Reductions ............................................. (22,526)
------------
Net Expenses ........................................................ 2,427,707
------------
NET INVESTMENT LOSS ..................................................... $ (251,737)
------------
------------
NET REALIZED GAIN/LOSS ON:
Investments ............................................................. $ 6,400,555
Foreign Currency Transactions ........................................... (263,408)
Futures ................................................................. 189,505
------------
Net Realized Gain ....................................................... 6,326,652
------------
NET UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period ............................................... 8,067,691
------------
End of the Period:
Investments ......................................................... 17,690,584
Foreign Currency Translations ....................................... (5,139)
Futures ............................................................. (82,379)
------------
17,603,066
------------
Net Change in Unrealized Appreciation/Depreciation During the Period .... 9,535,375
------------
NET REALIZED GAIN/LOSS AND NET CHANGE IN UNREALIZED
APPRECIATION/DEPRECIATION ............................................. $15,862,027
------------
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .................... $15,610,290
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS 21
<PAGE>
Statement of Changes in Net Assets
YEAR ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 2000 JUNE 30, 1999*
------------- --------------
<S> <C> <C>
INCREASE/DECREASE IN NET ASSETS
OPERATIONS:
Net Investment Income/Loss ............................ $ (251,737) $ 6,000
Net Realized Gain/Loss ................................ 6,326,652 (6,851,000)
Net Change in Unrealized Appreciation/Depreciation .... 9,535,375 (2,182,000)
------------ ------------
Net Increase/Decrease in Net Assets
Resulting from Operations .......................... 15,610,290 (9,027,000)
------------ ------------
DISTRIBUTIONS:
Net Investment Income:
Class A ............................................. -- (1,075,000)
Class B ............................................. -- (551,000)
Class C ............................................. -- (161,000)
In Excess of Net Investment Income:
Class A ............................................. -- (14,000)
Class B ............................................. -- (7,000)
Class C ............................................. -- (2,000)
------------ ------------
-- (1,810,000)
------------ ------------
IN EXCESS OF NET REALIZED GAIN:
Class A ............................................. -- (709,000)
Class B ............................................. -- (611,000)
Class C ............................................. -- (179,000)
------------ ------------
-- (1,499,000)
------------ ------------
Net Decrease in Net Assets Resulting from Distributions -- (3,309,000)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Subscribed ............................................ 122,915,121 79,794,000
Distributions Reinvested .............................. -- 2,837,000
Redeemed .............................................. (112,874,498) (96,317,000)
------------ ------------
Net Increase/Decrease in Net Assets Resulting from
Capital Share Transactions .......................... 10,040,623 (13,686,000)
------------ ------------
Total Increase/Decrease in Net Assets ................. 25,650,913 (26,022,000)
NET ASSETS--Beginning of Period ....................... 107,855,935 133,878,000
------------ ------------
NET ASSETS--End of Period (Including accumulated/
distributions in excess of net investment
income/loss of $(506,165) and $(23,000),
respectively) ....................................... $ 133,506,848 $107,856,000
------------ ------------
------------ ------------
</TABLE>
* AMOUNTS ROUNDED TO THE NEAREST (000).
22 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL
Financial Highlights HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE
PERIOD INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------- JULY 1, 1996* TO
Class A Shares 2000# 1999# 1998# JUNE 30, 1997
--------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD .................. $ 13.57 $ 14.85 $ 13.91 $ 12.00
--------- -------- -------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income ...... 0.04 0.05 0.17 0.17
Net Realized and
Unrealized Gain/Loss 1.97 (0.91) 0.96 1.88
--------- -------- -------- ---------
Total From Investment Operations ... 2.01 (0.86) 1.13 2.05
--------- -------- -------- ---------
DISTRIBUTIONS
Net Investment Income ...... -- (0.25) (0.18) (0.13)
In Excess of Net Investment
Income ............. -- (0.01) -- --
Net Realized Gain .......... -- -- (0.01) (0.01)
In Excess of Net Realized Gain -- (0.16) -- --
--------- -------- -------- ---------
Total Distributions ................ -- (0.42) (0.19) (0.14)
--------- -------- -------- ---------
NET ASSET VALUE, END OF PERIOD ..... $ 15.58 $ 13.57 $ 14.85 $ 13.91
--------- -------- -------- ---------
--------- -------- -------- ---------
TOTAL RETURN (1) ................... 14.81% (5.54%) 8.32% 17.30%**
--------- -------- -------- ---------
--------- -------- -------- ---------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) .. $ 62,699 $45,573 $66,817 $ 21,961
Ratio of Expenses to Average
Net Assets ................. 1.65% 1.65% 1.65% 1.65%
Ratio of Net Investment Income
to Average Net Assets ...... 0.26% 0.37% 1.19% 1.39%
Portfolio Turnover Rate ............ 66% 70% 35% 22%**
--------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Reductions
During the Period
Per Share Benefit to
Net Investment Income $0.00+ $0.00+ $0.02 $0.11
Ratios Before Expense Reductions:
Expenses to Average Net Assets 1.68% 1.71% 1.82% 2.50%
Net Investment Income to
Average Net Assets.. 0.23% 0.33% 1.02% 0.52%
--------------------------------------------------------------------------------------------------
</TABLE>
* COMMENCEMENT OF OPERATIONS
** NON-ANNUALIZED
+ AMOUNT IS LESS THAN $0.01 PER SHARE.
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED SALES
CHARGES.
# CHANGES PER SHARE ARE BASED UPON DAILY AVERAGE SHARES OUTSTANDING.
SEE NOTES TO FINANCIAL STATEMENTS 23
<PAGE>
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL
Financial Highlights HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE
PERIOD INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------- JULY 1, 1996* TO
CLASS B SHARES 2000# 1999# 1998# JUNE 30, 1997
--------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD ..................... $ 13.47 $ 14.72 $ 13.84 $ 12.00
--------- -------- -------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss .... (0.08) (0.04) 0.05 0.10
Net Realized and
Unrealized Gain/Loss .. 1.96 (0.90) 0.97 1.85
--------- -------- -------- ---------
Total From Investment Operations ...... 1.88 (0.94) 1.02 1.95
--------- -------- -------- ---------
DISTRIBUTIONS
Net Investment Income ......... -- (0.15) (0.13) (0.10)
In Excess of Net Investment
Income ................ -- (0.00)+ -- --
Net Realized Gain ............. -- -- (0.01) (0.01)
In Excess of Net Realized Gain -- (0.16) -- --
--------- -------- -------- ---------
Total Distributions ................... -- (0.31) (0.14) (0.11)
--------- -------- -------- ---------
NET ASSET VALUE, END OF PERIOD ........ $ 15.35 $ 13.47 $ 14.72 $ 13.84
--------- -------- -------- ---------
--------- -------- -------- ---------
TOTAL RETURN (1) ...................... 14.12% (6.28%) 7.55% 16.40%**
--------- -------- -------- ---------
--------- -------- -------- ---------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) ..... $ 55,573 $48,096 $51,541 $ 18,215
Ratio of Expenses to Average
Net Assets .................... 2.40% 2.40% 2.40% 2.40%
Ratio of Net Investment Income/
Loss to Average Net Assets .... (0.55%) (0.33%) 0.40% 0.54%
Portfolio Turnover Rate ............... 66% 70% 35% 22%**
--------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Reductions
During the Period
Per Share Benefit to Net
Investment Income/Loss $0.00+ $0.00+ $0.02 $0.17
Ratios Before Expense Reductions:
Expenses to Average Net Assets 2.43% 2.46% 2.57% 3.34%
Net Investment Income/Loss to
Average Net Assets..... (0.58%) (0.37%) 0.23% (0.42%)
--------------------------------------------------------------------------------------------------
</TABLE>
* COMMENCEMENT OF OPERATIONS
** NON-ANNUALIZED
+ AMOUNT IS LESS THAN $0.01 PER SHARE.
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED SALES
CHARGES.
# CHANGES PER SHARE ARE BASED UPON DAILY AVERAGE SHARES OUTSTANDING.
24 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL
Financial Highlights HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE
PERIOD INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------- JULY 1, 1996* TO
CLASS C SHARES 2000# 1999# 1998# JUNE 30, 1997
--------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD .................... $ 13.52 $ 14.78 $ 13.83 $ 12.00
--------- -------- -------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss ... (0.09) (0.03) 0.05 0.06
Net Realized and
Unrealized Gain/Loss . 2.00 (0.92) 0.99 1.88
--------- -------- -------- ---------
Total From Investment Operations ..... 1.91 (0.95) 1.04 1.94
--------- -------- -------- ---------
DISTRIBUTIONS
Net Investment Income ........ -- (0.15) (0.08) (0.10)
In Excess of Net Investment
Income ............... -- (0.00)+ -- --
Net Realized Gain ............ -- -- (0.01) (0.01)
In Excess of Net Realized Gain -- (0.16) -- --
--------- -------- -------- ---------
Total Distributions .................. -- (0.31) (0.09) (0.11)
--------- -------- -------- ---------
NET ASSET VALUE, END OF PERIOD ....... $ 15.43 $ 13.52 $ 14.78 $ 13.83
--------- -------- -------- ---------
--------- -------- -------- ---------
TOTAL RETURN (1) ..................... 14.13% (6.25%) 7.55% 16.27%**
--------- -------- -------- ---------
--------- -------- -------- ---------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's) .... $ 15,235 $14,187 $15,520 $ 9,156
Ratio of Expenses to Average
Net Assets ................... 2.40% 2.40% 2.40% 2.40%
Ratio of Net Investment Income/
Loss to Average Net Assets ... (0.58%) (0.26%) 0.36% 0.29%
Portfolio Turnover Rate .............. 66% 70% 35% 22%**
--------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Reductions
During the Period
Per Share Benefit to Net
Investment Income/Loss $0.00+ $0.00+ $0.02 $0.21
Ratios Before Expense Reductions:
Expenses to Average Net Assets 2.43% 2.46% 2.56% 3.45%
Net Investment Income/Loss to
Average Net Assets ... (0.61%) (0.30%) 0.20% (0.77%)
--------------------------------------------------------------------------------------------------
</TABLE>
* COMMENCEMENT OF OPERATIONS
** NON-ANNUALIZED
+ AMOUNT IS LESS THAN $0.01 PER SHARE.
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED SALES
CHARGES.
# CHANGES PER SHARE ARE BASED UPON DAILY AVERAGE SHARES OUTSTANDING.
SEE NOTES TO FINANCIAL STATEMENTS 25
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
The Van Kampen International Magnum Fund (the "Fund") is organized as a
separate non-diversified fund of Van Kampen Series Fund, Inc., a Maryland
corporation, which is registered as an open-end management company under the
Investment Company Act of 1940, as amended. The Fund's investment objective
seeks long-term capital appreciation by investing primarily in a portfolio of
equity securities of non-U.S. issuers in accordance with the Morgan Stanley
Capital International EAFE country weightings determined by the Fund's
investment adviser. The Fund commenced operations on July 1, 1996.
1. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of the financial statements in conformity with accounting
principles accepted in the United States of America (hereafter "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
period. Actual results could differ from those estimates.
A. SECURITY VALUATION Securities listed on a foreign exchange are valued at
their closing price. Unlisted securities and listed securities not traded on
the valuation date for which market quotations are readily available are
valued at the average between the bid and asked prices obtained from
reputable brokers. All other securities and assets for which market
quotations are not readily available are valued at fair value as determined
in good faith using procedures approved by the Board of Directors.
B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified
price. The Fund may invest independently in repurchase agreements, or
transfer uninvested cash balances into a pooled cash account along with other
investment companies advised by Van Kampen Investment Advisory Corp. or its
affiliates, the daily aggregate of which is invested in repurchase
agreements. Repurchase agreements are fully collateralized by the underlying
debt security. A bank as custodian for the Fund takes possession of the
underlying securities, with a market value at least equal to the amount of
the repurchase transaction, including principal and accrued interest. To the
extent that any repurchase transaction exceeds one business day, the value of
the collateral is marked-to-market on a daily basis to determine the adequacy
of the collateral. In the event of default on the obligation to repurchase,
the Fund has the right to liquidate the collateral and
26
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
apply the proceeds in satisfaction of the obligation. In the event of default
or bankruptcy by the counterparty to the agreement, realization and/or
retention of the collateral or proceeds may be subject to legal proceedings.
C. INCOME AND EXPENSES Interest income is recorded on an accrual basis and
dividend income is recorded net of applicable withholding taxes on the
ex-dividend date. Income, expenses, and realized and unrealized gains or losses
are allocated on a pro rata basis to each class of shares except for
distribution and service fees which are unique to each class of shares.
Distributions from the Fund are recorded on the ex-distribution date.
D. ORGANIZATIONAL COSTS The organizational costs of the Fund are being
amortized on a straight line basis over the 60 month period ending June 30,
2001 beginning with the Fund's commencement of operations. The Adviser has
agreed that in the event any of the initial shares of the Fund originally
purchased by Van Kampen are redeemed by the Fund during the amortization
period, the Fund will be reimbursed for any unamortized organizational costs
in the same proportion as the number of shares redeemed bears to the number
of initial shares held at the time of redemption.
E. 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. The Fund may be
subject to taxes imposed by countries in which it invests. Such taxes are
generally based on income earned or gains realized or repatriated. Taxes are
accrued and applied to net investment income, net realized capital gains and net
unrealized appreciation, as applicable, as the income is earned or capital gains
are recorded.
Net realized gains or losses may differ for financial and tax reporting
purposes as a result of losses relating to wash sale transactions.
At June 30, 2000, for federal income tax purposes, cost of long- and
short-term investments is $116,762,301, the aggregate gross unrealized
appreciation is $22,098,804 and the aggregate gross unrealized depreciation
is $5,859,029, resulting in net unrealized appreciation on long- and
short-term investments of $16,239,775.
F. DISTRIBUTION OF INCOME AND GAINS The Fund declares and pays dividends
annually from net investment income and net realized gains, if any.
Distributions from net realized gains for book purposes may include
short-term capital gains which are included as ordinary income for tax
purposes.
27
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
Due to inherent differences in the recognition of income and expenses under
generally accepted accounting principles and federal income tax purposes,
permanent differences between book and tax basis reporting for the current
fiscal year have been identified and appropriately reclassified. A permanent
difference related to a net operating loss totaling $72,317 has been
reclassified from paid in capital in excess of par to accumulated net investment
loss. A permanent difference related to the recognition of net realized losses
on foreign currency transactions totaling $263,408 was reclassified from
accumulated net investment loss to accumulated net realized gain. Permanent
differences relating to a correction of prior year amounts were reclassified
from accumulated net investment loss ($40,317) and accumulated net realized gain
($4,118) to paid in capital in excess of par.
Permanent book to tax basis differences are not included in ending
undistributed/distributions in excess of net investment income for the
purpose of calculating net investment income/loss per share in the Financial
Highlights.
G. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS Assets and
liabilities denominated in foreign currencies and commitments under forward
currency contracts are translated into U.S. dollars at the mean of the quoted
bid and asked prices of such currencies against the U.S. dollar. Purchases
and sales of portfolio securities are translated at the rate of exchange
prevailing when such securities were acquired or sold. Income and expenses
are translated at rates prevailing when accrued. Realized and unrealized
gains and losses on securities resulting from changes in exchange rates are
not segregated for financial reporting purposes from amounts arising from
changes in the market prices of securities. Realized gains and losses on
foreign currency transactions includes the net realized amount from the sale
of the currency and the amount realized between trade date and settlement
date on security and income transactions.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Van Kampen Investment Advisory Corp. (the "Adviser"), a wholly owned
subsidiary of Van Kampen Investments Inc. (an indirect wholly owned
subsidiary of Morgan Stanley Dean Witter & Co.) and Morgan Stanley Dean
Witter Investment Management Inc., a wholly owned subsidiary of Morgan
Stanley Dean Witter & Co., provide the Fund with investment advisory services
at a fee paid monthly and calculated at the annual rates based on average
daily net assets indicated as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
<S> <C>
First $500 million ............................................ .80 of 1%
Next $500 million ............................................. .75 of 1%
Over $1 billion ............................................... .70 of 1%
</TABLE>
28
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
The Adviser has agreed to reduce advisory fees payable to it and to
reimburse the Fund, if necessary, if the annual operating expenses, expressed as
a percentage of average daily net assets, exceed the maximum ratios indicated as
follows:
<TABLE>
<CAPTION>
CLASS B
CLASS A AND CLASS C
MAX. OPERATING MAX. OPERATING
EXPENSE RATIO EXPENSE RATIO
<S> <C>
1.65% 2.40%
</TABLE>
For the period ended June 30, 2000, the Adviser voluntarily waived
$22,526 of its investment advisory fees. This waiver is voluntary in nature
and can be discontinued at the Adviser's discretion.
For the period ended June 30, 2000, the Fund recognized expenses of
$7,646 representing legal services provided by Skadden, Arps, Slate, Meagher
& Flom (Illinois), counsel to the Fund, of which a director of the Fund is an
affiliated person.
For the period ended June 30, 2000, the Fund recognized expenses of
$7,069 representing Van Kampen's cost of providing legal services to the Fund.
Van Kampen Investment Advisory Corp. (the "Administrator") also provides
the Fund with administrative services pursuant to an administrative agreement
for a monthly fee which on an annual basis equals 0.25% of the average daily
net assets of the Fund, plus reimbursement of out-of-pocket expenses. Under
an agreement between the Adviser and The Chase Manhattan Bank ("Chase"),
through its corporate affiliate Chase Global Funds Services Company
("CGFSC"), Chase provides certain administrative services to the Fund. Chase
is compensated for such services by the Adviser from the fee it receives from
the Fund. Transfer Agency services are provided to the Fund by Van Kampen
Investor Services Inc., an affiliate of the Adviser.
Van Kampen Funds Inc. (the "Distributor") a wholly owned subsidiary of
Van Kampen Investments Inc., an indirect wholly owned subsidiary of Morgan
Stanley Dean Witter & Co., serves as the Distributor of the Fund's shares.
The Distributor is entitled to receive from the Fund a distribution fee,
which is accrued daily and paid quarterly, of an amount of up to 0.25% of the
Class A shares and up to 1.00% of the Class B and Class C shares of the Fund,
on an annualized basis, of the average daily net assets attributable to each
Class.
The Distributor may receive a front end sales charge for purchases of
Class A shares. In addition, the Distributor may receive a contingent
deferred sales charge for certain redemptions of Class B and Class C shares
of the Fund redeemed within one to five years following such purchase. For
the period ended June 30, 2000, the Distributor has advised the Fund that it
earned initial sales charges of $377,770 for Class A shares and deferred
sales charges of $158,844 and $1,943 for Class B shares and Class C shares,
respectively.
29
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
Certain officers and directors of the Fund are also officers and
directors of Van Kampen. The Fund does not compensate its officers or
directors who are officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
directors who are not officers of Van Kampen. Under the deferred compensation
plan, directors 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 director's years of service to the Fund. The
maximum annual benefit per director under the plan is $2,500.
For the period ended June 30, 2000, the Fund incurred $14,525 as
brokerage commissions with Morgan Stanley & Co. Incorporated, an affiliated
broker/dealer.
3. CAPITAL TRANSACTIONS
The Fund currently offers three classes of shares, Class A, Class B, and
Class C shares. All three classes of shares have identical voting, dividend,
liquidation and other rights. Class A shares are sold with a front-end sales
charge of up to 5.75%. For certain purchases of Class A shares, the front-end
sales charge may be waived and a contingent deferred sales charge ("CDSC") of
1.00% imposed in the event of certain redemptions within one year of the
purchase. Class B and Class C shares are offered without a front end sales
charge, but are subject to a 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. For the period ended
June 30, 2000, no Class B shares converted to Class A shares. The CDSC will
be imposed on most redemptions made within five years of the purchase for
Class B shares and one year of the purchase for Class C shares as detailed in
the following schedule:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE ON ASSETS SUBJECT TO
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
Thereafter ........................................ None None
</TABLE>
30
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 2000 JUNE 30, 1999*
------------- --------------
<S> <C> <C>
CAPITAL SHARE TRANSACTIONS
CLASS A:
Shares:
Subscribed .......................................... 6,712,665 1,848,000
Distributions Reinvested ............................ -- 120,000
Redeemed ............................................ (6,047,347) (3,110,000)
------------- -------------
Net Increase/Decrease in Class A Shares Outstanding ... 665,318 (1,142,000)
------------- -------------
------------- -------------
Dollars:
Subscribed .......................................... $ 100,786,852 $ 24,712,000
Distributions Reinvested ............................ -- 1,503,000
Redeemed ............................................ (90,737,489) (40,959,000)
------------- -------------
Net Increase/Decrease ................................. $ 10,049,363 $ (14,744,000)
------------- -------------
------------- -------------
Ending Paid in Capital ................................ $ 55,629,922+ $ 46,134,000+
------------- -------------
------------- -------------
CLASS B:
Shares:
Subscribed .......................................... 1,037,074 1,344,000
Distributions Reinvested ............................ -- 84,000
Redeemed ............................................ (989,365) (1,357,000)
------------ -------------
Net Increase in Class B Shares Outstanding ............ 47,709 71,000
------------ -------------
------------ -------------
Dollars:
Subscribed .......................................... $ 15,371,099 $ $ 17,633,000
Distributions Reinvested ............................ -- 1,048,000
Redeemed ............................................ (14,491,163) (17,469,000)
------------ -------------
Net Increase .......................................... $ 879,936 $ 1,212,000
------------ -------------
------------ -------------
Ending Paid in Capital ................................ $ 48,343,566+ $ 48,048,000+
------------ -------------
------------ -------------
CLASS C:
Shares:
Subscribed .......................................... 459,208 2,928,000
Distributions Reinvested ............................ -- 23,000
Redeemed ............................................ (521,018) (2,952,000)
------------ -------------
Net Decrease in Class C Shares Outstanding ............ (61,810) (1,000)
------------ -------------
------------ -------------
Dollars:
Subscribed .......................................... $ 6,757,170 $ 37,449,000
Distributions Reinvested ............................ -- 286,000
Redeemed ............................................ (7,645,846) (37,889,000)
------------ -------------
Net Decrease .......................................... $ (888,676) $ (154,000)
------------ -------------
------------ -------------
Ending Paid in Capital ................................ $ 12,301,179+ $ 13,362,000+
------------ -------------
------------ -------------
</TABLE>
* AMOUNTS ROUNDED TO THE NEAREST (000).
+ ENDING PAID IN CAPITAL AMOUNTS DO NOT REFLECT PERMANENT BOOK TO TAX
DIFFERENCES--SEE NOTE 1F.
4. INVESTMENT TRANSACTIONS
For the period ended June 30, 2000, the Portfolio made purchases of
$70,908,077 and sales of $71,880,451 of investment securities other than
long-term U.S. government securities and short-term investments. There were
no purchases or sales of long-term U.S. government securities.
31
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
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 and to manage the portfolio's foreign currency exposure or
generate potential gain. All of the Fund's portfolio holdings, including
derivative instruments, are marked-to-market each day with the change in
value reflected in 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 or
forward contract. In these instances, the recognition of gain or loss is
postponed until the disposal of the security underlying the option or forward
contract. Risks may arise as a result of the potential inability of the
counterparties to meet the terms of their contracts.
Summarized below are the specific types of derivative financial
instruments used by the Fund.
A. FORWARD CURRENCY CONTRACTS These instruments are commitments to purchase
or sell a foreign currency at a future date at a negotiated forward rate. The
gain or loss arising from the difference between the original value of the
contract and the closing value of such contract is included as a component of
realized gain/loss on foreign currency transactions.
At June 30, 2000, the Fund has outstanding forward currency contracts as
follows:
<TABLE>
<CAPTION>
UNREALIZED
CURRENT APPRECIATION/
FORWARD CURRENCY CONTRACTS VALUE DEPRECIATION
<S> <C> <C>
LONG CONTRACTS:
British Pound, 1,371,070,
expiring 9/18/00 $2,077,158 $ 8,927
Euro, 2,302,507,
expiring 9/18/00 2,207,094 25,604
Japanese Yen, 158,969,000,
expiring 9/18/00 1,519,682 (9,154)
---------- --------
$5,803,934 $25,377
---------- --------
---------- --------
</TABLE>
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 foreign futures and typically closes the
contract prior to the delivery date. These contracts are generally used to
manage the porfolio's effective maturity and duration.
32
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
Upon entering into futures contracts, the Fund maintains, in a
segregated account with its custodian, cash or liquid securities with a value
equal to its obligation under the futures contracts. During the period the
futures contract is open, payments are received from or made to the broker
based upon changes in the value of the contract (the variation margin). The
potential risk of realized gain or loss associated with a futures contract
may exceed the variation margin reflected on the Statement of Assets and
Liabilities. The cost of securities acquired through delivery under a
contract is adjusted by the unrealized gain or loss on the contract.
Transactions in futures contracts for the period ended June 30, 2000,
were as follows:
<TABLE>
<CAPTION>
CONTRACTS
<S> <C>
Outstanding at June 30, 1999 .................................. 0
Futures Opened ................................................ 380
Futures Closed ................................................ (326)
------
Outstanding at June 30, 2000 .................................. 54
------
------
</TABLE>
The futures contracts outstanding as of June 30, 2000, and the
descriptions and the unrealized appreciation/depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
<S> <C> <C>
LONG CONTRACTS:
CAC 40 Index - September 2000
(Current notional value
$6,492 per contract) 16 $(24,570)
DAX Index - September 2000
(Current notional value
$6,950 per contract) 6 (46,056)
FTSE 100 Index - September 2000
(Current notional value
$6,357 per contract) 21 (44,642)
MIB 30 Index - September 2000
(Current notional value
$46,950 per contract) 2 (2,407)
TOPIX Index - September 2000
(Current notional value
$6,357 per contract) 9 35,296
--- --------
54 $(82,379)
--- --------
--- --------
</TABLE>
33
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
6. BORROWINGS
In accordance with its investment policies, the Fund may borrow from banks
for temporary purposes and is subject to certain other customary
restrictions. Effective November 30, 1999, the Fund, in conjunction with
certain other funds of Van Kampen, has entered into a $650 million committed
line of credit facility with a group of banks which expires on November 28,
2000, but is renewable with the consent of the participating banks. Each fund
is permitted to utilize the facility in accordance with the restrictions of
its prospectus. In the event the demand for the credit facility meets or
exceeds $650 million on a complex-wide basis, each fund will be limited to
its pro-rata percentage based on the net assets of each participating fund.
Interest on borrowings is charged under the agreement at a rate of 0.50%
above the federal funds rate per annum. An annual commitment fee of 0.09% per
annum is charged on the unused portion of the credit facility, which each
fund incurs based on its pro-rata percentage of quarterly net assets. The
Fund has not borrowed against the credit facility during the period.
34
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of Van Kampen International Magnum
Fund
We have audited the accompanying statement of assets and liabilities of
Van Kampen International Magnum Fund (the "Fund"), a fund of Van Kampen
Series Fund, Inc., including the portfolio of investments, as of June 30,
2000, and the related statements of operations, changes in net assets and the
financial highlights for the year then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit. The Fund's financial statements and
financial highlights for the periods ended prior to June 30, 2000, were
audited by other auditors whose report, dated August 6, 1999, expressed an
unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of June 30, 2000, by
correspondence with the Fund's custodian and brokers; where replies were not
received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Van Kampen International Magnum Fund as of June 30, 2000, the
results of its operations, the changes in its net assets and the financial
highlights for the year then ended, in conformity with accounting principles
generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Chicago, Illinois
August 11, 2000
35
<PAGE>
FUND OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN INTERNATIONAL MAGNUM FUND
BOARD OF DIRECTORS
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*
Chairman, Director, President,
Chief Executive Officer
STEPHEN L. BOYD*
Executive Vice President and
Chief Investment Officer
A. THOMAS SMITH III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Chief Financial Officer
and Treasurer
RICHARD A. CICCARONE*
JOHN R. REYNOLDSON*
MICHAEL H. SANTO*
JOSEPH P. STADLER*
JOHN H. ZIMMERMANN, III*
Vice Presidents
INVESTMENT ADVISER AND
ADMINISTRATOR
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
INVESTMENT SUBADVISER
MORGAN STANLEY DEAN WITTER INVESTMENT
MANAGEMENT INC.
1221 Avenue of the Americas
New York, New York 10020
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
CUSTODIAN
THE CHASE MANHATTAN BANK
3 MetroTech Center
Brooklyn, New York 11245
DIVIDEND DISBURSING AND TRANSFER AGENT
VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 218256
Kansas City, Missouri 64121-8256
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT AUDITORS
DELOITTE & TOUCHE LLP
180 N. Stetson Avenue
Chicago, IL 60601
-------------------------------------------------------------------------------
For federal income tax purposes, the following is furnished with respect to
potential distributions to be paid by the Fund during the remainder of
calendar year 2000. During the taxable year ended June 30, 2000, the Fund did
not pay any distributions. Provided the Fund makes a distribution in December
2000, the Fund intends to pass through foreign tax credits of $106,022 and
has derived gross income from sources within foreign countries amounting to
$1,874,605.
-------------------------------------------------------------------------------
* "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.
36
<PAGE>
RESULTS OF
SHAREHOLDER VOTES
JUNE 30, 2000
A Joint Special Meeting of the Shareholders of the International Magnum Fund
(the "Fund") was held on December 15, 1999. The description of each proposal
and number of shares voted are as follows:
1. To elect the following Directors to serve the Fund.
<TABLE>
<CAPTION>
VOTED FOR WITHHELD
<S> <C> <C>
J. Miles Branagan ..................................... 4,855,533 17,660
Jerry D. Choate ....................................... 4,854,965 18,228
Linda Hutton Heagy .................................... 4,854,810 18,383
R. Craig Kennedy ...................................... 4,854,965 18,228
Mitchell M. Merin ..................................... 4,854,269 18,924
Jack E. Nelson ........................................ 4,855,533 17,660
Richard F. Powers, III ................................ 4,855,533 17,660
Phillip B. Rooney ..................................... 4,855,533 17,660
Fernando Sisto ........................................ 4,853,655 19,538
Wayne W. Whalen ....................................... 4,855,533 17,660
Suzanne H. Woolsey .................................... 4,854,810 18,383
Paul G. Yovovich* ..................................... 4,855,533 17,660
</TABLE>
* EFFECTIVE APRIL 14, 2000, PAUL G. YOVOVICH RESIGNED FROM THE BOARD OF
DIRECTORS.
2. To ratify PricewaterhouseCoopers LLP to act as independent public
accountants for the Fund.(1)
<TABLE>
<CAPTION>
AFFIRMATIVE AGAINST ABSTAIN
<S> <C> <C>
4,834,758 8,053 30,381
</TABLE>
(1) INDEPENDENT ACCOUNTANTS FOR THE FUND PERFORM AN ANNUAL AUDIT OF THE
FUND'S FINANCIAL STATEMENTS. THE BOARD OF DIRECTORS HAS ENGAGED DELOITTE &
TOUCHE LLP TO BE THE FUND'S INDEPENDENT ACCOUNTANTS.
PricewaterhouseCoopers LLP, located at 200 East Randolph Drive, Chicago, IL
60601 ("PWC"), ceased being the Fund's independent accountants effective May
18, 2000. The cessation of the client-auditor relationship between the Fund
and PWC was based solely on a possible future business relationship by PWC
with an affiliate of the Fund's investment adviser.
37
<PAGE>
--------------
461, 561, 661 | PRESORTED |
MSIM ANR 08/00 | STANDARD |
VAN KAMPEN FUNDS INC. | U.S. Postage |
1 Parkview Plaza | PAID |
P.O. Box 5555 | VAN KAMPEN |
Oakbrook Terrace, Illinois 60181-5555 | FUNDS |
--------------
<PAGE>
VAN KAMPEN
LATIN AMERICAN FUND
ANNUAL REPORT
JUNE 30, 2000
[PHOTO]
VAN KAMPEN
FUNDS
<PAGE>
TABLE OF CONTENTS
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 4
GROWTH OF A $10,000 INVESTMENT 5
PORTFOLIO AT A GLANCE
TOP TEN HOLDINGS 6
TOP FIVE COUNTRIES 6
Q&A WITH YOUR PORTFOLIO MANAGERS 7
GLOSSARY OF TERMS 10
BY THE NUMBERS
YOUR FUND'S INVESTMENTS 11
FINANCIAL STATEMENTS 15
NOTES TO FINANCIAL STATEMENTS 21
REPORT OF INDEPENDENT AUDITORS 29
VAN KAMPEN FUNDS
THE VAN KAMPEN FAMILY OF FUNDS 30
FUND OFFICERS AND IMPORTANT ADDRESSES 31
RESULTS OF SHAREHOLDER VOTES 32
IT IS TIMES LIKE THESE WHEN MONEY-MANAGEMENT EXPERIENCE MAY MAKE A DIFFERENCE.
--------------------------------------------------------
NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE.
--------------------------------------------------------
<PAGE>
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.
OVERVIEW
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,
/s/ Richard F. Powers, III
Richard F. Powers, III
President and CEO
Van Kampen Investments
1
<PAGE>
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>
U.S. GROSS DOMESTIC PRODUCT
SEASONALLY ADJUSTED ANNUALIZED RATES
(JUNE 30, 1998 - JUNE 30, 2000)
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
<TABLE>
<S> <C>
Jun-98 2.1%
Sep-98 3.8%
Dec-98 5.9%
Mar-99 3.5%
Jun-99 2.5%
Sep-99 5.7%
Dec-99 8.3%
Mar-00 4.8%
Jun-00 5.2%
</TABLE>
SOURCE: BUREAU OF ECONOMIC ANALYSIS
INTEREST RATES AND INFLATION
(JUNE 30, 1998 - JUNE 30, 2000)
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
<TABLE>
<CAPTION>
MONTH INTEREST RATES INFLATION
----- -------------- ---------
<S> <C> <C>
Jun-98 5.500 1.70
Jul-98 5.500 1.70
Aug-98 5.500 1.60
Sep-98 5.250 1.50
Oct-98 5.000 1.50
Nov-98 4.750 1.50
Dec-98 4.750 1.60
Jan-99 4.750 1.70
Feb-99 4.750 1.60
Mar-99 4.750 1.70
Apr-99 4.750 2.30
May-99 4.750 2.10
Jun-99 5.000 2.00
Jul-99 5.000 2.10
Aug-99 5.250 2.30
Sep-99 5.250 2.60
Oct-99 5.250 2.60
Nov-99 5.500 2.60
Dec-99 5.500 2.70
Jan-00 5.500 2.70
Feb-00 5.750 3.20
Mar-00 6.000 3.70
Apr-00 6.000 3.00
May-00 6.500 3.10
Jun-00 6.500 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>
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(AS OF JUNE 30, 2000)
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
--------------------------------------------------------------------------------
<S> <C> <C> <C>
One-year total return based on NAV(1) 23.29% 22.32% 22.34%
--------------------------------------------------------------------------------
One-year total return(2) 16.24% 17.32% 21.34%
--------------------------------------------------------------------------------
Five-year average annual total return(2) 16.75% N/A 17.28%
--------------------------------------------------------------------------------
Life-of-Fund average annual total return(2) 8.93% 16.03% 9.17%
--------------------------------------------------------------------------------
Commencement date 7/6/94 8/1/95 7/6/94
--------------------------------------------------------------------------------
</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.
SEE THE COMPARATIVE PERFORMANCE SECTION OF THE CURRENT PROSPECTUS. 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.
BECAUSE THE PRICES OF COMMON STOCKS AND OTHER SECURITIES FLUCTUATE, THE
VALUE OF AN INVESTMENT IN THE FUND WILL VARY UPON THE FUND'S INVESTMENT
PERFORMANCE. FOREIGN SECURITIES MAY MAGNIFY VOLATILITY DUE TO CHANGES
IN FOREIGN EXCHANGE RATES, THE POLITICAL AND ECONOMIC UNCERTAINTIES IN
FOREIGN COUNTRIES, AND THE POTENTIAL LACK OF LIQUIDITY, GOVERNMENT
SUPERVISION, AND REGULATION.
MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO PASS.
4
<PAGE>
GROWTH OF A $10,000 INVESTMENT
(JULY 6, 1994 - JUNE 30, 2000)
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
<TABLE>
<CAPTION>
MSCI Emerging Markets Free Latin
America Index IS A BROAD-BASED
INDEX COVERING THE PRIMARY
LATIN AMERICAN FUND MARKETS OF LATIN AMERICA.
------------------- --------------------------------
<S> <C> <C>
7/94 $9,500 $10,000
6/95 $7,327 $8,517
6/96 $10,210 $10,002
6/97 $16,062 $14,587
6/98 $13,136 $10,952
6/99 $13,531 $11,790
6/00 $15,728 $13,760
</TABLE>
<TABLE>
<S> <C>
Fund's Total Return
1 Year Total Return 16.24%
5 Year Avg. Annual 16.75%
Inception Avg. Annual 8.93%
</TABLE>
THIS CHART COMPARES YOUR FUNDOS PERFORMANCE TO THAT OF THE MSCI EMERGING
MARKETS FREE LATIN AMERICA INDEX OVER TIME.
THIS IS AN UNMANAGED BROAD-BASED, STATISTICAL COMPOSITE THAT DOES NOT INCLUDE
ANY COMMISSIONS OR FEES THAT WOULD BE PAID BY AN INVESTOR PURCHASING THE
SECURITIES IT REPRESENTS. SUCH COSTS WOULD LOWER THE PERFORMANCE OF THIS
INDEX. THE HISTORICAL PERFORMANCE OF THE INDEX IS SHOWN FOR ILLUSTRATIVE
PURPOSES ONLY; IT IS NOT MEANT TO FORECAST, IMPLY, OR GUARANTEE THE FUTURE
PERFORMANCE OF ANY INVESTMENT VEHICLE. IT IS NOT POSSIBLE TO INVEST DIRECTLY
IN AN INDEX.
THE ABOVE CHART REFLECTS THE PERFORMANCE OF CLASS A SHARES OF THE FUND. THE
PERFORMANCE OF CLASS A SHARES WILL DIFFER FROM THAT OF OTHER SHARE CLASSES OF
THE FUND BECAUSE OF THE DIFFERENCE IN SALES CHARGES AND/OR EXPENSES PAID BY
SHAREHOLDERS INVESTING IN THE DIFFERENT SHARE CLASSES. THE FUNDOS PERFORMANCE
ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS, AND INCLUDES PAYMENT OF THE MAXIMUM
SALES CHARGE (5.75% FOR CLASS A SHARES).
WHILE PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THE ABOVE
INFORMATION PROVIDES A BROADER VANTAGE POINT FROM WHICH TO EVALUATE THE
DISCUSSION OF THE FUNDOS PERFORMANCE FOUND IN THE FOLLOWING PAGES.
5
<PAGE>
PORTFOLIO AT A GLANCE
TOP TEN HOLDINGS
(AS A PERCENTAGE OF NET ASSETS--JUNE 30, 2000)
1. TELMEX 14.6%
Provides telecommunications services to residents of Mexico.
2. PETROBRAS 4.6%
Distributes gasoline and other petroleum products in Brazil.
3. GRUPO TELEVISA 4.3%
Owns and operates television and radio stations, publishing houses, and
film production companies in Latin America.
4. CEMEX 4.1%
Produces cement, concrete, and aggregate for Spain, Latin America, and
Indonesia.
5. TELE NORTE LESTE 3.7%
Provides data and telecommunications services in Brazil.
6. FEMSA 3.3%
Operates Coca-Cola bottling plants in Latin America.
7. EMBRATEL PARTICIPACOES 3.3%
Provides telecommunications and Internet services in Brazil.
8. TELESP CELULAR 3.2%
Offers cellular-phone services in Brazil.
9. WAL-MART DE MEXICO 3.1%
Operates discount department stores and warehouse membership clubs in
Mexico.
10. CELULAR CRT 3.1%
Provides telecommunications services to Brazil.
TOP FIVE COUNTRIES
(AS A PERCENTAGE OF NET ASSETS)
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
<TABLE>
<CAPTION>
JUNE 30, 2000 JUNE 30, 1999
------------- -------------
<S> <C> <C>
Mexico 43.4% 44.6%
Brazil 41.6% 35.3%
Chile 6.5% 8.8%
Argentina 3.5% 6.4%
Venezuela 1.4% 2.1%
</TABLE>
6
<PAGE>
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH THE MANAGEMENT TEAM OF THE VAN KAMPEN LATIN AMERICAN FUND
ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE MARKETS AND INFLUENCED
THE FUND'S RETURN DURING THE 12 MONTHS ENDED JUNE 30, 2000. THE TEAM IS LED BY
PORTFOLIO MANAGERS MICHAEL PERL, ANDY SKOV, AND ROBERT MEYER, MORGAN STANLEY
DEAN WITTER INVESTMENT MANAGEMENT. MR. MEYER AND MR. SKOV HAVE MANAGED THE FUND
SINCE ITS INCEPTION IN 1994, AND MR. PERL JOINED THE TEAM IN 1998. 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 The past 12 months was a period of substantial recovery in Latin American
markets. For most of the reporting period, positive economic fundamentals
dominated investor focus, leading the region to a strong return. During the
first quarter of 2000, however, economic developments were overshadowed by
concerns about higher U.S. interest rates and market volatility, leading Latin
American technology stocks to decline in tandem with the NASDAQ's sharp fall.
By the end of second-quarter 2000, as the U.S. markets stabilized, positive
Latin American economic numbers helped boost markets once again, specifically
in Brazil and Mexico.
Historically, Brazil has suffered from very high levels of fiscal debt,
leading to inflation. Recently, the Brazilian government has shown surprising
fiscal discipline by decreasing its deficit from double digits last year to
about five percent of gross domestic product this year. The fiscal restraint
demonstrated by the government, in conjunction with other economic reforms,
allowed Brazil's central bank to loosen monetary policy by lowering interest
rates, which has helped boost the market.
In Mexico, NASDAQ volatility and U.S. interest-rate concerns impacted
Mexico's performance during the period; however, strong fundamentals have
managed to shine through. Mexico's recovery can be largely attributed to solid
economic performance, driven by a combination of strong export growth to the
booming U.S. economy and burgeoning consumer demand. Higher oil prices also
helped the recovery, as oil is a substantial export for Mexico. Like Brazil,
Mexico has historically maintained considerable fiscal deficits. However, solid
governmental leadership led to a decline in debt as interest rates dropped and
investments in Mexican businesses increased.
Overall stock selection and specific holdings in Chilean, Mexican, and
Venezuelan equities detracted from the fund's performance relative to its peers,
but specific holdings in Brazilian telecommunications and energy companies
contributed substantially. Although specific stock selections in Mexico hurt the
fund's performance, country alloca-
7
<PAGE>
tion, which favored Mexico and Brazil, supported the fund's total return of
23.29 percent for the 12-month period ended June 30, 2000 (CLASS A SHARES AT
NET ASSET VALUE; IF THE MAXIMUM SALES CHARGE OF 5.75 PERCENT WERE INCLUDED,
THE RETURN WOULD HAVE BEEN LOWER). AS A RESULT OF RECENT MARKET ACTIVITY,
CURRENT PERFORMANCE MAY VARY FROM THE FIGURES SHOWN. BY COMPARISON, THE MSCI
EMERGING MARKETS FREE LATIN AMERICA INDEX GENERATED A TOTAL RETURN OF 16.71
PERCENT FOR THE SAME PERIOD. OF COURSE, PAST PERFORMANCE IS NO GUARANTEE OF
FUTURE RESULTS. THIS BROAD-BASED INDEX COVERS AT LEAST 60 PERCENT OF MARKETS
IN MEXICO, ARGENTINA, BRAZIL, CHILE, COLOMBIA, PERU, AND VENEZUELA AND ASSUMES
DIVIDENDS ARE REINVESTED. THIS INDEX DOES NOT REFLECT ANY COMMISSIONS OR SALES
CHARGES THAT WOULD BE PAID BY AN INVESTOR PURCHASING THE SECURITIES IT
REPRESENTS. SUCH CHARGES WOULD LOWER THE PERFORMANCE OF THE INDEX. IT IS NOT
POSSIBLE TO INVEST DIRECTLY IN AN INDEX.
Q WHAT STRATEGIES DID YOU USE TO MANAGE THE FUND GIVEN THE RECOVERY YOU SAW
IN THE LATIN AMERICAN MARKET?
A Overall, we have not changed our investment strategy of looking for
superior growth opportunities that offer high return on investment at
reasonable valuations. For the period, these opportunities were largely found
in telecommunications and technology companies. As the global TMT (technology,
media, and telecommunications) sectors rallied during the fourth quarter of
1999, the fund continued to hold large positions in Latin American
telecommunications stocks, focusing on Mexico and Brazil based on their strong
growth prospects. The fund is invested in companies such as Telmex, the
leading Mexican telephone company, and Tele Norte Leste, a Brazilian
telecommunications services company. Telmex remains the largest position in
the fund.
With consumer demand increasing, the fund also held moderate levels of
consumer-oriented companies, such as Mexican beverage company FEMSA, and Mexican
brewer Grupo Modelo. Finally, we took advantage of attractive valuations to add
to leading Mexican industrial conglomerate Alfa, as we believe its growth story
will continue to improve.
From a regional standpoint, the fund maintained a large position in Brazil,
as we continued to be encouraged by its positive economic fundamentals. The fund
also held a large position in Mexico, because we believed investor confidence
would be restored after the presidential elections in July.
Of course, not all of the stocks in the fund performed favorably, nor is
there any guarantee that any of the stocks mentioned above will continue to
perform well or be held by the fund in the future. For additional portfolio
highlights, please refer to page 6.
8
<PAGE>
Q WHAT IS YOUR OUTLOOK FOR THE MONTHS AHEAD?
A We are expecting valuations within the Latin American markets to remain
compelling as fiscal and monetary policies remain productive. Growth prospects
look positive as we expect domestic consumption to continue to be strong.
Although the expected U.S. slowdown does threaten the much-needed export
demand from the United States, we believe investors will focus instead on
promising Latin American fundamentals.
The Mexican economy continues to be supported by strong consumer demand and
higher oil prices. Democracy continues to take hold, and recent elections in
Mexico have demonstrated that the Latin American region is progressing
politically. With the recent victory of the PAN party in the Mexican
presidential elections, the reigning PRI party was voted out for the first time
in 70 years, a seminal event in the country's history. We may, however, see
growing pains in this politically immature country, which could cause increased
volatility in the Latin American markets and the fund's portfolio.
Overall, we are encouraged by indications that Latin American economies are
strengthening. We believe stocks in Brazil and Mexico will continue to fare
well, supported by positive economic trends, coupled with attractive valuations
and companies with strong earnings growth potential.
9
<PAGE>
GLOSSARY OF TERMS A HELPFUL GUIDE TO SOME OF THE COMMON TERMS
YOU'RE LIKELY TO SEE IN THIS REPORT AND
OTHER FINANCIAL PUBLICATIONS.
CLASS A SHARES: A division of mutual fund shares, which are generally divided
into three groupings, called Class A, Class B, and Class C shares. The
specific features of each are dependent on varying fees and sales charges. In
most cases, Class A shares will have no redemption fee (contingent deferred
sales charge).
DIVIDEND: A distribution of earnings. Dividends may be in the form of cash,
stock, or property. The board of directors must declare all dividends.
EMERGING MARKETS: The financial markets of developing economies. Many Latin
American and Asian countries are considered emerging markets.
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.
PORTFOLIO: A portfolio, comprised of a collection of securities owned by an
individual or an institution, may include stocks, bonds, and/or money-market
securities.
SALES CHARGE: Also referred to as the load, this is a fee paid by a buyer to
acquire shares in a mutual fund or a limited partnership.
VALUATION: The estimated or determined worth of a stock, based on financial
measures such as the stock's current price relative to earnings, revenue, book
value, and cash flow.
VOLATILITY: A measure of the fluctuation in the market price of a security. A
security that is volatile has frequent and large swings in price.
10
<PAGE>
BY THE NUMBERS
YOUR FUND'S INVESTMENTS THE FOLLOWING PAGES DETAIL YOUR FUND'S
JUNE 30, 2000 PORTFOLIO OF INVESTMENTS AT THE END OF THE
REPORTING PERIOD.
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <S> <C>
COMMON STOCKS 74.1%
ARGENTINA 3.5%
Banco Rio de La Plata ADR............................. 20,015 $ 292,719
Quilmes Industrial (Quinsa) ADR....................... 70,595 785,369
Telecom Argentina ADR................................. 48,603 1,336,583
-----------
2,414,671
-----------
BRAZIL 19.1%
Aracruz Celulose S.A. ADR............................. 38,725 747,877
Banco Bradesco ADR.................................... 19,300 167,970
CEMIG ADR (c)......................................... 835 14,446
CEMIG ADR............................................. 16,753 289,842
Cia Cervejaria Brahma ADR............................. 27,648 470,016
Cia Electric de Est Rio Janeiro (a)................... 1,649,059,000 640,056
Cia Paranaense de Energia ADR......................... 170 1,583
Cia Siderurgica Nacional.............................. 25,798,300 809,353
Cia Siderurgica Nacional ADR.......................... 4,800 147,900
Coteminas............................................. 2,457,800 142,957
Coteminas ADR (c)..................................... 22,545 65,547
CVRD 'A'.............................................. 5,000 124,730
CVRD ADR.............................................. 34,190 965,867
Eletrobras ADR........................................ 50,545 557,577
Eletrobras ADR........................................ 5,440 55,336
Eletrobras S.A........................................ 14,772,463 303,067
Embratel Participacoes 'A' ADR........................ 48,120 1,136,835
Gerdau ADR............................................ 6,200 78,663
Lojas Arapau S.A. ADR (a)............................. 10,410 --
Petrobras............................................. 9,400 273,113
Petrobras ADR......................................... 40,958 1,237,403
Rossi Residencial S.A. GDR (c)........................ 226,692 226,692
Tele Centro Sul ADR................................... 2,580 188,501
Tele Leste Celular ADR................................ 960 42,480
Tele Nordeste Celular ADR............................. 1,500 103,875
Tele Norte Leste ADR.................................. 58,957 1,392,859
Telesp Celular ADR.................................... 42,215 1,894,398
Unibanco GDR.......................................... 28,130 808,737
Usiminas ADR.......................................... 550 2,546
Vale Do Rio Doce ADR (a).............................. 31,997 --
Votorantim Celulose e Papel S.A. ADR.................. 15,740 289,223
-----------
13,179,449
-----------
SEE NOTES TO FINANCIAL STATEMENTS 11
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <S> <C>
CHILE 6.5%
Banco de A. Edwards ADR (a)........................... 31,152 $ 420,552
Banco Santander ADR................................... 5,599 89,584
Banco Santiago ADR.................................... 12,350 220,756
CCU ADR............................................... 25,386 575,945
Chilectra ADR......................................... 48,376 765,042
Cia Telecom ADR....................................... 51,370 931,081
D & S ADR............................................. 17,180 298,502
Endesa ADR............................................ 22,107 244,559
Enersis ADR (a)....................................... 30,260 603,309
Quinenco ADR.......................................... 22,909 223,363
Santa Isabel ADR...................................... 17,778 138,891
-----------
4,511,584
-----------
COLOMBIA 0.2%
Bavaria............................................... 39,991 125,904
Valores Bavaria....................................... 1 1
-----------
125,905
-----------
MEXICO 43.4%
Alfa S.A. 'A'......................................... 360,751 826,595
Banacci 'L' (a)....................................... 154,310 624,045
Banacci 'O' (a)....................................... 179,978 768,082
Carso Global Telecom 'A1' (a)......................... 365,368 1,039,507
Cemex CPO............................................. 266,286 1,248,702
Cemex CPO ADR......................................... 67,614 1,580,477
Corp.Interamericana de Entretenimiento S.A. 'B' (a)... 80,800 316,090
Empresas ICA S.A. (a)................................. 116,665 32,955
Empresas ICA S.A. ADR (a)............................. 31,771 53,614
FEMSA (a)............................................. 165,762 707,413
FEMSA ADR (a)......................................... 37,241 1,603,690
Grupo Carso 'A1' (a).................................. 202,825 719,259
Grupo Financiero Bancomer S.A. de C.V. 'O' (a)........ 1,458,700 741,096
Grupo Financiero Banorte S.A. de C.V. 'O' (a)......... 284,298 392,872
Grupo Industrial Bimbo S.A. de C.V. 'A'............... 69,595 109,610
Grupo Mexico S.A. 'B' (a)............................. 73,020 205,523
Grupo Modelo S.A. 'C'................................. 218,788 490,197
Grupo Sanborns S.A. 'B1' (a).......................... 79,975 128,396
Grupo Televisa S.A. GDR (a)........................... 42,685 2,942,597
Kimberly 'A'.......................................... 572,346 1,628,379
Panamerican Beverages, Inc. 'A'....................... 14,200 212,112
Pepsi-Gemex S.A. GDR (a).............................. 15,000 66,562
Seminis, Inc. 'A' (a)................................. 21,145 55,506
Soriana 'B' (a)....................................... 126,735 504,802
12 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <S> <C>
MEXICO (CONTINUED)
StarMedia Network, Inc. (a)........................... 13,775 $ 260,003
TAMSA ADR............................................. 18,882 261,988
Telmex ADR............................................ 176,288 10,070,452
Vitro ADR............................................. 45,458 144,897
Wal-Mart de Mexico S.A. de C.V. ADR (a)............... 7,448 174,790
Wal-Mart de Mexico S.A. de C.V. 'C'................... 436,105 1,005,902
Wal-Mart de Mexico S.A. de C.V. 'V'................... 418,878 983,192
-----------
29,899,305
-----------
VENEZUELA 1.4%
CANTV ADR............................................. 35,535 966,108
-----------
TOTAL COMMON STOCKS (Cost $50,702,815)................ 51,097,022
-----------
PREFERRED STOCKS 22.5%
BRAZIL 22.5%
Banco Bradesco........................................ 88,206,017 767,860
Banco Nacional S.A. (a,b)............................. 8,115,000 225
Brahma................................................ 278,000 235,841
Celular CRT 'A'....................................... 4,918,074 2,154,299
CEMIG................................................. 23,251,919 406,119
Copel 'B'............................................. 90,459,450 852,681
CRT (a)............................................... 2,248,974 760,673
CVRD ................................................. 36,762 1,037,530
Eletrobras `B'........................................ 11,536,500 255,230
Embratel Participacoes 'A'............................ 46,647,000 1,114,769
Gerdau................................................ 48,843,134 595,813
Globex Utilidades S.A................................. 6,576 61,986
Itaubanco............................................. 8,835,410 776,497
Itausa S.A............................................ 506,225 491,208
Lojas Arapua S.A. (a)................................. 19,195,300 --
Petrobras............................................. 55,820 1,686,826
Tele Centro Sul....................................... 28,311,454 409,719
Tele Leste Celular (a)................................ 273,142,034 242,322
Tele Norte Celular.................................... 241,743,800 245,297
Tele Norte Leste...................................... 49,552,602 1,160,853
Telebras ADR.......................................... 17,450 1,694,831
Telesp Celular........................................ 18,519,589 334,759
Usiminas 'A'.......................................... 43,700 202,083
-----------
TOTAL PREFERRED STOCKS (Cost $11,964,894) .............................. 15,487,421
-----------
TOTAL LONG-TERM INVESTMENTS 96.6%
(Cost $62,667,709) ................................................. 66,584,443
-----------
SEE NOTES TO FINANCIAL STATEMENTS 13
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<CAPTION>
PAR MARKET
DESCRIPTION VALUE VALUE
<S> <S> <C>
SHORT-TERM INVESTMENT 1.6%
REPURCHASE AGREEMENT 1.6%
Chase Securities, Inc. 6.15%, dated 6/30/00, due 7/3/00, $1,125,000
to be repurchased at $1,125,577, collateralized by
$1,195,000 U.S. Treasury Notes 5.50%, due 5/15/09,
valued at $1,151,681
(Cost $1,125,000).................................................... $ 1,125,000
-----------
TOTAL INVESTMENTS IN SECURITIES 98.2%
(Cost $63,792,709)................................................... 67,709,443
FOREIGN CURRENCY 0.3%
(Cost $166,445)...................................................... 167,810
-----------
TOTAL INVESTMENTS 98.5%
(Cost $63,959,154)................................................... 67,877,253
OTHER ASSETS IN EXCESS OF LIABILITIES 1.5%.............................. 1,054,850
-----------
NET ASSETS 100%......................................................... $68,932,103
===========
</TABLE>
(a) NON-INCOME PRODUCING SECURITY
(b) SECURITY VALUED AT FAIR VALUE--SEE NOTE 1A TO FINANCIAL STATEMENTS.
(c) 144A SECURITY--CERTAIN CONDITIONS FOR PUBLIC SALE MAY EXIST.
ADR AMERICAN DEPOSITARY RECEIPT
CPO CERTIFICATE OF PARTICIPATION
GDR GLOBAL DEPOSITARY RECEIPT
SUMMARY OF LONG-TERM INVESTMENTS BY INDUSTRY CLASSIFICATION+
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
<S> <C> <C>
Telecommunication Services............ $27,220,199 39.5%
Materials............................. 9,809,562 14.2
Consumer Discretionary................ 6,326,259 9.2
Finance............................... 6,297,688 9.1
Consumer Staples...................... 5,875,561 8.5
Utilities............................. 4,988,847 7.2
Energy................................ 3,197,342 4.7
Industrials........................... 2,608,982 3.8
Information Technology................ 260,003 0.4
----------- ----
$66,584,443 96.6%
=========== ====
</TABLE>
+ CLASSIFIED BY SECTORS WHICH REPRESENT BROAD GROUPINGS OF RELATED INDUSTRIES.
14 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
JUNE 30, 2000
<TABLE>
<S> <C>
ASSETS:
Investments in Securities, at Value (Cost $63,792,709)....... $ 67,709,443
Foreign Currency (Cost $166,445)............................. 167,810
Cash......................................................... 230,046
Receivable for:
Investments Sold........................................... 1,624,296
Dividends.................................................. 149,495
Fund Shares Sold........................................... 46,904
Interest................................................... 192
Other........................................................ 12,728
------------
Total Assets............................................. 69,940,914
------------
LIABILITIES:
Payable for:
Investments Purchased...................................... 621,092
Fund Shares Redeemed....................................... 82,990
Investment Advisory Fees................................... 63,582
Distribution Fees.......................................... 60,447
Shareholder Reporting Expense.............................. 44,184
Custody Fees............................................... 42,582
Professional Fees.......................................... 34,707
Directors' Fees and Expenses............................... 30,549
Administrative Fees........................................ 14,875
Transfer Agent Fees........................................ 8,279
Deferred Country Tax....................................... 5,524
------------
Total Liabilities........................................ 1,008,811
------------
NET ASSETS................................................... $ 68,932,103
============
NET ASSETS CONSIST OF:
Capital Stock at Par ($.001 par value, Shares
Authorized 2,625,000,000).................................. $ 4,926
Paid in Capital in Excess of Par............................. 86,406,340
Net Unrealized Appreciation on Investments
and Foreign Currency Translations.......................... 3,911,624
Accumulated Net Investment Loss.............................. (132,846)
Accumulated Net Realized Loss................................ (21,257,941)
------------
NET ASSETS................................................... $ 68,932,103
============
Class A Shares:
Net Asset Value and Redemption Price Per Share
(Based on Net Assets of $38,524,877 and 2,704,916
Shares Outstanding)...................................... $ 14.24
============
Maximum Sales Charge..................................... 5.75%
Maximum Offering Price Per Share (Net Asset Value
Per Share x 100/ (100% - maximum sales charge)).......... $ 15.11
============
Class B Shares:
Net Asset Value and Offering Price Per Share
(Based on Net Assets of $19,635,121 and 1,433,708
Shares Outstanding)*..................................... $ 13.70
============
Class C Shares:
Net Asset Value and Offering Price Per Share
(Based on Net Assets of $10,772,105 and 786,981
Shares Outstanding)*..................................... $ 13.69
============
</TABLE>
* REDEMPTION PRICE MAY BE SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE.
SEE NOTES TO FINANCIAL STATEMENTS 15
<PAGE>
Statement of Operations
YEAR ENDED JUNE 30, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends..................................................... $1,385,231
Interest...................................................... 115,664
Less Foreign Taxes Withheld................................... (2,633)
----------
Total Income.............................................. 1,498,262
----------
EXPENSES:
Investment Advisory Fees...................................... 759,197
Distribution Fees (Attributed to Classes A, B and C of
$79,172, $188,684 and $103,001, respectively)............... 370,857
Administrative Fees........................................... 160,375
Shareholder Reports........................................... 112,978
Custodian Fees................................................ 69,767
Transfer Agent Fees........................................... 48,126
Country Tax Expense........................................... 41,417
Professional Fees............................................. 38,775
Filing and Registration Fees.................................. 35,244
Directors' Fees and Expenses.................................. 24,306
Other......................................................... 3,024
----------
Total Expenses............................................ 1,664,066
Less Expense Reductions................................... (125,821)
----------
Net Expenses.............................................. 1,538,245
----------
NET INVESTMENT LOSS........................................... $ (39,983)
==========
NET REALIZED GAIN/LOSS ON:
Investments................................................... $7,162,580
Foreign Currency Transactions................................. (119,165)
----------
Net Realized Gain............................................. 7,043,415
----------
NET UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period..................................... 1,156,193
----------
End of the Period:
Investments............................................... 3,916,734
Foreign Currency Translations............................. (5,110)
----------
3,911,624
----------
Net Change in Unrealized Appreciation/Depreciation............ 2,755,431
----------
NET REALIZED GAIN/LOSS AND NET CHANGE IN
UNREALIZED APPRECIATION/DEPRECIATION........................ $9,798,846
==========
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.......... $9,758,863
==========
</TABLE>
16 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
Statement of Changes in Net Assets
YEAR ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 2000 JUNE 30, 1999*
------------- --------------
<S> <C> <C>
INCREASE/DECREASE IN NET ASSETS
OPERATIONS:
Net Investment Income/Loss..................... $ (39,983) $ 353,000
Net Realized Gain/Loss......................... 7,043,415 (18,696,000)
Net Change in Unrealized
Appreciation/Depreciation.................... 2,755,431 14,496,000
------------ ------------
Net Increase/Decrease in Net Assets
Resulting from Operations.................... 9,758,863 (3,847,000)
------------ ------------
DISTRIBUTIONS:
Net Investment Income:
Class A...................................... -- (120,000)
Class B...................................... -- (17,000)
Class C...................................... -- (10,000)
In Excess of Net Investment Income:
Class A...................................... -- (182,000)
Class B...................................... -- (26,000)
Class C...................................... -- (15,000)
------------ ------------
-- (370,000)
------------ ------------
In Excess of Net Realized Gain:
Class A...................................... -- (153,000)
Class B...................................... -- (100,000)
Class C...................................... -- (57,000)
------------ ------------
-- (310,000)
------------ ------------
Net Decrease in Net Assets Resulting from
Distributions................................ -- (680,000)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Subscribed................................... 36,177,962 37,085,000
Distributions Reinvested..................... -- 580,000
Redeemed..................................... (40,100,838) (53,264,000)
------------ ------------
Net Decrease in Net Assets Resulting from
Capital Share Transactions................. (3,922,876) (15,599,000)
------------ ------------
Total Increase/Decrease in Net Assets........ 5,835,987 (20,126,000)
NET ASSETS--Beginning of Period................ 63,096,116 83,222,000
------------ ------------
NET ASSETS--End of Period (Including
accumulated/distributions in excess
of net investment income/loss of
$(132,846) and $(158,000), respectively)..... $ 68,932,103 $ 63,096,000
============ ============
</TABLE>
* AMOUNTS ROUNDED TO THE NEAREST (000).
SEE NOTES TO FINANCIAL STATEMENTS 17
<PAGE>
Financial Highlights THE FOLLOWING SCHEDULE PRESENTS FINANCIAL
HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------
CLASS A SHARES 2000# 1999# 1998# 1997 1996
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD............................... $ 11.54 $ 11.42 $ 17.39 $ 12.63 $ 9.08
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss.............. 0.04 0.09 (0.01) 0.02 0.10
Net Realized and Unrealized Gain/Loss... 2.66 0.19 (2.73) 6.46 3.47
------- ------- ------- ------- -------
Total From Investment Operations.......... 2.70 0.28 (2.74) 6.48 3.57
------- ------- ------- ------- -------
DISTRIBUTIONS
Net Investment Income................... -- (0.04) -- -- (0.02)
In Excess of Net Investment Income...... -- (0.07) -- (0.09) --
Net Realized Gain....................... -- -- (1.92) (1.63) --
In Excess of Net Realized Gain.......... -- (0.05) (1.31) -- --
------- ------- ------- ------- -------
Total Distributions....................... -- (0.16) (3.23) (1.72) (0.02)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD............ $ 14.24 $ 11.54 $ 11.42 $ 17.39 $ 12.63
======= ======= ======= ======= =======
TOTAL RETURN (1).......................... 23.29% 3.00% (17.37%) 57.32% 39.35%
======= ======= ======= ======= =======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)......... $38,525 $34,139 $44,439 $84,401 $18,701
Ratio of Expenses to Average
Net Assets.............................. 2.17% 2.20% 2.25% 2.24% 2.11%
Ratio of Net Investment Income/Loss
to Average Net Assets................... 0.31% 0.98% (0.09%) (0.08%) 1.18%
Portfolio Turnover Rate................... 78% 163% 249% 241% 131%
---------------------------------------------------------------------------------------------
Effect of Voluntary Expense Reductions
During the Period
Per Share Benefit to Net Investment
Income/Loss........................... $0.03 $0.02 $0.02 $0.10 $0.09
Ratios Before Expense Reductions:
Expenses to Average Net Assets.......... 2.38% 2.44% 2.41% 2.77% 3.28%
Net Investment Income/Loss to
Average Net Assets.................... 0.10% 0.74% (0.24%) (0.61%) 0.01%
Ratio of Expenses to Average Net
Assets excluding country tax
expense and interest expense............ 2.10% 2.10% 2.10% 2.10% 2.10%
---------------------------------------------------------------------------------------------
</TABLE>
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED SALES
CHARGES.
# CHANGES PER SHARE ARE BASED UPON DAILY AVERAGE SHARES OUTSTANDING.
18 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
Financial Highlights THE FOLLOWING SCHEDULE PRESENTS FINANCIAL
HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
<TABLE>
<CAPTION>
AUGUST 1,
YEAR ENDED JUNE 30, 1995+ TO
-------------------------------------- JUNE 30,
CLASS B SHARES 2000# 1999# 1998# 1997 1996
--------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD.............................. $ 11.19 $ 11.03 $ 16.99 $ 12.45 $ 9.58
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss............. (0.06) 0.02 (0.08) (0.03) 0.03
Net Realized and Unrealized Gain/Loss.. 2.57 0.22 (2.65) 6.28 2.84
------- ------- ------- ------- -------
Total From Investment Operations......... 2.51 0.24 (2.73) 6.25 2.87
------- ------- ------- ------- -------
DISTRIBUTIONS
Net Investment Income.................. -- (0.01) -- -- --
In Excess of Net Investment Income..... -- (0.02) -- (0.08) --
Net Realized Gain...................... -- -- (1.92) (1.63) --
In Excess of Net Realized Gain......... -- (0.05) (1.31) -- --
------- ------- ------- ------- -------
Total Distributions...................... -- (0.08) (3.23) (1.71) --
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD........... $ 13.70 $ 11.19 $ 11.03 $ 16.99 $ 12.45
======= ======= ======= ======= =======
TOTAL RETURN (1)......................... 22.32% 2.47% (17.82%) 56.17% 29.26%*
======= ======= ======= ======= =======
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)........ $19,635 $18,570 $24,206 $14,314 $ 2,041
Ratio of Expenses to Average
Net Assets............................. 2.92% 2.96% 2.99% 2.99% 2.87%
Ratio of Net Investment Income/Loss
to Average Net Assets.................. (0.47%) 0.20% (0.58%) (0.78%) 0.88%
Portfolio Turnover Rate.................. 78% 163% 249% 241% 131%*
----------------------------------------------------------------------------------------------
Effect of Voluntary Expense Reductions
During the Period
Per Share Benefit to Net Investment
Income/Loss.......................... $0.03 $0.02 $0.02 $0.02 $0.04
Ratios Before Expense Reductions:
Expenses to Average Net Assets......... 3.13% 3.20% 3.16% 3.55% 3.89%
Net Investment Income/Loss to
Average Net Assets................... (0.68%) (0.04%) (0.73%) (1.34%) (0.14%)
Ratio of Expenses to Average Net
Assets excluding country tax
expense and interest expense........... 2.85% 2.85% 2.85% 2.85% 2.85%
----------------------------------------------------------------------------------------------
</TABLE>
* NON-ANNUALIZED
+ THE FUND BEGAN OFFERING CLASS B SHARES ON AUGUST 1, 1995
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED SALES
CHARGES.
# CHANGES PER SHARE ARE BASED UPON DAILY AVERAGE SHARES OUTSTANDING.
SEE NOTES TO FINANCIAL STATEMENTS 19
<PAGE>
Financial Highlights THE FOLLOWING SCHEDULE PRESENTS FINANCIAL
HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------
CLASS C SHARES 2000# 1999# 1998# 1997 1996
--------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 11.18 $ 11.04 $ 17.01 $ 12.43 $ 8.99
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss............. (0.06) 0.02 (0.11) (0.07) 0.04
Net Realized and Unrealized Gain/Loss.. 2.57 0.20 (2.63) 6.31 3.40
------- ------- ------- ------- -------
Total From Investment Operations......... 2.51 0.22 (2.74) 6.24 3.44
------- ------- ------- ------- -------
DISTRIBUTIONS
Net Investment Income.................. -- (0.01) -- -- --
In Excess of Net Investment Income..... -- (0.02) -- (0.03) --
Net Realized Gain...................... -- -- (1.92) (1.63) --
In Excess of Net Realized Gain......... -- (0.05) (1.31) -- --
------- ------- ------- ------- -------
Total Distributions...................... -- (0.08) (3.23) (1.66) --
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD........... $ 13.69 $ 11.18 $ 11.04 $ 17.01 $ 12.43
======= ======= ======= ======= =======
TOTAL RETURN (1)......................... 22.34% 2.28% (17.86%) 56.04% 38.26%
======= ======= ======= ======= =======
Ratios and Supplemental Data
Net Assets, End of Period (000's)........ $10,772 $10,387 $14,577 $20,345 $ 6,780
Ratio of Expenses to Average
Net Assets............................. 2.92% 2.96% 3.00% 2.99% 2.86%
Ratio of Net Investment Income/Loss
to Average Net Assets.................. (0.47%) 0.23% (0.77%) (0.79%) 0.42%
Portfolio Turnover Rate.................. 78% 163% 249% 241% 131%
----------------------------------------------------------------------------------------------
Effect of Voluntary Expense Reductions
During the Period
Per Share Benefit to Net Investment
Income/Loss.......................... $0.03 $0.02 $0.02 $0.05 $0.12
Ratios Before Expense Reductions:
Expenses to Average Net Assets......... 3.13% 3.20% 3.16% 3.56% 4.06%
Net Investment Income/Loss to
Average Net Assets................... (0.68%) (0.01%) (0.93%) (1.36%) (0.78%)
Ratio of Expenses to Average Net
Assets excluding country tax
expense and interest expense........... 2.85% 2.85% 2.85% 2.85% 2.85%
----------------------------------------------------------------------------------------------
</TABLE>
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED SALES
CHARGES.
# CHANGES PER SHARE ARE BASED UPON DAILY AVERAGE SHARES OUTSTANDING.
20 SEE NOTES TO FINANCIAL STATEMENTS
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
The Van Kampen Latin American Fund (the "Fund") is organized as a
separate non-diversified fund of Van Kampen Series Fund, Inc., a Maryland
corporation which is registered as an open-end management investment company
under the Investment Company Act of 1940, as amended. The Fund's investment
objective seeks long-term capital appreciation by investing primarily in
equity securities of Latin American issuers and investing in debt securities
issued or guaranteed by Latin American governments or governmental entities.
Any income received from the investment of portfolio securities is incidental
to the Fund's investment objective. The Fund commenced operations on July 6,
1994. The Fund began offering the current Class B shares on August 1, 1995.
Class B shares held prior to May 1, 1995 were renamed Class C shares.
1. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of the financial statements in conformity with accounting principles
accepted in the United States of America (hereafter "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 period.
Actual results could differ from those estimates.
A. SECURITY VALUATION Equity securities listed on a U.S. exchange and equity
securities traded on NASDAQ are valued at the latest quoted sales price on the
valuation date. Securities listed on a foreign exchange are valued at their
closing price. Unlisted securities and listed securities not traded on the
valuation date for which market quotations are readily available are valued at
the average between the bid and asked prices obtained from reputable brokers.
Debt securities purchased with remaining maturities of 60 days or less are
valued at amortized cost, which approximates market value. All other securities
and assets for which market quotations are not readily available are valued at
fair value as determined in good faith using procedures approved by the Board of
Directors.
B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen Investment Advisory Corp. or its affiliates, the
daily aggregate of which is invested in repurchase agreements. Repurchase
agreements are fully collateralized by the under-
21
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
lying debt security. A bank as custodian for the Fund takes possession of the
underlying securities, with a market value at least equal to the amount of the
repurchase transaction, including principal and accrued interest. To the
extent that any repurchase transaction exceeds one business day, the value of
the collateral is marked-to-market on a daily basis to determine the adequacy
of the collateral. In the event of default on the obligation to repurchase,
the Fund has the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation. In the event of default or bankruptcy by the
counterparty to the agreement, realization and/or retention of the collateral
or proceeds may be subject to legal proceedings.
C. INCOME AND EXPENSES Interest income is recorded on an accrual basis and
dividend income is recorded net of applicable withholding taxes on the
ex-dividend date. Income, expenses, and realized and unrealized gains or losses
are allocated on a pro rata basis to each class of shares except for
distribution and service fees which are unique to each class of shares.
Distributions from the Fund are recorded on the ex-distribution date.
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. The Fund may be
subject to taxes imposed by countries in which it invests. Such taxes are
generally based on income earned or gains realized or repatriated. Taxes are
accrued and applied to net investment income, net realized capital gains and net
unrealized appreciation, as applicable, as the income is earned or capital gains
are recorded.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At June 30, 2000, the Fund had an accumulated capital loss carryforward
for tax purposes of $17,769,993, which will expire between June 30, 2007 and
June 30, 2008. Net realized gains or losses may differ for financial and tax
reporting purposes as a result of losses relating to wash sale transactions.
At June 30, 2000, for federal income tax purposes, cost of long- and
short-term investments is $67,280,659, the aggregate gross unrealized
appreciation is $10,008,191 and the aggregate gross unrealized depreciation is
$9,579,407, resulting in net unrealized appreciation on long- and short-term
investments of $428,784.
22
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
E. DISTRIBUTION OF INCOME AND GAINS The Fund declares and pays dividends
annually from net investment income and net realized gains, if any.
Distributions from net realized gains for book purposes may include short-term
capital gains which are included as ordinary income for tax purposes.
Due to inherent differences in the recognition of income and expenses under
generally accepted accounting principles and federal income tax purposes,
permanent differences between book and tax basis reporting for the current
fiscal year have been identified and appropriately reclassified. A permanent
difference related to a net operating loss totaling $184,023 has been
reclassified from paid in capital in excess of par to accumulated net investment
loss. A permanent difference of $129 related to a correction of the prior year
net operating loss was reclassified from accumulated net investment loss to paid
in capital in excess of par. A permanent difference related to the recognition
of net realized losses on foreign currency transactions totaling $119,165 was
reclassified from accumulated net investment loss to accumulated net realized
loss.
Permanent book to tax basis differences are not included in ending
undistributed/distributions in excess of net investment income for the purpose
of calculating net investment income/loss per share in the Financial Highlights.
F. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS Assets and liabilities
denominated in foreign currencies and commitments under forward currency
contracts are translated into U.S. dollars at the mean of the quoted bid and
asked prices of such currencies against the U.S. dollar. Purchases and sales of
portfolio securities are translated at the rate of exchange prevailing when such
securities were acquired or sold. Income and expenses are translated at rates
prevailing when accrued. Realized and unrealized gains and losses on securities
resulting from changes in exchange rates are not segregated for financial
reporting purposes from amounts arising from changes in the market prices of
securities. Realized gains and losses on foreign currency transactions includes
the net realized amount from the sale of the currency and the amount realized
between trade date and settlement date on security and income transactions.
The Fund invests in issuers located in emerging markets. There are certain
risks inherent in these investments not typically associated with issuers in the
United States, including the smaller size of the markets themselves, lesser
liquidity, greater volatility and potentially less publicly available
information. Emerging markets may be subject to a greater degree of government
involvement in the economy and greater economic and political uncertainty, which
has the potential to extend to government imposed restrictions on exchange
traded transactions and currency transactions. These restrictions may impact the
Fund's ability to buy or sell certain securities or to repatriate certain
currencies to U.S. dollars. Additionally, changes in currency exchange rates
will affect the value of and investment income from such securities.
23
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Van Kampen Investment Advisory Corp. (the "Adviser"), a wholly owned subsidiary
of Van Kampen Investments Inc. (an indirect wholly owned subsidiary of Morgan
Stanley Dean Witter & Co.) and Morgan Stanley Dean Witter Investment Management
Inc., a wholly owned subsidiary of Morgan Stanley Dean Witter & Co., provide the
Fund with investment advisory services at a fee paid monthly and calculated at
the annual rates based on average daily net assets indicated as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
<S> <C>
First $500 million 1.25 of 1%
Next $500 million 1.20 of 1%
Over $1 billion 1.15 of 1%
</TABLE>
The Adviser has agreed to reduce advisory fees payable to it and to
reimburse the Fund, if necessary, if the annual operating expenses, expressed as
a percentage of average daily net assets, exceed the maximum ratios indicated as
follows:
<TABLE>
<CAPTION>
CLASS B
CLASS A AND CLASS C
MAX. OPERATING MAX. OPERATING
EXPENSE RATIO EXPENSE RATIO
<S> <C>
2.10% 2.85%
</TABLE>
For the period ended June 30, 2000, the Adviser voluntarily waived $125,821
of its investment advisory fees. This waiver is voluntary in nature and can be
discontinued at the Adviser's discretion.
For the period ended June 30, 2000, the Fund recognized expenses of $4,775
representing legal services provided by Skadden, Arps, Slate, Meagher & Flom
(Illinois), counsel to the Fund, of which a director of the Fund is an
affiliated person.
For the period ended June 30, 2000, the Fund recognized expenses of $6,546
representing Van Kampen's cost of providing legal services to the Fund.
Van Kampen Investment Advisory Corp. (the "Administrator") also provides
the Fund with administrative services pursuant to an administrative agreement
for a monthly fee which on an annual basis equals 0.25% of the average daily net
assets of the portfolio, plus reimbursement of out-of-pocket expenses. Under an
agreement between the Adviser and The Chase Manhattan Bank ("Chase"), through
its corporate affiliate Chase Global Funds Services Company ("CGFSC"), Chase
provides certain administrative services to the Fund. Chase is compensated for
such services by the Adviser from the fee it receives from the Fund. Transfer
Agency services are provided to the Fund by Van Kampen Investor Services Inc.,
an affiliate of the Adviser.
Van Kampen Funds Inc. (the "Distributor") a wholly owned subsidiary of
Van Kampen Investments Inc., an indirect wholly owned subsidiary of Morgan
Stanley
24
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
Dean Witter & Co., serves as the Distributor of the Fund's shares. The
Distributor is entitled to receive from the Fund a distribution fee, which is
accrued daily and paid quarterly, of an amount of up to 0.25% of the Class A
shares and up to 1.00% of the Class B shares and Class C shares of the Fund,
on an annualized basis, of the average daily net assets attributable to each
Class.
The Distributor may receive a front end sales charge for purchases of Class
A shares. In addition, the Distributor may receive a contingent deferred sales
charge for certain redemptions of Class B shares and Class C shares of the Fund
redeemed within one to five years following such purchase. For the period ended
June 30, 2000, the Distributor has advised the Fund that it earned initial sales
charges of $59,102 for Class A shares and deferred sales charges of $94,375 and
$11,810 for Class B shares and Class C shares, respectively.
Certain officers and directors of the Fund are also officers and directors
of Van Kampen. The Fund does not compensate its officers or directors who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
directors who are not officers of Van Kampen. Under the deferred compensation
plan, directors 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 director's years of service to the Fund. The maximum
annual benefit per director under the plan is $2,500.
For the period ended June 30, 2000, the Fund incurred $696 as brokerage
commissions with Morgan Stanley & Co. Incorporated, an affiliated broker/dealer.
3. CAPITAL TRANSACTIONS
The Fund currently offers three classes of shares, Class A, Class B, and Class C
shares. All three classes of shares have identical voting, dividend, liquidation
and other rights. Class A shares are sold with a front-end sales charge of up to
5.75%. For certain purchases of Class A shares, the front-end sales charge may
be waived and a contingent deferred sales charge ("CDSC") of 1.00% imposed in
the event of certain redemptions within one year of the purchase. Class B and
Class C shares are offered without a front end sales charge, but are subject to
a 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 seven years after the end of the calendar month in
which the shares were purchased. For the period ended June 30, 2000, no Class B
shares converted to Class A shares. The CDSC will be imposed on most redemptions
25
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
made within five years of the purchase for Class B shares and one year of the
purchase for Class C shares as detailed in the following schedule:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE ON ASSETS SUBJECT TO
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
Thereafter....................................... None None
</TABLE>
26
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 2000 JUNE 30, 1999*
------------- --------------
<S> <C> <C>
CAPITAL SHARE TRANSACTIONS
CLASS A:
Shares:
Subscribed ............................. 2,253,909 2,939,000
Distributions Reinvested................ -- 46,000
Redeemed................................ (2,506,657) (3,917,000)
------------ ------------
Net Decrease in Class A Shares
Outstanding............................ (252,748) (932,000)
============ ============
Dollars:
Subscribed.............................. $ 29,534,280 $ 28,926,000
Distributions Reinvested................ -- 389,000
Redeemed................................ (29,421,115) (37,394,000)
------------ ------------
Net Increase/Decrease $ 113,165 $ (8,079,000)
============ ============
Ending Paid in Capital $ 46,117,225+ $ 46,039,000+
============ ============
CLASS B:
Shares:
Subscribed.............................. 276,063 386,000
Distributions Reinvested................ -- 15,000
Redeemed................................ (502,008) (936,000)
------------ ------------
Net Decrease in Class B Shares
Outstanding............................. (225,945) (535,000)
============ ============
Dollars:
Subscribed.............................. $ 3,511,416 $ 3,651,000
Distributions Reinvested................ -- 124,000
Redeemed................................ (6,134,553) (8,006,000)
------------ ------------
Net Decrease.............................. $ (2,623,137) $ (4,231,000)
============ ============
Ending Paid in Capital.................... $ 26,423,794+ $ 29,066,000+
============ ============
CLASS C:
Shares:
Subscribed.............................. 234,457 508,000
Distributions Reinvested................ -- 8,000
Redeemed................................ (376,362) (908,000)
------------ ------------
Net Decrease in Class C Shares
Outstanding.............................. (141,905) (392,000)
============ ============
Dollars:
Subscribed.............................. $ 3,132,266 $ 4,508,000
Distributions Reinvested................ -- 67,000
Redeemed................................ (4,545,170) (7,864,000)
------------ ------------
Net Decrease.............................. $ (1,412,904) $ (3,289,000)
============ ============
Ending Paid in Capital.................... $ 14,054,141+ $ 15,478,000+
============ ============
</TABLE>
* AMOUNTS ROUNDED TO THE NEAREST (000).
+ ENDING PAID IN CAPITAL AMOUNTS DO NOT REFLECT PERMANENT BOOK TO TAX
DIFFERENCES--SEE NOTE 1E.
4. INVESTMENT TRANSACTIONS
For the period ended June 30, 2000, the Fund made purchases of $45,783,070 and
sales of $51,366,967 of investment securities other than long-term U.S.
government securities and short-term investments. There were no purchases or
sales of long-term U.S. government securities.
27
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
5. 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 into a $650 million committed line of credit facility
with a group of banks which expires on November 28, 2000, but is renewable with
the consent of the participating banks. Each fund is permitted to utilize the
facility in accordance with the restrictions of its prospectus. In the event the
demand for the credit facility meets or exceeds $650 million on a complex-wide
basis, each fund will be limited to its pro-rata percentage based on the net
assets of each participating fund. Interest on borrowings is charged under the
agreement at a rate of 0.50% above the federal funds rate per annum. An annual
commitment fee of 0.09% per annum is charged on the unused portion of the credit
facility, which each fund incurs based on its pro-rata percentage of quarterly
net assets. The Fund has not borrowed against the credit facility during the
period.
28
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and
Shareholders of Van Kampen Latin American Fund
We have audited the accompanying statement of assets and liabilities of Van
Kampen Latin American Fund (the "Fund"), a fund of Van Kampen Series Fund, Inc.,
including the portfolio of investments, as of June 30, 2000, and the related
statements of operations, changes in net assets and the financial highlights for
the year then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit. The Fund's financial statements and financial highlights for the periods
ended prior to June 30, 2000, were audited by other auditors whose report, dated
August 6, 1999, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of June 30, 2000, by correspondence with the Fund's
custodian and brokers; where replies were not received from brokers, we
performed other auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen Latin American Fund as of June 30, 2000, the results of its operations,
the changes in its net assets and the financial highlights for the year then
ended, in conformity with accounting principles generally accepted in the United
States of America.
DELOITTE & TOUCHE LLP
Chicago, Illinois
August 11, 2000
29
<PAGE>
Van Kampen Funds
THE VAN KAMPEN FAMILY OF FUNDS
GROWTH
Aggressive Growth
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth
Mid Cap Growth
Pace
Select Growth
Small Cap Value
Tax Managed Equity Growth
Technology
GROWTH AND INCOME
Comstock
Equity Income
Growth and Income
Harbor
Real Estate Securities
Utility
Value
GLOBAL/INTERNATIONAL
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
International Magnum
Latin American
Strategic Income
Tax Managed Global Franchise
Worldwide High Income
INCOME
Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return*
Limited Maturity Government
U.S. Government
U.S. Government Trust for Income
CAPITAL PRESERVATION
Reserve
Tax Free Money
SENIOR LOAN
Prime Rate Income Trust
Senior Floating Rate
TAX FREE
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal**
Insured Tax Free Income
Intermediate Term
Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
To find out more about any of these funds, ask your financial advisor for a
prospectus, which contains more complete information, including sales charges,
risks, and ongoing expenses. Please read it carefully before you invest or
send money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- visit our Web site at www.vankampen.com -- to view a prospectus, select
DOWNLOAD PROSPECTUS
[GRAPHIC]
- 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.
[GRAPHIC]
- e-mail us by visiting www.vankampen.com and selecting CONTACT US
[GRAPHIC]
* Closed to new investors
** Open to new investors for a limited time
30
<PAGE>
FUND OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN LATIN AMERICAN FUND
BOARD OF DIRECTORS
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*
Chairman, Director, President,
Chief Executive Officer
STEPHEN L. BOYD*
Executive Vice President and
Chief Investment Officer
A. THOMAS SMITH III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Chief Financial Officer
and Treasurer
RICHARD A. CICCARONE*
JOHN R. REYNOLDSON*
MICHAEL H. SANTO*
JOSEPH P. STADLER*
JOHN H. ZIMMERMANN, III*
Vice Presidents
INVESTMENT ADVISER AND
ADMINISTRATOR
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
INVESTMENT SUBADVISER
MORGAN STANLEY DEAN WITTER INVESTMENT
MANAGEMENT INC.
1221 Avenue of the Americas
New York, New York 10020
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
CUSTODIAN
THE CHASE MANHATTAN BANK
3 MetroTech Center
Brooklyn, New York 11245
DIVIDEND DISBURSING AND
TRANSFER AGENT
VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 218256
Kansas City, Missouri 64121-8256
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT AUDITORS
DELOITTE & TOUCHE LLP
180 N. Stetson Avenue
Chicago, IL 60601
For federal income tax purposes, the following is furnished with respect to
potential distributions to be paid by the Fund during the remainder of
calendar year 2000. During the taxable year ended June 30, 2000, the Fund did
not pay any distributions. Provided the Fund makes a distribution in December
2000, the Fund intends to pass through foreign tax credits of $2,633 and has
derived gross income from sources within foreign countries amounting to
$1,385,23O.
* 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.
31
<PAGE>
RESULTS OF SHAREHOLDER VOTES
JUNE 30, 2000
A Joint Special Meeting of the Shareholders of the Latin American
Fund (the "Fund") was held on December 15, 1999. The description of each
proposal and number of shares voted are as follows:
1. To elect the following Directors to serve the Fund.
<TABLE>
<CAPTION>
VOTED FOR WITHHELD
<S> <C> <C>
J. Miles Branagan ....................... 2,820,708 35,403
Jerry D. Choate ......................... 2,820,667 35,445
Linda Hutton Heagy....................... 2,821,562 34,549
R. Craig Kennedy......................... 2,821,366 34,745
Mitchell M. Merin........................ 2,821,521 34,591
Jack E. Nelson........................... 2,821,396 34,715
Richard F. Powers, III .................. 2,820,894 35,217
Phillip B. Rooney ....................... 2,821,533 34,579
Fernando Sisto .......................... 2,821,278 34,834
Wayne W. Whalen ......................... 2,820,062 36,050
Suzanne H. Woolsey ...................... 2,821,811 24,300
Paul G. Yovovich*........................ 2,821,645 34,467
</TABLE>
* EFFECTIVE APRIL 14, 2000, PAUL G. YOVOVICH RESIGNED FROM THE BOARD OF
DIRECTORS.
2. To ratify PricewaterhouseCoopers LLP to act as independent public accountants
for the Fund.(1)
<TABLE>
<CAPTION>
AFFIRMATIVE AGAINST ABSTAIN
<S> <C> <C> <C>
2,825,233 12,067 18,811
</TABLE>
(1) INDEPENDENT ACCOUNTANTS FOR THE FUND PERFORM AN ANNUAL AUDIT OF THE FUND'S
FINANCIAL STATEMENTS. THE BOARD OF DIRECTORS HAS ENGAGED DELOITTE & TOUCHE LLP
TO BE THE FUND'S INDEPENDENT ACCOUNTANTS.
PricewaterhouseCoopers LLP, located at 200 East Randolph Drive, Chicago, IL
60601 ("PWC"), ceased being the Fund's independent accountants effective May 18,
2000. The cessation of the client-auditor relationship between the Fund and PWC
was based solely on a possible future business relationship by PWC with an
affiliate of the Fund's investment adviser.
32
<PAGE>
459, 559, 659 -------------
MSLA ANR 08/00 PRESORTED
VAN KAMPEN FUNDS INC. STANDARD
1 Parkview Plaza U.S. Postage
P.O. Box 5555 PAID
Oakbrook Terrace, Illinois 60181-5555 VAN KAMPEN
FUNDS
-------------
<PAGE>
VAN KAMPEN
VALUE FUND
ANNUAL REPORT
JUNE 30, 2000
[PHOTO]
VAN KAMPEN
FUNDS
<PAGE>
TABLE OF CONTENTS
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 4
GROWTH OF A $10,000 INVESTMENT 5
PORTFOLIO AT A GLANCE
TOP TEN HOLDINGS 6
TOP FIVE SECTORS 6
Q&A WITH YOUR PORTFOLIO MANAGERS 7
GLOSSARY OF TERMS 10
BY THE NUMBERS
YOUR FUND'S INVESTMENTS 11
FINANCIAL STATEMENTS 16
NOTES TO FINANCIAL STATEMENTS 22
REPORT OF INDEPENDENT AUDITORS 29
VAN KAMPEN FUNDS
THE VAN KAMPEN FAMILY OF FUNDS 30
FUND OFFICERS AND IMPORTANT ADDRESSES 31
RESULTS OF SHAREHOLDER VOTES 32
IT IS TIMES LIKE THESE WHEN MONEY-MANAGEMENT EXPERIENCE MAY MAKE A DIFFERENCE.
-------------------------------------------------------
NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE.
-------------------------------------------------------
<PAGE>
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.
OVERVIEW
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,
/s/ Richard F. Powers, III
Richard F. Powers, III
President and CEO
Van Kampen Investments
1
<PAGE>
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>
U.S. GROSS DOMESTIC PRODUCT
SEASONALLY ADJUSTED ANNUALIZED RATES
(JUNE 30, 1998 - JUNE 30, 2000)
[CHART]
<TABLE>
<S> <C>
Jun-98 2.1%
Sep-98 3.8%
Dec-98 5.9%
Mar-99 3.5%
Jun-99 2.5%
Sep-99 5.7%
Dec-99 8.3%
Mar-00 4.8%
Jun-00 5.2%
</TABLE>
SOURCE: BUREAU OF ECONOMIC ANALYSIS
INTEREST RATES AND INFLATION
(JUNE 30, 1998 - JUNE 30, 2000)
[CHART]
<TABLE>
<CAPTION>
MONTH INTEREST RATES INFLATION
----- -------------- ---------
<S> <C> <C>
Jun-98 5.500 1.70
Jul-98 5.500 1.70
Aug-98 5.500 1.60
Sep-98 5.250 1.50
Oct-98 5.000 1.50
Nov-98 4.750 1.50
Dec-98 4.750 1.60
Jan-99 4.750 1.70
Feb-99 4.750 1.60
Mar-99 4.750 1.70
Apr-99 4.750 2.30
May-99 4.750 2.10
Jun-99 5.000 2.00
Jul-99 5.000 2.10
Aug-99 5.250 2.30
Sep-99 5.250 2.60
Oct-99 5.250 2.60
Nov-99 5.500 2.60
Dec-99 5.500 2.70
Jan-00 5.500 2.70
Feb-00 5.750 3.20
Mar-00 6.000 3.70
Apr-00 6.000 3.00
May-00 6.500 3.10
Jun-00 6.500 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>
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(AS OF JUNE 30, 2000)
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
--------------------------------------------------------------------------------
<S> <C> <C> <C>
One-year total return based on NAV(1) -16.56% -17.16% -17.17%
--------------------------------------------------------------------------------
One-year total return(2) -21.33% -21.30% -18.00%
--------------------------------------------------------------------------------
Life-of-Fund average annual total return(2) -3.89% -3.64% -2.71%
--------------------------------------------------------------------------------
Commencement date 7 /7/97 7/7/97 7/7/97
--------------------------------------------------------------------------------
</TABLE>
(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.
SEE THE COMPARATIVE PERFORMANCE SECTION OF THE CURRENT PROSPECTUS. 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.
BECAUSE THE PRICES OF COMMON STOCKS AND OTHER SECURITIES FLUCTUATE, THE
VALUE OF AN INVESTMENT IN THE FUND WILL VARY UPON THE FUND'S INVESTMENT
PERFORMANCE.
MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO PASS.
4
<PAGE>
GROWTH OF A $10,000 INVESTMENT
(JULY 7, 1997 - JUNE 30, 2000)
[CHART]
<TABLE>
<CAPTION>
Standard & Poor's 500 Index
MEASURES THE PERFORMANCE OF 500
WIDELY HELD COMMON STOCKS FROM
VALUE FUND 83 INDUSTRIAL GROUPS.
---------- -------------------------------
<S> <C> <C>
7/97 $9,500 $10,000
9/97 $9,849 $10,429
12/97 $9,598 $10,727
3/98 $10,464 $12,221
6/98 $10,060 $12,623
6/99 $10,646 $15,495
6/00 $8,375 $16,618
Fund's Total Return
1 Year Total Return -21.33%
Inception Avg. Annual -3.89%
</TABLE>
THIS CHART COMPARES YOUR FUNDOS PERFORMANCE TO THAT OF THE STANDARD & POOR'S 500
INDEX OVER TIME.
THIS IS AN UNMANAGED BROAD-BASED, STATISTICAL COMPOSITE THAT DOES NOT INCLUDE
ANY COMMISSIONS OR FEES THAT WOULD BE PAID BY AN INVESTOR PURCHASING THE
SECURITIES IT REPRESENTS. SUCH COSTS WOULD LOWER THE PERFORMANCE OF THIS INDEX.
THE HISTORICAL PERFORMANCE OF THE INDEX IS SHOWN FOR ILLUSTRATIVE PURPOSES ONLY;
IT IS NOT MEANT TO FORECAST, IMPLY, OR GUARANTEE THE FUTURE PERFORMANCE OF ANY
INVESTMENT VEHICLE. IT IS NOT POSSIBLE TO INVEST DIRECTLY IN AN INDEX.
THE ABOVE CHART REFLECTS THE PERFORMANCE OF CLASS A SHARES OF THE FUND. THE
PERFORMANCE OF CLASS A SHARES WILL DIFFER FROM THAT OF OTHER SHARE CLASSES OF
THE FUND BECAUSE OF THE DIFFERENCE IN SALES CHARGES AND/OR EXPENSES PAID BY
SHAREHOLDERS INVESTING IN THE DIFFERENT SHARE CLASSES. THE FUND'S PERFORMANCE
ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS, AND INCLUDES PAYMENT OF THE MAXIMUM
SALES CHARGE (5.75% FOR CLASS A SHARES).
WHILE PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THE ABOVE INFORMATION
PROVIDES A BROADER VANTAGE POINT FROM WHICH TO EVALUATE THE DISCUSSION OF THE
FUND'S PERFORMANCE FOUND IN THE FOLLOWING PAGES.
5
<PAGE>
PORTFOLIO AT A GLANCE
TOP TEN HOLDINGS
(AS A PERCENTAGE OF NET ASSETS--JUNE 30, 2000)
1. HEALTHSOUTH 5.5%
Provides rehabilitative health-care and outpatient services in the United
States, Australia, Puerto Rico, and the United Kingdom.
2. TENET HEALTHCARE 4.0%
Owns and operates hospitals in the United States and Spain.
3. FOUNDATION HEALTH SYSTEMS 4.0%
Provides health-care and medical coverage in the United States.
4. WASHINGTON MUTUAL 3.2%
Provides financial services in the western and southern United States.
5. HCA-HEALTHCARE 3.1%
Operates hospitals and related health- care facilities in the United
States, Switzerland, and the United Kingdom.
6. SBC COMMUNICATIONS 2.8%
Offers telecommunication, Internet access, and cable-television services in
the United States.
7. NABORS INDUSTRIES 2.7%
Offers drilling, engineering, and other services to petroleum producers
around the world.
8. EATON 2.7%
Manufactures equipment and parts for the aerospace, automotive, and
marine industries.
9. HONEYWELL 2.5%
Manufactures products for the aerospace, automation, power, and
transportation industries worldwide.
10. PNC BANK 2.4%
Offers consumer and corporate banking services in the United States.
TOP FIVE SECTORS*
(AS A PERCENTAGE OF NET ASSETS--JUNE 30, 2000)
[CHART]
<TABLE>
<S> <C>
Health Care 20.7%
Financial Services 18.2%
Heavy Industry/Transportation 14.0%
Utilities 12.7%
Technology 9.2%
</TABLE>
* THESE SECTORS REPRESENT BROAD GROUPINGS OF RELATED INDUSTRIES.
6
<PAGE>
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH MANAGEMENT TEAM OF THE VAN KAMPEN VALUE FUND ABOUT THE
KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE MARKETS AND INFLUENCED THE FUND'S
RETURN FOR THE 12-MONTH PERIOD ENDED JUNE 30, 2000. THE TEAM INCLUDES RICHARD
BEHLER, NICHOLAS KOVICH, AND ROBERT MARCIN, PORTFOLIO MANAGERS, MORGAN STANLEY
DEAN WITTER INVESTMENT MANAGEMENT. THEY HAVE MANAGED THE FUND SINCE ITS
INCEPTION IN 1997. 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, which generally
continued to favor growth stocks over value. (There can be no assurance that
growth stocks will continue to be favored over value stocks in the future.)
After climbing for most of the reporting period, both the Standard & Poor's 500
Index and the NASDAQ fell sharply beginning in late March due to concerns about
technology stocks' high valuations and the effects of continued interest-rate
increases on U.S. corporate earnings.
As technology stocks began to falter, some investors looked to traditional
value sectors for relatively strong performance potential with less volatility
than growth sectors. However, this short-lived rally was not enough to help
value stocks recover losses from earlier in the year. Within the value universe,
stocks with higher valuations performed better than stocks with lower
valuations. The fund, which invests primarily in low-valuation stocks, declined
16.56 percent for the 12-month period ended June 30, 2000 (CLASS A SHARES AT NET
ASSET VALUE; IF THE MAXIMUM SALES CHARGE OF 5.75 PERCENT WERE INCLUDED, THE
RETURN WOULD HAVE BEEN LOWER). AS A RESULT OF RECENT MARKET ACTIVITY, CURRENT
PERFORMANCE MAY VARY FROM THE FIGURES SHOWN. BY COMPARISON, THE S&P 500 INDEX
RETURNED 7.25 PERCENT. OF COURSE, PAST PERFORMANCE IS NO GUARANTEE OF FUTURE
RESULTS. THE S&P 500 INDEX IS AN UNMANAGED, BROAD-BASED INDEX THAT MEASURES THE
PERFORMANCE OF 500 STOCKS FROM 83 INDUSTRIAL GROUPS AND REFLECTS THE GENERAL
PERFORMANCE OF THE STOCK MARKET. THIS INDEX IS A STATISTICAL COMPOSITE THAT DOES
NOT INCLUDE ANY COMMISSIONS OR SALES CHARGES THAT WOULD BE PAID BY AN INVESTOR
PURCHASING THE SECURITIES IT REPRESENTED. 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 Although growth has significantly outperformed value in recent years, we have
maintained our value-oriented,
7
<PAGE>
broadly diversified approach to investing. As value investors, we look for solid
companies that may be temporarily out of favor in the marketplace, meaning they
may have sound business fundamentals, but their stock prices are lower than what
we believe they should be. These companies may be out of favor for a number of
reasons, including an overreaction by investors to unfavorable news or the
cyclical nature of the company (which means that its earnings are sensitive to
general economic trends).
In this rising interest-rate environment, we sought to limit the fund's
exposure to interest-rate sensitive areas of the market. Therefore, we tried to
find a balance between cyclical and noncyclical stocks that would have
appreciation potential in a rising-rate environment. Cyclical sectors we liked
were consumer durables, capital goods, and financial services, because stock
prices in these sectors generally have not fallen as much as other cyclical
sectors during recessions. We looked to the health-care sector, particularly
health maintenance organization (HMO) and hospital stocks, to find noncyclical
opportunities at attractive prices.
Q HOW DID THIS STRATEGY AFFECT THE FUND'S PERFORMANCE THROUGH THE END OF THE
REPORTING PERIOD?
A It's been challenging for the fund to perform in an unfavorable market
environment. Generally speaking, investors have been avoiding the types of
stocks that fit the fund's investment criteria, and because we have remained
true to the fund's philosophy, we did not invest in stocks the market has
rewarded over the past few years. Consequently, the fund's performance has
suffered.
Q HOW DID YOU STRUCTURE THE FUND'S PORTFOLIO?
A The fund owned large positions in several HMOs, including Tenet Healthcare,
Aetna, and Foundation Health, and health-care services provider HEALTHSOUTH, all
of which helped performance. In order to lock in profits, we sold Wellpoint and
Universal, two HMOs, and Health Management Associates, a hospital chain, when
their stock prices went up.
We also liked companies with strong consumer brands. We believe that these
companies' stocks may not fall as far in a recession as would stocks of
companies that do not have a strong presence among consumers. We invested in two
building materials companies--Masco, a kitchen and bathroom cabinet and faucet
manufacturer, and Black & Decker, the leading power tools manufacturer--because
we believed both stocks were available at good bargains. Other consumer brands
we purchased or added to included Liz Claiborne, an upscale clothing retailer,
and Tricon Global, the restaurant chain that owns Taco Bell, Pizza Hut, and KFC.
We also increased the fund's allocation in telecommunications. Investors
typically consider utility stocks to be value stocks. However, advances in the
telecommunications industry have helped the growth potential of older, more
traditional utility companies. The fund owned AT&T, Bell Atlantic, GTE,
8
<PAGE>
and SBC Communications because we felt these companies were available at
attractive prices.
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 in the portfolio in the future. For additional
fund highlights, please refer to page 6.
Q WHAT IS YOUR OUTLOOK FOR THE FUND AND THE MARKETS IN THE MONTHS AHEAD?
A We're going to watch the economy closely to see if the Federal Reserve Board
can slow growth without causing a recession. A slower economy would not be able
to sustain the record-breaking growth of recent years and may stimulate
investors to buy value stocks. More interest in value stocks may help narrow the
performance gap between growth and value.
In the meantime, we continue to believe that the companies represented in
the fund's portfolio are strong businesses that will attain their true worth
over time. We believe the market eventually will return to historically "normal"
levels, and when that happens, we think the companies in which the fund invests
may be rewarded by the market.
9
<PAGE>
GLOSSARY OF TERMS A HELPFUL GUIDE TO SOME OF THE COMMON TERMS
YOU'RE LIKELY TO SEE IN THIS REPORT AND
OTHER FINANCIAL PUBLICATIONS.
CLASS A SHARES: A division of mutual fund shares, which are generally divided
into three groupings, called Class A, Class B, and Class C shares. The specific
features of each are dependent on varying fees and sales charges. In most cases,
Class A shares will have no redemption fee (contingent deferred sales charge).
CYCLICAL STOCKS: Stocks within industries where earnings tend to rise quickly
when the economy strengthens and fall quickly when the economy weakens. Examples
of cyclical stocks include housing, automobile, and paper 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.
NET ASSET VALUE (NAV): The value of a mutual fund share, calculated by deducting
a fund's liabilities from the total assets in its portfolio and dividing this
amount by the number of shares outstanding. The NAV does not include any initial
or contingent deferred sales charge.
NONCYCLICAL STOCKS: Also referred to as defensive stocks are stocks within
industries which are typically less sensitive to changes in the economy. These
include utilities, grocery stores, and pharmaceutical companies.
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.
VALUE INVESTING: A strategy that seeks to identify stocks that are sound
investments but are temporarily out of favor in the marketplace. As a result,
the stocks trade at prices below what value investors believe they are actually
worth.
VOLATILITY: A measure of the fluctuation in the market price of a security. A
security that is volatile has frequent and large swings in price.
10
<PAGE>
BY THE NUMBERS
YOUR FUND'S INVESTMENTS THE FOLLOWING PAGES DETAIL YOUR FUND'S
JUNE 30, 2000 PORTFOLIO OF INVESTMENTS AT THE END OF THE
REPORTING PERIOD.
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
COMMON STOCKS 99.7%
BASIC RESOURCES 6.8%
BASIC CHEMICALS 4.6%
Dow Chemical Co. ...................................... 42,000 $ 1,267,875
E.I. du Pont de Nemours & Co. ......................... 28,900 1,264,375
IMC Global, Inc. ...................................... 87,900 1,142,700
PPG Industries, Inc. .................................. 28,300 1,254,044
Praxair, Inc. ......................................... 37,100 1,388,931
-----------
6,317,925
-----------
SPECIALTY CHEMICALS 2.2%
Engelhard Corp. ....................................... 125,000 2,132,813
Lubrizol Corp. ........................................ 44,700 938,700
-----------
3,071,513
-----------
TOTAL BASIC RESOURCES ............................................ 9,389,438
-----------
BEVERAGES & PERSONAL PRODUCTS 1.4%
PERSONAL PRODUCTS 1.4%
Fortune Brands, Inc. .................................. 82,800 1,909,575
-----------
CONSUMER DURABLES 5.7%
AUTOMOBILES 1.9%
Ford Motor Co. ........................................ 58,130 2,499,590
General Motors Corp. .................................. 3,069 178,170
-----------
2,677,760
-----------
AUTOMOTIVE 0.5%
Delphi Automotive Systems Corp. ....................... 47,100 685,894
-----------
BUILDING & HOUSING 0.8%
Masco Corp. ........................................... 34,500 623,156
Owens Corning ......................................... 38,520 356,310
-----------
979,466
-----------
FURNISHING & APPLIANCES 2.5%
Maytag Corp. .......................................... 59,500 2,194,062
Whirlpool Corp. ....................................... 27,600 1,286,850
-----------
3,480,912
-----------
TOTAL CONSUMER DURABLES .......................................... 7,824,032
-----------
CONSUMER SERVICES 1.8%
ENTERTAINMENT & LEISURE 1.8%
Harrah's Entertainment, Inc. (a) ...................... 115,200 2,412,000
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
ENERGY 8.5%
OIL-DOMESTIC &
CRUDE 2.4%
Conoco, Inc.'B' ....................................... 35,600 $ 874,425
Tosco Corp. ........................................... 87,100 2,466,019
-----------
3,340,444
-----------
OIL-INTERNATIONAL 2.4%
Exxon Mobil Corp. ..................................... 21,100 1,656,350
Texaco, Inc. .......................................... 30,000 1,597,500
-----------
3,253,850
-----------
OIL-OFFSHORE DRILLING 2.7%
Nabors Industries, Inc. (a) ........................... 89,000 3,699,062
-----------
OIL-WELL EQUIPMENT & SERVICES 1.0%
Halliburton Co. ....................................... 29,000 1,368,438
-----------
TOTAL ENERGY ..................................................... 11,661,794
-----------
FINANCIAL SERVICES 18.2%
BANKS 12.2%
Chase Manhattan Corp. ................................. 61,860 2,849,426
First Union Corp. (N.C.) .............................. 44,800 1,111,600
Firstar Corp. ......................................... 37,200 783,525
FleetBoston Financial Corp. ........................... 77,197 2,624,698
PNC Bank Corp. ........................................ 69,700 3,267,188
Washington Mutual, Inc. ............................... 150,550 4,347,131
Wells Fargo Co. ....................................... 44,000 1,705,000
-----------
16,688,568
-----------
CREDIT & FINANCE 1.1%
Household International, Inc. ......................... 23,100 960,094
SLM Holding Corp. ..................................... 15,000 561,562
-----------
1,521,656
-----------
INSURANCE 4.9%
Allstate Corp. ........................................ 23,900 531,775
American General Corp. ................................ 50,000 3,050,000
AXA Financial, Inc. ................................... 45,400 1,543,600
Hartford Financial Services Group ..................... 29,340 1,641,205
-----------
6,766,580
-----------
TOTAL FINANCIAL SERVICES ......................................... 24,976,804
-----------
HEALTH CARE 20.7%
HEALTH SERVICES 18.7%
Cigna Corp. ........................................... 29,900 2,795,650
Foundation Health Systems 'A' (a) ...................... 424,100 5,513,300
HCA-The Healthcare Company ............................ 139,770 4,245,514
HEALTHSOUTH Corp. (a) ................................. 1,048,900 7,538,968
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
HEALTH CARE (CONTINUED)
HEALTH SERVICES (CONTINUED)
Tenet Healthcare Corp. (a) ............................ 205,800 $ 5,556,600
Visteon Corp. (a) ..................................... 7,609 92,262
-----------
25,742,294
-----------
HEALTH TECHNOLOGY 2.0%
Beckman Coulter, Inc. ................................. 46,930 2,739,539
-----------
TOTAL HEALTH CARE ................................................ 28,481,833
-----------
HEAVY INDUSTRY/TRANSPORTATION 14.0%
AEROSPACE 0.1%
General Motors Corp.'H' (a) ........................... 1,077 94,521
-----------
AIR TRANSPORTATION 0.3%
Delta Airlines, Inc. .................................. 10,000 505,625
-----------
ELECTRICAL EQUIPMENT 2.5%
Honeywell International, Inc. ......................... 100,900 3,399,069
-----------
MACHINERY 8.4%
Cooper Industries, Inc. ............................... 36,700 1,195,044
Cummins Engine Co., Inc. .............................. 42,900 1,169,025
Deere & Co. ........................................... 38,600 1,428,200
Eaton Corp. ........................................... 54,700 3,664,900
Ingersoll-Rand Co. .................................... 34,100 1,372,525
Navistar International Corp. (a) ...................... 15,400 478,362
Parker-Hannifin Corp. ................................. 65,125 2,230,531
-----------
11,538,587
-----------
MISCELLANEOUS INDUSTRIALS 2.7%
Dover Corp. ........................................... 37,700 1,529,206
FMC Corp. (a) ......................................... 38,510 2,233,580
-----------
3,762,786
-----------
TOTAL HEAVY INDUSTRY/TRANSPORTATION............................... 19,300,588
-----------
RETAIL 0.7%
APPAREL 0.7%
VF Corp. .............................................. 43,400 1,033,463
-----------
TECHNOLOGY 9.2%
ELECTRONICS 3.6%
Arrow Electronics, Inc. (a) ........................... 43,000 1,333,000
Avnet, Inc. ........................................... 26,400 1,564,200
Motorola, Inc. ........................................ 70,700 2,054,718
-----------
4,951,918
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION SHARES VALUE
<S> <C> <C>
TECHNOLOGY (CONTINUED)
COMPUTERS & OFFICE EQUIPMENT 2.5%
Compaq Computer Corp.................................... 42,700 $ 1,091,519
International Business Machines Corp.................... 14,000 1,533,875
Quantum Corp.-DLT & Storage Systems (a)................. 80,400 778,875
-----------
3,404,269
-----------
SOFTWARE & SERVICES 3.1%
Computer Associates International, Inc.................. 29,500 1,510,031
First Data Corp......................................... 57,300 2,843,513
-----------
4,353,544
-----------
TOTAL TECHNOLOGY........................................ 12,709,731
-----------
UTILITIES 12.7%
ELECTRIC POWER 4.7%
Cinergy Corp............................................ 35,200 895,400
Dominion Resources, Inc................................. 17,400 746,025
Duke Energy Corp........................................ 17,300 975,287
Edison International.................................... 39,600 811,800
FPL Group, Inc.......................................... 15,200 752,400
PG&E Corp............................................... 33,900 834,787
Southern Co............................................. 33,400 778,638
TXU Corp................................................ 22,400 660,800
-----------
6,455,137
-----------
NATURAL GAS PIPELINES 1.3%
Coastal Corp............................................ 29,900 1,820,163
-----------
TELEPHONE SERVICES 6.7%
Bell Atlantic Corp...................................... 52,100 2,647,331
BellSouth Corp.......................................... 24,700 1,052,838
GTE Corp................................................ 27,600 1,718,100
SBC Communications, Inc................................. 87,700 3,793,025
-----------
9,211,294
-----------
TOTAL UTILITIES........................................ 17,486,594
-----------
TOTAL LONG-TERM INVESTMENTS 99.7%
(Cost $140,473,535)................................ 137,185,852
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
14
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
PAR MARKET
DESCRIPTION VALUE VALUE
<S> <C> <C>
SHORT-TERM INVESTMENT 0.9%
REPURCHASE AGREEMENT 0.9%
Chase Securities, Inc. 6.15%, dated $1,199,000
6/30/00, due 7/3/00, to be repurchased at $1,199,614,
collateralized by $1,275,000 U.S. Treasury Notes 5.50%,
due 5/15/09, valued at $1,228,781
(Cost $1,199,000)................................. $ 1,199,000
-----------
TOTAL INVESTMENTS 100.6%
(Cost $141,672,535)............................... 138,384,852
LIABILITIES IN EXCESS OF OTHER ASSETS -0.6%.......... (835,760)
------------
NET ASSETS 100% ..................................... $137,549,092
============
</TABLE>
(a) NON-INCOME PRODUCING SECURITY
SEE NOTES TO FINANCIAL STATEMENTS
15
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at Value (Cost $141,672,535)............................ $138,384,852
Cash................................................................ 608
Receivable for:
Dividends......................................................... 144,359
Fund Shares Sold.................................................. 90,488
Interest.......................................................... 205
Deferred Organizational Costs....................................... 2,546
Other............................................................... 4,999
------------
Total Assets ..................................................... 138,628,057
------------
LIABILITIES:
Payable for:
Fund Shares Redeemed.............................................. 628,929
Distribution Fees................................................. 164,774
Investment Advisory Fees.......................................... 89,629
Shareholder Reporting Expenses.................................... 60,525
Professional Fees................................................. 38,201
Directors' Fees and Expenses...................................... 35,711
Administrative Fees............................................... 31,421
Transfer Agent Fees............................................... 17,956
Custody Fees...................................................... 11,819
------------
Total Liabilities................................................. 1,078,965
------------
NET ASSETS $137,549,092
============
NET ASSETS CONSIST OF:
Capital Stock at Par ($.001 par value, Shares Authorized 2,625,000,000)$ 15,260
Paid in Capital in Excess of Par.................................... 170,952,250
Accumulated Net Investment Income................................... 4,600
Net Unrealized Depreciation on Investments.......................... (3,287,683)
Accumulated Net Realized Loss....................................... (30,135,335)
------------
NET ASSETS ......................................................... $137,549,092
============
Class A Shares:
Net Asset Value and Redemption Price Per Share (Based on Net Assets
of $52,610,696 and 5,799,087 Shares Outstanding)............... $ 9.07
============
Maximum Sales Charge .......................................... 5.75%
Maximum Offering Price Per Share (Net Asset Value Per
Share x 100/ (100% - maximum sales charge)) ................... $ 9.62
============
Class B Shares:
Net Asset Value and Offering Price Per Share (Based on Net Assets
of $70,353,310 and 7,836,108 Shares Outstanding)*.............. $ 8.98
============
Class C Shares:
Net Asset Value and Offering Price Per Share (Based on Net Assets
of $14,585,086 and 1,625,121 Shares Outstanding)*.............. $ 8.97
============
</TABLE>
* REDEMPTION PRICE MAY BE SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE.
SEE NOTES TO FINANCIAL STATEMENTS
16
<PAGE>
STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Dividends........................................................... $ 3,371,536
Interest............................................................ 171,875
------------
Total Income ..................................................... 3,543,411
------------
EXPENSES:
Investment Advisory Fees............................................ 1,462,823
Distribution Fees (Attributed to Classes A, B and C of $171,983, $939,141
and $202,723, respectively) ...................................... 1,313,847
Administrative Fees................................................. 463,813
Shareholder Reports................................................. 152,512
Transfer Agent Fees................................................. 107,170
Professional Fees................................................... 46,809
Filing and Registration Fees........................................ 33,251
Custodian Fees...................................................... 31,003
Directors' Fees and Expenses........................................ 23,862
Amortization of Organizational Costs................................ 1,266
Other............................................................... 10,342
------------
Total Expenses ................................................ 3,646,698
Less Expense Reductions........................................ (127,565)
------------
Net Expenses .................................................. 3,519,133
------------
NET INVESTMENT INCOME .............................................. $ 24,278
============
NET REALIZED GAIN/LOSS ON:
Investments......................................................... $(20,783,017)
------------
NET UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period........................................... 17,334,342
------------
End of the Period:
Investments.................................................... (3,287,683)
------------
Net Change in Unrealized
Appreciation/Depreciation........................................... (20,622,025)
------------
NET REALIZED GAIN/LOSS AND NET CHANGE IN UNREALIZED
APPRECIATION/DEPRECIATION ..................................... $(41,405,042)
============
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS................ $(41,380,764)
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
17
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 2000 JUNE 30, 1999*
------------- -------------
<S> <C> <C>
INCREASE/DECREASE IN NET ASSETS
OPERATIONS:
Net Investment Income............................... $ 24,278 $ 758,000
Net Realized Loss................................... (20,783,017) (9,132,000)
Net Change in Unrealized Appreciation/Depreciation.. (20,622,025) 16,113,000
------------ -----------
Net Increase/Decrease in Net Assets Resulting
from Operations ................................. (41,380,764) 7,739,000
------------ -----------
DISTRIBUTIONS:
Net Investment Income:
Class A.......................................... (61,414) (601,000)
Class B.......................................... -- (91,000)
Class C.......................................... -- (23,000)
In Excess of Net Investment Income:
Class A.......................................... -- (1,000)
------------ -----------
(61,414) (716,000)
------------ -----------
In Excess of Net Realized Gain:
Class A.......................................... -- (2,049,000)
Class B.......................................... -- (2,409,000)
Class C.......................................... -- (584,000)
------------ -----------
-- (5,042,000)
------------ -----------
Net Decrease in Net Assets Resulting from
Distributions (61,414) (5,758,000)
------------ -----------
CAPITAL SHARE TRANSACTIONS:
Subscribed.......................................... 30,551,699 63,721,000
Distributions Reinvested............................ 57,035 5,042,000
Redeemed............................................ (103,874,481) (134,239,000)
------------ -----------
Net Decrease in Net Assets Resulting from
Capital Share Transactions ...................... (73,265,747) (65,476,000)
------------ -----------
Total Decrease in Net Assets ....................... (114,707,925) (63,495,000)
NET ASSETS--Beginning of Period..................... 252,257,017 315,752,000
------------ -----------
NET ASSETS--End of Period (Including accumulated/
distributions in excess of net investment
income/loss of $4,600 and $(1,000), respectively) $137,549,092 $252,257,000
============ ============
</TABLE>
* AMOUNTS ROUNDED TO THE NEAREST (000).
SEE NOTES TO FINANCIAL STATEMENTS
18
<PAGE>
FINANCIAL HIGHLIGHTS THE FOLLOWING SCHEDULE PRESENTS FINANCIAL
HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, JULY 7, 1997* TO
-------------------
CLASS A SHARES 2000# 1999# JUNE 30, 1998#
------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......... $ 10.88 $ 10.53 $ 10.00
------- ------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income...................... 0.05 0.07 0.11
Net Realized and Unrealized Gain/Loss...... (1.85) 0.51 0.56
------- ------- --------
Total From Investment Operations............. (1.80) 0.58 0.67
------- ------- --------
DISTRIBUTIONS
Net Investment Income...................... (0.01) (0.06) (0.08)
In Excess of Net Investment Income......... -- (0.00)+ (0.01)
Net Realized Gain.......................... -- -- (0.05)
In Excess of Net Realized Gain............. -- (0.17) --
------- ------- --------
Total Distributions.......................... (0.01) (0.23) (0.14)
------- ------- --------
NET ASSET VALUE, END OF PERIOD............... $ 9.07 $ 10.88 $ 10.53
======= ======= ========
TOTAL RETURN (1)............................. (16.56%) 5.83% 6.74%**
======= ======= ========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)............ $52,611 $95,208 $137,447
Ratio of Expenses to Average Net Assets...... 1.45% 1.45% 1.45%
Ratio of Net Investment Income to
Average Net Assets ....................... 0.49% 0.74% 1.02%
Portfolio Turnover Rate...................... 104% 64% 38%**
-----------------------------------------------------------------------------------
Effect of Voluntary Expense Reductions
During the Period
Per Share Benefit to Net Investment Income $0.01 $0.00+ $0.01
Ratios Before Expense Reductions:
Expenses to Average Net Assets............. 1.53% 1.48% 1.60%
Net Investment Income to Average Net Assets 0.41% 0.73% 0.88%
-----------------------------------------------------------------------------------
</TABLE>
* COMMENCEMENT OF OPERATIONS
** NON-ANNUALIZED
+ AMOUNT IS LESS THAN $0.01 PER SHARE.
(1)TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED SALES
CHARGES.
# CHANGES PER SHARE ARE BASED UPON DAILY AVERAGE SHARES OUTSTANDING.
SEE NOTES TO FINANCIAL STATEMENTS
19
<PAGE>
FINANCIAL HIGHLIGHTS THE FOLLOWING SCHEDULE PRESENTS FINANCIAL
HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, JULY 7, 1997* TO
--------------------
CLASS B SHARES 2000# 1999# JUNE 30, 1998#
------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......... $ 10.84 $ 10.51 $ 10.00
------- ------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss................. (0.03) (0.00)+ 0.03
Net Realized and Unrealized Gain/Loss...... (1.83) 0.51 0.56
------- ------- --------
Total From Investment Operations............. (1.86) 0.51 0.59
------- ------- --------
DISTRIBUTIONS
Net Investment Income...................... -- (0.01) (0.03)
In Excess of Net Investment Income......... -- -- (0.00)+
Net Realized Gain.......................... -- -- (0.05)
In Excess of Net Realized Gain............. -- (0.17) --
------- ------- --------
Total Distributions.......................... -- (0.18) (0.08)
------- ------- --------
NET ASSET VALUE, END OF PERIOD............... $ 8.98 $ 10.84 $ 10.51
======= ======= ========
TOTAL RETURN (1)............................. (17.16%) 5.02% 6.01%**
======= ======= ========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)............ $70,353 $127,978 $142,741
Ratio of Expenses to Average Net Assets...... 2.20% 2.20% 2.20%
Ratio of Net Investment Income/Loss to
Average Net Assets ........................ (0.26%) (0.03%) 0.28%
Portfolio Turnover Rate...................... 104% 64% 38%**
-----------------------------------------------------------------------------------
Effect of Voluntary Expense Reductions
During the Period
Per Share Benefit to Net
Investment Income/Loss................... $0.01 $0.00+ $0.01
Ratios Before Expense Reductions:
Expenses to Average Net Assets............. 2.28% 2.23% 2.35%
Net Investment Income/Loss to Average Net Assets (0.34%) (0.05%) 0.14%
-----------------------------------------------------------------------------------
</TABLE>
* COMMENCEMENT OF OPERATIONS
** NON-ANNUALIZED
+ AMOUNT IS LESS THAN $0.01 PER SHARE.
(1)TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED SALES
CHARGES.
# CHANGES PER SHARE ARE BASED UPON DAILY AVERAGE SHARES OUTSTANDING.
SEE NOTES TO FINANCIAL STATEMENTS
20
<PAGE>
FINANCIAL HIGHLIGHTS THE FOLLOWING SCHEDULE PRESENTS FINANCIAL
HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, JULY 7, 1997* TO
--------------------
CLASS C SHARES 2000# 1999# JUNE 30, 1998#
------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......... $ 10.83 $ 10.50 $ 10.00
------- ------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income/Loss................. (0.03) (0.00)+ 0.03
Net Realized and Unrealized Gain/Loss...... (1.83) 0.51 0.55
------- ------- --------
Total From Investment Operations............. (1.86) 0.51 0.58
------- ------- --------
DISTRIBUTIONS
Net Investment Income...................... -- (0.01) (0.03)
In Excess of Net Investment Income......... -- -- (0.00)+
Net Realized Gain.......................... -- -- (0.05)
In Excess of Net Realized Gain............. -- (0.17) --
------- ------- --------
Total Distributions.......................... -- (0.18) (0.08)
------- ------- --------
NET ASSET VALUE, END OF PERIOD............... $ 8.97 $ 10.83 $ 10.50
======= ======= ========
TOTAL RETURN (1)............................. (17.17%) 5.13% 5.83%**
======= ======= ========
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's)............ $14,585 $29,071 $35,564
Ratio of Expenses to Average Net Assets...... 2.20% 2.20% 2.20%
Ratio of Net Investment Income/Loss to
Average Net Assets ........................ (0.29%) (0.02%) 0.29%
Portfolio Turnover Rate...................... 104% 64% 38%**
-----------------------------------------------------------------------------------
Effect of Voluntary Expense Reductions
During the Period
Per Share Benefit to Net
Investment Income/Loss................... $0.01 $0.00+ $0.01
Ratios Before Expense Reductions:
Expenses to Average Net Assets............. 2.28% 2.23% 2.35%
Net Investment Income/Loss to Average Net Assets (0.37%) (0.03%) 0.15%
-----------------------------------------------------------------------------------
</TABLE>
* COMMENCEMENT OF OPERATIONS
** NON-ANNUALIZED
+ AMOUNT IS LESS THAN $0.01 PER SHARE.
(1)TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED SALES
CHARGES.
# CHANGES PER SHARE ARE BASED UPON DAILY AVERAGE SHARES OUTSTANDING.
SEE NOTES TO FINANCIAL STATEMENTS
21
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
The Van Kampen Value Fund (the "Fund") is organized as a separate
diversified fund of Van Kampen Series Fund, Inc., a Maryland corporation, which
is registered as an open-end management investment company under the Investment
Company Act of 1940, as amended. The Fund's investment objective seeks to
achieve above-average total return over a market cycle of three to five years,
consistent with reasonable risk, by investing primarily in a diversified
portfolio of common stocks and other equity securities which are deemed by the
Fund's investment adviser to be relatively undervalued based upon various
measures such as price-to-earnings ratios and price-to-book ratios. The Fund
commenced operations on July 7, 1997.
1. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of the financial statements in conformity with accounting principles
accepted in the United States of America (hereafter "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 period. Actual results
could differ from those estimates.
A. SECURITY VALUATION Equity securities listed on a U.S. exchange and equity
securities traded on NASDAQ are valued at the latest quoted sales price on the
valuation date. Unlisted securities and listed securities not traded on the
valuation date for which market quotations are readily available are valued at
the average between the bid and asked prices obtained from reputable brokers.
Debt securities purchased with remaining maturities of 60 days or less are
valued at amortized cost, which approximates market value. All other securities
and assets for which market quotations are not readily available are valued at
fair value as determined in good faith using procedures approved by the Board of
Directors.
B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen Investment Advisory Corp. or its affiliates, the
daily aggregate of which is invested in repurchase agreements. Repurchase
agreements are fully collateralized by the underlying debt security. A bank as
custodian for the Fund takes possession of the
22
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
underlying securities, with a market value at least equal to the amount of the
repurchase transaction, including principal and accrued interest. To the extent
that any repurchase transaction exceeds one business day, the value of the
collateral is marked-to-market on a daily basis to determine the adequacy of the
collateral. In the event of default on the obligation to repurchase, the Fund
has the right to liquidate the collateral and apply the proceeds in satisfaction
of the obligation. In the event of default or bankruptcy by the counterparty to
the agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
C. INCOME AND EXPENSES Interest income is recorded on an accrual basis and
dividend income is recorded net of applicable withholding taxes on the
ex-dividend date. Income, expenses, and realized and unrealized gains or losses
are allocated on a pro rata basis to each class of shares except for
distribution and service fees which are unique to each class of shares.
Distributions from the Fund are recorded on the ex-distribution date.
D. ORGANIZATIONAL COSTS The organizational costs of the Fund are being amortized
on a straight line basis over the 60 month period ending July 6, 2002 beginning
with the Fund's commencement of operations. The Adviser has agreed that in the
event any of its initial shares of the Fund originally purchased by Van Kampen
are redeemed by the Fund during the amortization period, the Fund will be
reimbursed for any unamortized organization costs in the same proportion as the
number of shares redeemed bears to the number of initial shares held at the time
of redemption.
E. 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.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At June 30, 2000, the Fund had an accumulated capital loss carryforward
for tax purposes of $11,748,872, which will expire between June 30, 2007 and
June 30, 2008. Net realized gains or losses may differ for financial and tax
reporting purposes as a result of post October 31 losses which are not
recognized for tax purposes until the first day of the following fiscal year and
losses relating to wash sale transactions.
At June 30, 2000, for federal income tax purposes, cost of long- and
short-term investments is $144,124,492, the aggregate gross unrealized
appreciation is $8,663,864 and the aggregate gross unrealized depreciation is
$14,403,504, resulting in net unrealized depreciation on long- and short-term
investments of $5,739,640.
23
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
F. 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 which are included as ordinary income for
tax purposes.
Due to inherent differences in the recognition of income and expenses under
generally accepted accounting principles and federal income tax purposes,
permanent differences between book and tax basis reporting for the current
fiscal year have been identified and appropriately reclassified. A permanent
difference related to the recognition of certain expenses that are not
deductible for tax purposes totaling $1,263 were reclassified from paid in
capital in excess of par to accumulated net investment income. A permanent
difference of $41,665 related to a correction of the prior year net operating
loss was reclassified from accumulated net realized loss to accumulated net
investment income. A permanent difference of $60 related to a correction of
prior year amounts was reclassified from paid in capital in excess of par to
accumulated net realized loss.
Permanent book to tax basis differences are not included in ending
undistributed/distributions in excess of net investment income for the purpose
of calculating net investment income/loss per share in the Financial Highlights.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES Van
Kampen Investment Advisory Corp. (the "Adviser"), a wholly owned subsidiary of
Van Kampen Investments Inc. (an indirect wholly owned subsidiary of Morgan
Stanley Dean Witter & Co.) and Miller Anderson & Sherrerd LLP (a "Subadviser"),
a wholly owned subsidiary of Morgan Stanley Dean Witter & Co., provide the Fund
with investment advisory services at a fee paid monthly and calculated at the
annual rates based on average daily net assets indicated as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
<S> <C>
First $500 million ....................... .80 of 1%
Next $500 million ........................ .75 of 1%
Over $1 billion .......................... .70 of 1%
</TABLE>
The Adviser has agreed to reduce advisory fees payable to it and to
reimburse the Fund, if necessary, if the annual operating expenses, expressed as
a percentage of average daily net assets, exceed the maximum ratios indicated as
follows:
<TABLE>
<CAPTION>
CLASS B
CLASS A AND CLASS C
MAX. OPERATING MAX. OPERATING
EXPENSE RATIO EXPENSE RATIO
<S> <C>
1.45% 2.20%
</TABLE>
24
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
For the period ended June 30, 2000, the Adviser voluntarily waived $127,565
of its investment advisory fees. This waiver is voluntary in nature and can be
discontinued at the Adviser's discretion.
For the period ended June 30, 2000, the Fund recognized expenses of $13,113
representing legal services provided by Skadden, Arps, Slate, Meagher & Flom
(Illinois), counsel to the Fund, of which a director of the Fund is an
affiliated person.
For the period ended June 30, 2000, the Fund recognized expenses of $8,301
representing Van Kampen's cost of providing legal services to the Fund.
Van Kampen Investment Advisory Corp. (the "Administrator") also provides
the Fund with administrative services pursuant to an administrative agreement
for a monthly fee which on an annual basis equals 0.25% of the average daily net
assets of the Fund, plus reimbursement of out-of-pocket expenses. Under an
agreement between the Adviser and The Chase Manhattan Bank ("Chase"), through
its corporate affiliate Chase Global Funds Services Company ("CGFSC"), Chase
provides certain administrative services to the Fund. Chase is compensated for
such services by the Adviser from the fee it receives from the Fund. Transfer
Agency services are provided to the Fund by Van Kampen Investor Services Inc.,
an affiliate of the Adviser.
Van Kampen Funds Inc. (the "Distributor") a wholly owned subsidiary of Van
Kampen Investments Inc., an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co., serves as the Distributor of the Fund's shares. The
Distributor is entitled to receive from the Fund a distribution fee, which is
accrued daily and paid quarterly, of an amount of up to 0.25% of the Class A
shares and up to 1.00% of the Class B shares and Class C shares of the Fund, on
an annualized basis, of the average daily net assets attributable to each Class.
The Distributor may receive a front end sales charge for purchases of Class
A shares. In addition, the Distributor may receive a contingent deferred sales
charge for certain redemptions of Class B shares and Class C shares of the Fund
redeemed within one to five years following such purchase. For the period ended
June 30, 2000, the Distributor has advised the Fund that it earned initial sales
charges of $188,000 for Class A shares and deferred sales charges of $650,399
and $5,595 for Class B shares and Class C shares, respectively.
Certain officers and directors of the Fund are also officers and directors
of Van Kampen. The Fund does not compensate its officers or directors who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
directors who are not officers of Van Kampen. Under the deferred compensation
plan, directors 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 director's years of service to the Fund. The maximum
annual benefit per director under the plan is $2,500.
25
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
For the period ended June 30, 2000, the Fund incurred $9,708 as brokerage
commissions with Morgan Stanley & Co. Incorporated, an affiliated broker/dealer.
3. CAPITAL TRANSACTIONS
The Fund currently offers three classes of shares, Class A, Class B, and Class C
shares. All three classes of shares have identical voting, dividend, liquidation
and other rights. Class A shares are sold with a front-end sales charge of up to
5.75%. For certain purchases of Class A shares, the front-end sales charge may
be waived and a contingent deferred sales charge ("CDSC") of 1.00% imposed in
the event of certain redemptions within one year of the purchase. Class B and
Class C shares are offered without a front end sales charge, but are subject to
a 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. For the period ended June 30, 2000, no Class B shares
converted to Class A shares. The CDSC will be imposed on most redemptions made
within five years of the purchase for Class B shares and one year of the
purchase for Class C shares as detailed in the following schedule:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE ON ASSETS SUBJECT TO
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
Thereafter ..................................... None None
</TABLE>
26
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 2000 JUNE 30, 1999*
------------ -------------
<S> <C> <C>
CAPITAL SHARE TRANSACTIONS
CLASS A:
Shares:
Subscribed ............................... 1,644,231 2,585,000
Distributions Reinvested ................. 6,323 259,000
Redeemed ................................. (4,598,654) (7,154,000)
------------ -------------
Net Decrease in Class A Shares Outstanding . (2,948,100) (4,310,000)
============ =============
Dollars:
Subscribed ............................... $ 15,329,439 $ 24,777,000
Distributions Reinvested ................. 57,035 2,427,000
Redeemed ................................. (42,747,253) (69,185,000)
------------ -------------
Net Decrease ............................... $(27,360,779) $ (41,981,000)
============ =============
Ending Paid in Capital ..................... $ 64,879,338+ $ 92,241,000+
============ =============
Class B:
Shares:
Subscribed ............................... 1,248,877 3,052,000
Distributions Reinvested ................. -- 225,000
Redeemed ................................. (5,220,030) (5,046,000)
------------ -------------
Net Decrease in Class B Shares Outstanding . (3,971,153) (1,769,000)
============ =============
Dollars:
Subscribed ............................... $ 11,612,302 $ 29,487,000
Distributions Reinvested ................. -- 2,115,000
Redeemed ................................. (47,873,105) (48,333,000)
------------ -------------
Net Decrease ............................... $(36,260,803) $ (16,731,000)
============ =============
Ending Paid in Capital ..................... $ 87,382,253+ $ 123,644,000+
============ =============
Class C:
Shares:
Subscribed ............................... 382,726 988,000
Distributions Reinvested ................. -- 53,000
Redeemed ................................. (1,441,518) (1,743,000)
------------ -------------
Net Decrease in Class C Shares
Outstanding .............................. (1,058,792) (702,000)
============ =============
Dollars:
Subscribed ............................... $ 3,609,958 $ 9,457,000
Distributions Reinvested ................. -- 500,000
Redeemed ................................. (13,254,123) (16,721,000)
------------ -------------
Net Decrease ............................... $ (9,644,165) $ (6,764,000)
============ =============
Ending Paid in Capital ..................... $ 18,707,242+ $ 28,352,000+
============ =============
</TABLE>
* AMOUNTS ROUNDED TO THE NEAREST (000).
+ ENDING PAID IN CAPITAL AMOUNTS DO NOT REFLECT PERMANENT BOOK TO TAX
DIFFERENCES--SEE NOTE 1F.
27
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
4. INVESTMENT TRANSACTIONS
For the period ended June 30, 2000, the Fund made purchases of $189,112,672 and
sales of $261,414,406 of investment securities other than long-term U.S.
government securities and short-term investments. There were no purchases or
sales of long-term U.S. government securities.
5. 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 into a $650 million committed line of credit facility
with a group of banks which expires on November 28, 2000, but is renewable with
the consent of the participating banks. Each fund is permitted to utilize the
facility in accordance with the restrictions of its prospectus. In the event the
demand for the credit facility meets or exceeds $650 million on a complex-wide
basis, each fund will be limited to its pro-rata percentage based on the net
assets of each participating fund. Interest on borrowings is charged under the
agreement at a rate of 0.50% above the federal funds rate per annum. An annual
commitment fee of 0.09% per annum is charged on the unused portion of the credit
facility, which each fund incurs based on its pro-rata percentage of quarterly
net assets. The Fund has not borrowed against the credit facility during the
period.
28
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and
Shareholders of Van Kampen
Value Fund
We have audited the accompanying statement of assets and liabilities of Van
Kampen Value Fund (the "Fund"), a fund of Van Kampen Series Fund, Inc.,
including the portfolio of investments, as of June 30, 2000, and the related
statements of operations, changes in net assets and the financial highlights for
the year then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit. The Fund's financial statements and financial highlights for the periods
ended prior to June 30, 2000, were audited by other auditors whose report, dated
August 6, 1999, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of June 30, 2000, by correspondence with the Fund's
custodian and brokers; where replies were not received from brokers, we
performed other auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen Value Fund as of June 30, 2000, the results of its operations, the
changes in its net assets and the financial highlights for the year then ended,
in conformity with accounting principles generally accepted in the United States
of America.
DELOITTE & TOUCHE LLP
Chicago, Illinois
August 11, 2000
29
<PAGE>
VAN KAMPEN FUNDS
THE VAN KAMPEN
FAMILY OF FUNDS
GROWTH
Aggressive Growth
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth
Mid Cap Growth
Pace
Select Growth
Small Cap Value
Tax Managed Equity Growth
Technology
GROWTH AND INCOME
Comstock
Equity Income
Growth and Income
Harbor
Real Estate Securities
Utility
Value
GLOBAL/INTERNATIONAL
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
International Magnum
Latin American
Strategic Income
Tax Managed Global Franchise
Worldwide High Income
INCOME
Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return*
Limited Maturity Government
U.S. Government
U.S. Government Trust for Income
CAPITAL PRESERVATION
Reserve
Tax Free Money
SENIOR LOAN
Prime Rate Income Trust
Senior Floating Rate
TAX FREE
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal**
Insured Tax Free Income
Intermediate Term
Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
To find out more about any of these funds, ask your financial advisor for a
prospectus, which contains more complete information, including sales charges,
risks, and ongoing expenses. Please read it carefully before you invest or send
money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- visit our Web site at www.vankampen.com -- to view a prospectus, select
DOWNLOAD PROSPECTUS [GRAPHIC]
- 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.
[GRAPHIC]
- e-mail us by visiting www.vankampen.com and selecting CONTACT US [GRAPHIC]
* Closed to new investors
**Open to new investors for a limited time
30
<PAGE>
FUND OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN VALUE FUND
BOARD OF DIRECTORS
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*
Chairman, Director, President,
Chief Executive Officer
STEPHEN L. BOYD*
Executive Vice President and
Chief Investment Officer
A. THOMAS SMITH III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Chief Financial Officer
and Treasurer
RICHARD A. CICCARONE*
JOHN R. REYNOLDSON*
MICHAEL H. SANTO*
JOSEPH P. STADLER*
JOHN H. ZIMMERMANN, III*
Vice Presidents
INVESTMENT ADVISER AND
ADMINISTRATOR
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
INVESTMENT SUBADVISERS
MORGAN STANLEY DEAN WITTER INVESTMENT
MANAGEMENT INC.
1221 Avenue of the Americas
New York, New York 10020
MILLER ANDERSON & SHERRERD, LLP
One Tower Bridge
West Conshohocken,
Pennsylvania 19428
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
CUSTODIAN
THE CHASE MANHATTAN BANK
3 MetroTech Center
Brooklyn, New York 11245
DIVIDEND DISBURSING AND
TRANSFER AGENT
VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 218256
Kansas City, Missouri 64121-8256
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT AUDITORS
DELOITTE & TOUCHE LLP
180 N. Stetson Avenue
Chicago, IL 60601
--------------------------------------------------------------------------------
The following information is furnished with respect to the distributions paid by
the Fund during its taxable year ended June 30, 2000. For corporate shareholders
100% of the distribution qualifies for the dividends received deduction.
--------------------------------------------------------------------------------
* "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.
31
<PAGE>
RESULTS OF
SHAREHOLDER VOTES
JUNE 30, 2000
A Joint Special Meeting of the Shareholders of the Value Fund (the "Fund") was
held on December 15, 1999. The description of each proposal and number of shares
voted are as follows:
1. To elect the following Directors to serve the Fund.
<TABLE>
<CAPTION>
VOTED FOR WITHHELD
<S> <C> <C>
J. Miles Branagan 14,157,042 136,356
Jerry D. Choate 14,155,562 137,836
Linda Hutton Heagy 14,155,863 137,535
R. Craig Kennedy 14,157,042 136,356
Mitchell M. Merin 14,155,381 138,017
Jack E. Nelson 14,157,042 136,356
Richard F. Powers, III 14,156,977 136,421
Phillip B. Rooney 14,157,042 136,356
Fernando Sisto 14,157,042 136,356
Wayne W. Whalen 14,157,042 136,356
Suzanne H. Woolsey 14,154,855 138,543
Paul G. Yovovich* 14,157,042 136,356
</TABLE>
*EFFECTIVE APRIL 14, 2000, PAUL G. YOVOVICH RESIGNED FROM THE BOARD OF
DIRECTORS.
2. To ratify PricewaterhouseCoopers LLP to act as independent public accountants
for the Fund.(1)
<TABLE>
<CAPTION>
AFFIRMATIVE AGAINST ABSTAIN
<S> <C> <C> <C>
14,194,436 34,072 64,889
</TABLE>
(1)INDEPENDENT ACCOUNTANTS FOR THE FUND PERFORM AN ANNUAL AUDIT OF THE FUND'S
FINANCIAL STATEMENTS. THE BOARD OF DIRECTORS HAS ENGAGED DELOITTE & TOUCHE LLP
TO BE THE FUND'S INDEPENDENT ACCOUNTANTS.
PricewaterhouseCoopers LLP, located at 200 East Randolph Drive, Chicago, IL
60601 ("PWC"), ceased being the Fund's independent accountants effective May 18,
2000. The cessation of the client-auditor relationship between the Fund and PWC
was based solely on a possible future business relationship by PWC with an
affiliate of the Fund's investment adviser.
32
<PAGE>
467, 567, 667 -------------
MSVL ANR 08/00 PRESORTED
VAN KAMPEN FUNDS INC. STANDARD
1 Parkview Plaza U.S. Postage
P.O. Box 5555 PAID
Oakbrook Terrace, Illinois 60181-5555 VAN KAMPEN
FUNDS
-------------
<PAGE>
VAN KAMPEN
WORLDWIDE
HIGH INCOME FUND
ANNUAL REPORT
JUNE 30, 2000
[GRAPHIC]
VAN KAMPEN
FUNDS
<PAGE>
TABLE OF CONTENTS
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 4
GROWTH OF A $10,000 INVESTMENT 5
PORTFOLIO AT A GLANCE
TOP TEN HOLDINGS 6
TOP FIVE COUNTRIES 6
Q&A WITH YOUR PORTFOLIO MANAGERS 7
GLOSSARY OF TERMS 10
BY THE NUMBERS
YOUR FUND'S INVESTMENTS 11
FINANCIAL STATEMENTS 21
NOTES TO FINANCIAL STATEMENTS 27
REPORT OF INDEPENDENT AUDITORS 37
VAN KAMPEN FUNDS
THE VAN KAMPEN FAMILY OF FUNDS 38
FUND OFFICERS AND IMPORTANT ADDRESSES 39
RESULTS OF SHAREHOLDER VOTES 40
IT IS TIMES
LIKE THESE
WHEN MONEY-
MANAGEMENT
EXPERIENCE
MAY MAKE
A DIFFERENCE.
--------------------------------------------------------------------
NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE.
--------------------------------------------------------------------
<PAGE>
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.
OVERVIEW
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,
/s/ Richard F. Powers, III
Richard F. Powers, III
President and CEO
Van Kampen Investments
1
<PAGE>
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>
U.S. GROSS DOMESTIC PRODUCT
SEASONALLY ADJUSTED ANNUALIZED RATES
(JUNE 30, 1998 - JUNE 30, 2000)
[CHART]
<TABLE>
<CAPTION>
<S> <C>
Jun-98 2.1%
Sep-98 3.8%
Dec-98 5.9%
Mar-99 3.5%
Jun-99 2.5%
Sep-99 5.7%
Dec-99 8.3%
Mar-00 4.8%
Jun-00 5.2%
</TABLE>
SOURCE: BUREAU OF ECONOMIC ANALYSIS
INTEREST RATES AND INFLATION
(JUNE 30, 1998 - JUNE 30, 2000)
[CHART]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
<S> <C> <C>
Jun-98 5.500 1.70
Jul-98 5.500 1.70
Aug-98 5.500 1.60
Sep-98 5.250 1.50
Oct-98 5.000 1.50
Nov-98 4.750 1.50
Dec-98 4.750 1.60
Jan-99 4.750 1.70
Feb-99 4.750 1.60
Mar-99 4.750 1.70
Apr-99 4.750 2.30
May-99 4.750 2.10
Jun-99 5.000 2.00
Jul-99 5.000 2.10
Aug-99 5.250 2.30
Sep-99 5.250 2.60
Oct-99 5.250 2.60
Nov-99 5.500 2.60
Dec-99 5.500 2.70
Jan-00 5.500 2.70
Feb-00 5.750 3.20
Mar-00 6.000 3.70
Apr-00 6.000 3.00
May-00 6.500 3.10
Jun-00 6.500 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>
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(AS OF JUNE 30, 2000)
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
----------------------------------------------------------------------------------
<S> <C> <C> <C>
One-year total return based on NAV(1) 11.39% 10.58% 10.57%
----------------------------------------------------------------------------------
One-year total return(2) 6.13% 6.58% 9.57%
----------------------------------------------------------------------------------
Five-year average annual total return(2) 8.70% N/A 8.91%
----------------------------------------------------------------------------------
Life-of-Fund average annual total return(2) 8.62% 8.60% 8.64%
----------------------------------------------------------------------------------
Commencement date 4/21/94 8/1/95 4/21/94
----------------------------------------------------------------------------------
Distribution rate(3) 10.47% 10.26% 10.26%
----------------------------------------------------------------------------------
SEC Yield(4) 13.31% 12.53% 12.53%
----------------------------------------------------------------------------------
</TABLE>
N/A = Not Applicable
(1) ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS FOR THE PERIOD AND DOES NOT
INCLUDE PAYMENT OF THE MAXIMUM SALES CHARGE (4.75% 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 4% 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 (4.75% 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 4% 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) DISTRIBUTION RATE REPRESENTS THE MONTHLY ANNUALIZED DISTRIBUTIONS OF THE
FUND AT THE END OF THE PERIOD AND NOT THE EARNINGS OF THE FUND.
(4) SEC YIELD IS A STANDARDIZED CALCULATION PRESCRIBED BY THE SECURITIES AND
EXCHANGE COMMISSION FOR DETERMINING THE AMOUNT OF NET INCOME A PORTFOLIO
SHOULD THEORETICALLY GENERATE FOR THE 30-DAY PERIOD ENDING JUNE 30, 2000.
SEE THE COMPARATIVE PERFORMANCE SECTION OF THE CURRENT PROSPECTUS. 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.
INVESTING IN HIGH-YIELD, LOWER RATED SECURITIES INVOLVES CERTAIN RISKS,
WHICH MAY INCLUDE THE POTENTIAL FOR GREATER SENSITIVITY TO GENERAL ECONOMIC
DOWNTURNS AND GREATER MARKET PRICE VOLATILITY.
FOREIGN SECURITIES MAY MAGNIFY VOLATILITY DUE TO CHANGES IN FOREIGN EXCHANGE
RATES, THE POLITICAL AND ECONOMIC UNCERTAINTIES IN FOREIGN COUNTRIES, AND
THE POTENTIAL LACK OF LIQUIDITY, GOVERNMENT SUPERVISION, AND REGULATION.
MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO PASS.
4
<PAGE>
GROWTH OF A $10,000 INVESTMENT
(APRIL 21, 1994 - JUNE 30, 2000)
[CHART]
<TABLE>
<CAPTION>
Worldwide High Income
Blended Index REFLECTS
THE PERFORMANCE OF
SECURITIES BY COMBINING WORLDWIDE HIGH
VARIOUS COMPANY INDEXES. INCOME FUND
------------------------ --------------
<S> <C> <C>
4/94 $9,500 $10,000
6/94 $9,797 $9,741
6/95 $10,470 $10,738
6/96 $12,524 $12,802
6/97 $16,318 $16,431
6/98 $16,859 $18,606
6/99 $14,980 $18,563
6/00 $15,898 $20,148
<CAPTION>
<S> <C>
Fund's Total Return
1 Year Total Return 6.13%
5 Year Avg. Annual 8.70%
Inception Avg. Annual 8.62%
</TABLE>
THIS CHART COMPARES YOUR FUND'S PERFORMANCE TO THAT OF THE WORLDWIDE HIGH INCOME
BLENDED INDEX OVER TIME.
THIS IS AN UNMANAGED BROAD-BASED, STATISTICAL COMPOSITE THAT DOES NOT INCLUDE
ANY COMMISSIONS OR FEES THAT WOULD BE PAID BY AN INVESTOR PURCHASING THE
SECURITIES IT REPRESENTS. SUCH COSTS WOULD LOWER THE PERFORMANCE OF THIS INDEX.
THE HISTORICAL PERFORMANCE OF THE INDEX IS SHOWN FOR ILLUSTRATIVE PURPOSES ONLY;
IT IS NOT MEANT TO FORECAST, IMPLY, OR GUARANTEE THE FUTURE PERFORMANCE OF ANY
INVESTMENT VEHICLE. IT IS NOT POSSIBLE TO INVEST DIRECTLY IN AN INDEX.
THE ABOVE CHART REFLECTS THE PERFORMANCE OF CLASS A SHARES OF THE FUND. THE
PERFORMANCE OF CLASS A SHARES WILL DIFFER FROM THAT OF OTHER SHARE CLASSES OF
THE FUND BECAUSE OF THE DIFFERENCE IN SALES CHARGES AND/OR EXPENSES PAID BY
SHAREHOLDERS INVESTING IN THE DIFFERENT SHARE CLASSES. THE FUND'S PERFORMANCE
ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS, AND INCLUDES PAYMENT OF THE MAXIMUM
SALES CHARGE (4.75% FOR CLASS A SHARES).
WHILE PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THE ABOVE INFORMATION
PROVIDES A BROADER VANTAGE POINT FROM WHICH TO EVALUATE THE DISCUSSION OF THE
FUND'S PERFORMANCE FOUND IN THE FOLLOWING PAGES.
5
<PAGE>
PORTFOLIO AT A GLANCE
TOP TEN HOLDINGS
(AS A PERCENTAGE OF NET ASSETS--JUNE 30, 2000)
<TABLE>
<S> <C>
Government of Russia 12.75% Coupon, 6/24/28 Maturity ............. 3.5%
-------------------------------------------------------------------------
Nextel Communications, Inc. 0.00% Coupon, 9/15/07 Maturity ....... 2.9%
-------------------------------------------------------------------------
Federated Republic of Brazil 12.25% Coupon, 3/6/30 Maturity ...... 2.6%
-------------------------------------------------------------------------
United Mexican States Discount Bonds 0.00%, 12/31/19 ............. 2.3%
-------------------------------------------------------------------------
Government of Russia 10.00% Coupon, 6/26/07 Maturity ............. 2.2%
-------------------------------------------------------------------------
CIA International Telecommunications 10.375% Coupon,
8/1/04 Maturity .............................................. 2.0%
-------------------------------------------------------------------------
Republic of Philippines 10.625% Coupon, 3/16/25 Maturity ......... 2.0%
-------------------------------------------------------------------------
Republic of Colombia 11.75% Coupon, 2/25/20 Maturity ............. 1.9%
-------------------------------------------------------------------------
Banco Nacional Desenv Econo 12.554% Coupon,
6/16/08 Maturity ............................................. 1.8%
-------------------------------------------------------------------------
Winstar Communications, Inc. 0.00% Coupon, 4/15/10 Maturity ...... 1.8%
-------------------------------------------------------------------------
</TABLE>
TOP FIVE COUNTRIES
(AS A PERCENTAGE OF NET ASSETS)
[CHART]
<TABLE>
<CAPTION>
June 30, 2000 June 30, 2000
<S> <C> <C>
United States 39.5% 32.7%
Brazil 10.9% 11.2%
Mexico 7.8% 12.1%
Argentina 7.7% 12.0%
Russia 5.7% 2.0%
</TABLE>
6
<PAGE>
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH THE MANAGEMENT TEAM OF THE VAN KAMPEN WORLDWIDE HIGH
INCOME FUND ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE MARKETS AND
INFLUENCED THE FUND'S RETURN DURING THE 12 MONTHS ENDED JUNE 30, 2000. THE TEAM
IS LED BY ROBERT ANGEVINE, SENIOR PORTFOLIO MANAGER, MORGAN STANLEY DEAN WITTER
INVESTMENT MANAGEMENT, WHO HAS MANAGED THE FUND SINCE APRIL 1994 AND HAS WORKED
IN THE INVESTMENT INDUSTRY SINCE 1975. HE IS JOINED BY PORTFOLIO MANAGERS
STEPHEN F. ESSER, GORDON W. LOERY, AND ABIGAIL L. MCKENNA. 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 The environment for global high-yield securities was mixed during the
period. In the United States, the high-yield sector was undermined by the
Federal Reserve Board's aggressive approach to slowing the red-hot American
economy. The Fed raised rates six times between June 1999 and June 2000. The
Fed's credit tightening moves hurt the domestic high-yield market by pushing
bond prices downward and by raising concerns about the impact of slower economic
growth on high-yield default rates.
Also, demand for U.S. high-yield securities was negatively impacted by net
redemptions from high-yield mutual funds. During the first five months of 2000,
almost $4 billion was withdrawn from high-yield funds.* We believe that the
redemptions were primarily the result of investors seeking higher returns in
portions of the domestic stock market.
Overseas, conditions were more favorable. A recovery in commodity
prices--especially oil--helped to support solid economic recoveries in many
developing countries. In addition, the upgrade of Mexican debt to the
"investment-grade" class was positive for both Mexican bonds and for the entire
emerging-market asset class.
The fund generated a total return of 11.39 percent for the 12-month period
ended June 30, 2000 (CLASS A SHARES AT NET ASSET VALUE; IF THE MAXIMUM SALES
CHARGE OF 4.75 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 WORLDWIDE HIGH INCOME BLENDED INDEX GENERATED A TOTAL
RETURN OF 8.54 PERCENT FOR THE SAME PERIOD. THIS BENCHMARK IS COMPRISED OF 50
PERCENT CREDIT SUISSE FIRST BOSTON HIGH YIELD INDEX, 25 PERCENT J.P. MORGAN
LATIN EUROBOND INDEX, AND 25 PERCENT J.P. MORGAN EMERGING MARKETS BOND INDEX
PLUS. THIS INDEX DOES NOT REFLECT ANY COMMISSIONS OR FEES THAT WOULD BE PAID BY
AN INVESTOR PURCHASING THE SECURITIES IT REPRESENTS. SUCH COSTS WOULD LOWER THE
PERFORMANCE OF THE INDEX. IT IS NOT
* Source: BARRON'S, July, 2000.
7
<PAGE>
POSSIBLE TO INVEST DIRECTLY IN AN INDEX. PAST PERFORMANCE IS NO GUARANTEE OF
FUTURE RESULTS. Please refer to the chart and footnotes on page 4 for additional
fund performance results.
Q WHAT HAPPENED TO HIGH-YIELD SECURITIES DURING THIS TIME?
A As the period began, yields on emerging-market debt were extremely generous
relative to those in the United States, primarily because the asset class had
not yet fully recovered from the steep decline that accompanied the global
financial crisis in 1998. Those attractive yields--combined with improving
economic fundamentals--sparked a sharp rally in emerging-market debt during the
first nine months of the period.
By this spring, the yield differential between U.S. and emerging-market
bonds had narrowed to more normal levels. Russia was the top-performing emerging
market during the period, as Russian bonds recovered from the depressed level
that prevailed following the country's debt default in August 1998. Brazilian
bonds also performed well, as evidence accumulated that an economic recovery was
underway in that country.
In the United States, high-yield bonds suffered from the effects of rising
interest rates and high default rates. With an economic slowdown on the horizon,
investors worried that defaults would increase further. As a result, the yield
differential or "spread" between Treasury and high-yield securities widened
substantially during the period.
While it is normal for credit spreads to widen while the Fed is raising
interest rates, some of the underperformance of high-yield bonds was the result
of the government's plan to pay down the national debt through the buyback of
Treasury securities. Such buybacks reduce the amount of Treasury debt
outstanding, thus making existing Treasury bonds more valuable. As a result,
investors rushed to purchase these remaining Treasuries, causing other portions
of the fixed-income market to suffer by comparison.
Q HOW DID YOU MANAGE THE FUND IN LIGHT OF THESE CONDITIONS?
A An important part of the fund's strategy is the allocation between U.S.
high-yield and emerging-market bonds. As the period began, the fund was
overweighted in emerging-market debt, given our view that such bonds were
extremely cheap. During the second half of 1999, the fund averaged a 57 percent
weighting in emerging-market debt, or about 7 percent more than the fund's
benchmark, the Worldwide High Income Blended Index. In March, we reduced the
weighting in emerging-market debt to about 50 percent of fund assets after the
sector lost its relative price advantage to U.S. high-yield bonds. With regard
to country allocations, the fund was modestly overweighted in Mexico, Colombia,
and the Philippines, and it held small overweight positions in Brazil and
Russia.
Within the U.S. high-yield market, we maintained an existing overweight
position in the telecommunications sector. Late in the period, we added to our
position in telecommunications issues after the group corrected amid a decline
in the NASDAQ stock market this spring.
8
<PAGE>
The fund also remained overweighted in cable, gaming, and health-care bonds.
As always, we believe that success in the domestic high-yield market is
primarily the result of vigilant credit analysis. In that regard, we are pleased
to note that the fund's default rate was significantly below the average for the
high-yield sector.
Q HOW DID THE FUND'S STRATEGIES CONTRIBUTE TO PERFORMANCE?
A The fund's overweighted position in emerging-market debt during the last
half of 1999 contributed positively to its return relative to its peers, as
bonds overseas outperformed their U.S. counterparts. Also, our overweight
position in domestic telecommunications bonds aided relative performance, as did
the fund's ability to avoid significant credit problems in its portfolio.
Q WHAT IS YOUR OUTLOOK FOR THE NEXT SIX MONTHS?
A We are optimistic about the outlook for high-yield securities in the United
States and in emerging markets. Yields in the United States are at the highest
level in more than 10 years, and we believe that spreads more than compensate
for default risk. Also, the balance between the supply and demand of U.S.
high-yield bonds is likely to improve. Historically, periods of rising defaults
have been followed by periods of rising issuance. We also expect that U.S.
investors will reacquire their appetite for bonds in general--and high-yield
debt in particular--as returns from the stock market fall back to more
sustainable levels.
Overseas, we believe that emerging-market bonds will benefit from a
continuation of the trend toward credit upgrades, political liberalization, and
economic recovery. Accordingly, the fund is positioned to move to an
overweighted position in emerging-market debt, as conditions warrant. On a
longer-term basis, we expect emerging-market bonds to slightly outperform their
U.S. counterparts.
9
<PAGE>
GLOSSARY OF TERMS
A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.
BOND: A debt security issued by a government or corporation that pays a
bondholder a stated rate of interest and repays the principal at the maturity
date.
CLASS A SHARES: A division of mutual fund shares, which are generally divided
into three groupings, called Class A, Class B, and Class C shares. The specific
features of each are dependent on varying fees and sales charges. In most cases,
Class A shares will have no redemption fee (contingent deferred sales charge).
EMERGING MARKETS: The financial markets of developing economies. Many Latin
American and Asian countries are considered emerging markets.
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.
INVESTMENT-GRADE BONDS: Securities rated BBB and above by Standard & Poor's or
Baa and above by Moody's Investors Service. Bonds rated below BBB or Baa are
noninvestment grade.
NET ASSET VALUE (NAV): The value of a mutual fund share, calculated by
deducting a fund's liabilities from the total assets in its portfolio and
dividing this amount by the number of shares outstanding. The NAV does not
include any initial or contingent deferred sales charge.
SALES CHARGE: Also referred to as the load, this is a fee paid by a buyer to
acquire shares in a mutual fund or a limited partnership.
YIELD SPREAD: The additional yield investors can earn by either investing
in bonds with longer maturities or by investing in bonds with lower ratings. The
spread is the difference in yield between bonds with short versus long
maturities or the difference in yield between high-quality bonds and
lower-quality bonds.
10
<PAGE>
BY THE NUMBERS
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
THE FOLLOWING PAGES DETAIL YOUR FUND'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.
<TABLE>
<CAPTION>
PAR MARKET
DESCRIPTION VALUE VALUE
<S> <C> <C>
CORPORATE BONDS & NOTES 59.7%
ARGENTINA 4.0%
Acindar Industry Argentina 11.25%, 2/15/04 ........... $1,170,000 $ 772,200
Cablevision S.A. 13.75%, 5/1/09 (b) .................. 1,100,000 1,003,750
CIA International Telecommunications
10.375%, 8/1/04 .................................. ARP3,842,000 3,373,177
CTI Holdings 0.00%, 4/15/08 .......................... $1,275,000 734,719
Multicanal S.A. 13.125%, 4/15/09 ..................... 945,000 916,282
-----------
6,800,128
-----------
AUSTRALIA 0.5%
Glencore Nickel Property Ltd. 9.00%, 12/1/14 ......... 220,000 185,900
Murrin Murrin Holdings 9.375%, 8/31/07 ............... 745,000 648,150
-----------
834,050
-----------
BRAZIL 1.8%
Banco Nacional Desenv Econo 12.554%, 6/16/08 (c) ..... 3,300,000 3,102,000
-----------
CANADA 0.3%
GT Group Telecom 0.00%, 2/1/10 (b,d) ................. 950,000 527,250
-----------
COLOMBIA 0.8%
Occidente Y Caribe 0.00%, 3/15/04 (d) ................ 2,000,000 1,420,000
-----------
DENMARK 0.7%
Callahan Nordrhein Corp. 14.00%, 7/15/10 (b) ......... 1,200,000 1,200,000
-----------
INDIA 0.2%
Reliance Industries, Inc. 10.50%, 8/6/46 (b) ......... 400,000 369,800
-----------
INDONESIA 1.2%
Indah Kiat International, Series B, 11.875%, 6/15/02 . 300,000 243,000
Tjiwi Kimia International BV 13.25%, 8/1/01 .......... 2,000,000 1,760,000
-----------
2,003,000
-----------
KOREA 0.9%
Hyundai Semiconductor 8.625%, 5/15/07 (b) ............ 1,800,000 1,503,792
-----------
LUXEMBOURG 0.8%
PTC International Finance BV 11.25%, 12/1/09 (b) ..... EUR1,100,000 1,064,916
Sirona Dental Systems 9.125%, 7/15/08 (b) ............ 319,557 249,931
-----------
1,314,847
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
PAR MARKET
DESCRIPTION VALUE VALUE
<S> <C> <C>
MEXICO 5.1%
Maxcom Telecomunicaciane 13.75%, 4/1/07 (b) .......... $ 675,000 $ 599,063
Nuevo Grupo Elektra S.A. 12.00%, 4/1/08 (b) .......... 1,750,000 1,592,500
Nueve Grupo Iusacell S.A. 14.25%, 12/1/06 ............ 1,100,000 1,133,000
Petro Mexicanos 9.50%, 9/15/27 ....................... 1,350,000 1,368,563
Sanluis Corp. S.A. 8.875%, 3/18/08 (b) ............... 2,850,000 2,607,750
TV Azteca S.A. 10.125%, 2/15/04 ...................... 1,500,000 1,389,375
-----------
8,690,251
-----------
NETHERLANDS 3.4%
Hermes Europe Railtel BV 10.375%, 1/15/09 ............ 500,000 416,250
Hermes Europe Railtel BV
11.50%, 8/15/07 Senior Notes ..................... 975,000 848,250
Netia Holdings II B.V. 13.50%, 6/15/09 ............... EUR1,900,000 1,812,216
Paiton Energy Funding 9.34%, 2/15/14 (b) ............. $1,100,000 220,000
Tele 1 Europe BV 13.00%, 5/15/09 (b) ................. EUR 875,000 847,092
United Pan-Europe Communications
10.875%, 8/1/09 .................................. $1,825,000 1,601,438
-----------
5,745,246
-----------
PHILIPPINES 1.0%
Bayan Telecommunications 13.50%, 7/15/06 (b) ......... 2,550,000 1,606,500
-----------
QUATAR 0.1%
Ras Laffan Liquid National Gas 8.294%, 3/15/14 (b) ... 250,000 233,815
-----------
TURKEY 0.7%
Cellco Finance 15.00%, 8/1/05 (b) .................... 1,040,000 1,118,000
-----------
UNITED KINGDOM 2.0%
Colt Telecom Group plc 7.625%, 7/31/08 ............... EUR 963,785 845,716
Dolphin Telecommunications plc 0.00%, 6/1/08 (d) ..... 940,000 322,765
Dolphin Telecommunications plc 0.00%, 5/15/09 (d) .... $1,350,000 479,250
Esprit Telecommunications Group plc
11.00%, 6/15/08 .................................. EUR 664,679 469,138
HMV Media Group, Inc., Series B,
10.875%, 5/15/08 ................................. GBP 620,000 656,511
RSL Communications plc 0.00%, 6/15/08 (d) ............ EUR1,610,569 652,867
-----------
3,426,247
-----------
UNITED STATES 36.2%
Adelphia Communications, Series B, 7.75%, 1/15/09 .... $ 750,000 631,875
Adelphia Communications, Series B, 8.375%, 2/1/08 .... 600,000 531,000
Adelphia Communications, Series B, 9.875%, 3/1/07 .... 800,000 768,000
AMSC ASQ Co., Inc., Series B, 12.25%, 4/1/08 ......... 885,000 668,175
CA FM Lease Trust 8.50%, 7/15/17 (b) ................. 896,900 827,202
Centex Corp. 9.75%, 6/15/05 .......................... 625,000 632,700
Chancellor Media Corp. 9.00%, 10/1/08 ................ 425,000 432,438
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
PAR MARKET
DESCRIPTION VALUE VALUE
<S> <C> <C>
UNITED STATES (CONTINUED)
Chancellor Media Corp., Series B, 8.125%, 12/15/07 ... $1,365,000 $ 1,371,825
Charter Communications Holdings 10.25%, 1/15/10 ...... 835,000 807,236
D.R. Horton, Inc. 8.00%, 2/1/09 ...................... 510,000 441,150
DR Securitized Lease Trust, Series 1993-K1, Class A1,
6.66%, 8/15/10 ................................... 716,486 599,341
DR Securitized Lease Trust, Series 1994-K1,
7.60%, 8/15/07 ................................... 812,579 741,088
DR Securitized Lease Trust, Series 1994-K1,
8.375%, 8/15/15 .................................. 250,000 204,723
Echostar DBS Corp. 9.375%, 2/1/09 .................... 800,000 774,000
EES Coke Battery Co., Inc. 9.382%, 4/15/07 (b) ....... 300,000 283,158
Exodus Communications, Inc. 11.625%, 7/15/10 (b) ..... 660,000 663,300
Global Crossing Holdings Ltd. 9.625%, 5/15/08 ........ 2,480,000 2,411,800
Globalstar LP/Capital 11.375%, 2/15/04 ............... 770,000 219,450
Globalstar LP/Capital 11.50%, 6/1/05 ................. 125,000 34,375
Globix Corp. 12.50%, 2/1/10 .......................... 575,000 477,250
Hayes Lemmerz International, Inc. 8.25%, 12/15/08 .... 2,115,000 1,787,175
HCA-The Healthcare Corp. 7.69%, 6/15/25 .............. 1,910,000 1,555,829
HCA-The Healthcare Corp. 8.13%, 8/4/03 ............... 85,000 82,636
HCA-The Healthcare Corp. 8.85%, 1/1/07 ............... 1,325,000 1,298,275
Hilton Hotels 7.95%, 4/15/07 ......................... 930,000 871,196
HMH Properties, Inc., Series A, 7.875%, 8/1/05 ....... 900,000 828,000
Horseshoe Gaming Holdings 8.625%, 5/15/09 ............ 2,100,000 1,974,000
Huntsman ICI Chemicals 10.125%, 7/1/09 (b) ........... EUR1,150,000 1,099,610
Intermedia Communications, Series B,
0.00%, 7/15/07 (d) ............................... $3,100,000 2,419,922
International Game Technology 8.375%, 5/15/09 ........ 950,000 903,004
Jet Equipment Trust, Series 1995-D,
11.44%, 11/1/14 (b) .............................. 300,000 330,729
Jet Equipment Trust, Series C-1,
11.79%, 6/15/13 (b) .............................. 300,000 336,843
Lennar Corp. 9.95%, 5/1/10 (b) ....................... 515,000 504,700
Level 3 Communications, Inc. 9.125%, 5/1/08 .......... 3,050,000 2,737,375
Lyondell Chemical Co. 9.625%, 5/1/07 ................. 530,000 524,700
Musicland Group, Inc. 9.00%, 6/15/03 ................. 500,000 455,000
Musicland Group, Inc. 9.875%, 3/15/08 ................ 950,000 793,250
Nextel Communications, Inc. 0.00%, 9/15/07 (d) ....... 6,355,000 4,980,731
NEXTLINK Communications, Inc.
0.00%, 4/15/08 (d) ............................... 3,425,000 2,157,750
NEXTLINK Communications, Inc. 10.75%, 11/15/08 ....... 735,000 731,325
NSM Steel, Ltd. 12.25%, 2/1/08 (b,f) ................. 525,000 525
NTL, Inc. 0.00%, 4/1/08 (d) .......................... GBP1,500,000 1,395,465
Oil Purchase Co. 7.10%, 4/30/02 (b) .................. $ 129,942 123,751
OnePoint Communications Corp. 14.50%, 6/1/08 ......... 735,000 367,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
PAR MARKET
DESCRIPTION VALUE VALUE
<S> <C> <C>
UNITED STATES (CONTINUED)
Park Place Entertainment 7.875%, 12/15/05 ............ $ 640,000 $ 600,000
Park Place Entertainment 8.50%, 11/15/06 ............. 325,000 319,326
Primus Telecommunications Group 11.25%, 1/5/09 ....... 330,000 268,950
Primus Telecommunications Group, Series B,
9.875%, 5/15/08 .................................. 700,000 542,500
PSINet, Inc., Series B, 10.00%, 2/15/05 .............. 470,000 437,100
PSINet, Inc., Series B, 11.00%, 8/1/09 ............... 1,805,000 1,701,213
RCN Corp. 0.00%, 10/15/07 (d) ........................ 2,610,000 1,618,200
Rhythms Netconnections, Inc., Series B,
0.00%, 5/15/08 (b,d) ............................. 2,130,000 873,300
RSL Communications Ltd. 9.125%, 3/1/08 ............... 1,340,000 871,000
RSL Communications Ltd. 12.25%, 11/15/06 ............. 35,000 28,000
Station Casinos, Inc. 9.75%, 4/15/07 ................. 985,000 985,000
Station Casinos, Inc. 10.125%, 3/15/06 ............... 750,000 759,375
Tenet Healthcare Corp. 8.125%, 12/1/08 ............... 500,000 457,500
Tenet Healthcare Corp. 8.625%, 1/15/07 ............... 1,000,000 950,000
Tenneco, Inc. 11.625%, 10/15/09 ...................... 675,000 599,063
TNP Enterprises, Inc. 14.50%, 4/1/11 ................. 80,000 792,000
USA Waste Services 7.125%, 10/1/07 ................... 825,000 753,184
USA Waste Services 7.125%, 12/15/17 .................. 200,000 165,916
Viatel, Inc., Series A, 0.00%, 4/15/08 (d) ........... 1,900,000 874,000
Vintage Petroleum 8.625%, 2/1/09 ..................... 450,000 429,750
Wam!Net, Inc., Series B, 0.00%, 3/1/05 (d) ........... 1,890,000 1,058,400
Waste Management, Inc. 7.65%, 3/15/11 ................ 235,000 214,644
Winstar Communications, Inc. 0.00%, 4/15/10 (b) ...... 6,485,000 2,983,100
WMX Technologies, Inc. 7.00%, 10/15/06 ............... 535,000 493,522
XM Satellite Radio, Inc. 14.00%, 3/15/10 (b) ......... 700,000 612,500
-----------
61,166,920
-----------
TOTAL CORPORATE BONDS & NOTES
(Cost $114,158,454) ................................................. 101,061,846
-----------
ASSET BACKED SECURITIES 0.7%
UNITED STATES 0.7%
Commercial Financial Services, Inc., Series 1997-5,
Class A1, 7.72%, 6/15/05 ......................... 857,314 214,329
Long Beach Acceptance Auto Grantor Trust,
Series 1997-1, Class B, 14.22%, 10/26/03 ......... 111,409 110,878
OHA Grantor Trust 11.00%, 9/15/03 (b) ................ 895,291 855,084
-----------
TOTAL ASSET BACKED SECURITIES
(Cost $1,868,835) ................................................... 1,180,291
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
14
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
PAR MARKET
DESCRIPTION VALUE VALUE
<S> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS 1.0%
UNITED STATES 1.0%
Aircraft Lease Portfolio Securitization Ltd.,
Series 1996-1, Class DX, 12.75%, 6/15/06 ......... $ 601,851 $ 577,801
DLJ Mortgage Acceptance Corp., Series 1997-CF2,
Class S, IO, 0.00%, 10/15/17 (c) ................. 35,928,783 718,935
DR Structured Finance, Series 1994-K2,
9.35%, 8/15/19 ................................... 150,000 130,872
Federal Mortgage Acceptance Corp.,
Series 1996-B, Class C, 7.883%, 11/1/18 (b) ...... 534,716 181,809
-----------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $1,849,509) ................................................... 1,609,417
-----------
EUROBOND 1.3%
ARGENTINA 1.3%
Republic of Argentina, Series L, 0.00%, 3/31/05 (c)
(Cost $2,304,214) ................................ 2,472,000 2,256,936
-----------
FOREIGN GOVERNMENT & AGENCY OBLIGATIONS 31.3%
ARGENTINA 2.4%
Province of Buenos Aires 13.25%, 3/19/10 ............. 1,400,000 1,316,000
Republic of Argentina 11.75%, 4/7/09 ................. 2,090,000 1,947,358
Republic of Argentina 11.75%, 6/15/15 ................ 840,000 764,400
-----------
4,027,758
-----------
BRAZIL 9.1%
Federated Republic of Brazil 14.50%, 10/15/09 ........ 2,123,000 2,248,788
Federated Republic of Brazil 12.25%, 3/6/30 .......... 4,800,000 4,392,000
Federated Republic of Brazil Discount Bond,
7.375%, 4/15/24 (c) .............................. 2,300,000 1,819,875
Federated Republic of Brazil Debt Conversion Bond,
Series Z-L, 0.00%, 4/15/24 (d) ................... 700,000 457,844
Federated Republic of Brazil Debt Conversion Bond,
Series Z-L, 7.438%, 4/15/12 (c) .................. 2,280,000 1,680,788
Federated Republic of Brazil, Series C,
PIK, 8.00%, 4/15/14 .............................. 2,258,406 1,638,756
Federated Republic of Brazil, Series E1,
7.375%, 4/15/06 (c) .............................. 1,534,500 1,399,272
Federated Republic of Brazil, Series L,
8.00%, 4/15/14 ................................... 1,108,269 804,188
Federated Republic of Brazil, Series NMB-L,
7.438%, 4/15/09 (c) .............................. 1,200,000 1,005,000
-----------
15,446,511
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
15
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
PAR MARKET
DESCRIPTION VALUE VALUE
<S> <C> <C>
BULGARIA 1.6%
Republic of Bulgaria 7.063%, 7/28/11 (c) ............. $1,750,000 $ 1,389,063
Republic of Bulgaria Discount Bond, Series A,
7.063%, 7/28/24 (c) .............................. 1,650,000 1,307,625
-----------
2,696,688
-----------
COLOMBIA 2.8%
Republic of Colombia 13.58%, 8/13/05 (c) ............. 626,000 597,830
Republic of Colombia 9.75%, 4/23/09 .................. 1,150,000 905,625
Republic of Colombia 11.75%, 2/25/20 ................. 4,000,000 3,290,000
-----------
4,793,455
-----------
ECUADOR 0.3%
Republic of Ecuador Discount Bond
6.75%, 2/28/25 (c,f) ............................. 1,230,000 488,925
-----------
IVORY COAST 0.2%
Ivory Coast 2.00%, 3/29/18 (c) ....................... 1,850,000 296,000
-----------
JORDAN 0.4%
Government of Jordan 7.75%, 12/23/23 (b,c) ........... 828,000 641,700
-----------
MEXICO 2.7%
United Mexican States 7.50%, 3/8/10 (b) .............. 800,000 736,332
United Mexican States Discount Bonds
0.00%, 12/31/19 (c) .............................. 3,900,000 3,831,750
-----------
4,568,082
-----------
PANAMA 0.2%
Republic of Panama Past Due Interest, PIK
7.063%, 7/17/16 (d) .............................. 492,053 406,558
-----------
PERU 1.6%
Republic of Peru Front Loaded Interest Reduction Bond
3.75%, 3/7/17 (b,d) .............................. 1,450,000 880,875
Republic of Peru Front Loaded Interest Reduction Bond
3.75%, 3/7/17 (d) ................................ 3,040,000 1,846,800
-----------
2,727,675
-----------
PHILIPPINES 3.0%
Republic of Philippines 9.875%, 1/15/19 .............. 2,000,000 1,640,000
Republic of Philippines 10.625%, 3/16/25 ............. 3,900,000 3,347,565
-----------
4,987,565
-----------
RUSSIA 5.7%
Government of Russia 10.00%, 6/26/07 ................. 4,800,000 3,714,000
Government of Russia 12.75%, 6/24/28 ................. 6,850,000 5,950,938
-----------
9,664,938
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
16
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
PAR MARKET
DESCRIPTION VALUE VALUE
<S> <C> <C>
VENEZUELA 1.3%
Republic of Venezuela 6.75%, 3/31/20 ................. $1,200,000 $ 840,000
Republic of Venezuela 9.25%, 9/15/27 ................. 1,200,000 791,700
Republic of Venezuela Discount Bond, Series L,
0.00%, 12/18/07 (c) .............................. 714,280 580,576
-----------
2,212,276
-----------
TOTAL FOREIGN GOVERNMENT & AGENCY OBLIGATIONS
(Cost $51,281,626) .................................................. 52,958,131
-----------
LOAN AGREEMENTS 1.8%
ALGERIA 1.0%
Republic of Algeria 0.00%, 3/31/10 (c) ............... 300,000 247,125
Republic of Algeria 0.00%, 3/31/10 (c) ............... 1,950,000 1,516,125
-----------
1,763,250
-----------
MOROCCO 0.8%
Kingdom of Morocco 7.75%, 1/1/09 (c) ................. 1,514,105 1,362,695
-----------
TOTAL LOAN AGREEMENTS
(Cost $3,068,055) ................................................... 3,125,945
-----------
<CAPTION>
SHARES
<S> <C> <C>
COMMON STOCK 0.1%
SWEDEN 0.1%
Tele 1 Europe AB ADR (a) (Cost $0) ................... 16,443 198,344
-----------
PREFERRED STOCKS 1.5%
UNITED STATES 1.5%
IXC Communications, Inc. PIK 12.50% .................. 762 761,587
Kmart Financing 7.75% ................................ 9,350 341,275
NEXTLINK Communications, Inc. 10.75% (a) ............. 7,165 709,355
Paxson Communications 13.25% (a) ..................... 7,872 755,712
-----------
TOTAL PREFERRED STOCKS
(Cost $2,198,187) ................................................... 2,567,929
-----------
<CAPTION>
NO. OF
RIGHTS
<S> <C> <C>
RIGHTS 0.0%
MEXICO 0.0%
United Mexican States Par Bond
7.313%, 6/30/03 (a,c) (Cost $0) .................. 5,999,000 --
-----------
<CAPTION>
NO. OF
WARRANTS
<S> <C> <C>
WARRANTS 0.1%
COLOMBIA 0.0%
Occidente Y Caribe, expiring 3/15/04 (a,b) ........... 80,000 30,000
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
NO. OF MARKET
DESCRIPTION WARRANTS VALUE
<S> <C> <C>
UNITED STATES 0.1%
Motient Corp., expiring 4/1/08 (a,b) ............... 8,850 $ 30,975
NSM Steel, Inc., expiring 2/1/08 (a,b) ............. 3,323,743 3,324
OnePoint Communications Corp., expiring 6/1/08 (a).. 7,350 14,700
Wam!Net, Inc., expiring 3/1/05 (a) ................. 22,500 24,750
-----------
73,749
-----------
TOTAL WARRANTS
(Cost $52,000) ...................................................... 103,749
-----------
TOTAL LONG-TERM INVESTMENTS 97.5%
(Cost $176,780,880) ................................................. 165,062,588
-----------
<CAPTION>
PAR
VALUE
<S> <C> <C>
SHORT-TERM INVESTMENTS 3.2%
REPURCHASE AGREEMENT 1.6%
Chase Securities, Inc. 6.15%, $ 2,622,000
dated 6/30/00, due 7/3/00, to be repurchased
at $2,623,344, collateralized by $2,780,000
U.S. Treasury Notes 5.50%, due 5/15/09,
valued at $2,679,225 .................................................... 2,622,000
-----------
STRUCTURED INVESTMENT 0.6% - SEE NOTE 5C
Turkey Linked Structured Note, 8/7/00 .............. 1,000,000 1,042,500
-----------
Treasury Bills 1.0%
Republic of Turkey, Series 14T, 8/23/00 ............ TRL1,124,150,000,000 1,601,861
United States Treasury Bill, 7/27/00 (e) ........... $ 100,000 99,641
-----------
1,701,502
-----------
TOTAL SHORT-TERM INVESTMENTS
(Cost $5,627,334) ................................................... 5,366,002
-----------
TOTAL INVESTMENTS 100.7%
(Cost $182,408,214) ................................................. 170,428,590
LIABILITIES IN EXCESS OF OTHER ASSETS - 0.7% ........................... (1,150,097)
-----------
NET ASSETS 100% ........................................................ $169,278,493
============
</TABLE>
(a) NON-INCOME PRODUCING SECURITY
(b) 144A SECURITY-CERTAIN CONDITIONS FOR PUBLIC SALE MAY EXIST.
(c) VARIABLE/FLOATING RATE SECURITY-RATE DISCLOSED JUNE 30, 2000.
(d) STEP BOND-COUPON RATE INCREASES IN INCREMENTS TO MATURITY. RATE DISCLOSED
IS AS OF JUNE 30, 2000. MATURITY DATE DISCLOSED IS THE ULTIMATE MATURITY
DATE.
SEE NOTES TO FINANCIAL STATEMENTS
18
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
(e) SECURITY SEGREGATED AS COLLATERAL FOR OUTSTANDING FUTURES CONTRACTS.
(f) BOND IS IN DEFAULT.
ADR--AMERICAN DEPOSITARY RECEIPT
ARP--ARGENTINE PESO
EUR--EURO
GBP--BRITISH POUND
IO--INTEREST ONLY
PIK--PAYMENT-IN-KIND. INCOME MAY BE RECEIVED IN ADDITIONAL SECURITIES OR CASH AT
THE DISCRETION OF THE ISSUER.
TRL--TURKISH LIRA
SEE NOTES TO FINANCIAL STATEMENTS
19
<PAGE>
YOUR FUND'S INVESTMENTS
JUNE 30, 2000
SUMMARY OF LONG-TERM INVESTMENTS BY INDUSTRY CLASSIFICATION+
<TABLE>
<CAPTION>
PERCENT OF
INDUSTRY VALUE NET ASSETS
<S> <C> <C>
Foreign Government &
Agency Obligations ................ $52,958,131 31.3%
Telecommunications .................. 47,867,667 28.3
Media & Entertainment ............... 11,453,804 6.8
Finance ............................. 6,853,657 4.0
Industrial .......................... 5,921,670 3.5
Cable Television .................... 5,246,371 3.1
Retail .............................. 4,407,987 2.6
Health Care ......................... 4,344,240 2.5
Capital Equipment ................... 4,111,542 2.4
Loan Agreements ..................... 3,125,945 1.8
Collateralized Mortgage Obligations &
Asset Backed Securities ........... 2,789,708 1.7
Eurobond ............................ 2,256,936 1.3
Metals .............................. 1,893,257 1.1
Packaging ........................... 1,760,000 1.0
Hotel/Lodging ....................... 1,699,196 1.0
Chemicals ........................... 1,624,310 1.0
Consumer Services ................... 1,592,500 0.9
Multi-Industry ...................... 1,200,000 0.7
Materials ........................... 1,137,400 0.7
Energy .............................. 1,007,316 0.6
Utilities ........................... 792,000 0.5
Transportation ...................... 577,801 0.4
Real Estate ......................... 441,150 0.3
------------ ----
$165,062,588 97.5%
============ ====
</TABLE>
+ CLASSIFIED BY SECTORS WHICH REPRESENT BROAD GROUPINGS OF RELATED INDUSTRIES.
SEE NOTES TO FINANCIAL STATEMENTS
20
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
JUNE 30, 2000
<TABLE>
<S> <C>
ASSETS:
Investments at Value (Cost $182,408,214) ..................................................... $170,428,590
Margin Deposit on Futures .................................................................... 114,681
Cash ......................................................................................... 29,746
Receivable for:
Interest .................................................................................. 3,539,749
Investments Sold .......................................................................... 3,059,026
Fund Shares Sold .......................................................................... 457,829
Variation Margin of Futures Contracts ..................................................... 24,555
Foreign Withholding Tax Reclaim ........................................................... 8,865
Other ........................................................................................ 9,333
------------
Total Assets ........................................................................... 177,672,374
------------
LIABILITIES:
Payable for:
Investments Purchased ..................................................................... 6,200,162
Dividends Declared ........................................................................ 1,459,141
Distribution Fees ......................................................................... 222,508
Fund Shares Redeemed ...................................................................... 162,719
Investment Advisory Fees .................................................................. 103,265
Shareholder Reporting Expenses ............................................................ 54,420
Professional Fees ......................................................................... 47,963
Administrative Fees ....................................................................... 35,614
Directors' Fees and Expenses .............................................................. 35,248
Custody Fees .............................................................................. 17,009
Transfer Agent Fees ....................................................................... 13,671
Net Realized Loss on Foreign Currency Exchange Contracts ..................................... 41,602
Other ........................................................................................ 559
------------
Total Liabilities ...................................................................... 8,393,881
------------
NET ASSETS ................................................................................... $169,278,493
============
NET ASSETS CONSIST OF:
Capital Stock at Par ($.001 par value, Shares Authorized 2,625,000,000) ...................... $ 17,097
Paid in Capital in Excess of Par ............................................................. 245,910,432
Accumulated Net Investment Income ............................................................ 1,381,930
Net Unrealized Depreciation on Investments, Foreign
Currency Translations and Futures ......................................................... (11,940,145)
Accumulated Net Realized Loss ................................................................ (66,090,821)
-------------
NET ASSETS ................................................................................... $169,278,493
============
Class A Shares:
Net Asset Value and Redemption Price Per Share (Based on Net Assets
of $44,932,193 and 4,524,584 Shares Outstanding) ....................................... $ 9.93
============
Maximum Sales Charge.................................................................... 4.75%
Maximum Offering Price Per Share (Net Asset Value
Per Share x 100/(100% - maximum sales charge)) ........................................ $ 10.43
============
Class B Shares:
Net Asset Value and Offering Price Per Share (Based on Net Assets of
$90,872,413 and 9,188,545 Shares Outstanding)* ......................................... $ 9.89
============
Class C Shares:
Net Asset Value and Offering Price Per Share (Based on Net Assets of
$33,473,887 and 3,384,036 Shares Outstanding)* ......................................... $ 9.89
============
</TABLE>
* REDEMPTION PRICE MAY BE SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE.
SEE NOTES TO FINANCIAL STATEMENTS
21
<PAGE>
Statement of Operations
YEAR ENDED JUNE 30, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends ................................................................... $ 64,922
Interest .................................................................... 24,148,962
-----------
24,213,884
-----------
EXPENSES:
Distribution Fees (Attributed to Classes A, B and C of
$125,696, $996,735 and $363,072, respectively) ........................... 1,485,503
Investment Advisory Fees .................................................... 1,396,416
Administrative Fees ......................................................... 473,300
Country Tax Expense ......................................................... 243,144
Shareholder Reports ......................................................... 146,361
Transfer Agent Fees ......................................................... 73,911
Professional Fees ........................................................... 59,857
Filing and Registration Fees ................................................ 42,513
Custodian Fees .............................................................. 41,705
Directors' Fees and Expenses ................................................ 26,883
Other ....................................................................... 9,983
-----------
Total Expenses ........................................................ 3,999,576
-----------
NET INVESTMENT INCOME ....................................................... $20,214,308
===========
NET REALIZED GAIN/LOSS ON:
Investments ................................................................. $ 8,379,886
Foreign Currency Transactions ............................................... (370,652)
Futures ..................................................................... 117,593
-----------
Net Realized Gain ........................................................... 8,126,827
-----------
NET UNREALIZED APPRECIATION/DEPRECIATION:
Beginning of the Period .................................................. (3,139,531)
-----------
End of the Period:
Investments ........................................................... (11,979,624)
Foreign Currency Translations ......................................... (42,816)
Futures ............................................................... 82,295
-----------
(11,940,145)
-----------
Net Change in Unrealized Appreciation/Depreciation
During the Period ........................................................ (8,800,614)
-----------
NET REALIZED GAIN/LOSS AND NET CHANGE IN UNREALIZED
APPRECIATION/DEPRECIATION ................................................ $ (673,787)
===========
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........................ $19,540,521
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
22
<PAGE>
Statement of Changes In Net Assets
YEAR ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 2000 JUNE 30, 1999*
------------- --------------
<S> <C> <C>
INCREASE/DECREASE IN NET ASSETS
OPERATIONS:
Net Investment Income ..................................................... $ 20,214,308 $ 23,252,000
Net Realized Gain/Loss .................................................... 8,126,827 (75,712,000)
Net Change in Unrealized Appreciation/Depreciation ....................... (8,800,614) 11,553,000
------------ -------------
Net Increase/Decrease in Net Assets Resulting from
Operations ............................................................ 19,540,521 (40,907,000)
------------ -------------
DISTRIBUTIONS:
Net Investment Income:
Class A ............................................................... (5,203,356) (7,573,000)
Class B ............................................................... (9,648,540) (11,681,000)
Class C ............................................................... (3,503,053) (4,723,000)
------------ -------------
(18,354,949) (23,977,000)
------------ -------------
In Excess of Net Realized Gain:
Class A ............................................................... -- (42,000)
Class B ............................................................... -- (70,000)
Class C ............................................................... -- (29,000)
------------ -------------
-- (141,000)
------------ -------------
Net Decrease in Net Assets Resulting from Distributions ................... (18,354,949) (24,118,000)
------------ -------------
CAPITAL SHARE TRANSACTIONS:
Subscribed ................................................................ 31,012,606 83,177,000
Distributions Reinvested .................................................. 10,327,074 13,759,000
Redeemed .................................................................. (79,382,125) (123,953,000)
------------ -------------
Net Decrease in Net Assets Resulting from
Capital Share Transactions ............................................ (38,042,445) (27,017,000)
------------ -------------
Total Decrease in Net Assets .............................................. (36,856,873) (92,042,000)
NET ASSETS--Beginning of Period ........................................... 206,135,366 298,177,000
------------ -------------
NET ASSETS--End of Period (Including accumulated net
investment income of $1,381,930 and $357,000,
respectively) ............................................................. $169,278,493 $206,135,000
============ ============
</TABLE>
* AMOUNTS ROUNDED TO THE NEAREST (000).
SEE NOTES TO FINANCIAL STATEMENTS
23
<PAGE>
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------
CLASS A SHARES 2000# 1999# 1998# 1997 1996
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD ............................... $ 9.90 $ 12.46 $ 14.26 $ 12.47 $ 11.57
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income ...................... 1.14 1.06 1.15 1.25 1.36
Net Realized and
Unrealized Gain/Loss .................... (0.06) (2.51) (0.67) 2.30 0.80
------- ------- ------- ------- -------
Total From Investment Operations.............. 1.08 (1.45) 0.48 3.55 2.16
------- ------- ------- ------- -------
DISTRIBUTIONS
Net Investment Income....................... (1.05) (1.10) (1.09) (1.25) (1.26)
Net Realized Gain........................... -- -- (1.19) (0.51) --
In Excess of Net Realized Gain.............. -- (0.01) -- -- --
------- ------- ------- ------- -------
Total Distributions........................... (1.05) (1.11) (2.28) (1.76) (1.26)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD................ $ 9.93 $ 9.90 $ 12.46 $ 14.26 $ 12.47
======= ======= ======= ======= =======
TOTAL RETURN (1).............................. 11.39% (11.14%) 3.40% 30.29% 19.61%
======= ======= ======= ======= =======
RATIOS AND SUPPLEMENTAL DATA
Net assets, End of Period (000's)............. $44,932 $58,506 $91,579 $76,439 $41,493
Ratio of Expenses to Average
Net Assets ................................. 1.60% 1.45% 1.45% 1.52% 1.55%
Ratio of Net Investment Income to
Average Net Assets ......................... 11.41% 10.55% 8.36% 9.73% 11.95%
Portfolio Turnover Rate ...................... 119% 121% 156% 157% 220%
--------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Reductions
During the Period
Per Share Benefit to Net Investment
Income ................................... $ -- $ -- $ -- $ -- $ 0.02
Ratios Before Expense Reductions:
Expenses to Average Net Assets ............. -- -- -- -- 1.69%
Net Investment Income to
Average Net Assets ....................... -- -- -- -- 11.81%
Ratio of Net Expenses to Average
Net Assets excluding country tax
expense and interest expense ............... 1.46% -- -- -- --
--------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED SALES
CHARGES.
# CHANGES PER SHARE ARE BASED UPON DAILY AVERAGE SHARES OUTSTANDING.
SEE NOTES TO FINANCIAL STATEMENTS
24
<PAGE>
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
<TABLE>
<CAPTION>
AUGUST 1,
YEAR ENDED JUNE 30, 1995+ TO
---------------------------------------------- JUNE 30,
CLASS B SHARES 2000# 1999# 1998# 1997 1996
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................................... $ 9.86 $ 12.40 $ 14.20 $ 12.44 $ 11.63
------- -------- -------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income....................... 1.06 0.98 1.04 1.07 1.18
Net Realized and
Unrealized Gain/Loss...................... (0.06) (2.50) (0.65) 2.35 0.72
------- -------- -------- ------- -------
Total From Investment Operations.............. 1.00 (1.52) 0.39 3.42 1.90
------- -------- -------- ------- -------
DISTRIBUTIONS
Net Investment Income....................... (0.97) (1.01) (1.00) (1.15) (1.09)
Net Realized Gain........................... -- -- (1.19) (0.51) --
In Excess of Net Realized Gain.............. -- (0.01) -- -- --
------- -------- -------- ------- -------
Total Distributions........................... (0.97) (1.02) (2.19) (1.66) (1.09)
------- -------- -------- ------- -------
NET ASSET VALUE, END OF PERIOD................ $ 9.89 $ 9.86 $ 12.40 $ 14.20 $ 12.44
======= ======== ======== ======= =======
TOTAL RETURN (1).............................. 10.58% (11.82%) 2.63% 29.14% 17.07%*
======= ======== ======== ======= =======
RATIOS AND SUPPLEMENTAL DATA
Net assets, End of Period (000's)............. $90,872 $107,013 $146,401 $78,340 $26,174
Ratio of Expenses to Average
Net Assets.................................. 2.35% 2.20% 2.20% 2.27% 2.30%
Ratio of Net Investment Income to
Average Net Assets.......................... 10.65% 9.81% 7.64% 8.86% 12.06%
Portfolio Turnover Rate....................... 119% 121% 156% 157% 220%*
------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Reductions
During the Period
Per Share Benefit to Net Investment
Income.................................... $ -- $ -- $ -- $ -- $0.02
Ratios Before Expense Reductions:
Expenses to Average Net Assets.............. -- -- -- -- 2.47%
Net Investment Income to
Average Net Assets........................ -- -- -- -- 11.89%
Ratio of Net Expenses to Average
Net Assets excluding country tax
expense and interest expense.............. 2.21% -- -- -- --
------------------------------------------------------------------------------------------------------------------
</TABLE>
* NON-ANNUALIZED
+ THE FUND BEGAN OFFERING CLASS B SHARES ON AUGUST 1, 1995.
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED SALES
CHARGES.
# CHANGES PER SHARE ARE BASED UPON DAILY AVERAGE SHARES OUTSTANDING.
SEE NOTES TO FINANCIAL STATEMENTS
25
<PAGE>
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIOD INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------
CLASS C SHARES 2000# 1999# 1998# 1997 1996
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................................... $ 9.87 $ 12.40 $ 14.21 $ 12.45 $ 11.58
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income....................... 1.06 0.98 1.04 1.16 1.30
Net Realized and
Unrealized Gain/Loss...................... (0.07) (2.49) (0.66) 2.26 0.77
------- ------- ------- ------- -------
Total From Investment Operations.............. 0.99 (1.51) 0.38 3.42 2.07
------- ------- ------- ------- -------
DISTRIBUTIONS
Net Investment Income....................... (0.97) (1.01) (1.00) (1.15) (1.20)
Net Realized Gain........................... -- -- (1.19) (0.51) --
In Excess of Net Realized Gain.............. -- (0.01) -- -- --
------- ------- ------- ------- -------
Total Distributions........................... (0.97) (1.02) (2.19) (1.66) (1.20)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD................ $ 9.89 $ 9.87 $ 12.40 $ 14.21 $ 12.45
======= ======= ======= ======= =======
TOTAL RETURN (1).............................. 10.57% (11.83%) 2.55% 29.12% 18.71%
======= ======= ======= ======= =======
RATIOS AND SUPPLEMENTAL DATA
Net assets, End of Period (000's)............. $33,474 $40,616 $60,197 $41,709 $28,094
Ratio of Expenses to Average
Net Assets.................................. 2.35% 2.20% 2.20% 2.27% 2.30%
Ratio of Net Investment Income to
Average Net Assets.......................... 10.65% 9.81% 7.62% 9.04% 11.40%
Portfolio Turnover Rate....................... 119% 121% 156% 157% 220%
--------------------------------------------------------------------------------------------------------------------
Effect of Voluntary Expense Reductions
During the Period
Per Share Benefit to Net Investment
Income.................................... $ -- $ -- $ -- $ -- $0.04
Ratios Before Expense Reductions:
Expenses to Average Net Assets.............. -- -- -- -- 2.44%
Net Investment Income to
Average Net Assets........................ -- -- -- -- 11.26%
Ratio of Net Expenses to Average
Net Assets excluding country tax
expense and interest expense................ 2.21% -- -- -- --
--------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) TOTAL RETURN IS CALCULATED EXCLUSIVE OF SALES CHARGES OR DEFERRED SALES
CHARGES.
# CHANGES PER SHARE ARE BASED UPON DAILY AVERAGE SHARES OUTSTANDING.
SEE NOTES TO FINANCIAL STATEMENTS
26
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
The Van Kampen Worldwide High Income Fund (the "Fund") is organized as a
separate non-diversified fund of Van Kampen Series Fund, Inc., a Maryland
corporation, which is registered as an open-end management investment company
under the Investment Company Act of 1940, as amended. The Fund's investment
objective seeks high current income consistent with relative stability of
principal and, secondarily, capital appreciation by investing primarily in a
portfolio of high yielding, high risk fixed income securities of issuers located
throughout the world. The Fund commenced operations on April 21, 1994. The Fund
began offering the current Class B shares on August 1, 1995. Class B shares held
prior to May 1, 1995 were renamed Class C shares.
1. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of the financial statements in conformity with accounting principles
accepted in the United States of America (hereafter "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 period.
Actual results could differ from those estimates.
A. SECURITY VALUATION Equity securities listed on a U.S. exchange and equity
securities traded on NASDAQ are valued at the latest quoted sales price on the
valuation date. Securities listed on a foreign exchange are valued at their
closing price. Unlisted securities and listed securities not traded on the
valuation date for which market quotations are readily available are valued at
the average between the bid and asked prices obtained from reputable brokers.
Bonds and other fixed income securities may be valued according to the broadest
and most representative market. In addition, bonds and other fixed income
securities may be valued on the basis of prices provided by a pricing service
which takes into account institutional size trading in similar groups of
securities. Debt securities purchased with remaining maturities of 60 days or
less are valued at amortized cost, which approximates market value. All other
securities and assets for which market quotations are not readily available are
valued at fair value as determined in good faith using procedures approved by
the Board of Directors.
At June 30, 2000, approximately 84% of the net assets of the Worldwide High
Income Fund consisted of high yield securities rated below investment grade.
Investments in high yield securities are accompanied by a greater degree of
credit risk, and the securities tend to be more sensitive to economic conditions
than higher rated securities. Certain securities may be valued on the basis of
bid prices provided by one principal market maker.
27
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen Investment Advisory Corp. or its affiliates, the
daily aggregate of which is invested in repurchase agreements. Repurchase
agreements are fully collateralized by the underlying debt security. A bank as
custodian for the Fund takes possession of the underlying securities, with a
market value at least equal to the amount of the repurchase transaction,
including principal and accrued interest. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to determine the adequacy of the collateral.
In the event of default on the obligation to repurchase, the Fund has the right
to liquidate the collateral and apply the proceeds in satisfaction of the
obligation. In the event of default or bankruptcy by the counterparty to the
agreement, realization and/or retention of the collateral or proceeds may be
subject to legal proceedings.
C. INCOME AND EXPENSES Interest income is recorded on an accrual basis and
dividend income is recorded net of applicable withholding taxes on the
ex-dividend date. Income, expenses, and realized and unrealized gains or losses
are allocated on a pro rata basis to each class of shares except for
distribution and service fees which are unique to each class of shares.
Distributions from the Fund are recorded on the ex-distribution date.
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. The Fund may be
subject to taxes imposed by countries in which it invests. Such taxes are
generally based on income earned or gains realized or repatriated. Taxes are
accrued and applied to net investment income, net realized capital gains and net
unrealized appreciation, as applicable, as the income is earned or capital gains
are recorded. Although the Fund's fiscal year end is June 30, the Fund's tax
year end is September 30.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At September 30, 1999, the Fund had an accumulated capital loss
carryforward for tax purposes of $55,413,637, which will expire September 30,
2007. Net realized gains or losses may differ for financial and tax reporting
purposes as a result of losses relating to wash sale transactions and the
difference in the Fund's tax year end.
28
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
At June 30, 2000, for federal income tax purposes, cost of long- and
short-term investments is $182,408,214, the aggregate gross unrealized
appreciation is $3,012,247 and the aggregate gross unrealized depreciation is
$14,991,871, resulting in net unrealized depreciation on long- and short-term
investments of $11,979,624.
E. DISTRIBUTION OF INCOME AND GAINS The Fund declares daily and pays monthly
dividends 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 which are included as ordinary income for
tax purposes.
Due to inherent differences in the recognition of income and expenses under
generally accepted accounting principles and federal income tax purposes,
permanent differences between book and tax basis reporting for the current
fiscal year have been identified and appropriately reclassified. A permanent
difference related to the recognition of net realized losses on foreign currency
transactions totaling $824,555 was reclassified from accumulated net investment
income to accumulated net realized loss. A permanent difference related to the
recognition of net realized gains on paydowns of mortgage pool obligations
totaling $17,726 was reclassified from accumulated net realized loss to
accumulated net investment income. A permanent difference of $29,829 related to
partnership investments was reclassified from accumulated net investment income
to accumulated net realized loss. A permanent difference related to the
recognition of certain expenses that are not deductible for tax purposes
totaling $1,746 were reclassified from paid in capital in excess of par to
accumulated net investment income.
Permanent book to tax basis differences are not included in ending
undistributed/distributions in excess of net investment income for the purpose
of calculating net investment income/loss per share in the Financial Highlights.
F. FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS Assets and liabilities
denominated in foreign currencies and commitments under forward currency
contracts are translated into U.S. dollars at the mean of the quoted bid and
asked prices of such currencies against the U.S. dollar. Purchases and sales of
portfolio securities are translated at the rate of exchange prevailing when such
securities were acquired or sold. Income and expenses are translated at rates
prevailing when accrued. Realized and unrealized gains and losses on securities
resulting from changes in exchange rates are not segregated for financial
reporting purposes from amounts arising from changes in the market prices of
securities. Realized gains and losses on foreign currency transactions includes
the net realized amount from the sale of the currency and the amount realized
between trade date and settlement date on security and income transactions.
The Fund invests in issuers located in emerging markets. There are certain
risks inherent in these investments not typically associated with issuers in the
United States, including the smaller size of the markets themselves, lesser
liquidity, greater volatility
29
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
and potentially less publicly available information. Emerging markets may be
subject to a greater degree of government involvement in the economy and greater
economic and political uncertainty, which has the potential to extend to
government imposed restrictions on exchange traded transactions and currency
transactions. These restrictions may impact the Fund's ability to buy or sell
certain securities or to repatriate certain currencies to U.S. dollars.
Additionally, changes in currency exchange rates will affect the value of and
investment income from such securities.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Van Kampen Investment Advisory Corp. (the "Adviser"), a wholly owned subsidiary
of Van Kampen Investments Inc. (an indirect wholly owned subsidiary of Morgan
Stanley Dean Witter & Co.) and Morgan Stanley Dean Witter Investment Management
Inc. ("MSDWIM" or a "Subadviser"), a wholly owned subsidiary of Morgan Stanley
Dean Witter & Co., provide the Fund with investment advisory services at a fee
paid monthly and calculated at the annual rates based on average daily net
assets indicated as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
<S> <C>
First $500 million..................................... .75 of 1%
Next $500 million...................................... .70 of 1%
Over $1 billion........................................ .65 of 1%
</TABLE>
The Adviser has agreed to reduce advisory fees payable to it and to
reimburse the Fund, if necessary, if the annual operating expenses, expressed as
a percentage of average daily net assets, exceed the maximum ratios indicated
as follows:
<TABLE>
<CAPTION>
CLASS B
CLASS A AND CLASS C
MAX. OPERATING MAX. OPERATING
EXPENSE RATIO EXPENSE RATIO
<S> <C>
1.55% 2.30%
</TABLE>
For the period ended June 30, 2000, the Fund recognized expenses of $12,192
representing legal services provided by Skadden, Arps, Slate, Meagher & Flom
(Illinois), counsel to the Fund, of which a director of the Fund is an
affiliated person.
For the period ended June 30, 2000, the Fund recognized expenses of $8,016
representing Van Kampen's cost of providing legal services to the Fund.
Van Kampen Investment Advisory Corp. (the "Administrator") also provides the
Fund with administrative services pursuant to an administrative agreement for a
monthly fee which on an annual basis equals 0.25% of the average daily net
assets of the portfolio, plus reimbursement of out-of-pocket expenses. Under an
agreement between the Adviser and The Chase Manhattan Bank ("Chase"), through
its corporate
30
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
affiliate Chase Global Funds Services Company ("CGFSC"), Chase provides certain
administrative services to the Fund. Chase is compensated for such services by
the Adviser from the fee it receives from the Fund. Transfer Agency services are
provided to the Fund by Van Kampen Investor Services Inc., an affiliate of the
Adviser.
Van Kampen Funds Inc. (the "Distributor") a wholly owned subsidiary of Van
Kampen Investments Inc., an indirect wholly owned subsidiary of Morgan Stanley
Dean Witter & Co., serves as the Distributor of the Fund's shares. The
Distributor is entitled to receive from the Fund a distribution fee, which is
accrued daily and paid quarterly, of an amount of up to 0.25% of the Class A
shares and up to 1.00% of the Class B shares and Class C shares of the Fund on
an annualized basis, of the average daily net assets attributable to each Class.
The Distributor may receive a front end sales charge for purchases of Class
A shares. In addition, the Distributor may receive a contingent deferred sales
charge for certain redemptions of Class B shares and Class C shares of the Fund
redeemed within one to five years following such purchase. For the period ended
June 30, 2000, the Distributor has advised the Fund that it earned initial sales
charges of $92,451 for Class A shares and deferred sales charges of $527,530 and
$5,741 for Class B shares and Class C shares, respectively. Certain officers and
directors of the Fund are also officers and directors of Van Kampen. The Fund
does not compensate its officers or directors who are officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
directors who are not officers of Van Kampen. Under the deferred compensation
plan, directors may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a 10 year period
and are based upon each director's years of service to the Fund. The maximum
annual benefit per director under the plan is $2,500.
31
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
3. CAPITAL TRANSACTIONS
The Fund currently offers three classes of shares, Class A, Class B, and Class C
shares. All three classes of shares have identical voting, dividend, liquidation
and other rights. Class A shares are sold with a front-end sales charge of up to
4.75%. For certain purchases of Class A shares, the front-end sales charge may
be waived and a contingent deferred sales charge ("CDSC") of 1.00% imposed in
the event of certain redemptions within one year of the purchase. Class B and
Class C shares are offered without a front end sales charge, but are subject to
a 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 seven years after the end of the calendar month in
which the shares were purchased. For the period ended June 30, 2000, no Class B
shares converted to Class A shares. The CDSC will be imposed on most redemptions
made within five years of the purchase for Class B shares and one year of the
purchase for Class C shares as detailed in the following schedule:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE ON ASSETS SUBJECT TO
SALES CHARGE
---------------------------
YEAR OF REDEMPTION CLASS B CLASS C
<S> <C> <C>
First............................................. 4.00% 1.00%
Second............................................ 4.00% None
Third............................................. 3.00% None
Fourth............................................ 2.50% None
Fifth............................................. 1.50% None
Thereafter........................................ None None
</TABLE>
32
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 2000 JUNE 30, 1999*
------------- --------------
<S> <C> <C>
CAPITAL SHARE TRANSACTIONS
CLASS A:
Shares:
Subscribed .................................. 1,470,858 3,413,000
Distributions Reinvested..................... 350,009 486,000
Redeemed..................................... (3,203,852) (5,339,000)
------------ ------------
Net Decrease in Class A Shares Outstanding..... (1,382,985) (1,440,000)
============ ============
Dollars:
Subscribed................................... $ 14,838,696 $ 36,170,000
Distributions Reinvested..................... 3,493,604 4,873,000
Redeemed..................................... (32,264,042) (53,258,000)
------------ ------------
Net Decrease................................... $(13,931,742) $(12,215,000)
============ ============
Ending Paid in Capital......................... $ 66,725,638+ $ 80,677,000+
============ ============
CLASS B:
Shares:
Subscribed .................................. 1,060,856 3,007,000
Distributions Reinvested..................... 487,220 619,000
Redeemed..................................... (3,209,185) (4,586,000)
------------ ------------
Net Decrease in Class B Shares Outstanding..... (1,661,109) (960,000)
============ ============
Dollars:
Subscribed .................................. $ 10,592,179 $ 31,134,000
Distributions Reinvested..................... 4,844,540 6,179,000
Redeemed..................................... (32,147,709) (45,561,000)
------------ ------------
Net Decrease................................... $(16,710,990) $ (8,248,000)
============ ============
Ending Paid in Capital......................... $131,144,566+ $147,844,000+
============ ============
CLASS C:
Shares:
Subscribed .................................. 558,763 1,545,000
Distributions Reinvested..................... 200,016 270,000
Redeemed..................................... (1,491,227) (2,552,000)
------------ ------------
Net Decrease in Class C Shares Outstanding..... (732,448) (737,000)
============ ============
Dollars:
Subscribed................................... $ 5,581,731 $ 15,873,000
Distributions Reinvested..................... 1,988,930 2,707,000
Redeemed..................................... (14,970,374) (25,134,000)
------------ ------------
Net Decrease................................... $ (7,399,713) $ (6,554,000)
============ ============
Ending Paid in Capital......................... $ 48,059,071+ $ 55,455,000+
============ ============
</TABLE>
* AMOUNTS ROUNDED TO THE NEAREST (000).
+ ENDING PAID IN CAPITAL AMOUNTS DO NOT REFLECT PERMANENT BOOK TO TAX
DIFFERENCES--SEE NOTE 1E.
4. INVESTMENT TRANSACTIONS
For the period ended June 30, 2000, the Fund made purchases of $212,748,084 and
sales of $246,133,571 of investment securities other than long-term U.S.
government securities and short-term investments. There were no purchases or
sales of long-term U.S. government securities.
33
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
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 and to manage the portfolio's effective yield, foreign currency
exposure, maturity and duration, or generate potential gain. All of the Fund's
portfolio holdings, including derivative instruments, are marked-to-market each
day with the change in value reflected in 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 or forward contract. In these instances, the recognition of gain or loss
is postponed until the disposal of the security underlying the option or forward
contract. Risks may arise as a result of the potential inability of the
counterparties to meet the terms of their contracts.
Summarized below are the specific types of derivative financial instruments
used by the Fund.
A. FORWARD CURRENCY CONTRACTS These instruments are commitments to purchase or
sell a foreign currency at a future date at a negotiated forward rate. The gain
or loss arising from the difference between the original value of the contract
and the closing value of such contract is included as a component of realized
gain/loss on foreign currency transactions.
At June 30, 2000, the Fund has outstanding forward currency contracts as
follows:
<TABLE>
<CAPTION>
UNREALIZED
CURRENT APPRECIATION/
FORWARD CURRENCY CONTRACTS VALUE DEPRECIATION
<S> <C> <C>
SHORT CONTRACTS:
British Pound, 1,595,000
expiring 8/3/00 $ 2,414,289 $ 64,740
Euro, 9,238,348
expiring 7/26/00-8/10/00 8,828,868 (114,697)
----------- ----------
$11,243,157 $ (49,957)
----------- ----------
LONG CONTRACTS:
British Pound, 115,000
expiring 8/3/00 $ 174,071 $ (660)
Euro, 805,000
expiring 7/28/00-8/3/00 833,449 9,015
----------- ----------
$ 1,007,520 $ 8,355
----------- ----------
$12,250,677 $ (41,602)
=========== ==========
</TABLE>
34
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
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 futures of foreign government bonds and typically
closes the contract prior to the delivery date. These contracts are generally
used to manage the portfolio's effective maturity and duration.
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 potential risk of realized
gain or loss associated with a futures contract may exceed the variation margin
reflected on the Statement of Assets and Liabilities. The cost of securities
acquired through delivery under a contract is adjusted by the unrealized gain or
loss on the contract.
Transactions in futures contracts for the period ended June 30, 2000, were
as follows:
<TABLE>
<CAPTION>
CONTRACTS
<S> <C>
Outstanding at June 30, 1999......... 13
Futures Opened....................... 137
Futures Closed....................... (115)
---------
Outstanding at June 30, 2000......... 35
=========
</TABLE>
The futures contracts outstanding as of June 30, 2000, and the descriptions
and the unrealized appreciation/depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS APPRECIATION
<S> <C> <C>
SHORT CONTRACTS:
U.S. Long Gilt Index--September 2000
(Current notional value $114 per contract) 10 $ 6,614
LONG CONTRACTS:
U.S. 10 Year Note--September 2000
(Current notional value $98 per contract) 25 75,681
--- -------
35 $82,295
=== =======
</TABLE>
35
<PAGE>
NOTES TO
FINANCIAL STATEMENTS
JUNE 30, 2000
C. STRUCTURED SECURITIES The Fund may invest in interests in entities organized
and operated solely for the purpose of restructuring the investment
characteristics of sovereign debt obligations. This type of restructuring
involves the deposit with or purchase by an entity of specified instruments and
the issuance by that entity of one or more classes of securities ("Structured
Securities") backed by, or representing interests in, the underlying
instruments. Structured Securities generally will expose the Fund to credit
risks equivalent to that of the underlying instruments. Structured Securities
are typically sold in private placement transactions with no active trading
market. Investments in Structured Securities may be more volatile than their
underlying instruments, however, any loss is limited to the amount of the
original investment.
6. BORROWINGS
In accordance with its investment policies, the Fund may borrow from banks for
temporary purposes and is subject to certain other customary restrictions.
Effective November 30, 1999, the Fund, in conjunction with certain other funds
of Van Kampen, has entered into a $650 million committed line of credit facility
with a group of banks which expires on November 28, 2000, but is renewable with
the consent of the participating banks. Each fund is permitted to utilize the
facility in accordance with the restrictions of its prospectus. In the event the
demand for the credit facility meets or exceeds $650 million on a complex-wide
basis, each fund will be limited to its pro-rata percentage based on the net
assets of each participating fund. Interest on borrowings is charged under the
agreement at a rate of 0.50% above the federal funds rate per annum. An annual
commitment fee of 0.09% per annum is charged on the unused portion of the credit
facility, which each fund incurs based on its pro-rata percentage of quarterly
net assets. The Fund has not borrowed against the credit facility during the
period.
36
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and
Shareholders of Van Kampen Worldwide
High Income Fund
We have audited the accompanying statement of assets and liabilities of Van
Kampen Worldwide High Income Fund (the "Fund"), a fund of Van Kampen Series
Fund, Inc., including the portfolio of investments, as of June 30, 2000, and the
related statements of operations, changes in net assets and the financial
highlights for the year then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit. The Fund's financial statements and financial highlights for
the periods ended prior to June 30, 2000, were audited by other auditors whose
report, dated August 6, 1999, expressed an unqualified opinion on those
statements.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of June 30, 2000, by correspondence with the Fund's
custodian and brokers; where replies were not received from brokers, we
performed other auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen Worldwide High Income Fund as of June 30, 2000, the results of its
operations, the changes in its net assets and the financial highlights for the
year then ended, in conformity with accounting principles generally accepted in
the United States of America.
DELOITTE & TOUCHE LLP
Chicago, Illinois
August 11, 2000
37
<PAGE>
VAN KAMPEN FUNDS
THE VAN KAMPEN
FAMILY OF FUNDS
GROWTH
Aggressive Growth
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth
Mid Cap Growth
Pace
Select Growth
Small Cap Value
Tax Managed Equity Growth
Technology
GROWTH AND INCOME
Comstock
Equity Income
Growth and Income
Harbor
Real Estate Securities
Utility
Value
GLOBAL/INTERNATIONAL
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
International Magnum
Latin American
Strategic Income
Tax Managed Global Franchise
Worldwide High Income
INCOME
Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return*
Limited Maturity Government
U.S. Government
U.S. Government Trust for Income
CAPITAL PRESERVATION
Reserve
Tax Free Money
SENIOR LOAN
Prime Rate Income Trust
Senior Floating Rate
TAX FREE
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal**
Insured Tax Free Income
Intermediate Term
Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
To find out more about any of these funds, ask your financial advisor for a
prospectus, which contains more complete information, including sales charges,
risks, and ongoing expenses. Please read it carefully before you invest or send
money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- visit our Web site at
www.vankampen.com --
to view a prospectus, select [GRAPHIC]
DOWNLOAD PROSPECTUS
- call us at 1-800-341-2911
weekdays from 7:00 a.m. to 7:00 p.m.
central time. Telecommunications [GRAPHIC]
Device for the Deaf users,
call 1-800-421-2833.
- e-mail us by visiting
www.vankampen.com and [GRAPHIC]
selecting CONTACT US
* Closed to new investors
** Open to new investors for a limited time
38
<PAGE>
FUND OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN WORLDWIDE HIGH INCOME FUND
BOARD OF DIRECTORS
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*
Chairman, Director, President,
Chief Executive Officer
STEPHEN L. BOYD*
Executive Vice President and
Chief Investment Officer
A. THOMAS SMITH III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Chief Financial Officer
and Treasurer
RICHARD A. CICCARONE*
JOHN R. REYNOLDSON*
MICHAEL H. SANTO*
JOSEPH P. STADLER*
JOHN H. ZIMMERMANN, III*
Vice Presidents
INVESTMENT ADVISER AND
ADMINISTRATOR
VAN KAMPEN INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
INVESTMENT SUBADVISERS
MORGAN STANLEY DEAN WITTER INVESTMENT
MANAGEMENT INC.
1221 Avenue of the Americas
New York, New York 10020
MILLER ANDERSON & SHERRERD, LLP
One Tower Bridge
West Conshohocken, Pennsylvania 19428
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
CUSTODIAN
THE CHASE MANHATTAN BANK
3 MetroTech Center
Brooklyn, New York 11245
DIVIDEND DISBURSING AND TRANSFER AGENT
VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 218256
Kansas City, Missouri 64121-8256
LEGAL COUNSEL
SKADDEN, ARPS, SLATE, MEAGHER &
FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT AUDITORS
DELOITTE & TOUCHE LLP
180 N. Stetson Avenue
Chicago, IL 60601
* "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.
39
<PAGE>
RESULTS OF
SHAREHOLDER VOTES
JUNE 30, 2000
A Joint Special Meeting of the Shareholders of the Worldwide High Income Fund
(the "Fund") was held on December 15, 1999. The description of each proposal and
number of shares voted are as follows:
1. To elect the following Directors to serve the Fund.
<TABLE>
<CAPTION>
VOTED FOR WITHHELD
<S> <C> <C>
J. Miles Branagan................................. 12,482,475 74,758
Jerry D. Choate................................... 12,478,169 79,063
Linda Hutton Heagy................................ 12,480,106 77,127
R. Craig Kennedy.................................. 12,482,777 74,456
Mitchell M. Merin................................. 12,482,777 74,456
Jack E. Nelson.................................... 12,482,475 74,758
Richard F. Powers, III............................ 12,480,118 77,115
Phillip B. Rooney................................. 12,480,118 77,115
Fernando Sisto.................................... 12,479,417 77,816
Wayne W. Whalen................................... 12,481,848 75,385
Suzanne H. Woolsey................................ 12,480,257 76,976
Paul G. Yovovich*................................. 12,482,777 74,456
</TABLE>
* EFFECTIVE APRIL 14, 2000, PAUL G. YOVOVICH RESIGNED FROM THE BOARD OF
DIRECTORS.
2. To ratify PricewaterhouseCoopers LLP to act as independent public accountants
for the Fund.(1)
<TABLE>
<CAPTION>
AFFIRMATIVE AGAINST ABSTAIN
<S> <C> <C>
12,465,374 33,607 58,251
</TABLE>
(1) INDEPENDENT ACCOUNTANTS FOR THE FUND PERFORM AN ANNUAL AUDIT OF THE FUND'S
FINANCIAL STATEMENTS. THE BOARD OF DIRECTORS ENGAGED DELOITTE & TOUCHE LLP TO BE
THE FUND'S INDEPENDENT ACCOUNTANTS.
PricewaterhouseCoopers LLP, located at 200 East Randolph Drive, Chicago, IL
60601 ("PWC"), ceased being the Fund's independent accountants effective May 18,
2000. The cessation of the client-auditor relationship between the Fund and PWC
was based solely on a possible future business relationship by PWC with an
affiliate of the Fund's investment adviser.
40
<PAGE>
-------------------
454, 554, 654 PRESORTED
MSWW ANR 08/00 STANDARD
VAN KAMPEN FUNDS INC. U.S. Postage
1 Parkview Plaza PAID
P.O. Box 5555 VAN KAMPEN
Oakbrook Terrace, Illinois 60181-5555 FUNDS
-------------------
