N-30D 1 c66861n-30d.txt ANNUAL REPORT Table of Contents OVERVIEW LETTER TO PARTNERS 1 ECONOMIC SNAPSHOT 2 PERFORMANCE SUMMARY PERFORMANCE OF A $10,000 INVESTMENT 4 RETURN HIGHLIGHTS 5 BY THE NUMBERS YOUR FUND'S INVESTMENTS 6 FINANCIAL STATEMENTS 9 NOTES TO FINANCIAL STATEMENTS 13 REPORT OF INDEPENDENT AUDITORS 16 MANAGING GENERAL PARTNERS AND IMPORTANT ADDRESSES 17 MANAGING GENERAL PARTNER AND OFFICER INFORMATION 18
Van Kampen wishes peace and prosperity to all. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE OVERVIEW LETTER TO PARTNERS January 18, 2002 Dear Partner, As the new year begins, Van Kampen wishes peace, prosperity and hope to all. With a legacy that spans nearly four generations, Van Kampen has helped investors pursue their goals through social, political and economic change. In the face of challenges and uncertainty, our core investment philosophy has been tested and, we believe affirmed. Whether you're new to the Van Kampen family or revisiting your investment strategy, we encourage you to focus on two fundamental investing principles: SEEK FINANCIAL ADVICE BEFORE YOU INVEST. Your financial advisor can help you develop a tailored investment strategy based on several factors, including your age, family status and goals. While no portfolio is immune to volatility, your advisor can help you structure a portfolio designed to address your long-term financial goals. EXAMINE YOUR PORTFOLIO AND MODERATE YOUR INVESTMENT RISK--DIVERSIFY. Consider including a variety of stock and fixed-income funds in your portfolio, which may improve your long-term performance. We are grateful for your continued trust in Van Kampen and appreciate the opportunity to manage your assets. In the new year, we hope you and your loved ones enjoy life's true wealth--family, friends and life's daily pleasures. Sincerely, [SIG] Richard F. Powers, III President and CEO Van Kampen Asset Management Inc. 1 ECONOMIC SNAPSHOT THE ECONOMY DECEMBER 2001 MARKED THE NINTH MONTH OF RECESSION FOR THE U.S. ECONOMY, BUT MIXED DATA AT YEAR'S END SUGGESTED THE WORST MAY BE OVER. GROSS DOMESTIC PRODUCT (GDP), THE PRIMARY MEASURE OF ECONOMIC GROWTH, INCREASED AT AN ANNUAL RATE OF 0.2 PERCENT FOR THE FOURTH QUARTER. BUSINESS ACTIVITY, WHICH SLOWED PRIOR TO THE SEPTEMBER TERRORIST ATTACKS AND SPIRALED DOWNWARD AFTER, APPEARED TO RETURN TO MORE STABLE--ALBEIT WEAK--PRE-ATTACK LEVELS. MANUFACTURING, THE SECTOR HARDEST HIT BY THE INVENTORY CYCLE AND ITS EFFECT ON PRODUCTION DEMAND, CONTINUED TO CONTRACT IN DECEMBER--BUT AT A MUCH SLOWER RATE THAN IN PREVIOUS MONTHS. CONSUMER SPENDING AND EMPLOYMENT CONSUMER SPENDING, WHICH DRIVES TWO-THIRDS OF U.S. ECONOMIC GROWTH, REMAINED SURPRISINGLY RESILIENT THROUGHOUT THE REPORTING PERIOD. PRICE-CONSCIOUS CONSUMERS SHUNNED HIGH-PRICED DEPARTMENT AND SPECIALTY STORES FOR DISCOUNT STORES DURING THE HOLIDAY SHOPPING SEASON. MANY ALSO TOOK ADVANTAGE OF HISTORICALLY LOW MORTGAGE RATES TO REFINANCE THEIR LOANS OR PURCHASE NEW HOMES. BUT HOMES WEREN'T THE ONLY BIG-TICKET ITEMS POPULAR WITH CONSUMERS DURING THE REPORTING PERIOD. DEEP PRICE DISCOUNTING AND ZERO-PERCENT FINANCING OFFERED BY CARMAKERS DURING THE FIRST TWO MONTHS OF THE FOURTH QUARTER LURED MANY CAR BUYERS INTO DEALERS' SHOWROOMS. CONSUMER CONFIDENCE, WHICH HAD FALLEN FOR FIVE CONSECUTIVE MONTHS, SHOT UP IN DECEMBER AS REPORTS OF THE U.S. MILITARY'S APPARENT VICTORIES IN AFGHANISTAN WERE CIRCULATED. HOWEVER, THIS NEWFOUND OPTIMISM WAS TEMPERED BY MOUNTING JOB REDUCTION ANNOUNCEMENTS AND RISING UNEMPLOYMENT. BY THE END OF DECEMBER, UNEMPLOYMENT LEVELS HAD SURGED TO 5.8 PERCENT. INTEREST RATES AND INFLATION CONSISTENT WITH ITS RECENT ACTIONS, THE FEDERAL RESERVE BOARD (THE FED) AGAIN ATTEMPTED TO STIMULATE THE FALTERING ECONOMY BY SLASHING INTEREST RATES. THE FED'S 0.25 PERCENT CUT ON DECEMBER 11--THE 11TH RATE-CUT TO OCCUR SINCE JANUARY 1, 2001--BROUGHT THE FEDERAL FUNDS RATE TO 1.75 PERCENT, A 40-YEAR LOW. FINALLY, INFLATION REMAINED MODEST DURING THE REPORTING PERIOD. THE CONSUMER PRICE INDEX, A COMMON MEASURE OF THE INFLATION RATE, ROSE 1.6 PERCENT IN THE 12 MONTHS ENDED DECEMBER 31. 2 U.S. GROSS DOMESTIC PRODUCT SEASONALLY ADJUSTED ANNUALIZED RATES (December 31, 1999--December 31, 2001) [BAR GRAPH]
U.S. GROSS DOMESTIC PRODUCT --------------------------- Dec 99 8.30 Mar 00 4.80 Jun 00 5.70 Sep 00 1.30 Dec 00 1.90 Mar 01 1.30 Jun 01 0.30 Sep 01 -1.30 Dec 01 0.20
Source: Bureau of Economic Analysis INTEREST RATES AND INFLATION (December 31, 1999--December 31, 2001) [LINE GRAPH]
INTEREST RATES INFLATION -------------- --------- Dec 99 5.5 2.7 5.5 2.7 5.75 3.2 Mar 00 6 3.8 6 3.1 6.5 3.2 Jun 00 6.5 3.7 6.5 3.7 6.5 3.4 Sep 00 6.5 3.5 6.5 3.4 6.5 3.4 Dec 00 6.5 3.4 5.5 3.7 5.5 3.5 Mar 01 5 2.9 4.5 3.3 4 3.6 Jun 01 3.75 3.2 3.75 2.7 3.5 2.7 Sep 01 3 2.6 2.5 2.1 2 1.9 Dec 01 1.75 1.6
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 percentage change of the Consumer Price Index for all urban consumers at the end of each month. Source: Bloomberg 3 PERFORMANCE SUMMARY PERFORMANCE OF A $10,000 INVESTMENT (December 31, 1991--December 31, 2001) [LINE GRAPH]
STANDARD & POOR'S 500 INDEX IS AN UNMANAGED INDEX GENERALLY REPRESENTATIVE OF THE U.S. STOCK EXCHANGE FUND* MARKET.* -------------- --------------------------------- 12/91 10000.00 10000.00 9691.00 9747.00 9662.00 9933.00 9871.00 10246.00 12/92 10437.00 10762.00 10754.00 11232.00 10839.00 11286.00 10951.00 11578.00 12/93 11262.00 11846.00 10861.00 11397.00 11020.00 11445.00 11715.00 12005.00 12/94 11802.00 12003.00 13285.00 13172.00 14857.00 14429.00 15260.00 15576.00 12/95 15691.00 16514.00 16506.00 17400.00 17311.00 18181.00 18753.00 18743.00 12/96 21372.00 20305.00 21865.00 20849.00 24486.00 24489.00 27200.00 26324.00 12/97 25483.00 27079.00 28671.00 30857.00 28561.00 31875.00 28432.00 28705.00 12/98 32965.00 34817.00 33310.00 36557.00 35082.00 39133.00 34502.00 36688.00 12/99 36821.00 42147.00 44010.00 43114.00 47953.00 41968.00 40731.00 41562.00 12/00 39972.00 38310.00 35446.00 33768.00 37330.00 35744.00 33580.00 30498.00 12/01 37585.00 33757.00
This chart compares your fund's performance to that of the S&P 500 Index over time. This index is an unmanaged broad-based, statistical composite and its returns do not include any sales charges or fees that would be paid by an investor purchasing the securities it represents. Such costs would lower performance. 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 the fund. The fund's performance assumes reinvestment of all distributions and is shown at net asset value. Results are hypothetical. 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. Source: * Wiesenberger(R) 4 RETURN HIGHLIGHTS (as of December 31, 2001)
--------------------------------------------------------------------- One-year total return(1) -5.97% --------------------------------------------------------------------- Five-year average annual total return(1) 11.95% --------------------------------------------------------------------- Ten-year average annual total return(1) 14.16% --------------------------------------------------------------------- Life-of-Fund average annual total return(1) 13.84% --------------------------------------------------------------------- Commencement date 12/16/76 ---------------------------------------------------------------------
(1) Total return based on net asset value (NAV) assumes an investment at the beginning of the period indicated, reinvestment of all distributions for the period, and sale of all units of partnership interest at the end of the period, all at NAV. The returns above do not reflect the deduction of taxes that a shareholder would pay on Fund distributions. 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. Past performance is no guarantee of future results. Investment returns and principal value will fluctuate and Fund units, when redeemed, may be worth more or less than their original cost. As a result of recent market activity, current performance may vary from the figures shown. Market forecasts provided in this report may not necessarily come to pass. 5 BY THE NUMBERS YOUR FUND'S INVESTMENTS December 31, 2001 THE FOLLOWING PAGES DETAIL YOUR FUND'S PORTFOLIO OF INVESTMENTS AT THE END OF THE REPORTING PERIOD.
MARKET DESCRIPTION SHARES VALUE COMMON STOCKS 99.2% AEROSPACE & DEFENSE 0.5% Honeywell International, Inc. .............................. 12,528 $ 423,697 ----------- ALUMINUM 0.5% Alcan, Inc. (Canada)........................................ 10,774 387,110 ----------- AUTO PARTS & EQUIPMENT 0.2% Dana Corp................................................... 13,677 189,837 ----------- BIOTECHNOLOGY 0.0% Edwards Lifesciences Corp. (a).............................. 1,000 27,630 ----------- COMPUTER HARDWARE 2.2% International Business Machines Corp. ...................... 15,016 1,816,335 ----------- CONSTRUCTION & ENGINEERING 0.9% Fluor Corp. ................................................ 12,831 479,879 Massey Energy Corp. ........................................ 12,831 265,987 ----------- 745,866 ----------- CONSUMER FINANCE 1.5% Household International, Inc. .............................. 21,372 1,238,294 ----------- ELECTRICAL COMPONENTS & EQUIPMENT 1.1% SPX Corp. (a)............................................... 6,824 934,206 ----------- FOREST PRODUCTS 1.5% Georgia-Pacific Group....................................... 37,376 1,031,951 Louisiana-Pacific Corp. (a)................................. 25,970 219,187 ----------- 1,251,138 ----------- HEALTH CARE DISTRIBUTORS & SERVICES 0.1% Cardinal Health, Inc........................................ 1,867 120,720 ----------- HEALTH CARE EQUIPMENT 0.6% Baxter International, Inc. ................................. 10,000 536,300 -----------
See Notes to Financial Statements 6 YOUR FUND'S INVESTMENTS December 31, 2001
MARKET DESCRIPTION SHARES VALUE INDUSTRIAL GASES 6.0% Air Products & Chemicals, Inc. ............................. 109,090 $ 5,117,412 ----------- INTEGRATED OIL & GAS 7.5% Amerada Hess Corp. ......................................... 21,200 1,325,000 BP PLC - ADR (United Kingdom)............................... 33,876 1,575,573 Exxon Mobil Corp. .......................................... 86,639.. 3,404,913 ----------- 6,305,486 ----------- MULTI-LINE INSURANCE 3.9% American International Group, Inc. ......................... 41,688 3,310,027 ----------- OFFICE ELECTRONICS 1.2% IKON Office Solutions, Inc. ................................ 86,993 1,016,948 ----------- OIL & GAS DRILLING 0.1% Transocean Sedco Forex, Inc. ............................... 3,113 105,282 ----------- OIL & GAS EQUIPMENT & SERVICES 2.6% Baker Hughes, Inc. ......................................... 25,634 934,872 Halliburton Co. ............................................ 30,320 397,192 Schlumberger Ltd. .......................................... 16,080 883,596 ----------- 2,215,660 ----------- OIL & GAS EXPLORATION & PRODUCTION 1.4% Apache Corp. ............................................... 12,547 625,824 Kerr-McGee Corp. ........................................... 10,900 597,320 ----------- 1,223,144 ----------- PACKAGED FOODS 2.4% McCormick & Co., Inc. ...................................... 48,259 2,025,430 ----------- PHARMACEUTICALS 39.0% American Home Products Corp. ............................... 56,000 3,436,160 Johnson & Johnson........................................... 108,864 6,433,862 Merck & Co., Inc. .......................................... 50,376 2,962,109 Pfizer, Inc. ............................................... 331,081 13,193,578 Schering-Plough Corp. ...................................... 195,374 6,996,343 ----------- 33,022,052 ----------- REAL ESTATE INVESTMENT TRUSTS 0.9% Plum Creek Timber Co., Inc. ................................ 25,602 725,817 ----------- RESTAURANTS 0.1% Luby's Cafeterias, Inc. (a)................................. 13,367 76,325 -----------
See Notes to Financial Statements 7 YOUR FUND'S INVESTMENTS December 31, 2001
MARKET DESCRIPTION SHARES VALUE SEMICONDUCTORS 21.7% Intel Corp. ................................................ 584,834 $18,393,029 ----------- SPECIALTY CHEMICALS 3.3% International Flavors & Fragrances, Inc. ................... 49,712 1,476,943 Lubrizol Corp. ............................................. 37,620 1,320,086 ----------- 2,797,029 ----------- TOTAL LONG-TERM INVESTMENTS 99.2% (Cost $7,190,198).................................................... 84,004,774 REPURCHASE AGREEMENT 0.9% State Street Bank & Trust Co. ($796,000 par collateralized by U.S. Government obligations in a pooled cash account, dated 12/31/01, to be sold on 01/02/02 at $796,075) (Cost $796,000).................................................... 796,000 ----------- TOTAL INVESTMENTS 100.1% (Cost $7,986,198).................................................. 84,800,774 LIABILITIES IN EXCESS OF OTHER ASSETS (0.1%)........................ (124,476) ----------- NET ASSETS 100.0%................................................... $84,676,298 ===========
(a) Non-income producing security. ADR--American Depositary Receipt See Notes to Financial Statements 8 FINANCIAL STATEMENTS Statement of Assets and Liabilities December 31, 2001 ASSETS: Total Investments (Cost $7,986,198)......................... $84,800,774 Receivables: Dividends................................................. 84,455 Interest.................................................. 38 Other....................................................... 39,855 ----------- Total Assets............................................ 84,925,122 ----------- LIABILITIES: Payables: Custodian Bank............................................ 71,168 Investment Advisory Fee................................... 36,440 Affiliates................................................ 2,786 Managing General Partners' Retirement Plan.................. 105,892 Accrued Expenses............................................ 32,538 ----------- Total Liabilities....................................... 248,824 ----------- NET ASSETS.................................................. $84,676,298 =========== NET ASSETS ARE COMPRISED OF: 236,474 units of limited partnership interest............... $83,420,444 3,422 units of non-managing general partnership interest.... 1,207,172 138 units of managing general partnership interest.......... 48,682 ----------- NET ASSETS.................................................. $84,676,298 =========== NET ASSET VALUE PER UNIT ($84,676,298 divided by 240,034 units of partnership interest outstanding)................ $ 352.77 ===========
See Notes to Financial Statements 9 Statement of Operations For the Year Ended December 31, 2001 INVESTMENT INCOME: Dividends (Net of foreign withholding taxes of $5,825)...... $ 1,095,967 Interest.................................................... 51,313 Other....................................................... 6,501 ----------- Total Income............................................ 1,153,781 ----------- EXPENSES: Investment Advisory Fee..................................... 434,637 Managing General Partners' Fees and Related Expenses........ 36,325 Custody..................................................... 7,642 Legal....................................................... 3,257 Other....................................................... 78,724 ----------- Total Expenses.......................................... 560,585 Less Credits Earned on Cash Balances.................... 211 ----------- Net Expenses............................................ 560,374 ----------- NET INVESTMENT INCOME....................................... $ 593,407 =========== REALIZED AND UNREALIZED GAIN/LOSS: Net Realized Gain on Investments as a result of partner in-kind redemptions............................................... $ 2,264,172 ----------- Unrealized Appreciation/Depreciation: Beginning of the Period................................... 85,480,019 End of the Period......................................... 76,814,576 ----------- Net Unrealized Depreciation During the Period............... (8,665,443) ----------- NET REALIZED AND UNREALIZED LOSS............................ $(6,401,271) =========== NET DECREASE IN NET ASSETS FROM OPERATIONS.................. $(5,807,864) ===========
See Notes to Financial Statements 10 Statements of Changes in Net Assets For the Years Ended December 31, 2001 and 2000
YEAR ENDED YEAR ENDED DECEMBER 31, 2001 DECEMBER 31, 2000 -------------------------------------- FROM INVESTMENT ACTIVITIES: Operations: Net Investment Income............................ $ 593,407 $ 483,376 Net Realized Gain on Investments as a result of partner in-kind redemptions.................... 2,264,172 6,907,325 Net Unrealized Appreciation/Depreciation During the Period..................................... (8,665,443) 1,112,798 ------------ ----------- Change in Net Assets from Operations............. (5,807,864) 8,503,499 ------------ ----------- Distributions from Net Investment Income......... (316,831) (336,592) Distributions from Net Realized Gain............. -0- (144,772) ------------ ----------- Total Distributions.............................. (316,831) (481,364) ------------ ----------- NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES..................................... (6,124,695) 8,022,135 ------------ ----------- FROM PARTNERSHIP UNIT TRANSACTIONS: Proceeds from Units Issued Through Dividend Reinvestment................................... 50,245 90,340 Cost of Units Repurchased........................ (4,057,376) (7,509,250) ------------ ----------- NET CHANGE IN NET ASSETS FROM PARTNERSHIP UNIT TRANSACTIONS................................... (4,007,131) (7,418,910) ------------ ----------- TOTAL INCREASE/DECREASE IN NET ASSETS............ (10,131,826) 603,225 NET ASSETS: Beginning of the Period.......................... 94,808,124 94,204,899 ------------ ----------- End of the Period................................ $ 84,676,298 $94,808,124 ============ =========== CHANGE IN PARTNERSHIP UNITS OUTSTANDING: Units Issued Through Dividend Reinvestment....... 139 228 Units Repurchased................................ (11,914) (18,804) ------------ ----------- Decrease in Partnership Units Outstanding...... (11,775) (18,576) ============ ===========
See Notes to Financial Statements 11 Financial Highlights THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE UNIT OF THE FUND OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
YEAR ENDED DECEMBER 31, (A) ---------------------------------------------------- 2001 2000 1999 1998 1997 ---------------------------------------------------- NET ASSET VALUE, BEGINNING OF THE PERIOD.......................... $ 376.51 $348.41 $313.59 $243.54 $205.35 -------- ------- ------- ------- ------- Net Investment Income........... 2.40 1.85 1.77 2.01 1.91 Net Realized and Unrealized Gain/Loss..................... (24.86) 28.06 34.82 69.32 37.56 -------- ------- ------- ------- ------- Total from Investment Operations...................... (22.46) 29.91 36.59 71.33 39.47 -------- ------- ------- ------- ------- Less: Distributions from Net Investment Income............. 1.28 1.28 1.28 1.28 1.28 Distributions from Net Realized Gain.......................... -0- .53 .49 -0- -0- -------- ------- ------- ------- ------- Total Distributions............... 1.28 1.81 1.77 1.28 1.28 -------- ------- ------- ------- ------- NET ASSET VALUE, END OF THE PERIOD.......................... $ 352.77 $376.51 $348.41 $313.59 $243.54 ======== ======= ======= ======= ======= Total Return (b).................. -5.97% 8.56% 11.48% 29.36% 19.23% Net Assets at End of the Period (In millions)................... $ 84.7 $ 94.8 $ 94.2 $ 87.9 $ 70.3 Ratio of Expenses to Average Net Assets.......................... .64% .65% .75% .74% .75% Ratio of Net Investment Income to Average Net Assets.............. .68% .45% .53% .73% .80% Portfolio Turnover................ 0% 0% 0% 0% 0%
(a) Based on average units outstanding. (b) Total return based on net asset value (NAV) assumes an investment at the beginning of the period indicated, reinvestment of all distributions for the period, and sale of all shares at the end of the period, all at NAV. The returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions. See Notes to Financial Statements 12 NOTES TO FINANCIAL STATEMENTS December 31, 2001 1. SIGNIFICANT ACCOUNTING POLICIES Van Kampen Exchange Fund (the "Fund"), a California limited partnership, is a partnership registered under the Investment Company Act of 1940, as amended, as a diversified open-end investment management company. The Fund seeks long-term growth of capital. The production of current income is a secondary objective. The Fund commenced investment operations on December 16, 1976. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. A. SECURITY VALUATION Investments in securities listed on a securities exchange are valued at their sale price as of the close of such securities exchange. Fixed income investments are stated at value using market quotations. Listed securities and unlisted securities for which the last sales price is not available are valued at the mean between the last reported bid and ask price. For those securities where quotations or prices are not available, valuations are determined in accordance with procedures established in good faith by the Managing General Partners. Short-term securities with remaining maturities of 60 days or less are valued at amortized cost, which approximates market value. B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date basis. Realized gains and losses are determined on an identified cost basis. The Fund may invest in repurchase agreements which are short-term investments whereby the Fund acquires ownership of a debt security and the seller agrees to repurchase the security at a future time and specified price. The Fund may invest independently in repurchase agreements, or transfer uninvested cash balances into a pooled cash account along with other investment companies advised by Van Kampen Asset Management Inc. (the "Adviser") or its affiliates, the daily aggregate of which is invested in repurchase agreements. Repurchase agreements are fully collateralized by the underlying debt security. The Fund will make payment for such securities only upon physical delivery or evidence of book entry transfer to the account of the custodian bank. The seller is required to maintain the value of the underlying security at not less than the repurchase proceeds due the Fund. 13 NOTES TO FINANCIAL STATEMENTS December 31, 2001 C. INVESTMENT INCOME Dividend income is recorded on the ex-dividend date and interest income is recorded on an accrual basis. D. FEDERAL INCOME TAXES The Fund has met the qualifications to be classified as a partnership for federal income tax purposes and intends to maintain this qualification in the future. A partnership is not subject to federal income tax. At December 31, 2001, for federal income tax purposes the cost of long- and short-term investments is $3,746,594, the aggregate gross unrealized appreciation is $81,112,699 and the aggregate gross unrealized depreciation is $58,519, resulting in net unrealized appreciation on long- and short-term investments of $81,054,180. E. DISTRIBUTION OF INCOME AND GAINS Quarterly distributions to partners are recorded on the record date. Net investment income is allocated daily to each partner, relative to the total number of units held. Capital gains or losses will be allocated equally among units outstanding on the day recognized. F. EXPENSE REDUCTIONS During the year ended December 31, 2001, the Fund's custody fee was reduced by $211 as a result of credits earned on cash balances. 2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES Under the terms of the Fund's Investment Advisory Agreement, the Adviser will provide facilities and investment advice to the Fund for an annual fee payable monthly of .50% based on the average daily net assets of the Fund. For the year ended December 31, 2001, the Fund recognized expenses of approximately $3,300 representing legal services provided by Skadden, Arps, Slate, Meagher, & Flom (Illinois), counsel to the Fund, of which a trustee of the Fund is an affiliated person. Under an Accounting Services agreement, the Adviser provides accounting services to the Fund. The Adviser allocates the cost of such services to each fund. For the year ended December 31, 2001, the Fund recognized expenses of approximately $11,900 representing Van Kampen Investments Inc.'s or its affiliates' (collectively "Van Kampen") cost of providing accounting services to the Fund, which are reported as part of "Other" expenses in the Statement of Operations. Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as the shareholder servicing agent for the Fund. For the year ended December 31, 2001, the Fund recognized expenses of approximately $7,500. Transfer agency fees are determined through negotiations with the Fund's Managing General Partners and are based on competitive benchmarks. 14 NOTES TO FINANCIAL STATEMENTS December 31, 2001 Managing general partners of the Fund who are not affiliated with the Adviser are compensated by the Fund at the annual rate of approximately $500 plus a fee of $250 per Board meeting attended. The Managing General Partners of the Fund instituted a Retirement Plan effective April 1, 1996. The Plan is not funded, and obligations under the Plan will be paid solely out of the Fund's general accounts. The Fund will not reserve or set aside funds for the payment of its obligations under the Plan by any form of trust or escrow. For the current Managing General Partners not affiliated with the Adviser, the annual retirement benefit payable per year for a ten year period is based upon the highest total annual compensation received in any of the three calendar years preceding retirement. Managing General Partners with more than five but less than ten years service at retirement will receive a prorated reduced benefit. Under the Plan, for the Managing General Partners retiring with the effectiveness of the Plan, the annual retirement benefit payable per year for a ten year period is equal to 75% of the total compensation received from the Fund during the 1995 calendar year. At December 31, 2001, Van Kampen Funds Inc. and Van Kampen Exchange Corp., as nonmanaging general partners of the Fund, owned 340 and 3,082 units of partnership interest, respectively. 3. PARTNERSHIP UNIT TRANSACTIONS Partners of the Fund may redeem units at any time. The net asset value of units redeemed, other than redemptions under a systematic withdrawal plan, may be paid in cash or securities, at the option of the Fund, and will ordinarily be paid in whole or in part in securities. The Fund's valuation will determine the quantity of securities tendered. The Fund will select securities for tender in redemptions based on tax or investment considerations. 4. INVESTMENT TRANSACTIONS During the period, the cost of purchases and proceeds from sales of investments, excluding short-term investments, were $-0- and $2,406,715, respectively. All sales during the year resulted from redemption in kind distributions. 5. NET ASSETS At December 31, 2001, net assets include the following: Net paid in capital on units of beneficial interest......... $ 7,861,722 Net unrealized appreciation on investments.................. 76,814,576 ----------- Total net assets............................................ $84,676,298 ===========
15 REPORT OF INDEPENDENT AUDITORS To the Partners of Van Kampen Exchange Fund We have audited the accompanying statement of assets and liabilities of Van Kampen Exchange Fund, a California Limited Partnership (the "Fund"), including the portfolio of investments, as of December 31, 2001, the related statement of operations for the year then ended, and the statements of changes in net assets and the financial highlights for each of the two years in 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 audits. The Fund's financial highlights for the periods ended prior to December 31, 2000, were audited by other auditors whose report, dated February 10, 2000, expressed an unqualified opinion on those financial highlights. We conducted our audits 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 December 31, 2001, by correspondence with the Fund's custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide 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 Exchange Fund as of December 31, 2001, the results of its operations, the changes in its net assets and the financial highlights for the respective stated periods, in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Chicago, Illinois February 8, 2002 16 MANAGING GENERAL PARTNERS AND IMPORTANT ADDRESSES VAN KAMPEN EXCHANGE FUND (A CALIFORNIA LIMITED PARTNERSHIP) MANAGING GENERAL PARTNERS DAVID C. ARCH ROD DAMMEYER HOWARD J. KERR THEODORE A. MYERS RICHARD F. POWERS, III - Chairman HUGO F. SONNENSCHEIN WAYNE W. WHALEN* INVESTMENT ADVISOR VAN KAMPEN ASSET MANAGEMENT INC. 1 Parkview Plaza P.O. Box 5555 Oakbrook Terrace, Illinois 60181-5555 SHAREHOLDER SERVICING AGENT VAN KAMPEN INVESTOR SERVICES INC. P.O. Box 218256 Kansas City, Missouri 64121-8256 CUSTODIAN STATE STREET BANK AND TRUST COMPANY 225 Franklin Street P.O. Box 1713 Boston, Massachusetts 02110 NON-MANAGING GENERAL PARTNERS VAN KAMPEN EXCHANGE CORP. 1 Parkview Plaza P.O. Box 5555 Oakbrook Terrace, Illinois 60181-5555 VAN KAMPEN FUNDS INC. 1 Parkview Plaza P.O. Box 5555 Oakbrook Terrace, Illinois 60181-5555 LEGAL COUNSEL SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS) 333 West Wacker Drive Chicago, Illinois 60606 INDEPENDENT AUDITORS DELOITTE & TOUCHE LLP 180 North Stetson Avenue Chicago, Illinois 60601 * "Interested" persons of the Fund, as defined in the Investment Company Act of 1940, as amended. 17 MANAGING GENERAL PARTNER AND OFFICER INFORMATION The business and affairs of the Fund are managed under the direction of the Fund's Managing General Partners and the Fund's officers appointed by the Managing General Partners. The tables below list the managing general partners and officers of the Fund and their principal occupations for the last five years, other directorships held by the managing general partners and their affiliations, if any, with Van Kampen Investments Inc. ("Van Kampen Investments"), Van Kampen Investment Advisory Corp. ("Advisory Corp."), Van Kampen Asset Management Inc. ("Asset Management"), Van Kampen Funds Inc. (the "Distributor"), Van Kampen Advisors Inc., Van Kampen Trust Company, Van Kampen Exchange Corp. and Van Kampen Investor Services Inc. ("Investor Services"). Advisory Corp. and Asset Management sometimes are referred to herein collectively as the "Advisers." For purposes hereof, the term "Fund Complex" includes each of the investment companies advised by the Advisers. Managing General Partners serve one year terms or until their successors are duly elected and qualified. Officers are annually elected by the managing general partners. INDEPENDENT MANAGING GENERAL PARTNERS:
NUMBER OF FUNDS IN FUND COMPLEX TERM OF OVERSEEN OFFICE AND BY NAME, AGE AND ADDRESS POSITION(S) LENGTH OF MANAGING OF INDEPENDENT MANAGING HELD WITH TIME PRINCIPAL OCCUPATION(S) GENERAL GENERAL PARTNER FUND SERVED DURING PAST 5 YEARS PARTNER David C. Arch (56) Managing Managing Mr. Arch is Chairman and Chief Executive 37 Blistex Inc. General General Officer of Blistex Inc., a consumer health 1800 Swift Drive Partner Partner care products manufacturer, and former Oak Brook, IL 60523 since 1988 Director of the World Presidents Organization-Chicago Chapter. Mr. Arch is also a Trustee or Managing General Partner of other investment companies advised by the Advisers. NAME, AGE AND ADDRESS OTHER DIRECTORSHIPS OF INDEPENDENT MANAGING HELD BY MANAGING GENERAL PARTNER GENERAL PARTNER David C. Arch (56) Blistex Inc. 1800 Swift Drive Oak Brook, IL 60523
18
NUMBER OF FUNDS IN FUND COMPLEX TERM OF OVERSEEN OFFICE AND BY NAME, AGE AND ADDRESS POSITION(S) LENGTH OF MANAGING OF INDEPENDENT MANAGING HELD WITH TIME PRINCIPAL OCCUPATION(S) GENERAL GENERAL PARTNER FUND SERVED DURING PAST 5 YEARS PARTNER Rod Dammeyer (61) Managing Managing Mr. Dammeyer is President of CAC, llc., a 37 CAC, llc. General General private company offering capital investment 676 North Michigan Avenue Partner Partner and management advisory services. Mr. Dammeyer Suite 2800 since 1988 is also a Trustee or Managing General Partner Chicago, IL 60611 of other investment companies advised by the Advisers. Prior to February 2001, Mr. Dammeyer was Vice Chairman and Director of Anixter International, Inc. and IMC Global Inc. Prior to July 2000, Mr. Dammeyer was a Managing Partner of Equity Group Corporate Investment (EGI), a company that makes private investments in other companies. Prior to 1997, Mr. Dammeyer was President, Chief Executive Officer and a Director of Great American Management & Investment, Inc., a diversified manufacturing company. NAME, AGE AND ADDRESS OTHER DIRECTORSHIPS OF INDEPENDENT MANAGING HELD BY MANAGING GENERAL PARTNER GENERAL PARTNER Rod Dammeyer (61) Mr. Dammeyer is a member CAC, llc. of the Board of Directors 676 North Michigan Avenue of TeleTech Holdings Suite 2800 Inc., Stericycle, Inc., Chicago, IL 60611 GATX Corporation, Arris Group, Inc. and Peregrine Systems Inc. and a member of the Board of Trustees of the University of Chicago Hospitals and Health Systems. Prior to July 2000, Mr. Dammeyer was a member of the Board of Directors of Allied Riser Communications Corp., Matria Healthcare Inc., Transmedia Networks, Inc., CNA Surety, Corp. and Grupo Azcarero Mexico (GAM). Prior to April 1999, Mr. Dammeyer was a Director of Metal Management, Inc. Prior to 1998, Mr. Dammeyer was a Director of Lukens, Inc., Capsure Holdings Corp., Revco D.S., Inc., the Chase Manhattan Corporation National Advisory Board and Sealy, Inc. Prior to 1997, Mr. Dammeyer was a Director of Flacon Building Products, Inc.
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NUMBER OF FUNDS IN FUND COMPLEX TERM OF OVERSEEN OFFICE AND BY NAME, AGE AND ADDRESS POSITION(S) LENGTH OF MANAGING OF INDEPENDENT MANAGING HELD WITH TIME PRINCIPAL OCCUPATION(S) GENERAL GENERAL PARTNER FUND SERVED DURING PAST 5 YEARS PARTNER Howard J Kerr (65) Managing Managing Mr. Kerr is a Trustee or Managing General 37 736 North Western Avenue General General Partner of other investment companies advised P.O. Box 317 Partner Partner by the Advisers. Prior to 1998, Mr. Kerr was Lake Forest, IL 60045 since 1992 the President and Chief Executive Officer of Pocklington Corporation, Inc., an Investment holding company. Theodore A. Myers (71) Managing Managing Mr. Myers is a financial consultant. Mr. Myers 37 550 Washington Avenue General General is also a Trustee or Managing General Partner Glencoe, IL 60022 Partner Partner of other investment companies advised by the since 1988 Advisers. Prior to 1998, Mr. Myers was a Senior Financial Advisor (and, prior to 1997, an Executive Vice President, Chief Financial Officer and Director) of Qualitech Steel Corporation, a producer of high quality engineered steels for automotive, transportation and capital goods industries. Prior to 1997, Mr. Myers was a member of the Arthur Andersen Chief Financial Officers' Committee. NAME, AGE AND ADDRESS OTHER DIRECTORSHIPS OF INDEPENDENT MANAGING HELD BY MANAGING GENERAL PARTNER GENERAL PARTNER of Flacon Building Products, Inc. Howard J Kerr (65) Mr. Kerr is a Director of 736 North Western Avenue Canbra Foods, Ltd., a P.O. Box 317 Canadian oilseed Lake Forest, IL 60045 crushing, refining, processing and packaging. operation, and the Marrow Foundation. Theodore A. Myers (71) Mr. Myers is a Director 550 Washington Avenue of Met Life Investors Glencoe, IL 60022 (formerly known as COVA Financial Life Insurance). Prior to 1997, Mr. Myers was a Director of McLouth Steel.
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NUMBER OF FUNDS IN FUND COMPLEX TERM OF OVERSEEN OFFICE AND BY NAME, AGE AND ADDRESS POSITION(S) LENGTH OF MANAGING OF INDEPENDENT MANAGING HELD WITH TIME PRINCIPAL OCCUPATION(S) GENERAL GENERAL PARTNER FUND SERVED DURING PAST 5 YEARS PARTNER Hugo F. Sonnenschein (60) Managing Managing Mr. Sonnenschein is President Emeritus and 37 1126 E. 59th Street General General Honorary Trustee of the University of Chicago Chicago, IL 60637 Partner Partner and the Hutchinson Distinguished Professor in since 1994 the Department of Economics at the University of Chicago. Prior to July 2000, Mr. Sonnenschein was President of the University of Chicago. Mr. Sonnenschein is a member of the Board of Trustees of the University of Rochester and a member of its investment committee. Mr. Sonnenschein is a member of the National Academy of Sciences, the American Philosophical Society, and a fellow of the American Academy of Arts and Sciences. Mr. Sonnenschein is also a Trustee or Managing General Partner of other investment companies advised by the Advisers. NAME, AGE AND ADDRESS OTHER DIRECTORSHIPS OF INDEPENDENT MANAGING HELD BY MANAGING GENERAL PARTNER GENERAL PARTNER Hugo F. Sonnenschein (60) 1126 E. 59th Street Chicago, IL 60637
21 INTERESTED MANAGING GENERAL PARTNERS*:
NUMBER OF FUNDS IN FUND COMPLEX TERM OF OVERSEEN OFFICE AND BY NAME, AGE AND ADDRESS POSITION(S) LENGTH OF MANAGING OF INDEPENDENT MANAGING HELD WITH TIME PRINCIPAL OCCUPATION(S) GENERAL GENERAL PARTNER FUND SERVED DURING PAST 5 YEARS PARTNER Richard F. Powers, III* Chairman Managing Mr. Powers is Chairman, Director, President, 98 (55) General Chief Executive Officer and Managing Director 1 Parkview Plaza Partner of Van Kampen; Chairman, Director, Chief Oakbrook Terrace, IL since 1999 Executive Officer and Managing Director of the 60181 Advisers, Distributor, Van Kampen Advisors Inc. and Van Kampen Management Inc.; Director of other subsidiaries of Van Kampen; and Chief Sales and Marketing Officer of Morgan Stanley Dean Witter Asset Management Inc. Mr. Powers is also Chairman of the Board, Trustee/Director and President of funds in the Fund Complex. Prior to May 1998, Mr. Powers was Executive Vice President; and Director of Marketing of Morgan Stanley Dean Witter & Co. and Director of Dean Witter Discover & Co. and Dean Witter Realty. Prior to 1996, Mr. Powers was Director of Dean Witter Reynolds Inc. Wayne W. Whalen* (62) Managing Managing Mr. Whalen is a Partner in the law firm of 98 333 West Wacker Drive General General Skadden, Arps, Slate, Meagher & Flom Chicago, IL 60606 Partner Partner (Illinois), legal counsel to certain funds since 1988 advised by the Advisers. Mr. Whalen is a Trustee, Director or Managing General Partner of other funds advised by the Advisers. NAME, AGE AND ADDRESS OTHER DIRECTORSHIPS OF INDEPENDENT MANAGING HELD BY MANAGING GENERAL GENERAL PARTNER PARTNER Richard F. Powers, III* (55) 1 Parkview Plaza Oakbrook Terrace, IL 60181 Wayne W. Whalen* (62) 333 West Wacker Drive Chicago, IL 60606
* Such partner is an "interested person" (within the meaning of Section 2(a)(19) of the 1940 Act). Mr. Whalen is an interested person to certain of the funds in the Fund Complex by reason of his firm currently acting as legal counsel to such funds in the Fund Complex. Mr. Powers is an interested person of such funds in the Fund Complex and the Advisers by reason of their positions with Morgan Stanley or its affiliates. 22 OFFICERS:
TERM OF OFFICE AND POSITION(S) LENGTH OF NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S) ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS Stephen L. Boyd (61) Executive Vice Officer Managing Director and Chief Investment Officer of Van Kampen 2800 Post Oak Blvd. President and since 1998 Investments, and Managing Director, President and Chief 45th Floor Chief Investment Operating Officer of the Advisers and Van Kampen Advisors Houston, TX 77056 Officer Inc. Executive Vice President and Chief Investment Officer of funds in the Fund Complex. Prior to December 2000, Executive Vice President and Chief Investment Officer of Van Kampen Investments, and President and Chief Operating Officer of the Advisers. Prior to April 2000, Executive Vice President and Chief Investment Officer for Equity Investments of the Advisers. Prior to October 1998, Vice President and Senior Portfolio Manager with AIM Capital Management, Inc. Prior to February 1998, Senior Vice President and Portfolio Manager of Van Kampen American Capital Asset Management, Inc., Van Kampen American Capital Investment Advisory Corp. and Van Kampen American Capital Management, Inc.
23
TERM OF OFFICE AND POSITION(S) LENGTH OF NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S) ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS A. Thomas Smith III (45) Vice President and Officer Managing Director and Director of Van Kampen Investments, Harborside Financial Center Secretary since 1999 Director of the Advisers, Van Kampen Advisors Inc., the Plaza 2 - 7th Floor Distributor, Investor Services and certain other Jersey City, NJ 07311 subsidiaries of Van Kampen Investments. Managing Director and General Counsel-Mutual Funds of Morgan Stanley Investment Advisors, Inc. Vice President or Principal Legal Officer and Secretary of funds in the Fund Complex. Prior to July 2001, Managing Director, General Counsel, Secretary and Director of Van Kampen Investments, the Advisers, the Distributor, Investor Services, and certain other subsidiaries of Van Kampen Investments. Prior to December 2000, Executive Vice President, General Counsel, Secretary and Director of Van Kampen Investments, the Advisers, Van Kampen Advisors Inc., the Distributor, Investor Services and certain other subsidiaries of Van Kampen Investments. Prior to January 1999, Vice President and Associate General Counsel to New York Life Insurance Company ("New York Life"), and prior to March 1997, Associate General Counsel of New York Life. Prior to December 1993, Assistant General Counsel of The Dreyfus Corporation. Prior to August 1991, Senior Associate, Willkie Farr & Gallagher. Prior to January 1989, Staff Attorney at the Securities and Exchange Commission, Division of Investment Management, Office of Chief Counsel. Michael H. Santo (46) Vice President Officer Managing Director, Chief Operations Officer and Director of 1 Parkview Plaza since 1999 Van Kampen Investments, Managing Director, Chief Executive Oakbrook Terrace, IL 60181 Officer and Director of Investor Services, Managing Director, Chief Operations and Technology Officer and Director of the Advisers, the Distributor and Van Kampen Advisors Inc. and serves as a Director or Officer of certain other subsidiaries of Van Kampen Investments. Vice President of funds in the Fund Complex. Prior to December 2000, Executive Vice President, Chief Administrative Officer and Director of Van Kampen Investments, the Advisers, the Distributor, Van Kampen Advisors Inc. and Investor Services. Prior to 1998, Senior Vice President and Senior Planning Officer for Individual Asset Management of Morgan Stanley Dean Witter and its predecessor since 1994.
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TERM OF OFFICE AND POSITION(S) LENGTH OF NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S) ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS John R. Reynoldson (48) Vice President Officer Executive Director of the Advisers and Van Kampen Advisors 1 Parkview Plaza since 2000 Inc. Vice President of funds in the Fund Complex. Prior to Oakbrook Terrace, IL 60181 July 2001, Principal and Co- head of the Fixed Income Department of the Advisers and Van Kampen Advisors Inc. Prior to December 2000, Senior Vice President of the Advisers and Van Kampen Advisors Inc. Prior to May 2000, he managed the investment grade taxable group for the Advisers since July 1999. From July 1988 to June 1999, he managed the government securities bond group for Asset Management. Mr. Reynoldson has been with Asset Management since April 1987. John L. Sullivan (46) Vice President, Officer Executive Director of Van Kampen Investments, the Advisers 1 Parkview Plaza Chief Financial since 1996 and Van Kampen Advisors Inc. Vice President, Chief Financial Oakbrook Terrace, IL 60181 Officer and Officer and Treasurer of funds in the Fund Complex. Treasurer John H. Zimmermann, III (44) Vice President Officer Managing Director and Director of Van Kampen Investments, Harborside Financial Center since 2000 and Managing Director, President and Director of the Plaza 2 - 7th Floor Distributor. Vice President of funds in the Fund Complex. Jersey City, NJ 07311 Prior to December 2000, President of Van Kampen Insurance Agency of Illinois Inc., and Senior Vice President and Director of Van Kampen Investments. From November 1992 to December 1997, Mr. Zimmermann was Senior Vice President of the Distributor.
25 Van Kampen Privacy Notice The Van Kampen companies and investment products* respect your right to privacy. We also know that you expect us to conduct and process your business in an accurate and efficient manner. To do so, we must collect and maintain certain nonpublic personal information about you. This is information we collect from you on applications or other forms, and from the transactions you make with us, our affiliates, or third parties. We may also collect information you provide when using our web site, and text files (a.k.a. "cookies") may be placed on your computer to help us to recognize you and to facilitate transactions you initiate. We do not disclose any nonpublic personal information about you or any of our former customers to anyone, except as permitted by law. For instance, so that we may continue to offer you Van Kampen investment products and services that meet your investing needs, and to effect transactions that you request or authorize, we may disclose the information we collect to companies that perform services on our behalf, such as printers and mailers that assist us in the distribution of investor materials. These companies will use this information only for the services for which we hired them, and are not permitted to use or share this information for any other purpose. To protect your nonpublic personal information internally, we permit access to it only by authorized employees, and maintain physical, electronic and procedural safeguards to guard your nonpublic personal information. * Includes Van Kampen Investments Inc., Van Kampen Investment Advisory Corp., Van Kampen Asset Management Inc., Van Kampen Advisors Inc., Van Kampen Management Inc., Van Kampen Funds Inc., Van Kampen Investor Services Inc., Van Kampen Trust Company, Van Kampen System Inc. and Van Kampen Exchange Corp., as well as the many Van Kampen mutual funds and Van Kampen unit investment trusts. The Statement of Additional Information includes additional information about the Fund's managing general partners and executive officers and is available, without charge, upon request by calling (800) 341-2911. Van Kampen Funds Inc. 1 Parkview Plaza, P.O. Box 5555 Oakbrook Terrace, IL 60181-5555 vankampen.com [VAN KAMPEN INVESTMENTS LOGO] Copyright (C)2002 Van Kampen Funds Inc. All rights reserved. EXCH ANR 2/02 Member NASD/SIPC. 5257B02-AP-2/02