<PAGE>
VAN KAMPEN
HARBOR FUND
Semi-Annual Report
June 30, 1998
[ARTWORK APPEARS HERE]
Van Kampen
FUNDS
<PAGE>
Table of Contents
<TABLE>
<S> <C>
Letter to Shareholders.................... 1
Performance Results....................... 3
Glossary of Terms......................... 4
Portfolio Management Review............... 5
Portfolio Highlights...................... 8
Portfolio of Investments.................. 9
Statement of Assets and Liabilities....... 16
Statement of Operations................... 17
Statement of Changes in Net Assets........ 18
Financial Highlights...................... 19
Notes to Financial Statements............. 22
</TABLE>
HAR SAR 8/98
<PAGE>
Letter to Shareholders
[PHOTO]
Dennis J. McDonnell and Don G. Powell
July 16, 1998
Dear Shareholder,
As you may know, Van Kampen American Capital is consolidating all of the
retail mutual funds that we distribute under the single name of Van Kampen
Funds. This move accompanies the change in our legal name to Van Kampen Funds
Inc.
You can be assured that the change in your fund's name will not affect its
management or daily operations. You will begin seeing the application of this
change with this report. In addition, as of August 31, your fund will be listed
in the daily newspapers by share class under the heading "Van Kampen Funds." For
your convenience, we have enclosed a separate brochure that covers additional
details related to these changes.
Economic Review
The U.S. economy continued to expand at a robust pace despite a deepening
recession in a number of Asian nations. The nation's inflation-adjusted output
of goods and services ran at 5.4 percent during the first quarter, an annualized
rate considered by many economists to be virtually unsustainable without leading
to inflation. As the reporting period ended, however, there were indications
that the Asian financial crisis was finally having a moderating impact on the
economy. Also, the Conference Board's index of leading indicators points toward
a slowdown in economic growth later this year.
Despite the generally solid pace of economic activity, inflation remained
benign. Consumer prices rose by 1.7 percent during the 12 months through June,
while producer prices actually declined during the same period. Falling
commodity prices and the impact of the strong dollar helped to offset the
inflationary implications of a tight labor market and strong consumer spending.
While the Federal Reserve kept short-term interest rates steady at 5.5
percent during the reporting period, minutes from the central bank's May policy
meeting indicated growing sentiment for tightening monetary policy if the drag
from Asia does not slow the American economy on its own.
Market Review
U.S. stocks continued to post gains during the period, but the sharp
variation in returns across industry groups reflected the growing impact of the
Asian financial crisis on corporate profits. The Wilshire 5000 Index, consisting
of all publicly traded U.S. companies, gained 14.68 percent during the first six
months of 1998. Once again, most of the strength was concentrated in large-
capitalization companies, as the S&P 500 Index of large stocks returned 17.67
percent during the period compared to 4.93 percent for the Russell 2000 Index of
small-cap issues. Even large stocks, however, fell back significantly beginning
in April as the Asian crisis intensified.
1 Continued on page two
<PAGE>
Companies with heavy exposure to domestic consumers benefited from a strong
American economy, especially during the latter stages of the reporting period.
Consumer cyclical stocks returned 28.94 percent during the first six months of
1998, compared to 6.35 percent for basic materials and 3.01 percent for energy
issues. Eight of the ten top-performing industry groups during the second
quarter were from consumer-related sectors. Meanwhile, the steep decline in
energy and agricultural prices--a consequence of reduced demand from
Asia--undermined the performance of commodity-related stocks. During the three
months through June, five of the ten worst-performing industry sectors were from
either energy, metals, or commodity-based industries.
Outlook
We believe economic growth in the United States is likely to slow in coming
months as the impact of the Asian crisis becomes more apparent. As growth
decelerates, corporate profits will come under pressure, especially among larger
companies. Given the difficult year-over-year earnings comparisons that will
begin to appear in coming quarters, we caution investors not to expect a
continuation of the large gains that have become almost routine for U.S. stocks
in recent years. The high valuations and decelerating profit growth could limit
returns in the equity market over the near term.
Still, the overall environment for equities remains positive. Inflation is
low, the economy continues to grow, the bond market is healthy, and monetary
policy is stable. These characteristics usually support relatively high
valuations in the stock market. We remain confident that the domestic equity
asset class will continue to provide solid growth for investors with a long-term
time horizon.
Additional details about your fund, including a question-and-answer section
with your portfolio management team, are provided in this report. As always, we
are pleased to have the opportunity to serve you and your family through our
diverse menu of quality investments.
Sincerely,
/s/ Don G. Powell /s/ Dennis J. McDonnell
Don G. Powell Dennis J. McDonnell
Chairman President
Van Kampen Asset Management Inc. Van Kampen Asset Management Inc.
2
<PAGE>
Performance Results for the Period Ended June 30, 1998
Van Kampen Harbor Fund
<TABLE>
<CAPTION>
A Shares B Shares C Shares
<S> <C> <C> <C>
Total Returns
Six-month total return based on NAV/1/....... 6.10% 5.73% 5.69%
Six-month total return/2/.................... (0.01)% 0.73% 4.69%
One-year total return/2/..................... 7.62% 8.51% 12.38%
Five-year average annual total return/2/..... 9.57% 9.82% N/A
Ten-year average annual total return/2/...... 11.01% N/A N/A
Life-of-Fund average annual total return/2/.. 9.87% 10.85% 9.85%
Commencement date............................ 11/15/56 12/20/91 10/26/93
</TABLE>
N/A = Not Applicable
/1/ Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge (5.75% for A shares) or contingent
deferred sales charge for early withdrawal (5% for B shares and 1% for C
shares).
/2/ Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (A shares) or contingent
deferred sales charge for early withdrawal (B and C shares).
See the Prior Performance section of the current prospectus. Past performance
does not guarantee future results. Investment return and net asset value will
fluctuate with market conditions. This performance was achieved during generally
rising stock prices. Fund shares, when redeemed, may be worth more or less than
their original cost.
Debt securities acquired by the Fund are not subject to any ratings limitations
and may include high-, medium-, lower- and non-rated debt securities. Lower- and
non-rated securities are regarded as speculative with respect to capacity to pay
interest and repay principal.
Market forecasts provided in this report may not necessarily come to pass.
3
<PAGE>
Glossary of Terms
Bond:
A debt security issued by a government or corporation that generally pays a
bondholder a stated rate of interest and repays the principal at maturity date.
Common stock:
Shares of securities that represent ownership in a corporation. Common
stock's dividend rights are subordinate to preferred stock's, and its dividends
are not fixed.
Convertible security:
A security that can be exchanged for common stock at the option of the
security holder for a specified price or rate. Examples include convertible
bonds and convertible preferred stock.
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 companies.
Market capitalization:
The size of a company, as measured by the value of its stock. Morningstar,
an independent mutual fund rating service, defines "small-cap" as less than $1
billion, "mid-cap" as between $1 billion and $5 billion, and "large-cap" as more
than $5 billion.
Net asset value (NAV):
The value of a mutual fund share, computed by deducting a fund's
liabilities from its total assets and dividing this amount by the number of
shares outstanding. The NAV does not include any initial or contingent deferred
sales charge.
Standard & Poor's 500-Stock Index:
A broad-based measurement of changes in stock-market conditions based on
the average performance of 500 widely held common stocks. The index, which
tracks industrial, transportation, financial, and utility stocks, provides a
guide to the overall health of the U.S. stock market. The S&P 500 is a much
broader index than the Dow Jones Industrial Average and reflects the stock
market more accurately.
Yield:
The annual rate of return on an investment, usually expressed as a
percentage. For bonds and notes, the yield is the annual interest divided by the
market price.
4
<PAGE>
Portfolio Management Review
Van Kampen Harbor Fund
We recently spoke to the management team of the Van Kampen Harbor Fund about the
key events and economic forces that shaped the markets during the past six
months. The team included Christine Drusch, portfolio manager; Matthew Hart,
portfolio comanager; and Dennis J. McDonnell, president of the adviser. The
following excerpts reflect their views on the Fund's performance during the six
months ended June 30, 1998.
Q Can you describe the stock market environment for the Fund during the past
six months?
A The stock market was influenced by two opposing factors. On the home front,
steady economic growth and low inflation provided a favorable climate for
stocks. However, the aftermath of the currency collapse in Southeast Asia
threatened to slow the economies of countries around the world. Fortunately for
equity investors, positive economic conditions in the United States had a
greater influence on the stock market than overseas turmoil did. The Dow Jones
Industrial Average set record highs throughout the reporting period and has
fluctuated around the 9000 mark since April, amid concerns that the consequences
of the Asian situation were beginning to affect U.S. companies' earnings.
Investors continued to favor large, well-established companies during the
reporting period because of their uncertainty about how the Asian situation
would influence the U.S. markets. Generally, large-capitalization companies made
greater gains than small-cap firms did.
Q How did the convertible securities markets respond?
A Convertible securities rose 7.72 percent during the reporting period, while
their underlying common stock appreciated 6.72 percent, according to the Merrill
Lynch Convertible Index. In other words, convertibles achieved a higher rate of
return than their underlying common stock and still enjoyed the lower levels of
risk that convertible securities have typically provided.
Most of the companies that issue convertible securities are small caps, so
convertibles shared in the struggles of small-cap stocks during the reporting
period. The new-issue market for convertibles was very strong, however, due to
low interest rates and high demand. As such, we had plenty of attractive
securities to choose from in managing the portfolio.
Q Given this environment, what was your strategy for managing the Fund?
A We consistently manage the Fund for capital appreciation, current income,
and preservation of capital by investing primarily in convertible securities. In
seeking to meet this objective, we focus on growth companies and diversify
across market sectors. During the reporting period, we narrowed our focus to
identify convertibles with moderate premiums (convertibles usually sell at a
premium over the value of their underlying stock). By investing in convertibles
with moderate premiums, we sought to help lower the Fund's volatility in the
event of a market decline.
5
<PAGE>
The convertible market has closely tracked the small-cap market, so the
Fund was susceptible to the same factors that hindered small-cap performance
during the six months. Small companies tend to have lower credit ratings than
large companies do, and this gap widened during the reporting period as
investors grew concerned about the situation in Asia. Generally, securities with
lower credit ratings are more vulnerable to market declines than higher-rated
companies. As such, we concentrated on the securities we felt most confident
about and aimed to stick with them through the market's ups and downs.
Q Which sectors and holdings had the greatest effects on the portfolio?
A Many of the Fund's best-performing securities came from the retail sector,
where the combination of low unemployment, rising disposable income, and a
flourishing housing market contributed to healthy sales. Some of our strongest
holdings included Pier 1 Imports, Home Depot, Staples, and Men's Wearhouse. Pier
1 Imports and Home Depot sell home-related products and have often flourished
when interest rates are low, because many people seize the opportunity to buy
new homes or refurbish and redecorate their existing homes. We were quick to
take our profits in this sector--retail securities tend to be very sensitive to
economic changes, and we don't want to have too much exposure in case we see
sudden price declines.
Radio advertising also produced some attractive securities. Deregulation of
the broadcasting industry has allowed individual companies to own an
unrestricted number of radio and television stations. Consequently, a small
number of broadcasting companies are dominating the advertising dollars in a
given region and commanding higher advertising prices as they control larger
pieces of each media market. Many radio companies are thriving in this era of
deregulation, and we were pleased with our holdings in Chancellor Media and
Jacor Communications.
Other favorable securities represented a range of sectors and reflect the
Fund's diversity. These included Alza (pharmaceuticals), Travelers Group
(finance), Corestaff (staffing), Worldcom (telecommunications), and EMC
(technology). Although individual securities were the primary drivers of Fund
performance, the portfolio also benefited from small weightings relative to the
convertible market in energy, real estate, and electric utility securities,
which lagged the market in the early part of the year. For additional Fund
portfolio highlights, please refer to page eight.
Q What factors worked against the Fund?
A As we mentioned, the lackluster performance of small stocks had a negative
effect on the Fund, because most convertibles are issued by small-cap companies.
Toward the end of the reporting period, renewed concerns about the weakness of
Asian economies spurred investors' preference for larger, more familiar
companies.
Our substantial weighting in telecommunications was another detriment.
These securities performed well during the early part of the reporting period
but lagged at the end. The telecom industry, which includes wireless equipment
manufacturers and service providers, had a big rally earlier in the year but
suffered from the Asian setback. We continue to believe the telecom industry
will be strong in the coming years, as cellular usage increases worldwide.
Another disappointment was our large position in Cendant, a marketer and
provider of consumer and business services. In April, the company disclosed some
accounting irregularities, causing the stock price to plummet. On the positive
side, the situation with Cendant underscores
6
<PAGE>
the downside protection offered by convertible securities: while the underlying
stock price declined 46 percent on the day of the announcement, the convertible
price dropped a lesser 27.2 percent.
Q How did the Fund perform during the reporting period?
A The Fund performed well relative to its peers, achieving a six-month total
return of 6.10 percent/1/ (Class A shares at net asset value) as of June 30,
1998. By comparison, the Russell 2000 Index returned 4.93 percent, and the
Lipper Convertible Securities Fund Index, which more closely resembles the Fund,
returned 5.68 percent. The Russell 2000 Index reflects the general performance
of smaller-cap stocks, and the Lipper Convertible Securities Fund Index
represents the average performance of convertible securities funds.
These indices are statistical composites that do not include any
commissions or sales charges that would be paid by an investor purchasing the
securities or investments represented by these indices. Please refer to the
chart on page three for additional Fund performance results.
Q What is your outlook for the Fund for the next six months?
A At the time of your last report, the stock market had just suffered a
downturn in anticipation of the consequences of the Asian crisis. The market
rebounded but dropped again this spring when some of these consequences came to
fruition. Only time will tell if this recent volatility represents the full
impact of the Asian situation.
In today's uncertain environment, investors have become very protective of
their market gains, and they're quick to sell securities that falter. Small
stocks are volatile by nature and tend to struggle more than large stocks during
periods of market uncertainty. Despite these conditions, we are optimistic about
the Harbor Fund for two reasons. First, volatile markets favor convertible
securities, which have typically provided investors with some protection against
declining stock prices. And second, small-cap stocks are historically
inexpensive--we think these companies have the potential to realize growth,
which will be reflected in their stock and convertible prices. Between these two
factors, we believe the Harbor Fund is well positioned to face the challenges of
this market.
/s/ Christine Drusch /s/ Matthew Hart
Christine Drusch Matthew Hart
Portfolio Manager Portfolio Comanager
/s/ Dennis J. McDonnell
Dennis J. McDonnell
President
Van Kampen Asset Management Inc.
7 Please see footnotes on page three
<PAGE>
Portfolio Highlights
Van Kampen Harbor Fund
<TABLE>
<CAPTION>
Portfolio Holdings as a Percentage of Long-Term Investments
Percentage of
Top Ten Holdings These Investments
as of June 30, 1998 Six Months Ago
<S> <C> <C>
Omnipoint Corporation.................. 2.63%................ N/A
El Paso Energy Capital Trust........... 1.54%................ N/A
Conseco, Inc........................... 1.51%................ 1.20%
Platinum Technology.................... 1.50%................ N/A
Worldcom, Inc.......................... 1.48%................ 1.02%
News America Holdings, Inc............. 1.48%................ 1.13%
Advanced Micro Devices, Inc............ 1.48%................ N/A
Equitable Cos, Inc..................... 1.43%................ N/A
Whole Food Market, Inc................. 1.39%................ N/A
Level One Communications, Inc.......... 1.38%................ N/A
N/A = Not Applicable
</TABLE>
<TABLE>
<CAPTION>
Top Five Portfolio Sectors as a Percentage of Long-Term Investments
As of June 30, 1998 As of December 31, 1997
<S> <C> <C> <C>
Finance........................... 15% Consumer Services................ 17%
Technology........................ 13% Finance.......................... 15%
Consumer Services................. 13% Health Care...................... 13%
Utilities......................... 12% Energy........................... 12%
Health Care....................... 10% Consumer Distribution............ 11%
</TABLE>
<TABLE>
<CAPTION>
Asset Allocation as a Percentage of Total Investments
As of June 30, 1998 As of December 31, 1997
<S> <C> <C> <C>
Common Stock...................... 10% Common Stock..................... 8%
Convertibles...................... 80% U.S. Government.................. 11%
Other............................. 10% Convertibles..................... 81%
</TABLE>
8
<PAGE>
Portfolio of Investments
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
===================================================================================================
<C> <S> <C> <C> <C>
Domestic Convertible Corporate Obligations 50.7%
Consumer Distribution 8.2%
$ 7,750 Brightpoint Inc., LYON, 144A - Private
Placement (a)....................................... * 03/11/18 $ 3,003,125
4,000 Central Garden & Pet Co............................. 6.000% 11/15/03 5,080,000
1,650 Costco Cos, Inc..................................... * 08/19/17 1,254,000
2,500 Costco Cos, Inc., 144A - Private Placement (a)...... * 08/19/17 1,900,000
1,575 CUC International, Inc.............................. 3.000 02/15/02 1,531,687
1,900 Genesco Inc.,144A - Private Placement (a)........... 5.500 04/15/05 1,857,250
3,000 Home Depot, Inc..................................... 3.250 10/01/01 5,497,500
4,700 Rite Aid Corp., 144A - Private Placement (a)........ 5.250 09/15/02 5,751,625
3,000 Staples, Inc., 144A - Private Placement (a)......... 4.500 10/01/00 5,917,687
16,019 Whole Foods Market Inc.,
144A - Private Placement (a)........................ * 03/02/18 6,507,719
------------
38,300,593
------------
Consumer Services 9.0%
2,500 Conxus Communications Inc.,
144A - Private Placement (a) (c).................... 9.00/9.50 05/15/01 2,475,000
3,426 Data Processing Resources Corp.,
144A - Private Placement (a)........................ 5.250 04/01/05 3,751,470
2,130 Interim Services Inc................................ 4.500 06/01/05 2,284,425
5,800 Jacor Communications Inc., LYON..................... * 02/09/18 2,523,000
3,600 Mail Well Inc....................................... 5.000 11/01/02 4,680,000
5,120 Metamor Worldwide................................... 2.940 08/15/04 4,889,600
5,885 National Data Corp.................................. 5.000 11/01/03 6,135,113
10,550 News America Holdings, Inc., LYON................... * 03/11/13 6,923,437
3,850 Omnicom Group, Inc.,
144A - Private Placement (a)........................ 4.250 01/03/07 6,275,500
2,000 Personnel Group of America, Inc.,
144A - Private Placement (a)........................ 5.750 07/01/04 2,480,000
------------
42,417,545
------------
Energy 3.2%
3,750 Diamond Offshore Drilling, Inc...................... 3.750 02/15/07 4,284,375
2,100 Offshore Logistics, Inc............................. 6.000 12/15/03 2,173,500
</TABLE>
See Notes to Financial Statements
9
<PAGE>
Portfolio of Investments (Continued)
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
===================================================================================================
<C> <S> <C> <C> <C>
Energy (Continued)
$ 3,350 Pennzoil Co. (convertible into 56,963
Chevron Oil Co. common shares)....................... 4.750% 10/01/03 $ 4,694,187
11,123 Pride International Inc.............................. * 04/24/18 3,865,243
------------
15,017,305
------------
Finance 3.7%
2,515 Berkshire Hathaway, Inc.............................. * 12/02/01 4,561,471
3,414 Financial Federal Corp.,
144A - Private Placement (a)......................... 4.500 05/01/05 3,601,770
STRYPES Merrill Lynch & Company, Inc., 60,000 shares
(convertible into 92,310 CIBER,Inc.
common shares)....................................... 7.8750 02/01/01 4,122,961
STRYPES Merrill Lynch & Company, Inc., 126,000 shares
(convertible into 103,269 Cox Communications
common shares)....................................... 6.000 06/01/99 5,021,646
------------
17,307,848
------------
Healthcare 9.3%
4,300 Alternate Living Services, Inc....................... 5.250 12/15/02 4,794,500
7,200 Alza Corp., LYON..................................... * 07/14/14 4,212,000
3,417 Assisted Living Concepts Inc.,
144A - Private Placement (a)......................... 5.625 05/01/03 3,169,268
5,000 Athena Neurosciences, Inc.,
144A - Private Placement (a)......................... 4.750 11/15/04 5,818,750
4,500 ESC Medical Systems Ltd.............................. 6.000 09/01/02 4,483,125
3,410 Genzyme Corporation,
144A - Private Placement (a)......................... 5.250 06/01/05 3,230,975
5,150 Healthsouth Corporation,
144A - Private Placement (a)......................... 3.250 04/01/03 5,104,937
4,800 Omnicare, Inc.,
144A - Private Placement (a)......................... 5.000 12/01/07 5,592,000
2,400 Renal Treatment Centers, Inc......................... 5.625 07/15/06 3,504,000
3,500 Sunrise Assisted Living, Inc.,
144A - Private Placement (a)......................... 5.500 06/15/02 3,867,500
------------
43,777,055
------------
</TABLE>
See Notes to Financial Statements
10
<PAGE>
Portfolio of Investments (Continued)
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
===================================================================================================
<C> <S> <C> <C> <C>
Producer Manufacturing 3.4%
$ 3,410 Antec Corp. 144A - Private Placement (a)............... 4.500% 05/15/03 $ 3,964,125
2,550 Thermo Instrument Systems Inc.......................... 4.000 01/15/05 2,540,437
4,250 U. S. Filter Corp...................................... 4.500 12/15/01 4,356,250
5,100 WMX Technologies, Inc.................................. 2.000 01/24/05 4,902,375
------------
15,763,187
------------
Technology 12.3%
8,530 Advanced Micro Devices Inc............................. 6.000 05/15/05 6,909,300
3,400 Affiliated Computer Services Inc.,
144A - Private Placement (a)........................... 4.000 03/15/05 3,718,750
3,400 Arbor Software Corp.,
144A - Private Placement (a)........................... 4.500 03/15/05 2,847,500
4,650 Comverse Technology Inc................................ 5.750 10/01/06 5,847,375
4,600 Comverse Technology Inc.,
144A - Private Placement (a)........................... 4.500 07/01/05 4,669,000
4,000 Kellstrom Industries Inc............................... 5.500 06/15/03 4,340,000
5,765 Level One Communications, Inc.......................... 4.000 09/01/04 6,442,387
4,000 May Speh Inc........................................... 5.250 04/01/03 5,560,000
5,525 Network Associates Inc.,
144A - Private Placement (a)........................... * 02/13/18 2,562,219
2,000 Photronics, Inc........................................ 6.000 06/01/04 2,187,500
6,500 Platinum Technology Inc................................ 6.250 12/15/02 7,020,000
4,250 Premiere Technologies Inc.............................. 5.750 07/01/04 2,656,250
2,988 Quadramed Corp., 144A - Private Placement (a).......... 5.250 05/01/05 3,073,905
------------
57,834,186
------------
Transportation 1.6%
1,500 Continental Airlines Inc............................... 6.750 04/15/06 3,105,000
4,300 Tower Automotive Inc................................... 5.000 08/01/04 4,429,000
------------
7,534,000
------------
Total Domestic Convertible Corporate Obligations 50.7%. 237,951,719
------------
Foreign Convertible Corporate Obligations 0.8%
Consumer Services 0.6%
2,100 IMAX Corp. (Canada).................................... 5.750 04/01/03 2,551,500
------------
</TABLE>
See Notes to Financial Statements
11
<PAGE>
Portfolio of Investments (Continued)
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Energy 0.2%
$1,000 Swiss Life Finance Limited, (United Kingdom),
(convertible into 13,614 shares of Royal Dutch
Petroleum Co.), 144A - Private Placement (a)............... 2.000% 05/20/05 $1,020,000
----------
Total Foreign Convertible Corporate Obligations 0.8%.......................... 3,571,500
----------
Number
Description of Shares Market Value
- ----------------------------------------------------------------------------------------------------------
Convertible Preferred Stock 28.1%
Consumer Distribution 0.4%
Owens & Minor Trust, 5.3750%, 144A - Private Placement (a)..................... 50,000 $1,850,000
----------
Consumer Durables 1.6%
Fleetwood Capital Trust 6.000%, 144A - Private Placement (a)................... 80,750 4,299,938
Newell Financial Trust, 5.25%, 144A - Private Placement (a).................... 55,000 3,176,250
----------
7,476,188
----------
Consumer Non-Durables 1.9%
Ralston Purina Co., 7.00% (convertible into 83,609
Interstate Bakeries Corp. common shares)....................................... 51,000 3,201,848
Suiza Capital Trust II, TIPES, 5.5000%, 144A - Private Placement (a)........... 119,900 5,875,100
----------
9,076,948
----------
Consumer Services 2.3%
Chancellor Media Corp., $3.000 dividend per share,
144A - Private Placement (a)................................................... 60,000 6,120,000
Host Marriott Financial Trust, QUIPS, 6.75%,
144A - Private Placement (a)................................................... 85,000 4,462,500
----------
10,582,500
----------
Energy 2.2%
Chesapeake Energy Corp., 144A - Private Placement (a).......................... 76,800 3,283,200
El Paso Energy Capital Trust I, 4.7500%........................................ 135,750 7,194,750
----------
10,477,950
----------
Finance 8.0%
Ahmanson H.F. Co., Ser. D, 6.00%............................................... 30,000 4,380,000
Conseco Finance Trust IV, Ser. F, PRIDES, 7.00%................................ 133,800 7,091,400
Finova Finance Trust, TOPRS, 5.50%............................................ 40,000 3,140,000
General Growth Properties Inc., 7.2500%, PIERS................................. 102,400 2,585,600
</TABLE>
12 See Notes to Financial Statements
<PAGE>
Portfolio of Investments (Continued)
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Number
Description of Shares Market Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Finance (Continued)
Glenborough Realty Trust, Inc., 7.7500%, Series A................... 75,000 $ 1,828,125
Jefferson-Pilot Corp., ACES, 7.25% (convertible into 63,335 shares
Nations Bank common stock).......................................... 38,000 5,039,750
Life RE Capital Trust II, 6.000%.................................... 34,300 2,615,375
Philadelphia Consolidated Holdings, PRIDES, 7.000%.................. 298,700 3,061,675
PLC Capital Trust II, PRIDES, 6.50%................................. 48,000 2,976,000
Sun Financing I, TIPS, 7.000%, 144A - Private Placement (a)......... 92,000 2,032,800
Sunamerica Inc., Ser. E, $3.1000 dividend per share................. 17,400 2,803,575
------------
37,554,300
------------
Healthcare 0.5%
Alkermes, Inc., 6.5000%............................................. 51,000 2,129,250
------------
Producer Manufacturing 1.6%
Coltec Capital Trust, TIDES, 5.250%, 144A - Private Placement (a)... 76,900 3,537,400
Ingersoll Rand Company, PRIDES, 6.7500%............................. 171,500 4,116,000
------------
7,653,400
------------
Raw Materials/Processing Industries 0.9%
TXI Capital Trust I, 5.5000%, SPURS................................. 85,000 4,073,757
------------
Technology 0.4%
Unisys Corp., Ser. A, $3.7500 dividend per share.................... 39,700 2,074,325
------------
Utilities 8.3%
Aes Trust II, TECONS, 5.50%, 144A - Private Placement (a)........... 50,000 2,818,750
Houston Industries, Inc., ACES, 7.00% (convertible into
41,857 of Time Warner, Inc. common shares).......................... 50,650 3,773,425
Nextel Strypes Trust, STRYPES, 7.25%................................ 255,000 5,673,750
Airtouch Communications Inc., Series C, 4.250%...................... 70,000 5,775,000
Nextlink Communications Inc., 6.500%, 144A - Private Placement (a).. 83,900 4,341,825
Omnipoint Corp., 7.0000%, 144A - Private Placement (a).............. 256,100 12,292,800
Sprint Corp. DECS, 8.25% (convertible into 64,180
So. New England Telecom. Corp. common stock)........................ 74,000 4,277,596
------------
38,953,146
------------
Total Convertible Preferred Stock 28.1%..................... 131,901,764
------------
</TABLE>
13 See Notes to Financial Statements
<PAGE>
Portfolio of Investments (Continued)
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Number
Description of Shares Market Value
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks 9.9%
Consumer Services 0.7%
CBS Corp......................................................................... 100,000 $ 3,175,000
------------
Energy 1.1%
British Petroleum Co. PLC - ADR (United Kingdom)................................. 56,500 4,986,125
------------
Finance 3.2%
Conseco, Inc..................................................................... 51,400 2,402,950
Equitable Cos., Inc.............................................................. 89,500 6,706,906
U.S. Bancorp..................................................................... 141,000 6,063,000
------------
15,172,856
------------
Producer Manufacturing 1.2%
General Electric Co.............................................................. 62,600 5,696,600
------------
Utilities 3.7%
AT&T Corp........................................................................ 74,000 4,227,250
Smartalk Teleservices Inc........................................................ 225,000 3,276,563
U.S. West, Inc................................................................... 65,000 3,055,000
Worldcom, Inc.................................................................... 143,217 6,937,073
------------
17,495,886
------------
Total Common Stocks................................................ 46,526,467
------------
Total Long-Term Investments 89.5% (Cost $382,978,845)............................ 419,951,450
------------
Short-Term Investments 10.4%
Repurchase Agreement 6.1%
BA Securities ($28,331,000 par collateralized by U.S.
Government Obligations in a pooled cash account, dated 6/30/98,
to be sold on 07/01/98 at $28,335,761) (b)....................................... 28,331,000
Commercial Paper 4.3%
General Electric Capital Corp. ($20,000,000 par, yielding 6.254%,
07/01/98 maturity) (b)........................................................... 19,996,526
------------
Total Short-Term Investments (Cost $48,327,525).................................. 48,327,526
------------
Total Investments 99.9% (Cost $431,306,370)...................................... 468,278,976
Other Assets in Excess of Liabilities 0.1%....................................... 507,819
------------
Net Assets 100.0%................................................................ $468,786,795
============
</TABLE>
14 See Notes to Financial Statements
<PAGE>
Portfolio of Investments (Continued)
June 30, 1998 (Unaudited)
================================================================================
*Zero coupon bond
(a) 144A securities are those which are exempt from registration under rule
144A of the Securities Act of 1933. These securities may be resold in
transactions exempt from registration which are normally transactions with
qualified institutional buyers.
(b) Assets segregated as collateral for open futures transactions.
(c) Security is a "step-up" bond where the coupon increases or steps up at a
predetermined date.
ACES - Automatically convertible equity securities
ADR - American Depository Receipt
DECS - Debt exchangeable for common stock
LYON - Liquid yield option note
PIERS - Preferred income equity redeemable stock
PRIDES - Preferred redeemable increased dividend equity security, traded in
shares
QUIPS - Quarterly Income Preferred Securities
SPURS - Shared preference redeemable securities
STRYPES - Structured yield product exchangeable for stock, traded in shares
TECONS -Trust convertible securities
TIDES -Term income deferrable equity securities
TIPS -Trust issued preferred stock
TIPES -Trust convertible preferred securities
TOPRS -Trust originated preferred securities
15 See Notes to Financial Statements
<PAGE>
Statement of Assets and Liabilities
June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
<S> <C>
Assets:
Total Investments (Cost $431,306,370)...................................... $468,278,976
Cash....................................................................... 2,861
Receivables:
Investments Sold......................................................... 9,370,302
Interest................................................................. 1,960,871
Fund Shares Sold......................................................... 367,050
Dividends.................................................................. 323,912
Other...................................................................... 42,453
------------
Total Assets.......................................................... 480,346,425
------------
Liabilities:
Payables:
Investments Purchased.................................................... 9,197,099
Fund Shares Repurchased.................................................. 831,998
Income Distributions..................................................... 466,280
Distributor and Affiliates............................................... 361,157
Investment Advisory Fee.................................................. 204,715
Variation Margin on Futures.............................................. 81,348
Accrued Expenses........................................................... 275,980
Trustees' Deferred Compensation and Retirement Plans....................... 141,053
------------
Total Liabilities..................................................... 11,559,630
------------
Net Assets................................................................. $468,786,795
============
Net Assets Consist of:
Capital.................................................................... $399,681,041
Net Unrealized Appreciation................................................ 36,891,258
Accumulated Net Realized Gain.............................................. 30,865,083
Accumulated Undistributed Net Investment Income............................ 1,349,413
------------
Net Assets................................................................. $468,786,795
============
Maximum Offering Price Per Share:
Class A Shares:
Net asset value and redemption price per share (Based on net assets of
$384,187,264 and 24,696,320 shares of beneficial interest issued and
outstanding).......................................................... $ 15.56
Maximum sales charge (5.75%* of offering price)....................... .95
------------
Maximum offering price to public...................................... $ 16.51
============
Class B Shares:
Net asset value and offering price per share (Based on net assets of
$78,806,851 and 5,092,409 shares of beneficial interest issued and
outstanding).......................................................... $ 15.48
============
Class C Shares:
Net asset value and offering price per share (Based on net assets of
$5,792,680 and 371,942 shares of beneficial interest issued and
outstanding).......................................................... $ 15.57
============
</TABLE>
*On sales of $50,000 or more, the sales charge will be reduced.
16 See Notes to Financial Statements
<PAGE>
Statement of Operations
For the Six Months Ended June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
<S> <C>
Investment Income:
Interest................................................................... $ 6,721,344
Dividends.................................................................. 3,156,034
------------
Total Income.......................................................... 9,877,378
------------
Expenses:
Investment Advisory Fee.................................................... 1,262,047
Distribution (12b-1) and Service Fees (Attributed to Classes A, B and C of
$419,532, $408,695 and $25,776, respectively)............................ 854,003
Shareholder Services....................................................... 409,585
Legal...................................................................... 22,263
Trustees' Fees and Expenses................................................ 18,660
Custody.................................................................... 6,235
Other...................................................................... 196,849
------------
Total Expenses........................................................ 2,769,642
------------
Net Investment Income...................................................... $ 7,107,736
============
Realized and Unrealized Gain:
Realized Gain/Loss:
Investments.............................................................. $ 29,378,386
Futures.................................................................. 1,951,875
------------
Net Realized Gain.......................................................... 31,330,261
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period.................................................. 47,584,139
------------
End of the Period:
Investments........................................................... 36,972,606
Futures............................................................... (81,348)
------------
36,891,258
------------
Net Unrealized Depreciation During the Period.............................. (10,692,881)
------------
Net Realized and Unrealized Gain........................................... $ 20,637,380
============
Net Increase in Net Assets From Operations................................. $ 27,745,116
============
</TABLE>
17 See Notes to Financial Statements
<PAGE>
Statement of Changes in Net Assets
For the Six Months Ended June 30, 1998 and
the Year Ended December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income........................................... $ 7,107,736 $ 16,063,210
Net Realized Gain............................................... 31,330,261 54,691,941
Net Unrealized Appreciation/Depreciation During the Period...... (10,692,881) 1,495,425
------------ -------------
Change in Net Assets from Operations.......................... 27,745,116 72,250,576
------------ -------------
Distributions from Net Investment Income*....................... (7,565,506) (17,653,801)
Distributions in Excess of Net Investment Income*............... -- (2,441,344)
------------ -------------
Distributions from and in Excess of Net Investment Income*.... (7,565,506) (20,095,145)
Distributions from Net Realized Gains*.......................... (4,972,693) (48,007,153)
------------ -------------
Total Distributions........................................... (12,538,199) (68,102,298)
------------ -------------
Net Change in Net Assets
from Investment Activities.................................... 15,206,917 4,148,278
------------ -------------
From Capital Transactions:
Proceeds from Shares Sold....................................... 68,626,060 84,935,691
Net Asset Value of Shares Issued Through Dividend
Reinvestment.................................................. 10,211,689 56,172,535
Cost of Shares Repurchased...................................... (87,592,566) (138,510,168)
------------ -------------
Net Change in Net Assets
from Capital Transactions..................................... (8,754,817) 2,598,058
------------ -------------
Total Increase/Decrease in Net Assets........................... 6,452,100 6,746,336
Net Assets:
Beginning of the Period......................................... 462,334,695 455,588,359
------------ -------------
End of the Period (Including accumulated undistributed
net investment income of $1,349,413 and
$1,807,183, respectively)..................................... $468,786,795 $ 462,334,695
============ =============
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended
*Distributions by Class......................................... June 30, 1998 December 31, 1997
<S> <C> <C>
Distributions from and in Excess of Net Investment Income:
Class A Shares................................................. $(6,448,832) $(16,890,943)
Class B Shares................................................. (1,046,873) (3,045,626)
Class C Shares................................................. (69,801) (158,576)
----------- ------------
$(7,565,506) $(20,095,145)
=========== ============
Distributions from Net Realized Gain:
Class A Shares................................................. $(4,061,828) $(39,111,920)
Class B Shares................................................. (857,817) (8,428,584)
Class C Shares................................................. (53,048) (466,649)
----------- ------------
$(4,972,693) $(48,007,153)
=========== ============
</TABLE>
18 See Notes to Financial Statements
<PAGE>
Financial Highlights
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
<TABLE>
<CAPTION>
=============================================================================================
Six Months Year Ended December 31,
Ended ----------------------------------
Class A Shares June 30, 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.. $15.059 $15.054 $ 15.05 $ 13.24 $ 15.12
------- ------- ------- ------- --------
Net Investment Income..................... .245 .600 .566 .68 .63
Net Realized and Unrealized Gain/Loss..... .675 1.854 1.173 2.25 (1.5625)
------- ------- ------- ------- --------
Total from Investment Operations.......... .920 2.454 1.739 2.93 (.9325)
------- ------- ------- ------- --------
Less:
Distributions from and in Excess of
Net Investment Income.................. .260 .730 .555 .7025 .62
Distributions from and in Excess of
Net Realized Gain....................... .162 1.719 1.180 .4175 .3275
------- ------- ------- ------- --------
Total Distributions....................... .422 2.449 1.735 1.12 .9475
------- ------- ------- ------- --------
Net Asset Value, End of the Period........ $15.557 $15.059 $15.054 $ 15.05 $ 13.24
======= ======= ======= ======= ========
Total Return (a).......................... 6.10%* 16.91% 12.08% 22.46% (6.43%)
Net Assets at End
of the Period (In millions).............. $ 384.2 $ 376.4 $ 373.1 $ 394.5 $ 369.7
Ratio of Expenses to Average Net Assets... 1.03% 1.04% 1.09% 1.00% 1.04%
Ratio of Net Investment Income to
Average Net Assets....................... 3.17% 3.58% 3.60% 4.62% 4.39%
Portfolio Turnover........................ 95%* 170% 129% 130% 105%
</TABLE>
* Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
19 See Notes to Financial Statements
<PAGE>
Financial Highlights (Continued)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Six Months Year Ended December 31,
Ended ----------------------------------
Class B Shares June 30, 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period......... $14.981 $14.992 $ 14.99 $13.20 $ 15.07
------- ------- ------- ------ --------
Net Investment Income.......................... .190 .470 .437 .56 .51
Net Realized and Unrealized Gain/Loss.......... .666 1.848 1.180 2.23 (1.5505)
------- ------- ------- ------ --------
Total from Investment Operations................. .856 2.318 1.617 2.79 (1.0405)
------- ------- ------- ------ --------
Less:
Distributions from and in Excess of
Net Investment Income........................ .200 .610 .435 .5825 .502
Distributions from and in Excess of
Net Realized Gain............................ .162 1.719 1.180 .4175 .3275
------- ------- ------- ------ --------
Total Distributions.............................. .362 2.329 1.615 1.00 .8295
------- ------- ------- ------ --------
Net Asset Value, End of the Period............... $15.475 $14.981 $14.992 $14.99 $ 13.20
======= ======= ======= ====== ========
Total Return (a)................................. 5.73%* 15.98% 11.19% 21.46% (7.11%)
Net Assets at End of the Period (In millions).... $ 78.8 $ 81.3 $ 78.9 $ 78.1 $ 71.1
Ratio of Expenses to Average Net Assets.......... 1.82% 1.82% 1.88% 1.81% 1.84%
Ratio of Net Investment Income to
Average Net Assets............................. 2.38% 2.80% 2.81% 3.81% 3.63%
Portfolio Turnover............................... 95%* 170% 129% 130% 105%
</TABLE>
* Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
20 See Notes to Financial Statements
<PAGE>
Financial Highlights (Continued)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Six Months Year Ended December 31,
Ended -------------------------------------
Class C Shares June 30, 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period................ $15.080 $15.079 $ 15.07 $13.25 $ 15.13
------- ------- ------- ------ --------
Net Investment Income................................. .167 .448 .439 .56 .52
Net Realized and Unrealized Gain/Loss................. .689 1.882 1.185 2.26 (1.5705)
------- ------- ------- ------ --------
Total from Investment Operations........................ .856 2.330 1.624 2.82 (1.0505)
------- ------- ------- ------ --------
Less:
Distributions from and in Excess of Net
Investment Income................................... .200 .610 .435 .5825 .502
Distributions from and in Excess of Net
Realized Gain....................................... .162 1.719 1.180 .4175 .3275
------- ------- ------- ------ --------
Total Distributions..................................... .362 2.329 1.615 1.00 .8295
------- ------- ------- ------ --------
Net Asset Value, End of the Period...................... $15.574 $15.080 $15.079 $15.07 $ 13.25
======= ======= ======= ====== ========
Total Return (a)........................................ 5.69%* 15.96% 11.20% 21.52% (7.14%)
Net Assets at End of the Period (In millions)........... $ 5.8 $ 4.6 $ 3.6 $ 3.6 $ 3.3
Ratio of Expenses to Average Net Assets................. 1.82% 1.82% 1.88% 1.80% 1.84%
Ratio of Net Investment Income to Average Net Assets.... 2.39% 2.79% 2.81% 3.80% 3.72%
Portfolio Turnover...................................... 95%* 170% 129% 130% 105%
</TABLE>
* Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
21 See Notes to Financial Statements
<PAGE>
Notes to Financial Statements
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
Van Kampen Harbor Fund (the "Fund"), formerly known as Van Kampen American
Capital Harbor Fund, is organized as a Delaware business trust, and is
registered as a diversified open-end management investment company under the
Investment Company Act of 1940, as amended. The Fund's investment objective is
to seek income, capital appreciation, and conservation of capital by investing
primarily in convertible bonds and preferred stocks. The Fund commenced
investment operations on November 15, 1956. The distribution of the Fund's Class
B and Class C shares commenced on December 20, 1991 and October 26, 1993,
respectively.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. Security Valuation--Investments in securities listed on a securities exchange
are valued at their sale price as of the close of such securities exchange.
Unlisted securities and listed securities for which the last sales price is not
available are valued at the last bid price. Through July 30, 1998, unlisted
convertible securities were valued at the higher of their last bid price or the
value of the securities issuable on conversion. Fixed income investments are
stated at values using market quotations. For those securities where quotations
or prices are not available, valuations are determined in accordance with
procedures established in good faith by the Board of Trustees. Short-term
securities with remaining maturities of 60 days or less are valued at amortized
cost.
Fund investments include lower rated debt securities which may be more
susceptible to adverse economic conditions than other investment grade holdings.
These securities are often subordinated to the prior claims of other senior
lenders and uncertainties exist as to an issuer's ability to meet principal and
interest payments. Debt securities rated below investment grade and comparable
unrated securities represented approximately 38% of the long term investments at
the end of the period.
B. Security Transactions--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made. At June 30, 1998, there were no when
issued or delayed delivery purchase commitments.
22
<PAGE>
Notes to Financial Statements (Continued)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Fund may invest in repurchase agreements, which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other
investment companies advised by Van Kampen Asset Management Inc. (the "Adviser")
or its affiliates, the daily aggregate of which is invested in repurchase
agreements. Repurchase agreements are fully collateralized by the underlying
debt security. The Fund will make payment for such security only upon physical
delivery or evidence of book entry transfer to the account of the custodian
bank. The seller is required to maintain the value of the underlying security at
not less than the repurchase proceeds due the Fund.
C. Income and Expenses--Dividend income is recorded on the ex-dividend date and
interest income is recorded on an accrual basis. Original issue discounts are
amortized over the expected life of each applicable security. Premiums on debt
securities are not amortized. Expenses of the Fund are allocated on a pro rata
basis to each class of shares, except for distribution and service fees and
transfer agency costs which are unique to each class of shares.
D. Federal Income Taxes--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
Net realized gains or losses may differ for financial reporting and tax
purposes primarily as a result of the deferral of losses for tax purposes
resulting from wash sales.
At June 30, 1998, for federal income tax purposes, cost of long- and short-
term investments is $431,419,008; the aggregate gross unrealized appreciation is
$49,784,376 and the aggregate gross unrealized depreciation is $13,005,756,
resulting in net unrealized appreciation of $36,778,620.
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 in ordinary income for
tax purposes.
23
<PAGE>
Notes to Financial Statements (Continued)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
2. Investment Advisory Agreement and Other Transactions with Affiliates
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
<TABLE>
<CAPTION>
Average Net Assets % Per Annum
================================================================================
<S> <C>
First $350 million................................................. .55 of 1%
Next $350 million................................................. .50 of 1%
Next $350 million................................................. .45 of 1%
Over $1.05 billion................................................ .40 of 1%
</TABLE>
For the six months ended June 30, 1998, the Fund recognized expenses of
approximately $22,300 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.
For the six months ended June 30, 1998, the Fund recognized expenses of
approximately $67,100 representing Van Kampen Funds Inc.'s or its affiliates'
(collectively "Van Kampen") cost of providing accounting services to the Fund.
Van Kampen Investor Services Inc. ("VKIS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the six months ended
June 30, 1998, the Fund recognized expenses of approximately $286,100. Beginning
in 1998, the transfer agency fees are determined through negotiations with the
Fund's Board of Trustees and are based on competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors
of Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
3. Capital Transactions
The Fund has outstanding three classes of shares of beneficial interest, Classes
A, B and C, each with a par value of $.01 per share. There are an unlimited
number of shares of each class authorized.
At June 30, 1998, capital aggregated $317,964,883, $76,005,545, and
$5,710,613 for Classes A, B, and C, respectively. For the six months ended June
30, 1998, transactions were as follows:
24
<PAGE>
Notes to Financial Statements (Continued)
June 30, 1998 (Unaudited)
===============================================================================
<TABLE>
<CAPTION>
Shares Value
===============================================================================
<S> <C> <C>
Sales:
Class A.......................................... 3,687,074 $ 58,468,441
Class B.......................................... 544,227 8,440,379
Class C.......................................... 108,931 1,717,240
--------- ------------
Total Sales........................................ 4,340,232 $ 68,626,060
========= ============
Dividend Reinvestment:
Class A.......................................... 537,662 $ 8,487,599
Class B.......................................... 103,403 1,626,189
Class C.......................................... 6,194 97,901
--------- ------------
Total Dividend Reinvestment........................ 647,259 $ 10,211,689
========= ============
Repurchases:
Class A.......................................... (4,525,841) $(71,652,287)
Class B.......................................... (981,293) (15,181,891)
Class C.......................................... (48,364) (758,388)
--------- ------------
Total Repurchases.................................. (5,555,498) $(87,592,566)
========= ============
</TABLE>
At December 31, 1997, capital aggregated $322,661,130, $81,120,868 and
$4,653,860 for Classes A, B, and C, respectively. For the year ended December
31, 1997, transactions were as follows:
<TABLE>
<CAPTION>
Shares Value
===============================================================================
<S> <C> <C>
Sales:
Class A.......................................... 4,596,353 $ 72,255,103
Class B.......................................... 702,695 11,137,353
Class C.......................................... 95,609 1,543,235
---------- -------------
Total Sales........................................ 5,394,657 $ 84,935,691
========== =============
Dividend Reinvestment:
Class A.......................................... 3,078,670 $ 45,914,946
Class B.......................................... 660,267 9,780,959
Class C.......................................... 32,032 476,630
---------- -------------
Total Dividend Reinvestment........................ 3,770,969 $ 56,172,535
========== =============
Repurchases:
Class A.......................................... (7,461,163) $(118,439,608)
Class B.......................................... (1,201,555) (19,139,823)
Class C.......................................... (58,685) (930,737)
---------- -------------
Total Repurchases.................................. (8,721,403) $(138,510,168)
========== =============
</TABLE>
25
<PAGE>
Notes to Financial Statements (Continued)
June 30, 1998 (Unaudited)
================================================================================
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B shares will
automatically convert to Class A shares after the eighth year following
purchase. The CDSC will be imposed on most redemptions made within five years of
the purchase for Class B and one year of the purchase for Class C as detailed in
the following schedule.
<TABLE>
<CAPTION>
Contingent Deferred
Sales Charge
-------------------
Year of Redemption Class B Class C
===============================================================================
<S> <C> <C>
First.................................................... 5.00% 1.00%
Second................................................... 4.00% None
Third.................................................... 3.00% None
Fourth................................................... 2.50% None
Fifth.................................................... 1.50% None
Sixth and Thereafter..................................... None None
</TABLE>
For the six months ended June 30, 1998, Van Kampen, as Distributor for the
Fund, received net commissions on sales of the Fund's Class A shares of
approximately $25,200 and CDSC on the redeemed shares of Classes B and C of
approximately $47,300. Sales charges do not represent expenses of the Fund.
4. Investment Transactions
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $430,169,662 and $456,258,600,
respectively.
5. Derivative Financial Instruments
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio or generate potential gain. All of the Fund's portfolio holdings,
including derivative instruments, are marked to market each day with the change
in value reflected in the unrealized appreciation/depreciation. Upon
disposition, a realized gain or loss is recognized accordingly, except when
taking delivery of a security underlying a futures contract. In this instance,
the recognition of gain or loss is postponed until the disposal of the security
underlying the futures contract.
During the period, the Fund invested in futures contracts, a type of
derivative. A futures contract is an agreement involving the delivery of a
particular asset on a specified future date at an
26
<PAGE>
Notes to Financial Statements (Continued)
June 30, 1998 (Unaudited)
================================================================================
agreed upon price. The Fund generally invests in stock index futures. These
contracts are generally used to provide the return of an index without
purchasing all of the securities underlying the index or to manage the Fund's
overall exposure to the equity markets.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, 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 could be in excess of the variation margin reflected on
the Statement of Assets and Liabilities.
Transactions in futures contracts for the six months ended June 30, 1998,
were as follows:
<TABLE>
<CAPTION>
Contracts
================================================================================
<S> <C>
Outstanding at December 31, 1997..................................... -0-
Futures Opened....................................................... 200
Futures Closed....................................................... (100)
---------
Outstanding at June 30, 1998......................................... 100
=========
</TABLE>
The futures contracts outstanding at June 30, 1998, and the description and
unrealized depreciation are as follows:
<TABLE>
<CAPTION>
Unrealized
Contracts Depreciation
================================================================================
<S> <C> <C>
Long Contracts--Sept 1998 S&P 500 Index Future
(Current Notional Value of $285,750 per contract)..... 100 $81,348
=== =======
</TABLE>
6. Distribution and Service Plans
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these fees
for the six months ended June 30, 1998, are payments retained by Van Kampen of
approximately $343,200.
27
<PAGE>
Van Kampen Funds
EQUITY FUNDS
Domestic
Aggressive Equity
Aggressive Growth
American Value
Comstock
Emerging Growth
Enterprise
Equity Growth
Equity Income
Growth
Growth and Income
Harbor
Pace
Real Estate Securities
U.S. Real Estate
Utility
Value
International/Global
Asian Growth
Emerging Markets
Global Equity
Global Equity Allocation
Global Managed Assets
International Magnum
Latin American
FIXED-INCOME FUNDS
Income
Corporate Bond
Global Fixed Income
Global Government Securities
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
Short-Term Global Income
Strategic Income
U.S. Government
U.S. Government Trust for Income
Worldwide High Income
Tax Exempt Income
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
Capital Preservation and
Senior Loan Funds
Prime Rate Income Trust
Reserve
Senior Floating Rate
Tax Free Money
To find out more about any of these funds, ask your financial adviser for a
prospectus, which contains more complete information, including sales charges,
risks, and 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.van-kampen.com -- to view prospectuses, select Investors' Place, then
Download a Prospectus
. call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central
time (Telecommunications Device for the Deaf users, call 1-800-421-2833)
. e-mail us by visiting
www.van-kampen.com and selecting Investors' Place
28
<PAGE>
Van Kampen Harbor Fund
Board of Trustees
J. Miles Branagan
Richard M. DeMartini*
Linda Hutton Heagy
R. Craig Kennedy
Jack E. Nelson
Don G. Powell*
Phillip B. Rooney
Fernando Sisto
Wayne W. Whalen* - Chairman
Officers
Dennis J. McDonnell*
President
Ronald A. Nyberg*
Vice President and Secretary
Edward C. Wood, III*
Vice President and Chief Financial Officer
Curtis W. Morell*
Vice President and Chief Accounting Officer
John L. Sullivan*
Treasurer
Tanya M. Loden*
Controller
Peter W. Hegel*
Paul R. Wolkenberg*
Vice Presidents
Investment Adviser
Van Kampen
Asset Management Inc.
2800 Post Oak Blvd.
Houston, Texas 77056
Distributor
Van Kampen Funds Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Shareholder Servicing Agent
Van Kampen Investor
Services Inc.
P.O. Box 418256
Kansas City, Missouri 64141-9256
Custodian
State Street Bank
and Trust Company
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
Legal Counsel
Skadden, Arps, Slate,
Meagher & Flom (Illinois)
333 West Wacker Drive
Chicago, Illinois 60606
Independent Accountants
PricewaterhouseCoopers LLP
200 E. Randolph Drive
Chicago, IL 60601
* "Interested" persons of the Fund, as defined in the Investment Company Act
of 1940.
(C) Van Kampen Funds Inc., 1998 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 accompanied by an effective prospectus of the fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After December 31, 1998, the report, if used with
prospective investors, must be accompanied by a quarterly performance update.
29
<PAGE>
Van Kampen Funds Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> HARBOR CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 431,306,370 <F1>
<INVESTMENTS-AT-VALUE> 468,278,976 <F1>
<RECEIVABLES> 12,022,135 <F1>
<ASSETS-OTHER> 0 <F1>
<OTHER-ITEMS-ASSETS> 45,314 <F1>
<TOTAL-ASSETS> 480,346,425 <F1>
<PAYABLE-FOR-SECURITIES> 9,197,099 <F1>
<SENIOR-LONG-TERM-DEBT> 0 <F1>
<OTHER-ITEMS-LIABILITIES> 2,362,531 <F1>
<TOTAL-LIABILITIES> 11,559,630 <F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 317,964,883
<SHARES-COMMON-STOCK> 24,696,320
<SHARES-COMMON-PRIOR> 24,997,425
<ACCUMULATED-NII-CURRENT> 1,349,413 <F1>
<OVERDISTRIBUTION-NII> 0 <F1>
<ACCUMULATED-NET-GAINS> 30,865,083 <F1>
<OVERDISTRIBUTION-GAINS> 0 <F1>
<ACCUM-APPREC-OR-DEPREC> 36,891,258 <F1>
<NET-ASSETS> 384,187,264
<DIVIDEND-INCOME> 3,156,034 <F1>
<INTEREST-INCOME> 6,721,344 <F1>
<OTHER-INCOME> 0 <F1>
<EXPENSES-NET> (2,769,642) <F1>
<NET-INVESTMENT-INCOME> 7,107,736 <F1>
<REALIZED-GAINS-CURRENT> 31,330,261 <F1>
<APPREC-INCREASE-CURRENT> (10,692,881) <F1>
<NET-CHANGE-FROM-OPS> 27,745,116 <F1>
<EQUALIZATION> 0 <F1>
<DISTRIBUTIONS-OF-INCOME> (6,448,832)
<DISTRIBUTIONS-OF-GAINS> (4,061,828)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,687,074
<NUMBER-OF-SHARES-REDEEMED> (4,525,841)
<SHARES-REINVESTED> 537,662
<NET-CHANGE-IN-ASSETS> 7,744,291
<ACCUMULATED-NII-PRIOR> 1,807,183 <F1>
<ACCUMULATED-GAINS-PRIOR> 4,507,515 <F1>
<OVERDISTRIB-NII-PRIOR> 0 <F1>
<OVERDIST-NET-GAINS-PRIOR> 0 <F1>
<GROSS-ADVISORY-FEES> 1,262,047 <F1>
<INTEREST-EXPENSE> 0 <F1>
<GROSS-EXPENSE> 2,769,642 <F1>
<AVERAGE-NET-ASSETS> 386,412,337
<PER-SHARE-NAV-BEGIN> 15.059
<PER-SHARE-NII> 0.245
<PER-SHARE-GAIN-APPREC> 0.675
<PER-SHARE-DIVIDEND> (0.260)
<PER-SHARE-DISTRIBUTIONS> (0.162)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 15.557
<EXPENSE-RATIO> 1.030
<AVG-DEBT-OUTSTANDING> 0 <F1>
<AVG-DEBT-PER-SHARE> 0 <F1>
<FN>
<F1> This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> HARBOR CLASS B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 431,306,370 <F1>
<INVESTMENTS-AT-VALUE> 468,278,976 <F1>
<RECEIVABLES> 12,022,135 <F1>
<ASSETS-OTHER> 0 <F1>
<OTHER-ITEMS-ASSETS> 45,314 <F1>
<TOTAL-ASSETS> 480,346,425 <F1>
<PAYABLE-FOR-SECURITIES> 9,197,099 <F1>
<SENIOR-LONG-TERM-DEBT> 0 <F1>
<OTHER-ITEMS-LIABILITIES> 2,362,531 <F1>
<TOTAL-LIABILITIES> 11,559,630 <F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 76,005,545
<SHARES-COMMON-STOCK> 5,092,409
<SHARES-COMMON-PRIOR> 5,426,072
<ACCUMULATED-NII-CURRENT> 1,349,413 <F1>
<OVERDISTRIBUTION-NII> 0 <F1>
<ACCUMULATED-NET-GAINS> 30,865,083 <F1>
<OVERDISTRIBUTION-GAINS> 0 <F1>
<ACCUM-APPREC-OR-DEPREC> 36,891,258 <F1>
<NET-ASSETS> 78,806,851
<DIVIDEND-INCOME> 3,156,034 <F1>
<INTEREST-INCOME> 6,721,344 <F1>
<OTHER-INCOME> 0 <F1>
<EXPENSES-NET> (2,769,642) <F1>
<NET-INVESTMENT-INCOME> 7,107,736 <F1>
<REALIZED-GAINS-CURRENT> 31,330,261 <F1>
<APPREC-INCREASE-CURRENT> (10,692,881) <F1>
<NET-CHANGE-FROM-OPS> 27,745,116 <F1>
<EQUALIZATION> 0 <F1>
<DISTRIBUTIONS-OF-INCOME> (1,046,873)
<DISTRIBUTIONS-OF-GAINS> (857,817)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 544,227
<NUMBER-OF-SHARES-REDEEMED> (981,293)
<SHARES-REINVESTED> 103,403
<NET-CHANGE-IN-ASSETS> (2,482,717)
<ACCUMULATED-NII-PRIOR> 1,807,183 <F1>
<ACCUMULATED-GAINS-PRIOR> 4,507,515 <F1>
<OVERDISTRIB-NII-PRIOR> 0 <F1>
<OVERDIST-NET-GAINS-PRIOR> 0 <F1>
<GROSS-ADVISORY-FEES> 1,262,047 <F1>
<INTEREST-EXPENSE> 0 <F1>
<GROSS-EXPENSE> 2,769,642 <F1>
<AVERAGE-NET-ASSETS> 82,436,480
<PER-SHARE-NAV-BEGIN> 14.981
<PER-SHARE-NII> 0.190
<PER-SHARE-GAIN-APPREC> 0.666
<PER-SHARE-DIVIDEND> (0.200)
<PER-SHARE-DISTRIBUTIONS> (0.162)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 15.475
<EXPENSE-RATIO> 1.820
<AVG-DEBT-OUTSTANDING> 0 <F1>
<AVG-DEBT-PER-SHARE> 0 <F1>
<FN>
<F1> This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 13
<NAME> HARBOR CLASS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 431,306,370 <F1>
<INVESTMENTS-AT-VALUE> 468,278,976 <F1>
<RECEIVABLES> 12,022,135 <F1>
<ASSETS-OTHER> 0 <F1>
<OTHER-ITEMS-ASSETS> 45,314 <F1>
<TOTAL-ASSETS> 480,346,425 <F1>
<PAYABLE-FOR-SECURITIES> 9,197,099 <F1>
<SENIOR-LONG-TERM-DEBT> 0 <F1>
<OTHER-ITEMS-LIABILITIES> 2,362,531 <F1>
<TOTAL-LIABILITIES> 11,559,630 <F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,710,613
<SHARES-COMMON-STOCK> 371,942
<SHARES-COMMON-PRIOR> 305,181
<ACCUMULATED-NII-CURRENT> 1,349,413 <F1>
<OVERDISTRIBUTION-NII> 0 <F1>
<ACCUMULATED-NET-GAINS> 30,865,083 <F1>
<OVERDISTRIBUTION-GAINS> 0 <F1>
<ACCUM-APPREC-OR-DEPREC> 36,891,258 <F1>
<NET-ASSETS> 5,792,680
<DIVIDEND-INCOME> 3,156,034 <F1>
<INTEREST-INCOME> 6,721,344 <F1>
<OTHER-INCOME> 0 <F1>
<EXPENSES-NET> (2,769,642) <F1>
<NET-INVESTMENT-INCOME> 7,107,736 <F1>
<REALIZED-GAINS-CURRENT> 31,330,261 <F1>
<APPREC-INCREASE-CURRENT> (10,692,881) <F1>
<NET-CHANGE-FROM-OPS> 27,745,116 <F1>
<EQUALIZATION> 0 <F1>
<DISTRIBUTIONS-OF-INCOME> (69,801)
<DISTRIBUTIONS-OF-GAINS> (53,048)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 108,931
<NUMBER-OF-SHARES-REDEEMED> (48,364)
<SHARES-REINVESTED> 6,194
<NET-CHANGE-IN-ASSETS> 1,190,526
<ACCUMULATED-NII-PRIOR> 1,807,183 <F1>
<ACCUMULATED-GAINS-PRIOR> 4,507,515 <F1>
<OVERDISTRIB-NII-PRIOR> 0 <F1>
<OVERDIST-NET-GAINS-PRIOR> 0 <F1>
<GROSS-ADVISORY-FEES> 1,262,047 <F1>
<INTEREST-EXPENSE> 0 <F1>
<GROSS-EXPENSE> 2,769,642 <F1>
<AVERAGE-NET-ASSETS> 5,198,982
<PER-SHARE-NAV-BEGIN> 15.080
<PER-SHARE-NII> 0.167
<PER-SHARE-GAIN-APPREC> 0.689
<PER-SHARE-DIVIDEND> (0.200)
<PER-SHARE-DISTRIBUTIONS> (0.162)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 15.574
<EXPENSE-RATIO> 1.820
<AVG-DEBT-OUTSTANDING> 0 <F1>
<AVG-DEBT-PER-SHARE> 0 <F1>
<FN>
<F1> This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
