<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 4
Portfolio Highlights............................. 5
Performance in Perspective....................... 6
Portfolio Management Review...................... 7
Portfolio of Investments......................... 11
Statement of Assets and Liabilities.............. 18
Statement of Operations.......................... 19
Statement of Changes in Net Assets............... 20
Financial Highlights............................. 21
Notes to Financial Statements.................... 24
Report of Independent Accountants................ 31
</TABLE>
HYF ANR 8/97
<PAGE> 2
LETTER TO SHAREHOLDERS
July 24, 1997
Dear Shareholder,
As you know, Van Kampen American
Capital was acquired by Morgan Stanley
Group Inc., a world leader in asset
management. Earlier this year, Morgan
Stanley Group Inc. and Dean Witter,
Discover & Co. agreed to merge. The [PHOTO]
merger was completed on May 31,
creating the combined company of
Morgan Stanley, Dean Witter, Discover DENNIS J. MCDONNELL AND DON G. POWELL
& Co. Additionally, we are very
pleased to announce that Philip N.
Duff, formerly the chief financial
officer of Morgan Stanley Group Inc.,
has joined Van Kampen American Capital as president and chief executive officer.
I will continue as chairman of the firm. We are confident that the partnership
of Van Kampen American Capital and Morgan Stanley will continue to work to the
benefit of our fund shareholders.
One of the immediate privileges that we can offer fund shareholders is the
ability to make exchanges between Van Kampen American Capital and Morgan Stanley
retail funds at no charge. In our view, the rapid appreciation of U.S. stock
prices in recent years has created a need for investors to examine their
portfolios carefully to ensure proper diversification among domestic and foreign
investments. The Morgan Stanley retail funds, with their emphasis on global
markets, can be valuable tools for accomplishing this diversification.
We also urge investors to consider how their fund holdings are currently
allocated among the three major asset classes of stocks, bonds, and cash
reserves. Uneven movements in the various markets can distort a carefully
planned investment program. And, with stock prices near record highs, it is
likely that some rebalancing of your portfolio allocations may be necessary.
Once again, the exchangeability feature with the Morgan Stanley retail funds
provides additional choices and opportunities to make the necessary adjustments
to your portfolio's asset allocation.
ECONOMIC OVERVIEW
Growth, stability, and confidence continued to characterize the U.S.
economic environment during the past six months. In the first quarter, the
economy grew at its fastest pace since 1987. Meanwhile, consumer confidence
soared to its highest reading in 27 years, while unemployment fell as low as 4.8
percent, the lowest level since 1973.
Despite the robust pace of economic activity, there was little evidence of
troublesome inflation. Wholesale prices actually fell during each of the first
five months of 1997, the longest stretch of consecutive monthly declines in 45
years. At the consumer level, prices rose by a mere 2.2 percent during the 12
months through May. A strong rally in the U.S.
Continued on page two
1
<PAGE> 3
dollar helped dampen inflationary pressures resulting from the vigorous domestic
economy by making imported goods less expensive. At the same time, continued
moderation in the cost of employee benefit packages offset mild upward pressure
on wages.
In March, the inflationary implications of a tight labor market caused the
Federal Reserve Board to raise its target for a key lending rate by one-quarter
of a percentage point, the first hike in short-term interest rates in two years.
Signs that economic growth slowed markedly in the second quarter, however, led
Fed policymakers to leave rates unchanged at subsequent meetings.
MARKET OVERVIEW
The strong economy and tight labor market combined to put mild upward
pressure on bond yields during the first half of 1997. For several weeks during
the spring, it appeared that economic growth was too robust and that inflation
could reemerge. The Fed's quarter-point increase in short-term interest rates,
as well as worries about inflation, pushed yields on long-term government bonds
up to 7.17 percent in April. When subsequent data showed the economy to be
decelerating during the second quarter, bond yields gradually fell back to 6.78
percent at the end of June, slightly above where they stood at the beginning of
the year.
Reflecting the strong economy, corporate bonds outperformed Treasuries by
about three-quarters of a percentage point over the past six months. Overall,
the Merrill Lynch Domestic Master Bond Index gained about 3.1 percent during the
same period. High-yield corporate bonds were the best-performing sector of the
fixed-income market, as the healthy economic environment increased investor
confidence in the creditworthiness of lower-rated debt.
The rate of bond issuance continued to be moderate as many corporations used
the equity market to raise capital. The relative shortage of new debt issues
contributed to a general narrowing of yield spreads between the various sectors
of the fixed-income market.
OUTLOOK
We expect the pace of economic activity during the remainder of 1997 to
accelerate modestly from the sluggish rate that prevailed during the second
quarter. While we do not believe that economic growth will be rapid enough to
reignite inflation, some warning signs are present, including a tight labor
market and high consumer confidence. In this environment, at least one
additional Federal Reserve interest rate hike remains a possibility. We
anticipate that long-term interest rates will remain within a relatively narrow
range for the remainder of the year.
We are fortunate to be experiencing a rare combination of sustained economic
growth, low inflation, and highly favorable performance in the financial market.
Along with our shareholders, we celebrate the seemingly best of economic times.
Once again, we encourage you to review your portfolio with an eye toward
correcting allocation imbalances.
Continued on page three
2
<PAGE> 4
Additional details about your Fund, including a question-and-answer section
with your portfolio management team, are provided in this report. We appreciate
your continued confidence in your investment with Van Kampen American Capital.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen American Capital
Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen American Capital
Investment Advisory Corp.
3
<PAGE> 5
PERFORMANCE RESULTS FOR THE PERIOD ENDED JUNE 30, 1997
VAN KAMPEN AMERICAN CAPITAL HIGH YIELD FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
TOTAL RETURNS
<S> <C> <C> <C>
One-year total return based on NAV(1).... 13.60% 12.64% 12.65%
One-year total return(2)................. 8.24% 8.64% 11.65%
Five-year average annual total
return(2)................................ 9.69% N/A N/A
Ten-year average annual total
return(2)................................ 7.99% N/A N/A
Life-of-Fund average annual total
return(2)................................ 8.47% 8.48% 8.21%
Commencement date........................ 06/27/86 05/17/93 08/13/93
DISTRIBUTION RATE AND YIELD
Distribution rate(3)..................... 8.41% 8.10% 8.10%
SEC Yield(4)............................. 7.37% 6.96% 6.96%
</TABLE>
N/A = Not Applicable
(1) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge (4.75% for A shares) or contingent
deferred sales charge for early withdrawal (4% 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).
(3) Distribution rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.
(4) SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending June 30, 1997. Had certain
expenses of the Fund not been assumed by VKAC, the SEC Yield would have been
7.27%, 6.86% and 6.86% for Classes A, B and C, respectively, and the total
returns would have been lower.
See the Fund Performance section of the current prospectus. Past performance
does not guarantee future results. Investment return and net asset value will
fluctuate with market conditions. Fund shares, when redeemed, may be worth more
or less than their original cost.
Investing in high-yield, lower-rated securities involves certain risks, which
may include the potential for greater sensitivity to general economic downturns
and greater market price volatility.
Market forecasts provided in this report may not necessarily come to pass.
4
<PAGE> 6
PORTFOLIO HIGHLIGHTS
VAN KAMPEN AMERICAN CAPITAL HIGH YIELD FUND
TOP TEN ISSUERS AS OF JUNE 30, 1997
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
LONG-TERM INVESTMENTS
<S> <C>
Tenet Healthcare Corp....... 1.64%
Waban, Inc.................. 1.62%
IXC Communications, Inc..... 1.61%
Samsonite Corp.............. 1.59%
Cole National Group, Inc.... 1.58%
Advanced Micro Devices,
Inc. ..................... 1.58%
Global Marine, Inc.......... 1.57%
Selmer, Inc................. 1.56%
Panamsat L.P................ 1.55%
Armco, Inc. ................ 1.46%
</TABLE>
CREDIT QUALITY AS A PERCENTAGE OF LONG-TERM DEBT SECURITIES
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997 AS OF DECEMBER 31, 1996(1)
<S> <C> <C> <C>
AAA............... 2.7% AAA............... 2.9%
BBB............... 2.8% AA................ 0.6%
BB................ 30.9% [PIE CHART] BBB............... 3.1% [PIE CHART]
B................. 59.6% BB................ 33.2%
Non-Rated......... 4.0% B................. 55.5%
CCC............... 1.1%
Non-Rated......... 3.6%
</TABLE>
Based upon the highest credit quality ratings as determined by Standard & Poor's
or Moody's.
TOP FIVE PORTFOLIO SECTORS AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997 AS OF DECEMBER 31, 1996(1)
<S> <C> <C> <C>
Foreign Securities.... 19.9% Foreign Securities........ 17.2%
Telecommunications.... 10.7% Printing, Publishing &
Mining, Steel, Iron & Broadcasting............ 8.5%
Non-Precious Telecommunications........ 7.8%
Metal............... 6.4% Energy (Oil & Gas)........ 7.3%
Energy (Oil & Gas).... 5.7% Hotel, Motel, Inns &
Printing, Publishing & Gaming.................. 6.3%
Broadcasting........ 5.5%
</TABLE>
DURATION
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997(1) AS OF DECEMBER 31, 1996(1)
<S> <C> <C>
Duration 3.07 years 3.60 years
</TABLE>
(1) Unaudited
5
<PAGE> 7
PUTTING YOUR FUND'S PERFORMANCE IN PERSPECTIVE
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment portfolio's performance at regular intervals.
A good starting point is a comparison of your investment holdings to an
applicable benchmark, such as a broad-based market index. Such a comparison can:
- Illustrate the general market environment in which your investments are
being managed
- Reflect the impact of favorable market trends or difficult market
conditions
- Help you evaluate the extent to which your Fund's management team has
responded to the opportunities and challenges presented to them over the
period measured
For these reasons, you may find it helpful to review the chart below, which
compares your Fund's performance to that of the First Boston High Yield Index
over time. As a broad-based, unmanaged statistical composite, this index does
not reflect any commissions or fees which would be incurred by an investor
purchasing the securities it represents. Similarly, its performance does not
reflect any sales charges or other costs which would be applicable to an
actively managed portfolio, such as that of the Fund.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen American Capital High Yield Fund vs. First Boston High Yield
Index
(June 30, 1987 through June 30, 1997)
[GRAPH]
Fund's Total Return
1 Year Avg. Annual = 8.24%
5 Year Avg. Annual = 9.69%
10 Year Avg. Annual = 7.99%
Inception Avg. Annual = 8.47%
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun Jun
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
VKAC High Yield Fund 9,523 10,119 10,925 9,736 10,537 12,944 15,285 15,732 17,069 18,992 21,574
First Boston High Yield Index 10,000 11,130 12,207 11,976 13,855 17,342 20,283 21,163 23,808 26,191 30,034
</TABLE>
The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of other share classes of
the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions and includes payment of the maximum
sales charge (4.75% for A shares).
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.
6
<PAGE> 8
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN AMERICAN CAPITAL HIGH YIELD FUND
We recently spoke with the management team of the Van Kampen American Capital
High Yield Fund about the key events and economic forces that shaped the markets
during the past fiscal year. The team includes Anne K. Lorsung, portfolio
manager, and Peter W. Hegel, chief investment officer for fixed-income
investments. The following excerpts reflect their views on the Fund's
performance during the 12-month period ended June 30, 1997.
Q HOW WOULD YOU CHARACTERIZE THE MARKET CONDITIONS IN WHICH THE FUND
OPERATED OVER THE PAST FISCAL YEAR?
A Volatility dominated the bond market during the 12 months ended June 30.
Initially, bond prices fell as the economy grew stronger, which fueled
fears of an interest rate hike by the Federal Reserve Board. When gross
domestic product (GDP) growth slowed to a moderate 2.1 percent rate in the third
quarter of 1996, bond prices resumed their rise. By late November, the 30-year
Treasury bond's yield, which moves in the opposite direction of its price,
slipped to 6.35 percent from over 7.00 percent in September.
The scenario shifted again at the beginning of 1997. Economic growth began
to accelerate, reigniting fears of a Fed rate hike, and bond prices resumed
their retreat. Despite a temporary reversal in February on signs of moderating
inflation, the price decline continued, gaining momentum after the Fed raised
short-term interest rates one-quarter percentage point in late March. The rate
hike was viewed as the first of many, imposing additional downward pressure on
bond prices. First-quarter GDP rose at a 4.9 percent pace, and by mid-April, the
yield on the 30-year Treasury bond jumped to 7.17 percent. The market reversed
itself once more after signs of a slowing economy re-emerged in May and the Fed
refrained from raising rates again. By the end of June, the price of the 30-year
Treasury rose as its yield slipped to 6.79 percent.
Throughout most of the Fund's fiscal year, high yield corporate bonds
outperformed Treasury securities and investment-grade corporate bonds. A
vigorous economy and continual decline in the number of defaults contributed to
their strong performance.
Q WHAT OTHER FACTORS AFFECTED THE HIGH YIELD MARKET DURING
THIS TIME?
A The high yield market was highlighted by strongly positive technical
dynamics. A large number of new investors entered the market, likely
attracted by its positive performance over the past few years. At the same
time, record levels of new issuance flooded the market which, under normal
conditions, might have depressed the market, but which were absorbed by the
unusually high demand. As a result, total return of the high yield market far
exceeded that of most fixed-income markets, while lagging the sky-rocketing
equity market. Finally, the reporting period was relatively free of any
news-making defaults or other negative earnings trends to slow momentum in the
market. As a result, investors seemed to gain increasing confidence in this
often-volatile market.
7
<PAGE> 9
The market experienced a moderate degree of volatility in March of this
year, as investors focused their attention on what action the Fed might take.
Following the March rate hike, all investment markets backed up, including high
yield. The high yield market was also tangentially affected by the fact that a
majority of high yield funds currently hold a measurable portion in emerging
markets, which reacted negatively to the Fed increase. For a short period of
time, the technical aspects of the high yield market moved less positively, and
net asset values declined. However, the market subsequently recovered. Overall,
the high yield market has become an increasingly resilient market in the past
few years.
Q HOW DID YOU MANAGE THE FUND IN LIGHT OF THESE CONDITIONS?
A In general, we maintained the Fund's relatively defensive posture during
the period. In particular, we shifted some of our international holdings
out of more volatile areas of the sector, including long-dated "Brady"
bonds and foreign currency-denominated holdings into less volatile holdings,
such as higher-quality, short maturity corporate issues. The portfolio's
defensive structure allowed the Fund to minimize losses when the market's
performance dipped in March.
The Fund was also impacted by an increasing trend in the retirement of
high-coupon bonds. Due to a generally favorable interest rate environment
supported by positive corporate lending activity and a stable stock market, a
number of companies tendered for their high yield debt, replacing it with
alternative sources of financing or lower-coupon high yield bonds. Securities
representing approximately 10 percent of our portfolio were retired through
tender offers and calls in the month of May alone.
As a result of this activity, we have been faced with the challenge of
prudently deploying assets back to work in the marketplace. At the end of the
reporting period, we are operating the Fund with an excess in cash of around 15
percent. With so many new issues in the marketplace, our priority in reinvesting
these proceeds is to maintain our fundamental research perspective and keep the
Fund defensively invested to prepare for market changes over the short- and
long-term. We rely heavily on the investment expertise of our research team of
six dedicated high yield analysts.
Q WHAT WAS THE STRUCTURE OF THE FUND'S PORTFOLIO AT THE END OF ITS FISCAL
YEAR?
A As of June 30, approximately 31 percent of the Fund's assets were
BB-rated, which is the highest quality rating within the
noninvestment-grade category, and 59 percent were B-rated. Because both
categories of bonds tend to generate higher yields than investment-grade bonds,
they usually have performed better than high-quality securities when interest
rates rise. The additional income they generate compensates for some of the
decline in principal value due to rising rates. At the same time, when economic
growth accelerates, prospects for credit upgrades improve, also helping
performance.
8
<PAGE> 10
Compared to its peers, the Fund maintains a fairly defensive posture, and
holds a higher percentage in BB-rated securities. We feel that bonds with a BB
rating have a favorable risk-reward ratio over the long run, with less relative
volatility and better performance potential in a market downturn. With yield
spreads between B- and BB-rated securities narrowing significantly over the past
year, we continue to believe this investment posture is appropriate. As our
credit research group adds significant value in specific security selection in
this sector, however, we will continue to leverage this expertise to seek to
enhance yield in the Fund.
The Fund's remaining assets at the end of the period were primarily
investment grade. Approximately 3 percent were rated AAA and comprised of
cash-equivalent securities, and 3 percent was BBB-rated, the lowest rating in
the investment-grade category. The final 4 percent of assets were non-rated. For
additional Fund portfolio highlights, please refer to page five.
Q HOW DID THE FUND PERFORM DURING THE REPORTING PERIOD?
A The Fund posted a total return of 13.60 percent(1) (Class A shares at net
asset value) for the 12-month period ended June 30, 1997. By comparison,
the Credit Suisse First Boston High Yield Index returned 14.67 for the
same period. Keep in mind that this index is a broad-based, unmanaged index that
reflects the general performance of a wide range of selected bonds within the
public high yield debt market. It does not reflect any commissions, fees, or
sales charges that would be paid by an investor purchasing the securities it
represents.
Duration is a measure of a portfolio's sensitivity to changes in interest
rates. The longer the duration, the greater the effect of interest rate
movements on net asset value. Funds with shorter durations typically have
performed better in rising rate environments, while funds with longer durations
have tended to do better when interest rates decline. At the end of the Fund's
fiscal year, its duration stood at 3.00 years, compared to the 4.45 year average
duration of the Credit Suisse First Boston High Yield benchmark. As of June 30,
1997, the Fund's distribution rate stood at 8.41 percent(3) per Class A share.
Please refer to the chart on page four for additional Fund performance results.
Q WHAT IS YOUR OUTLOOK FOR THE MARKET OVER THE COMING MONTHS?
A We continue to see strength in the economy, but do not anticipate the 4.9
percent growth pace of the first quarter to be repeated in subsequent
quarters for the remainder of the year. While labor productivity and
manufacturing remained strong in the second quarter, retail sales fell, and the
unemployment rate, which had slipped below 5.0 percent in April and May, edged
up to that level in June.
We expect growth to accelerate again during the second half of the year due
to the economy's strong underlying fundamentals, including consumer confidence,
job growth, and moderate inflation. However, it is unlikely that the Federal
Reserve Board will take any action through the fourth quarter. Given this
outlook, we expect the yield on the 30-year Treasury bond will range between
6.250 and 6.625 percent during the latter part of 1997.
9
<PAGE> 11
Continuing strong technical fundamentals should bolster the high yield
market as a whole, as demand for high yield bonds remains firm. At the same
time, we would point out that, while high yield markets have enjoyed near-record
level success over the past few years, the performance of high yield bonds would
likely be adversely affected by a change in general economic conditions. Should
a shift include slower economic growth or a recession, high yield bonds would be
operating in a more challenging environment.
We continue to position the Fund defensively, applying an "all-weather"
perspective to our management of the Fund's duration, credit quality breakdown,
and portfolio diversification. We believe that the Fund is well-positioned for
the coming months.
[SIG]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
[SIG]
Anne K. Lorsung
Portfolio Manager
Please see footnotes on page four
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS
June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
in Local
Currency U.S.($)
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DOMESTIC CORPORATE BONDS 63.3%
AEROSPACE & DEFENSE 1.4%
2,000 Dyncorp, Inc., 144A -- Private Placement
(a)....................................... 9.500% 03/01/07 $ 2,020,000
2,200 Sequa Corp................................ 9.625 10/15/99 2,266,000
1,600 Sequa Corp................................ 9.375 12/15/03 1,644,000
------------
5,930,000
------------
AUTOMOBILE 0.9%
1,800 Collins and Aikman Products Co............ 11.500 04/15/06 2,043,000
1,600 Exide Corp................................ 10.750 12/15/02 1,688,000
------------
3,731,000
------------
BUILDINGS & REAL ESTATE 1.8%
3,600 American Standard, Inc.................... 10.875 05/15/99 3,834,000
3,250 Johns Manville International Group,
Inc....................................... 10.875 12/15/04 3,623,750
------------
7,457,750
------------
CHEMICALS, PLASTICS & RUBBER 1.6%
4,258 ISP Holdings, Inc......................... 9.750 02/15/02 4,513,480
2,300 Pioneer Amers Acquisition Corp., 144A --
Private Placement (a)..................... 9.250 06/15/07 2,277,000
------------
6,790,480
------------
CONTAINERS, PACKAGING & GLASS 1.5%
1,550 Owens Illinois, Inc....................... 9.750 08/15/04 1,631,375
2,100 S.D. Warren Co............................ 12.000 12/15/04 2,352,000
2,400 Sweetheart Cup, Inc....................... 9.625 09/01/00 2,436,000
------------
6,419,375
------------
DIVERSIFIED/CONGLOMERATE MANUFACTURING 3.7%
3,300 Aetna Industries, Inc..................... 11.875 10/01/06 3,605,250
3,500 Communications & Power Industries, Inc.... 12.000 08/01/05 3,885,000
3,000 Newflo Corp............................... 13.250 11/15/02 3,240,000
4,200 Talley Manufacturing & Technology, Inc.... 10.750 10/15/03 4,410,000
500 Terex Corp................................ 13.250 05/15/02 562,500
------------
15,702,750
------------
ECOLOGICAL 0.6%
2,000 Envirosource, Inc......................... 9.750 06/15/03 1,960,000
550 Norcal Waste Systems, Inc. (b)............ 0/13.000 11/15/05 621,500
------------
2,581,500
------------
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
in Local
Currency U.S.($)
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ELECTRONICS 3.0%
5,050 Advanced Micro Devices, Inc............... 11.000% 08/01/03 $ 5,605,500
4,250 Bell & Howell Co. (b)..................... 0/11.500 03/01/05 3,400,000
3,600 Exide Electronics Group, Inc.............. 11.500 03/15/06 3,816,000
------------
12,821,500
------------
ENERGY 4.8%
2,400 Clark R & M Holdings, Inc................. * 02/15/00 1,824,000
3,700 Giant Industries, Inc..................... 9.750 11/15/03 3,811,000
5,300 Global Marine, Inc. (c)................... 12.750 12/15/99 5,565,000
4,350 KCS Energy, Inc........................... 11.000 01/15/03 4,708,875
4,200 Petroleum Heat & Power, Inc............... 12.250 02/01/05 4,410,000
------------
20,318,875
------------
FINANCE 3.1%
4,840 American Annuity Group, Inc............... 11.125 02/01/03 5,130,400
3,300 Americo Life, Inc......................... 9.250 06/01/05 3,374,250
1,750 Americredit Corp.......................... 9.250 02/01/04 1,741,250
3,000 Contifinancial Corp....................... 8.375 08/15/03 3,075,000
------------
13,320,900
------------
GROCERY 1.6%
3,650 Pantry, Inc............................... 12.500 11/15/00 3,768,625
3,050 Pathmark Stores, Inc...................... 9.625 05/01/03 2,950,875
------------
6,719,500
------------
HEALTHCARE 2.6%
3,100 Merit Behavioral Care Corp................ 11.500 11/15/05 3,441,000
3,100 Tenet Healthcare Corp..................... 10.125 03/01/05 3,394,500
2,350 Tenet Healthcare Corp..................... 8.625 12/01/03 2,444,000
1,650 Urohealth Systems, Inc., 144A -- Private
Placement (a)............................. 12.500 04/01/04 1,617,000
------------
10,896,500
------------
HOTEL, MOTEL, INNS & GAMING 4.2%
5,050 Argosy Gaming Co.......................... 13.250 06/01/04 4,873,250
3,075 Coast Hotels & Casinos, Inc............... 13.000 12/15/02 3,436,313
3,350 Grand Casino, Inc......................... 10.125 12/01/03 3,500,750
4,200 Trump Atlantic City Associates............ 11.250 05/01/06 4,116,000
1,800 Waterford Gaming.......................... 12.750 11/15/03 2,020,500
------------
17,946,813
------------
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
in Local
Currency U.S.($)
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
LEISURE/ENTERTAINMENT 2.3%
2,500 Cobblestone Golf Group, Inc............... 11.500% 06/01/03 $ 2,625,000
5,000 Selmer, Inc............................... 11.000 05/15/05 5,525,000
1,650 Viacom International, Inc................. 10.250 09/15/01 1,790,250
------------
9,940,250
------------
MINING, STEEL, IRON & NON-PRECIOUS
METAL 5.4%
5,000 Armco, Inc................................ 11.375 10/15/99 5,175,000
3,850 Carbide/Graphite Group, Inc............... 11.500 09/01/03 4,215,750
1,300 Clark Material Handling................... 10.750 11/15/06 1,368,250
3,000 Dawson Production Services, Inc........... 9.375 02/01/07 3,060,000
1,530 Falcon Drilling........................... 9.750 01/15/01 1,587,375
1,000 Inland Steel Co........................... 12.000 12/01/98 1,067,500
1,100 Parker Drilling Co........................ 9.750 11/15/06 1,157,750
1,550 Pride Petroleum Services, Inc............. 9.375 05/01/07 1,619,750
3,400 WCI Steel, Inc............................ 10.000 12/01/04 3,527,500
------------
22,778,875
------------
PERSONAL & NON-DURABLE 2.1%
2,250 Revlon Consumer Products Corp............. 9.375 04/01/01 2,317,500
900 Revlon, Inc............................... 10.875 07/15/10 915,750
5,000 Samsonite Corp............................ 11.125 07/15/05 5,650,000
------------
8,883,250
------------
PRINTING, PUBLISHING & BROADCASTING 4.6%
900 Cablevision Systems Corp.................. 9.875 05/15/06 958,500
2,600 Cablevision Systems Corp.................. 10.500 05/15/16 2,834,000
1,600 Comcast Corp.............................. 9.375 05/15/05 1,684,000
1,000 Comcast Corp.............................. 9.125 10/15/06 1,045,000
900 Diamond Cable Co., 144A -- Private
Placement (a) (b)......................... 0/10.750 02/15/07 517,500
2,700 International Cabletel, Inc., Series A
(b)....................................... 0/12.750 04/15/05 2,079,000
1,000 International Cabletel, Inc., Series B
(b)....................................... 0/11.500 02/01/06 690,000
1,600 K-III Communications Corp................. 10.250 06/01/04 1,728,000
4,600 SCI Television, Inc....................... 11.000 06/30/05 4,841,500
850 Young Broadcasting, Inc................... 10.125 02/15/05 890,375
2,000 Young Broadcasting, Inc................... 11.750 11/15/04 2,220,000
------------
19,487,875
------------
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
in Local
Currency U.S.($)
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RETAIL 2.9%
2,000 Cole National Group, Inc.................. 11.250% 10/01/01 $ 2,195,000
3,250 Cole National Group, Inc.................. 9.875 12/31/06 3,420,625
1,000 Hosiery Corp. America, Inc................ 13.750 08/01/02 1,095,000
5,100 Waban, Inc................................ 11.000 05/15/04 5,750,250
------------
12,460,875
------------
TELECOMMUNICATIONS 8.9%
3,150 Capstar Radio Broadcasting, 144A --
Private Placement (a)..................... 9.250 07/01/07 3,047,625
1,650 Centennial Cellular Corp.................. 8.875 11/01/01 1,633,500
1,800 Centennial Cellular Corp.................. 10.125 05/15/05 1,876,500
1,800 Century Communications Corp............... 8.875 01/15/07 1,764,000
2,800 Echostar Communications Corp. (b)......... 0/12.875 06/01/04 2,352,000
2,300 EZ Communications, Inc.................... 9.750 12/01/05 2,438,000
1,100 Gray Communications Systems, Inc.......... 10.625 10/01/06 1,166,000
2,700 Intermedia Communications of Florida, Inc.
(b)....................................... 0/12.500 05/15/06 1,890,000
1,350 Intermedia Communications of Florida,
Inc....................................... 13.500 06/01/05 1,647,000
5,000 IXC Communications, Inc................... 12.500 10/01/05 5,712,500
1,750 Katz Media Corp........................... 10.500 01/15/07 1,723,750
2,700 Panamsat L.P.............................. 9.750 08/01/00 2,835,000
2,550 Pricellular Wireless Corp. (b)............ 0/12.250 10/01/03 2,390,625
2,550 Pricellular Wireless Corp................. 10.750 11/01/04 1,985,500
3,000 Teleport Communications Group (b)......... 0/11.125 07/01/07 2,167,500
4,900 Viatel, Inc. (b).......................... 0/15.000 01/15/05 3,307,500
------------
37,937,000
------------
TEXTILES 2.0%
4,450 Anvil Knitwear, Inc., 144A -- Private
Placement (a)............................. 10.875 03/15/07 4,505,625
3,700 Dan River, Inc............................ 10.125 12/15/03 3,940,500
------------
8,446,125
------------
TRANSPORTATION 1.0%
4,000 U.S. Air, Inc............................. 8.625 09/01/98 4,040,000
------------
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
in Local
Currency U.S.($)
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UTILITIES 3.3%
3,850 AES Corp. (e)............................. 10.250% 07/15/06 $ 4,215,750
2,100 El Paso Electric Co....................... 8.250 02/01/03 2,189,250
3,200 Midland Funding Corp. II.................. 11.750 07/23/05 3,728,000
3,900 National Energy Group, Inc................ 10.750 11/01/06 4,036,500
------------
14,169,500
------------
TOTAL DOMESTIC CORPORATE BONDS.................................... 268,780,693
------------
FOREIGN BONDS AND DEBT SECURITIES 16.6%
ARGENTINA 1.3%
3,000 Banco De Credito Argentino (US$).......... 9.500 04/24/00 3,105,000
1,000 Credito Argentino SA (US$)................ 9.500 04/24/00 1,035,000
1,000 Republic of Argentina (Var. Rate Cpn.)
(US$)..................................... 6.875 03/31/23 346,875
500 Republic of Argentina (Var. Rate Cpn.)
(US$)..................................... 5.500 03/31/23 863,750
------------
5,350,625
------------
AUSTRALIA 0.2%
1,100 Commonwealth of Australia (AU$)........... 10.000 10/15/02 959,756
------------
BRAZIL 0.6%
1,940 Brazil Media Trust (US$).................. 6.546 09/15/07 1,767,386
1,000 CESP Companhia Energetica (US$)........... 9.125 06/26/07 985,000
------------
2,752,386
------------
CANADA 4.9%
3,100 Algoma Steel, Inc. (US$).................. 12.375 07/15/05 3,448,750
4,750 Doman Industries Ltd. (US$)............... 8.750 03/15/04 4,607,500
3,000 Fundy Cable Ltd. (US$).................... 11.000 11/15/05 3,262,500
4,000 Fonorola, Inc. (US$)...................... 12.500 08/15/02 4,440,000
2,500 Rogers Communications, Inc. (US$)......... 10.875 04/15/04 2,618,750
2,300 Trizec Finance (US$)...................... 10.875 10/15/05 2,587,500
------------
20,965,000
------------
COLOMBIA 1.1%
2,500 Financiera Energetica (US$)............... 9.375 06/15/06 2,675,000
2,000 Financiera Energetica (US$), 144A -
Private Placement (a)..................... 9.375 06/15/06 2,140,000
------------
4,815,000
------------
INDONESIA 1.1%
4,000 Tjiwi Kimia International Finance (US$)... 13.250 08/01/01 4,560,000
------------
ITALY 0.2%
1,500,000 Federal Republic of Italy (Lira).......... 10.000 08/01/03 1,028,201
------------
LUXEMBURG 0.9%
5,150 Millicom International Cellular SA (US$)
(b)....................................... 0/13.500 06/01/06 3,720,875
------------
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
in Local
Currency U.S.($)
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MEXICO 2.2%
4,000 Grupo Televisa SA, 144A -- Private
Placement (US$) (a)....................... 10.000% 11/09/97 $ 4,048,000
2,000 United Mexican States (US$)............... 11.375 09/15/16 2,247,000
3,000 Vicap SA, 144A -- Private Placement (US$)
(a)....................................... 10.250 05/15/02 3,078,750
------------
9,373,750
------------
MOROCCO 0.9%
4,000 Morocco Trust A Loan (US$) (e)............ 6.813 01/01/09 3,650,000
------------
NETHERLANDS 1.2%
4,950 Fresh Del Monte Produce NV (US$).......... 10.000 05/01/03 5,098,500
------------
PHILIPPINES 0.2%
1,000 Republic of Philippines (US$)............. 6.250 12/01/17 878,750
------------
RUSSIA 1.4%
3,000 Russia Min Finance (US$).................. 9.250 11/27/01 3,018,750
3,000 Vneshekonombank Loan Agreement (US$)
(e)....................................... 6.250 01/01/99 2,748,750
------------
5,767,500
------------
VENEZUELA 0.4%
2,000 Republic of Venezuela (includes 10,000
common stock warrants) (US$).............. 6.750 03/31/20 1,575,000
------------
TOTAL FOREIGN BONDS AND DEBT SECURITIES........................... 70,495,343
------------
U.S. GOVERNMENT OBLIGATIONS 0.7%
3,000 U.S. T-Notes.............................. 9.000 05/15/98 3,082,710
------------
EQUITIES 3.0%
American Telecasting, Inc. (8,370 common stock warrants) (g)................ 4,185
Cablevision Systems Corp. (1 preferred share) (f)........................... 104
Capital Gaming International, Inc. (5,000 common stock warrants) (g)........ 0
Cobblestone Holdings, Inc. (1,000 common shares) (g)........................ 15,000
El Paso Electric Co. (20,072 preferred shares) (f).......................... 2,258,100
Exide Electronics Group, Inc. (2,950 common stock warrants) (g)............. 73,750
Fresenius Medical Care Capital Trust (4,000 preferred shares)............... 4,100,000
Hosiery Corp. of America, Inc. (1,000 common stock warrants) (g)............ 75,000
Intermedia Communications of Florida, Inc. (3,150 common stock warrants)
(g)......................................................................... 126,000
Panamsat LP Corp. (2,180 preferred shares) (f).............................. 2,662,097
Supermarkets General Holdings Corp. (28,600 preferred shares) (g)........... 572,000
Time Warner, Inc. (2,564 preferred shares) (d) (f).......................... 2,833,275
Urohealth Systems, Inc. (1,650 common stock warrants) (g)................... 8,250
------------
TOTAL EQUITIES.................................................... 12,727,761
------------
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S.($)
Market Value
- --------------------------------------------------------------------------------------------
<S> <C>
TOTAL LONG-TERM INVESTMENTS 83.6%
(Cost $343,287,367)......................................................... $355,086,507
------------
REPURCHASE AGREEMENT 14.7%
J.P. Morgan (Collateralized by U.S. T-Note, $50,534,000 par, 8.875% coupon,
due 02/15/19, dated 06/30/97, to be sold on 07/01/97, at $62,310,210)....... 62,300,000
------------
TOTAL INVESTMENTS 98.3%
(Cost $405,587,367)......................................................... 417,386,507
OTHER ASSETS IN EXCESS OF LIABILITIES 1.7%................................... 7,365,126
------------
NET ASSETS 100.0%............................................................ $424,751,633
------------
</TABLE>
*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 buyers.
(b) Security is a "Step-up" bond where the coupon increases or steps up at a
predetermined date.
(c) Assets segregated as collateral for when issued or delayed delivery purchase
commitments and open forward transactions.
(d) Securities purchased on a when issued or delayed delivery basis.
(e) Security is a bank loan participation.
(f) Payment-in-kind security.
(g) Non-income producing security.
See Notes to Financial Statements
17
<PAGE> 19
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments, including repurchase agreements of
$62,300,000 (Cost $405,587,367)........................... $ 417,386,507
Cash........................................................ 1,963
Receivables:
Interest.................................................. 7,382,554
Investments Sold.......................................... 3,984,888
Fund Shares Sold.......................................... 692,465
Other....................................................... 27,619
--------------
Total Assets.......................................... 429,475,996
--------------
LIABILITIES:
Payables:
Investments Purchased..................................... 1,877,489
Income Distributions...................................... 1,808,000
Fund Shares Repurchased................................... 249,208
Investment Advisory Fee................................... 226,171
Distributor and Affiliates................................ 328,205
Deferred Compensation and Retirement Plans.................. 97,854
Accrued Expenses............................................ 137,436
--------------
Total Liabilities..................................... 4,724,363
--------------
NET ASSETS.................................................. $ 424,751,633
==============
NET ASSETS CONSIST OF:
Capital..................................................... $ 511,129,305
Net Unrealized Appreciation................................. 11,798,356
Accumulated Distributions in Excess of Net Investment
Income.................................................... (1,905,853)
Accumulated Net Realized Loss............................... (96,270,175)
--------------
NET ASSETS.................................................. $ 424,751,633
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $288,018,283 and 29,228,811 shares of
beneficial interest issued and outstanding)............. $ 9.85
Maximum sales charge (4.75%* of offering price)......... .49
--------------
Maximum offering price to public........................ $ 10.34
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $128,655,113 and 13,054,923 shares of
beneficial interest issued and outstanding)............. $ 9.85
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $8,078,237 and 820,064 shares of
beneficial interest issued and outstanding)............. $ 9.85
==============
*On sales of $100,000 or more, the sales charge will be
reduced.
</TABLE>
See Notes to Financial Statements
18
<PAGE> 20
STATEMENT OF OPERATIONS
For the Year Ended June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest (Net of foreign withholding taxes of $25,337)...... $38,980,796
Dividends................................................... 732,637
Other....................................................... 458,206
-----------
Total Income............................................ 40,171,639
-----------
EXPENSES:
Investment Advisory Fee..................................... 3,011,682
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B, and C of $666,457, $1,155,132, and $74,596,
respectively)............................................. 1,896,185
Shareholder Services........................................ 580,039
Custody..................................................... 137,428
Legal....................................................... 45,820
Trustees Fees and Expenses.................................. 43,040
Other....................................................... 303,953
-----------
Total Expenses.......................................... 6,018,147
Less Fees Waived and Expenses Reimbursed ($370,483 and
$5,042, respectively)................................. 375,525
-----------
Net Expenses............................................ 5,642,622
-----------
NET INVESTMENT INCOME....................................... $34,529,017
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................. $ 9,413,805
Forward Currency Contracts.............................. 2,754
Foreign Currency Transactions........................... 308,614
-----------
Net Realized Gain........................................... 9,725,173
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 5,542,049
-----------
End of the Period:
Investments............................................. 11,799,140
Foreign Currency Translation............................ (784)
-----------
11,798,356
-----------
Net Unrealized Appreciation During the Period............... 6,256,307
-----------
NET REALIZED AND UNREALIZED GAIN............................ $15,981,480
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $50,510,497
===========
</TABLE>
See Notes to Financial Statements
19
<PAGE> 21
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended June 30, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1997 June 30, 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.................................... $ 34,529,017 $ 31,296,259
Net Realized Gain........................................ 9,725,173 5,994,371
Net Unrealized Appreciation/Depreciation During the
Period................................................. 6,256,307 (896,955)
------------ ------------
Change in Net Assets from Operations..................... 50,510,497 36,393,675
------------ ------------
Distributions from Net Investment Income................. (34,529,017) (31,296,259)
Distributions in Excess of Net Investment Income......... (412,288) (186,982)
------------ ------------
Distributions from and in Excess of Net Investment
Income*.............................................. (34,941,305) (31,483,241)
Return of Capital Distribution*.......................... (612,243) (1,853,192)
------------ ------------
Total Distributions.................................... (35,553,548) (33,336,433)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES...... 14,956,949 3,057,242
------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................ 151,222,275 130,645,161
Net Asset Value of Shares Issued Through Dividend
Reinvestment........................................... 13,768,097 12,295,000
Cost of Shares Repurchased............................... (130,375,583) (81,944,626)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS....... 34,614,789 60,995,535
------------ ------------
TOTAL INCREASE IN NET ASSETS............................. 49,571,738 64,052,777
NET ASSETS:
Beginning of the Period.................................. 375,179,895 311,127,118
------------ ------------
End of the Period (Including accumulated distributions in
excess of net investment income of $1,905,853 and
$1,835,750, respectively).............................. $424,751,633 $375,179,895
============ ============
</TABLE>
<TABLE>
<CAPTION>
Year Ended Year Ended
*Distributions by Class June 30, 1997 June 30, 1996
- -------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of
Net Investment Income (Note 1):
Class A Shares....................... $(24,888,535) $(24,518,181)
Class B Shares....................... (9,438,468) (6,539,545)
Class C Shares....................... (614,302) (425,515)
------------ ------------
$(34,941,305) $(31,483,241)
============ ============
Return of Capital Distribution (Note
1):
Class A Shares....................... $ (430,710) $ (1,394,959)
Class B Shares....................... (170,818) (427,086)
Class C Shares....................... (10,715) (31,147)
------------- -------------
$ (612,243) $ (1,853,192)
============= =============
</TABLE>
See Notes to Financial Statements
20
<PAGE> 22
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended June 30
--------------------------------------------------
Class A Shares 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------
Net Asset Value, Beginning of the
Period............................. $ 9.493 $ 9.398 $ 9.643 $10.380 $ 9.896
------- -------- ------- -------- --------
Net Investment Income.............. .857 .878 .844 .908 1.118
Net Realized and Unrealized
Gain/Loss........................ .384 .147 (.099) (.595) .566
------- -------- ------- -------- --------
Total from Investment Operations..... 1.241 1.025 .745 .313 1.684
------- -------- ------- -------- --------
Less:
Distributions from and in Excess of
Net Investment Income............ .865 .880 .815 .950 1.129
Return of Capital Distribution..... .015 .050 .175 .100 .071
------- -------- ------- -------- --------
Total Distributions.................. .880 .930 .990 1.050 1.200
------- -------- ------- -------- --------
Net Asset Value, End of the Period... $ 9.854 $ 9.493 $ 9.398 $ 9.643 $10.380
======= ======== ======= ======== ========
Total Return* (a).................... 13.60% 11.26% 8.50% 2.92% 18.08%
Net Assets at End of the Period (In
millions).......................... $ 288.0 $ 271.1 $ 253.3 $ 260.7 $ 251.5
Ratio of Expenses to Average Net
Assets *........................... 1.17% 1.31% 1.31% 1.32% 1.20%
Ratio of Net Investment Income to
Average Net Assets *............... 8.83% 9.16% 9.13% 8.85% 11.13%
Portfolio Turnover................... 125% 102% 152% 203% 198%
*If certain expenses had not been waived or reimbursed by VKAC, total return would have
been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net
Assets............................. 1.26% 1.31% N/A N/A N/A
Ratio of Net Investment Income to
Average Net Assets................. 8.73% 9.15% N/A N/A N/A
</TABLE>
(a) Total return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
N/A -- Not applicable.
See Notes to Financial Statements
21
<PAGE> 23
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
May 17, 1993
Year Ended June 30, (Commencement
------------------------------------- of Distribution) to
Class B Shares 1997 1996 1995 1994 June 30, 1993(a)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period.......................... $ 9.497 $ 9.398 $ 9.638 $10.382 $10.190
------- ------- ------- ------- -------
Net Investment Income........... .777 .797 .788 .889 .117
Net Realized and Unrealized
Gain/Loss..................... .389 .160 (.115) (.665) .217
------- ------- ------- ------- -------
Total from Investment
Operations...................... 1.166 .957 .673 .224 .334
------- ------- ------- ------- -------
Less:
Distributions from and in Excess
of Net Investment Income...... .794 .812 .751 .877 .128
Return of Capital
Distribution.................. .014 .046 .162 .091 .014
------- ------- ------- ------- -------
Total Distributions............... .808 .858 .913 .968 .142
------- ------- ------- ------- -------
Net Asset Value, End of the
Period.......................... $ 9.855 $ 9.497 $ 9.398 $ 9.638 $10.382
======= ======= ======= ======= =======
Total Return* (b)................. 12.64% 10.55% 7.61% 2.11% 3.27%**
Net Assets at End of the Period
(In millions)................... $ 128.7 $ 97.1 $ 55.9 $ 33.2 $ 2.7
Ratio of Expenses to Average Net
Assets*......................... 1.93% 2.07% 2.04% 2.13% 2.06%
Ratio of Net Investment Income to
Average Net Assets*............. 8.03% 8.39% 8.35% 7.94% 7.17%
Portfolio Turnover................ 125% 102% 152% 203% 198%**
*If certain expenses had not been waived or reimbursed by VKAC, total return would have been
lower and the ratios would have been as follows:
Ratio of Expenses to Average Net
Assets.......................... 2.02% 2.07% N/A N/A N/A
Ratio of Net Investment Income to
Average Net Assets.............. 7.94% 8.38% N/A N/A N/A
</TABLE>
** Non-Annualized
(a) Based on average shares outstanding.
(b) Total Return is based upon Net Asset Value which does not include payment of
maximum sales charge or contingent deferred sales charge.
N/A -- Not applicable.
See Notes to Financial Statements
22
<PAGE> 24
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
August 13, 1993
Year Ended June 30, (Commencement of
--------------------------------- Distribution) to
Class C Shares 1997 1996 1995 June 30, 1994(a)
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
Net Asset Value, Beginning of
Period............................. $ 9.495 $ 9.396 $ 9.643 $10.340
------- ------- ------- -------
Net Investment Income.............. .780 .828 .745 .761
Net Realized and Unrealized
Gain/Loss........................ .384 .129 (.079) (.605)
------- ------- ------- -------
Total from Investment Operations..... 1.164 .957 .666 .156
------- ------- ------- -------
Less:
Distributions from and in Excess of
Net Investment Income............ .794 .812 .751 .763
Return of Capital Distribution..... .014 .046 .162 .090
------- ------- ------- -------
Total Distributions.................. .808 .858 .913 .853
------- ------- ------- -------
Net Asset Value, End of Period....... $ 9.851 $ 9.495 $ 9.396 $ 9.643
======= ======= ======= =======
Total Return* (b).................... 12.65% 10.55% 7.61% 1.37%**
Net Assets at End of Period
(In millions)...................... $ 8.1 $ 7.0 $ 2.0 $ 2.2
Ratio of Expenses to Average Net
Assets*............................ 1.93% 2.06% 2.12% 2.14%
Ratio of Net Investment Income to
Average Net Assets*................ 8.08% 8.38% 8.13% 7.91%
Portfolio Turnover................... 125% 102% 152% 203%**
*If certain expenses had not been waived or reimbursed by VKAC, total return would have
been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net
Assets............................. 2.03% 2.07% N/A N/A
Ratio of Net Investment Income to
Average Net Assets................. 7.99% 8.38% N/A N/A
</TABLE>
** Non-Annualized
(a) Based on average shares outstanding.
(b) Total Return is based upon Net Asset Value which does not include payment of
maximum sales charge or contingent deferred sales charge.
N/A -- Not applicable.
See Notes to Financial Statements
23
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS
June 30, 1997
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital High Yield Fund (the "Fund") is organized as a
series of Van Kampen American Capital Trust, a Delaware business trust (the
"Trust"), and is registered as a diversified open-end management investment
company under the Investment Company Act of 1940, as amended. The Fund's primary
investment objective is to provide a high level of current income through
investment in medium and lower grade domestic corporate debt securities. The
Fund also may invest up to 35% of its assets in foreign government and corporate
debt securities of comparable quality. The Fund commenced investment operations
on June 27, 1986. The Fund commenced distribution of its Class B and C shares on
May 17, 1993 and August 13, 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 are stated at value using market quotations
or, if such valuations are not available, estimates obtained from yield data
relating to instruments or securities with similar characteristics in accordance
with procedures established in good faith by the Board of Trustees. Short-term
securities with remaining maturities of 60 days or less are valued at amortized
cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made.
The Fund invests 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
24
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
along with other investment companies advised by Van Kampen American Capital
Investment Advisory Corp. (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.
C. INVESTMENT INCOME--Interest income is recorded on an accrual basis and
dividend income is recorded on the ex-dividend date. Bond discount is amortized
over the expected life of each applicable security.
D. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At June 30, 1997, the Fund had an accumulated capital loss carryforward
for tax purposes of $96,270,175, which will expire between June 30, 1998 and
June 30, 2004. Net realized gains or losses may differ for financial and tax
reporting purposes primarily as a result of post October 31 losses which are not
recognized for tax purposes until the first day of the following fiscal year.
At June 30, 1997, for federal income tax purposes, the cost of long- and
short-term investments is $405,587,367; the aggregate gross unrealized
appreciation is $13,177,770 and the aggregate gross unrealized depreciation is
$1,379,414, resulting in net unrealized appreciation of $11,798,356.
E. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily and pays monthly
dividends from net investment income. Net investment income for federal income
tax purposes includes gains and losses realized on foreign currency
transactions. These gains and losses are included as net realized gains and
losses for financial reporting purposes. Permanent book and tax basis
differences relating to net realized currency gains totaling $311,368 were
reclassified from accumulated net realized gain/loss on investments to
accumulated undistributed net investment income.
25
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
Additional permanent differences relating to the recognition of expenses
which are not deductible for tax purposes, totaling $30,817 were reclassified
from accumulated distributions in excess of net investment income to capital.
Net realized gains, if any, are distributed annually. Distributions from net
realized gains for book purposes may include short-term capital gains, which are
included as ordinary income for tax purposes.
F. CURRENCY TRANSLATION--Assets and liabilities denominated in foreign
currencies and commitments under forward currency contracts are translated into
U.S. dollars at the mean of the quoted bid and ask prices of such currencies
against the U.S. dollar. Purchases and sales of portfolio securities are
translated at the rate of exchange prevailing when such securities were acquired
or sold. Income and expenses are translated at rates prevailing when accrued.
G. BANK LOAN PARTICIPATIONS--The Fund invests in participation interests of
loans to foreign entities. When the Fund purchases a participation of a foreign
loan interest, the Fund typically enters into a contractual agreement with the
lender or other third party selling the participation, but not with the borrower
directly. As such, the Fund assumes credit risk for the borrower, selling
participant or other persons positioned between the Fund and the borrower.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, Van Kampen American
Capital Investment Advisory Corp. (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 $500 million.................................. .75 of 1%
Over $500 million................................... .65 of 1%
</TABLE>
For the year ended June 30, 1997, the Adviser waived a portion of its
advisory fee. This waiver is voluntary and may be discontinued at any time.
Additionally during the period, the Adviser reimbursed the Fund for certain
trustees' compensation in connection with the July, 1995 increase in the number
of trustees of the Fund.
For the year ended June 30, 1997, the Fund recognized expenses of
approximately $33,800 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the year ended June 30, 1997, the Fund recognized expenses of
approximately $52,300 representing Van Kampen American Capital Distributors,
Inc.'s or its affiliates'
26
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
(collectively "VKAC") cost of providing accounting, cash management and legal
services to the Fund.
ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the year ended June
30, 1997, the Fund recognized expenses of approximately $431,600, representing
ACCESS' cost of providing transfer agency and shareholder services plus a
profit.
Additionally, for the year ended June 30, 1997, the Fund reimbursed VKAC
approximately $30,817 related to the direct cost of consolidating the VKAC
open-end fund complex. Payment was contingent upon the realization by the Fund
of cost efficiencies resulting from the consolidation.
Certain officers and trustees of the Fund are also officers and directors of
VKAC. The Fund does not compensate its officers or trustees who are officers of
VKAC.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of VKAC. 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 equal to $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, 1997, capital aggregated
$378,296,283,
27
<PAGE> 29
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
$124,965,107 and $7,867,915 for Class A, B and C shares, respectively. For the
year ended June 30, 1997, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................. 9,665,241 $ 93,909,024
Class B.................................. 5,509,891 53,363,176
Class C.................................. 406,766 3,950,075
----------- -------------
Total Sales................................ 15,581,898 $ 151,222,275
=========== =============
Dividend Reinvestment:
Class A.................................. 1,014,981 $ 9,862,811
Class B.................................. 369,698 3,593,610
Class C.................................. 32,085 311,676
----------- -------------
Total Dividend Reinvestment................ 1,416,764 $ 13,768,097
=========== =============
Repurchases:
Class A.................................. (10,008,711) $ (97,324,996)
Class B.................................. (3,049,089) (29,617,644)
Class C.................................. (353,416) (3,432,943)
----------- -------------
Total Repurchases.......................... (13,411,216) $(130,375,583)
=========== =============
</TABLE>
28
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
At June 30, 1996, capital aggregated $372,301,052, $97,806,116 and
$7,050,408 for Class A, B and C shares, respectively. For the year ended June
30, 1996, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A................................... 7,294,414 $ 69,532,238
Class B................................... 5,691,156 54,286,076
Class C................................... 717,313 6,826,847
---------- ------------
Total Sales................................. 13,702,883 $130,645,161
========== ============
Dividend Reinvestment:
Class A................................... 1,003,726 $ 9,564,922
Class B................................... 265,511 2,531,980
Class C................................... 20,771 198,098
---------- ------------
Total Dividend Reinvestment................. 1,290,008 $ 12,295,000
========== ============
Repurchases:
Class A................................... (6,692,159) $(63,898,755)
Class B................................... (1,675,635) (15,998,857)
Class C................................... (215,382) (2,047,014)
---------- ------------
Total Repurchases........................... (8,583,176) $(81,944,626)
========== ============
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). The CDSC will be imposed
on most redemptions made within six years of the purchase for Class B and one
year of the purchase for Class C as detailed in the following schedule. The
Class B and C shares bear the expense of their respective deferred sales
arrangements, including higher distribution and service fees and incremental
transfer agency costs.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
YEAR OF REDEMPTION CLASS B CLASS C
- ---------------------------------------------------------------------------
<S> <C> <C>
First............................................ 4.00% 1.00%
Second........................................... 3.75% None
Third............................................ 3.50% None
Fourth........................................... 2.50% None
Fifth............................................ 1.50% None
Sixth............................................ 1.00% None
Seventh and Thereafter........................... None None
</TABLE>
29
<PAGE> 31
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
For the year ended June 30, 1997, VKAC, as Distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately
$92,626 and CDSC on redeemed shares of approximately $287,213. 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 $450,557,499 and $445,872,249,
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 and to manage the portfolio's effective yield, foreign currency
exposure, maturity and duration. 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 on securities. Upon
disposition, a realized gain or loss is recognized accordingly.
During the year ended June 30, 1997, the Fund entered into forward currency
contracts, a type of derivative. These instruments are commitments to purchase
or sell a foreign currency at a future date at a negotiated forward rate. The
gain or loss arising from the difference between the original value of the
contract and the closing value of such contract is included as a component of
realized gain/loss on forward currency contracts.
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% for Class A net assets and 1.00%
each for Class B and Class C net assets are accrued daily. Included in these
fees for the year ended June 30, 1997, are payments to VKAC of approximately
$930,700.
30
<PAGE> 32
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen American Capital High Yield Fund:
We have audited the accompanying statement of assets and liabilities of Van
Kampen American Capital High Yield Fund (the "Fund"), including the portfolio of
investments, as of June 30, 1997, and the related statement of operations for
the year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
periods presented. 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.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1997, by correspondence with the 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 American Capital High Yield Fund as of June 30, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the periods presented, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Chicago, Illinois
August 11, 1997
31
<PAGE> 33
VAN KAMPEN AMERICAN CAPITAL HIGH YIELD FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
JEROME L. ROBINSON
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*
ALAN T. SACHTLEBEN*
PAUL R. WOLKENBERG*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
DISTRIBUTOR
VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
SHAREHOLDER SERVICING AGENT
ACCESS 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
KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601
* "Interested" persons of the Fund, as defined in the Investment Company Act of
1940.
(C) Van Kampen American Capital Distributors, Inc., 1997. All rights reserved.
(SM) denotes a service mark of Van Kampen American Capital Distributors, Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After December 31, 1997, the report must be accompanied by
a quarterly performance update, if applicable.
32
<PAGE> 34
RESULTS OF SHAREHOLDER VOTES
A Special Meeting of Shareholders of the Fund was held on May 28, 1997 where
shareholders voted on a new investment advisory agreement, the election of
Trustees and the ratification of KPMG Peat Marwick LLP as independent public
accountants. With regard to the approval of a new investment advisory agreement
between Van Kampen American Capital Investment Advisory Corp. and the Fund,
26,539,747 shares voted for the proposal, 436,460 shares voted against and
1,143,893 shares abstained. With regard to the election of J. Miles Branagan as
elected trustee of the Fund, 27,602,104 shares voted in his favor and 517,995
shares withheld. With regard to the election of Richard M. DeMartini as elected
trustee of the Fund, 27,594,845 shares voted in his favor and 525,254 shares
withheld. With regard to the election of Linda Hutton Heagy as elected trustee
of the Fund, 27,596,849 shares voted in her favor and 523,250 shares withheld.
With regard to the election of R. Craig Kennedy as elected trustee of the Fund,
27,596,611 shares voted in his favor and 523,489 shares withheld. With regard to
the election of Jack E. Nelson as elected trustee of the Fund, 27,602,973 shares
voted in his favor and 517,126 shares withheld. With regard to the election of
Don G. Powell as elected trustee of the Fund 27,604,901 shares voted in his
favor and 515,198 shares withheld. With regard to the election of Jerome L.
Robinson as elected trustee of the Fund, 27,579,818 shares voted in his favor
and 540,281 shares withheld. With regard to the election of Phillip B. Rooney as
elected trustee of the Fund, 27,574,275 shares voted in his favor and 575,724
shares withheld. With regard to the election of Fernando Sisto as elected
trustee of the Fund, 27,576,425 shares voted in his favor and 543,674 shares
withheld. With regard to the election of Wayne W. Whalen as elected trustee of
the Fund, 27,596,192 shares voted in his favor and 523,908 shares withheld. With
regard to the ratification of KPMG Peat Marwick LLP as independent public
accountants for the Fund, 26,953,764 shares voted for the proposal, 214,482
shares voted against and 951,854 shares abstained.
33
<PAGE> 35
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 4
Portfolio Highlights............................. 5
Performance in Perspective....................... 6
Portfolio Management Review...................... 7
Portfolio of Investments......................... 10
Statement of Assets and Liabilities.............. 11
Statement of Operations.......................... 12
Statement of Changes in Net Assets............... 13
Financial Highlights............................. 14
Notes to Financial Statements.................... 17
Report of Independent Accountants................ 26
</TABLE>
STGI ANR 8/97
<PAGE> 36
LETTER TO SHAREHOLDERS
August 4, 1997
Dear Shareholder,
As you know, Van Kampen American
Capital was acquired by Morgan Stanley
Group Inc., a world leader in asset
management. Earlier this year, Morgan
Stanley Group Inc. and Dean Witter, [PHOTO]
Discover & Co. agreed to merge. The
merger was completed on May 31,
creating the combined company of
Morgan Stanley, Dean Witter, Discover & Co. DENNIS J. MCDONNELL AND DON G.POWELL
Additionally, we are very
pleased to announce that Philip N.
Duff, formerly the chief financial officer of Morgan Stanley Group Inc., has
joined Van Kampen American Capital as president and chief executive officer. I
will continue as chairman of the firm. We are confident that the partnership of
Van Kampen American Capital and Morgan Stanley will continue to work to the
benefit of our fund shareholders.
One of the immediate privileges that we can offer fund shareholders is the
ability to make exchanges between Van Kampen American Capital and Morgan Stanley
retail funds at no charge. In our view, the rapid appreciation of U.S. stock
prices in recent years has created a need for investors to examine their
portfolios carefully to ensure proper diversification among domestic and foreign
investments. The Morgan Stanley funds, with their emphasis on global markets,
can be valuable tools to accomplishing this diversification.
We also urge investors to consider how their fund holdings are currently
allocated among the three major asset classes of stocks, bonds, and cash
reserves. Uneven movements in the various markets can distort a carefully
planned investment program. And, with stock prices near record highs, it is
likely that some rebalancing of your portfolio allocations may be necessary.
Once again, the exchangeability feature with the Morgan Stanley funds provides
additional choices and opportunities to make the necessary adjustments to your
portfolio's asset allocation.
ECONOMIC OVERVIEW
Growth, stability, and confidence continued to characterize the U.S.
economic environment during the past six months. In the first quarter, the
economy grew at its fastest pace since 1987. Despite the robust rate of economic
activity, there was little evidence of troublesome inflation. Wholesale prices
actually fell during each of the first five months of 1997, the longest stretch
of consecutive monthly declines in 45 years. Continued moderation in the cost of
employee benefit packages offset mild upward pressure on wages that resulted
from the country's low unemployment rate.
Continued on page two
1
<PAGE> 37
In March, the inflationary implications of a tight labor market led the
Federal Reserve Board to raise its target for a key lending rate by one-quarter
of a percentage point, the first hike in short-term interest rates in two years.
In Europe, economic activity was restrained by generally restrictive
monetary and fiscal policies as countries reduced inflation and budget deficits
to ensure eligibility for European Monetary Union in 1999. In Japan, the central
bank held to its highly stimulative monetary policy to help revive that
country's ailing financial sector. Low Japanese interest rates contributed to a
steep fall in the value of the yen, which consequently helped the country's huge
export sector return to profitability.
MARKET OVERVIEW
The strong U.S. economy and tight labor market combined to put mild upward
pressure on domestic bond yields during the first half of 1997. For several
weeks during the spring, it appeared that economic growth was too robust and
that inflation could reemerge. The Federal Reserve's quarter-point increase in
short-term interest rates, as well as worries about inflation, pushed yields on
long-term government bonds up to 7.17 percent in April. When subsequent data
showed the economy to be decelerating during the second quarter, bond yields
gradually fell back to 6.78 percent at the end of June, slightly above where
they stood at the beginning of the year. High yield corporate bonds were the
best-performing sector of the U.S. fixed-income market, as the healthy economic
environment increased investor confidence in the creditworthiness of lower-rated
debt.
Interest rates fell across most global fixed-income markets, but a strong
rally in the value of the U.S. dollar offset the resulting appreciation in bond
prices. During the past six months, the Salomon Brothers Non-U.S. Government
Bond Index gained 3.56 percent in local currency terms, but lost 3.13 percent
after conversion to U.S. dollars.
Most global equity markets posted solid gains during the first half of 1997.
The Dow Jones World Stock Index advanced 13.53 percent in dollar terms during
the period. Stocks in the United States were bolstered by exceptionally strong
growth in corporate profits and by the low-inflation environment, which allowed
price-earnings multiples to remain high. European markets, especially those in
Switzerland, Spain, and the Netherlands, also advanced as falling interest rates
made stocks more attractive. In Asia, equity prices were generally subdued,
reflecting a region-wide slowdown in economic growth rates and global
overcapacity for electronic exports. Stocks in South Korea and Japan, however,
did rebound modestly from previous declines.
OUTLOOK
We expect the pace of economic activity during the remainder of 1997 to
accelerate modestly from the sluggish rate that prevailed during the second
quarter. While we do not believe that economic growth will be rapid enough to
reignite inflation, some warning signs are present, including a tight labor
market and high consumer confidence. In this environment, at least one
additional round of monetary tightening by the Federal Reserve remains a
possibility. We anticipate that long-term interest rates will remain within a
relatively narrow range for the remainder of the year.
Continued on page three
2
<PAGE> 38
Also, we believe that global economic activity will increase, putting mild
downward pressure on bond prices. In Japan, short-term interest rates should
rise from the historically low levels of recent years as the economic recovery
builds momentum. We anticipate that the dollar has peaked against the yen,
although a significant reversal of the dollar's recent gains are unlikely.
European economies should benefit from an end to fiscal tightening, allowing
for modestly higher growth rates throughout the region. Monetary policy is
already relatively easy in core European countries such as Germany and France,
and short-term rates could rise in those markets as growth accelerates. In that
environment, we expect some European bond markets to move moderately lower.
Additional details about your Fund, including a question-and-answer section
with your portfolio management team, are provided in this report. We appreciate
your continued confidence in your investment with Van Kampen American Capital.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen American Capital
Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen American Capital
Investment Advisory Corp.
3
<PAGE> 39
PERFORMANCE RESULTS FOR THE PERIOD ENDED JUNE 30, 1997
VAN KAMPEN AMERICAN CAPITAL SHORT-TERM GLOBAL INCOME FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
TOTAL RETURNS
<S> <C> <C> <C>
One-year total return based on NAV(1).... 6.09% 5.29% 5.29%
One-year total return(2)................. 2.59% 2.31% 4.30%
Five-year average annual total
return(2).............................. 2.21% 2.10% N/A
Life-of-Fund average annual total
return(2).............................. 3.99% 3.49% 1.57%
Commencement date........................ 09/28/90 07/22/91 08/13/93
DISTRIBUTION RATE AND YIELD
Distribution rate(3)..................... 6.31% 5.75% 5.75%
SEC Yield(4)............................. 4.65% 4.05% 4.05%
</TABLE>
N/A = Not Applicable
(1) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge (3.25% for A shares) or contingent
deferred sales charge for early withdrawal (3% 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).
(3) Distribution rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.
(4) SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending June 30, 1997. Had certain
expenses of the Fund not been assumed by VKAC, the SEC Yield would have been
4.64%, 4.04% and 4.04% for Classes A, B and C, respectively, and the total
returns would have been lower.
See the Fund Performance section of the current prospectus. Past performance
does not guarantee future results. Investment return and net asset value will
fluctuate with market conditions. Fund shares, when redeemed, may be worth more
or less than their original cost.
The Fund's net asset value will fluctuate as a result of changes in foreign
exchange rates and fluctuations in market interest rates. Foreign investments
involve the risks of future foreign political and economic developments and
securities of many foreign companies are less liquid and their prices more
volatile than domestic companies.
Market forecasts provided in this report may not necessarily come to pass.
4
<PAGE> 40
PORTFOLIO HIGHLIGHTS
VAN KAMPEN AMERICAN CAPITAL SHORT-TERM GLOBAL INCOME FUND
HOLDINGS AS A PERCENTAGE OF TOTAL INVESTMENTS
<TABLE>
<CAPTION>
AS OF AS OF
JUNE 30, 1997 DECEMBER 31, 1996(1)
<S> <C> <C>
U.S. Treasury Notes........... 64.7% ........ 59.5%
New Zealand Government........ 15.4% ........ 22.2%
Vermilion International Trust
BTPS........................ 9.9% ......... 8.5%
Kingdom of Spain.............. 4.5% ......... 3.9%
Repurchase Agreements......... 3.9% ......... 5.9%
World Bank -- European Bank
for Reconstruction &
Development................. 1.6% ......... N/A
</TABLE>
N/A = Not Applicable
ASSET ALLOCATION AS A PERCENTAGE OF TOTAL INVESTMENTS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996 (1) AS OF JUNE 30, 1997
<S> <C> <C> <C>
U.S. Government Bonds ............... 59.5% U.S. Government Bonds .............. 64.7%
Foreign Investment Grade Bonds ...... 34.6% [PIE CHART] Foreign Investment Grade Bonds ..... 31.4% [PIE CHART]
Other ............................... 5.9% Other .............................. 3.9%
</TABLE>
(1) Unaudited
5
<PAGE> 41
PUTTING YOUR FUND'S PERFORMANCE IN PERSPECTIVE
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment portfolio's performance at regular intervals.
A good starting point is a comparison of your investment holdings to an
applicable benchmark, such as a broad-based market index. Such a comparison can:
- Illustrate the general market environment in which your investments are
being managed
- Reflect the impact of favorable market trends or difficult market
conditions
- Help you evaluate the extent to which your Fund's management team has
responded to the opportunities and challenges presented to them over the
period measured
For these reasons, you may find it helpful to review the chart below, which
compares your Fund's performance to that of the J.P. Morgan 3-Month U.S. LIBOR
Return Index over time. As a broad-based, unmanaged statistical composite, this
index does not reflect any commissions or fees which would be incurred by an
investor purchasing the securities it represents. Similarly, its performance
does not reflect any sales charges or other costs which would be applicable to
an actively managed portfolio, such as that of the Fund.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen American Capital Short-Term Global Income Fund vs. J.P. Morgan
3-Month U.S. LIBOR Return Index
(September 28, 1990 through June 30, 1997)
[GRAPH]
<TABLE>
<CAPTION>
VKAC J.P. Morgan
Value at Short-Term Global 3-Month U.S. LIBOR
June 30, Income Fund Return Index
<S> <C> <C>
1990 9,671 10,000
1991 10,152 10,595.9
1992 11,304 11,190.4
1993 11,627 11,609.8
1994 11,207 12,039.6
1995 11,284 12,765.6
1996 12,278 13,523.9
1997 13,026 14,327.9
- --------------------------------
Fund's Total Return
1 Year Avg. Annual = 2.59%
5 Year Avg. Annual = 2.21%
Inception Avg. Annual = 3.99%
- --------------------------------
</TABLE>
The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of other share classes of
the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions and includes payment of the maximum
sales charge (3.25% for A shares).
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.
6
<PAGE> 42
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN AMERICAN CAPITAL SHORT-TERM GLOBAL INCOME FUND
We recently spoke with the management team of the Van Kampen American Capital
Short-Term Global Income Fund about the key events and economic forces that
shaped the markets during the past twelve months. The team is led by Thomas J.
Slefinger, portfolio manager, and Peter W. Hegel, chief investment officer for
fixed-income investments. The following excerpts reflect their views on the
Fund's performance during the twelve-month period ended June 30, 1997.
Q WHAT WERE THE MOST SIGNIFICANT DEVELOPMENTS DRIVING THE PERFORMANCE OF
GLOBAL MARKETS DURING THE PERIOD?
A As far as the Fund is concerned, the most important factors were the
solidity of the U.S. bond market, the move toward monetary union in
European markets, and the strength of the U.S. dollar.
In general, yields have declined over the past 12 months in virtually all
the major markets--Spain and the United Kingdom being the exceptions--with most
of the decline occurring in the first half of the fiscal year and coinciding
with the sell-off in the United States. Because the U.S. market tends to lead
the way in many respects, the negative reaction triggered by our strong gross
domestic product (GDP) growth numbers in the first quarter was felt around the
world. Similarly, the U.S. market's more positive tone of late has been evident
in other markets as well.
As the European countries make progress toward monetary union (a single
European currency), most have been forced to implement austere fiscal and
monetary policies in order to comply with the requirements spelled out by the
Maastricht Treaty. They have had to raise taxes and cut spending in order to
bring debt levels down toward the accepted target of 3 percent of GDP. The
result has been sluggish growth, disinflation, low interest rates, and high
unemployment. The countries with higher-yielding markets have benefited as their
currencies strengthened versus the core markets over the period.
The Japanese economy continues to be anemic, as reflected in their extremely
low interest rates (the yield on their two-year government bond is less than one
percent). Looking forward, a slight weakening in the yen could help stimulate
exports, which would provide some sorely needed economic growth.
Q HOW WAS THE FUND POSITIONED WITHIN THESE MARKETS?
A The Fund's relative performance during the past few quarters has been
lifted by our currency views and how we've chosen to deal with
fluctuations in currency exchange rates. We had expected the U.S. dollar
to strengthen quite significantly versus core European currencies and the
Japanese yen in early 1997. That was indeed the case, as the dollar rose by 8.1
percent against the deutsche mark and by 6.5 percent against the yen during the
first quarter of the year. In fact, while the U.S. market has not been the best
performer on a nominal basis, its returns on a dollar-adjusted basis have been
very strong. The portfolio has been well positioned to take advantage of these
conditions.
7
<PAGE> 43
Through most of the reporting period, the portfolio was skewed in favor of the
U.S. market, at the expense of Japan and Europe. For additional Fund portfolio
highlights, please refer to page five.
Q HAS THE FUND PERFORMED TO YOUR EXPECTATIONS DURING THE PAST FISCAL YEAR?
A We feel the Fund did quite well on both an absolute and risk-adjusted
basis. It outperformed the J.P. Morgan Short-Term Global Index for the
12-month period ended June 30, 1997, by approximately 422 basis
points--and did so with roughly 52 percent less volatility. This unmanaged index
tracks the major bond markets of the world with maturities of three years or
less. In addition, the J.P. Morgan 3-Month U.S. LIBOR Return Index generated a
one-year total return of 5.94 percent. This is an unmanaged index that tracks
the London Interbank Offered Rate, a key short-term interest rate that the most
creditworthy international banks dealing in Eurodollars charge each other for
large loans. These indices do not reflect any commissions or fees that would be
paid by an investor if an interest in the indices could be purchased.
The Fund's total return for the 12-month reporting period was 6.09
percent(1) (Class A shares at net asset value), and its distribution rate as of
June 30, 1997, was 6.31 percent(3) (based on a monthly dividend of $.0410 per
share and a maximum public offering price of $7.80 per share). Please refer to
the chart on page four for additional Fund performance results.
Q WHAT PORTFOLIO CHANGES DO YOU ANTICIPATE OVER THE NEXT SIX MONTHS?
A The most significant changes will come about as a result of some key
revisions to the Fund's investment policies. While the Fund's performance
record has been consistently sound, we feel that these steps will provide
even greater flexibility and opportunities to further enhance returns, while
providing greater diversification to our shareholders.
Currently, the Fund is limited to a weighted average maturity of three
years. The new policy will allow the Fund to invest in securities with longer
maturities, as long as the portfolio's weighted average duration (a measure of
its sensitivity to changes in interest rates) does not exceed three years. We
believe this move will improve the Fund's capacity to provide income to the
shareholder.
Secondly, the Fund's prospectus will now permit investment in non-investment
grade and investment-grade emerging market debt instruments and currencies,
though limited to no more than 20 percent of the Fund's total portfolio market
value. In our opinion, this change will allow for additional investment
opportunities and expand the Fund's income-earning potential.
Of course, we will continue to seek to provide investors with a higher yield
than that which is available from short-term U.S. securities, with less
volatility than a long-term global fixed-income fund.
8
<PAGE> 44
Q WHAT IS YOUR OUTLOOK FOR THE MARKET IN THE MONTHS AHEAD?
A Economic activity in Europe and Japan is likely to pick up, though the
U.S. economy seems to be ready to take a breather. Still, Fed policy
probably won't change markedly, so rates should stay within a relatively
narrow trading range. Also, interest rates on short-term U.S. securities are
among the highest among all the developed markets, so we will continue to over
weight the U.S. market in the near term.
As we move into the second half of the year, European economies should begin
to benefit from an easing of the tight fiscal policies that have dampened
growth. Consequently, as economic growth accelerates, we could see an increase
in short-term interest rates in these markets. The likely outcome is that
European bond markets will underperform, making the U.S. market an attractive
alternative.
[SIG]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
[SIG]
Thomas J. Slefinger
Portfolio Manager
Please see footnotes on page four
9
<PAGE> 45
PORTFOLIO OF INVESTMENTS
June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
in Local
Currency Maturity U.S. $
(000) Description Coupon Date Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FIXED INCOME SECURITIES
ITALY 9.7% LIRA
Government/Agency
15,000,000 Vermilion International Trust-BTPS 144A
(b)......................................... 9.160% 12/01/97 $ 8,866,713
-----------
NEW ZEALAND 16.6% NZ$
Corporate
2,100 World Bank-European Bank for Recon & Dev.... 7.350 04/21/98 1,428,385
Government/Agency
5,500 New Zealand Government...................... 8.000 02/15/01 3,885,310
15,000 New Zealand T-Bill.......................... * 12/17/97 9,876,863
-----------
15,190,558
-----------
SPAIN 4.4% PESETA
Government/Agency
600,000 Kingdom of Spain............................ 7.300 07/30/97 4,075,777
-----------
UNITED STATES 63.2% US$
Government/Agency
20,000 U.S. Treasury Notes (a)..................... 5.000 01/31/98 19,932,400
18,500 U.S. Treasury Notes......................... 6.250 01/31/02 18,404,170
9,000 U.S. Treasury Notes......................... 6.375 05/15/00 9,035,820
7,500 U.S. Treasury Notes......................... 6.500 05/31/02 7,530,975
3,000 U.S. Treasury Notes......................... 6.625 05/15/07 3,026,790
-----------
57,930,155
-----------
REPURCHASE AGREEMENTS 3.8%
State Street Bank (Collateralized by U.S. Treasury Bonds,
$3,065,000 par, 8.125% coupon, due 08/15/19
dated 06/30/97, to be sold on 07/01/97 at $3,525,514)....................... 3,525,000
-----------
TOTAL INVESTMENTS 97.7%
(Cost $91,162,423).......................................................... 89,588,203
OTHER ASSETS IN EXCESS OF LIABILITIES 2.3%................................... 2,143,988
-----------
NET ASSETS 100.0%............................................................ $91,732,191
===========
</TABLE>
* Zero coupon bond
(a) Assets segregated as collateral for open option and forward swap
transactions and forward currency contracts.
(b) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may only be resold in
transactions exempt from registration which are normally those transactions
with qualified institutional buyers.
PORTFOLIO COMPOSITION BY CREDIT QUALITY
The following table summarizes the portfolio composition at June 30, 1997,
based upon the highest credit quality ratings as determined by Standard & Poor's
or Moody's as a percentage of Total Investments.
<TABLE>
<S> <C>
U.S. Government Obligations....... 64.7%
Repurchase Agreement.............. 3.9
AAA............................... 26.9
AA................................ 4.5
-----
100.0%
=====
</TABLE>
See Notes to Financial Statements
10
<PAGE> 46
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $91,162,423)........................ $ 89,588,203
Cash........................................................ 1,191,632
Receivables:
Interest.................................................. 1,510,906
Forward Currency Contracts and Swap Transactions.......... 290,939
Fund Shares Sold.......................................... 31,202
Options at Market Value (Net premiums paid of $27,698)...... 10,321
Other....................................................... 2,116
------------
Total Assets.......................................... 92,625,319
------------
LIABILITIES:
Payables:
Income Distributions...................................... 193,244
Fund Shares Repurchased................................... 168,219
Distributor and Affiliates................................ 130,688
Investment Advisory Fee................................... 41,905
Investments Purchased..................................... 27,698
Accrued Expenses............................................ 237,391
Deferred Compensation and Retirement Plans.................. 93,983
------------
Total Liabilities..................................... 893,128
------------
NET ASSETS.................................................. $ 91,732,191
============
NET ASSETS CONSIST OF:
Capital..................................................... $157,883,314
Accumulated Distributions in Excess of Net Investment
Income.................................................... (455,277)
Net Unrealized Depreciation................................. (1,420,976)
Accumulated Net Realized Loss............................... (64,274,870)
------------
NET ASSETS.................................................. $ 91,732,191
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $39,459,886 and 5,226,968 shares of
beneficial interest issued and outstanding)............. $ 7.55
Maximum sales charge (3.25%* of offering price)......... .25
------------
Maximum offering price to public........................ $ 7.80
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $52,093,077 and 6,903,293 shares of
beneficial interest issued and outstanding)............. $ 7.55
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $179,228 and 23,754 shares of beneficial
interest issued and outstanding)........................ $ 7.55
============
</TABLE>
*On sales of $25,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
11
<PAGE> 47
STATEMENT OF OPERATIONS
For the Year Ended June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 7,357,023
-----------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $110,695, $656,458 and $2,014,
respectively)............................................. 769,167
Investment Advisory Fee..................................... 605,689
Shareholder Services........................................ 270,802
Custody..................................................... 83,353
Trustees Fees and Expenses.................................. 38,650
Legal....................................................... 27,375
Interest.................................................... 16,565
Other....................................................... 188,145
-----------
Total Expenses.......................................... 1,999,746
Less: Expenses Reimbursed............................... 31,744
Earnings Credits on Cash Balances.................... 31,203
-----------
Net Expenses............................................ 1,936,799
-----------
NET INVESTMENT INCOME....................................... $ 5,420,224
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................. $ 461,188
Options................................................. (217,549)
Forwards................................................ 856,727
Foreign Currency Transactions........................... 625,624
-----------
Net Realized Gain........................................... 1,725,990
-----------
Net Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (284,565)
-----------
End of the Period:
Investments............................................. (1,574,220)
Options................................................. (17,377)
Forwards................................................ 206,921
Forward Swaps........................................... (9,061)
Foreign Currency Translation............................ (27,239)
-----------
(1,420,976)
-----------
Net Unrealized Depreciation During the Period............... (1,136,411)
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 589,579
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 6,009,803
===========
</TABLE>
See Notes to Financial Statements
12
<PAGE> 48
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended June 30, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1997 June 30, 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income....................................... $ 5,420,224 $ 9,665,816
Net Realized Gain/Loss...................................... 1,725,990 (16,200,811)
Net Unrealized Appreciation/Depreciation During the
Period.................................................... (1,136,411) 20,009,929
------------ ------------
Change in Net Assets from Operations........................ 6,009,803 13,474,934
------------ ------------
Distributions from Net Investment Income.................... (5,420,224) -0-
Distributions in Excess of Net Investment Income............ (1,573,147) -0-
------------ ------------
Distributions from and in Excess of Net Investment
Income*................................................... (6,993,371) -0-
Return of Capital Distribution.............................. (91,680) (11,609,288)
------------ ------------
Total Distributions*........................................ (7,085,051) (11,609,288)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... (1,075,248) 1,865,646
------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................... 3,720,807 2,427,135
Net Asset Value of Shares Issued Through Dividend
Reinvestment.............................................. 4,048,955 6,370,708
Cost of Shares Repurchased.................................. (46,302,530) (79,947,106)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.......... (38,532,768) (71,149,263)
------------ ------------
TOTAL DECREASE IN NET ASSETS................................ (39,608,016) (69,283,617)
NET ASSETS:
Beginning of the Period..................................... 131,340,207 200,623,824
------------ ------------
End of the Period (Including accumulated distributions in
excess of net investment income of $455,277 and $358,000,
respectively)............................................. $ 91,732,191 $131,340,207
============ ============
</TABLE>
<TABLE>
<CAPTION>
Year Ended Year Ended
*Distributions by Class June 30, 1997 June 30, 1996
- ------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of
Net Investment Income:
Class A Shares...................... $(3,003,963) $ -0-
Class B Shares...................... (3,977,304) -0-
Class C Shares...................... (12,104) -0-
----------- -----------
$(6,993,371) $ -0-
=========== ============
Return of Capital Distribution:
Class A Shares...................... $ (40,726) $ (4,481,275)
Class B Shares...................... (50,795) (7,116,453)
Class C Shares...................... (159) (11,560)
=========== ============
$ (91,680) $(11,609,288)
=========== ============
</TABLE>
See Notes to Financial Statements
13
<PAGE> 49
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------------------------
Class A Shares 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period....... $7.62 $7.56 $8.15 $9.11 $9.65
----- ----- ----- ----- -----
Net Investment Income.......................... .42 .49 .50 .59 .71
Net Realized and Unrealized Gain/Loss.......... .03 .16 (.45) (.89) (.46)
----- ----- ----- ----- -----
Total from Investment Operations............... .45 .65 .05 (.30) .25
----- ----- ----- ----- -----
Less:
Distributions from and in Excess of Net
Investment Income.......................... .51 -0- .37 .35 .79
Return of Capital Distribution............... .01 .59 .27 .31 -0-
----- ----- ----- ----- -----
Total Distributions............................ .52 .59 .64 .66 .79
----- ----- ----- ----- -----
Net Asset Value, End of the Period............. $7.55 $7.62 $7.56 $8.15 $9.11
===== ===== ===== ===== =====
Total Return* (a).............................. 6.09% 8.81% .69% (3.61%) 2.86%
Net Assets at End of the Period (In
millions).................................... $39.5 $50.1 $72.5 $147.7 $205.9
Ratio of Expenses to Average Net Assets* (b)... 1.33% 1.31% 1.14% 1.13% 1.14%
Ratio of Net Investment Income to Average
Net Assets*.................................. 5.37% 6.54% 7.20% 6.64% 7.87%
Portfolio Turnover............................. 378% 225% 204% 259% 141%
</TABLE>
* If certain expenses had not been assumed by VKAC, Total Return would have been
lower and the ratios would have been as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Ratio of Expenses to Average Net Assets (b).... 1.36% 1.34% N/A N/A N/A
Ratio of Net Investment Income to Average
Net Assets................................... 5.34% 6.51% N/A N/A N/A
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) Beginning with the year ended June 30, 1997, the Ratios of Expenses to
Average Net Assets are based upon expense amounts which do not reflect
credits earned on overnight cash balances.
N/A = Not Applicable
See Notes to Financial Statements
14
<PAGE> 50
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------------------
Class B Shares 1997(a) 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period........ $7.62 $7.56 $8.15 $9.10 $9.65
----- ----- ----- ----- -----
Net Investment Income........................... .35 .39 .41 .54 .67
Net Realized and Unrealized Gain/Loss........... .04 .20 (.42) (.90) (.49)
----- ----- ----- ----- -----
Total from Investment Operations................ .39 .59 (.01) (.36) .18
----- ----- ----- ----- -----
Less:
Distributions from and in Excess of Net
Investment Income........................... .45 -0- .34 .32 .73
Return of Capital Distribution................ .01 .53 .24 .27 -0-
----- ----- ----- ----- -----
Total Distributions............................. .46 .53 .58 .59 .73
----- ----- ----- ----- -----
Net Asset Value, End of the Period.............. $7.55 $7.62 $7.56 $8.15 $9.10
===== ===== ===== ===== =====
Total Return* (b)............................... 5.29% 8.02% (.14%) (4.22%) 2.02%
Net Assets at End of the Period (In millions)... $52.1 $81.1 $127.9 $271.8 $393.1
Ratio of Expenses to Average Net Assets* (c).... 2.09% 2.09% 1.96% 1.85% 1.85%
Ratio of Net Investment Income to Average
Net Assets*................................... 4.62% 5.79% 6.42% 5.91% 7.20%
Portfolio Turnover.............................. 378% 225% 204% 259% 141%
</TABLE>
* If certain expenses had not been assumed by VKAC, Total Return would have
been lower and the ratios would have been as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Ratio of Expenses to Average Net Assets (c)..... 2.12% 2.12% N/A N/A N/A
Ratio of Net Investment Income to Average
Net Assets.................................... 4.59% 5.76% N/A N/A N/A
</TABLE>
(a) Based on average month-end shares outstanding.
(b) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(c) Beginning with the year ended June 30, 1997, the Ratios of Expenses to
Average Net Assets are based upon expense amounts which do not reflect
credits earned on overnight cash balances.
N/A = Not Applicable
See Notes to Financial Statements
15
<PAGE> 51
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
August 13, 1993
Year Ended June 30, (Commencement of
--------------------------------- Distribution) to
Class C Shares 1997(a) 1996 1995 June 30, 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................ $7.62 $7.56 $8.16 $9.24
----- ----- ----- -----
Net Investment Income............... .35 .45 .50 .49
Net Realized and Unrealized
Gain/Loss......................... .04 .14 (.52) (1.05)
----- ----- ----- -----
Total from Investment Operations.... .39 .59 (.02) (.56)
----- ----- ----- -----
Less:
Distributions from and in Excess
of Net Investment Income........ .45 -0- .34 .27
Return of Capital Distribution.... .01 .53 .24 .25
----- ----- ----- -----
Total Distributions................. .46 .53 .58 .52
----- ----- ----- -----
Net Asset Value, End of the
Period............................ $7.55 $7.62 $7.56 $8.16
===== ===== ===== =====
Total Return* (b)................... 5.29% 8.03% (.27%) (6.32%)**
Net Assets at End of the Period (In
millions)......................... $.2 $.2 $.2 $.2
Ratio of Expenses to Average Net
Assets* (c)....................... 2.09% 2.07% 1.96% 1.84%
Ratio of Net Investment Income to
Average
Net Assets*....................... 4.63% 5.72% 6.30% 5.83%
Portfolio Turnover.................. 378% 225% 204% 259%
</TABLE>
* If certain expenses had not been assumed by VKAC, Total Return would have been
lower and the ratios would have been as follows:
<TABLE>
<S> <C> <C> <C> <C>
Ratio of Expenses to Average Net
Assets (c)........................ 2.12% 2.09% N/A N/A
Ratio of Net Investment Income to
Average Net Assets................ 4.60% 5.69% N/A N/A
</TABLE>
** Non-Annualized
(a) Based on average month-end shares outstanding.
(b) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(c) Beginning with the year ended June 30, 1997, the Ratios of Expenses to
Average Net Assets are based upon expense amounts which do not reflect
credits earned on overnight cash balances.
N/A = Not Applicable
See Notes to Financial Statements
16
<PAGE> 52
NOTES TO FINANCIAL STATEMENTS
June 30, 1997
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Short-Term Global Income Fund (the "Fund") is
organized as a series of Van Kampen American Capital Trust (the "Trust"), a
Delaware business trust, and is registered as a non-diversified open-end
management investment company under the Investment Company Act of 1940, as
amended. The Fund's investment objective is to seek a high level of current
income, consistent with prudent investment risk through investment in a global
portfolio of investment grade debt securities denominated in various currencies
and multi-national currency units and having an average duration of three years
or less. The Fund commenced investment operations on September 28, 1990. The
distribution of the Fund's Class B and Class C shares commenced on July 22,
1991, and August 13, 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 are stated at value using the last available
bid price, or if not available, yield equivalents obtained from dealers in the
over-the-counter (OTC) or interbank market. Short-term securities with remaining
maturities of 60 days or less are valued at amortized cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made. At June 30, 1997, there were no when
issued or delayed delivery purchase commitments.
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
17
<PAGE> 53
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
along with other investment companies advised by Van Kampen American Capital
Investment Advisory Corp. (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. INVESTMENT INCOME--Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security.
D. CURRENCY TRANSLATION--Assets and liabilities denominated in foreign
currencies and commitments under forward currency contracts are translated into
U.S. dollars at the mean of the quoted bid and ask prices of such currencies
against the U.S. dollar. Purchases and sales of portfolio securities are
translated at the rate of exchange prevailing when such securities were acquired
or sold. Income and expenses are translated at rates prevailing when accrued.
E. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At June 30, 1997, the Fund had an accumulated capital loss carryforward
for tax purposes of $64,274,870 which will expire between June 30, 2001 and June
30, 2004. Net realized gains or losses may differ for financial and tax
reporting purposes primarily as a result of post October 31 losses which are not
recognized for tax purposes until the first day of the following fiscal year and
as a result of gains or losses recognized for tax purposes on the mark to market
of open options and forward transactions at June 30, 1997.
At June 30, 1997, for federal income tax purposes, cost of long- and
short-term investments is $91,162,423; the aggregate gross unrealized
appreciation is $78,867 and the aggregate gross unrealized depreciation is
$1,640,659 resulting in net unrealized depreciation including open option and
forward swap transactions and forward currency contracts of $1,561,792.
18
<PAGE> 54
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
F. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily and pays monthly
dividends from net investment income. Net investment income for federal income
tax purposes includes gains and losses realized on transactions in foreign
currencies and options on foreign currencies. These realized gains and losses
are included as net realized gains or losses for financial reporting purposes.
Permanent book and tax basis differences relating to net realized currency gains
totaling $1,475,870 were reclassified from accumulated net realized gain/loss to
accumulated undistributed net investment income.
Net realized gains, if any, are distributed annually.
G. EXPENSE REDUCTIONS--During the year ended June 30, 1997, the Fund's custody
fee was reduced by approximately $31,200 as a result of credits earned on
overnight cash balances.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, Van Kampen American
Capital Investment Advisory Corp. (the "Adviser") will provide investment advice
and facilities to the Fund for an annual fee payable monthly of .55% of the
Fund's average net assets.
For the year ended June 30, 1997, Van Kampen American Capital Distributors,
Inc. or its affiliates (collectively "VKAC") has agreed to assume the Fund's
registration and filing fees. This waiver is voluntary and may be discontinued
at any time.
For the year ended June 30, 1997, the Fund recognized expenses of
approximately $11,800 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the year ended June 30, 1997, the Fund recognized expenses of
approximately $28,500 representing VKAC's cost of providing accounting, cash
management and legal services to the Fund. Of this amount, approximately $900
has been assumed by VKAC.
ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the year ended June
30, 1997, the Fund recognized expenses of approximately $185,200, representing
ACCESS' cost of providing transfer agency and shareholder services plus a
profit.
Certain officers and trustees of the Fund are also officers and directors of
VKAC. The Fund does not compensate its officers or trustees who are officers of
VKAC. For the year ended June 30, 1997, the Adviser reimbursed the Fund for
certain trustees' compensation in connection with the July 1995 increase in the
number of trustees of the Fund.
19
<PAGE> 55
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of VKAC. 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 equal to $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, 1997, capital aggregated $61,586,362, $96,115,314 and $181,638,
for Classes A, B and C, respectively. For the year ended June 30, 1997,
transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.......................................... 258,752 $ 1,966,958
Class B.......................................... 212,311 1,604,749
Class C.......................................... 19,713 149,100
---------- ------------
Total Sales........................................ 490,776 $ 3,720,807
========== ============
Dividend Reinvestment:
Class A.......................................... 261,651 $ 1,982,096
Class B.......................................... 271,233 2,054,943
Class C.......................................... 1,572 11,916
---------- ------------
Total Dividend Reinvestment........................ 534,456 $ 4,048,955
========== ============
Repurchases:
Class A.......................................... (1,868,594) $(14,169,926)
Class B.......................................... (4,219,580) (31,987,407)
Class C.......................................... (19,067) (145,197)
---------- ------------
Total Repurchases.................................. (6,107,241) $(46,302,530)
========== ============
</TABLE>
20
<PAGE> 56
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
At June 30, 1996, capital aggregated $71,847,960, $124,493,824 and $165,978,
for Classes A, B and C, respectively. For the year ended June 30, 1996,
transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.......................................... 162,018 $ 1,242,482
Class B.......................................... 153,961 1,176,596
Class C.......................................... 1,057 8,057
----------- ------------
Total Sales........................................ 317,036 $ 2,427,135
=========== ============
Dividend Reinvestment:
Class A.......................................... 356,105 $ 2,727,316
Class B.......................................... 474,434 3,632,026
Class C.......................................... 1,485 11,366
----------- ------------
Total Dividend Reinvestment........................ 832,024 $ 6,370,708
=========== ============
Repurchases:
Class A.......................................... (3,533,398) $(27,079,054)
Class B.......................................... (6,899,452) (52,839,746)
Class C.......................................... (3,684) (28,306)
----------- ------------
Total Repurchases.................................. (10,436,534) $(79,947,106)
=========== ============
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). The CDSC will be imposed
on most redemptions made within three years of the purchase for Class B and one
year of the purchase for Class C as detailed in the following schedule. The
Class B and C shares bear the expense of their respective deferred sales
arrangements, including higher distribution and service fees and incremental
transfer agency costs.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
YEAR OF REDEMPTION CLASS B CLASS C
- ------------------------------------------------------------------------------
<S> <C> <C>
First.............................................. 3.00% 1.00%
Second............................................. 2.00% None
Third.............................................. 1.00% None
Fourth and Thereafter.............................. None None
</TABLE>
21
<PAGE> 57
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
For the year ended June 30, 1997, VKAC, as Distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately $700
and CDSC on redeemed shares of approximately $11,300. 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 $375,134,019 and $406,241,491,
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 and to manage the portfolio's effective yield, foreign currency
exposure, maturity and duration. All of the Fund's portfolio holdings, including
derivative instruments, are marked to market each day with the change in value
reflected in unrealized appreciation/depreciation. Upon disposition, a realized
gain or loss is recognized accordingly, except when exercising an option
contract or taking delivery of a security underlying a forward contract. In this
instance, the recognition of gain or loss is postponed until the disposal of the
security underlying the option or forward contract. Risks may arise as a result
of the potential inability of the counterparties to meet the terms of their
contracts.
Summarized below are the specific types of derivative financial instruments
used by the Fund.
A. OPTION CONTRACTS--An option contract gives the buyer the right, but not the
obligation to buy (call) or sell (put) an underlying item at a fixed exercise
price during a specified period.
22
<PAGE> 58
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
Transactions in options for the year ended June 30, 1997, were as follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- ------------------------------------------------------------------------
<S> <C> <C>
Outstanding at June 30, 1996...................... 1 $ (25,497)
Options Written and
Purchased (Net)................................. 6 (252,347)
Options Terminated in Closing
Transactions (Net).............................. (1) 25,497
Options Expired (Net)............................. (5) 224,649
--- ---------
Outstanding at June 30, 1997...................... 1 $ (27,698)
=== =========
</TABLE>
The description and market value of the option contract outstanding as of
June 30, 1997, are as follows:
<TABLE>
<CAPTION>
OPENING EXPIRATION STRIKE MARKET
DESCRIPTION TRANSACTION DATE PRICE VALUE
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DEM Call/Lira Put....... Purchase 07/30/97 990 Lira / 1 DEM $10,321
=======
</TABLE>
B. FORWARD CURRENCY CONTRACTS--These instruments are commitments to purchase or
sell a foreign currency at a future date at a negotiated forward rate. The gain
or loss arising from the difference between the original value of the contract
and the closing value of such contract is included as a component of realized
gain/loss on forwards.
At June 30, 1997, the Fund has outstanding forward currency contracts as
follows:
<TABLE>
<CAPTION>
UNREALIZED
FORWARD CURRENT APPRECIATION/
CURRENCY CONTRACTS VALUE DEPRECIATION
- ------------------------------------------------------------------------
<S> <C> <C>
LONG CONTRACTS:
Canadian Dollar,
6,768,700 expiring 08/25/97-09/17/97..... $ 4,922,395 $ (44,986)
Japanese Yen,
954,268,500 expiring 07/16/97-08/27/97... 8,363,386 (73,489)
----------- ---------
$13,285,781 $(118,475)
=========== ---------
SHORT CONTRACTS:
Australian Dollar,
5,322,352 expiring 09/17/97.............. $ 4,025,933 $ (25,933)
French Franc,
40,568,300 expiring 09/29/97-10/01/97.... 6,944,961 55,039
Italian Lira,
15,000,000,000 expiring 09/15/97......... 8,805,917 (18,571)
</TABLE>
23
<PAGE> 59
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNREALIZED
FORWARD CURRENT APPRECIATION/
CURRENCY CONTRACTS VALUE DEPRECIATION
- ------------------------------------------------------------------------
<S> <C> <C>
SHORT CONTRACTS (CONTINUED)
New Zealand Dollar,
24,842,926 expiring 07/31/97-09/26/97.... $16,853,926 $ 191,474
Spanish Peseta,
580,843,200 expiring 07/21/97............ 3,942,563 57,437
Swiss Franc,
7,847,600 expiring 09/30/97-10/01/97..... 5,434,049 65,950
----------- ---------
$46,007,349 325,396
=========== ---------
$ 206,921
=========
</TABLE>
At June 30, 1997, the Fund had realized gains on closed but unsettled
forward currency contracts of $93,079 scheduled to settle between July 1, 1997
and October 27, 1999.
C. SWAP TRANSACTIONS-- A swap represents an agreement between two parties to
exchange a series of cash flows based upon various indices at specified
intervals. A forward swap represents a commitment to enter into a swap agreement
at a future date.
The description of the forward swap transaction outstanding as of June 30,
1997, and unrealized depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
DESCRIPTION DEPRECIATION
- ----------------------------------------------------------------------
<S> <C>
Goldman Sachs, 10.0 million US$ notional amount,
effective 10/11/99, payment based upon the spread
between the 3 year French Franc fixed swap interest rate
versus the 3 year German Deutsche Mark fixed swap
interest rate........................................... $9,061
======
</TABLE>
6. BORROWINGS
In accordance with its investment policies, the Fund may borrow money from banks
or enter into reverse repurchase agreements to enable the Fund to satisfy
redemption requests and other temporary purposes.
The Fund was entered into reverse repurchase agreements under which the Fund
sells securities and agrees to repurchase them at a mutually agreed upon date
and price. During the reverse repurchase agreement period, the Fund continues to
receive principal and interest payments on these securities but pays interest to
the counter-party based
24
<PAGE> 60
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
upon a short-term interest rate. The average daily balance of reverse repurchase
agreements during the period was approximately $343,700 with an average interest
rate of 4.760%. At June 30, 1997, there were no open reverse repurchase
agreements.
7. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these fees
for the year ended June 30, 1997, are payments to VKAC of approximately
$517,900.
25
<PAGE> 61
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen American Capital Short-Term Global Income Fund:
We have audited the accompanying statement of assets and liabilities of Van
Kampen American Capital Short-Term Global Income Fund (the "Fund"), including
the portfolio of investments, as of June 30, 1997, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the periods presented. 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.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1997, by correspondence with the 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 American Capital Short-Term Global Income Fund as of June 30, 1997, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, and the financial highlights
for each of the periods presented, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
August 13, 1997
26
<PAGE> 62
FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL
GLOBAL AND
INTERNATIONAL
Global Equity Fund
Global Government Securities Fund
Global Managed Assets Fund
Short-Term Global Income Fund
Strategic Income Fund
EQUITY
Growth
Aggressive Growth Fund
Emerging Growth Fund
Enterprise Fund
Growth Fund
Pace Fund
Growth & Income
Comstock Fund
Equity Income Fund
Growth and Income Fund
Harbor Fund
Real Estate Securities Fund
Utility Fund
FIXED INCOME
Corporate Bond Fund
Government Securities Fund
High Income Corporate Bond Fund
High Yield Fund
Limited Maturity Government Fund
Prime Rate Income Trust
Reserve Fund
U.S. Government Fund
U.S. Government Trust for Income
TAX-FREE
California Insured Tax Free Fund
Florida Insured Tax Free Income Fund
High Yield Municipal Fund
Insured Tax Free Income Fund
Intermediate Term Municipal Income Fund
Municipal Income Fund
New Jersey Tax Free Income Fund
New York Tax Free Income Fund
Pennsylvania Tax Free Income Fund
Tax Free High Income Fund
Tax Free Money Fund
MORGAN STANLEY
FUND, INC.
Aggressive Equity Fund
American Value Fund
Asian Growth Fund
Emerging Markets Fund
Global Equity Allocation Fund
Global Fixed Income Fund
High Yield Fund
International Magnum Fund
Latin American Fund
U.S. Real Estate Fund
Value Fund
Worldwide High Income Fund
Ask your investment representative for a prospectus containing more complete
information, including sales charges and expenses. Please read it carefully
before you invest or send money. Or call us weekdays from 7:00 a.m. to 7:00
p.m. Central time at 1-800-341-2911 for Van Kampen American Capital funds or
Morgan Stanley retail funds.
27
<PAGE> 63
VAN KAMPEN AMERICAN CAPITAL SHORT-TERM GLOBAL INCOME FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
JEROME L. ROBINSON
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*
ALAN T. SACHTLEBEN*
PAUL R. WOLKENBERG*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
DISTRIBUTOR
VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
SHAREHOLDER SERVICING AGENT
ACCESS 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
KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601
* "Interested" persons of the Fund, as defined in the Investment Company Act of
1940.
(C) Van Kampen American Capital Distributors, Inc., 1997 All rights reserved.
(SM) denotes a service mark of Van Kampen American Capital Distributors, Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After December 31, 1997, this report must be accompanied
by a quarterly performance update, if applicable.
28
<PAGE> 64
RESULTS OF SHAREHOLDER VOTES
A Special Meeting of Shareholders of the Fund was held on May 28, 1997 where
shareholders voted on a new investment advisory agreement, the election of
Trustees and the ratification of KPMG Peat Marwick LLP as independent public
accountants. With regard to the approval of a new investment advisory agreement
between Van Kampen American Capital Investment Advisory Corp. and the Fund,
6,662,607 shares voted for the proposal, 133,675 shares voted against and
309,412 shares abstained. With regard to the election of J. Miles Branagan as
elected trustee of the Fund, 6,914,772 shares voted in his favor and 190,922
shares withheld. With regard to the election of Richard M. DeMartini as elected
trustee of the Fund, 6,906,896 shares voted in his favor and 198,799 shares
withheld. With regard to the election of Linda Hutton Heagy as elected trustee
of the Fund, 6,909,955 shares voted in her favor and 195,740 shares withheld.
With regard to the election of R. Craig Kennedy as elected trustee of the Fund,
6,909,171 shares voted in his favor and 196,523 shares withheld. With regard to
the election of Jack E. Nelson as elected trustee of the Fund, 6,907,095 shares
voted in his favor and 198,600 shares withheld. With regard to the election of
Don G. Powell as elected trustee of the Fund, 6,906,892 shares voted in his
favor and 198,803 shares withheld. With regard to the election of Jerome L.
Robinson as elected trustee of the Fund, 6,913,290 shares voted in his favor and
192,404 shares withheld. With regard to the election of Phillip B. Rooney as
elected trustee of the Fund, 6,906,955 shares voted in his favor and 198,740
shares withheld. With regard to the election of Fernando Sisto as elected
trustee of the Fund, 6,904,308 shares voted in his favor and 201,387 shares
withheld. With regard to the election of Wayne W. Whalen as elected trustee of
the Fund, 6,914,772 shares voted in his favor and 190,922 shares withheld. With
regard to the ratification of KPMG Peat Marwick LLP as independent public
accountants for the Fund, 6,749,134 shares voted for the proposal, 52,082 shares
voted against and 304,479 shares abstained.
29
<PAGE> 65
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 4
Portfolio Highlights............................. 5
Performance in Perspective....................... 6
Portfolio Management Review...................... 7
Portfolio of Investments......................... 10
Statement of Assets and Liabilities.............. 15
Statement of Operations.......................... 16
Statement of Changes in Net Assets............... 17
Financial Highlights............................. 18
Notes to Financial Statements.................... 21
Report of Independent Accountants................ 32
</TABLE>
SIF ANR 8/97
<PAGE> 66
LETTER TO SHAREHOLDERS
August 4, 1997
Dear Shareholder,
As you know, Van Kampen American
Capital was acquired by Morgan
Stanley Group Inc., a world leader in
asset management. Earlier this year,
Morgan Stanley Group Inc. and Dean [PHOTO]
Witter, Discover & Co. agreed to
merge. The merger was completed on
May 31, creating the combined company
of Morgan Stanley, Dean Witter,
Discover & Co. Additionally, we are DENNIS J. MCDONNELL AND DON G. POWELL
very pleased to announce that Philip
N. Duff, formerly the chief financial officer of Morgan Stanley Group Inc., has
joined Van Kampen American Capital as president and chief executive officer. I
will continue as chairman of the firm. We are confident that the partnership of
Van Kampen American Capital and Morgan Stanley will continue to work to the
benefit of our fund shareholders.
One of the immediate privileges that we can offer fund shareholders is the
ability to make exchanges between Van Kampen American Capital and Morgan Stanley
retail funds at no charge. In our view, the rapid appreciation of U.S. stock
prices in recent years has created a need for investors to examine their
portfolios carefully to ensure proper diversification among domestic and foreign
investments. The Morgan Stanley funds, with their emphasis on global markets,
can be valuable tools to accomplishing this diversification.
We also urge investors to consider how their fund holdings are currently
allocated among the three major asset classes of stocks, bonds, and cash
reserves. Uneven movements in the various markets can distort a carefully
planned investment program. And, with stock prices near record highs, it is
likely that some rebalancing of your portfolio allocations may be necessary.
Once again, the exchangeability feature with the Morgan Stanley funds provides
additional choices and opportunities to make the necessary adjustments to your
portfolio's asset allocation.
ECONOMIC OVERVIEW
Growth, stability, and confidence continued to characterize the U.S.
economic environment during the past six months. In the first quarter, the
economy grew at its fastest pace since 1987. Despite the robust rate of economic
activity, there was little evidence of troublesome inflation. Wholesale prices
actually fell during each of the first five months of 1997, the longest stretch
of consecutive monthly declines in 45 years. Continued moderation in the cost of
employee benefit packages offset mild upward pressure on wages that resulted
from the country's low unemployment rate.
Continued on page two
1
<PAGE> 67
In March, the inflationary implications of a tight labor market led the
Federal Reserve Board to raise its target for a key lending rate by one-quarter
of a percentage point, the first hike in short-term interest rates in two years.
In Europe, economic activity was restrained by generally restrictive
monetary and fiscal policies as countries reduced inflation and budget deficits
to ensure eligibility for European Monetary Union in 1999. In Japan, the central
bank held to its highly stimulative monetary policy to help revive that
country's ailing financial sector. Low Japanese interest rates contributed to a
steep fall in the value of the yen, which consequently helped the country's huge
export sector return to profitability.
MARKET OVERVIEW
The strong U.S. economy and tight labor market combined to put mild upward
pressure on domestic bond yields during the first half of 1997. For several
weeks during the spring, it appeared that economic growth was too robust and
that inflation could reemerge. The Federal Reserve's quarter-point increase in
short-term interest rates, as well as worries about inflation, pushed yields on
long-term government bonds up to 7.17 percent in April. When subsequent data
showed the economy to be decelerating during the second quarter, bond yields
gradually fell back to 6.78 percent at the end of June, slightly above where
they stood at the beginning of the year. High yield corporate bonds were the
best-performing sector of the U.S. fixed-income market, as the healthy economic
environment increased investor confidence in the creditworthiness of lower-rated
debt.
Interest rates fell across most global fixed-income markets, but a strong
rally in the value of the U.S. dollar offset the resulting appreciation in bond
prices. During the past six months, the Salomon Brothers Non-U.S. Government
Bond Index gained 3.56 percent in local currency terms, but lost 3.13 percent
after conversion to U.S. dollars.
Most global equity markets posted solid gains during the first half of 1997.
The Dow Jones World Stock Index advanced 13.53 percent in dollar terms during
the period. Stocks in the United States were bolstered by exceptionally strong
growth in corporate profits and by the low-inflation environment, which allowed
price-earnings multiples to remain high. European markets, especially those in
Switzerland, Spain, and the Netherlands, also advanced as falling interest rates
made stocks more attractive. In Asia, equity prices were generally subdued,
reflecting a region-wide slowdown in economic growth rates and global
overcapacity for electronic exports. Stocks in South Korea and Japan, however,
did rebound modestly from previous declines.
OUTLOOK
We expect the pace of economic activity during the remainder of 1997 to
accelerate modestly from the sluggish rate that prevailed during the second
quarter. While we do not believe that economic growth will be rapid enough to
reignite inflation, some warning signs are present, including a tight labor
market and high consumer confidence. In this environment, at least one
additional round of monetary tightening by the Federal Reserve remains a
possibility. We anticipate that long-term interest rates will remain within a
relatively narrow range for the remainder of the year.
Continued on page three
2
<PAGE> 68
Also, we believe that global economic activity will increase, putting mild
downward pressure on bond prices. In Japan, short-term interest rates should
rise from the historically low levels of recent years as the economic recovery
builds momentum. We anticipate that the dollar has peaked against the yen,
although a significant reversal of the dollar's recent gains are unlikely.
European economies should benefit from an end to fiscal tightening, allowing
for modestly higher growth rates throughout the region. Monetary policy is
already relatively easy in core European countries such as Germany and France,
and short-term rates could rise in those markets as growth accelerates. In that
environment, we expect some European bond markets to move moderately lower.
Additional details about your Fund, including a question-and-answer section
with your portfolio management team, are provided in this report. We appreciate
your continued confidence in your investment with Van Kampen American Capital.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen American Capital
Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen American Capital
EInvestment Advisory Corp.
3
<PAGE> 69
PERFORMANCE RESULTS FOR THE PERIOD ENDED JUNE 30, 1997
VAN KAMPEN AMERICAN CAPITAL STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
TOTAL RETURNS
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
One-year total return based on NAV(1)... 14.92% 13.98% 13.99%
One-year total return(2)................ 9.47% 9.98% 12.99%
Life-of-Fund average annual total
return(2)............................. 4.56% 4.60% 5.15%
Commencement date....................... 12/31/93 12/31/93 12/31/93
DISTRIBUTION RATE AND YIELD
Distribution rate3...................... 7.38% 7.00% 7.00%
SEC Yield4.............................. 6.81% 6.38% 6.38%
</TABLE>
(1) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge (4.75% for A shares) or contingent
deferred sales charge for early withdrawal (4% 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).
(3) Distribution rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.
(4) SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending June 30, 1997. Had certain
expenses of the Fund not been assumed by VKAC, total returns would have been
lower and the SEC Yield would have been 6.78%, 6.35% and 6.35% for Classes A, B
and C, respectively.
See the Fund Performance section of the current prospectus. Past performance
does not guarantee future results. Investment return and net asset value will
fluctuate with market conditions. Fund shares, when redeemed, may be worth more
or less than their original cost.
The Fund may react to changes in interest rate cycles, business or economic
conditions, rates of inflation, or other market conditions. Global investing,
investing in lower rated securities, and investing in a limited number of
sectors each hold the potential for risks not associated with many other types
of fixed-income investments.
Market Forecasts provided in this report may not necessarily come to pass.
4
<PAGE> 70
PORTFOLIO HIGHLIGHTS
VAN KAMPEN AMERICAN CAPITAL STRATEGIC INCOME FUND
TOP TEN HOLDINGS AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
AS OF AS OF
JUNE 30, 1997 DECEMBER 31, 1996(1)
<S> <C> <C>
FNMA REMICs....................... 5.4% ............ 9.3%
Comcast Cablevision............... 3.1% ............ N/A
DLJ Emerging Markets LDC.......... 3.1% ............ 3.2%
Triton Energy..................... 3.1% ............ N/A
PaineWebber Group MTN............. 2.9% ............ N/A
Republic of Panama................ 2.9% ............ N/A
Republic of Croatia............... 2.9% ............ N/A
Banco Bilbao Vizcaya
International Finance .......... 2.8% ............ N/A
Westinghouse Credit Corp.......... 2.5% ............ N/A
Western Financial Savings......... 2.4% ............ 2.6%
</TABLE>
N/A = Not Applicable
ASSET ALLOCATION AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997 AS OF DECEMBER 31, 1996(1)
<S> <C> <C> <C>
Foreign Non-Investment Grade Foreign Non-Investment Grade
(mainly Emerging Markets) ........ 33.9% (mainly Emerging Markets) ....... 28.3%
Domestic Non-Investment Grade ...... 21.6% Foreign Investment Grade .......... 19.9%
Foreign Investment Grade ........... 16.9% [PIE CHART] U.S. Government/Mortgage [PIE CHART]
Domestic Investment Grade .......... 17.1% Backed Securities ............... 16.1%
U.S. Government/Mortgage Domestic Non-Investment Grade ..... 18.7%
Backed Securities ................ 6.8% Domestic Investment Grade ......... 15.8%
Common and Preferred Stock ......... 3.7% Common Stock ...................... 1.2%
</TABLE>
TOP TEN COUNTRIES AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION><CAPTION>
AS OF JUNE 30, 1997 AS OF DECEMBER 31, 1996 (1)
<S> <C> <C> <C>
U.S................... 47.5% U.S....................... 49.1%
Argentina............. 11.1% Argentina................. 13.2%
Mexico................ 5.1% Colombia.................. 6.6%
Brazil................ 4.6% Russia.................... 4.7%
United Kingdom........ 4.5% Australia................. 4.0%
Cayman Islands........ 4.0% United Kingdom............ 3.0%
Colombia.............. 3.6% Poland.................... 2.3%
Russia................ 3.1% Mexico.................... 2.1%
Panama................ 2.9% Brazil.................... 2.0%
Croatia............... 2.9% Venezuela................. 1.9%
</TABLE>
(1) Unaudited
5
<PAGE> 71
PUTTING YOUR FUND'S PERFORMANCE IN PERSPECTIVE
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment portfolio's performance at regular intervals.
A good starting point is a comparison of your investment holdings to an
applicable benchmark, such as a broad-based market index. Such a comparison can:
- Reflect the impact of favorable market trends or difficult market
conditions
- Help you evaluate the extent to which your Fund's management team has
responded to the opportunities and challenges presented to them over the
period measured
For these reasons, you may find it helpful to review the chart below, which
compares your Fund's performance to that of the Lehman Brothers Aggregate Bond
Index and the Composite of Salomon Brothers Indices presented. These indices are
unmanaged statistical composites and do not reflect any commissions or fees that
would be incurred by an investor purchasing the securities they represent.
Similarly, their performance does not reflect any sales charges or other costs
that would be applicable to an actively managed portfolio, such as that of the
Fund.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen American Capital Strategic Income Fund vs. Lehman Brothers
Aggregate Bond Index and Composite of Salomon Brothers Indices* (December
31, 1993 through June 30, 1997)
Fund's Total Return
1 Year Avg. Annual = 9.47%
inception Avg. Annual = 4.56%
[GRAPH]
<TABLE>
<CAPTION>
VKAC Lehman Brothers Composite of
Strategic Aggregate Bond Salomon Brothers
Income Fund Index Indices*
<S> <C> <C> <C>
Dec 1993 9,527 10,000 10,000
Jun 1994 8,305 9,613 9,458
Dec 1994 7,985 9,708 9,676
Jun 1995 9,007 10,819 11,042
Dec 1995 9,854 11,502 11,817
Jun 1996 10,171 11,361 12,141
Dec 1996 11,119 11,917 13,160
Jun 1997 11,689 12,288 13,715
</TABLE>
The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of other share classes of
the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions and includes payment of the maximum
sales charge (4.75% for A shares).
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.
*This index is a composite reflecting 20% of each of the following Salomon
Brothers Indices: Mortgage, High Yield Market, Corporate, Non-U.S. Dollar World
Government Bond and Brady Bond.
6
<PAGE> 72
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN AMERICAN CAPITAL STRATEGIC INCOME FUND
We recently spoke with the management team of the Van Kampen American Capital
Strategic Income Fund about the key events and economic forces that shaped the
markets during the past 12 months. The team is led by Robert Hickey, portfolio
manager, and Peter W. Hegel, chief investment officer for fixed-income
investments. The following excerpts reflect their views on the Fund's
performance during the 12-month period ended June 30, 1997.
Q WHAT EVENTS OR MARKET CONDITIONS HAD THE GREATEST IMPACT ON THE FUND
DURING THIS PERIOD?
A The past year has emerged as a continuation of the generally benign
environment for fixed-income securities. Worldwide, inflation has remained
low, and economic growth has been slow to moderate. The U.S. market, which
is a bellwether for the world, saw only moderate volatility, with the yield on
the 30-year Treasury bond trading in a relatively tight range of roughly 6.35 to
7.19 percent, closing the fiscal year at 6.78 percent.
Earlier in the year, after first-quarter economic growth figures came in
much higher than expected, there was concern that the Federal Reserve Board
would raise short-term interest rates in order to dampen growth and control
inflation. The 25-basis point increase in rates at the Fed's March meeting was
seen at the time as the first in a series of increases; but when second-quarter
estimates showed growth slowing sharply, expectations were that further
increases were unlikely.
Much of the fixed-income market's behavior has been driven by yield
considerations, as investors seek higher returns in a relatively stable market
environment. For that reason, investments such as high yield bonds and emerging
market securities have been in high demand, which has been reflected in their
prices.
Q WHAT HAS BEEN THE PERFORMANCE OF THE VARIOUS MARKET SECTORS IN WHICH THE
FUND INVESTS?
A Foreign Non-Investment Grade (primarily emerging markets securities). The
emerging markets have been the Fund's strongest-performing sector, due in
part to the demand for high-yielding securities. More importantly,
perceived credit quality has been improving. Many of the countries issuing these
securities have shown fundamental improvement in their economies and a
willingness to stick with prudent development policies. Also, because the United
States is the largest export customer for many of these emerging market
countries, they have benefited from a very strong U.S. dollar and from steady
activity in the U.S. economy. As of June 30, this sector represented
approximately 34 percent of the Fund's long-term investments.
Domestic Non-Investment Grade (primarily high yield corporate bonds). The
U.S. high yield bond market has been our second-best performer. With generally
favorable economic environment in the United States, even highly leveraged
companies have been able to meet their debt-service requirements, resulting in a
relatively low rate of default within this
7
<PAGE> 73
sector. Investors have been very comfortable tapping this sector for the yield
advantage it can provide, despite its inherently high-risk profile. As it turns
out, the riskiest sectors of the market (such as CCC-rated bonds and zero coupon
bonds) actually provided the highest returns.
Foreign Investment Grade. We underweighted the foreign sovereign debt sector
because of the relative strength of the U.S. dollar versus most of the major
foreign currencies. We focused our attention on the dollar-bloc countries, such
as Canada, Australia, and New Zealand, though we did have a stake in some of the
higher-yielding foreign markets (such as Scandinavia, Spain, and Italy) and were
able to participate in a rally there.
Domestic Investment Grade. Consistent with the market's appetite for higher
yields, we felt it would be advantageous to shift assets from the Treasury
sector into the mortgage-backed and corporate sectors. Many of these corporate
issuers have been buoyed by the growth of the U.S. economy and are likely to
provide a steady flow of income to bond investors. Within the portfolio, some of
our strongest performers have been the railroads and issuers in the cable
industry. We've also seen value in selected Eurobonds (dollar-denominated bonds
issued by U.S. corporations in European markets) and in the preferred issues of
various real estate investment trusts.
U.S. Government/Mortgage-Backed Securities. All of the assets allocated to
this sector (approximately 7 percent of the Fund's long-term investments) are
invested in mortgage-backed securities, rather than the more conservative
Treasury bonds. Mortgages have been surprisingly strong in recent months--so
much so that we actually wish we had allocated a larger proportion of the
portfolio to this sector. Prepayment rates have been low, and the yield spread
between mortgages and Treasuries is as tight as it has been in a decade. For
additional Fund portfolio highlights, please refer to page five.
Q HOW WELL HAS THE FUND PERFORMED DURING THE PAST FISCAL YEAR?
A The Fund generated a total return of 14.92 percent(1) (Class A shares at
net asset value) for the 12 months ended June 30, 1997, placing the Fund
in the top performance quartile in the Multi-Sector Income category,
according to Lipper Analytical Services, Inc. By comparison, the Lehman Brothers
Aggregate Bond Index, a broad-based, unmanaged index, generated a total return
of 8.15 percent for the same period. Similarly, a composite index of 20 percent
of each Salomon Brothers Index for Mortgages, High Yield, Corporate, Non-U.S.
Dollar World Government Bond, and Brady Bonds produced a total return of 15.88
percent over the same period. Keep in mind that neither index reflects any
commissions or fees that would be paid by an investor purchasing the securities
they represent.
The Fund's current distribution rate as of June 30, 1997 was 7.38
percent(3)--based on a monthly dividend of $.0825 per Class A share and a
maximum public offering price of $13.42 per share. Despite a small dividend
reduction during the first quarter of the year, the Fund's income component
remains very competitive within its peer group. Please refer to the chart on
page four for additional Fund performance results.
8
<PAGE> 74
Q WHAT IS YOUR OUTLOOK FOR THE MARKET AND ANY POTENTIAL PORTFOLIO CHANGES IN
THE MONTHS AHEAD?
A We would expect to move toward a more neutral position with regard to the
five sectors by reallocating assets so that we are closer to a five-way
allocation of 20 percent in each sector. It's unlikely that we'll reach an
even balance among the five, but we'll pull back on some of our overweightings
and fill in some of the sectors, in which we've been underweighted.
On the positive side, the credit quality in the non-investment grade bond
sectors has improved: for instance, we've seen more rating upgrades than
downgrades, and default rates are low. Inflation continues to be under control
and the dollar remains strong. Worldwide bond markets--even those of the
emerging market countries--continue to react to challenging situations in an
orderly fashion.
Our main concern is that any number of factors could change the fabric of
the marketplace over the next 12 months. For example: a change in policy could
change the direction of interest rates (and, with it, the direction of bond
prices); the election cycle in various emerging market countries could increase
political and/or economic volatility in those markets; foreign money could begin
to move out of the U.S. market, driving down prices and placing upward pressure
on rates; and uncertainty surrounding the proposed European Monetary Union could
spur increased volatility.
So even though we believe conditions remain overwhelmingly positive, our
sentiment is that a cautious approach would be prudent at this point. The
portfolio will continue to reflect this belief into the second half of 1997.
[SIG]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
[SIG]
Robert Hickey
Portfolio Manager
Please see footnotes on page four
9
<PAGE> 75
PORTFOLIO OF INVESTMENTS
June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
in Local
Currency Maturity U.S.$
(000) Description Coupon Date Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS 93.4%
BANKING 9.6%
2,000 Banco Bansud - US$....................... 9.250% 12/01/99 $ 2,075,000
2,000 Banco Credito Argentino 144A - US$ (e)... 9.500 04/24/20 2,070,000
1,500 Bank United Corp. - US$.................. 8.875 05/01/07 1,541,715
2,000 Hubco Capital Trust I 144A - US$ (e)..... 8.980 02/01/27 2,046,000
4,100 Western Financial Savings - US$ (b)...... 8.500 07/01/03 4,175,416
------------
11,908,131
------------
BEVERAGE, FOOD & TOBACCO 2.5%
500 Azteca Holdings 144A - US$ (e)........... 11.000 06/15/02 505,005
2,500 Pepsi - Gemex 144A - US$ (b)(e).......... 9.750 03/01/04 2,581,250
------------
3,086,255
------------
BUILDINGS AND REAL ESTATE 0.2%
200 Clark Material - US$..................... 10.750 05/15/06 210,500
------------
DIVERSIFIED/CONGLOMERATE
MANUFACTURING 0.9%
1,000 Aetna Industries - US$................... 11.875 10/01/06 1,092,500
------------
ELECTRONICS 1.1%
500 Bell & Howell Co. - US$ (b)(c)........... 0/11.500 03/01/05 400,000
1,000 Philippine Long Distance Telephone Co. -
US$...................................... 8.350 03/06/17 947,600
------------
1,347,600
------------
FINANCE 26.0%
1,500 Advanta Capital Trust I 144A - US$
(b)(e)................................... 8.990 12/17/26 1,462,128
3,000 Advanta Corp. - US$ (b).................. 7.000 05/01/01 2,929,140
5,000 Banco Bilbao Vizcaya International Fin -
US$ (b).................................. 6.875 10/27/05 4,867,500
2,500 Contifinancial Corp. 144A - US$ (e)...... 7.500 03/15/02 2,475,325
2,000 Financiera Energetica Nacional - US$..... 9.375 06/15/06 2,140,000
2,000 Guangdong Enterprises 144A - US$ (e)..... 8.875 05/22/07 2,054,540
4,000 Lehman Brothers, Inc. - US$ (b).......... 7.250 04/15/03 4,023,952
5,000 Paine Webber Group MTN - US$ (b)......... 7.740 01/30/12 4,993,750
3,000 Rolls-Royce Cap - US$ (b)................ 7.125 07/29/03 3,013,500
3,945 Westinghouse Credit Corp - US$ (b)....... 8.875 06/14/14 4,272,475
------------
32,232,310
------------
HEALTHCARE 0.5%
500 Tenet Healthcare - US$................... 10.125 03/01/05 547,500
------------
INSURANCE 4.1%
1,000 American Annuity 144A - US$ (e).......... 7.250 09/28/01 1,006,520
4,000 Orion Capital Trust - US$ (b)............ 8.730 01/01/37 4,076,500
------------
5,083,020
------------
</TABLE>
See Notes to Financial Statements
10
<PAGE> 76
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
in Local
Currency Maturity U.S.$
(000) Description Coupon Date Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
LEISURE AND AMUSEMENT 1.5%
2,000 Viacom, Inc. - US$ (b)................... 7.625% 01/15/16 $ 1,886,138
------------
MINING 0.8%
500 Algoma Steel - US$....................... 12.375 07/15/05 556,250
400 Carbide/Graphite Group, Inc. - US$ (b)... 11.500 09/01/03 438,000
------------
994,250
------------
OIL & GAS 13.8%
1,500 Camuzzi Gas - US$ (b).................... 9.250 12/01/01 1,571,250
2,000 Chesapeake Energy - US$ (b).............. 8.500 03/15/12 1,890,000
500 Dawson Product Services - US$............ 9.375 02/01/07 510,000
500 Global Marine - US$ (b).................. 12.750 12/15/99 525,000
450 KCS Energy - US$......................... 11.000 01/15/03 487,125
1,500 Oleoducto Central S.A. 144A - US$ (e).... 9.350 09/01/05 1,550,625
500 Pacalta Resources Ltd. 144A - US$ (e).... 10.750 06/15/04 507,500
2,000 Perez Companc - US$...................... 9.000 01/30/04 2,072,840
2,500 Soc Comercial De Plata - US$............. 11.500 05/09/00 2,690,625
5,000 Triton Energy - US$ (b).................. 9.250 04/15/05 5,322,100
------------
17,127,065
------------
PAPER 1.7%
1,000 Doman Industries Ltd. - US$ (b).......... 8.750 03/15/04 970,000
1,000 Tjiwi Kimia International BV - US$....... 13.250 08/01/01 1,140,000
------------
2,110,000
------------
PERSONAL AND NON DURABLE CONSUMER GOODS 0.4%
500 Cole National Group - US$................ 9.875 12/31/06 526,250
------------
PRINTING, PUBLISHING & BROADCASTING 1.1%
500 International Cabletel - US$............. * 02/01/06 345,000
1,000 SCI Television - US$..................... 11.000 06/30/05 1,052,500
------------
1,397,500
------------
RETAIL 4.8%
3,500 Grupo Elektra sa de CV - US$............. 12.750 05/15/01 3,858,750
2,000 Shopko Stores - US$ (b).................. 8.500 03/15/02 2,102,580
------------
5,961,330
------------
</TABLE>
See Notes to Financial Statements
11
<PAGE> 77
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
in Local
Currency Maturity U.S.$
(000) Description Coupon Date Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TELECOMMUNICATIONS 11.3%
1,000 Cablevision Systems - US$................ 9.875% 05/15/06 $ 1,065,000
5,000 Comcast Cablevision 144A - US$ (e)....... 8.500 05/01/27 5,398,950
5,000 MFS Communications - US$ (b)............. * 01/15/06 3,975,000
750 Millicom International - US$............. * 06/01/06 541,875
1,000 Panamsat L.P. - US$ (b).................. 9.750 08/01/00 1,050,000
600 Pricellular Wireless Corp. - US$ (c)..... 0/12.250 10/01/03 562,500
2,000 Viatel, Inc. - US$ (b)................... * 01/15/05 1,350,000
------------
13,943,325
------------
TEXTILES 0.4%
500 Anvil Knitware 144A - US$ (b)(e)......... 10.875 03/15/07 506,250
------------
UTILITIES 12.7%
500 AES Corp. - US$.......................... 10.250 07/15/06 547,500
1,000 Bridas Corp. - US$ (b)................... 12.500 11/15/99 1,098,750
500 Central Puerto S.A. 144A - US$ (e)....... 10.700 08/01/01 537,240
1,000 Central Termica Guemes S.A. 144A - US$
(e)...................................... 12.000 11/26/01 1,050,000
3,500 Companhia Energetica Sao Paul 144A - US$
(e)...................................... 9.125 06/26/07 3,447,500
1,250 Companhia Paranaense De Energ 144A - US$
(e)...................................... 9.750 05/01/05 1,293,750
2,000 Enersis S.A. - US$....................... 6.600 12/01/26 1,956,052
1,500 Midland Funding Corp II - US$ (b)........ 11.750 07/23/05 1,747,500
300 National Energy Group - US$ (b).......... 10.750 11/01/06 310,500
1,000 Sodigas - US$............................ 10.500 07/06/99 1,045,000
1,000 Sodigas 144A - US$ (e)................... 10.500 07/06/99 1,045,000
1,586 Subic Power Corp. 144A - US$ (e)......... 9.500 12/28/08 1,649,877
------------
15,728,669
------------
Total Corporate Bonds............................................ 115,688,593
------------
FOREIGN GOVERNMENT AND AGENCY SECURITIES 31.4%
ARGENTINA 3.2%
2,000 Argentina Par Bond - US$ (d)............. 5.500 03/31/23 1,387,500
2,000 Bonos del Tesoro - US$................... 8.750 05/09/02 2,000,000
500 Republic of Argentina - ARS.............. 11.750 02/12/07 554,486
------------
3,941,986
------------
AUSTRALIA 1.2%
2,000 Australian Government - AU$.............. 6.750 11/15/06 1,487,709
------------
BRAZIL 2.5%
1,980 Republic of Brazil - US$ (d)............. 7.250 04/15/06 1,827,778
1,380 Republic of Brazil - US$................. 10.125 05/15/27 1,328,250
------------
3,156,028
------------
CANADA 0.8%
1,250 Canadian Government - CA$................ 7.500 03/01/01 964,372
------------
</TABLE>
See Notes to Financial Statements
12
<PAGE> 78
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
in Local
Currency Maturity U.S.$
(000) Description Coupon Date Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COLOMBIA 2.1%
1,000 Republic of Colombia - US$............... 7.625% 02/15/07 $ 974,690
1,500 Republic of Colombia - US$............... 8.660 10/07/16 1,588,050
------------
2,562,740
------------
COSTA RICA 0.7%
1,000 Banco Central Costa Rica - US$ (d)....... 6.250 05/21/10 850,000
------------
CROATIA 4.0%
5,000 Republic of Croatia 144A - US$ (b)(e).... 7.000 02/27/02 4,918,750
------------
ITALY 0.8%
1,500,000 Republic of Italy BTPS - ITL............. 9.500 05/01/01 977,629
------------
MEXICO 1.4%
1,500 Mexico Global Bond - US$................. 11.500 05/15/26 1,713,750
------------
NEW ZEALAND 1.2%
2,000 New Zealand Government - NZ$............. 8.000 11/15/06 1,454,274
------------
PANAMA 4.0%
5,000 Republic of Panama 144A - US$ (e)........ 7.875 02/13/02 4,975,000
------------
RUSSIA 4.3%
5,000 DLJ Emerging Markets LDC - US$........... 5.500 12/30/97 5,363,000
------------
SLOVAKIA 2.7%
3,500 New Slovakia Euro Bond 144A - US$ (e).... 7.250 12/19/06 3,405,500
------------
UNITED KINGDOM 1.8%
1,000 UK Treasury Bonds - GBP (b).............. 7.000 11/06/01 1,658,536
350 UK Treasury Bonds - GBP.................. 6.750 11/26/04 571,745
------------
2,230,281
------------
URUGUAY 0.7%
1,000 Banco Central del Uruguay Ser B - US$
(d)...................................... 6.750 02/19/21 897,500
------------
Total Foreign Government and Agency Securities................... 38,898,519
------------
MORTGAGE BACKED SECURITIES (U.S.) 9.4%
2,337 DLJ Mortgage Acceptance Corp 1996-E1..... 8.517 09/28/25 2,381,275
75 FNMA REMIC #93-55 M PAC (Interest
Only).................................... 727.220 09/25/06 1,449,633
3,541 FNMA REMIC #93-175 S..................... 8.142 05/25/07 3,394,682
3,256 FNMA REMIC #93-180 SB (Inverse Fltg)
(b)...................................... 3.883 09/25/00 2,950,309
23,985 FNMA REMIC #97-20 IB (Interest Only)..... 1.840 03/25/27 1,460,689
------------
Total Mortgage Backed Securities (U.S.).......................... 11,636,588
------------
</TABLE>
See Notes to Financial Statements
13
<PAGE> 79
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C>
COMMON AND PREFERRED STOCKS 5.1%
Avalon Properties - Preferred - US$......................... 50,000 $ 1,287,500
Grupo Casa Autrey - ADR (Mexico) - US$...................... 8,500 172,656
MEPC International Capital L.P. - Preferred - US$ (b)....... 100,000 2,587,500
Time Warner, Inc. - Preferred - US$ (a)..................... 2,000 2,266,620
Thai Military Bank - THB.................................... 15,000 16,792
------------
Total Common and Preferred Stocks................................ 6,331,068
------------
SWAP TRANSACTIONS 0.0%
Goldman Sachs, 40.0 million US$ notional amount, maturing 01/23/00,
payment based upon the spread between the 6 year French Franc fixed
swap interest rate versus the 6 year German Mark fixed swap interest
rate................................................................. (65,217)
------------
TOTAL LONG-TERM INVESTMENTS 139.3%
(Cost $169,602,085)................................................ 172,489,551
LIABILITIES IN EXCESS OF OTHER ASSETS (39.3%)....................... (48,622,679)
------------
NET ASSETS 100.0%................................................... $123,866,872
============
</TABLE>
* Zero coupon bond
(a) Securities purchased on a when issued or delayed delivery basis.
(b) Assets segregated as collateral for when issued or delayed delivery purchase
commitments, open option, futures, forwards or swaps transactions or
borrowings of the Fund.
(c) Security is a "Step-up" bond where the coupon increases, or steps up, at a
predetermined date.
(d) Item represents a "Brady Bond" which is a product of the "Brady Plan" under
which various Latin American, African and southeast Asian nations have
converted their outstanding external defaulted commercial bank loans into
bonds. Certain Brady Bonds have been collateralized, as to principal due at
maturity, by U.S. Treasury zero coupon bonds with a maturity date equal to
the final maturity date of such Brady Bonds.
(e) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may only be resold in
transactions exempt from registration which are normally those transactions
with qualified institutional buyers.
PORTFOLIO COMPOSITION BY CREDIT QUALITY
The following table summarizes the portfolio composition at June 30, 1997,
based upon the highest credit quality ratings as determined by Standard & Poor's
or Moody's.
<TABLE>
<S> <C>
U.S. Government and
Government Agency
Obligations................ 6.8%
AAA.......................... 4.1
AA........................... 2.8
A............................ 6.7
BBB.......................... 22.7
BB........................... 23.4
B............................ 11.7
Non-Rated.................... 21.8
-----
100.0%
=====
</TABLE>
See Notes to Financial Statements
14
<PAGE> 80
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $169,602,085)....................... $172,489,551
Receivables:
Interest.................................................. 3,481,239
Fund Shares Sold.......................................... 310,467
Variation Margin on Futures............................... 148,489
Options at Market Value (Net premiums paid of $246,766)..... 253,950
Unamortized Organizational Costs............................ 51,018
Other....................................................... 1,068
------------
Total Assets............................................ 176,735,782
------------
LIABILITIES:
Payables:
Bank Borrowings........................................... 50,983,397
Income Distributions...................................... 430,721
Investments Purchased..................................... 371,264
Distributor and Affiliates................................ 169,090
Investment Advisory Fee................................... 105,874
Fund Shares Repurchased................................... 82,595
Forward Currency Contracts.................................. 201,614
Accrued Expenses............................................ 444,074
Deferred Compensation and Retirement Plans.................. 80,281
------------
Total Liabilities....................................... 52,868,910
------------
NET ASSETS.................................................. $123,866,872
============
NET ASSETS CONSIST OF:
Capital..................................................... $126,195,708
Net Unrealized Appreciation................................. 2,587,120
Accumulated Undistributed Net Investment Income............. 150,395
Accumulated Net Realized Loss............................... (5,066,351)
------------
NET ASSETS.................................................. $123,866,872
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $43,810,221 and 3,428,615 shares of
beneficial interest issued and outstanding)............. $ 12.78
Maximum sales charge (4.75%* of offering price)......... .64
------------
Maximum offering price to public........................ $ 13.42
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $76,222,552 and 5,964,656 shares of
beneficial interest issued and outstanding)............. $ 12.78
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $3,834,099 and 300,301 shares of
beneficial interest issued and outstanding)............. $ 12.77
============
</TABLE>
*On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
15
<PAGE> 81
STATEMENT OF OPERATIONS
For the Year Ended June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest (Net of foreign withholding taxes of $20,787)...... $12,861,325
Dividends (Net of foreign withholding taxes of $568)........ 560,482
-----------
Total Income.......................................... 13,421,807
-----------
EXPENSES:
Investment Advisory Fee..................................... 1,132,304
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $97,970, $699,251 and $35,618,
respectively)............................................. 832,839
Shareholder Services........................................ 208,244
Custody..................................................... 163,379
Trustees Fees and Expenses.................................. 38,650
Amortization of Organizational Costs........................ 33,982
Legal....................................................... 18,250
Other....................................................... 222,781
-----------
Total Operating Expenses.............................. 2,650,429
Less Expenses Reimbursed.............................. 49,624
-----------
Net Operating Expenses................................ 2,600,805
Interest Expense...................................... 2,239,645
-----------
NET INVESTMENT INCOME....................................... $ 8,581,357
===========
NET REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 5,129,577
Options................................................... (483,643)
Futures................................................... (1,998,211)
Forwards.................................................. 603,111
Foreign Currency Transactions............................. (251,444)
-----------
Net Realized Gain........................................... 2,999,390
-----------
Net Unrealized Appreciation/Depreciation:
Beginning of the Period..................................... (794,446)
-----------
End of the Period:
Investments............................................... 2,887,466
Options................................................... 7,184
Futures................................................... (105,472)
Forwards.................................................. (209,912)
Foreign Currency Translation.............................. 7,854
-----------
2,587,120
-----------
Net Unrealized Appreciation During the Period............... 3,381,566
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 6,380,956
---------
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $14,962,313
===========
</TABLE>
See Notes to Financial Statements
16
<PAGE> 82
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended June 30, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1997 June 30, 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.................................... $ 8,581,357 $ 7,166,242
Net Realized Gain........................................ 2,999,390 2,088,097
Net Unrealized Appreciation During the Period............ 3,381,566 1,185,450
------------ ------------
Change in Net Assets from Operations..................... 14,962,313 10,439,789
------------ ------------
Distributions from Net Investment Income................. (8,604,269) (7,166,242)
Distributions in Excess of Net Investment Income......... (27,347) (721,843)
------------ ------------
Distributions from and in Excess of Net Investment
Income*................................................. (8,631,616) (7,888,085)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES...... 6,330,697 2,551,704
------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................ 40,557,345 29,338,222
Net Asset Value of Shares Issued Through Dividend
Reinvestment............................................ 3,498,095 3,220,366
Cost of Shares Repurchased............................... (25,388,033) (20,206,493)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS....... 18,667,407 12,352,095
------------ ------------
TOTAL INCREASE IN NET ASSETS............................. 24,998,104 14,903,799
NET ASSETS:
Beginning of the Period.................................. 98,868,768 83,964,969
------------ ------------
End of the Period (Including accumulated undistributed
net investment income of $150,395 and $22,912,
respectively)........................................... $123,866,872 $ 98,868,768
============ ============
</TABLE>
<TABLE>
<CAPTION>
Year Ended Year Ended
*Distributions by Class June 30, 1997 June 30, 1996
- ---------------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of
Net Investment Income:
Class A Shares....................... $(3,189,748) $(2,908,823)
Class B Shares....................... (5,177,891) (4,768,060)
Class C Shares....................... (263,977) (211,202)
----------- -----------
$(8,631,616) $(7,888,085)
=========== ===========
</TABLE>
See Notes to Financial Statements
17
<PAGE> 83
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1993
(Commencement
Year Ended June 30, of Investment
--------------------------- Operations) to
Class A Shares 1997 1996 1995 June 30, 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.... $12.065 $11.704 $11.975 $14.300
------- ------- ------- -------
Net Investment Income....................... 1.019 1.013 .657 .566
Net Realized and Unrealized Gain/Loss....... .714 .446 .272 (2.391)
------- ------- ------- -------
Total from Investment Operations............ 1.733 1.459 .929 (1.825)
------- ------- ------- -------
Less:
Distributions from and in Excess of Net
Investment Income....................... 1.020 1.098 .793 .500
Return of Capital Distribution............ -0- -0- .407 -0-
------- ------- ------- -------
Total Distributions......................... 1.020 1.098 1.200 .500
------- ------- ------- -------
Net Asset Value, End of the Period.......... $12.778 $12.065 $11.704 $11.975
======= ======= ======= =======
Total Return* (a)........................... 14.92% 12.92% 8.46% (12.83%)**
Net Assets at End of the Period (In
millions)................................. $ 43.8 $ 33.8 $ 29.6 $ 24.5
Ratio of Operating Expenses to Average Net
Assets*................................... 1.81% 1.84% 1.98% 1.88%
Ratio of Interest Expense to Average Net
Assets.................................... 1.99% 2.27% 2.38% .96%
Ratio of Net Investment Income to Average
Net Assets*............................... 8.12% 8.34% 5.88% 9.27%
Portfolio Turnover.......................... 474% 343% 253% 114%**
* If certain expenses had not been reimbursed by VKAC, Total Return would have been lower and
the ratios would have been as follows:
Ratio of Operating Expenses to Average Net
Assets.................................... 1.86% 1.92% N/A N/A
Ratio of Net Investment Income to Average
Net Assets................................ 8.07% 8.26% N/A N/A
</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.
N/A = Not Applicable
See Notes to Financial Statements
18
<PAGE> 84
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1993
(Commencement
Year Ended June 30, of Investment
--------------------------- Operations) to
Class B Shares 1997 1996 1995 June 30, 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.... $12.069 $11.706 $11.968 $14.300
------- ------- ------- -------
Net Investment Income....................... .920 .926 .585 .515
Net Realized and Unrealized Gain/Loss....... .717 .443 .245 (2.392)
------- ------- ------- -------
Total from Investment Operations............ 1.637 1.369 .830 (1.877)
------- ------- ------- -------
Less:
Distributions from and in Excess of Net
Investment Income....................... .927 1.006 .722 .455
Return of Capital Distribution............ -0- -0- .370 -0-
------- ------- ------- -------
Total Distributions......................... .927 1.006 1.092 .455
------- ------- ------- -------
Net Asset Value, End of the Period.......... $12.779 $12.069 $11.706 $11.968
======= ======= ======= =======
Total Return* (a)........................... 13.98% 12.06% 7.62% (13.21%)**
Net Assets at End of the Period (In
millions)................................. $ 76.2 $ 61.9 $ 52.6 $ 46.4
Ratio of Operating Expenses to Average Net
Assets*................................... 2.57% 2.59% 2.68% 2.63%
Ratio of Interest Expense to Average Net
Assets.................................... 1.98% 2.26% 2.38% .96%
Ratio of Net Investment Income to Average
Net Assets*............................... 7.33% 7.58% 5.30% 8.48%
Portfolio Turnover.......................... 474% 343% 253% 114%**
* If certain expenses had not been reimbursed by VKAC, Total Return would have been lower
and the ratios would have been as follows:
Ratio of Operating Expenses to Average Net
Assets.................................... 2.61% 2.67% N/A N/A
Ratio of Net Investment Income to Average
Net Assets................................ 7.28% 7.50% N/A N/A
</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.
N/A = Not Applicable
See Notes to Financial Statements
19
<PAGE> 85
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1993
(Commencement
Year Ended June 30, of Investment
--------------------------- Operations) to
Class C Shares 1997 1996 1995 June 30, 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.... $12.059 $11.699 $11.966 $14.300
------- ------- ------- -------
Net Investment Income....................... .913 .944 .598 .509
Net Realized and Unrealized Gain/Loss....... .723 .422 .227 (2.388)
------- ------- ------- -------
Total from Investment Operations............ 1.636 1.366 .825 (1.879)
------- ------- ------- -------
Less:
Distributions from and in Excess of Net
Investment Income....................... .927 1.006 .722 .455
Return of Capital Distribution............ -0- -0- .370 -0-
------- ------- ------- -------
Total Distributions......................... .927 1.006 1.092 .455
------- ------- ------- -------
Net Asset Value, End of the Period.......... $12.768 $12.059 $11.699 $11.966
======= ======= ======= =======
Total Return* (a)........................... 13.99% 12.07% 7.53% (13.21%)**
Net Assets at End of the Period (In
millions)................................. $ 3.8 $ 3.1 $ 1.7 $ 2.1
Ratio of Operating Expenses to Average Net
Assets*................................... 2.56% 2.58% 2.69% 2.65%
Ratio of Interest Expense to Average Net
Assets.................................... 1.98% 2.22% 2.38% .95%
Ratio of Net Investment Income to Average
Net Assets*............................... 7.31% 7.49% 5.92% 8.36%
Portfolio Turnover.......................... 474% 343% 253% 114%**
* If certain expenses had not been reimbursed by VKAC, Total Return would have been lower
and the ratios would have been as follows:
Ratio of Operating Expenses to Average Net
Assets.................................... 2.61% 2.66% N/A N/A
Ratio of Net Investment Income to Average
Net Assets................................ 7.27% 7.41% N/A N/A
</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.
N/A = Not Applicable
See Notes to Financial Statements
20
<PAGE> 86
NOTES TO FINANCIAL STATEMENTS
June 30, 1997
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Strategic Income Fund (the "Fund") is organized as a
series of Van Kampen American Capital Trust (the "Trust"), a Delaware business
trust, and is registered as a non-diversified open-end management investment
company under the Investment Company Act of 1940, as amended. The Fund's primary
investment objective is to seek to provide shareholders with high current
income, while its' secondary investment objective is to seek capital
appreciation. The Fund will allocate its investments among the following market
sectors: U.S. government securities, domestic investment grade income
securities, domestic lower grade income securities, foreign investment grade
income securities and foreign lower grade income securities. The Fund borrows
money for investment purposes which will create the opportunity for enhanced
return, but also should be considered a speculative technique and may increase
the Fund's volatility. The Fund commenced investment operations on December 31,
1993, with three classes of common shares, Class A, Class B and Class C shares.
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 these estimates.
A. SECURITY VALUATION--Investments are stated at value using market quotations,
prices provided by market makers or, if such valuations are not available,
estimates obtained from yield data relating to instruments or securities with
similar characteristics in accordance with procedures established in good faith
by the Board of Trustees. Foreign investments are stated at value using the last
available bid price or yield equivalents obtained from dealers in the
over-the-counter (OTC) or interbank market. Short-term securities with remaining
maturities of 60 days or less are valued at amortized cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account
21
<PAGE> 87
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
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.
C. INVESTMENT INCOME--Interest income is recorded on an accrual basis and
dividend income is recorded on the ex-dividend date. Original issue discount is
amortized over the expected life of each applicable security.
D. CURRENCY TRANSLATION--Assets and liabilities denominated in foreign
currencies and commitments under forward currency contracts are translated into
U.S. dollars at the mean of the quoted bid and ask prices of such currencies
against the U.S. dollar. Purchases and sales of portfolio securities are
translated at the rate of exchange prevailing when such securities were acquired
or sold. Income and expenses are translated at rates prevailing when accrued.
E. ORGANIZATIONAL COSTS--The Fund has reimbursed Van Kampen American Capital
Distributors, Inc. or its affiliates (collectively "VKAC") for costs incurred in
connection with the Fund's organization in the amount of $170,000. These costs
are being amortized on a straight line basis over the 60 month period ending
December 31, 1998. Van Kampen American Capital Investment Advisory Corp. (the
"Adviser") has agreed that in the event any of the initial shares of the Fund
originally purchased by VKAC are redeemed during the amortization period, the
Fund will be reimbursed for any unamortized organizational costs in the same
proportion as the number of shares redeemed bears to the number of initial
shares held at the time of redemption.
F. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At June 30, 1997, the Fund had an accumulated capital loss carryforward
for tax purposes of $5,050,946 which will expire between June 30, 2003 and June
30, 2004. Net realized gains or losses may differ for financial and tax
reporting purposes primarily as a result of post October 31 losses which are not
recognized for tax purposes until the first day of the following fiscal year and
as a result of gains or losses recognized for tax purposes on the mark to market
of open options, futures and forward transactions at June 30, 1997.
22
<PAGE> 88
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
At June 30, 1997, for federal income tax purposes, cost of long-term
investments is $169,602,085; the aggregate gross unrealized appreciation is
$3,907,013 and the aggregate gross unrealized depreciation is $1,114,313,
resulting in net unrealized appreciation on investments, swap, option and
futures transactions of $2,792,700.
G. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily and pays monthly
dividends from net investment income. Net investment income for federal income
tax purposes includes gains and losses realized on transactions in foreign
currencies and options and futures on foreign currencies. These realized gains
and losses are included as net realized gains or losses for financial reporting
purposes. Permanent book and tax basis differences relating to net currency
gains totaling $177,742 were reclassified from accumulated net realized
gain/loss to accumulated undistributed net investment income.
Net realized gains, if any, are distributed annually.
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 MANAGED ASSETS % PER ANNUM
- ------------------------------------------------------------------------
<S> <C>
First $500 million...................................... .75 of 1%
Next $500 million....................................... .70 of 1%
Over $1 billion......................................... .65 of 1%
</TABLE>
For the year ended June 30, 1997, VKAC has agreed to assume a portion of the
Fund's registration and filing fees. This waiver is voluntary and may be
discontinued at any time.
For the year ended June 30, 1997, the Fund recognized expenses of
approximately $6,200 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the year ended June 30, 1997, the Fund recognized expenses of
approximately $25,300 representing VKAC's cost of providing accounting, cash
management and legal services to the Fund. Of this amount, approximately $800
has been assumed by VKAC.
ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the year ended June
30, 1997, the Fund recognized expenses of approximately $158,700, representing
ACCESS' cost of providing transfer agency and shareholder services plus a
profit.
23
<PAGE> 89
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
Certain officers and trustees of the Fund are also officers and directors of
VKAC. The Fund does not compensate its officers or trustees who are officers of
VKAC. During the year ended June 30, 1997, the Adviser reimbursed the Fund for
certain trustees' compensation in connection with the July 1995 increase in the
number of trustees of the Fund.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of VKAC. 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 equal to $2,500.
At June 30, 1997, VKAC owned 100 shares each of Classes A, B and C.
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, 1997, capital aggregated $44,483,168, $77,747,304 and $3,965,236
for Classes A, B and C, respectively. For the year ended June 30, 1997,
transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................... 1,136,784 $ 14,246,123
Class B.................................... 1,951,416 24,358,899
Class C.................................... 156,283 1,952,323
---------- ------------
Total Sales.................................. 3,244,483 $ 40,557,345
========== ============
Dividend Reinvestment:
Class A.................................... 102,757 $ 1,289,971
Class B.................................... 163,577 2,052,790
Class C.................................... 12,383 155,334
---------- ------------
Total Dividend Reinvestment.................. 278,717 $ 3,498,095
========== ============
Repurchases:
Class A.................................... (614,505) $ (7,723,135)
Class B.................................... (1,282,624) (16,096,646)
Class C.................................... (125,528) (1,568,252)
---------- ------------
Total Repurchases............................ (2,022,657) $(25,388,033)
========== ============
</TABLE>
24
<PAGE> 90
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
At June 30, 1996, capital aggregated $36,670,209, $67,432,261 and $3,425,831
for Classes A, B and C, respectively. For the year ended June 30, 1996,
transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................... 751,977 $ 9,046,110
Class B.................................... 1,498,860 18,147,281
Class C.................................... 178,450 2,144,831
---------- ------------
Total Sales.................................. 2,429,287 $ 29,338,222
========== ============
Dividend Reinvestment:
Class A.................................... 94,962 $ 1,139,581
Class B.................................... 163,856 1,965,307
Class C.................................... 9,612 115,478
---------- ------------
Total Dividend Reinvestment.................. 268,430 $ 3,220,366
========== ============
Repurchases:
Class A.................................... (575,267) $ (6,903,393)
Class B.................................... (1,024,433) (12,352,105)
Class C.................................... (78,275) (950,995)
---------- ------------
Total Repurchases............................ (1,677,975) $(20,206,493)
========== ============
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). The CDSC will be imposed
on most redemptions made within six years of the purchase for Class B and one
year of the purchase for Class C as detailed in the following schedule. The
Class B and C shares bear the expense of their respective deferred sales
arrangements, including higher distribution and service fees and incremental
transfer agency costs.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
YEAR OF REDEMPTION CLASS B CLASS C
- ------------------------------------------------------------------------------
<S> <C> <C>
First.............................................. 4.00% 1.00%
Second............................................. 3.75% None
Third.............................................. 3.50% None
Fourth............................................. 2.50% None
Fifth.............................................. 1.50% None
Sixth.............................................. 1.00% None
Seventh and Thereafter............................. None None
</TABLE>
25
<PAGE> 91
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
For the year ended June 30, 1997, VKAC, as Distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately
$26,500 and CDSC on redeemed shares of approximately $296,300. 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 $745,551,022 and $715,779,945,
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, manage the portfolio's effective yield, foreign currency exposure,
maturity and duration or generate potential gain. All of the Fund's portfolio
holdings, including derivative instruments, are marked to market each day with
the change in value reflected in unrealized appreciation/depreciation. Upon
disposition, a realized gain or loss is recognized accordingly, except when
exercising an option contract or taking delivery of a security underlying a
futures or forward contract. In these instances, the recognition of gain or loss
is postponed until the disposal of the security underlying the option, futures
or forward contract. Risks may arise as a result of the potential inability of
the counterparties to meet the terms of their contracts.
Summarized below are the specific types of derivative financial instruments
used by the Fund.
A. OPTION CONTRACTS--An option contract gives the buyer the right, but not the
obligation to buy (call) or sell (put) an underlying item at a fixed exercise
price during a specified period. These contracts are generally used by the Fund
to manage the portfolio's effective maturity and duration.
26
<PAGE> 92
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
Transactions in options for the year ended June 30, 1997, were as follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- ---------------------------------------------------------------------------
<S> <C> <C>
Outstanding at June 30, 1996................... 3 $ (458,000)
Options Written and Purchased (Net)............ 9,182 (2,797,571)
Options Terminated in Closing
Transactions (Net)........................... (6,742) 2,225,052
Options Exercised.............................. (303) 226,532
Options Expired (Net).......................... (513) 557,221
------ -----------
Outstanding at June 30, 1997................... 1,627 $ (246,766)
====== ===========
</TABLE>
The descriptions and market values of the option contracts outstanding as of
June 30, 1997, are as follows:
<TABLE>
<CAPTION>
STRIKE
EXPIRATION PRICE/ MARKET
DESCRIPTION CONTRACTS DATE YIELD VALUE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EURO $ FUTURES
Dec. 1997 - Purchased
Call...................... 600 12/15/97 94 $157,500
Dec. 1997 - Written
Call...................... 900 12/15/97 94.25 (67,500)
J.P. MORGAN EMERGING
MARKETS INDEX
Purchased Put............. 1 08/11/97 329.37 119,700
Written Put............... 1 08/11/97 321.14 (49,500)
U.S. TREASURY BOND FUTURES
Aug. 1997 - Purchased
Put....................... 125 07/19/97 111 93,750
----- --------
1,627 $253,950
===== ========
</TABLE>
B. FUTURES CONTRACTS--A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Fund generally invests in futures on U.S. Treasury Bonds and typically closes
the contract prior to the delivery date. These contracts are generally used to
manage the portfolio's effective maturity and duration.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, 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 cost of securities acquired through
delivery under a contract is adjusted by the unrealized gain or loss on the
contract.
27
<PAGE> 93
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
Transactions in futures contracts for the year ended June 30, 1997, were as
follows:
<TABLE>
<CAPTION>
CONTRACTS
- ------------------------------------------------------------------------
<S> <C>
Outstanding at June 30, 1996............................... 231
Futures Opened............................................. 8,160
Futures Closed............................................. (7,702)
------
Outstanding at June 30, 1997............................... 689
======
</TABLE>
The futures contracts outstanding as of June 30, 1997, and the descriptions
and unrealized appreciation/depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
- ---------------------------------------------------------------------------
<S> <C> <C>
LONG CONTRACTS:
U.S. Treasury Bond Future Dec 1997
(Current notional value $110,656 per
contract)................................... 200 $ 487,500
SHORT CONTRACTS:
10-Year British Gilt Future Sept 1997
(Current notional value $94,870 per
contract)................................... 10 (25,134)
10-Year German Mark Future Sept 1997
(Current notional value $145,476 per
contract)................................... 10 (18,928)
10-Year Japanese Bond Future Sept 1997
(Current notional value $1,082,708 per
contract)................................... 3 (30,832)
U.S. Treasury Bond Future Sept 1997
(Current notional value $111,063 per
contract)................................... 300 (355,156)
2-Year U.S. Treasury Note Future Sept 1997
(Current notional value $206,016 per
contract)................................... 41 (39,250)
5-Year U.S. Treasury Note Future Sept 1997
(Current notional value $105,891 per
contract)................................... 125 (123,672)
--- ---------
689 $(105,472)
=== =========
</TABLE>
C. FORWARD CURRENCY CONTRACTS--These instruments are commitments to purchase or
sell a foreign currency at a future date at a negotiated forward rate. The gain
or loss arising from the difference between the original value of the contract
and the closing value of such contract is included as a component of realized
gain/loss on forwards.
28
<PAGE> 94
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
At June 30, 1997, the Fund has outstanding forward currency contracts as
follows:
<TABLE>
<CAPTION>
UNREALIZED
FORWARD CURRENT APPRECIATION/
CURRENCY VALUE DEPRECIATION
- ------------------------------------------------------------------------
<S> <C> <C>
LONG CONTRACTS:
Canadian Dollar,
2,751,100 expiring 09/30/97.............. $ 2,003,277 $ (1,752)
French Franc,
57,760,000 expiring 08/01/97............. 9,850,285 (321,953)
German Mark,
29,954,750 expiring 08/04/97-12/30/97.... 17,331,744 (534,622)
Japanese Yen,
1,142,000,000 expiring 08/27/97.......... 10,046,845 46,845
----------- ---------
$39,232,151 $(811,482)
=========== ---------
SHORT CONTRACTS:
British Pound Sterling,
1,536,731 expiring 08/28/97.............. $ 2,554,657 $ (54,657)
French Franc,
85,979,900 expiring 08/04/97-12/30/97.... 14,762,058 416,786
German Mark,
15,000,000 expiring 07/30/97............. 8,619,942 286,205
Japanese Yen,
1,071,700,000 expiring 11/27/98.......... 10,046,764 (46,764)
----------- ---------
$35,983,421 601,570
=========== ---------
$(209,912)
=========
</TABLE>
At June 30, 1997, the Fund has realized gains on closed but unsettled
forward currency contracts of $8,298 scheduled to settle between July 1, 1997
and March 16, 1998.
D. SWAP TRANSACTIONS--These securities, which are identified in the portfolio of
investments, represent an agreement between two parties to exchange a series of
cash flows based upon various indices at specified intervals.
E. INVERSE FLOATING SECURITY--These instruments, which are identified in the
portfolio of investments, have a coupon which is inversely indexed to a
short-term floating interest rate multiplied by a specified factor. As the
floating rate rises, the coupon is reduced. Conversely, as the floating rate
declines, the coupon is increased. The price of these
29
<PAGE> 95
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
securities may be more volatile than the price of a comparable fixed rate
security. These instruments are typically used by the Fund to enhance the yield
of the portfolio.
6. MORTGAGE-BACKED SECURITIES
A Mortgage-Backed Security (MBS) is a pass-through security created by pooling
mortgages and selling participations in the principal and interest payments
received from borrowers. Most of these securities are guaranteed by federally
sponsored agencies such as Federal National Mortgage Association (FNMA).
A REMIC (Real Estate Mortgage Investment Conduit) is a bond which is
collateralized by a pool of MBS's. These MBS pools are divided into classes or
tranches with each class having its own characteristics.
A MBS may also be stripped to create an Interest Only (IO) security. An IO
represents ownership in the cash flows of the interest payments made from a
specific pool of MBS. The cash flow on this instrument decreases as the mortgage
principal balance is repaid by the borrower. IO's are typically used to manage
interest rate exposure in the Fund's portfolio.
7. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these fees
for the year ended June 30, 1997, are payments to VKAC of approximately
$547,100.
8. BORROWINGS
In accordance with its investment policies, the Fund may borrow money from banks
or enter into reverse repurchase agreements or dollar rolls for investment
purposes in an amount up to 33.3% of its total assets.
The Fund has entered into a $60,000,000 revolving credit agreement which
expires on March 31, 1998. Interest is charged under the agreement at a rate of
.425% above the federal funds rate. The interest rate in effect at June 30,
1997, was 6.675%. An annual commitment fee of .075% is charged on the unused
portion of the credit line.
30
<PAGE> 96
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997
- --------------------------------------------------------------------------------
The Fund has entered into reverse repurchase agreements under which the Fund
sells securities and agrees to repurchase them at a mutually agreed upon date
and price. At June 30, 1997, there were no open reverse repurchase agreements.
The average daily balance of bank borrowings and reverse repurchase
agreements for the year ended June 30, 1997, was approximately $38,213,200 with
an average interest rate of 5.78%.
At June 30, 1997, these agreements represented 28.8% of the Fund's total
assets.
31
<PAGE> 97
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen American Capital Strategic Income Fund:
We have audited the accompanying statement of assets and liabilities of Van
Kampen American Capital Strategic Income Fund (the "Fund"), including the
portfolio of investments, as of June 30, 1997, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the periods presented. 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.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1997, by correspondence with the 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 American Capital Strategic Income Fund as of June 30, 1997, the results
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended, and the financial highlights for
each of the periods presented, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Chicago, Illinois
August 13, 1997
32
<PAGE> 98
FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL
GLOBAL AND
INTERNATIONAL
Global Equity Fund
Global Government Securities Fund
Global Managed Assets Fund
Short-Term Global Income Fund
Strategic Income Fund
EQUITY
Growth
Aggressive Growth Fund
Emerging Growth Fund
Enterprise Fund
Growth Fund
Pace Fund
Growth & Income
Comstock Fund
Equity Income Fund
Growth and Income Fund
Harbor Fund
Real Estate Securities Fund
Utility Fund
FIXED INCOME
Corporate Bond Fund
Government Securities Fund
High Income Corporate Bond Fund
High Yield Fund
Limited Maturity Government Fund
Prime Rate Income Trust
Reserve Fund
U.S. Government Fund
U.S. Government Trust for Income
TAX-FREE
California Insured Tax Free Fund
Florida Insured Tax Free Income Fund
High Yield Municipal Fund
Insured Tax Free Income Fund
Intermediate Term Municipal Income Fund
Municipal Income Fund
New Jersey Tax Free Income Fund
New York Tax Free Income Fund
Pennsylvania Tax Free Income Fund
Tax Free High Income Fund
Tax Free Money Fund
MORGAN STANLEY
FUND, INC.
Aggressive Equity Fund
American Value Fund
Asian Growth Fund
Emerging Markets Fund
Global Equity Allocation Fund
Global Fixed Income Fund
High Yield Fund
International Magnum Fund
Latin American Fund
U.S. Real Estate Fund
Value Fund
Worldwide High Income Fund
Ask your investment representative for a prospectus containing more complete
information, including sales charges and expenses. Please read it carefully
before you invest or send money. Or call us weekdays from 7:00 a.m. to 7:00
p.m. Central time at 1-800-341-2911 for Van Kampen American Capital funds or
Morgan Stanley retail funds.
33
<PAGE> 99
VAN KAMPEN AMERICAN CAPITAL STRATEGIC INCOME FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
RICHARD M. DEMARTINI*
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
JEROME L. ROBINSON
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*
ALAN T. SACHTLEBEN*
PAUL R. WOLKENBERG*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
DISTRIBUTOR
VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
SHAREHOLDER SERVICING AGENT
ACCESS 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
KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601
* "Interested" persons of the Fund, as defined in the Investment Company Act of
1940.
(C) Van Kampen American Capital Distributors, Inc., 1997 All rights reserved.
(SM) denotes a service mark of Van Kampen American Capital Distributors, Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After December 31, 1997, this report must be accompanied
by a quarterly performance update, if applicable.
34
<PAGE> 100
RESULTS OF SHAREHOLDER VOTES
A Special Meeting of Shareholders of the Fund was held on May 28, 1997 where
shareholders voted on a new investment advisory agreement, the election of
Trustees and the ratification of KPMG Peat Marwick LLP as independent public
accountants. With regard to the approval of a new investment advisory agreement
between Van Kampen American Capital Investment Advisory Corp. and the Fund,
6,476,634 shares voted for the proposal, 75,394 shares voted against and 179,640
shares abstained. With regard to the election of J. Miles Branagan as elected
trustee of the Fund, 6,617,556 shares voted in his favor and 114,113 shares
withheld. With regard to the election of Richard M. DeMartini as elected trustee
of the Fund, 6,615,232 shares voted in his favor and 116,437 shares withheld.
With regard to the election of Linda Hutton Heagy as elected trustee of the
Fund, 6,613,618 shares voted in her favor and 118,051 shares withheld. With
regard to the election of R. Craig Kennedy as elected trustee of the Fund,
6,617,556 shares voted in his favor and 114,113 shares withheld. With regard to
the election of Jack E. Nelson as elected trustee of the Fund, 6,615,055 shares
voted in his favor and 116,614 shares withheld. With regard to the election of
Don G. Powell as elected trustee of the Fund, 6,617,556 shares voted in his
favor and 114,113 shares withheld. With regard to the election of Jerome L.
Robinson as elected trustee of the Fund, 6,614,146 shares voted in his favor and
117,553 shares withheld. With regard to the election of Phillip B. Rooney as
elected trustee of the Fund, 6,615,898 shares voted in his favor and 115,771
shares withheld. With regard to the election of Fernando Sisto as elected
trustee of the Fund, 6,615,232 shares voted in his favor and 116,437 shares
withheld. With regard to the election of Wayne W. Whalen as elected trustee of
the Fund, 6,617,556 shares voted in his favor and 114,113 shares withheld. With
regard to the ratification of KPMG Peat Marwick LLP as independent public
accountants for the Fund, 6,487,793 shares voted for the proposal, 42,478 shares
voted against and 201,397 shares abstained.
35
<PAGE> 101
VAN KAMPEN AMERICAN CAPITAL STRATEGIC INCOME FUND
THIS PAGE INTENTIONALLY LEFT BLANK
36
