<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 3
Glossary of Terms................................ 4
Portfolio Management Review...................... 6
Portfolio Highlights............................. 9
Portfolio of Investments......................... 10
Statement of Assets and Liabilities.............. 17
Statement of Operations.......................... 18
Statement of Changes in Net Assets............... 19
Financial Highlights............................. 20
Notes to Financial Statements.................... 23
</TABLE>
HYF SAR 11/98
<PAGE> 2
LETTER TO SHAREHOLDERS
October 22, 1998
Dear Shareholder,
These continue to be dramatic and
highly unusual times for global
financial markets. Despite a severe
crisis of confidence in many emerging
economies, the United States has been
relatively unscathed by the turmoil.
However, volatility increased in the
U.S. equity market as the Asian crisis [PHOTO]
spread to Russia and Latin America
during the reporting period. Fixed- DENNIS J. MCDONNELL AND DON G. POWELL
income investors were not entirely
unaffected, as volatility forced yield
spreads to widen between Treasuries and high-yield securities, corporate bonds,
and mortgage-backed securities.
We expect that volatility will remain high until the situation overseas
stabilizes. In this environment, it is important to stay focused on long-term
investment goals and to view daily fluctuations as relatively minor in the
larger picture. As we explain elsewhere in this letter, the U.S. economy remains
among the healthiest in the world, and Federal Reserve policymakers have
demonstrated an ability to make prudent decisions with regard to monetary
policy. These factors bode well for investors during the months ahead.
ECONOMIC OVERVIEW
Growth in the U.S. economy moderated during the reporting period as fallout
from the global financial crisis finally began to hit home. Weak demand for
American goods in Asia and Latin America caused the U.S. trade deficit to hit a
record $56.5 billion during the second quarter, undermining corporate profits.
Weak earnings, in turn, caused job growth to slow and unemployment to increase
modestly from the 28-year low set earlier this year. Manufacturing activity fell
in September for the fourth consecutive month.
Psychological factors also played a role in the deceleration of U.S.
economic growth. In a recent speech, Federal Reserve Chairman Alan Greenspan
noted that Americans seem to have acquired a strong aversion to risk that had
been notably absent in recent years. This risk-averse attitude manifested itself
in slower retail sales growth and a mild drop in housing activity. Also, the
clear preference among investors for safety and liquidity caused interest rates
on lower-quality debt to balloon, leading to fears of a credit crunch for U.S.
businesses. Such concerns were at least partially responsible for the Fed's
decision to cut short-term interest rates by 0.25 percent on September 29 and
again on October 15.
Despite the slowdown, we believe that the American economy remains
fundamentally sound. Inflation at the consumer level increased by just 1.4
percent during the twelve months through September, while wholesale prices
actually fell during the same period.
MARKET OVERVIEW
The deepening global economic crisis helped unleash a furious flight to
quality in the domestic fixed-income market. As the reporting period ended, the
yield on long-term
Continued on page 2
1
<PAGE> 3
Treasury bonds had fallen below 5 percent for the first time since 1977. Total
returns in the U.S. bond market were uneven, however, as investors displayed a
preference for quality amid the raging global economic storm. During the three
months through September, long-term Treasury bonds gained 8.44 percent, compared
to 2.37 percent for long-term corporate bonds and -3.71 for high yield
securities. The varying performance reflects a transition in investor
psychology, with sentiment shifting from confidence to extreme risk aversion in
recent months.
The heightened demand for safety drove yield differentials between bonds of
different credit quality but similar maturities to levels not seen since the
1990-1991 recession. Credit spreads between 10-year Treasury bonds and
high-yield securities, for example, grew to almost 6 percent. While a gradual
widening of credit spreads is normal during the later stages of a business
cycle, the dramatic nature of the expansion was primarily the result of high
demand for Treasury securities by foreign investors seeking shelter from the
sharp sell-offs in overseas equity markets.
OUTLOOK
We expect that global economic fundamentals will remain favorable for
domestic fixed-income investments. The impact of slower economic growth abroad
should help to offset the inflationary implications of a relatively tight labor
market in the United States. Additionally, the recent deceleration in U.S.
economic growth is likely to lead to somewhat higher unemployment in coming
months. However, while the possibility of a recession can no longer be ruled
out, we believe that the U.S. economy will grow at a moderate pace into next
year.
The Federal Reserve has already begun to loosen monetary policy, and we
expect that global overcapacity will continue to exert downward pressure on
commodity prices. Both factors are positive for bonds. We caution, however, that
yields have fallen considerably in recent months, and a mild increase in
long-term interest rates is possible. Also, a weakening dollar or a worsening of
economic conditions overseas could lead to reduced foreign demand for U.S.
financial assets. Finally, credit quality will remain under intense scrutiny,
especially given the risk-averse mind-set of global investors and the advanced
stage of the domestic business cycle.
Additional details about your Fund, including a question-and-answer section
with your portfolio management team, are provided in this report. As always, we
are pleased to have the opportunity to share with you the progress of your
investment.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
2
<PAGE> 4
PERFORMANCE RESULTS FOR THE PERIOD ENDED SEPTEMBER 30, 1998
VAN KAMPEN HIGH YIELD FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS
Three-month total return based on NAV(1)................... (8.36%) (8.54%) (8.55%)
One-year total return(2)................................... (8.10%) (7.75%) (5.10%)
Five-year average annual total return(2)................... 5.88% 5.89% 6.06%
Ten-year average annual total return(2).................... 7.17% N/A N/A
Life-of-Fund average annual total return(2)................ 7.59% 6.39% 5.99%
Commencement date.......................................... 06/27/86 05/17/93 08/13/93
DISTRIBUTION RATE AND YIELD
Distribution rate(3)....................................... 9.03% 8.67% 8.68%
SEC Yield(4)............................................... 9.69% 9.39% 9.39%
N/A = Not Applicable
</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 September 30, 1998. Had
certain expenses of the Fund not been assumed Van Kampen, the SEC Yield would
have been 9.59%, 9.29%, and 9.29% 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.
- -------------------------------------------------------------------------------
On July 31, 1998, the Fund's Board of Trustees voted to change the Fund's
fiscal year end from June 30 to March 31. As a result, this semi-annual report
reflects the 3-month period commencing on July 1, 1998, and ending on
September 30, 1998.
- -------------------------------------------------------------------------------
3
<PAGE> 5
GLOSSARY OF TERMS
BASIS POINT: A measure used in quoting bond yields. One hundred basis points is
equal to 1 percent. For example, if a bond's yield changes from 7.00 to 6.65
percent, it is a 35 basis-point move.
BOND: A debt security issued by a government or corporation that generally pays
a bondholder a stated rate of interest and repays the principal at maturity
date.
CREDIT RATING: An evaluation of an issuer's credit history and capability of
repaying obligations. Standard & Poor's and Moody's Investors Service are
two companies that assign bond ratings. Standard & Poor's ratings range from
a high of AAA to a low of D, while Moody's ratings range from a high of Aaa
to a low of C.
CREDIT SPREAD: Also called quality spread, the difference in yield between
higher-quality issues (such as Treasury securities) and lower-quality
issues. Normally, lower-quality issues provide higher yields to compensate
investors for the additional credit risk.
DURATION: A measure of the sensitivity of a bond's price to changes in interest
rates, expressed in years. Each year of duration represents an expected 1
percent change in the price of a bond for every 1 percent change in interest
rates. The longer a fund's duration, the greater the effect of interest rate
movements on net asset value. Typically, funds with shorter durations have
performed better in rising rate environments, while funds with longer
durations have performed better when rates decline.
FEDERAL FUNDS RATE: The interest rate charged by one financial institution
lending federal funds to another. This overnight rate is used to meet banks'
daily reserve requirements. The Federal Reserve Board uses the federal funds
rate to affect the direction of interest rates.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank system of the United States. Its
policy-making committee, called the Federal Open Market Committee, meets
eight times a year to establish monetary policy and monitor the economic
pulse of the United States.
INFLATION: A persistent and measurable rise in the general level of prices.
Inflation is widely measured by the Consumer Price Index, an economic
indicator that measures the change in the cost of purchased goods and
services.
INVESTMENT-GRADE BONDS: Securities rated BBB and above by Standard & Poor's or
Baa and above by Moody's Investor Services. Bonds rated below BBB or Baa are
noninvestment grade.
YIELD: The annual rate of return on an investment, expressed as a percentage.
For bonds and notes, the yield is the annual interest divided by the market
price.
4
<PAGE> 6
YIELD CURVE: A result of viewing the yields of U.S. Treasury securities maturing
in 1, 5, 10, and 30 years. When grouped together and graphed, a pattern of
increasing yield is often reflected as the time to maturity extends. This
pattern creates an upward sloping "curve." A "flat" yield curve represents
little difference between short- and long-term interest rates.
YIELD SPREAD: The difference between the yields of different bonds, due to their
different credit ratings or maturities. When yield spreads between bonds of
different credit quality are narrow, there is less incentive to own the
lower-quality bond. When yield spreads between bonds of different maturities
are narrow, there is less incentive to own the bond with the longer
maturity. In both cases, the investor is not being compensated for the
additional risk.
5
<PAGE> 7
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN HIGH YIELD FUND
We recently spoke with the management team of the Van Kampen High Yield Fund
about the key events and economic forces that shaped the markets during the most
recent reporting period. The team is led by Robert Hickey, portfolio manager,
and Peter W. Hegel, chief investment officer for fixed-income investments.
The Fund's fiscal year end was recently changed from June 30 to March 31.
Going forward, your semiannual reports will be dated September 30, and your
annual reports will be dated March 31. The following interview discusses the
Fund's performance during the three-month period since your last report, from
June 30, 1998, to September 30, 1998.
Q HOW WOULD YOU CHARACTERIZE THE MARKET CONDITIONS IN WHICH THE FUND
OPERATED DURING THE REPORTING PERIOD?
A The face of the market changed dramatically in the three short months
since our last discussion in June, as demonstrated by the 100 basis point
drop in yield for the benchmark 10-year Treasury. Although the market
began the period on a quiet note, the Dow Jones Industrial Average reached a
record high in the third week of July--and promptly gave way to volatility
imposed by overseas markets. Continuing currency woes in Asia spread to Russia
and crept closer to U.S. shores, negatively affecting Latin America and even
Canada. As the high-yield market has tended to move in sync with equities,
high-yield bonds sagged as investors lost confidence in risk-sensitive
investments. High demand for the safety of Treasuries pushed their yields to
record lows, widening the yield spreads between Treasuries and high-yield
securities.
Q HOW DID THESE CONDITIONS AFFECT SUPPLY AND DEMAND FOR HIGH-YIELD BONDS?
A In sharp contrast to last year, the high-yield market suffered from
declining technical conditions as investor demand for risk-sensitive
securities plummeted. Whereas the previous 12-month period had witnessed
only one week of negative cash flows out of high-yield funds, the end of August
1998 marked six consecutive weeks of outflows. Fortunately, new issues tapered
off during this time period, but the balance of supply and demand was upset
nonetheless. In the last few days of the reporting period, however, a lull
settled over the market as the Federal Reserve Board implemented its first rate
cut in two years. The market began to relax--and portfolio managers breathed a
small sigh of relief.
Q HOW DID YOU MANAGE THE FUND IN LIGHT OF THESE CONDITIONS?
A While the market struggled through the last two months, we began to search
for opportunities to buy bonds we liked at prices that were much more
attractive than six months ago. Although we had decreased our position in
the telecommunications sector several months ago, we revisited that sector and
increased the Fund's allocation in the
6
<PAGE> 8
last month as opportunities arose. Telecommunications issues still comprise the
largest component of new issues, and we believe that these securities will
reemerge with solid performance and a high profile when the market stabilizes.
Within the telecommunications sector, we have a significant position in
competitive local exchange companies as well as a strong position in cellular
phone companies.
Other sectors represented in the Fund's portfolio include food and beverage
companies, which have historically provided nice defensive characteristics in
periods of high volatility, and automobile and housing companies, which were
supported by positive technical conditions. Both of these sectors enjoyed high
consumer demand in a period of low interest and unemployment rates.
Specifically, automobile companies benefited from a strong supply-and-demand
balance in the wake of the General Motors strike earlier in the year. For
additional Fund portfolio highlights, please refer to page 9.
Q WERE THERE ANY SECTORS THAT DISAPPOINTED YOU DURING THE PERIOD?
A In the last report, we mentioned that the portfolio was overweighted in
the health-care industry; unfortunately, this sector was a disappointment
during the period. Changes in legislation have affected how health-care
providers are paid, and the transition has been a rocky one. We assumed
incorrectly that hospitals had made provisions for this change. However,
hospitals and other providers had actually miscalculated the economic impact. In
the big picture, the negative effect of this sector's underperformance during
the period was dwarfed by the volatility that rocked the market in the last
several weeks. Meanwhile, we have slightly readjusted our position in health
care, but have carefully scrutinized the holdings within the sector and are
comfortable with the current lineup.
Q HOW WAS THE PORTFOLIO STRUCTURED IN TERMS OF CREDIT QUALITY?
A As of September 30, approximately 23.9 percent of the Fund's long-term
debt securities were BB-rated, which is the highest quality rating within
the noninvestment-grade category, and 61.6 percent were B-rated. Compared
to its peers, the Fund maintains a higher percentage of BB-rated securities. We
feel that bonds with a BB rating have a favorable risk-reward ratio over the
long run, because they have historically had less relative volatility and better
performance potential in market downturns. With yield spreads between B- and
BB-rated securities narrowing significantly during the past year, we continue to
believe this investment posture is appropriate.
Q HOW DID THE FUND PERFORM?
A The Fund posted a total return of -8.36 percent(1) (Class A shares at net
asset value) for the three-month period ended September 30, 1998. By
comparison, the Credit Suisse First Boston High Yield Index returned -6.15
percent for the same period. This index is a broad-based index that reflects the
general performance of a wide range of
7
<PAGE> 9
selected bonds within the public high-yield debt market. It does not reflect any
commissions or sales charges that would be paid by an investor purchasing the
securities it represents. As of September 30, 1998, the Fund's distribution rate
stood at 9.03 percent(3) per Class A share. For additional Fund performance
results, please refer to the chart on page 3.
Q WHAT IS YOUR OUTLOOK FOR THE MARKET IN THE COMING MONTHS?
A Clearly, we hope to see some stability in the global markets and a return
to some level of normalcy in the domestic market. The lack of strong
leadership in some of the most troubled countries has further exacerbated
the economic turmoil; for this reason, we will pay particular attention to the
October elections in Brazil and the resolution of a government in Russia.
We believe that the Federal Reserve Board's 25-basis point reduction in
interest rates at the end of September was a good first step in sending the
message that the Fed can provide liquidity to global markets. A subsequent rate
cut in October proved that the Fed is willing to provide action when they feel
it is necessary, even outside the confines of the regularly scheduled committee
meetings. While we would not be surprised to see the Fed reduce rates again
before the end of the year, we stand prepared to react to any number of events
in our ongoing efforts to support the Fund's objective of high current income
and capital appreciation.
[SIG]
Robert Hickey
Portfolio Manager
[SIG]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
Please see footnotes on page 3
8
<PAGE> 10
PORTFOLIO HIGHLIGHTS
VAN KAMPEN HIGH YIELD FUND
TOP TEN ISSUERS AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
LONG-TERM INVESTMENTS
<S> <C>
Intermedia Communications,
Inc. ......................... 3.31%
Millicom International
Cellular...................... 1.47%
Cole National Group, Inc. ...... 1.46%
Giant Industries, Inc. ......... 1.45%
Pantry, Inc. ................... 1.45%
Centennial Cellular Corp. ...... 1.42%
Trizec Finance.................. 1.38%
Communications & Power
Industries, Inc. ............ 1.38%
Sequa Corp. .................... 1.33%
El Paso Electric Co. ........... 1.33%
</TABLE>
CREDIT QUALITY AS A PERCENTAGE OF LONG-TERM DEBT SECURITIES
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
<S> <C> <S> <C>
AAA 0.5% AAA 0.5%
BBB 5.4% BBB 7.3%
BB 23.9% [PIE CHART] BB 24.0% [PIE CHART]
B 61.6% B 59.7%
CCC 0.9% CCC 1.0%
Non-Rated 7.7% Non-Rated 7.5%
</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 SEPTEMBER 30, 1998 AS OF JUNE 30, 1998
<S> <C> <S> <C>
Telecommunications..... 20.0% Foreign Bonds......... 20.3%
Foreign Bonds.......... 16.6% Telecommunications.... 15.0%
Printing, Publishing & Printing, Publishing &
Broadcasting......... 10.3% Broadcasting....... 10.8%
Oil & Gas.............. 4.9% Oil & Gas............. 5.0%
Leisure................ 4.9% Health Care........... 5.0%
</TABLE>
DURATION
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998 AS OF JUNE 30, 1998
<S> <C> <C>
Duration 3.74 years 3.77 years
</TABLE>
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
DOMESTIC CORPORATE BONDS 77.6%
AEROSPACE & DEFENSE 2.9%
$ 1,920 Compass Aerospace Corp., 144A Private
Placement (a)................................ 10.125% 04/15/05 $ 1,891,200
4,850 Dyncorp. .................................... 9.500 03/01/07 4,462,000
2,200 Sequa Corp. ................................. 9.625 10/15/99 2,255,000
2,600 Sequa Corp. ................................. 9.375 12/15/03 2,626,000
------------
11,234,200
------------
AUTOMOBILE 4.1%
4,750 Aetna Industries, Inc. ...................... 11.875 10/01/06 4,845,000
2,800 Collins & Aikman Products Co. ............... 11.500 04/15/06 2,954,000
2,400 Insilco Corp. ............................... 10.250 08/15/07 2,400,000
2,000 Stanadyne Automotive Corp., Ser B............ 10.250 12/15/07 1,910,000
4,000 Talon Automotive Group, Inc., 144A Private
Placement (a)................................ 9.625 05/01/08 3,740,000
------------
15,849,000
------------
BEVERAGE, FOOD & TOBACCO 3.5%
1,000 Aurora Foods, Inc. .......................... 8.750 07/01/08 1,035,000
900 Fleming Cos., Inc. .......................... 10.625 07/31/07 857,250
2,250 Fleming Cos., Inc., Ser B.................... 10.500 12/01/04 2,165,625
3,700 Jitney Jungle Stores America, Inc............ 12.000 03/01/06 4,088,500
2,078 Pantry, Inc. ................................ 12.500 11/15/00 2,176,705
3,200 Pantry, Inc. ................................ 10.250 10/15/07 3,136,000
------------
13,459,080
------------
BUILDINGS & REAL ESTATE 3.6%
3,300 American Standard, Inc. (f).................. 10.875 05/15/99 3,382,500
750 Cemex International Capital, Inc. ........... 9.660 12/29/49 573,750
500 Cemex International Capital, Inc., 144A
Private Placement (a)........................ 9.660 12/29/49 382,500
1,750 Home Interiors & Gifts, Inc., 144A Private
Placement (a)................................ 10.125 06/01/08 1,662,500
1,500 Kevco, Inc., Ser B........................... 10.375 12/01/07 1,432,500
2,750 Schuler Homes, Inc. ......................... 9.000 04/15/08 2,571,250
4,250 Webb (Del E.) Corp. ......................... 9.375 05/01/09 4,080,000
------------
14,085,000
------------
CHEMICALS, PLASTICS & RUBBER 1.8%
4,258 ISP Holdings, Inc. .......................... 9.750 02/15/02 4,470,900
3,210 Pioneer Americas Acquisition Corp., Ser B.... 9.250 06/15/07 2,632,200
------------
7,103,100
------------
CONTAINERS, PACKAGING & GLASS 1.3%
3,700 Fonda Group, Inc., Ser B..................... 9.500 03/01/07 3,348,500
900 Sweetheart Cup, Inc. ........................ 9.625 09/01/00 857,250
1,000 Vicap SA, 144A Private Placement (a)......... 10.250 05/15/02 715,000
------------
4,920,750
------------
DIVERSIFIED/CONGLOMERATE MANUFACTURING 1.8%
1,000 Anthony Crane, 144A Private Placement (a).... 10.375 08/01/08 940,000
4,600 Communications & Power Industries, Inc. ..... 12.000 08/01/05 5,037,000
1,000 Moll Industries, Inc., 144A Private
Placement (a)................................ 10.500 07/01/08 930,000
------------
6,907,000
------------
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ECOLOGICAL 0.3%
$ 500 Envirosource, Inc., Ser B.................... 9.750% 06/15/03 $ 472,500
550 Norcal Waste Systems, Inc.................... 13.250 11/15/05 638,000
------------
1,110,500
------------
ELECTRONICS 0.9%
1,950 DecisionOne Corp. ........................... 9.750 08/01/07 1,316,250
3,100 DecisionOne Corp. (Including 3,100 common
stock warrants) (b).......................... 0/11.500 08/01/08 1,162,500
2,000 Radio Unica Corp., 144A Private Placement (a)
(b).......................................... 0/11.750 08/01/06 1,120,000
------------
3,598,750
------------
ENERGY 0.7%
1,000 Chesapeake Energy Corp., Ser B............... 9.625 05/01/05 890,000
1,000 Hurricane Hydrocarbons....................... 11.750 11/01/04 560,000
2,200 Universal Compression Holdings, Inc., 144A
Private Placement (a) (b).................... 0/9.875 02/15/08 1,309,000
------------
2,759,000
------------
FINANCE 1.5%
3,300 Americo Life, Inc., 144A Private
Placement (a)(f)............................. 9.250 06/01/05 3,349,500
2,750 Contifinancial Corp. ........................ 8.125 04/01/08 2,530,000
------------
5,879,500
------------
HEALTHCARE 3.7%
2,000 Alliance Imaging, Inc. ...................... 9.625 12/15/05 1,900,000
1,750 Fresenius Medical Care Capital Trust......... 7.875 02/01/08 1,618,750
3,000 Hudson Respiratory Care, Inc., 144A Private
Placement (a)................................ 9.125 04/15/08 2,310,000
4,500 Mariner Post Acute Network, Inc. (b)......... 0/10.500 11/01/07 2,497,500
1,700 Mariner Post Acute Network, Inc. ............ 9.500 11/01/07 1,572,500
2,000 Mediq, Inc., 144A Private Placement (a)...... 11.000 06/01/08 1,880,000
3,000 Oxford Health Plans, Inc., 144A Private
Placement (a)................................ 11.000 05/15/05 2,640,000
------------
14,418,750
------------
HOTEL, MOTEL, INNS & GAMING 3.9%
3,250 Argosy Gaming Co. ........................... 13.250 06/01/04 3,461,250
3,075 Coast Hotels & Casinos, Inc. ................ 13.000 12/15/02 3,474,750
3,950 Grand Casino, Inc. (f)....................... 10.125 12/01/03 4,196,875
1,000 Hard Rock Hotel, Inc., 144A Private
Placement (a)................................ 9.250 04/01/05 995,000
3,000 Majestic Star Casino......................... 12.750 05/15/03 3,112,500
------------
15,240,375
------------
LEISURE 4.6%
2,100 Booth Creek Ski Holdings, Inc. .............. 12.500 03/15/07 2,068,500
1,750 Intrawest Corp. ............................. 9.750 08/15/08 1,758,750
2,000 Premier Parks, Inc. ......................... 9.250 04/01/06 1,990,000
4,250 Selmer, Inc. ................................ 11.000 05/15/05 4,377,500
4,000 Silver Cinemas International, Inc., 144A
Private Placement (a)........................ 10.500 04/15/05 3,820,000
1,650 Viacom International, Inc. .................. 10.250 09/15/01 1,848,000
1,703 Waterford Gaming............................. 12.750 11/15/03 1,890,330
------------
17,753,080
------------
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MINING, STEEL, IRON & NON-PRECIOUS
METAL 1.7%
$ 1,000 Inland Steel Co. ............................ 12.000% 12/01/98 $ 1,010,000
2,000 Pen Holdings, Inc., 144A Private
Placement (a)................................ 9.875 06/15/08 1,920,000
1,950 Renco Steel Holdings, Inc. .................. 10.875 02/01/05 1,677,000
2,000 WCI Steel, Inc. ............................. 10.000 12/01/04 1,920,000
------------
6,527,000
------------
OIL & GAS 4.6%
4,700 Dawson Production Services, Inc. ............ 9.375 02/01/07 4,711,750
2,050 Frontier Oil Corp. .......................... 9.125 02/15/06 1,916,750
1,150 Giant Industries, Inc. ...................... 9.750 11/15/03 1,138,500
4,450 Giant Industries, Inc. ...................... 9.000 09/01/07 4,183,000
1,350 KCS Energy, Inc. ............................ 11.000 01/15/03 1,356,750
3,700 National Energy Group, Inc., Ser D........... 10.750 11/01/06 1,517,000
1,000 Petroleum Heat & Power, Inc. ................ 12.250 02/01/05 960,000
2,200 Pride Petroleum Services, Inc. .............. 9.375 05/01/07 2,090,000
------------
17,873,750
------------
PERSONAL & NON-DURABLE 1.4%
5,100 Cole National Group, Inc. ................... 9.875 12/31/06 5,355,000
------------
PRINTING, PUBLISHING & BROADCASTING 9.7%
3,000 Capstar Broadcasting Partners................ 9.250 07/01/07 3,075,000
2,500 Century Communications Corp. ................ 8.875 01/15/07 2,659,375
1,850 Century Communications Corp. ................ 8.750 10/01/07 1,958,687
2,600 CSC Holdings, Inc. .......................... 10.500 05/15/16 2,951,000
1,050 CSC Holdings, Inc., Ser B.................... 8.125 08/15/09 1,107,750
3,500 EZ Communications, Inc. ..................... 9.750 12/01/05 3,745,000
3,350 Gray Communications Systems, Inc. ........... 10.625 10/01/06 3,542,625
1,250 Interep National Radio Sales, Inc., 144A
Private Placement (a)........................ 10.000 07/01/08 1,225,000
2,450 International Cabletel, Inc. (b)............. 0/12.750 04/15/05 2,180,500
2,750 International Cabletel, Inc. (b)............. 0/11.500 02/01/06 2,227,500
4,000 K-III Communications Corp. .................. 10.250 06/01/04 4,280,000
2,100 Northland Cable Television, Inc. ............ 10.250 11/15/07 2,226,000
4,700 Pegasus Communications Corp., Ser B.......... 9.625 10/15/05 4,559,000
2,000 Young Broadcasting, Inc. .................... 11.750 11/15/04 2,140,000
------------
37,877,437
------------
RAIL & SHIPPING 0.3%
1,750 Alpha Shipping Ser A......................... 9.500 02/15/08 1,242,500
------------
RAW MATERIALS/PROCESSING INDUSTRIES 0.8%
2,900 S.D. Warren Co. (f).......................... 12.000 12/15/04 3,168,250
------------
RETAIL 1.3%
1,250 Big 5 Corp., Ser B........................... 10.875 11/15/07 1,193,750
2,050 Community Distributors, Inc., Ser B.......... 10.250 10/15/04 1,886,000
1,750 Hosiery Corp. of America, Inc. .............. 13.750 08/01/02 1,855,000
------------
4,934,750
------------
TELECOMMUNICATIONS 18.7%
2,000 AMSC Acquisition, Inc. ...................... 12.250 04/01/08 1,180,000
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TELECOMMUNICATIONS (CONTINUED)
$ 4,205 Centennial Cellular Corp. ................... 10.125% 05/15/05 $ 5,193,175
1,500 Clearview Cinema Group, Inc., 144A Private
Placement (a)................................ 10.875 06/01/08 1,590,000
1,000 Crown Castle International Corp. (b)......... 0/10.625 11/15/07 615,000
3,000 CSC Holdings, Inc. .......................... 7.875 02/15/18 2,955,000
3,000 CTI Holdings, Inc., 144A Private
Placement (a)................................ 11.500 04/15/08 1,230,000
2,000 E Spire Communications, Inc., 144A Private
Placement (a) (b)............................ 0/10.625 07/01/08 1,110,000
2,280 E Spire Communications, Inc. (b)............. 0/12.750 04/01/06 1,732,800
4,000 Echostar Communications Corp. (b)............ 0/12.875 06/01/04 3,900,000
2,000 GST Network Funding, Inc., 144A Private
Placement (a) (b)............................ 0/10.500 05/01/08 990,000
2,500 ICG Holdings, Inc. (b)....................... 0/11.625 03/15/07 1,556,250
1,350 Intermedia Communications of Florida,
Inc. ........................................ 13.500 06/01/05 1,545,750
5,600 Intermedia Communications, Inc. (b).......... 0/11.250 07/15/07 4,088,000
8,000 Intermedia Communications, Inc. ............. 8.600 06/01/08 8,040,000
2,000 Level 3 Communications, Inc. ................ 9.125 05/01/08 1,895,000
5,500 Metronet Communications Corp. (b)............ 0/9.950 06/15/08 3,052,500
2,000 MJD Communications, Inc., 144A Private
Placement (a)................................ 9.500 05/01/08 2,010,000
1,000 Onepoint Communications Corp., (Including
1,000 common stock warrants) 144A Private
Placement (a)................................ 14.500 06/01/08 740,000
2,500 Optel, Inc., 144A Private Placement (a)...... 11.500 07/01/08 2,350,000
1,000 Park N View, Inc., 144A Private
Placement (a)................................ 13.000 05/15/08 810,000
6,000 Pinnacle Holdings, Inc....................... 10.000 03/15/08 3,240,000
2,000 Price Communication Cellular (d)............. 11.250 08/15/08 1,860,000
4,355 PSINet, Inc.................................. 10.000 02/15/05 4,376,775
2,500 RSL Communications (b)....................... 0/10.125 03/01/08 1,337,500
3,750 Spectrasite Holdings, Inc., 144A Private
Placement (a)................................ 12.000 07/15/08 1,800,000
3,500 Splitrock Services, Inc., 144A Private
Placement (a)................................ 11.750 07/15/08 3,220,000
1,250 Sprint Spectrum (b).......................... 0/12.500 08/15/06 1,062,500
3,000 Startec Global Communications, 144A Private
Placement (a)................................ 12.000 05/15/08 2,625,000
2,000 Telecommunications Tech Co., 144A Private
Placement (a)................................ 9.750 05/15/08 1,830,000
2,750 Triton Communications, Inc., 144A Private
Placement (a) (b)............................ 0/11.000 05/01/08 1,265,000
7,550 United International Holdings, Inc........... 10.750 02/15/08 3,624,000
------------
72,824,250
------------
TEXTILES 1.8%
2,000 Cluett American Corp., 144A Private
Placement (a)................................ 10.125 05/15/08 1,840,000
2,000 Globe Manufacturing Corp., 144A Private
Placement (a)................................ 10.000 08/01/08 1,910,000
1,650 Pillowtex Corp............................... 10.000 11/15/06 1,716,000
1,500 Scovill Fasteners, Inc....................... 11.250 11/30/07 1,380,000
------------
6,846,000
------------
TRANSPORTATION 0.7%
3,000 Atlas Air, Inc., 144A Private
Placement (a)................................ 9.250 04/15/08 2,775,000
------------
UTILITIES 2.0%
4,250 AES Corp. (f)................................ 10.250 07/15/06 4,441,250
600 El Paso Electric Co.......................... 8.250 02/01/03 648,000
1,500 El Paso Electric Co.......................... 8.900 02/01/06 1,710,000
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
UTILITIES (CONTINUED)
$ 761 Midland Cogeneration Venture................. 10.330% 07/23/02 $ 823,083
------------
7,622,333
------------
TOTAL DOMESTIC CORPORATE BONDS 77.6%............................. 301,364,355
------------
</TABLE>
<TABLE>
<CAPTION>
Par
Amount
in Local
Currency
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FOREIGN BONDS AND SECURITIES 15.7%
ARGENTINA 1.5%
3,000 Banco De Credito Argentino (US$)............. 9.500% 04/24/00 $ 2,550,000
1,000 Credito Argentino Sa (US$)................... 9.500 04/24/00 850,000
2,500 Republic of Argentina (Var. Rate Coupon)
(US$)........................................ 5.750 03/31/23 1,687,500
1,000 Republic of Argentina (Var. Rate Coupon)
(US$)........................................ 6.625 03/31/23 668,800
------------
5,756,300
------------
AUSTRALIA 0.2%
1,100 Commonwealth of Australia (AU$).............. 10.000 10/15/02 807,880
------------
BRAZIL 0.9%
1,731 Brazil Media Trust (US$)..................... 6.250 09/15/07 1,002,026
2,000 Federal Republic of Brazil (US$)............. 10.125 05/15/27 1,222,500
1,000 Globo Participacoe (US$)..................... 10.625 12/05/08 515,000
500 Multicanal Participacoes, Ser B (US$)........ 12.625 06/18/04 375,000
500 Multicanal Participacoes (US$)............... 12.625 06/18/04 375,000
------------
3,489,526
------------
CANADA 2.2%
3,500 Fundy Cable Ltd. (US$)....................... 11.000 11/15/05 3,683,750
4,500 Trizec Finance (US$)......................... 10.875 10/15/05 5,040,000
------------
8,723,750
------------
CHILE 0.3%
1,500 Empresa Electrica Delaware Norte Sa (US$),
144A Private Placement (a)................... 7.750 03/15/06 1,078,155
------------
COLUMBIA 0.8%
2,300 Financiera Energetica (US$), 144A Private
Placement (a)................................ 9.375 06/15/06 1,495,000
2,500 Financiera Energetica (US$).................. 9.375 06/15/06 1,625,000
------------
3,120,000
------------
ITALY 0.3%
1,500,000 Federal Republic of Italy (Lira)............. 10.000 08/01/03 1,144,640
------------
KOREA 0.5%
1,000 Korea Development Bank (US$)................. 7.125 09/17/01 870,000
1,500 Korea Electric Power Corp. (US$)............. 7.000 02/01/27 1,035,000
------------
1,905,000
------------
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
in Local
Currency
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
LUXEMBOURG 1.4%
$ 8,500 Millicom International Cellular
(US$) (b)(f)................................. 0/13.500% 06/01/06 $ 5,397,500
------------
MEXICO 2.3%
2,000 Petroleos Mexicanos (US$), 144A Private
Placement (a)................................ 11.157 07/15/05 1,720,000
5,000 Satelites Mexicanos Sa (US$), 144A Private
Placement (a)................................ 10.125 11/01/04 3,425,000
2,000 United Mexican States (US$).................. 11.375 09/15/16 1,875,000
2,500 United Mexican States (US$).................. 6.250 12/31/19 1,818,750
------------
8,838,750
------------
MOROCCO 0.9%
5,000 Morocco Trust A Loan (US$) (c)............... 6.563 01/01/09 3,700,000
------------
PANAMA 0.9%
4,000 Republic of Panama (US$)..................... 8.875 09/30/27 3,360,000
------------
POLAND 0.9%
4,250 Netia Holdings B V (US$)..................... 10.250 11/01/07 3,357,500
------------
RUSSIA 0.4%
21,500 Russia Principal Loans (US$) (c)............. 3.313 12/15/20 1,424,375
768 Vnesheconombank (Var. Rate Coupon) (US$),
144A Private Placement (a)................... 6.625 12/15/15 65,253
3,000 Vnesheconombank (US$) (c).................... 6.625 12/15/15 198,750
------------
1,688,378
------------
UNITED KINGDOM 2.0%
2,750 Cenargo International Ltd. (US$), 144A
Private Placement (a)........................ 9.750 06/15/08 2,255,000
4,450 Diamond Cable Commerce PLC (US$) (b)......... 0/10.750 02/15/07 3,137,250
1,400 Esprit Telecom Group PLC (US$)............... 11.500 12/15/07 1,316,000
1,250 Esprit Telecom Group PLC (US$), 144A Private
Placement (a)................................ 10.875 06/15/08 1,131,250
------------
7,839,500
------------
VENEZUELA 0.2%
1,000 Republic of Venezuela (US$).................. 6.750 03/31/20 662,500
------------
TOTAL FOREIGN BONDS AND DEBT SECURITIES 15.7%.................... 60,869,379
------------
TOTAL CORPORATE BONDS 93.3%...................................... 362,233,734
------------
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
Street PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Market Value
- ----------------------------------------------------------------------------------------------
<S> <C>
EQUITIES 1.0%
American Mobile Satellite Corp., (2,000 common stock warrants) 144A Private
Placement (a)................................................................. $ 0
American Telecasting, Inc. (8,370 common stock warrants) (e).................... 4,185
Capital Gaming International, Inc. (5,000 common stock warrants) (e)............ 0
Coastal Finance, Inc. (40,000 preferred shares)................................. 990,000
El Paso Electric Co. (23,099 preferred shares) (d).............................. 2,506,251
Hosiery Corp. of America, Inc. (1,000 common shares)............................ 52,500
Intermedia Communications of Florida, Inc. (Including 3,150 common stock
warrants) 144A Private Placement (a) (e)...................................... 441,000
Meditrust (3,867 common stock warrants) (e)..................................... 65,983
Urohealth Systems, Inc. (Including 2,550 common stock warrants), 144A Private
Placement (a) (e)............................................................. 25
------------
TOTAL EQUITIES.................................................................. 4,059,944
------------
TOTAL LONG-TERM INVESTMENTS 94.3%
(Cost $402,032,183)........................................................... 366,293,678
REPURCHASE AGREEMENT 4.1%
State Street Bank and Trust Repurchase Agreement collateralized by (U.S.
T-Note, $12,025,000 par, 7.625% coupon, due 11/15/22, dated 09/30/98, to be
sold on 10/01/98 at $15,869,402) (Cost $15,867,000)........................... 15,867,000
------------
TOTAL INVESTMENTS 98.4%
(Cost $417,899,183)........................................................... 382,160,678
OTHER ASSETS IN EXCESS OF LIABILITIES 1.6%..................................... 6,370,878
------------
NET ASSETS 100.0%.............................................................. $388,531,556
============
</TABLE>
(a) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may be resold in
transactions exempt from registration which are normally transactions with
qualified institutional buyers.
(b) Security is a "step-up" bond where the coupon increases or steps up at a
predetermined date.
(c) Security is a bank loan participation.
(d) Payment-in-kind security.
(e) Non-Income producing security.
(f) Assets segregated as collateral for open options, futures or forwards
transactions.
See Notes to Financial Statements
16
<PAGE> 18
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $417,899,183)....................... $ 382,160,678
Cash........................................................ 641
Receivables:
Interest.................................................. 10,477,140
Investments Sold.......................................... 2,069,244
Fund Shares Sold.......................................... 485,508
Options at Market Value (Net premiums paid of $12,450)...... 937
Other....................................................... 12,932
--------------
Total Assets.......................................... 395,207,080
--------------
LIABILITIES:
Payables:
Investments Purchased..................................... 2,921,250
Income Distributions...................................... 1,792,708
Fund Shares Repurchased................................... 781,176
Distributor and Affiliates................................ 300,794
Variation Margin on Futures............................... 278,615
Investment Advisory Fee................................... 208,160
Accrued Expenses............................................ 212,456
Trustees' Deferred Compensation and Retirement Plans........ 133,638
Forward Currency Contracts.................................. 46,727
--------------
Total Liabilities..................................... 6,675,524
--------------
NET ASSETS.................................................. $ 388,531,556
==============
NET ASSETS CONSIST OF:
Capital..................................................... $ 519,086,224
Net Unrealized Depreciation................................. (36,490,273)
Accumulated Distributions in Excess of Net Investment
Income.................................................... (2,668,387)
Accumulated Net Realized Loss............................... (91,396,008)
--------------
NET ASSETS.................................................. $ 388,531,556
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $252,009,687 and 28,433,232 shares of
beneficial interest issued and outstanding)............. $ 8.86
Maximum sales charge (4.75%* of offering price)......... .44
--------------
Maximum offering price to public........................ $ 9.30
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $126,398,260 and 14,266,061 shares of
beneficial interest issued and outstanding)............. $ 8.86
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $10,123,609 and 1,143,466 shares of
beneficial interest issued and outstanding)............. $ 8.85
==============
</TABLE>
*On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
17
<PAGE> 19
STATEMENT OF OPERATIONS
For the Three Months Ended September 30, 1998 and
the Year Ended June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Year Ended
September 30, 1998 June 30, 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest (Net of foreign withholding taxes of $1,656 for
the three months ended 9/30/98 and $7,881 for the year
ended 6/30/98)........................................ $ 9,375,164 $ 40,758,538
Dividends............................................... 92,450 951,901
Other................................................... 127,579 1,196,387
------------ ------------
Total Income........................................ 9,595,193 42,906,826
------------ ------------
EXPENSES:
Investment Advisory Fee................................. 797,054 3,298,466
Distribution (12b-1) and Service Fees (Attributed to
Classes A, B, and C of $162,298, $352,605, and
$28,212, respectively, for the three months ended
9/30/98 and $687,422, $1,410,829, and $98,799,
respectively, for the year ended 6/30/98)............. 543,115 2,197,050
Shareholder Services.................................... 171,914 644,982
Custody................................................. 31,882 120,938
Trustees' Fees and Expenses............................. 11,078 31,475
Legal................................................... 10,120 28,850
Other................................................... 70,690 297,676
------------ ------------
Total Expenses...................................... 1,635,853 6,619,437
Less Fees Waived.................................... 106,274 439,795
------------ ------------
Net Expenses........................................ 1,529,579 6,179,642
------------ ------------
NET INVESTMENT INCOME................................... $ 8,065,614 $ 36,727,184
============ ============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments......................................... $ (4,106,561) $ 9,805,802
Options............................................. (41,237) (104,912)
Futures............................................. (1,192,183) 497,291
Forwards............................................ 47,142 46,182
Foreign Currency Transactions....................... 10,989 (6,359)
------------ ------------
Net Realized Gain/Loss.................................. (5,281,850) 10,238,004
------------ ------------
Unrealized Appreciation/Depreciation:
Beginning of the Period............................... 2,966,018 11,798,356
------------ ------------
End of the Period:
Investments......................................... (35,738,505) 3,058,778
Options............................................. (11,513) (5,525)
Futures............................................. (692,632) (87,188)
Forwards............................................ (46,727) -0-
Foreign Currency Translation........................ (896) (47)
------------ ------------
(36,490,273) 2,966,018
------------ ------------
Net Unrealized Depreciation During the Period........... (39,456,291) (8,832,338)
------------ ------------
NET REALIZED AND UNREALIZED GAIN/LOSS................... $(44,738,141) $ 1,405,666
============ ============
NET INCREASE/DECREASE IN NET ASSETS FROM OPERATIONS..... $(36,672,527) $ 38,132,850
============ ============
</TABLE>
See Notes to Financial Statements
18
<PAGE> 20
STATEMENT OF CHANGES IN NET ASSETS
For the Three Months Ended September 30, 1998 and
the Years Ended June 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Year Ended Year Ended
September 30, 1998 June 30, 1998 June 30, 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income..................... $ 8,065,614 $ 36,727,184 $ 34,529,017
Net Realized Gain/Loss.................... (5,281,850) 10,238,004 9,725,173
Net Unrealized Appreciation/Depreciation
During the Period....................... (39,456,291) (8,832,338) 6,256,307
----------- ------------ ------------
Change in Net Assets from Operations...... (36,672,527) 38,132,850 50,510,497
----------- ------------ ------------
Distributions from Net Investment
Income.................................. (8,065,614) (36,588,695) (34,529,017)
Distributions in Excess of Net Investment
Income.................................. (983,010) -0- (412,288)
----------- ------------ ------------
Distributions from and in Excess of Net
Investment Income*.................... (9,048,624) (36,588,695) (34,941,305)
Return of Capital Distribution*........... -0- -0- (612,243)
----------- ------------ ------------
Total Distributions..................... (9,048,624) (36,588,695) (35,553,548)
----------- ------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES.............................. (45,721,151) 1,544,155 14,956,949
----------- ----------- -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................. 30,377,248 141,976,974 151,222,275
Net Asset Value of Shares Issued Through
Dividend Reinvestment................... 3,621,849 14,616,655 13,768,097
Cost of Shares Repurchased................ (36,806,461) (145,829,346) (130,375,583)
----------- ----------- -----------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS............................ (2,807,364) 10,764,283 34,614,789
----------- ----------- -----------
TOTAL INCREASE/DECREASE IN NET ASSETS..... (48,528,515) 12,308,438 49,571,738
NET ASSETS:
Beginning of the Period................... 437,060,071 424,751,633 375,179,895
----------- ----------- -----------
End of the Period (Including accumulated
distributions in excess of net
investment income of $2,668,387,
$1,685,377, and $1,905,853,
respectively)........................... $388,531,556 $437,060,071 $424,751,633
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Year Ended Year Ended
*Distributions by Class September 30, 1998 June 30, 1998 June 30, 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Distributions from and in Excess of
Net Investment Income:
Class A Shares..................... $ (5,993,251) $(24,757,453) $(24,888,535)
Class B Shares..................... (2,828,879) (11,057,055) (9,438,468)
Class C Shares..................... (226,494) (774,187) (614,302)
------------ ------------ ------------
$ (9,048,624) $(36,588,695) $(34,941,305)
============ ============ ============
Return of Capital Distribution:
Class A Shares.................... $ -0- $ -0- $ (430,710)
Class B Shares.................... -0- -0- (170,818)
Class C Shares.................... -0- -0- (10,715)
------------ ------------ ------------
$ -0- $ 0- $ (612,243)
============ ============ ============
</TABLE>
See Notes to Financial Statements
19
<PAGE> 21
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Year Ended June 30
Ended -----------------------------------------------
Class A Shares September 30, 1998 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of
the Period................. $ 9.893 $ 9.854 $ 9.493 $ 9.398 $ 9.643 $10.380
------- ------- ------- ------- ------- -------
Net Investment Income...... .188 .857 .857 .878 .844 .908
Net Realized and Unrealized
Gain/Loss................ (1.008) .037 .384 .147 (.099) (.595)
------- ------- ------- ------- ------- -------
Total from Investment
Operations................. (.820) .894 1.241 1.025 .745 .313
------- ------- ------- ------- ------- -------
Less:
Distributions from and in
Excess of Net Investment
Income................... .210 .855 .865 .880 .815 .950
Return of Capital
Distribution............. -0- -0- .015 .050 .175 .100
------- ------- ------- ------- ------- -------
Total Distributions.......... .210 .855 .880 .930 .990 1.050
------- ------- ------- ------- ------- -------
Net Asset Value, End of the
Period..................... $ 8.863 $ 9.893 $ 9.854 $ 9.493 $ 9.398 $ 9.643
======= ======= ======= ======= ======= =======
Total Return* (a)............ (8.36%)** 9.36% 13.60% 11.26% 8.50% 2.92%
Net Assets at End of the
Period (In millions)....... $ 252.0 $ 280.6 $ 288.0 $ 271.1 $ 253.3 $ 260.7
Ratio of Expenses to Average
Net Assets *............... 1.17% 1.14% 1.17% 1.31% 1.31% 1.32%
Ratio of Net Investment
Income to Average Net
Assets *................... 7.87% 8.61% 8.83% 9.16% 9.13% 8.85%
Portfolio Turnover........... 34%** 154% 125% 102% 152% 203%
*If certain expenses had not been waived or reimbursed by Van Kampen, total return would have been
lower and the ratios would have been as follows:
Ratio of Expenses to Average
Net Assets................. 1.27% 1.24% 1.26% 1.31% N/A N/A
Ratio of Net Investment
Income to Average Net
Assets..................... 7.77% 8.51% 8.73% 9.15% 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> 22
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months
Ended Year Ended June 30,
September 30, -------------------------------------------
Class B Shares 1998 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period.................... $9.890 $9.855 $9.497 $9.398 $9.638 $10.382
------ ------ ------ ------ ------ -------
Net Investment Income......... .169 .782 .777 .797 .788 .889
Net Realized and Unrealized
Gain/Loss................... (1.007) .036 .389 .160 (.115) (.665)
------ ------ ------ ------ ------ -------
Total from Investment
Operations.................... (.838) .818 1.166 .957 .673 .224
------ ------ ------ ------ ------ -------
Less:
Distributions from and in
Excess of Net Investment
Income...................... .192 .783 .794 .812 .751 .877
Return of Capital
Distribution................ -0- -0- .014 .046 .162 .091
------ ------ ------ ------ ------ -------
Total Distributions............. .192 .783 .808 .858 .913 .968
------ ------ ------ ------ ------ -------
Net Asset Value, End of the
Period........................ $8.860 $9.890 $9.855 $9.497 $9.398 $ 9.638
====== ====== ====== ====== ====== =======
Total Return* (a)............... (8.54%)** 9.28% 12.64% 10.55% 7.61% 2.11%
Net Assets at End of the Period
(In millions)................. $126.4 $145.0 $128.7 $97.1 $55.9 $33.2
Ratio of Expenses to Average Net
Assets*....................... 1.93% 1.91% 1.93% 2.07% 2.04% 2.13%
Ratio of Net Investment Income
to Average Net Assets*........ 7.10% 7.84% 8.03% 8.39% 8.35% 7.94%
Portfolio Turnover.............. 34%** 154% 125% 102% 152% 203%
*If certain expenses had not been waived or reimbursed by Van Kampen, total return
would have been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net
Assets........................ 2.03% 2.01% 2.02% 2.07% N/A N/A
Ratio of Net Investment Income
to Average Net Assets......... 7.00% 7.74% 7.94% 8.38% N/A N/A
</TABLE>
** Non-Annualized
(a) 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
21
<PAGE> 23
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
August 13, 1993
Three Months Year Ended June 30, (Commencement of
Ended --------------------------------- Distribution) to
Class C Shares September 30, 1998 1998 1997 1996 1995 June 30, 1994(a)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period....................... $ 9.884 $9.851 $9.495 $9.396 $9.643 $10.340
------- ------ ------ ------ ------ -------
Net Investment Income........ .168 .780 .780 .828 .745 .761
Net Realized and Unrealized
Gain/Loss.................. (1.007) .036 .384 .129 (.079) (.605)
------- ------ ------ ------ ------ -------
Total from Investment
Operations................... (.839) .816 1.164 .957 .666 .156
------- ------ ------ ------ ------ -------
Less:
Distributions from and in
Excess of Net Investment
Income..................... .192 .783 .794 .812 .751 .763
Return of Capital
Distribution............... -0- -0- .014 .046 .162 .090
------- ------ ------ ------ ------ -------
Total Distributions............ .192 .783 .808 .858 .913 .853
------- ------ ------ ------ ------ -------
Net Asset Value, End of
Period....................... $ 8.853 $9.884 $9.851 $9.495 $9.396 $ 9.643
======= ====== ====== ====== ====== =======
Total Return* (b).............. (8.55%)** 8.47% 12.65% 10.55% 7.61% 1.37%**
Net Assets at End of Period
(In millions)................ $10.1 $11.5 $8.1 $7.0 $2.0 $2.2
Ratio of Expenses to Average
Net Assets*.................. 1.93% 1.91% 1.93% 2.06% 2.12% 2.14%
Ratio of Net Investment Income
to Average Net Assets*....... 7.08% 7.83% 8.08% 8.38% 8.13% 7.91%
Portfolio Turnover............. 34%** 154% 125% 102% 152% 203%**
*If certain expenses had not been waived or reimbursed by Van Kampen, total return would have been lower
and the ratios would have been as follows:
Ratio of Expenses to Average
Net Assets................... 2.03% 2.01% 2.03% 2.07% N/A N/A
Ratio of Net Investment Income
to Average Net Assets........ 6.98% 7.73% 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
22
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen High Yield Fund (the "Fund"), is organized as a series of Van Kampen
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. In July, 1998, the Fund's Board of Trustees approved a
change in the Fund's fiscal year end from June 30 to March 31. As a result, this
financial report reflects the three month period commencing on July 1, 1998, and
ending on September 30, 1998.
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. At September 30, 1998, there were no
when issued or delayed delivery purchase commitments.
23
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Fund may invest in repurchase agreements, which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen 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. INCOME AND EXPENSES--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. Expenses of the Fund are
allocated on a pro rata basis to each class of shares, except for distribution
and service fees and transfer agency costs which are unique to each class of
shares.
D. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
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, 1998, the Fund had an accumulated capital loss carryforward
for tax purposes of $85,906,541, which will expire between June 30, 1999 and
June 30, 2004. Of this amount, $39,385,731 will expire on June 30, 1999. Net
realized gains or losses may differ for financial and tax reporting purposes
primarily as a result of wash sales, currency gains, and mark to market on
futures contracts at June 30, 1998.
At September 30, 1998, for federal income tax purposes, the cost of long-
and short-term investments is $417,931,697; the aggregate gross unrealized
appreciation is $3,674,020 and the aggregate gross unrealized depreciation is
$39,445,039, resulting in net unrealized depreciation of $35,771,019.
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
24
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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. In January, 1999, the Fund will provide tax
information to shareholders for the 1998 calendar year.
Net realized gains, if any, are distributed annually. Distributions from net
realized gains for book purposes may include short-term capital gains, which are
included as ordinary income for tax purposes.
Due to inherent differences in the recognition of certain expenses under
generally accepted accounting principles and federal income tax purposes, the
amount of distributed net investment income may differ for a particular period.
These differences are temporary in nature, but may result in book basis
distribution in excess of net investment income for certain periods.
Due to inherent differences in the recognition of income, expenses and
realized gains/losses under generally accepted accounting principles and federal
income tax purposes, permanent differences between book and tax basis reporting
for the 1998 fiscal year have been identified and appropriately reclassified.
For the year ended June 30, 1998, permanent book and tax basis differences
relating to the recognition of net realized gains on foreign currency
transactions of $81,987 were reclassified from accumulated net realized
gain/loss to accumulated undistributed net investment income.
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.
25
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
- --------------------------------------------------------------------------
<S> <C>
First $500 million.................................. .75 of 1%
Over $500 million................................... .65 of 1%
</TABLE>
For the three months ended September 30, 1998 and the year ended June 30,
1998, the Adviser waived a portion of its advisory fee. This waiver is voluntary
and may be discontinued at any time.
For the three months ended September 30, 1998 and the year ended June 30,
1998, the Fund recognized expenses of approximately $3,500 and $15,900,
respectively, 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 three months ended September 30, 1998 and the year ended June 30,
1998, the Fund recognized expenses of approximately $11,600 and $55,000,
respectively, representing Van Kampen Funds Inc.'s or its affiliates'
(collectively "Van Kampen") cost of providing accounting and legal services to
the Fund.
Van Kampen Investor Services Inc., ("VKIS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the three months
ended September 30, 1998 and the year ended June 30, 1998, the Fund recognized
expenses of approximately $118,800 and $458,900, respectively. Beginning in
1998, the transfer agency fees are determined through negotiations with the
Fund's Board of Trustees and are based on competitive market benchmarks.
Additionally, for the year ended June 30, 1998, the Fund reimbursed Van
Kampen approximately $19,600 related to the direct cost of consolidating the Van
Kampen 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
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
26
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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 September 30, 1998, capital
aggregated $370,348,559, $137,580,291 and $11,157,374 for Class A, B and C
shares, respectively. For the three months ended September 30, 1998,
transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................... 1,731,165 $ 16,634,625
Class B.................................... 1,308,884 12,685,716
Class C.................................... 110,608 1,056,907
---------- ------------
Total Sales.................................. 3,150,657 $ 30,377,248
========== ============
Dividend Reinvestment:
Class A.................................... 262,056 $ 2,422,230
Class B.................................... 116,736 1,079,776
Class C.................................... 12,977 119,843
---------- ------------
Total Dividend Reinvestment.................. 391,769 $ 3,621,849
========== ============
Repurchases:
Class A.................................... (1,920,153) $(18,275,199)
Class B.................................... (1,821,702) (17,218,658)
Class C.................................... (142,713) (1,312,604)
---------- ------------
Total Repurchases............................ (3,884,568) $(36,806,461)
========== ============
</TABLE>
27
<PAGE> 29
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
At June 30, 1998, capital aggregated $369,566,903, $141,033,457 and
$11,293,228 for Class A, B and C shares, respectively. For the year ended June
30, 1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................. 8,945,784 $ 89,317,500
Class B.................................. 4,588,921 45,799,499
Class C.................................. 687,284 6,859,975
---------- -------------
Total Sales................................ 14,221,989 $ 141,976,974
---------- -------------
Dividend Reinvestment:
Class A.................................. 997,599 $ 9,948,016
Class B.................................. 427,244 4,261,071
Class C.................................. 40,893 407,568
---------- -------------
Total Dividend Reinvestment................ 1,465,736 $ 14,616,655
========== =============
Repurchases:
Class A.................................. (10,812,030) $(107,994,896)
Class B.................................. (3,408,945) (33,992,220)
Class C.................................. (385,647) (3,842,230)
---------- -------------
Total Repurchases.......................... (14,606,622) $(145,829,346)
=========== =============
</TABLE>
28
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
At June 30, 1997, capital aggregated $378,296,283, $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>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B shares will
automatically convert to Class A shares after the eighth year following
purchase. The CDSC will be imposed on most redemptions made within six years of
the purchase for Class B and one year of the purchase for Class C as detailed in
the following schedule.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
YEAR OF REDEMPTION CLASS B CLASS C
- ---------------------------------------------------------------------------
<S> <C> <C>
First............................................ 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)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
For the three months ended September 30, 1998 and the year ended June 30,
1998, Van Kampen, as Distributor for the Fund, received commissions on sales of
the Fund's Class A shares of approximately $21,500 and $78,100, respectively,
and CDSC on redeemed shares of approximately $101,400 and $342,100,
respectively. Sales charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
For the three months ended September 30, 1998, the cost of purchases and
proceeds from sales of investments, excluding short-term investments, were
$131,881,206 and $134,549,142, respectively. For the year ended June 30, 1998,
the cost of purchases and proceeds from sales of investments, excluding
short-term investments were $657,401,849 and $607,133,236, 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, or generate potential gain. All of the Fund's
portfolio holdings, including derivative instruments, are marked to market each
day with the change in value reflected in unrealized appreciation/depreciation.
Upon disposition, a realized gain or loss is recognized accordingly, except when
exercising a call option contract or taking delivery of a security underlying a
futures or forward contract. In these instances, the recognition of gain or loss
is postponed until the disposal of the security underlying the option, 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.
30
<PAGE> 32
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Transactions in options for the year ended June 30, 1998 and the three
months ended September 30, 1998, were as follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- -----------------------------------------------------------------------
<S> <C> <C>
Outstanding at June 30, 1997.................... 0 $ 0
Options Written and Purchased (Net)............. 700 (179,977)
Options Terminated in Closing Transactions
(Net)......................................... (200) 60,976
Options Expired (Net)........................... (200) 117,226
---- ---------
Outstanding at June 30, 1998.................... 300 (1,775)
Options Written and Purchased (Net)............. 800 (27,495)
Options Terminated in Closing Transactions
(Net)......................................... (600) (7,075)
Options Expired (Net)........................... (350) 23,895
---- ---------
Outstanding at September 30, 1998............... 150 $ (12,450)
==== =========
</TABLE>
The related futures contracts of the outstanding option transactions as of
September 30, 1998, and the descriptions and market values are as follows:
<TABLE>
<CAPTION>
MARKET
EXPIRATION MONTH/ VALUE OF
CONTRACTS EXERCISE PRICE OPTIONS
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Euro Dollar Options
Dec 1998--Purchased Put..... 150 Dec/94 $937
=== ====
</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 potential risk of loss associated
with a futures contract could be in excess of the variation margin reflected on
the Statement of Assets and Liabilities.
31
<PAGE> 33
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Transactions in futures contracts for the year ended June 30, 1998 and the
three months ended September 30, 1998, were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- ------------------------------------------------------------------
<S> <C>
Outstanding at June 30, 1997......................... -0-
Futures Opened....................................... 1,675
Futures Closed....................................... (1,575)
------
Outstanding at June 30, 1998......................... 100
Futures Opened....................................... 812
Futures Closed....................................... (706)
------
Outstanding at September 30, 1998.................... 206
======
</TABLE>
The futures contracts outstanding as of September 30, 1998, and the
descriptions and unrealized depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS DEPRECIATION
- -----------------------------------------------------------------------
<S> <C> <C>
LONG CONTRACTS:
U.S. Treasury Bond Future Dec 1998
(Current notional value $131,469 per
contract).................................. 150 $413,672
U.S. Treasury Bond Future Dec 1998
(Current notional value $131,469 per
contract).................................. 25 63,281
U.S. Treasury Bond Future Dec 1998
(Current notional value $131,469 per
contract).................................. 25 52,344
Japanese Yen Bond Future Dec 1998
(Current notional value $1,016,507 per
contract).................................. 6 163,335
--- --------
206 $692,632
=== ========
</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.
At September 30, 1998, the Fund has outstanding forward currency contracts
as follows:
<TABLE>
<CAPTION>
CURRENT UNREALIZED
VALUE DEPRECIATION
- -----------------------------------------------------------------------
<S> <C> <C>
LONG CONTRACTS:
South African Rand
6,564,500 expiring 10/02/98............... $1,115,951 $ 46,727
</TABLE>
32
<PAGE> 34
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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.
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 three months ended September 30, 1998 and the year ended June 30,
1998, are payments retained by Van Kampen of approximately $169,000 and
$1,017,300, respectively.
7. YEAR 2000 COMPLIANCE
Van Kampen utilizes a number of computer programs across its entire operation
relying on both internal software systems as well as external software systems
provided by third parties. In 1996 Van Kampen initiated a CountDown 2000 Project
to review both the internal systems and external vendor connections. The goal of
this project is to position its business to continue unaffected as a result of
the century change. At this time, there can be no assurance that the steps taken
will be sufficient to avoid any adverse impact to the Fund, but Van Kampen does
not anticipate that the move to Year 2000 will have a material impact on its
ability to continue to provide the Fund with service at current levels. In
addition, it is possible that the securities markets in which the Fund invests
may be detrimentally affected by computer failures throughout the financial
services industry beginning January 1, 2000. Improperly functioning trading
systems may result in settlement problems and liquidity issues.
33
<PAGE> 35
VAN KAMPEN FUNDS
EQUITY FUNDS
Domestic
Aggressive Equity
Aggressive Growth
American Value
Comstock
Emerging Growth
Enterprise
Equity Growth
Equity Income
Growth
Growth and Income
Harbor
Pace
Real Estate Securities
U.S. Real Estate
Utility
Value
International/Global
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
Global Franchise
Global Managed Assets
International Magnum
Latin American
FIXED-INCOME FUNDS
Income
Corporate Bond
Global Fixed Income
Global Government Securities
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
Short-Term Global Income
Strategic Income
U.S. Government
U.S. Government Trust for Income
Worldwide High Income
Tax Exempt Income
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal
Insured Tax Free Income
Intermediate Term Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
Capital Preservation
Reserve
Tax Free Money
Senior Loan
Prime Rate Income Trust
Senior Floating Rate
To find out more about any of these funds, ask your financial adviser for a
prospectus, which contains more complete information, including sales charges,
risks, and expenses. Please read it carefully before you invest or send money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- - visit our web site at
WWW.VANKAMPEN.COM -- to view a prospectus, select Download Prospectus
- - call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time
(Telecommunications Device for the Deaf users, call 1-800-421-2833)
- - e-mail us by visiting
WWW.VANKAMPEN.COM and selecting Contact Us
34
<PAGE> 36
VAN KAMPEN HIGH YIELD FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
PAUL G. YOVOVICH
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer
and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
PAUL R. WOLKENBERG*
EDWARD C. WOOD, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN INVESTMENT
ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 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 Funds Inc., 1998. All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or 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 March 31, 1999, the report, if used with prospective
investors, must be accompanied by a quarterly performance update.
35
<PAGE> 37
VAN KAMPEN HIGH YIELD FUND
THIS PAGE INTENTIONALLY LEFT BLANK
36
<PAGE> 38
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 4
Glossary of Terms................................ 5
Portfolio Management Review...................... 6
Portfolio Highlights............................. 9
Portfolio of Investments......................... 10
Statement of Assets and Liabilities.............. 12
Statement of Operations.......................... 13
Statement of Changes in Net Assets............... 14
Financial Highlights............................. 15
Notes to Financial Statements.................... 18
</TABLE>
STGI SAR 11/98
<PAGE> 39
LETTER TO SHAREHOLDERS
October 22, 1998
Dear Shareholder,
These continue to be dramatic and
highly unusual times for global
financial markets. Despite a severe
crisis of confidence in many emerging
economies, the United States has been
relatively unscathed by the turmoil.
However, volatility increased in the
U.S. equity market as the Asian
crisis spread to Russia and Latin
America during the period.
Fixed-income investors were not entirely unaffected, as volatility forced yield
spreads to widen between Treasuries and high-yield securities, corporate bonds,
and mortgage-backed securities.
We expect that volatility will remain high until the situation overseas
stabilizes. In this environment, it is important to stay focused on long-term
investment goals and to view daily fluctuations as relatively minor in the
larger picture. As we explain elsewhere in this letter, the U.S. economy remains
among the healthiest in the world, and Federal Reserve policymakers have
demonstrated an ability to make prudent decisions with regard to monetary
policy. These factors bode well for investors during the months ahead.
ECONOMIC OVERVIEW
The global economic crisis spread from Asia to Russia and finally to Latin
America during the summer months as roughly 40 percent of the world economy was
estimated to be either in recession or at risk of a severe slowdown.
At the root of the problem was the continuing inability of the Japanese
government to resolve its nearly decade-long banking crisis. The resulting
recession in Japan kept the economies of its Asian neighbors in the doldrums,
leading to slack demand for commodities. Falling energy prices, in turn, caused
the Russian government to default on short-term debt and devalue the ruble.
Concerns that Russia would flood the world with cheap energy to raise
hard-currency reserves caused investors to bail out of Latin America, fearing
that the commodity-driven economies in the region would be affected as well.
Capital flight from nearly all emerging markets drove up interest rates on
lower-rated bonds to levels that effectively blocked governments and
corporations in developing economies from the global credit market.
Psychological factors played a role in the deceleration of U.S. economic
growth during the reporting period. In a recent speech, Federal Reserve Chairman
Alan Greenspan noted that Americans suddenly have acquired a strong aversion to
risk that had been notably absent in recent years. This risk-averse attitude
manifested itself in slower retail sales growth and a mild drop in housing
activity. Also, the clear preference among investors for safety and liquidity
caused interest rates on lower-quality debt to balloon, leading to fears
Continued on page 2
1
[PHOTO]
DENNIS J. MCDONNELL AND DON G. POWELL
<PAGE> 40
of a credit crunch for U.S. businesses. Such concerns were at least partially
responsible for the Fed's decision to cut short-term interest rates by 0.25
percent on September 29 and again on October 15.
Despite the slowdown, we believe that the American economy remains
fundamentally sound. Inflation at the consumer level increased by just 1.4
percent during the 12 months through September, while wholesale prices actually
fell during the same period.
MARKET OVERVIEW
The financial crisis in Russia and Latin America helped unleash a furious
flight to quality in global fixed-income markets. As the reporting period ended,
the yield on long-term U.S. Treasury bonds had fallen below 5 percent for the
first time since 1977. Total returns in the domestic bond market were uneven,
however, as investors displayed a preference for quality amid the raging global
economic storm. During the three months through September, long-term Treasury
bonds gained 8.44 percent, compared to 2.37 percent for long-term corporate
bonds and -3.71 percent for high-yield debt. The varying performance reflects a
deep change in investor psychology, with sentiment shifting from confidence to
extreme risk aversion during recent months.
The heightened demand for safety drove yield differentials between bonds of
different credit quality but similar maturities to levels not seen since the
1990-1991 recession. Credit spreads between 10-year Treasury bonds and domestic
high-yield securities, for example, grew to almost 6 percent. While a gradual
widening of credit spreads is normal during the later stages of a business
cycle, the dramatic nature of the expansion was primarily the result of the
heavy buying of Treasury securities by foreign investors seeking shelter from
the sharp sell-offs in world equity markets.
The flight to quality was also evident overseas. The JP Morgan Global
Government Bond Index gained 5.17 percent in local currency terms, led by the
8.04 percent return in the United Kingdom. Meanwhile, the JP Morgan Emerging
Market Bond Index Composite fell 21.23 percent during the quarter, as investors
liquidated bonds from developing economies in favor of high-quality government
bonds from developed nations.
OUTLOOK
Two factors are likely to drive global bond prices in coming months. First,
we believe that yield curves will steepen as central banks around the world add
liquidity by lowering interest rates. As a result, we expect short-term interest
rates to fall while long-term yields stabilize or rise modestly. Second, we
believe that high-yield bonds will outperform other fixed-income investments, as
investors perceive greater relative value in this sector after the extraordinary
rally in government bonds during the third quarter.
The environment for global interest rates remains benign. Economic activity
in the United States is decelerating and growth forecasts for Europe are being
reduced. With price pressures already under control, we expect that global
inflation will remain modest for the foreseeable future.
Continued on page 3
2
<PAGE> 41
Additional details about your Fund, including a question-and-answer section
with your portfolio management team, are provided in this report. As always, we
are pleased to have the opportunity to share with you the progress of your
investment.
Sincerely,
[SIG.]
Don G. Powell
Chairman
Van Kampen Investment Advisory Corp.
[SIG.]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
3
<PAGE> 42
PERFORMANCE RESULTS FOR THE PERIOD ENDED SEPTEMBER 30, 1998
VAN KAMPEN SHORT-TERM GLOBAL INCOME FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
</TABLE>
TOTAL RETURNS
<TABLE>
<S> <C> <C> <C>
Three-month total return based on
NAV(1)............................... (3.27%) (3.46%) (3.46%)
One-year total return(2)............... (5.48%) (5.77%) (3.93%)
Five-year average annual total
return(2)............................ 1.29% 1.19% 1.19%
Life-of-Fund average annual total
return(2)............................ 3.36% 2.74% 1.01%
Commencement date...................... 09/28/90 07/22/91 08/13/93
</TABLE>
DISTRIBUTION RATE AND YIELD
<TABLE>
<S> <C> <C> <C>
Distribution rate(3)................... 6.13% 5.52% 5.52%
SEC Yield(4)........................... 7.19% 6.67% 6.67%
</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 September 30, 1998.
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.
On July 31, 1998, the Fund's Board of Trustees voted to change the Fund's fiscal
year end from June 30 to March 31. As a result, this semi-annual report reflects
the 3-month period commencing on July 1, 1998 and ending on September 30, 1998.
4
<PAGE> 43
GLOSSARY OF TERMS
BASIS POINT: A measure used in quoting bond yields. One hundred basis points is
equal to 1 percent. For example, if a bond's yield changes from 7.00 to 6.65
percent, it is a 35 basis-point move.
BOND: A debt security issued by a government or corporation pays a bondholder a
stated rate of interest and repays the principal at the maturity date.
CREDIT SPREAD: Also called quality spread, the difference in yield between
higher-quality issues and lower-quality issues. Normally, lower-quality
issues provide higher yields to compensate investors for the additional
credit risk.
DURATION: A measure of the sensitivity of a bond's price to changes in interest
rates, expressed in years. Each year of duration represents an expected 1
percent change in the price of a bond for every 1 percent change in interest
rates. The longer a fund's duration, the greater the effect of interest rate
movements on net asset value. Typically, funds with shorter durations have
performed better in rising rate environments, while funds with longer
durations have performed better when rates decline.
EMERGING MARKETS: The financial markets of developing economies. Many Latin
American and Asian countries are considered emerging markets.
EUROPEAN MONETARY UNION (EMU): A group of European countries creating one
currency for the entire region.
FEDERAL FUNDS RATE: The interest rate charged by one financial institution
lending federal funds to another. This overnight rate is used to meet banks'
daily reserve requirements. The Federal Reserve Board uses the federal funds
rate to affect the direction of interest rates.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank system of the United States. Its
policy-making committee, called the Federal Open Market Committee, meets
eight times a year to establish monetary policy and monitor the economic
pulse of the United States.
INVESTMENT GRADE BONDS: Securities rated BBB and above by Standard & Poor's or
Baa and above by Moody's Investor Services. Bonds rated below BBB or Baa are
noninvestment grade.
NET ASSET VALUE (NAV): The value of a mutual fund share, calculated by deducting
a fund's liabilities from its total assets and dividing this amount by the
number of shares outstanding. The NAV does not include any initial or
contingent deferred sales charge.
VOLATILITY: A measure of the fluctuation in the market price of a security. A
security that is volatile has frequent and large swings in price.
YIELD: The annual rate of return on an investment, expressed as a percentage.
For bonds and notes, the yield is the annual interest divided by the market
price.
5
<PAGE> 44
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN SHORT-TERM GLOBAL INCOME FUND
We recently spoke with the management team of the Van Kampen Short-Term Global
Income Fund about the key events and economic forces that shaped the markets
during the past three months. The team is led by Thomas J. Slefinger, portfolio
manager, and Peter W. Hegel, chief investment officer for fixed-income
investments.
The Fund's fiscal year end was recently changed from June 30 to March 31.
Going forward, your semiannual reports will be dated September 30, and your
annual reports will be dated March 31. The following interview discusses the
Fund's performance during the three-month period since your last report, from
June 30, 1998, to September 30, 1998.
Q HOW WOULD YOU DESCRIBE THE INVESTMENT ENVIRONMENT IN WHICH THE FUND HAS
OPERATED DURING THE PAST THREE MONTHS?
A Overall, this continues to be a difficult, volatile year, especially for
investments exposed to credit risk. Many markets began slipping in late
July based on fears caused by the turmoil in Japan and Russia. The Russian
worries spread to the emerging markets and led to a move by investors toward
high-quality investments.
Throughout the world there is an evident lack of leadership. Japan can't get
its economy on track, Germany's new government lacks the political wherewithal
to implement change or provide leadership, and the United States is a political
question mark as an impeachment inquiry begins. In addition, Russia needs to
stop changing leaders and settle on a government, and Brazil is facing elections
in October that could determine the financial fate of Latin America.
Q DO YOU THINK THE INTERNATIONAL MONEY FUND (IMF) OR THE FEDERAL RESERVE
BOARD IS CAPABLE OF PROVIDING THIS LEADERSHIP?
A We believe the IMF has caused more damage than good and, based on its
handling of the Russian bailout package, has increased the uncertainty and
volatility in the global markets. The Fed, however, is capable of providing some
help--the 25-basis point reduction in interest rates at the end of September was
a good first step. (Editor's Note: After the reporting period ended, the Fed
reduced interest rates again by 0.25 percent.) It sends a message that the Fed
can provide liquidity to the global financial system.
We expect the Fed to continue to reduce interest rates. Although we believe
this could lead to a weaker dollar and higher inflation, it should create
stability for capital to begin to flow back out of the United States and into
other countries. Coupled with the IMF fiscal bailout packages in select
countries around the world, we believe the reduction in U.S. interest rates
should help the financial system.
Q WHAT STRATEGY DID YOU EMPLOY TO MANAGE THE FUND IN THIS INVESTMENT
ENVIRONMENT?
A We did not change the Fund's overall profile--in credit quality,
structure, or allocations--during the period. The average bond quality in
the Fund remains high
6
<PAGE> 45
(single A), and we currently maintain a short duration of approximately 1.70
years, which is slightly lower than the J.P. Morgan Short-Term Global Index
duration of 2.03 years. Duration is a measure of a bond's sensitivity to
interest rates and a short duration can be used to help reduce the Fund's
volatility.
In essence, we have maintained a cautious approach, waiting for the markets
to stabilize. As a percentage of total investments, we had a nearly 36 percent
exposure to foreign investment grade bonds and an approximately 22 percent
exposure to foreign non-investment grade bonds as of the end of the reporting
period. For additional Fund portfolio highlights, please refer to page 9.
Q HOW DID THE FUND PERFORM DURING THE THREE-MONTH REPORTING PERIOD?
A The extreme volatility hurt the Fund's performance. The Fund's total
return for the three-month reporting period was -3.27 percent(1) (Class A
shares at net asset value). The Fund's total return for the 12 months
ended September 30, 1998, was -2.25 percent (Class A shares at net asset value).
By comparison, the J.P. Morgan Short-Term Global Index, a broad-based index
tracks the major bond markets of the world with maturities of three years or
less, produced a total return of 6.13 percent for the three-month period. This
index does not reflect any commissions or sales charges that would be paid by an
investor purchasing the securities or investments they represent.
The Fund's Class A share distribution rate as of September 30, 1998 was 6.13
percent(3) (based on a monthly dividend of $0.037 per share and a maximum public
offering price of $7.24 per share). Please refer to the chart on page 4 for
additional Fund performance results.
Q HOW DID THE FUND'S ALLOCATION TO THE EMERGING MARKETS AFFECT ITS
PERFORMANCE?
A The Fund's allocation to the emerging markets hurt the Fund during the
period. We began to invest in the emerging markets in early 1998 because
we wanted to maintain a higher current cash flow for our dividend. At that
time, we felt these markets had weakened compared to high-quality,
investment-grade government bonds. Unfortunately, we were premature in our view
as volatility remained very high in these lower-grade, fixed-income markets
during the period.
Q WHY HAVEN'T YOU CHANGED THE FUND'S POSITIONING AND WHAT IS YOUR OUTLOOK
FOR THE FUND?
A Going into the quarter we felt comfortable with our strategy because we
had positioned the Fund to take advantage of what we believed would be a
shift toward emerging markets. And, the reason we have maintained our
profile--in credit quality, structure, and allocations--is because that belief
has not changed. We continue to expect that once the dust settles in these
high-risk markets, investors will return to them in search of higher yields.
If the Fed continues to reduce interest rates, this should provide liquidity
and stability to the global financial system as capital should begin to flow out
of the United States.
7
<PAGE> 46
Should this happen, we believe that our allocation to the emerging markets will
help the performance of the Fund.
We feel confident that in the long term this position and the overall
portfolio strategy will be successful. In the short term, however, we expect the
volatility to continue until the markets stabilize. But from a long-term
perspective, we think this Fund, makes sense for investors who want global
diversification in their portfolio.
Thomas J. Slefinger
Thomas J. Slefinger
Portfolio Manager
[SIG.]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
Please see footnotes on page 4
8
<PAGE> 47
PORTFOLIO HIGHLIGHTS
VAN KAMPEN SHORT-TERM GLOBAL INCOME FUND
PORTFOLIO HOLDINGS AS A PERCENTAGE OF TOTAL INVESTMENTS
<TABLE>
<CAPTION>
TOP TEN HOLDINGS PERCENTAGE OF
AS OF THESE INVESTMENTS
SEPTEMBER 30, 1998 THREE MONTHS AGO
<S> <C> <C>
Repurchase Agreement .......... 21.4% ............ 16.1%
RAST 1998-A4 .................. 13.3% ............ 11.7%
Korea Development Bank ........ 7.8% ............ 7.5%
United Kingdom Treasury ....... 7.7% ............ 6.5%
New Zealand Government ........ 4.4% ............ 3.9%
Petro Mexicanos ............... 4.4% ............ N/A
Poland PDI Bond ............... 4.4% ............ 4.1%
Empresa Electrica Del Notre ... 3.7% ............ 3.9%
Union Bank of Norway .......... 3.6% ............ 3.2%
GMAC .......................... 3.5% ............ 3.0%
</TABLE>
N/A = Not Applicable
ASSET ALLOCATION AS A PERCENTAGE OF TOTAL INVESTMENTS
SEPTEMBER PIE CHART
<TABLE>
<CAPTION>
Foreign
Measurement Foreign U.S. Domestic Non-
Period Investment Government/Mortgage- Investment Investment
(Fiscal Year Grade Repurchase Backed Grade Grade Preferred
Covered) Bonds Agreement Securities Bonds Bonds Stocks
<S> <C> <C> <C> <C> <C> <C>
9/30/98 35.7% 21.4% 15.6% 4.2% 22.4% 0.7%
</TABLE>
DECEMBER PIE CHART
<TABLE>
<CAPTION>
Foreign
Measurement Foreign U.S. Non-
Period Investment Government/Mortgage Domestic Investment
(Fiscal Year Grade Backed Investment Grade Preferred Foreign
Covered) Bonds Other Securities Bonds Bonds Stock Currency
<S> <C> <C> <C> <C> <C> <C> <C>
6/30/98 42.7% 16.1% 13.8% 8.4% 18.3% 0.6% 0.1%
</TABLE>
9
<PAGE> 48
PORTFOLIO OF INVESTMENTS
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
in Local
Currency Maturity U.S. $
(000) Description Coupon Date Market Value
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS 34.5%
ELECTRONICS 1.4%
1,000 CIA Transporte Energia, 144A -- US$ (a).......... 8.625% 04/01/03 $ 800,000
-----------
ENERGY 6.5%
3,000 Petro Mexicanos, 144A -- US$ (a)................. 11.157 07/15/05 2,580,000
1,850 Petoliam Nasional Berhad, 144A -- US$ (a)(b)..... 6.875 07/01/03 1,239,500
-----------
3,819,500
-----------
FINANCE 20.6%
1,000 Exp-Imp Bank Korea -- US$........................ 6.500 05/15/00 897,610
1,200 GMAC -- GBP...................................... 7.504 09/25/02 2,025,838
1,000 Korea Development Bank -- US$.................... 7.900 02/01/02 870,000
3,990 Korea Development Bank -- US$ (b)................ 6.250 05/01/00 3,649,853
1,000 NBG Finance PLC -- US$........................... * 06/24/07 971,250
2,500 Nordic Investment Bank -- NZ$.................... 6.750 09/16/99 1,262,885
500 SB Treasury Co. LLC, 144A -- US$ (a)(b).......... 9.400 12/29/49 420,746
2,000 Union Bank of Norway, 144A -- US$ (a)............ 9.100 10/25/00 2,102,500
-----------
12,200,682
-----------
UTILITIES 6.0%
3,000 Empresa Electrica Del Notre, 144A -- US$ (a)..... 7.750 03/15/06 2,156,310
500 Korea Electric Power Co., 144A -- US$ (a)........ 10.000 04/01/01 459,250
1,000 Telecom Brazil -- US$............................ 11.250 12/09/99 955,000
-----------
3,570,560
-----------
Total Corporate Bonds................................................ 20,390,742
-----------
FOREIGN GOVERNMENT AND AGENCY SECURITIES 26.9%
COLOMBIA 2.7%
1,000 Republic of Colombia -- US$...................... 8.000 06/14/01 890,000
1,000 Republic of Colombia -- US$...................... 8.660 10/17/16 700,000
-----------
1,590,000
-----------
GREECE 1.8%
320,000 Hellenic Republic -- GRD......................... 9.800 03/21/00 1,073,632
-----------
NEW ZEALAND 6.3%
3,900 International Bank for Recon & Dev -- NZ$........ * 08/20/07 1,126,865
4,500 New Zealand Government -- NZ$.................... 8.000 11/15/06 2,581,949
-----------
3,708,814
-----------
PANAMA 2.3%
1,500 Republic of Panama, 144A -- US$ (a)(b)........... 7.875 02/13/02 1,350,000
-----------
POLAND 4.3%
3,000 Poland PDI Bond -- US$........................... 4.000 10/27/14 2,565,000
-----------
RUSSIA 0.3%
2,500 Russia Principal Loan -- Vnesh................... * 12/15/20 165,625
-----------
</TABLE>
See Notes to Financial Statements
10
<PAGE> 49
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
in Local
Currency Maturity U.S. $
(000) Description Coupon Date Market Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SOUTH AFRICA 1.6%
1,000 Republic of South Africa -- US$.................. 9.625% 12/15/99 $ 940,000
-----------
UNITED KINGDOM 7.6%
2,500 United Kingdom Treasury -- GBP................... 7.000 06/07/02 4,492,044
-----------
Total Foreign Government and Agency Securities....................... 15,885,115
-----------
US GOVERNMENT AND AGENCY OBLIGATIONS 2.3%
2,600 FNMA -- NZ$...................................... 7.250 06/20/02 1,343,107
-----------
MORTGAGE BACKED OBLIGATIONS 13.1%
7,650 RAST 1998-A4 -- US$.............................. 6.750 05/25/28 7,726,500
-----------
PREFERRED STOCK 0.6%
Avalon Bay Communities, Inc. -- US$ (6,000 preferred shares)..... 151,875
First Industrial Realty Trust -- US$ (10,000 preferred shares)... 235,000
-----------
Total Preferred Stock................................................ 386,875
-----------
REPURCHASE AGREEMENT 21.0%
State Street Bank and Trust ($12,447,000 par, collateralized by $9,435,000 par
of U.S. Treasury Bonds, 7.625% coupon, due 11/15/22, dated 9/30/98, to be sold
on 10/01/98 at $12,448,884)................................................... 12,447,000
-----------
TOTAL INVESTMENTS 98.4%
(Cost $62,203,440)............................................................ 58,179,339
OTHER ASSETS IN EXCESS OF LIABILITIES 1.6%..................................... 926,336
-----------
NET ASSETS 100.0%.............................................................. $59,105,675
===========
</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 only be resold in
transactions exempt from registration which are normally those transactions
with qualified institutional buyers.
(b) Assets segregated as collateral for open futures and forward currency
contracts.
PORTFOLIO COMPOSITION BY CREDIT QUALITY
The following table summarizes the portfolio composition at September 30,
1998, based upon the highest credit quality ratings as determined by Standard &
Poor's or Moody's.
<TABLE>
<S> <C>
Repurchase Agreement....... 21.4%
AAA........................ 31.8
A.......................... 7.5
BBB........................ 16.9
BB......................... 16.1
NR......................... 6.3
-----
100.0%
=====
</TABLE>
See Notes to Financial Statements
11
<PAGE> 50
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments, including repurchase agreement of
$12,447,000 (Cost $62,203,440)............................ $ 58,179,339
Cash........................................................ 41,854
Receivables:
Investments Sold.......................................... 948,342
Interest.................................................. 908,731
Fund Shares Sold.......................................... 53,640
Other....................................................... 412
------------
Total Assets.......................................... 60,132,318
------------
LIABILITIES:
Payables:
Forward Currency Contracts................................ 371,462
Income Distributions...................................... 166,373
Distributor and Affiliates................................ 105,036
Variation Margin on Futures............................... 38,943
Fund Shares Repurchased................................... 37,256
Investment Advisory Fee................................... 26,858
Accrued Expenses............................................ 153,389
Trustees' Deferred Compensation and Retirement Plans........ 127,326
------------
Total Liabilities..................................... 1,026,643
------------
NET ASSETS.................................................. $ 59,105,675
============
NET ASSETS CONSIST OF:
Capital..................................................... $129,822,354
Accumulated Distributions in Excess of Net Investment
Income.................................................... (1,968,293)
Net Unrealized Depreciation................................. (4,603,598)
Accumulated Net Realized Loss............................... (64,144,788)
------------
NET ASSETS.................................................. $ 59,105,675
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $50,645,061 and 7,232,021 shares of
beneficial interest issued and outstanding)............. $ 7.00
Maximum sales charge (3.25%* of offering price)......... .24
------------
Maximum offering price to public........................ $ 7.24
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $8,112,545 and 1,158,595 shares of
beneficial interest issued and outstanding)............. $ 7.00
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $348,069 and 49,698 shares of beneficial
interest issued and outstanding)........................ $ 7.00
============
</TABLE>
*On sales of $25,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
12
<PAGE> 51
STATEMENT OF OPERATIONS
For the Three Months Ended September 30, 1998
and the Year Ended June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Year Ended
September 30, 1998 June 30, 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest (net of foreign withholding taxes of $2,676 and
$13,886, respectively, for the three months ended
9/30/98 and the year ended 6/30/98)................... $ 1,213,443 $ 5,294,057
Dividends............................................... 8,829 14,298
----------- -----------
Total Income........................................ 1,222,272 5,308,355
----------- -----------
EXPENSES:
Investment Advisory Fee................................. 86,636 434,761
Distribution (12b-1) and Service Fees (Attributed to
Classes A, B and C of $29,647, $38,111 and $822,
respectively for the three months ended 9/30/98 and
$102,020, $379,656 and $2,737, respectively, for the
year ended 6/30/98)................................... 68,580 484,413
Shareholder Services.................................... 41,981 196,607
Audit................................................... 16,100 63,825
Trustees' Fees and Expenses............................. 10,931 28,422
Custody................................................. 10,081 51,999
Legal................................................... 6,900 12,375
Other................................................... 31,710 135,733
----------- -----------
Total Expenses...................................... 272,919 1,408,135
Less Expenses Reimbursed ($0 and $14,546,
respectively, for the three months ended 9/30/98
and the year ended 6/30/98)....................... -0- 14,546
----------- -----------
Net Expenses........................................ 272,919 1,393,589
----------- -----------
NET INVESTMENT INCOME................................... $ 949,353 $ 3,914,766
=========== ===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments........................................... $ (258,499) $ 863,170
Options............................................... -0- 18,292
Futures............................................... (422,533) (119,252)
Forwards.............................................. (114,553) 3,165,132
Foreign Currency Transactions......................... (6,639) (4,194,518)
----------- -----------
Net Realized Loss....................................... (802,224) (267,176)
----------- -----------
Net Unrealized Appreciation/Depreciation:
Beginning of the Period............................... (2,416,979) (1,420,976)
----------- -----------
End of the Period:
Investments......................................... (4,024,101) (1,465,165)
Forwards............................................ (364,416) (939,286)
Futures............................................. (218,847) (12,353)
Foreign Currency Translation........................ 3,766 (175)
----------- -----------
(4,603,598) (2,416,979)
----------- -----------
Net Unrealized Depreciation During the Period........... (2,186,619) (996,003)
----------- -----------
NET REALIZED AND UNREALIZED LOSS........................ $(2,988,843) $(1,263,179)
=========== ===========
NET INCREASE/DECREASE IN NET ASSETS FROM OPERATIONS..... $(2,039,490) $ 2,651,587
=========== ===========
</TABLE>
See Notes to Financial Statements
13
<PAGE> 52
STATEMENT OF CHANGES IN NET ASSETS
For the Three Months Ended September 30, 1998 and the
Years Ended June 30, 1998 and 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Year Ended Year Ended
September 30, 1998 June 30, 1998 June 30, 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income..................... $ 949,353 $ 3,914,766 $ 5,420,224
Net Realized Gain/Loss.................... (802,224) (267,176) 1,725,990
Net Unrealized Depreciation During the
Period.................................. (2,186,619) (996,003) (1,136,411)
----------- ----------- -------------
Change in Net Assets from Operations...... (2,039,490) 2,651,587 6,009,803
----------- ----------- -------------
Distributions from Net Investment
Income.................................. (931,799) (3,914,766) (5,420,224)
Distributions in Excess of Net Investment
Income.................................. -0- (331,088) (1,573,147)
----------- ----------- -------------
Distributions from and in Excess of Net
Investment Income*...................... (931,799) (4,245,854) (6,993,371)
Return of Capital Distribution*........... -0- (290,326) (91,680)
----------- ----------- -------------
Total Distributions....................... (931,799) (4,536,180) (7,085,051)
----------- ----------- -------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES.............................. (2,971,289) (1,884,593) (1,075,248)
----------- ----------- -------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................. 10,038,325 19,032,931 3,720,807
Net Asset Value of Shares Issued Through
Dividend Reinvestment................... 479,789 2,772,850 4,048,955
Cost of Shares Repurchased................ (14,051,161) (46,043,368) (46,302,530)
----------- ------------ -------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS............................ (3,533,047) (24,237,587) (38,532,768)
----------- ------------- -------------
TOTAL DECREASE IN NET ASSETS.............. (6,504,336) (26,122,180) (39,608,016)
NET ASSETS:
Beginning of the Period................... 65,610,011 91,732,191 131,340,207
----------- ------------ -------------
End of the Period (Including accumulated
distributions in excess of net
investment income of $1,968,293,
$1,985,847 and $455,277,
respectively)........................... $ 59,105,675 $ 65,610,011 $ 91,732,191
============= ============= =============
</TABLE>
Three Months Ended Year Ended Year Ended
*Distributions by Class September 30, 1998 June 30, 1998 June 30, 1997
- ------------------------------------------------------------------------------
[S] [C] [C] [C]
Distributions from and
in Excess of
Net Investment
Income:
Class A Shares....... $(725,942) (2,310,645) $(3,003,963)
Class B Shares....... (201,504) (1,921,964) (3,977,304)
Class C Shares....... (4,353) (13,245) (12,104)
--------- ----------- -----------
$(931,799) $(4,245,854) $(6,993,371)
========= =========== ===========
Return of Capital
Distribution:
Class A Shares....... $ -0- $ (179,548) $ (40,726)
Class B Shares....... -0- (109,531) (50,795)
Class C Shares....... -0- (1,247) (159)
--------- ----------- -----------
$ -0- $ (290,326) $ (91,680)
========= =========== ===========
See Notes to Financial Statements
14
<PAGE> 53
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended June 30,
Three Months Ended -------------------------------------------
Class A Shares September 30, 1998 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period.................. $7.35 $7.55 $7.62 $7.56 $8.15 $9.11
---- ---- ---- ---- ---- ----
Net Investment Income......... .12 .39 .42 .49 .50 .59
Net Realized and Unrealized
Gain/Loss................... (.36) (.13) .03 .16 (.45) (.89)
---- ---- ---- ---- ---- ----
Total from Investment
Operations.................. (.24) .26 .45 .65 .05 (.30)
---- ---- ---- ---- ---- ----
Less:
Distributions from and in
Excess of Net Investment
Income.................... .11 .42 .51 -0- .37 .35
Return of Capital
Distribution.............. -0- .04 .01 .59 .27 .31
---- ---- ---- ---- ---- ----
Total Distributions........... .11 .46 .52 .59 .64 .66
---- ---- ---- ---- ---- ----
Net Asset Value, End of the
Period...................... $7.00 $7.35 $7.55 $7.62 $7.56 $8.15
===== ===== ===== ===== ===== =====
Total Return* (a)............. (3.27%)** 3.46% 6.09% 8.81% .69% (3.61%)
Net Assets at End of the
Period (In millions)........ $50.6 $45.7 $39.5 $50.1 $72.5 $147.7
Ratio of Expenses to Average
Net Assets* (b)............. 1.55% 1.39% 1.33% 1.31% 1.14% 1.13%
Ratio of Net Investment Income
to Average Net Assets*...... 6.23% 5.40% 5.37% 6.54% 7.20% 6.64%
Portfolio Turnover............ 11%** 175% 378% 225% 204% 259%
</TABLE>
* If certain expenses had not been assumed by Van Kampen, Total Return would
have been lower and the ratios would have been as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Ratio of Expenses to Average
Net Assets (b).............. N/A 1.41% 1.36% 1.34% N/A N/A
Ratio of Net Investment Income
to Average Net Assets....... N/A 5.38% 5.34% 6.51% 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.
(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
15
<PAGE> 54
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended June 30,
Three Months Ended ----------------------------------------------
Class B Shares September 30, 1998(a) 1998(a) 1997(a) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Period............. $7.35 $7.55 $7.62 $7.56 $8.15 $9.10
---- ----- ----- ---- ---- ----
Net Investment Income....... .10 .36 .35 .39 .41 .54
Net Realized and Unrealized
Gain/Loss................. (.35) (.16) .04 .20 (.42) (.90)
---- ----- ----- ---- ---- ----
Total from Investment
Operations................ (.25) .20 .39 .59 (.01) (.36)
---- ----- ----- ---- ---- ----
Less:
Distributions from and in
Excess of Net Investment
Income.................. .10 .37 .45 -0- .34 .32
Return of Capital
Distribution............ -0- .03 .01 .53 .24 .27
---- ----- ----- ---- ---- ----
Total Distributions......... .10 .40 .46 .53 .58 .59
---- ----- ----- ---- ---- ----
Net Asset Value, End of the
Period.................... $7.00 $7.35 $7.55 $7.62 $7.56 $8.15
===== ===== ===== ===== ===== =====
Total Return* (b)........... (3.46%)** 2.67% 5.29% 8.02% (.14%) (4.22%)
Net Assets at End of the
Period (In millions)...... $8.1 $19.6 $52.1 $81.1 $127.9 $271.8
Ratio of Expenses to Average
Net Assets* (c)........... 2.30% 2.16% 2.09% 2.09% 1.96% 1.85%
Ratio of Net Investment
Income to Average Net
Assets*................... 5.43% 4.48% 4.62% 5.79% 6.42% 5.91%
Portfolio Turnover.......... 11%** 175% 378% 225% 204% 259%
* If certain expenses had not been assumed by Van Kampen, Total Return would have been
lower and the ratios would have been as follows:
Ratio of Expenses to Average
Net Assets (c)............ N/A 2.18% 2.12% 2.12% N/A N/A
Ratio of Net Investment
Income to Average Net
Assets.................... N/A 4.46% 4.59% 5.76% 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> 55
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
August 13, 1993
Year Ended June 30, (Commencement of
Three Months Ended ----------------------------------- Distribution) to
Class C Shares September 30 1998(a) 1998(a) 1997(a) 1996 1995 June 30, 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period................... $7.35 $7.55 $7.62 $7.56 $8.16 $9.24
----- ----- ----- ----- ----- -----
Net Investment Income......... .10 .34 .35 .45 .50 .49
Net Realized and Unrealized
Gain/Loss.................... (.35) (.14) .04 .14 (.52) (1.05)
----- ----- ----- ----- ----- -----
Total from Investment
Operations................... (.25) .20 .39 .59 (.02) (.56)
----- ----- ----- ----- ----- -----
Less:
Distributions from and in
Excess of Net Investment
Income..................... .10 .37 .45 -0- .34 .27
Return of Capital
Distribution............... -0- .03 .01 .53 .24 .25
----- ----- ----- ----- ----- -----
Total Distributions........... .10 .40 .46 .53 .58 .52
----- ----- ----- ----- ----- -----
Net Asset Value, End of the
Period....................... $7.00 $7.35 $7.55 $7.62 $7.56 $8.16
===== ===== ===== ===== ===== =====
Total Return* (b)............. (3.46%)** 2.67% 5.29% 8.03% (.27%) (6.32%)**
Net Assets at End of the
Period (In millions)......... $.3 $.3 $.2 $.2 $.2 $.2
Ratio of Expenses to Average
Net Assets* (c).............. 2.31% 2.16% 2.09% 2.07% 1.96% 1.84%
Ratio of Net Investment Income
to Average Net Assets*....... 5.42% 4.67% 4.63% 5.72% 6.30% 5.83%
Portfolio Turnover............ 11%** 175% 378% 225% 204% 259%
* If certain expenses had not been assumed by Van Kampen, Total Return would
have been lower and the ratios would have been as follows:
Ratio of Expenses to Average
Net Assets (c)............... N/A 2.17% 2.12% 2.09% N/A N/A
Ratio of Net Investment Income
to Average Net Assets........ N/A 4.65% 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
17
<PAGE> 56
NOTES TO FINANCIAL STATEMENTS
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Short-Term Global Income Fund (the "Fund") is organized as a series
of Van Kampen 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. In July, 1998,
the Fund's Board of Trustees approved a change in the Fund's fiscal year end
from June 30 to March 31. As a result, this financial report reflects the
three-month period commencing on July 1, 1998, and ending on September 30, 1998.
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 September 30, 1998, there were no
when issued or delayed delivery purchase commitments.
18
<PAGE> 57
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Fund may invest in repurchase agreements, which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen 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. INCOME AND EXPENSES--Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security. Expenses of the Fund are allocated on a pro rata basis to
each class of shares, except for distribution and service fees and transfer
agency costs which are unique to each class of shares.
D. 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, 1998, the Fund had an accumulated capital loss carryforward
for tax purposes of $63,342,563 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
19
<PAGE> 58
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
year and as a result of gains or losses recognized for tax purposes on open
options and forward transactions at June 30, 1998.
At September 30, 1998, for federal income tax purposes, cost of long- and
short-term investments is $62,203,440; the aggregate gross unrealized
appreciation is $399,528 and the aggregate gross unrealized depreciation is
$4,423,629 resulting in net unrealized depreciation of $4,024,101.
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.
Net realized gains, if any, are distributed annually.
For the year ended June 30, 1998, permanent book and tax differences
relating to net realized currency losses totaling $1,199,482 were reclassified
from accumulated net realized gain/loss to accumulated undistributed net
investment income.
For tax purposes, the determination of a return of capital distribution is
made at the end of the Fund's fiscal year. Therefore, while it is likely that a
portion of the Fund's distribution will ultimately be characterized as a return
of capital for tax purposes, no such designation has been made for the three
months ended September 30, 1998.
In January, 1999, the Fund will provide tax information to shareholders for
the 1998 calendar year.
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 of .55% of the Fund's average net assets.
For the three months ended September 30, 1998 and the year ended June 30,
1998, the Fund recognized expenses of approximately $500 and $2,800,
respectively, 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 three months ended September 30, 1998 and the year ended June 30,
1998, the Fund recognized expenses of approximately $10,200 and $23,000,
respectively, representing Van Kampen's cost of providing accounting and legal
services to the Fund.
Van Kampen Investor Services Inc. ("VKIS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the three months
ended September 30,
20
<PAGE> 59
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1998 and the year ended June 30, 1998, the Fund recognized expenses of
approximately $26,200 and $133,400, respectively. Beginning in 1998, the
transfer agency fees are determined through negotiations with the Fund's Board
of Trustees and are based on competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of shares of beneficial interest, Classes
A, B and C, each with a par value of $.01 per share. There are an unlimited
number of shares of each class authorized.
21
<PAGE> 60
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
At September 30, 1998, capital aggregated $76,003,925, $53,444,452 and
$373,977, for Classes A, B and C, respectively. For the year ended September 30,
1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.......................................... 1,374,551 $ 9,817,667
Class B.......................................... 22,397 163,928
Class C.......................................... 8,054 56,730
---------- ------------
Total Sales........................................ 1,405,002 $ 10,038,325
========== ============
Dividend Reinvestment:
Class A.......................................... 53,113 $ 379,262
Class B.......................................... 13,458 96,202
Class C.......................................... 608 4,325
---------- ------------
Total Dividend Reinvestment........................ 67,179 $ 479,789
========== ============
Repurchases:
Class A.......................................... (418,208) $ (3,021,375)
Class B.......................................... (1,538,593) (11,000,308)
Class C.......................................... (4,239) (29,478)
---------- ------------
Total Repurchases.................................. (1,961,040) $(14,051,161)
========== ============
</TABLE>
22
<PAGE> 61
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
At June 30, 1998, capital aggregated $68,828,371, $64,184,630 and $342,400,
for Classes A, B and C, respectively. For the year ended June 30, 1998,
transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.......................................... 2,451,703 $ 18,354,657
Class B.......................................... 64,808 487,442
Class C.......................................... 25,354 190,832
---------- ------------
Total Sales........................................ 2,541,865 $ 19,032,931
========== ============
Dividend Reinvestment:
Class A.......................................... 227,701 $ 1,709,854
Class B.......................................... 139,292 1,048,650
Class C.......................................... 1,914 14,346
---------- ------------
Total Dividend Reinvestment........................ 368,907 $ 2,772,850
========== ============
Repurchases:
Class A.......................................... (1,683,807) $(12,642,954)
Class B.......................................... (4,446,060) (33,357,245)
Class C.......................................... (5,747) (43,169)
---------- ------------
Total Repurchases.................................. (6,135,614) $(46,043,368)
========== ============
</TABLE>
23
<PAGE> 62
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
At June 30, 1997, capital aggregated $61,586,372, $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>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B shares purchased
on or after June 1, 1996 will automatically convert to Class A shares after the
eighth year following purchase. Class B shares purchased before June 1, 1996
automatically convert to Class A shares after the sixth year following purchase.
Class C shares purchased before January 1, 1997 will automatically convert to
Class A shares after the tenth year following purchase. The CDSC will be imposed
on most redemptions made within three years of the
24
<PAGE> 63
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
purchase for Class B and one year of the purchase for Class C as detailed in the
following schedule.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
YEAR OF REDEMPTION CLASS B CLASS C
- ------------------------------------------------------------------------------
<S> <C> <C>
First.............................................. 3.00% 1.00%
Second............................................. 2.00% None
Third.............................................. 1.00% None
Fourth and Thereafter.............................. None None
</TABLE>
For the three months ended September 30, 1998 and the year ended June 30,
1998, Van Kampen, as Distributor for the Fund, received commissions on sales of
the Fund's Class A shares of approximately $40 and $200, respectively, and CDSC
on redeemed shares of approximately $500 and $10,200, respectively. Sales
charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
For the three months ended September 30, 1998, the cost of purchases and
proceeds from sales of investments, excluding short-term investments were
$5,625,125 and $12,148,593, respectively.
For the year ended June 30, 1998, the cost of purchases and proceeds from
sales of investments, excluding short-term investments, were $116,378,688 and
$135,900,050, 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 a call 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.
25
<PAGE> 64
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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.
There were no transactions in options for the three months ended September
30, 1998.
Transactions in options for the year ended June 30, 1998, were as follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- ------------------------------------------------------------------------
<S> <C> <C>
Outstanding at June 30, 1997...................... 1 $ (27,698)
Options Written and Purchased (Net)............... 12 444,910
Options Terminated in Closing Transactions
(Net)........................................... (12) (444,910)
Options Expired (Net)............................. (1) 27,698
--- ---------
Outstanding at June 30, 1998...................... -0- $ -0-
=== =========
</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 Notes 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 potential risk of loss associated
with a futures contract could be in excess of the variation margin reflected on
the Statement of Assets and Liabilities. The cost of securities acquired through
delivery under a contract is adjusted by the unrealized gain or loss on the
contract.
26
<PAGE> 65
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Transactions in futures contracts for the three months ended September 30,
1998 and the year ended June 30, 1998, were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- ----------------------------------------------------------------------
<S> <C>
Outstanding at June 30, 1997................................ -0-
Futures Opened.............................................. 371
Futures Closed.............................................. (356)
----
Outstanding at June 30, 1998................................ 15
Futures Opened.............................................. 112
Futures Closed.............................................. (67)
----
Outstanding at September 30, 1998........................... 60
====
</TABLE>
The futures contracts outstanding as of September 30, 1998, and the
descriptions and unrealized depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS DEPRECIATION
- -------------------------------------------------------------------------
<S> <C> <C>
SHORT CONTRACTS:
10-Year German Mark Future Dec 1998
(Current notional value 280,750 DM per
contract).................................. 30 $102,284
10-Year U.S. Treasury Future Dec 1998
(Current notional value $121,438 per
contract).................................. 30 116,563
-- --------
60 $218,847
== ========
</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.
At September 30, 1998, the Fund has outstanding forward currency contracts
as follows:
<TABLE>
<CAPTION>
FORWARD CURRENT UNREALIZED
CURRENCY CONTRACTS VALUE DEPRECIATION
- ------------------------------------------------------------------------
<S> <C> <C>
SHORT CONTRACTS:
Greek Drachma,
300,000,000 expiring 10/13/98............ $ 1,039,998 $ 56,521
New Zealand Dollar,
4,000,000 expiring 10/08/98.............. 2,001,991 491
Pound Sterling,
4,400,000 expiring 10/05/98.............. 7,478,415 307,404
----------- --------
$10,520,404 $364,416
=========== ========
</TABLE>
27
<PAGE> 66
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
D. CLOSED BUT UNSETTLED FORWARD COMMITMENTS--In certain situations, the Fund has
entered into offsetting transactions for outstanding forward commitments prior
to settlement of the obligation. In doing so, the Fund realizes a gain or loss
on the transactions at the time the forward commitment is closed. Risk may
result due to the potential inability of counterparties to meet the terms of
their contracts. At September 30, 1998, the Fund has net realized losses on
closed but unsettled forward currency contracts of $7,045 scheduled to settle
between October 7, 1998 and October 27, 1999. This amount is due to four
counterparties.
6. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these fees
for the three months ended September 30, 1998 and the year ended June 30, 1998,
are payments retained by Van Kampen of approximately $35,900 and $320,100,
respectively.
7. YEAR 2000 COMPLIANCE
Van Kampen utilizes a number of computer programs across its entire operation
relying on both internal software systems as well as external software systems
provided by third parties. In 1996 Van Kampen initiated a CountDown 2000 Project
to review both the internal systems and external vendor connections. The goal of
this project is to position its business to continue unaffected as a result of
the century change. At this time, there can be no assurance that the steps taken
will be sufficient to avoid any adverse impact to the Fund, but Van Kampen does
not anticipate that the move to Year 2000 will have a material impact on its
ability to continue to provide the Fund with service at current levels. In
addition, it is possible that the securities markets in which the Trust invests
may be detrimentally affected by computer failures throughout the financial
services industry beginning January 1, 2000. Improperly functioning trading
systems may result in settlement problems and liquidity issues.
28
<PAGE> 67
VAN KAMPEN 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*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
PAUL G. YOVOVICH
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer and Chief
Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
PAUL R. WOLKENBERG*
EDWARD C. WOOD III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN
INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR
SERVICES INC.
P.O. Box 418256
Kansas City, Missouri 64141-9256
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
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 Funds Inc. 1998 All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or 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 March 31, 1999, this report, if used with
prospective investors, must be accompanied by a quarterly performance update.
29
<PAGE> 68
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 4
Glossary of Terms................................ 5
Portfolio Management Review...................... 6
Portfolio Highlights............................. 10
Portfolio of Investments......................... 11
Statement of Assets and Liabilities.............. 17
Statement of Operations.......................... 18
Statement of Changes in Net Assets............... 19
Financial Highlights............................. 20
Notes to Financial Statements.................... 23
</TABLE>
SIF SAR 11/98
<PAGE> 69
LETTER TO SHAREHOLDERS
October 22, 1998
Dear Shareholder,
These continue to be dramatic
and highly unusual times for global
financial markets. Despite a severe
crisis of confidence in many emerging
economies, the United States has been [PHOTO]
relatively unscathed by the turmoil.
However, volatility increased in the
U.S. equity market as the Asian crisis DENNIS J. MCDONNELL AND DON G. POWELL
spread to Russia and Latin America
during the period. Fixed-income
investors were not entirely
unaffected, as volatility forced yield spreads to widen between Treasuries and
high-yield securities, corporate bonds, and mortgage-backed securities.
We expect that volatility will remain high until the situation overseas
stabilizes. In this environment, it is important to stay focused on long-term
investment goals and to view daily fluctuations as relatively minor in the
larger picture. As we explain elsewhere in this letter, the U.S. economy remains
among the healthiest in the world, and Federal Reserve policymakers have
demonstrated an ability to make prudent decisions with regard to monetary
policy. These factors bode well for investors during the months ahead.
ECONOMIC REVIEW
The global economic crisis spread from Asia to Russia and finally to Latin
America during the summer months as roughly 40 percent of the world economy was
estimated to be either in recession or at risk of a severe slowdown.
At the root of the problem was the continuing inability of the Japanese
government to resolve its nearly decade-long banking crisis. The resulting
recession in Japan kept the economies of its Asian neighbors in the doldrums,
leading to slack demand for commodities. Falling energy prices, in turn, caused
the Russian government to default on short-term debt and devalue the ruble.
Concerns that Russia would flood the world with cheap energy to raise
hard-currency reserves caused investors to bail out of Latin America, fearing
that the commodity-driven economies in the region would be affected as well.
Capital flight from nearly all emerging markets drove up interest rates on
lower-rated bonds to levels that effectively blocked governments and
corporations in developing economies from the global credit market.
Psychological factors played a role in the deceleration of U.S. economic
growth during the reporting period. In a recent speech, Federal Reserve Chairman
Alan Greenspan noted that Americans suddenly have acquired a strong aversion to
risk that had been notably absent in recent years. This risk-averse attitude
manifested itself in slower retail sales growth and a mild drop in housing
activity. Also, the clear preference among investors for safety and liquidity
caused interest rates on lower-quality debt to balloon, leading to fears
Continued on page 2
1
<PAGE> 70
of a credit crunch for U.S. businesses. Such concerns were at least partially
responsible for the Fed's decision to cut short-term interest rates by 0.25
percent on September 29 and again on October 15.
Despite the slowdown, we believe that the American economy remains
fundamentally sound. Inflation at the consumer level increased by just 1.4
percent during the 12 months through September, while wholesale prices actually
fell during the same period.
MARKET REVIEW
The financial crisis in Russia and Latin America helped unleash a furious
flight to quality in global fixed-income markets. As the reporting period ended,
the yield on long-term U.S. Treasury bonds had fallen below 5 percent for the
first time since 1977. Total returns in the domestic bond market were uneven,
however, as investors displayed a preference for quality amid the raging global
economic storm. During the three months through September, long-term Treasury
bonds gained 8.44 percent, compared to 2.37 percent for long-term corporate
bonds and -3.71 percent for high-yield debt. The varying performance reflects a
deep change in investor psychology, with sentiment shifting from confidence to
extreme risk aversion during recent months.
The heightened demand for safety drove yield differentials between bonds of
different credit quality but similar maturities to levels not seen since the
1990-1991 recession. Credit spreads between 10-year Treasury bonds and domestic
high-yield securities, for example, grew to almost 6 percent. While a gradual
widening of credit spreads is normal during the later stages of a business
cycle, the dramatic nature of the expansion was primarily the result of the
heavy buying of Treasury securities by foreign investors seeking shelter from
the sharp sell-offs in world equity markets.
The flight to quality was also evident overseas. The JP Morgan Global
Government Bond Index gained 5.17 percent in local currency terms, led by the
8.04 percent return in the United Kingdom. Meanwhile, the JP Morgan Emerging
Market Bond Index Composite fell 21.23 percent during the quarter, as investors
liquidated bonds from developing economies in favor of high-quality government
bonds from developed nations.
OUTLOOK
Two factors are likely to drive global bond prices in coming months. First,
we believe that yield curves will steepen as central banks around the world add
liquidity by lowering interest rates. As a result, we expect short-term interest
rates to fall while long-term yields stabilize or rise modestly. Second, we
believe that high-yield bonds will outperform other fixed-income investments, as
investors perceive greater relative value in this sector after the extraordinary
rally in government bonds during the third quarter.
The environment for global interest rates remains benign. Economic activity
in the United States is decelerating and growth forecasts for Europe are being
reduced. With price pressures already under control, we expect that global
inflation will remain modest for the foreseeable future.
Continued on page 3
2
<PAGE> 71
Additional details about your Fund, including a question-and-answer section
with your portfolio management team, are provided in this report. As always, we
are pleased to have the opportunity to share with you the progress of your
investment.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
3
<PAGE> 72
PERFORMANCE RESULTS FOR THE PERIOD ENDED SEPTEMBER 30, 1998
VAN KAMPEN STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS
Three-month total return based on NAV(1). (9.03%) (9.14%) (9.16%)
One-year total return(2)................. (12.62%) (12.31%) (9.86%)
Life-of-Fund average annual total
return(2).............................. 2.12% 2.15% 2.33%
Commencement date........................ 12/31/93 12/31/93 12/31/93
DISTRIBUTION RATE AND YIELD
Distribution rate(3)..................... 8.24% 7.77% 7.79%
SEC Yield(4)............................. 8.70% 8.36% 8.36%
</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 September 30, 1998. Had
certain expenses of the Fund not been assumed by VKAC, total returns would have
been lower and the SEC Yield would have been 8.40%, 8.06%, and 8.06% 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. Market volatility may have adversely affected
fund performance since September 30, 1998. 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.
- --------------------------------------------------------------------------------
On July 31, 1998, the Fund's Board of Trustees voted to change the Fund's
fiscal year end from June 30 to March 31. As a result, this semi-annual report
reflects the three-month period commencing on July 1, 1998, and ending on
September 30, 1998.
- --------------------------------------------------------------------------------
4
<PAGE> 73
GLOSSARY OF TERMS
BASIS POINT: A measure used in quoting bond yields. One hundred basis points is
equal to 1 percent. For example, if a bond's yield changes from 7.00 to 6.65
percent, it is a 35 basis-point move.
BOND: A debt security issued by a government or corporation that pays a
bondholder a stated rate of interest and repays the principal at the
maturity date.
CREDIT SPREAD: Also called quality spread, the difference in yield between
higher-quality issues (such as Treasury securities) and lower-quality
issues. Normally, lower-quality issues provide higher yields to compensate
investors for the additional credit risk.
DURATION: A measure of the sensitivity of a bond's price to changes in interest
rates, expressed in years. Each year of duration represents an expected 1
percent change in the price of a bond for every 1 percent change in interest
rates. The longer a fund's duration, the greater the effect of interest rate
movements on net asset value. Typically, funds with shorter durations have
performed better in rising rate environments, while funds with longer
durations have performed better when rates decline.
EMERGING MARKETS: The financial markets of developing economies. Many Latin
American and Asian countries are considered emerging markets.
EUROPEAN MONETARY UNION (EMU): A group of European countries creating one
currency for the entire region.
FEDERAL FUNDS RATE: The interest rate charged by one financial institution
lending federal funds to another. This overnight rate is used to meet banks'
daily reserve requirements. The Federal Reserve Board uses the federal funds
rate to affect the direction of interest rates.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank system of the United States. Its
policy-making committee, called the Federal Open Market Committee, meets
eight times a year to establish monetary policy and monitor the economic
pulse of the United States.
INVESTMENT GRADE BONDS: Securities rated BBB and above by Standard & Poor's or
Baa and above by Moody's Investor Services. Bonds rated below BBB or Baa are
noninvestment grade.
NET ASSET VALUE (NAV): The value of a mutual fund share, calculated by deducting
a fund's liabilities from its total assets and dividing this amount by the
number of shares outstanding. The NAV does not include any initial or
contingent deferred sales charge.
VOLATILITY: A measure of the fluctuation in the market price of a security. A
security that is volatile has frequent and large swings in price.
YIELD: The annual rate of return on an investment, expressed as a percentage.
For bonds and notes, the yield is the annual interest divided by the market
price.
5
<PAGE> 74
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN STRATEGIC INCOME FUND
We recently spoke with the management team of the Van Kampen Strategic Income
Fund about the key events and economic forces that shaped the markets during the
past three months. The team is led by Robert Hickey, portfolio manager, and
Peter W. Hegel, chief investment officer for fixed-income investments.
The Fund's fiscal year end was recently changed from June 30 to March 31.
Going forward, your semiannual reports will be dated September 30, and your
annual reports will be dated March 31. The following interview discusses the
Fund's performance during the three-month period since your last report, from
June 30, 1998, to September 30, 1998.
Q DESCRIBE THE MARKET CONDITIONS AND THE PERFORMANCE OF THE VARIOUS MARKET
SECTORS IN WHICH THE FUND INVESTS.
A Overall, this continues to be a difficult, volatile year, especially for
investments exposed to credit risk. Many markets began slipping in late
July based on fears caused by the turmoil in Russia. The Russian worries
spread to the emerging markets and led to a move by investors toward
high-quality investments.
As a result, we experienced extreme volatility in four of the five sectors
in which the Fund invests--the exception being the U.S. government and
mortgage-backed securities sector. Within this sector, we benefited by investing
75 percent of the exposure in this sector in U.S. Treasuries and reducing our
exposure to mortgage-backed securities. Due to declining interest rates, many
homeowners began refinancing their mortgages at lower levels, which affected the
return of mortgage-backed securities.
The remaining sectors were each negatively affected by volatility during the
period. Fortunately, we were underweight in both the domestic lower-grade income
(primarily high-yield corporate bonds) and the foreign investment-grade sectors
and neutral in foreign lower-grade income securities (primarily emerging market
securities). While these sectors provided the bulk of the negative returns, the
sector that surprised us the most was the domestic investment grade sector,
which suffered from lack of demand and an overall concern about risk in the
market.
Q DID YOU INCREASE THE FUND'S WEIGHTING IN THE UNITED STATES TO TEMPER THE
VOLATILITY?
A Among the seven largest bond markets, the United States has the highest
real interest rates in the world, and we believe this provides us with the
best opportunity to seek high current income. In addition, we moved to an
overweight position in the U.S. government and mortgage-backed securities sector
to take advantage of the shift toward higher-quality investments. As of the end
of the reporting period, we had nearly 30 percent of the Fund invested in the
U.S. government and mortgage-backed securities sector.
6
<PAGE> 75
Q ARE THERE ANY COUNTRIES OUTSIDE OF THE UNITED STATES THAT ARE ATTRACTIVE
TO YOU?
A Our second largest country allocation is a nearly 5 percent position in
Mexico. In addition to its proximity to the United States and its
integration into the U.S. market as a result of NAFTA, we believe Mexico
has prudent financial management. The country has cut its budget three times in
the last year in response to lower oil prices and continues to be very
transparent in its policy initiatives.
Q HOW DID THE FUND PERFORM DURING THE THREE-MONTH REPORTING PERIOD?
A The extreme market volatility hurt the Fund's performance. The Fund
generated a total return of -9.03 percent(1) (Class A shares at net asset
value) for the three months ended September 30, 1998. The Fund's total
return for the 12 months ending September 30, 1998, was -12.62 percent. By
comparison, the Lehman Brothers Aggregate Bond Index, a broad-based index,
generated a total return of 4.23 percent for the same three-month 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 -0.92 percent over the three-month
period. Keep in mind that these indices are statistical composites that do not
include any commissions or sales charges that would be paid by an investor
purchasing the securities or investments they represent.
The Fund's current distribution rate as of September 30, 1998 was 8.24
percent(3)--based on a monthly dividend of $.0790 per Class A share and a
maximum public offering price of $11.50 per share. Please refer to the chart on
page 4 for additional Fund performance results.
Q ELEVEN EUROPEAN NATIONS WILL BEGIN MONETARY UNION JANUARY 1, 1999. DO YOU
THINK THE EURO CURRENCY WILL BE SUCCESSFUL AND HOW WILL ITS DEBUT AFFECT
THE FUND'S STRATEGY?
A Initially, we expect the euro currency to be successful. Overall, the 11
nations that compose the monetary union create an economy comparable in
size to that of the United States. We can envision investors becoming more
euro focused and believe that there will be opportunities in at least three
sectors that the Fund invests--foreign investment grade, domestic investment
grade, and high yield.
During the next six months our exposure to the euro and countries
participating in monetary union should increase. Currently, our most significant
European position is in the United Kingdom, which is not expected to participate
in the monetary union until at least 2001. We anticipate the strength of the
euro could lead to an increase in the Fund's exposure to nondollar currencies.
Eurobonds--dollar-denominated bonds issued by U.S. corporations in European
markets--may also provide opportunities. In addition, we see
7
<PAGE> 76
value in an expanding European high-yield market and will monitor that market
for opportunities.
Q IS YOUR LONG-TERM VIEW FOR MONETARY UNION AS POSITIVE AS YOUR SHORT TERM
VIEW?
A Predicting the long-term outlook for European monetary union is more
difficult. We expect the initial excitement to eventually fade. The next
wave of monetary union, however, may uncover opportunities in the emerging
markets, primarily in Eastern European countries, including Poland, Hungary,
Slovenia, and Greece.
Each of these countries has declared its intention to be included in the
next wave of monetary union. In order to earn acceptance, they must demonstrate
currency stability and credible financial discipline as outlined in the
Maastricht Treaty signed by the original participants. We believe that if
Poland, Hungary, Slovenia, and Greece qualify under the criteria required by
Maastricht, we could find value as these normally volatile economies stabilize.
Q POSITIONING OF THE FUND IS CRUCIAL DURING VOLATILE TIMES. WHERE ARE YOU
INVESTED?
A We believe we have the Fund positioned to take advantage of opportunity
both now and in the future. Our 31 percent overweight in U.S. government
and mortgage-backed securities should help stabilize the Fund in the
meantime. We also have an overweight position of 28 percent in corporate
investment-grade securities.
Currently, we are neutral to underweight in securities in which we generally
encounter the most risk. We believe this positioning allows us to take advantage
of the strength of the U.S. dollar. As of the end of the period, we are neutral
in emerging markets securities, underweight in high-yield securities, and
significantly underweight in foreign currency-denominated securities. For
additional Fund portfolio highlights, please refer to page 10.
Q DO YOU EXPECT ANY OF THESE POSITIONS TO CHANGE?
A First, we need to see stability in the global markets. One factor that has
contributed to the turmoil has been the lack of leadership worldwide. The
October elections in Brazil will be key for Latin America, and Russia
needs to settle on a government and begin to define its new economic model to
the world. These two events will be key to regaining investor confidence.
Additionally, recovery in the Japanese economy and restructuring of the Japanese
banking system will be required to stabilize the global liquidity situation.
We believe the Federal Reserve Board's 25-basis point reduction in interest
rates at the end of September was a good first step. It sends a message that the
Fed can provide
8
<PAGE> 77
\
liquidity to the global markets. We would not be surprised to see the Fed reduce
rates by another 25-basis points before the end of the year. (Editor's Note:
After the reporting period ended, the Fed reduced interest rates again by 0.25
percent.)
The current positioning of the Fund suggests that we are defensive. We feel
we are also positioned to take advantage of opportunities should the markets
stabilize. Because global prices continue to drop, we believe that during the
next 12 months a move toward a neutral to overweight position in emerging market
and high-yield securities could help the Fund. In addition, we expect to
increase our exposure to nondollar currencies and to countries exposed to
European economic and monetary union.
[SIG]
Robert Hickey
Portfolio Manager
[SIG]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
Please see footnotes on page 4
9
<PAGE> 78
PORTFOLIO HIGHLIGHTS
VAN KAMPEN STRATEGIC INCOME FUND
PORTFOLIO HOLDINGS AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
PERCENTAGE OF
TOP TEN HOLDINGS THESE INVESTMENTS
AS OF SEPTEMBER 30, 1998 THREE MONTHS AGO
<S> <C> <C>
U.S. Treasury Bonds ......... 13.8% .................. 7.5%
SD Warren Co ................ 3.6% .................. 3.4%
U.S. Treasury Notes ......... 3.5% .................. 9.3%
Niagara Mohawk Power ........ 3.3% .................. 2.5%
FNMA Note ................... 3.3% .................. N/A
Korea Development Bank ...... 3.1% .................. 5.4%
U.S. Treasury Strips ........ 3.1% .................. N/A
MCI Worldcom Inc./MFS
Communications ............ 3.0% .................. 2.3%
GNMA ........................ 2.2% .................. N/A
Republic of Panama .......... 2.1% .................. 2.2%
</TABLE>
N/A = Not Applicable
ASSET ALLOCATION AS A PERCENTAGE OF LONG-TERM INVESTMENTS
[PIE CHART]
<TABLE>
<S> <C>
AS OF SEPTEMBER 30, 1998
U.S. Government/Mortgage Backed
Securities 30.6%
Domestic Non-Investment Grade 21.5%
Foreign Non-Investment Grade 18.5%
Foreign Investment Grade 14.2%
Domestic Investment Grade 13.30
Common Stock and Preferred Stock 1.90
</TABLE>
[PIE CHART]
<TABLE>
<S> <C>
AS OF JUNE 30, 1998
Domestic Non-Investment Grade 24.40%
Foreign Non-Investment Grade 21.80%
U.S. Government/Mortgage-Backed
Securities 21.80%
Domestic Investment Grade 15.90%
Foreign Investment Grade 12.90%
Common Stock and Preferred Stock 3.20%
</TABLE>
TOP TEN COUNTRIES AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
<S> <C>
United States.......... 65.9%
Mexico................. 5.5%
United Kingdom......... 4.5%
South Korea............ 4.2%
Argentina.............. 2.4% [PIE CHART]
Chile.................. 2.1%
Panama................. 2.1%
Cayman Islands......... 1.9%
Columbia............... 1.8%
Luxembourg............. 1.6%
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
<S> <C>
United States......... 62.4%
South Korea........... 5.4%
Mexico................ 5.4%
United Kingdom........ 3.7% [PIE CHART]
Panama................ 3.3%
Argentina............. 2.9%
Columbia.............. 2.6%
Chile................. 2.2%
Cayman Islands........ 2.0%
Canada................ 1.6%
</TABLE>
10
<PAGE> 79
PORTFOLIO OF INVESTMENTS
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
in Local
Currency Maturity U.S.$
(000) Description Coupon Date Market Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORPORATE BONDS 78.1%
AUTOMOBILE 1.0%
250 Aetna Industries, Inc. - US$........ 11.875% 10/01/06 $ 255,000
1,000 Talon Automotive Group,
144A - Private Placement - US$ (a)
(b)................................. 9.625 05/01/08 935,000
------------
1,190,000
------------
BANKING 12.7%
2,000 Banco Credito Argentino,
144A - Private Placement - US$ (a)
(b)................................. 9.500 04/24/00 1,700,000
3,000 Financiera Energetica Nacional,
144A - Private Placement - US$ (a)
(b)................................. 9.375 06/15/06 1,950,000
4,500 Korea Development Bank - US$ (b).... 6.250 05/01/00 4,116,375
1,000 Korea Development Bank - US$........ 7.125 09/17/01 864,420
3,000 MBNA Capital I - US$ (b)............ 8.278 12/01/26 3,172,698
2,400 Sovereign Bancorp, Inc.,
144A - Private Placement - US$
(a)................................. 8.000 03/15/03 2,589,626
------------
14,393,119
------------
BEVERAGE, FOOD & TOBACCO 7.3%
1,000 Embotelladora Andina SA - US$ (b)... 7.875 10/01/97 906,256
2,000 Kroger Co. - US$.................... 7.000 05/01/18 2,065,760
500 Pantry Inc., 144A - Private
Placement - US$ (a) (b)............. 10.250 10/15/07 490,000
500 Pantry Inc. - US$................... 12.000 11/15/00 523,750
2,500 Pepsi - Gemex SA, Ser B - US$ (b)... 9.750 03/30/04 2,150,000
2,000 Shoppers Food Warehouse - US$ (b)... 9.750 06/15/04 2,135,000
------------
8,270,766
------------
BROADCASTING/TELEVISION 0.6%
1,000 TV Azteca SA - US$.................. 10.125 02/15/04 640,000
------------
BUILDINGS AND REAL ESTATE 3.5%
750 Cemex Intl Cap, LLC - US$........... 9.660 11/29/49 573,750
1,000 Cemex Intl Cap, LLC, 144A - Private
Placement - US$ (a)................. 9.660 11/29/49 765,000
250 Del Webb Corp. - US$................ 9.375 05/01/09 240,000
250 Kevco, Inc., 144A - Private
Placement - US$ (a) (b)............. 10.375 12/01/07 238,750
2,000 Lafarge Corp. - US$................. 6.375 07/15/05 2,108,778
------------
3,926,278
------------
CHEMICALS, PLASTICS & RUBBER 1.1%
325 Pioneer Americas Acquisition, Ser
B - US$ (b)......................... 9.250 06/15/07 266,500
1,000 Coastal Corp. - US$................. 6.500 06/01/08 1,020,349
------------
1,286,849
------------
</TABLE>
See Notes to Financial Statements
11
<PAGE> 80
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
in Local
Currency Maturity U.S.$
(000) Description Coupon Date Market Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONTAINERS, PACKAGING & GLASS 6.1%
5,355 SD Warren Co. - US$................. 12.000% 12/15/04 $ 5,850,338
1,000 Owens Corning - US$................. 7.500 08/01/18 1,000,800
------------
6,851,138
------------
DIVERSIFIED/CONGLOMERATE SERVICE1.4%
1,500 Tyco International Group SA - US$... 6.250 06/15/03 1,563,435
------------
ELECTRONICS 1.4%
1,500 Panamsat Corp., 144A - Private
Placement - US$ (a) (b)............. 6.375 01/15/08 1,522,802
------------
FINANCE 2.8%
2,500 Dynex Capital Inc. - US$ (b)........ 7.875 07/15/02 2,489,900
1,000 Pera Financial, 144A - Private
Placement - US$ (a) (b)............. 9.375 10/15/02 630,000
------------
3,119,900
------------
HEALTHCARE 0.3%
375 Oxford Health Plans, 144A - Private
Placement - US$ (a)................. 11.000 05/15/05 330,000
------------
HOTEL & GAMING 1.2%
575 Booth Creek Ski Holdings, Ser B,
144A - Private Placement - US$ (a)
(b)................................. 12.500 03/15/07 566,375
750 Majestic Star Casino, LLC - US$..... 12.750 05/15/03 778,125
------------
1,344,500
------------
MINING 0.2%
250 Renco Steel Holdings, 144A - Private
Placement - US$ (a)................. 10.875 02/01/05 215,000
------------
OIL & GAS 8.2%
500 Dawson Product Services - US$ (b)... 9.375 02/01/07 501,250
500 Frontier Oil Corp., Ser A - US$..... 9.125 02/15/06 467,500
500 Giant Industries - US$ (b).......... 9.750 11/15/03 495,000
1,000 Hurricane Hydrocarbons,
144A - Private Placement - US$
(a)................................. 11.750 11/01/04 560,000
1,000 Lukinter Finance, BV, 144A - Private
Placement - US$ (a) (b)............. * 11/03/03 310,000
1,000 Noble Drilling Corp. - US$ (b)...... 9.125 07/01/06 1,130,236
3,000 Oryx Energy Co. - US$ (b)........... 8.375 07/15/04 3,259,422
3,000 Petroleos Mexicanos, 144A - Private
Placement - US$ (a)................. 11.157 07/15/05 2,580,000
------------
9,303,408
------------
</TABLE>
See Notes to Financial Statements
12
<PAGE> 81
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
in Local
Currency Maturity U.S.$
(000) Description Coupon Date Market Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRINTING, PUBLISHING &
BROADCASTING 1.2%
1,000 CSC Holdings Inc. - US$ (b)......... 10.500% 05/15/16 $ 1,135,000
250 National Inc., Ser A - US$ (c)...... 0/12.750 04/15/05 222,500
------------
1,357,500
------------
RETAIL 1.0%
250 Big 5 Corp., Ser B - US$ (b)........ 10.875 11/15/07 238,750
500 Community Distributors, Ser B - US$
(b)................................. 10.250 10/15/04 460,000
400 Duane Reade, Inc. - US$ (b)......... 9.250 02/15/08 386,000
------------
1,084,750
------------
TELECOMMUNICATIONS 13.5%
1,000 CIA International Telecommunication,
144A - Private Placement - US$
(a)................................. 10.375 08/01/04 520,081
500 Century Communications - US$ (b).... 9.500 03/01/05 545,625
500 Globo Communicacoes
Participacoes - US$................. 10.625 12/05/08 257,500
500 Hermes Europe Railtel, BV - US$..... 11.500 08/15/07 527,500
500 Intermedia Communications, Ser
B - US$ (b) (c)..................... 0/11.250 07/15/07 365,000
500 Intermedia Communications, Ser
B - US$............................. 8.600 06/01/08 502,500
3,689 MCI Worldcom Inc. - US$ (b)......... 8.875 01/15/06 3,836,560
1,000 MCI Worldcom Inc. - US$............. 6.400 08/15/05 1,050,824
1,000 Metronet Communications Corp.,
144A - Private Placement - US$ (a)
(c)................................. 0/9.950 06/15/08 555,000
1,500 Millicom International - US$ (b)
(c)................................. 0/13.500 06/01/06 952,500
750 Netia Holdings BV, 144A - Private
Placement - US$ (a)................. 10.250 11/01/07 592,500
1,000 Philippine Long Distance Telephone
Co. - US$ (b)....................... 7.850 03/06/07 752,100
500 Pinnacle Holdings, Inc.,
144A - Private Placement - US$
(a)................................. 10.000 03/15/08 270,000
500 Satelites Mexicanos SA,
144A - Private Placement - US$ (a)
(b)................................. 10.125 11/01/04 342,500
750 Spectrasite Holdings Inc.,
144A - Private Placement - US$
(a)................................. 12.000 07/15/08 360,000
250 Splitrock Services, Inc.,
144A - Private Placement - US$
(a)................................. 11.750 07/15/08 230,000
3,000 Tele-Communications Inc. - US$
(b)................................. 6.580 02/15/05 3,420,627
500 Triton Communications LLC,
144A - Private Placement - US$ (a)
(c)................................. 0/11.000 05/01/08 230,000
------------
15,310,817
------------
</TABLE>
See Notes to Financial Statements
13
<PAGE> 82
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
in Local
Currency Maturity U.S.$
(000) Description Coupon Date Market Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TEXTILES 0.7%
350 Pillowtex Corp. - US$ (b)........... 10.000% 11/15/06 $ 364,000
250 Pillowtex Corp., 144A - Private
Placement - US$ (a) (b)............. 9.000 12/15/07 248,750
250 Scovill Fasteners, Inc.,
144A - Private Placement - US$ (a)
(b)................................. 11.250 11/30/07 230,000
------------
842,750
------------
UTILITIES 13.9%
1,000 Central Termica Guemes, SA,
144A - Private Placement - US$ (a)
(b)................................. 12.000 11/26/01 590,000
2,000 DR Investments, 144A - Private
Placement - US$ (a) (b)............. 7.450 05/15/07 2,192,920
1,250 Edelnor, 144A - Private
Placement - US$ (a)................. 7.750 03/15/06 898,463
1,000 Edelnor, 144A - Private
Placement - US$ (a)................. 10.500 06/15/05 797,910
1,000 Endesa - Chile - US$................ 7.750 07/15/08 885,000
2,750 Korea Electric Power - US$.......... 7.000 02/01/27 1,897,500
507 Midland Funding Corp. II - US$
(b)................................. 10.330 07/23/02 548,722
2,000 Niagara Mohawk Power - US$ (b)...... 6.875 03/01/01 2,064,184
500 Niagara Mohawk Power, Ser H - US$
(c)................................. 0/8.500 07/01/10 356,250
3,000 Niagara Mohawk Power, Ser B - US$... 7.000 10/01/00 3,007,500
2,500 Yorkshire Power Finance Ltd,
144A - Private Placement - US$
(a)................................. 6.154 02/25/03 2,531,745
------------
15,770,194
------------
Total Corporate Bonds 78.1%....................................... 88,323,206
------------
FOREIGN GOVERNMENT AND AGENCY SECURITIES 16.8%
ARGENTINA 0.9%
1,500 Federal Republic of Argentina - US$
(d)................................. 5.750 03/31/99 1,012,500
------------
AUSTRALIA 1.2%
2,000 Australian Government - AU$ (b)..... 6.750 11/15/06 1,350,919
------------
BULGARIA 0.8%
1,500 Bulgaria Disc - Ser A - US$ (b)
(d)................................. 6.750 07/28/24 952,500
------------
CANADA 0.8%
1,250 Canadian Government - CA$........... 7.500 03/01/01 869,006
------------
COLOMBIA 0.9%
1,500 Republic of Colombia - US$ (b)...... 8.660 10/07/16 1,050,000
------------
COSTA RICA 0.7%
1,000 Costa Rica - Prin, Ser A - US$ (b)
(d)................................. 6.250 05/21/10 850,000
------------
ITALY 0.9%
1,500,000 Republic of Italy BTPS - ITL........ 9.500 05/01/01 1,032,866
------------
MEXICO 1.6%
2,500 Mexican Par Bond, Ser W-B - US$..... 6.250 12/31/19 1,818,750
------------
</TABLE>
See Notes to Financial Statements
14
<PAGE> 83
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
in Local
Currency Maturity U.S.$
(000) Description Coupon Date Market Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MOROCCO 0.7%
1,000 Moroccan Loan Agreement - US$....... 6.563% 01/01/09 $ 740,000
------------
NEW ZEALAND 1.0%
2,000 New Zealand Government - NZ$........ 8.000 11/15/06 1,147,532
------------
PANAMA 3.1%
2,000 Republic of Panama, 144A - Private
Placement - US$ (a) (b)............. 7.875 02/13/02 1,800,000
2,000 Republic of Panama - US$............ 8.875 09/30/27 1,680,000
------------
3,480,000
------------
RUSSIA 0.7%
12,800 Russia Principal Loan - US$......... 6.625 12/15/20 848,000
------------
UNITED KINGDOM 2.1%
1,000 UK Treasury Bonds - GBP............. 7.000 11/06/01 1,774,904
350 UK Treasury Bonds - GBP............. 6.750 11/26/04 648,588
------------
2,423,492
------------
URUGUAY 0.8%
1,000 Banco Centrl Del Uruguay - Ser
B - US$ (b)......................... 6.750 02/19/21 930,000
------------
VENEZUELA 0.6%
1,000 Republic of Venezuela - Ser
W-A - US$ (d)....................... 6.563 03/31/20 662,500
------------
Total Foreign Government and Agency Securities 16.8%............ 19,168,065
------------
MORTGAGE BACKED SECURITIES
(U.S.) 9.9%
1,865 DLJ Mortgage Acceptance Corp.
1996-E1 (b)......................... 8.039 09/28/25 1,874,834
16,586 FNMA REMIC #97-20 IB (Interest
Only)............................... 1.840 03/25/27 601,232
2,908 FNMA................................ 7.000 02/01/27-08/01/28 2,983,940
3,528 GNMA................................ 7.000 05/15/26-07/15/28 3,632,999
26,797 SBA Strip (Principal Only) (b)...... 2.312 08/24/19 2,068,226
------------
Total Mortgage Backed Securities (U.S.)......................... 11,161,231
------------
U.S. GOVERNMENT AND GOVERNMENT AGENCY
OBLIGATIONS 34.1%
5,000 FNMA Note........................... 6.000 05/15/08 5,407,750
10,000 U.S. T-Bonds........................ 6.125 11/15/27 11,571,300
10,000 U.S. T-Bonds........................ 5.500 08/15/28 10,843,800
5,275 U.S. T-Notes........................ 5.500 02/15/08 5,720,843
12,200 U.S. Treasury Strip (Principal
Only)............................... * 11/15/15 5,000,536
------------
Total U.S. Government and Government Agency Obligations......... 38,544,229
------------
</TABLE>
See Notes to Financial Statements
15
<PAGE> 84
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S.$
Description Shares Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C>
COMMON AND PREFERRED STOCKS 4.8%
Avalon Bay Communities, Ser G - Preferred - US$ (b).........
50,000 $ 1,265,625
Coastal Finance - Preferred - US$...........................
60,000 1,485,000
Grupo Casa Autrey - ADR (Mexico) - US$......................
8,500 48,875
MEPC International Capital, LP - Preferred - US$ (b)........
100,000 2,631,250
Thai Military Bank - THB....................................
15,000 1,802
------------
Total Common and Preferred Stocks................................ 5,432,552
SWAP TRANSACTIONS 0.0%
Goldman Sachs, 10.0 million US$ notional amount, maturing 01/19/00,
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................................................................. (1,043)
------------
TOTAL LONG-TERM INVESTMENTS 143.7%
(Cost $171,393,274).............................................. 162,628,240
LIABILITIES IN EXCESS OF OTHER ASSETS (43.7)%....................... (49,505,238)
------------
NET ASSETS 100.0%................................................... $113,123,002
============
</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 only be resold in
transactions exempt from registration which are normally those transactions
with qualified institutional buyers.
(b) Assets segregated as collateral for when issued or delayed delivery purchase
commitments, open options, 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.
PORTFOLIO COMPOSITION BY CREDIT QUALITY
The following table summarizes the portfolio composition at September 30,
1998, based upon the highest credit quality ratings as determined by Standard &
Poor's or Moody's.
<TABLE>
<S> <C>
U.S. Government and U.S. Government Agency Obligations...... 29.4%
AAA......................................................... 5.4%
A........................................................... 7.4%
BBB......................................................... 15.8%
BB.......................................................... 25.6%
B........................................................... 13.8%
CCC......................................................... 0.5%
CC.......................................................... 0.2%
Non-Rated................................................... 1.9%
------
100.0%
======
</TABLE>
See Notes to Financial Statements
16
<PAGE> 85
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $171,393,274)....................... $162,628,240
Receivables:
Interest.................................................. 3,480,908
Investments Sold.......................................... 3,263,142
Fund Shares Sold.......................................... 244,836
Forward Currency Contracts.................................. 914,978
Unamortized Organizational Costs............................ 8,471
Options at Market Value (Net premiums paid of $12,450)...... 937
Other....................................................... 648
------------
Total Assets............................................ 170,542,160
------------
LIABILITIES:
Payables:
Reverse Repurchase Agreements............................. 27,904,656
Bank Borrowings........................................... 25,058,977
Investments Purchased..................................... 2,692,882
Variation Margin on Futures............................... 506,469
Income Distributions...................................... 418,340
Fund Shares Repurchased................................... 245,692
Distributor and Affiliates................................ 129,968
Investment Advisory Fee................................... 75,425
Accrued Expenses............................................ 272,403
Trustees' Deferred Compensation and Retirement Plans........ 114,346
------------
Total Liabilities....................................... 57,419,158
------------
NET ASSETS.................................................. $113,123,002
============
NET ASSETS CONSIST OF:
Capital..................................................... $134,330,912
Accumulated Distribution in Excess of Net Investment
Income.................................................... (1,988,665)
Accumulated Net Realized Loss............................... (8,558,713)
Net Unrealized Depreciation................................. (10,660,532)
------------
NET ASSETS.................................................. $113,123,002
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $41,092,317 and 3,751,582 shares of
beneficial interest issued and outstanding)............. $ 10.95
Maximum sales charge (4.75%* of offering price)......... .55
------------
Maximum offering price to public........................ $ 11.50
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $68,144,189 and 6,220,366 shares of
beneficial interest issued and outstanding)............. $ 10.96
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $3,886,496 and 355,169 shares of
beneficial interest issued and outstanding)............. $ 10.94
============
</TABLE>
*On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
17
<PAGE> 86
STATEMENT OF OPERATIONS
For the Three Months Ended September 30, 1998
and the Year Ended June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Year Ended
September 30, 1998 June 30, 1998
- --------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest (Net of foreign withholding taxes of
$2,021 and $9,201, respectively)................ $ 3,385,036 13,354,450
Dividends (Net of foreign withholding taxes of $53
for the year ended June 30, 1998)............... 116,437 786,323
----------- -----------
Total Income................................ 3,501,473 14,140,773
----------- -----------
EXPENSES:
Investment Advisory Fee........................... 326,880 1,262,844
Distribution (12b-1) and Service Fees (Attributed
to Classes A, B and C of $27,502, $183,417 and
$9,942, respectively, for the three months ended
September 30, 1998 and $113,849, $781,645 and
$37,816, respectively, for the year ended June
30, 1998)....................................... 220,861 933,310
Shareholder Services.............................. 47,849 185,508
Custody........................................... 25,482 86,456
Trustees' Fees and Expenses....................... 10,482 29,318
Amortization of Organizational Costs.............. 8,565 33,982
Legal............................................. 4,140 16,532
Other............................................. 80,809 343,480
----------- -----------
Total Operating Expenses.................... 725,068 2,891,430
Less Fees Waived............................ 95,417 118,837
----------- -----------
Net Operating Expenses...................... 629,651 2,772,593
Interest Expense............................ 664,742 2,151,078
----------- -----------
NET INVESTMENT INCOME............................. $ 2,207,080 $ 9,217,102
=========== ===========
NET REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments..................................... $ (796,232) $ 3,963,593
Options......................................... 76,849 (467,470)
Futures......................................... (3,735,452) (3,234,026)
Forwards........................................ 162,062 (1,497,004)
Foreign Currency Transactions................... 16,183 (19,018)
---------- ----------
Net Realized Loss................................. (4,276,590) (1,253,925)
---------- ----------
Net Unrealized Appreciation/Depreciation:
Beginning of the Period........................... (1,176,688) 2,587,120
---------- ----------
End of the Period:
Investments..................................... (8,765,034) (431,623)
Options......................................... (11,513) 311,905
Futures......................................... (1,830,236) (727,773)
Forwards........................................ (55,376) (329,325)
Foreign Currency Translation.................... 1,627 128
---------- ----------
(10,660,532) (1,176,688)
---------- ----------
Net Unrealized Depreciation During the Period..... (9,483,844) (3,763,808)
---------- ----------
NET REALIZED AND UNREALIZED LOSS.................. (13,760,434) ($5,017,733)
========== ==========
NET INCREASE/DECREASE IN NET ASSETS FROM
OPERATIONS...................................... (11,553,354) $4,199,369
========== ==========
</TABLE>
See Notes to Financial Statements
18
<PAGE> 87
STATEMENT OF CHANGES IN NET ASSETS
For the Three Months Ended September 30, 1998,
the Years Ended June 30, 1998 and June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Year Ended Year Ended
September 30, 1998 June 30, 1998 June 30, 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income......................... $ 2,207,080 $ 9,217,102 $ 8,581,357
Net Realized Gain/Loss........................ (4,276,590) (1,253,925) 2,999,390
Net Unrealized Appreciation/Depreciation
During the Period............................ (9,483,844) (3,763,808) 3,381,566
----------- ------------ ------------
Change in Net Assets from Operations.......... (11,553,354) 4,199,369 14,962,313
----------- ------------ ------------
Distributions from Net Investment Income...... (2,207,080) (9,238,901) (8,604,269)
Distributions in Excess of Net Investment
Income....................................... (79,108) -0- (27,347)
----------- ------------ ------------
Distributions from and in Excess of Net
Investment Income*........................... (2,286,188) (9,238,901) (8,631,616)
----------- ------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES................................... (13,839,542) (5,039,532) 6,330,697
----------- ------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold..................... 9,059,449 37,212,204 40,557,345
Net Asset Value of Shares Issued Through
Dividend Reinvestment........................ 1,032,604 4,088,237 3,498,095
Cost of Shares Repurchased.................... (8,493,810) (34,763,480) (25,388,033)
----------- ------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS................................. 1,598,243 6,536,961 18,667,407
----------- ------------ ------------
TOTAL INCREASE/DECREASE IN NET ASSETS......... (12,241,299) 1,497,429 24,998,104
NET ASSETS:
Beginning of the Period....................... 125,364,301 123,866,872 98,868,768
----------- ------------ ------------
End of the Period (Including accumulated
undistributed net investment income of
($1,988,665), ($1,909,557), and $150,395,
respectively)................................ 113,123,002 $125,364,301 $123,866,872
=========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Year Ended Year Ended
*Distributions by Class September 30, 1998 June 30, 1998 June 30, 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Distributions from and in
Excess of
Net Investment Income:
Class A Shares............ $ (885,254) $(3,523,499) $(3,189,748)
Class B Shares............ (1,329,166) (5,451,394) (5,177,891)
Class C Shares............ (71,768) (264,008) (263,977)
----------- ----------- -----------
$(2,286,188) $(9,238,901) $(8,631,616)
=========== =========== ===========
</TABLE>
See Notes to Financial Statements
19
<PAGE> 88
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1993
(Commencement
Three Months Year Ended June 30, of Investment
Ended ------------------------------------- Operations) to
Class A Shares September 30, 1998 1998 1997 1996 1995 June 30, 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period.............. $12.286 $12.778 $12.065 $11.704 $11.975 $14.300
------- ------- ------- ------- ------- -------
Net Investment
Income.............. .228 .973 1.019 1.013 .657 .566
Net Realized and
Unrealized
Gain/Loss........... (1.324) (.489) .714 .446 .272 (2.391)
------- ------- ------- ------- ------- -------
Total from Investment
Operations.......... (1.096) .484 1.733 1.459 .929 (1.825)
------- ------- ------- ------- ------- -------
Less:
Distributions from
and in Excess of
Net Investment
Income............ .237 .976 1.020 1.098 .793 .500
Return of Capital
Distribution...... -0- -0- -0- -0- .407 -0-
------- ------- ------- ------- ------- -------
Total Distributions... .237 .976 1.020 1.098 1.200 .500
------- ------- ------- ------- ------- -------
Net Asset Value, End
of the Period....... $10.953 $12.286 $12.778 $12.065 $11.704 $11.975
======= ======= ======= ======= ======= =======
Total Return* (a)..... (9.03%)** 3.89% 14.92% 12.92% 8.46% (12.83%)**
Net Assets at End of
the Period (In
millions)........... $ 41.1 $ 45.3 $ 43.8 $ 33.8 $ 29.6 $ 24.5
Ratio of Operating
Expenses to Average
Net Assets*......... 1.59% 1.68% 1.81% 1.84% 1.98% 1.88%
Ratio of Interest
Expense to Average
Net Assets.......... 2.19% 1.69% 1.99% 2.27% 2.38% .96%
Ratio of Net
Investment Income to
Average Net
Assets*............. 7.77% 7.72% 8.12% 8.34% 5.88% 9.27%
Portfolio Turnover.... 144%** 523% 474% 343% 253% 114%**
* If certain expenses had not been reimbursed by Van Kampen, Total
Return would have been lower and the ratios would have been as
follows:
Ratio of Operating
Expenses to Average
Net Assets.......... 1.91% 1.78% 1.86% 1.92% N/A N/A
Ratio of Net
Investment Income to
Average Net
Assets.............. 7.45% 7.63% 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
20
<PAGE> 89
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1993
(Commencement
Three Months Year Ended June 30, of Investment
Ended ------------------------------------- Operations) to
Class B Shares September 30, 1998 1998 1997 1996 1995 June 30, 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period.............. $12.286 $12.779 $12.069 $11.706 $11.968 $14.300
------- ------- ------- ------- ------- -------
Net Investment
Income.............. .205 .878 .920 .926 .585 .515
Net Realized and
Unrealized
Gain/Loss........... (1.323) (.491) .717 .443 .245 (2.392)
------- ------- ------- ------- ------- -------
Total from Investment
Operations.......... (1.118) .387 1.637 1.369 .830 (1.877)
------- ------- ------- ------- ------- -------
Less:
Distributions from
and in Excess of
Net Investment
Income............ .213 .880 .927 1.006 .722 .455
Return of Capital
Distribution...... -0- -0- -0- -0- .370 -0-
------- ------- ------- ------- ------- -------
Total Distributions... .213 .880 .927 1.006 1.092 .455
------- ------- ------- ------- ------- -------
Net Asset Value, End
of the Period....... $10.955 $12.286 $12.779 $12.069 $11.706 $11.968
======= ======= ======= ======= ======= =======
Total Return* (a)..... (9.14%)** 3.11% 13.98% 12.06% 7.62% (13.21%)**
Net Assets at End of
the Period (In
millions)........... $ 68.1 $ 76.2 $ 76.2 $ 61.9 $ 52.6 $ 46.4
Ratio of Operating
Expenses to Average
Net Assets*......... 2.35% 2.44% 2.57% 2.59% 2.68% 2.63%
Ratio of Interest
Expense to Average
Net Assets.......... 2.19% 1.69% 1.98% 2.26% 2.38% .96%
Ratio of Net
Investment Income to
Average Net
Assets*............. 7.01% 6.96% 7.33% 7.58% 5.30% 8.48%
Portfolio Turnover.... 144%** 523% 474% 343% 253% 114%**
* If certain expenses had not been reimbursed by Van Kampen, Total
Return would have been lower and the ratios would have been as
follows:
Ratio of Operating
Expenses to Average
Net Assets.......... 2.67% 2.54% 2.61% 2.67% N/A N/A
Ratio of Net
Investment Income to
Average Net
Assets.............. 6.70% 6.86% 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
21
<PAGE> 90
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1993
(Commencement
Three Months Year Ended June 30, of Investment
Ended ------------------------------------- Operations) to
Class C Shares September 30, 1998 1998 1997 1996 1995 June 30, 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period................ $12.274 $12.768 $12.059 $11.699 $11.966 $14.300
------- ------- ------- ------- ------- -------
Net Investment Income... .202 .876 .913 .944 .598 .509
Net Realized and
Unrealized
Gain/Loss............. (1.320) (.490) .723 .422 .227 (2.388)
------- ------- ------- ------- ------- -------
Total from Investment
Operations............ (1.118) .386 1.636 1.366 .825 (1.879)
------- ------- ------- ------- ------- -------
Less:
Distributions from and
in Excess of Net
Investment Income... .213 .880 .927 1.006 .722 .455
Return of Capital
Distribution........ -0- -0- -0- -0- .370 -0-
------- ------- ------- ------- ------- -------
Total Distributions..... .213 .880 .927 1.006 1.092 .455
------- ------- ------- ------- ------- -------
Net Asset Value, End of
the Period............ $10.943 $12.274 $12.768 $12.059 $11.699 $11.966
======= ======= ======= ======= ======= =======
Total Return* (a)....... (9.16%)** 3.03% 13.99% 12.07% 7.53% (13.21%)**
Net Assets at End of the
Period (In
millions)............. $ 3.9 $ 3.9 $ 3.8 $ 3.1 $ 1.7 $ 2.1
Ratio of Operating
Expenses to Average
Net Assets*........... 2.35% 2.44% 2.56% 2.58% 2.69% 2.65%
Ratio of Interest
Expense to Average Net
Assets................ 2.18% 1.69% 1.98% 2.22% 2.38% .95%
Ratio of Net Investment
Income to Average Net
Assets*............... 6.97% 6.96% 7.31% 7.49% 5.92% 8.36%
Portfolio Turnover...... 144%** 523% 474% 343% 253% 114%**
* If certain expenses had not been reimbursed by Van Kampen, Total Return
would have been lower and the ratios would have been as follows:
Ratio of Operating
Expenses to Average
Net Assets............ 2.66% 2.54% 2.61% 2.66% N/A N/A
Ratio of Net Investment
Income to Average Net
Assets................ 6.65% 6.87% 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
22
<PAGE> 91
NOTES TO FINANCIAL STATEMENTS
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Strategic Income Fund, (the "Fund") is organized as a series of Van
Kampen 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. In July, 1998, the Fund's Board of Trustees
approved a change in the Fund's fiscal year end from June 30 to March 31. As a
result, this financial report reflects the three month period commencing on July
1, 1998, and ending on September 30, 1998.
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
23
<PAGE> 92
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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.
C. INCOME AND EXPENSES--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. Expenses of the
Fund are allocated on a pro rata basis to each class of shares, except for
distribution and service fees and transfer agency costs which are unique to each
class of shares.
D. 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 Funds Inc. or its
affiliates (collectively "Van Kampen") 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 Investment Advisory Corp. (the "Adviser") has agreed that in the event
any of the initial shares of the Fund originally purchased by Van Kampen 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, 1998, the Fund had an accumulated capital loss carryforward
for tax purposes of $4,278,802 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
24
<PAGE> 93
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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, 1998.
At September 30, 1998, for federal income tax purposes, cost of long-term
investments is $171,420,774; the aggregate gross unrealized appreciation is
$3,575,594 and the aggregate gross unrealized depreciation is $12,367,085,
resulting in net unrealized depreciation on long-term investments and swaps of
$8,791,491.
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. For the year ended June 30, 1998, permanent book and tax basis
differences relating to the recognition of net realized losses on foreign
currency transactions totaling $2,038,153 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 three months ended September 30, 1998 and the year ended June 30,
1998, the Adviser voluntarily waived approximately $95,000 and $86,000,
respectively, of its investment advisory fees. This waiver is voluntary and can
be discontinued at any time. Additionally, for the year ended June 30, 1998, the
Advisor voluntarily assumed approximately $33,000 of the Fund's registration and
filing fees.
For the three months ended September 30, 1998 and the year ended June 30,
1998, the Fund recognized expenses of approximately $600 and $4,600,
respectively, 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 three months ended September 30, 1998 and the year ended June 30,
1998, the Fund recognized expenses of approximately $7,500 and $29,600,
respectively,
25
<PAGE> 94
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
representing Van Kampen's cost of providing accounting, cash management and
legal services to the Fund.
Van Kampen Investor Services Inc. ("VKIS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the three months
ended September 30, 1998 and the year ended June 30, 1998, the Fund recognized
expenses of approximately $34,500 and $129,400, respectively. Beginning in 1998,
the transfer agency fees are determined through negotiations with the Fund's
Board of Trustees and are based on competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
At September 30, 1998, Van Kampen 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.
26
<PAGE> 95
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
At September 30, 1998, capital aggregated $48,627,130, $81,066,690 and
$4,637,092 for Classes A, B and C, respectively. For the three months ended
September 30, 1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A..................................... 322,008 $ 3,764,938
Class B..................................... 369,381 4,314,324
Class C..................................... 83,320 980,187
---------- -----------
Total Sales................................... 774,709 $ 9,059,449
========== ===========
Dividend Reinvestment:
Class A..................................... 36,104 $ 410,751
Class B..................................... 50,334 572,611
Class C..................................... 4,338 49,242
---------- -----------
Total Dividend Reinvestment................... 90,776 $ 1,032,604
========== ===========
Repurchases:
Class A..................................... (294,632) $(3,375,704)
Class B..................................... (401,265) (4,591,504)
Class C..................................... (46,528) (526,602)
---------- -----------
Total Repurchases............................. (742,425) $(8,493,810)
========== ===========
</TABLE>
27
<PAGE> 96
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
At June 30, 1998, capital aggregated $47,827,145, $80,771,259 and $4,134,265
for Classes A, B and C, respectively. For the year ended June 30, 1998,
transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................... 1,118,648 $ 14,164,929
Class B.................................... 1,677,599 21,153,724
Class C.................................... 150,464 1,893,551
---------- ------------
Total Sales.................................. 2,946,711 $ 37,212,204
========== ============
Dividend Reinvestment:
Class A.................................... 131,101 $ 1,649,403
Class B.................................... 180,125 2,266,285
Class C.................................... 13,723 172,549
---------- ------------
Total Dividend Reinvestment.................. 324,949 $ 4,088,237
========== ============
Repurchases:
Class A.................................... (990,262) $(12,470,355)
Class B.................................... (1,620,464) (20,396,054)
Class C.................................... (150,449) (1,897,071)
---------- ------------
Total Repurchases............................ (2,761,175) $(34,763,480)
========== ============
</TABLE>
28
<PAGE> 97
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
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>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B shares will
automatically convert to Class A shares after the eighth year following
purchase. The CDSC will be imposed on most redemptions made within six years of
the purchase for Class B and one year of the purchase for Class C as detailed in
the following schedule.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
YEAR OF REDEMPTION CLASS B CLASS C
- -------------------------------------------------------------------------
<S> <C> <C>
First.............................................. 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> 98
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
For the three months ended September 30, 1998 and the year ended June 30,
1998, Van Kampen, as Distributor for the Fund, received commissions on sales of
the Fund's Class A shares of approximately $5,900 and $27,600, respectively, and
CDSC on redeemed shares of approximately $45,400 and $236,400, respectively.
Sales charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
For the three months ended September 30, 1998, the cost of purchases and
proceeds from sales of investments, excluding short-term investments, were
$246,600,340 and $249,641,966, respectively. For the year ended June 30, 1998,
the cost of purchases and proceeds from sales of investments, excluding
short-term investments, were $858,569,959 and $859,486,340, 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.
30
<PAGE> 99
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Transactions in options for the three months ended September 30, 1998 and
the year ended June 30, 1998, were as follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- -------------------------------------------------------------------------
<S> <C> <C>
Outstanding at June 30, 1997.................... 1,627 $ (246,766)
Options Written and Purchased (Net)............. 3,233 (1,540,015)
Options Terminated in Closing
Transactions (Net)............................ (3,781) 1,130,290
Options Expired (Net)........................... (778) 384,716
------ -----------
Outstanding at June 30, 1998.................... 301 (271,775)
Options Written and Purchased (Net)............. 600 (16,519)
Options Terminated in Closing
Transactions (Net)............................ (601) 262,925
Options Expired (Net)........................... (150) 12,919
------ -----------
Outstanding at September 30, 1998............... 150 $ (12,450)
====== ===========
</TABLE>
The related futures contracts of the outstanding option transactions as of
September 30, 1998, and the description and market value are as follows:
<TABLE>
<CAPTION>
MARKET
EXPIRATION MONTH/ VALUE OF
DESCRIPTION CONTRACTS EXERCISE PRICE OPTIONS
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Euro $ Futures
Dec 1998--Purchased Put........... 150 Dec/94 $ 937
======= ========
</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 risk of loss associated with a
futures contract may be in excess of the variation margin reflected on the
Statement of Assets and Liabilities. The cost of securities acquired through
delivery under a contract is adjusted by the unrealized gain or loss on the
contract.
31
<PAGE> 100
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Transactions in futures contracts for the three months ended September 30,
1998 and the year ended June 30, 1998, were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- ----------------------------------------------------------------------
<S> <C>
Outstanding at June 30, 1997............................... 689
Futures Opened............................................. 7,096
Futures Closed............................................. (7,156)
------
Outstanding at June 30, 1998............................... 629
Futures Opened............................................. 1,398
Futures Closed............................................. (1,467)
------
Outstanding at September 30, 1998.......................... 560
======
</TABLE>
The futures contracts outstanding as of September 30, 1998, and the
descriptions and unrealized appreciation/depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
- ---------------------------------------------------------------------------
<S> <C> <C>
SHORT CONTRACTS:
10-Year British Gilt Future Dec 1998
(Current notional value 112,320 GBP per
contract)................................... 10 $ (61,584)
10-Year German Mark Future Dec 1998
(Current notional value 280,750 DM per
contract)................................... 20 (68,189)
10-Year Japanese Bond Future Dec 1998
(Current notional value 135,065,552 JPY per
contract)................................... 11 (311,892)
U.S. Treasury Bond Future Dec 1998
(Current notional value $131,469 per
contract)................................... 334 (866,226)
S&P 500 Future Dec 1998
(Current notional value $256,500 per
contract)................................... 10 30,000
5-Year U.S. Treasury Note Future Dec 1998
(Current notional value $114,953 per
contract)................................... 175 (552,345)
--- ---------
560 ($1,830,236)
=== ==========
</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.
32
<PAGE> 101
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
At September 30, 1998, the Fund has outstanding forward currency contracts
as follows:
<TABLE>
<CAPTION>
UNREALIZED
FORWARD CURRENT APPRECIATION/
CURRENCY VALUE DEPRECIATION
- -------------------------------------------------------------------------
<S> <C> <C>
SHORT CONTRACTS:
German Mark,
3,539,850 expiring 10/19/98-12/11/98...... $ 2,123,219 $ (8,649)
Mexican Peso,
51,735,000 expiring 10/09/98.............. 5,000,000 0
South African Rand,
6,564,500 expiring 10/02/98............... 1,115,951 (46,727)
----------- ---------
$ 8,239,170 $ (55,376)
=========== =========
</TABLE>
D. CLOSED BUT UNSETTLED FORWARD COMMITMENTS--In certain situations, the Fund has
entered into offsetting transactions for outstanding forward commitments prior
to settlement of the obligation. In doing so, the Fund realizes a gain or loss
on the transactions at the time the forward commitment is closed. Risk may
result due to the potential inability of counterparties to meet the terms of
their contracts. At September 30, 1998, the Fund has net realized gains on
closed but unsettled forward currency contracts of $970,354 scheduled to settle
between October 5, 1998 and July 30, 1999. This amount is due from three
counterparties, the largest portion due from one counterparty represents 62% of
this receivable.
E. 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.
F. INVERSE FLOATING SECURITY--These instruments, which may have been held 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 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.
G. INTEREST ONLY/PRINCIPAL ONLY SECURITIES--A Mortgage-Backed Security or U.S.
Treasury Obligation may be stripped to create an Interest Only (IO) security and
a Principal Only (PO) security. An IO represents ownership in the cash flows of
the interest payments
33
<PAGE> 102
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
or coupon payments made. The cash flow from an IO instrument decreases as the
borrower repays the principal balance. Conversely, a PO represents ownership in
the cash flows of the principal payments made. A PO created from a U.S. Treasury
Obligation becomes a zero coupon bond. The cash flow on a PO instrument
increases as the borrowers repay the principal balance. These instruments are
typically used to manage interest rate exposure in the fund's 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.
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 three months ended September 30, 1998 and the year ended June 30, 1998,
are payments retained by Van Kampen of approximately $142,800 and $604,600,
respectively.
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 May 31, 1999. Interest is charged under the agreement at a rate of
.425% above the federal funds rate. The interest rate in effect at September 30,
1998, was 6.175%. An annual facility fee of .075% is charged on the unused
portion of the credit line.
34
<PAGE> 103
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The Fund has entered into reverse repurchase agreements with Warburg Dillon
Read LLC, under which the Fund sells securities and agrees to repurchase them on
October 1, 1998 at a mutually agreed upon price. For the three months ended
September 30, 1998, the average interest rate in effect for reverse repurchase
agreements was 4.360%.
The average daily balance of bank borrowings and reverse repurchase
agreements for the three months ended September 30, 1998, was approximately
$52,435,700 with an average interest rate of 4.97%.
At September 30, 1998, these agreements represented 31.1% of the Fund's
total assets.
9. YEAR 2000 COMPLIANCE
Van Kampen utilizes a number of computer programs across its entire operation
relying on both internal software systems as well as external software systems
provided by third parties. In 1996 Van Kampen initiated a CountDown 2000 Project
to review both the internal systems and external vendor connections. The goal of
this project is to position its business to continue unaffected as a result of
the century change. At this time, there can be no assurance that the steps taken
will be sufficient to avoid any adverse impact to the Fund, but Van Kampen does
not anticipate that the move to Year 2000 will have a material impact on its
ability to continue to provide the Fund with service at current levels. In
addition, it is possible that the securities markets in which the Fund invests
may be detrimentally affected by computer failures throughout the financial
services industry beginning January 1, 2000. Improperly functioning trading
systems may result in settlement problems and liquidity issues.
35
<PAGE> 104
VAN KAMPEN FUNDS
EQUITY FUNDS
Domestic
Aggressive Equity
Aggressive Growth
American Value
Comstock
Emerging Growth
Enterprise
Equity Growth
Equity Income
Growth
Growth and Income
Harbor
Pace
Real Estate Securities
U.S. Real Estate
Utility
Value
International/Global
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
Global Franchise
Global Managed Assets
International Magnum
Latin American
FIXED-INCOME FUNDS
Income
Corporate Bond
Global Fixed Income
Global Government Securities
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
Short-Term Global Income
Strategic Income
U.S. Government
U.S. Government Trust for Income
Worldwide High Income
Tax Exempt Income
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal
Insured Tax Free Income
Intermediate Term Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
Capital Preservation
Reserve
Tax Free Money
Senior Loan
Prime Rate Income Trust
Senior Floating Rate
To find out more about any of these funds, ask your financial adviser for a
prospectus, which contains more complete information, including sales charges,
risks, and expenses. Please read it carefully before you invest or send money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- - visit our web site at
WWW.VANKAMPEN.COM -- to view a prospectus, select Download Prospectus
- - call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time
(Telecommunications Device for the Deaf users, call 1-800-421-2833)
- - e-mail us by visiting
WWW.VANKAMPEN.COM and selecting Contact Us
36
<PAGE> 105
VAN KAMPEN STRATEGIC INCOME FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
PAUL G. YOVOVICH
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
PAUL R. WOLKENBERG*
EDWARD C. WOOD, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN
INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR
SERVICES INC.
P.O. Box 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 Funds Inc., 1998
All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or 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 March 31, 1999, the report, if used with prospective
investors, must be accompanied by a quarterly performance update.
37
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> HIGH YIELD CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1999<F1>
<PERIOD-START> JUL-01-1998<F1>
<PERIOD-END> SEP-30-1998<F1>
<INVESTMENTS-AT-COST> 417,899,183<F1>
<INVESTMENTS-AT-VALUE> 382,160,678<F1>
<RECEIVABLES> 13,031,892<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 14,510<F1>
<TOTAL-ASSETS> 395,207,080<F1>
<PAYABLE-FOR-SECURITIES> 2,921,250<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 3,754,274<F1>
<TOTAL-LIABILITIES> 6,675,524<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 370,348,559
<SHARES-COMMON-STOCK> 28,433,232
<SHARES-COMMON-PRIOR> 28,360,164
<ACCUMULATED-NII-CURRENT> (2,668,387)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (91,396,008)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (36,490,273)<F1>
<NET-ASSETS> 252,009,687
<DIVIDEND-INCOME> 92,450<F1>
<INTEREST-INCOME> 9,375,164<F1>
<OTHER-INCOME> 127,579<F1>
<EXPENSES-NET> (1,529,579)<F1>
<NET-INVESTMENT-INCOME> 8,065,614<F1>
<REALIZED-GAINS-CURRENT> (5,281,850)<F1>
<APPREC-INCREASE-CURRENT> (39,456,291)<F1>
<NET-CHANGE-FROM-OPS> (36,672,527)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (5,993,251)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> (1,731,165)
<NUMBER-OF-SHARES-REDEEMED> (1,920,153)
<SHARES-REINVESTED> 262,056
<NET-CHANGE-IN-ASSETS> (28,556,227)
<ACCUMULATED-NII-PRIOR> (1,685,377)<F1>
<ACCUMULATED-GAINS-PRIOR> (86,114,158)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 797,054<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 1,635,853<F1>
<AVERAGE-NET-ASSETS> 270,341,376
<PER-SHARE-NAV-BEGIN> 9.893
<PER-SHARE-NII> 0.188
<PER-SHARE-GAIN-APPREC> (1.008)
<PER-SHARE-DIVIDEND> (0.210)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.863
<EXPENSE-RATIO> 1.17
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> HIGH YIELD B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1999<F1>
<PERIOD-START> JUL-01-1998<F1>
<PERIOD-END> SEP-30-1998<F1>
<INVESTMENTS-AT-COST> 417,899,163<F1>
<INVESTMENTS-AT-VALUE> 382,160,678<F1>
<RECEIVABLES> 13,031,892<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 14,510<F1>
<TOTAL-ASSETS> 395,207,080<F1>
<PAYABLE-FOR-SECURITIES> 2,921,250<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 3,754,274<F1>
<TOTAL-LIABILITIES> 6,675,524<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 137,580,291
<SHARES-COMMON-STOCK> 14,266,061
<SHARES-COMMON-PRIOR> 14,662,143
<ACCUMULATED-NII-CURRENT> (2,668,387)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (91,396,008)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (36,490,273)<F1>
<NET-ASSETS> 126,398,260
<DIVIDEND-INCOME> 92,450<F1>
<INTEREST-INCOME> 9,375,164<F1>
<OTHER-INCOME> 127,579<F1>
<EXPENSES-NET> (1,529,579)<F1>
<NET-INVESTMENT-INCOME> 8,065,614<F1>
<REALIZED-GAINS-CURRENT> (5,281,850)<F1>
<APPREC-INCREASE-CURRENT> (39,456,291)<F1>
<NET-CHANGE-FROM-OPS> (36,672,527)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (2,828,879)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,308,884
<NUMBER-OF-SHARES-REDEEMED> (1,821,702)
<SHARES-REINVESTED> 116,736
<NET-CHANGE-IN-ASSETS> (18,604,984)
<ACCUMULATED-NII-PRIOR> (1,685,377)<F1>
<ACCUMULATED-GAINS-PRIOR> (86,114,158)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 797,054<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 1,635,853<F1>
<AVERAGE-NET-ASSETS> 139,761,853<F1>
<PER-SHARE-NAV-BEGIN> 9.890
<PER-SHARE-NII> 0.169
<PER-SHARE-GAIN-APPREC> (1.007)
<PER-SHARE-DIVIDEND> (0.192)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 8.860
<EXPENSE-RATIO> 1.93
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 13
<NAME> HIGH YIELD CLASS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1999<F1>
<PERIOD-START> JUL-01-1998<F1>
<PERIOD-END> SEP-30-1998<F1>
<INVESTMENTS-AT-COST> 417,899,183<F1>
<INVESTMENTS-AT-VALUE> 382,160,678<F1>
<RECEIVABLES> 13,031,892<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 14,510<F1>
<TOTAL-ASSETS> 395,207,080<F1>
<PAYABLE-FOR-SECURITIES> 2,921,250<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 3,754,274<F1>
<TOTAL-LIABILITIES> 6,675,524<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,157,374
<SHARES-COMMON-STOCK> 1,143,466
<SHARES-COMMON-PRIOR> 1,162,594
<ACCUMULATED-NII-CURRENT> (2,668,387)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (91,396,008)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (36,490,273)<F1>
<NET-ASSETS> 10,123,609
<DIVIDEND-INCOME> 92,450<F1>
<INTEREST-INCOME> 9,375,164<F1>
<OTHER-INCOME> 127,579<F1>
<EXPENSES-NET> (1,529,579)<F1>
<NET-INVESTMENT-INCOME> 8,065,614<F1>
<REALIZED-GAINS-CURRENT> (5,281,850)<F1>
<APPREC-INCREASE-CURRENT> (39,456,291)<F1>
<NET-CHANGE-FROM-OPS> (36,672,527)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (226,494)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 110,608
<NUMBER-OF-SHARES-REDEEMED> (142,713)
<SHARES-REINVESTED> 12,977
<NET-CHANGE-IN-ASSETS> (1,367,304)
<ACCUMULATED-NII-PRIOR> (1,685,377)<F1>
<ACCUMULATED-GAINS-PRIOR> (86,114,158)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 797,054<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 1,635,853<F1>
<AVERAGE-NET-ASSETS> 11,182,829
<PER-SHARE-NAV-BEGIN> 9.984
<PER-SHARE-NII> 0.168
<PER-SHARE-GAIN-APPREC> (1.007)
<PER-SHARE-DIVIDEND> (0.192)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 8.853
<EXPENSE-RATIO> 1.93
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 21
<NAME> S-T GBL CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 62,203,440<F1>
<INVESTMENTS-AT-VALUE> 58,179,339<F1>
<RECEIVABLES> 1,910,713<F1>
<ASSETS-OTHER> 412<F1>
<OTHER-ITEMS-ASSETS> 41,854<F1>
<TOTAL-ASSETS> 60,132,318<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 1,026,643<F1>
<TOTAL-LIABILITIES> 1,026,643<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 76,003,925
<SHARES-COMMON-STOCK> 7,232,021
<SHARES-COMMON-PRIOR> 6,222,565
<ACCUMULATED-NII-CURRENT> (1,968,293)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (64,144,788)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (4,603,598)<F1>
<NET-ASSETS> 50,645,061
<DIVIDEND-INCOME> 8,829<F1>
<INTEREST-INCOME> 1,213,443<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (272,919)<F1>
<NET-INVESTMENT-INCOME> 949,353<F1>
<REALIZED-GAINS-CURRENT> (802,224)<F1>
<APPREC-INCREASE-CURRENT> (2,186,619)<F1>
<NET-CHANGE-FROM-OPS> (2,039,490)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (725,942)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,374,551
<NUMBER-OF-SHARES-REDEEMED> (418,208)
<SHARES-REINVESTED> 53,113
<NET-CHANGE-IN-ASSETS> 4,919,536
<ACCUMULATED-NII-PRIOR> (1,985,847)<F1>
<ACCUMULATED-GAINS-PRIOR> (63,342,564)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 86,636<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 272,919<F1>
<AVERAGE-NET-ASSETS> 47,060,475
<PER-SHARE-NAV-BEGIN> 7.350
<PER-SHARE-NII> 0.120
<PER-SHARE-GAIN-APPREC> (0.360)
<PER-SHARE-DIVIDEND> (0.110)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 7.000
<EXPENSE-RATIO> 1.55
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 22
<NAME> S-T GBL CLASS B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 62,203,440<F1>
<INVESTMENTS-AT-VALUE> 58,179,713<F1>
<RECEIVABLES> 1,910,713<F1>
<ASSETS-OTHER> 412<F1>
<OTHER-ITEMS-ASSETS> 41,854<F1>
<TOTAL-ASSETS> 60,132,318<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 1,026,643<F1>
<TOTAL-LIABILITIES> 1,026,643<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 53,444,452
<SHARES-COMMON-STOCK> 1,158,595
<SHARES-COMMON-PRIOR> 2,661,333
<ACCUMULATED-NII-CURRENT> (1,968,293)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (64,144,788)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (4,603,598)<F1>
<NET-ASSETS> 8,112,545
<DIVIDEND-INCOME> 8,829<F1>
<INTEREST-INCOME> 1,213,443<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (272,919)<F1>
<NET-INVESTMENT-INCOME> 949,353<F1>
<REALIZED-GAINS-CURRENT> (802,224)<F1>
<APPREC-INCREASE-CURRENT> (2,186,619)<F1>
<NET-CHANGE-FROM-OPS> (2,039,490)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (201,504)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 22,397
<NUMBER-OF-SHARES-REDEEMED> (1,538,593)
<SHARES-REINVESTED> 13,458
<NET-CHANGE-IN-ASSETS> (11,439,284)
<ACCUMULATED-NII-PRIOR> (1,985,847)<F1>
<ACCUMULATED-GAINS-PRIOR> (63,342,564)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 86,636<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 272,919<F1>
<AVERAGE-NET-ASSETS> 15,075,009
<PER-SHARE-NAV-BEGIN> 7.350
<PER-SHARE-NII> 0.120
<PER-SHARE-GAIN-APPREC> (0.370)
<PER-SHARE-DIVIDEND> (0.100)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 7.000
<EXPENSE-RATIO> 2.30
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 23
<NAME> S-T GBL CLASS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 62,203,440<F1>
<INVESTMENTS-AT-VALUE> 58,179,339<F1>
<RECEIVABLES> 1,910,713<F1>
<ASSETS-OTHER> 412<F1>
<OTHER-ITEMS-ASSETS> 41,854<F1>
<TOTAL-ASSETS> 60,132,316<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 1,026,643<F1>
<TOTAL-LIABILITIES> 1,026,643<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 373,977
<SHARES-COMMON-STOCK> 49,698
<SHARES-COMMON-PRIOR> 45,275
<ACCUMULATED-NII-CURRENT> (1,968,293)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (64,144,788)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (4,603,598)<F1>
<NET-ASSETS> 348,069
<DIVIDEND-INCOME> 8,829<F1>
<INTEREST-INCOME> 1,213,443<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (272,919)<F1>
<NET-INVESTMENT-INCOME> 949,353<F1>
<REALIZED-GAINS-CURRENT> (802,224)<F1>
<APPREC-INCREASE-CURRENT> (2,186,619)<F1>
<NET-CHANGE-FROM-OPS> (2,039,490)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (4,353)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,054
<NUMBER-OF-SHARES-REDEEMED> (4,239)
<SHARES-REINVESTED> 608
<NET-CHANGE-IN-ASSETS> 15,412
<ACCUMULATED-NII-PRIOR> (1,985,847)<F1>
<ACCUMULATED-GAINS-PRIOR> (63,342,564)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 86,636<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 272,919<F1>
<AVERAGE-NET-ASSETS> 325,787
<PER-SHARE-NAV-BEGIN> 7.350
<PER-SHARE-NII> 0.100
<PER-SHARE-GAIN-APPREC> (0.350)
<PER-SHARE-DIVIDEND> (0.100)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 7.000
<EXPENSE-RATIO> 2.31
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 41
<NAME> STRAT INC CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999<F1>
<PERIOD-START> JUL-01-1998<F1>
<PERIOD-END> SEP-30-1998<F1>
<INVESTMENTS-AT-COST> 171,393,274<F1>
<INVESTMENTS-AT-VALUE> 162,628,240<F1>
<RECEIVABLES> 6,988,886<F1>
<ASSETS-OTHER> 9,119<F1>
<OTHER-ITEMS-ASSETS> 915,915<F1>
<TOTAL-ASSETS> 170,542,160<F1>
<PAYABLE-FOR-SECURITIES> 2,692,882<F1>
<SENIOR-LONG-TERM-DEBT> 52,963,633<F1>
<OTHER-ITEMS-LIABILITIES> 1,762,643<F1>
<TOTAL-LIABILITIES> 57,419,158<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 48,627,130
<SHARES-COMMON-STOCK> 3,751,582
<SHARES-COMMON-PRIOR> 3,688,102
<ACCUMULATED-NII-CURRENT> (1,988,665)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (8,558,713)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (10,660,532)<F1>
<NET-ASSETS> 41,092,317
<DIVIDEND-INCOME> 116,437<F1>
<INTEREST-INCOME> 3,385,036<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (1,294,393)<F1>
<NET-INVESTMENT-INCOME> 2,207,080<F1>
<REALIZED-GAINS-CURRENT> (4,276,590)<F1>
<APPREC-INCREASE-CURRENT> (9,483,844)<F1>
<NET-CHANGE-FROM-OPS> (11,553,354)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (885,254)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 322,008
<NUMBER-OF-SHARES-REDEEMED> (294,632)
<SHARES-REINVESTED> 36,104
<NET-CHANGE-IN-ASSETS> (4,218,543)
<ACCUMULATED-NII-PRIOR> (1,909,557)<F1>
<ACCUMULATED-GAINS-PRIOR> (4,282,123)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 326,880<F1>
<INTEREST-EXPENSE> 664,742<F1>
<GROSS-EXPENSE> 1,389,810<F1>
<AVERAGE-NET-ASSETS> 43,610,649
<PER-SHARE-NAV-BEGIN> 12.286
<PER-SHARE-NII> 0.228
<PER-SHARE-GAIN-APPREC> (1.324)
<PER-SHARE-DIVIDEND> (0.237)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.953
<EXPENSE-RATIO> 3.79
<AVG-DEBT-OUTSTANDING> 52,435,700<F1>
<AVG-DEBT-PER-SHARE> 5.1<F1>
<FN>
<F1>THIS ITEM RELATES TO THE FUND ON A COMPOSITE BASIS AND NOT ON A CLASS BASIS
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 42
<NAME> STRAT INC CLASS B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999<F1>
<PERIOD-START> JUL-01-1998<F1>
<PERIOD-END> SEP-30-1998<F1>
<INVESTMENTS-AT-COST> 171,393,274<F1>
<INVESTMENTS-AT-VALUE> 162,628,240<F1>
<RECEIVABLES> 6,988,886<F1>
<ASSETS-OTHER> 9,119<F1>
<OTHER-ITEMS-ASSETS> 915,915<F1>
<TOTAL-ASSETS> 170,542,160<F1>
<PAYABLE-FOR-SECURITIES> 2,692,882<F1>
<SENIOR-LONG-TERM-DEBT> 52,963,633<F1>
<OTHER-ITEMS-LIABILITIES> 1,762,643<F1>
<TOTAL-LIABILITIES> 57,419,158<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 81,066,690
<SHARES-COMMON-STOCK> 6,220,366
<SHARES-COMMON-PRIOR> 6,201,916
<ACCUMULATED-NII-CURRENT> (1,988,665)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (8,558,713)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (10,660,532)<F1>
<NET-ASSETS> 68,144,189
<DIVIDEND-INCOME> 166,437<F1>
<INTEREST-INCOME> 3,385,036<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (1,294,393)<F1>
<NET-INVESTMENT-INCOME> 2,207,080<F1>
<REALIZED-GAINS-CURRENT> (4,276,590)<F1>
<APPREC-INCREASE-CURRENT> (9,483,844)<F1>
<NET-CHANGE-FROM-OPS> (11,553,354)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (1,329,166)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 369,381
<NUMBER-OF-SHARES-REDEEMED> (401,265)
<SHARES-REINVESTED> 50,334
<NET-CHANGE-IN-ASSETS> (8,054,879)
<ACCUMULATED-NII-PRIOR> (1,909,557)<F1>
<ACCUMULATED-GAINS-PRIOR> (4,282,123)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 326,880<F1>
<INTEREST-EXPENSE> 664,742<F1>
<GROSS-EXPENSE> 1,389,810<F1>
<AVERAGE-NET-ASSETS> 72,717,745
<PER-SHARE-NAV-BEGIN> 12.286
<PER-SHARE-NII> 0.205
<PER-SHARE-GAIN-APPREC> (1.323)
<PER-SHARE-DIVIDEND> (0.213)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.955
<EXPENSE-RATIO> 4.55
<AVG-DEBT-OUTSTANDING> 52,435,700<F1>
<AVG-DEBT-PER-SHARE> 5.1<F1>
<FN>
<F1>THIS ITEM RELATES TO THE FUND ON A COMPOSITE BASIS AND NOT ON A CLASS BASIS
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 43
<NAME> STRAT INC CLASS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999<F1>
<PERIOD-START> JUL-01-1998<F1>
<PERIOD-END> SEP-30-1998<F1>
<INVESTMENTS-AT-COST> 171,393,274<F1>
<INVESTMENTS-AT-VALUE> 162,628,240<F1>
<RECEIVABLES> 6,988,886<F1>
<ASSETS-OTHER> 9,119<F1>
<OTHER-ITEMS-ASSETS> 915,915<F1>
<TOTAL-ASSETS> 170,542,160<F1>
<PAYABLE-FOR-SECURITIES> 2,692,882<F1>
<SENIOR-LONG-TERM-DEBT> 52,963,633<F1>
<OTHER-ITEMS-LIABILITIES> 1,762,643<F1>
<TOTAL-LIABILITIES> 57,419,158<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,637,092
<SHARES-COMMON-STOCK> 355,169
<SHARES-COMMON-PRIOR> 314,039
<ACCUMULATED-NII-CURRENT> (1,988,665)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (8,558,713)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (10,660,532)<F1>
<NET-ASSETS> 3,886,496
<DIVIDEND-INCOME> 116,437<F1>
<INTEREST-INCOME> 3,385,036<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (1,294,393)<F1>
<NET-INVESTMENT-INCOME> 2,207,080<F1>
<REALIZED-GAINS-CURRENT> (4,276,590)<F1>
<APPREC-INCREASE-CURRENT> (9,483,844)<F1>
<NET-CHANGE-FROM-OPS> (11,553,354)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (71,768)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 83,320
<NUMBER-OF-SHARES-REDEEMED> (46,528)
<SHARES-REINVESTED> 4,338
<NET-CHANGE-IN-ASSETS> 32,123
<ACCUMULATED-NII-PRIOR> (1,909,557)<F1>
<ACCUMULATED-GAINS-PRIOR> (4,282,123)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 326,880<F1>
<INTEREST-EXPENSE> 664,742<F1>
<GROSS-EXPENSE> 1,389,810<F1>
<AVERAGE-NET-ASSETS> 3,941,485
<PER-SHARE-NAV-BEGIN> 12.274
<PER-SHARE-NII> 0.202
<PER-SHARE-GAIN-APPREC> (1.320)
<PER-SHARE-DIVIDEND> (0.213)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.943
<EXPENSE-RATIO> 4.52
<AVG-DEBT-OUTSTANDING> 52,435,700<F1>
<AVG-DEBT-PER-SHARE> 5.1<F1>
<FN>
<F1>THIS ITEM RELATES TO THE FUND ON A COMPOSITE BASIS AND NOT ON A CLASS BASIS
</FN>
</TABLE>
