<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 3
Glossary of Terms................................ 4
Portfolio Management Review...................... 5
Portfolio Highlights............................. 8
Portfolio of Investments......................... 9
Statement of Assets and Liabilities.............. 16
Statement of Operations.......................... 17
Statement of Changes in Net Assets............... 18
Financial Highlights............................. 19
Notes to Financial Statements.................... 22
</TABLE>
HYF SAR 2/98
<PAGE> 2
LETTER TO SHAREHOLDERS
February 3, 1998
Dear Shareholder,
The new year ushers in what
promises to be an exciting and
challenging time for investors. The [PHOTO]
Taxpayer Relief Act of 1997 passed by
President Clinton in August creates
many new opportunities for DENNIS J. MCDONNELL AND DON G. POWELL
you and your family to take a
more active role in achieving your long-term financial goals.
Most Americans will benefit from the bill's $95 billion in tax cuts over
five years. The so-called Kiddie Credit gives parents $400 in immediate tax
relief for every child under age 17, and families will find it easier to
save for their children's college expenses through the new Education IRA. The
bill also cuts capital gains tax rates for the first time in over a decade and
loosens restrictions on tax-deductible IRA contributions. Perhaps the most
exciting feature of all is the new Roth IRA, which allows investment earnings
to grow tax free, not just tax deferred.
This year more than ever, it could be important for you to talk with your
financial adviser about how to make the tax code work to your advantage. At Van
Kampen American Capital, we have prepared a variety of publications to help you
understand your choices under the new tax legislation. And with the help of your
adviser, we'll help you locate the many benefits hidden among the changing tax
landscape.
ECONOMIC OVERVIEW
These continue to be the best of times for the U.S. economy. Growth is
strong, consumers are optimistic, unemployment is low, the budget is headed for
surplus this year, and our nation's currency is rising around the world.
Despite the strength in the economy, there is no indication of troublesome
inflation. In fact, the producer price index fell by 1.2 percent during the
year, the largest annual decline in wholesale prices since 1986. Inflation at
the consumer level was also virtually nonexistent, with the consumer price index
rising by only 1.7 percent during 1997. A strong dollar and significant
productivity gains helped offset inflationary pressures caused by rising wages.
After increasing short-term interest rates by 0.25 percent in March, the
Federal Reserve Board left monetary policy unchanged for the remainder of the
year. In addition to signs that the economy was slowing modestly from its
breakneck pace of early 1997, Fed policy-makers were concerned about the impact
that higher U.S. interest rates might have on the struggling economies of
Southeast Asia. Generally, higher U.S. interest rates cause the dollar to rise
relative to other currencies. With nearly all Asian currencies already down
significantly, a hike in U.S. rates would force monetary authorities in Asia to
choose
Continued on page two
1
<PAGE> 3
between letting their currencies decline further or matching the rate increase,
thereby slowing their already-sluggish economies.
MARKET OVERVIEW
Aided by low inflation and steady Federal Reserve policy, all sectors of the
fixed-income market posted impressive returns during 1997. Gains were especially
strong during the last three months of the period, as the severe currency crisis
in Asia led to increased demand for U.S. Treasury securities and other
fixed-income investments. For the year, the Lehman Brothers Aggregate Bond Index
returned 9.40 percent.
The yield on the Treasury's benchmark 30-year bond began the year at 6.64
percent and climbed to 7.17 percent in April amid fears of increasing inflation
and higher interest rates. When subsequent data showed the economy to be
slowing, bond yields gradually drifted lower. By the end of the reporting
period, the long-term Treasury bond yield had fallen to 5.92 percent, its lowest
level in over four years.
Favorable news about inflation and concerns about Asia helped to make
high-quality long-term bonds the top-performing sector of the fixed-income
market. Long-term Treasury bonds gained 14.3 percent during the year, compared
to 10 percent for investment-grade corporate bonds and 8.90 percent for
intermediate-term Treasury bonds.
OUTLOOK
We believe that reduced demand for American exports to Asia will exert a
mild drag on the U.S. economy in coming months. But while corporate profits
could suffer, slower economic growth should help to mitigate the inflationary
pressures caused by the tight domestic labor market. That scenario is good for
fixed-income investments.
However, if bond yields continue to drift lower, economic growth in the U.S.
could accelerate later in 1998. In recent years, each significant decline in
long-term interest rates has ignited economic growth by making housing, autos,
and other big-ticket consumer goods more affordable. We also expect the healthy
economy to keep credit spreads relatively tight in coming months.
As we noted earlier, the Taxpayer Relief Act of 1997 provides attractive new
vehicles through which investors can save for a variety of goals, including
higher education and retirement. We encourage you to talk with your financial
adviser about how the tax changes can work to the benefit of you and your
family.
Additional details about your Fund, including a question-and-answer section
with your portfolio management team, are provided in this report. As always, we
are pleased to have the opportunity to serve you and your family through our
diverse menu of quality investments.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen American Capital
Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen American Capital
Investment Advisory Corp.
2
<PAGE> 4
PERFORMANCE RESULTS FOR THE PERIOD ENDED DECEMBER 31, 1997
VAN KAMPEN AMERICAN CAPITAL HIGH YIELD FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
TOTAL RETURNS
<S> <C> <C> <C>
Six-month total return based in NAV(1)... 5.52% 5.14% 5.04%
Six-month total return(2)................ .52% 1.14% 4.04%
One-year total return(2)................. 5.68% 6.17% 9.06%
Five-year average annual total
return(2)................................ 9.72% N/A N/A
Ten-year average annual total
return(2)................................ 8.72% N/A N/A
Life-of-Fund average annual total
return(2)................................ 8.58% 8.69% 8.43%
Commencement date........................ 06/27/86 05/17/93 08/13/93
DISTRIBUTION RATE AND YIELD
Distribution rate(3)..................... 8.33% 8.03% 8.03%
SEC Yield(4)............................. 7.38% 6.97% 6.97%
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 December 30, 1997. Had
certain expenses of the Fund not been assumed by VKAC, the SEC Yield would have
been 7.28%, 6.87% and 6.87% 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.
3
<PAGE> 5
GLOSSARY OF TERMS
BASIS POINT: A measure used in quoting yields on bonds. One hundred basis points
is equal to one percent. For example, if a bond's yield changes from 7.00 to
6.65 percent, it would be a 35 basis point move.
CREDIT SPREAD: Also called quality spread, the difference in yield between
higher-quality issues (such as Treasury securities) and lower-quality issues.
Under normal circumstances, lower-quality issues provide higher yields in order
to compensate investors for the additional credit risk.
DURATION: A measure of a bond's sensitivity to changes in interest rates,
expressed in years. 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 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 (FED): A seven-member group that oversees the operations
of the Federal Reserve System, the central bank system of the United States.
Currently led by Chairman Alan Greenspan, the Fed meets eight times a year to
establish monetary policy and monitor the country's economic pulse.
INFLATION: An economic state in which the amount of money supply and business
activity dramatically increases, accompanied by sharply rising prices. Inflation
is widely measured by the Consumer Price Index, a leading economic indicator
that measures the change in the cost of purchased goods and services.
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.
PREMIUM REDEMPTION: The redemption of a bond at a dollar amount above a stated
par value, or the redemption of a bond by the issuer prior to its maturity date.
YIELD: A measure of a fund's net investment income per share, expressed as a
percentage of the maximum offering price of the fund's shares at the end of the
day.
YIELD SPREAD: The difference in yields between low-quality fixed-income
investments and high-quality fixed-income investments. To compensate investors
for the added risk, low-quality fixed-income securities typically offer
investors higher yields than high-quality fixed-income securities. The resulting
spread is commonly expressed in basis points.
4
<PAGE> 6
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN AMERICAN CAPITAL HIGH YIELD FUND
We recently spoke with the management team of the Van Kampen American Capital
High Yield Fund about the key events and economic forces that shaped the markets
during the past six months. The team includes Anne K. Lorsung, portfolio
manager, and Peter W. Hegel, chief investment officer for fixed-income
investments. The following excerpts reflect their views on the Fund's
performance during the period ended December 31, 1997.
Q HOW WOULD YOU CHARACTERIZE THE MARKET CONDITIONS IN WHICH THE FUND
OPERATED DURING THE PAST SIX MONTHS?
A The fixed-income market generally enjoyed a strong second half of 1997, as
Treasuries rallied in the wake of the currency crisis plaguing Asia. When
ripple effects from the overseas turmoil reached U.S. shores, the stock
market grew increasingly volatile, creating new demand for Treasuries and
fixed-income investments. The Dow Jones Industrial Average slumped in late
October, giving rise to a "flight to quality" as investors shifted assets into
bonds and Treasury securities. On the supply side, bonds were supported by a
dramatic decline in the federal budget deficit, which reduced the supply of new
Treasury issues. In addition to an improved supply-and-demand balance, bonds
reaped the benefits of a benign inflation scenario.
High-yield investments drew strength from continued positive technical
conditions, but intermittently underperformed their high-quality corporate
cousins in the last few months of the year. However, the lower investment-grade
group (bonds rated BBB or lower by the Standard & Poor's Ratings Group) ended
the period with relative stability. A robust economy provided a favorable
environment for companies with high-yield debt and helped to maintain an
extremely low default rate. High-yield bonds also benefited from heavy purchases
among retail and institutional investors, balancing the potentially negative
effects of a sharp buildup in supply. As the effects from the Asian crisis began
to take hold, however, demand for high-yield U.S. corporate bonds waned. Between
late October and late November, the difference between the yields of U.S.
noninvestment-grade securities and long-term Treasury bonds widened by 40 to 50
percentage points, indicating that U.S. high-yield bonds underperformed
Treasuries during that time.
Q HOW DID YOU MANAGE THE FUND IN LIGHT OF THESE CONDITIONS?
A Against the backdrop of a turbulent international marketplace, we closely
examined the Fund's exposure to overseas markets. Fortunately, we had
decreased the Fund's weighting in emerging markets, as we had realized
substantial gains on several positions. The Fund's exposure to Asian issuers was
minimal during the period, although we believe that the recent market activity
has created selected investment opportunities in Asia as well as other emerging
markets. As a result, we have increased our non-U.S. exposure during this
period.
In terms of the portfolios credit quality, we reduced our position in
BB-rated bonds, focusing instead on the good valuations available within B-rated
category. Some bonds
5
<PAGE> 7
were called from the portfolio during the period, and we have been challenged to
reinvest those assets into attractive securities that are not overvalued.
Q WHAT WAS THE STRUCTURE OF THE FUND'S PORTFOLIO AT THE END OF THE REPORTING
PERIOD?
A As of December 31, approximately 28 percent of the Fund's long-term debt
securities were BB-rated, which is the highest quality rating within the
noninvestment-grade category, and 60 percent were B-rated. Because both
categories of bonds tend to generate higher yields than investment-grade bonds,
they usually have performed better than high-quality securities when interest
rates rise. The additional income they generate compensates for some of the
decline in principal value due to rising rates. At the same time, when economic
growth accelerates, prospects for credit upgrades improve, also helping
performance.
Compared to its peers, the Fund maintains a fairly defensive posture, and
holds 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, with less relative
volatility and better performance potential in a market downturn. With yield
spreads between B- and BB-rated securities narrowing significantly during the
past year, we continue to believe this investment posture is appropriate.
The Fund's remaining long-term debt securities at the end of the period
were primarily investment grade. Approximately 3 percent were rated A to AAA,
and 4 percent were BBB-rated, the lowest rating in the investment-grade
category. The final 5 percent of assets were non-rated. For additional Fund
portfolio highlights, please refer to page eight.
Q HOW DID THE FUND PERFORM?
A The Fund posted a total return of 5.52 percent(1) (Class A shares at net
asset value) for the six-month period ended December 31, 1997. By
comparison, the Credit Suisse First Boston High Yield Index returned 6.40
percent for the same period. Please keep in mind that this index is a
broad-based, unmanaged index that reflects the general performance of a wide
range of selected bonds within the public high yield debt market. It does not
reflect any commissions, fees, or sales charges that would be paid by an
investor purchasing the securities it represents.
Duration is a theoretical measure of a portfolios sensitivity to changes
in interest rates. The longer the duration, the greater the effect of interest
rate movements on net asset value. Funds with shorter durations typically
have performed better in rising rate environments, while funds with longer
durations have tended to do better when interest rates decline. At the end of
the six-month reporting period, the Fund's duration stood at 3.40 years,
compared to the 4.45 year average duration of the Credit Suisse First Boston
High Yield benchmark. As of December 31, 1997, the Fund's distribution rate
stood at 8.33 percent (3) per Class A share. Please refer to the chart on page
three for additional Fund performance results.
6
<PAGE> 8
Q WHAT IS YOUR OUTLOOK FOR THE MARKET IN THE COMING MONTHS?
A We expect the economy to remain strong for the first several months of
1998, although its growth rate is likely to slow from current levels. The
financial crisis in Southeast Asia may hinder U.S. exports to the region,
which could trim the earnings of many U.S. companies and reduce overall U.S.
growth. As a result of these factors, we believe there is little chance that the
Fed will raise interest rates in the near term.
We will continue to monitor events in Asia and other market developments in
order to assess their effects on the portfolio. At this time, we do not
anticipate making any major changes to the portfolio unless market conditions
shift dramatically. We will continue to seek a balance between the Fund's total
return and its dividend income, and look to add value through careful security
selection.
[SIG]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
[SIG]
Anne K. Lorsung
Portfolio Manager
Please see footnotes on page three
7
<PAGE> 9
PORTFOLIO HIGHLIGHTS
VAN KAMPEN AMERICAN CAPITAL HIGH YIELD FUND
TOP TEN ISSUERS AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
LONG-TERM INVESTMENTS
<S> <C>
IXC Communications, Inc....................... 1.66%
Barnes & Noble, Inc., Series B................ 1.49%
Fonorola, Inc................................. 1.45%
American Standard, Inc........................ 1.44%
Argosy Gaming Co.............................. 1.42%
Selmer, Inc................................... 1.42%
Dan River, Inc................................ 1.41%
Cole National Group, Inc...................... 1.40%
Time Warner .................................. 1.39%
Communications & Power Industries, Inc. ...... 1.34%
</TABLE>
CREDIT QUALITY AS A PERCENTAGE OF LONG-TERM DEBT SECURITIES
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997 AS OF JUNE 30, 1997
<S> <C> <C> <C>
AAA............... 1.3% AAA........... 2.7%
A................. 1.4% BBB........... 2.8%
BBB............... 3.8% [PIE CHART] BB............ 30.9% [PIE CHART]
BB................ 28.0% B............. 59.6%
B................. 60.2% NON-RATED..... 4.0%
CCC............... 0.2%
NON-RATED......... 5.1%
</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 DECEMBER 31, 1997 AS OF JUNE 30, 1997
<S> <C> <C> <C>
Telecommunications.... 13.6% Foreign Securities...... 19.9%
Foreign Securities.... 13.1% Telecommunications...... 10.7%
Printing, Publishing & Mining, Steel, Iron &
Broadcasting........ 9.7% Non-Precious Metal.... 6.4%
Oil & Gas............. 5.8% Oil & Gas............... 5.7%
Healthcare............ 5.2% Printing, Publishing &
Broadcasting.......... 5.5%
</TABLE>
DURATION
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997 AS OF JUNE 30, 1997
<S> <C> <C>
Duration 3.40 years 3.07 years
</TABLE>
8
<PAGE> 10
PORTFOLIO OF INVESTMENTS
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
in Local
Currency U.S.($)
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DOMESTIC CORPORATE BONDS 68.7%
AEROSPACE & DEFENSE 3.0%
4,850 Dyncorp................................... 9.500% 03/01/07 $ 4,947,000
2,200 Sequa Corp................................ 9.625 10/15/99 2,282,500
2,600 Sequa Corp................................ 9.375 12/15/03 2,697,500
3,200 Talley Manufacturing & Technology, Inc.... 10.750 10/15/03 3,480,000
------------
13,407,000
------------
AUTOMOBILE 2.4%
1,400 Aetna Industries, Inc..................... 11.875 10/01/06 1,260,000
1,800 Collins & Aikman Products Co.............. 11.500 04/15/06 2,034,000
1,600 Exide Corp................................ 10.750 12/15/02 1,688,000
2,400 Insilco Corp.............................. 10.250 08/15/07 2,520,000
2,950 Venture Holdings, Inc..................... 9.750 04/01/04 2,942,625
------------
10,444,625
------------
BUILDINGS & REAL ESTATE 2.2%
5,300 American Standard, Inc.................... 10.875 05/15/99 5,578,250
2,400 Johns Manville International Group,
Inc....................................... 10.875 12/15/04 2,670,000
1,500 Kevco, Inc., 144A Private Placement (a)... 10.375 12/01/07 1,530,000
------------
9,778,250
------------
CHEMICALS, PLASTICS & RUBBER 2.1%
4,258 ISP Holdings, Inc......................... 9.750 02/15/02 4,513,480
4,600 Pioneer Amers Acquisition Corp.,
Series B.................................. 9.250 06/15/07 4,646,000
------------
9,159,480
------------
CONTAINERS, PACKAGING & GLASS 1.8%
3,700 Fonda Group, Inc.......................... 9.500 03/01/07 3,533,500
2,900 S.D. Warren Co............................ 12.000 12/15/04 3,233,500
1,200 Sweetheart Cup, Inc....................... 9.625 09/01/00 1,191,000
------------
7,958,000
------------
DIVERSIFIED/CONGLOMERATE MANUFACTURING1.4%
4,600 Communications & Power Industries, Inc.... 12.000 08/01/05 5,175,000
724 Terex Corp................................ 13.250 05/15/02 827,170
------------
6,002,170
------------
ECOLOGICAL 0.8%
2,500 Envirosource, Inc......................... 9.750 06/15/03 2,525,000
500 Envirosource, Inc., Series B 144A Private
Placement (a)............................. 9.750 06/15/03 505,000
550 Norcal Waste Systems, Inc................. 13.250 01/16/98 632,500
------------
3,662,500
------------
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
in Local
Currency U.S.($)
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ELECTRONICS 1.3%
950 DecisionOne Corp.......................... 9.750% 08/01/07 $ 978,500
700 DecisionOne Holdings Corp................. 11.500 08/01/08 448,000
3,600 Exide Electronics Group, Inc.............. 11.500 03/15/06 4,284,000
------------
5,710,500
------------
FINANCE 3.8%
4,840 American Annuity Group, Inc............... 11.125 02/01/03 5,009,400
3,300 Americo Life, Inc. (c).................... 9.250 06/01/05 3,366,000
4,800 Americredit Corp.......................... 9.250 02/01/04 4,788,000
3,000 Contifinancial Corp....................... 8.375 08/15/03 3,105,000
700 Superior National Insurance Group......... 10.750 12/01/17 717,500
------------
16,985,900
------------
GROCERY 2.9%
2,250 Fleming Cos., Inc., 144A Private Placement
(a)....................................... 10.500 12/01/04 2,368,125
900 Fleming Cos., Inc., 144A Private Placement
(a)....................................... 10.625 07/31/07 954,000
3,700 Jitney Jungle Stores America, Inc......... 12.000 03/01/06 4,199,500
2,078 Pantry, Inc............................... 12.500 11/15/00 2,228,655
2,700 Pantry, Inc............................... 10.250 10/15/07 2,767,500
1,000 Pathmark Stores, Inc. (b)................. 0/10.750 11/01/03 520,000
------------
13,037,780
------------
HEALTHCARE 4.6%
3,700 Fresenius Medical Care Capital Trust...... 9.000 12/01/06 3,885,000
1,650 Imagyn Med Technologies, Inc.............. 12.500 04/01/04 1,571,625
2,600 Merit Behavioral Care Corp................ 11.500 11/15/05 3,003,000
1,700 Paragon Health Network, Inc., 144A Private
Placement (a)............................. 9.500 11/01/07 1,700,000
4,100 Sun Healthcare Group, Inc., 144A Private
Placement (a)............................. 9.500 07/01/07 4,233,250
2,350 Tenet Healthcare Corp..................... 8.625 12/01/03 2,455,750
3,100 Tenet Healthcare Corp. (c)................ 10.125 03/01/05 3,386,750
------------
20,235,375
------------
HOTEL, MOTEL, INNS & GAMING 4.3%
5,250 Argosy Gaming Co.......................... 13.250 06/01/04 5,512,500
3,075 Coast Hotels & Casinos, Inc............... 13.000 12/15/02 3,482,437
3,950 Grand Casino, Inc......................... 10.125 12/01/03 4,275,875
3,900 Trump Atlantic City Associates............ 11.250 05/01/06 3,802,500
1,703 Waterford Gaming.......................... 12.750 11/15/03 1,881,815
------------
18,955,127
------------
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
in Local
Currency U.S.($)
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LEISURE/ENTERTAINMENT 4.0%
3,680 Cobblestone Golf Group, Inc............... 11.500% 06/01/03 $ 3,992,800
1,750 Neodata Services, Inc., Series B.......... 12.000 05/01/03 1,885,625
4,150 Samsonite Corp............................ 11.125 07/15/05 4,668,750
5,000 Selmer, Inc............................... 11.000 05/15/05 5,500,000
1,650 Viacom International, Inc................. 10.250 09/15/01 1,806,750
------------
17,853,925
------------
MINING, STEEL, IRON & NON-PRECIOUS
METAL 1.2%
1,000 Inland Steel Co........................... 12.000 12/01/98 1,050,000
1,125 LTV Corp., 144A Private Placement (a)..... 8.200 09/15/07 1,091,250
2,900 WCI Steel, Inc............................ 10.000 12/01/04 2,972,500
------------
5,113,750
------------
OIL & GAS 7.0%
3,500 Dawson Production Services, Inc........... 9.375 02/01/07 3,675,000
4,900 DI Industries, Inc........................ 8.875 07/01/07 5,096,000
530 Falcon Drilling........................... 9.750 01/15/01 553,850
1,300 Falcon Drilling........................... 12.500 03/15/05 1,490,125
1,150 Giant Industries, Inc..................... 9.750 11/15/03 1,187,375
4,450 Giant Industries, Inc..................... 9.000 09/01/07 4,438,875
2,850 KCS Energy, Inc........................... 11.000 01/15/03 3,127,875
3,700 National Energy Group, Inc................ 10.750 11/01/06 3,885,000
4,200 Petroleum Heat & Power, Inc............... 12.250 02/01/05 4,137,000
2,750 Pride Petroleum Services, Inc............. 9.375 05/01/07 2,970,000
634 Wainoco Oil Company....................... 12.000 08/01/02 656,190
------------
31,217,290
------------
PERSONAL & NON-DURABLE 1.1%
4,550 Revlon Consumer Products Corp............. 9.375 04/01/01 4,686,500
------------
PRINTING, PUBLISHING & BROADCASTING 8.3%
2,400 Cablevision Systems Corp.................. 7.875 12/15/07 2,448,000
2,600 Cablevision Systems Corp.................. 10.500 05/15/16 3,029,000
3,000 Capstar Broadcasting Partners............. 9.250 07/01/07 3,082,500
1,000 Century Communications Corp............... 9.500 03/01/05 1,060,000
2,500 Century Communications Corp............... 8.875 01/15/07 2,575,000
3,500 EZ Communications, Inc.................... 9.750 12/01/05 3,867,500
1,950 Gray Communications Systems, Inc.......... 10.625 10/01/06 2,120,625
4,000 K-III Communications Corp................. 10.250 06/01/04 4,340,000
2,100 Northland Cable Television, Inc., 144A
Private Placement (a)..................... 10.250 11/15/07 2,215,500
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
in Local
Currency U.S.($)
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRINTING, PUBLISHING & BROADCASTING
(CONTINUED)
3,600 Pegasus Communications, 144A Private
Placement (a)............................. 9.625% 10/15/05 $ 3,699,000
4,600 SCI Television, Inc....................... 11.000 06/30/05 4,749,500
2,000 Young Broadcasting, Inc................... 11.750 11/15/04 2,220,000
1,400 Young Broadcasting, Inc................... 8.750 06/15/07 1,386,000
------------
36,792,625
------------
RETAIL 3.3%
5,450 Barnes & Noble, Inc., Series B............ 11.875 01/15/03 5,790,625
5,100 Cole National Group, Inc.................. 9.875 12/31/06 5,444,250
2,050 Community Distributors, Inc., 144A Private
Placement (a)............................. 10.250 10/15/04 2,101,250
1,000 Hosiery Corp. of America, Inc............. 13.750 08/01/02 1,085,000
------------
14,421,125
------------
TELECOMMUNICATIONS 7.7%
2,225 Centennial Cellular Corp.................. 8.875 11/01/01 2,269,500
3,524 Centennial Cellular Corp.................. 10.125 05/15/05 3,832,350
4,000 Echostar Communications Corp. (b)......... 0/12.875 06/01/04 3,670,000
1,350 Intermedia Communications of Florida,
Inc., Series B............................ 13.500 06/01/05 1,650,375
3,300 Intermedia Communications of Florida, Inc.
(b)....................................... 0/12.500 05/15/06 2,598,750
1,350 Intermedia Communications, Inc., Series B
(b)....................................... 0/11.250 07/15/07 965,250
100 Intermedia Communications, Inc., 144A
Private Placement (a)..................... 8.875 11/01/07 103,000
5,250 IXC Communications, Inc................... 12.500 10/01/05 6,063,750
800 Pricellular Wireless Corp. (b)............ 0/12.250 10/01/03 820,000
2,850 Pricellular Wireless Corp................. 10.750 11/01/04 3,113,625
2,850 Teleport Communications Group............. 9.875 07/01/06 3,206,250
750 Teleport Communications Group (b)......... 0/11.125 07/01/07 611,250
6,100 Viatel, Inc. (b).......................... 0/15.000 01/15/05 5,032,500
------------
33,936,600
------------
TEXTILES 2.6%
1,800 Anvil Knitwear, Inc....................... 10.875 03/15/07 1,854,000
5,050 Dan River, Inc............................ 10.125 12/15/03 5,390,875
1,100 Pillowtex Corp............................ 10.000 11/15/06 1,171,500
1,750 Pillowtex Corp., 144A Private Placement
(a)....................................... 9.000 12/15/07 1,789,375
1,500 Scovill Fasteners, Inc., 144A Private
Placement (a)............................. 11.250 11/30/07 1,533,750
------------
11,739,500
------------
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
in Local
Currency U.S.($)
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TRANSPORTATION 0.9%
4,000 U.S. Air, Inc............................. 8.625% 09/01/98 $ 4,050,000
------------
UTILITIES 2.0%
4,250 AES Corp.................................. 10.250 07/15/06 4,621,875
1,200 AES Corp.................................. 8.375 08/15/07 1,203,000
2,100 El Paso Electric Co....................... 8.250 02/01/03 2,210,250
942 Midland Cogeneration Venture.............. 10.330 07/23/02 1,005,418
------------
9,040,543
------------
TOTAL DOMESTIC CORPORATE BONDS.................................... 304,188,565
------------
FOREIGN BONDS AND DEBT SECURITIES 16.3%
ARGENTINA 1.3%
3,000 Banco De Credito Argentino (US$).......... 9.500 04/24/00 3,022,500
1,000 Credito Argentino (US$)................... 9.500 04/24/00 1,007,500
1,000 Republic of Argentina (Var. Rate Coupon)
(US$)..................................... 5.500 03/31/23 733,130
1,000 Republic of Argentina (Var. Rate Coupon)
(US$)..................................... 6.875 03/31/23 831,300
------------
5,594,430
------------
AUSTRALIA 0.2%
1,100 Commonwealth of Australia (AU$)........... 10.000 10/15/02 844,028
------------
BRAZIL 1.4%
1,881 Brazil Media Trust (US$).................. 6.688 09/15/07 1,596,374
3,000 Companhia Paranaense de Energetica
(US$)..................................... 9.750 05/02/05 2,874,510
2,000 Republic of Brazil (US$).................. 10.125 05/15/27 1,877,000
------------
6,347,884
------------
CANADA 3.5%
50 Doman Industries (US$).................... 8.750 03/15/04 48,500
2,300 Doman Industries, 144A Private Placement
(US$) (a)................................. 9.250 11/15/07 2,254,000
5,000 Fonorola, Inc. (US$)...................... 12.500 08/15/02 5,600,000
3,500 Fundy Cable (US$)......................... 11.000 11/15/05 3,771,250
3,500 Trizec Finance (US$)...................... 10.875 10/15/05 3,937,500
------------
15,611,250
------------
COLUMBIA 1.0%
2,500 Financiera Energetica (US$)............... 9.375 06/15/06 2,525,000
2,000 Financiera Energetica, 144A Private
Placement (US$) (a)....................... 9.375 06/15/06 2,020,000
------------
4,545,000
------------
ITALY 0.2%
1,500,000 Federal Republic of Italy (Lira).......... 10.000 08/01/03 1,033,635
------------
LUXEMBOURG 1.0%
6,000 Millicom International Cellular
(US$)(b).................................. 0/13.500 06/01/06 4,410,000
------------
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
in Local
Currency U.S.($)
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MEXICO 1.5%
2,000 United Mexican States (US$)............... 11.375% 09/15/16 $ 2,288,000
500 United Mexican States (US$)............... 6.250 12/31/19 417,500
500 United Mexican States (US$)............... 11.500 05/15/26 590,000
3,000 Vicap SA, 144A Private Placement (US$)
(a)....................................... 10.250 05/15/02 3,131,400
------------
6,426,900
------------
MOROCCO 1.0%
5,000 Morocco Trust A Loan (US$) (d)(e)......... 6.813 01/01/09 4,337,500
------------
NETHERLANDS 0.8%
3,183 Fresh Del Monte Produce (US$)............. 10.000 05/01/03 3,326,235
------------
PANAMA 0.2%
1,000 Republic of Panama, 144A Private Placement
(US$) (a)................................. 7.875 02/13/02 967,500
------------
POLAND 0.8%
1,000 Government of Poland (Var. Rate Coupon)
(US$)..................................... 6.688 10/27/24 973,130
4,750 Netia Holdings, 144A Private Placement
(US$) (a)................................. * 11/01/07 2,707,500
------------
3,680,630
------------
RUSSIA 1.4%
716 Russia Interest Notes (US$)............... * 12/15/15 505,168
1,000 Russia Min Finance (US$).................. 9.250 11/27/01 956,250
3,000 Russia Min Finance (US$).................. 10.000 06/26/07 2,780,625
3,000 Vneshekonombank Loan Agreement (US$)...... * 12/15/15 1,858,125
------------
6,100,168
------------
UNITED KINGDOM 1.7%
2,700 Diamond Cable Commerce (US$) (b).......... 0/10.750 02/15/07 1,842,750
1,400 Esprit Telecom Group (US$)................ 11.500 12/15/07 1,449,000
2,700 International Cabletel, Inc., Series A
(US$) (b)................................. 0/12.750 04/15/05 2,241,000
2,750 International Cabletel, Inc., Series B
(US$) (b)................................. 0/11.500 02/01/06 2,145,000
------------
7,677,750
------------
VENEZUELA 0.3%
500 Republic of Venezuela (US$)............... 6.750 03/31/20 433,750
787 Republic of Venezuela (US$)............... 9.250 09/15/27 705,939
------------
1,139,689
------------
TOTAL FOREIGN BONDS AND DEBT SECURITIES........................... 72,042,599
------------
U.S. GOVERNMENT OBLIGATIONS 0.7%
3,000 U.S. T-Notes.............................. 9.000 05/15/98 3,038,760
------------
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S.($)
Description Market Value
- --------------------------------------------------------------------------------------------
<S> <C>
EQUITIES 1.8%
American Telecasting, Inc. (8,370 common stock warrants) (g).................. $ 4,185
Cablevision Systems Corp., Series H (1.029 preferred shares) (f).............. 122
Capital Gaming International, Inc. (5,000 common stock warrants) (g).......... 0
Cobblestone Holdings, Inc. (1,000 common shares) (g).......................... 30,000
El Paso Electric Co. (2,132 preferred shares) (f)............................. 2,346,143
Hosiery Corp. of America, Inc. (1,000 common shares) (g)...................... 70,000
Intermedia Communications of Florida, Inc., 144A Private Placement (3,150
common stock warrants) (a)(g)............................................... 346,500
Time Warner, Inc. (4,800 preferred shares)(f)................................. 5,411,889
Urohealth Systems, Inc., 144A Private Placement (1,650 common stock warrants)
(a)(g)...................................................................... 4,125
------------
TOTAL EQUITIES................................................................ 8,212,964
------------
TOTAL LONG-TERM INVESTMENTS 87.5%
(Cost $377,187,739)......................................................... 387,482,888
REPURCHASE AGREEMENT 11.7%
J.P. Morgan Securities, (U.S. Treasury Note, $51,959,000 par, 6.250% coupon,
due 02/15/19, dated 12/31/97 to be sold on 01/02/98 at $51,977,041)
(Cost $51,959,000).......................................................... 51,959,000
------------
TOTAL INVESTMENTS 99.2%
(Cost $429,146,739)......................................................... 439,441,888
OTHER ASSETS IN EXCESS OF LIABILITIES 0.8%................................... 3,393,697
------------
NET ASSETS 100.0%............................................................ $442,835,585
============
</TABLE>
*Zero coupon bond
(a) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may be resold in
transactions exempt from registration which are normally transactions with
qualified institutional buyers.
(b) Security is a "Step-up" bond where the coupon increases or steps up at a
predetermined date.
(c) Assets segregated as collateral for when issued or delayed delivery purchase
commitments.
(d) Securities purchased on a when issued or delayed delivery basis.
(e) Security is a bank loan participation.
(f) Payment-in-kind security.
(g) Non-income producing security.
See Notes to Financial Statements
15
<PAGE> 17
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments, including repurchase agreements of
$51,959,000 (Cost $429,146,739)........................... $439,441,888
Receivables:
Interest.................................................. 7,714,714
Fund Shares Sold.......................................... 1,056,892
Investments Sold.......................................... 76,785
Other....................................................... 16,626
------------
Total Assets.......................................... 448,306,905
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 2,415,613
Income Distributions...................................... 1,847,618
Fund Shares Repurchased................................... 413,896
Distributor and Affiliates................................ 328,684
Investment Advisory Fee................................... 241,472
Custodian Bank............................................ 32
Trustees' Deferred Compensation and Retirement Plans........ 107,888
Accrued Expenses............................................ 116,117
------------
Total Liabilities..................................... 5,471,320
------------
NET ASSETS.................................................. $442,835,585
============
NET ASSETS CONSIST OF:
Capital..................................................... $525,263,501
Net Unrealized Appreciation................................. 10,293,832
Accumulated Distributions in Excess of Net Investment
Income.................................................... (2,392,438)
Accumulated Net Realized Loss............................... (90,329,310)
------------
NET ASSETS.................................................. $442,835,585
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $291,819,260 and 29,340,171 shares of
beneficial interest issued and outstanding)............. $ 9.95
Maximum sales charge (4.75%* of offering price)......... .50
------------
Maximum offering price to public........................ $ 10.45
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $141,421,370 and 14,220,476 shares of
beneficial interest issued and outstanding)............. $ 9.94
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $9,594,955 and 965,194 shares of
beneficial interest issued and outstanding)............. $ 9.94
============
</TABLE>
* On sales of $100,000 or more, the sales charge will be
reduced.
See Notes to Financial Statements
16
<PAGE> 18
STATEMENT OF OPERATIONS
For the Six Months Ended December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest (Net of foreign withholding taxes of $4,341)....... $20,070,917
Dividends................................................... 561,563
Other....................................................... 344,510
-----------
Total Income............................................ 20,976,990
-----------
EXPENSES:
Investment Advisory Fee..................................... 1,636,647
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B, and C of $346,614, $681,016, and $44,817,
respectively)............................................. 1,072,447
Shareholder Services........................................ 291,634
Custody..................................................... 65,466
Legal....................................................... 25,760
Trustees' Fees and Expenses................................. 13,018
Other....................................................... 152,657
-----------
Total Expenses.......................................... 3,257,629
Less Fees Deferred...................................... 218,220
-----------
Net Expenses............................................ 3,039,409
-----------
NET INVESTMENT INCOME....................................... $17,937,581
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................. $ 5,542,725
Futures................................................. 401,700
Foreign Currency Transactions........................... (3,560)
-----------
Net Realized Gain........................................... 5,940,865
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 11,798,356
-----------
End of the Period:
Investments............................................. 10,295,149
Foreign Currency Translation............................ (1,317)
-----------
10,293,832
-----------
Net Unrealized Depreciation During the Period............... (1,504,524)
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 4,436,341
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $22,373,922
===========
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended December 31, 1997 and
the Year Ended June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
December 31, 1997 June 30, 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................ $ 17,937,581 $ 34,529,017
Net Realized Gain.................................... 5,940,865 9,725,173
Net Unrealized Appreciation/Depreciation During the
Period............................................. (1,504,524) 6,256,307
------------ ------------
Change in Net Assets from Operations................. 22,373,922 50,510,497
------------ ------------
Distributions from Net Investment Income............. (17,937,581) (34,529,017)
Distributions in Excess of Net Investment Income..... (486,585) (412,288)
------------ ------------
Distributions from and in Excess of Net Investment
Income*.......................................... (18,424,166) (34,941,305)
Return of Capital Distribution*...................... -0- (612,243)
------------ ------------
Total Distributions................................ (18,424,166) (35,553,548)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES......................................... 3,949,756 14,956,949
------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold............................ 77,853,949 151,222,275
Net Asset Value of Shares Issued Through Dividend
Reinvestment....................................... 7,341,632 13,768,097
Cost of Shares Repurchased........................... (71,061,385) (130,375,583)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS... 14,134,196 34,614,789
------------ ------------
TOTAL INCREASE IN NET ASSETS......................... 18,083,952 49,571,738
NET ASSETS:
Beginning of the Period.............................. 424,751,633 375,179,895
------------ ------------
End of the Period (Including accumulated
distributions in excess of net investment income of
$2,392,438 and $1,905,853, respectively)........... $442,835,585 $424,751,633
============ ============
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended
*Distributions by Class December 31, 1997 June 30, 1996
- -------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of
Net Investment Income:
Class A Shares................... $ (12,647,436) $ (24,888,535)
Class B Shares................... (5,419,599) (9,438,468)
Class C Shares................... (357,131) (614,302)
------------- ------------
$ (18,424,166) $ (34,941,305)
============= =============
Return of Capital Distribution:
Class A Shares................... $ -0- $ (430,710)
Class B Shares................... -0- (170,818)
Class C Shares................... -0- (10,715)
------------- ------------
$ -0- $ (612,243)
============= =============
</TABLE>
See Notes to Financial Statements
18
<PAGE> 20
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
Six Months Ended ---------------------------------------
Class A Shares December 31, 1997 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................ $ 9.854 $ 9.493 $ 9.398 $ 9.643 $10.380
------- ------- ------- ------- -------
Net Investment Income............. .425 .857 .878 .844 .908
Net Realized and Unrealized
Gain/Loss....................... .102 .384 .147 (.099) (.595)
------- ------- ------- ------- -------
Total from Investment Operations.... .527 1.241 1.025 .745 .313
------- ------- ------- ------- -------
Less:
Distributions from and in Excess
of Net Investment Income........ .435 .865 .880 .815 .950
Return of Capital Distribution.... -0- .015 .050 .175 .100
------- ------- ------- ------- -------
Total Distributions................. .435 .880 .930 .990 1.050
------- ------- ------- ------- -------
Net Asset Value, End of the
Period............................ $ 9.946 $ 9.854 $ 9.493 $ 9.398 $ 9.643
======= ======= ======= ======= =======
Total Return* (a)................... 5.52%** 13.60% 11.26% 8.50% 2.92%
Net Assets at End of the Period (In
millions)......................... $ 291.8 $ 288.0 $ 271.1 $ 253.3 $ 260.7
Ratio of Expenses to Average Net
Assets *.......................... 1.14% 1.17% 1.31% 1.31% 1.32%
Ratio of Net Investment Income to
Average Net Assets *.............. 8.48% 8.83% 9.16% 9.13% 8.85%
Portfolio Turnover.................. 54%** 125% 102% 152% 203%
*If certain expenses had not been waived or reimbursed by VKAC, total return would have
been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net
Assets............................ 1.24% 1.26% 1.31% N/A N/A
Ratio of Net Investment Income to
Average Net Assets................ 8.38% 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
19
<PAGE> 21
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,
Six Months Ended -------------------------------------
Class B Shares December 31, 1997 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period................. $ 9.855 $ 9.497 $ 9.398 $ 9.638 $10.382
------- ------- ------- ------- -------
Net Investment Income...... .386 .777 .797 .788 .889
Net Realized and Unrealized
Gain/Loss................ .102 .389 .160 (.115) (.665)
------- ------- ------- ------- -------
Total from Investment
Operations................. .488 1.166 .957 .673 .224
------- ------- ------- ------- -------
Less:
Distributions from and in
Excess of Net Investment
Income................... .399 .794 .812 .751 .877
Return of Capital
Distribution............. -0- .014 .046 .162 .091
------- ------- ------- ------- -------
Total Distributions.......... .399 .808 .858 .913 .968
------- ------- ------- ------- -------
Net Asset Value, End of the
Period..................... $ 9.944 $ 9.855 $ 9.497 $ 9.398 $ 9.638
======= ======= ======= ======= =======
Total Return* (a)............ 5.14%** 12.64% 10.55% 7.61% 2.11%
Net Assets at End of the
Period (In millions)....... $ 141.4 $ 128.7 $ 97.1 $ 55.9 $ 33.2
Ratio of Expenses to Average
Net Assets*................ 1.90% 1.93% 2.07% 2.04% 2.13%
Ratio of Net Investment
Income to Average Net
Assets*.................... 7.70% 8.03% 8.39% 8.35% 7.94%
Portfolio Turnover........... 54%** 125% 102% 152% 203%
*If certain expenses had not been waived or reimbursed by VKAC, total return would have
been lower and the ratios would have been as follows:
Ratio of Expenses to Average
Net Assets................. 2.00% 2.02% 2.07% N/A N/A
Ratio of Net Investment
Income to Average Net
Assets..................... 7.60% 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
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>
August 13, 1993
Year Ended June 30, (Commencement of
Six Months Ended --------------------------- Distribution) to
Class C Shares December 31, 1997 1997 1996 1995 June 30, 1994(a)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period................ $ 9.851 $ 9.495 $ 9.396 $ 9.643 $10.340
------- ------- ------- ------- -------
Net Investment Income.... .384 .780 .828 .745 .761
Net Realized and
Unrealized Gain/Loss... .105 .384 .129 (.079) (.605)
------- ------- ------- ------- -------
Total from Investment
Operations............... .489 1.164 .957 .666 .156
------- ------- ------- ------- -------
Less:
Distributions from and in
Excess of Net
Investment Income...... .399 .794 .812 .751 .763
Return of Capital
Distribution........... 0 .014 .046 .162 .090
------- ------- ------- ------- -------
Total Distributions........ .399 .808 .858 .913 .853
------- ------- ------- ------- -------
Net Asset Value, End of
Period................... $ 9.941 $ 9.851 $ 9.495 $ 9.396 $ 9.643
======== ======= ======= ======= =======
Total Return* (b).......... 5.04%** 12.65% 10.55% 7.61% 1.37%**
Net Assets at End of Period
(In millions)............ $ 9.6 $ 8.1 $ 7.0 $ 2.0 $ 2.2
Ratio of Expenses to
Average Net Assets*...... 1.90% 1.93% 2.06% 2.12% 2.14%
Ratio of Net Investment
Income to Average Net
Assets*.................. 7.68% 8.08% 8.38% 8.13% 7.91%
Portfolio Turnover......... 54%** 125% 102% 152% 203%**
*If certain expenses had not been waived or reimbursed by VKAC, total return would have been
lower and the ratios would have been as follows:
Ratio of Expenses to
Average Net Assets....... 2.00% 2.03% 2.07% N/A N/A
Ratio of Net Investment
Income to Average Net
Assets................... 7.58% 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
21
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital High Yield Fund (the "Fund") is organized as a
series of Van Kampen American Capital Trust, a Delaware business trust (the
"Trust"), and is registered as a diversified open-end management investment
company under the Investment Company Act of 1940, as amended. The Fund's primary
investment objective is to provide a high level of current income through
investment in medium and lower grade domestic corporate debt securities. The
Fund also may invest up to 35% of its assets in foreign government and corporate
debt securities of comparable quality. The Fund commenced investment operations
on June 27, 1986. The Fund commenced distribution of its Class B and C shares on
May 17, 1993 and August 13, 1993, respectively.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION--Investments are stated at value using market quotations
or, if such valuations are not available, estimates obtained from yield data
relating to instruments or securities with similar characteristics in accordance
with procedures established in good faith by the Board of Trustees. Short-term
securities with remaining maturities of 60 days or less are valued at amortized
cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made.
The Fund invests in repurchase agreements, which are short-term investments
in which the Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. The Fund may
invest independently in repurchase agreements, or transfer uninvested cash
balances into a pooled cash account
22
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
along with other investment companies advised by Van Kampen American Capital
Investment Advisory Corp. (the "Adviser") or its affiliates, the daily aggregate
of which is invested in repurchase agreements. Repurchase agreements are fully
collateralized by the underlying debt security. The Fund will make payment for
such securities only upon physical delivery or evidence of book entry transfer
to the account of the custodian bank. The seller is required to maintain the
value of the underlying security at not less than the repurchase proceeds due
the Fund.
C. 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, 1997, the Fund had an accumulated capital loss carryforward
for tax purposes of $96,270,175, which will expire between June 30, 1998 and
June 30, 2004. Net realized gains or losses may differ for financial and tax
reporting purposes primarily as a result of post October 31 losses which are not
recognized for tax purposes until the first day of the following fiscal year.
At December 31, 1997, for federal income tax purposes, the cost of long- and
short-term investments is $429,146,739; the aggregate gross unrealized
appreciation is $13,216,936 and the aggregate gross unrealized depreciation is
$2,921,787, resulting in net unrealized appreciation of $10,295,149.
E. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily and pays monthly
dividends from net investment income. Net investment income for federal income
tax purposes includes gains and losses realized on foreign currency
transactions. These gains and losses are included as net realized gains and
losses for financial reporting purposes.
23
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Net realized gains, if any, are distributed annually. Distributions from net
realized gains for book purposes may include short-term capital gains, which are
included as ordinary income for tax purposes.
F. CURRENCY TRANSLATION--Assets and liabilities denominated in foreign
currencies and commitments under forward currency contracts are translated into
U.S. dollars at the mean of the quoted bid and ask prices of such currencies
against the U.S. dollar. Purchases and sales of portfolio securities are
translated at the rate of exchange prevailing when such securities were acquired
or sold. Income and expenses are translated at rates prevailing when accrued.
G. BANK LOAN PARTICIPATIONS--The Fund invests in participation interests of
loans to foreign entities. When the Fund purchases a participation of a foreign
loan interest, the Fund typically enters into a contractual agreement with the
lender or other third party selling the participation, but not with the borrower
directly. As such, the Fund assumes credit risk for the borrower, selling
participant or other persons positioned between the Fund and the borrower.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, 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 six months ended December 31, 1997, the Adviser waived a portion of
its advisory fee. This waiver is voluntary and may be discontinued at any time.
For the six months ended December 31, 1997, the Fund recognized expenses of
approximately $16,000 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the six months ended December 31, 1997, the Fund recognized expenses of
approximately $21,400 representing Van Kampen American Capital Distributors,
Inc.'s or its affiliates' (collectively "VKAC") cost of providing accounting,
cash management and legal services to the Fund.
ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the six months ended
December 31, 1997,
24
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
the Fund recognized expenses of approximately $215,300, representing ACCESS'
cost of providing transfer agency and shareholder services plus a profit.
Additionally, for the six months ended December 31, 1997, the Fund
reimbursed VKAC approximately $19,600 related to the direct cost of
consolidating the VKAC open-end fund complex. Payment was contingent upon the
realization by the Fund of cost efficiencies resulting from the consolidation.
Certain officers and trustees of the Fund are also officers and directors of
VKAC. The Fund does not compensate its officers or trustees who are officers of
VKAC.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of VKAC. Under the deferred compensation plan,
trustees may elect to defer all or a portion of their compensation to a later
date. Benefits under the retirement plan are payable for a ten-year period and
are based upon each trustee's years of service to the Fund. The maximum annual
benefit per trustee under the plan is equal to $2,500.
3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of shares of beneficial interest, Classes
A, B and C, each with a par value of $.01 per share. There are an unlimited
number of shares of each class authorized. At December 31, 1997, capital
aggregated $379,384,096,
25
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
$136,562,821 and $9,316,584 for Class A, B and C shares, respectively. For the
six months ended December 31, 1997, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................. 5,067,615 $ 50,390,656
Class B.................................. 2,408,390 23,947,932
Class C.................................. 353,386 3,515,361
----------- -------------
Total Sales................................ 7,829,391 $ 77,853,949
=========== =============
Dividend Reinvestment:
Class A.................................. 513,507 $ 5,103,040
Class B.................................. 206,570 2,052,517
Class C.................................. 18,739 186,075
----------- -------------
Total Dividend Reinvestment................ 738,816 $ 7,341,632
=========== =============
Repurchases:
Class A.................................. (5,469,762) $ (54,405,883)
Class B.................................. (1,449,407) (14,402,735)
Class C.................................. (226,995) (2,252,767)
----------- -------------
Total Repurchases.......................... (7,146,164) $ (71,061,385)
=========== =============
</TABLE>
26
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 (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). 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>
27
<PAGE> 29
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
For the six months ended December 31, 1997, VKAC, as Distributor for the
Fund, received commissions on sales of the Fund's Class A shares of
approximately $38,600 and CDSC on redeemed shares of approximately $171,700.
Sales charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $233,430,198 and $206,832,463,
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 on securities. 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 contract. In these instances, the recognition of gain or loss is
postponed until the disposal of the security underlying the option or futures
contract.
During the period, the Fund invested in futures contracts, a type of
derivative. A futures contract is an agreement involving the delivery of a
particular asset on a specified future date at an agreed upon price. 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 is in excess of the variation margin reflected on the
Statement of Assets and Liabilities.
28
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Transactions in futures contracts for the six months ended December 31,
1997, were as follows:
<TABLE>
<CAPTION>
Contracts
- ------------------------------------------------------------------
<S> <C>
Outstanding at June 30, 1997......................... -0-
Futures Opened....................................... 50
Futures Closed....................................... (50)
-----
Outstanding at December 31, 1997..................... -0-
=====
</TABLE>
6. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% 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 six months ended December 31, 1997, are payments retained by VKAC
of approximately $432,549.
29
<PAGE> 31
FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL
EQUITY FUNDS
Domestic
MS Aggressive Equity
VKAC Aggressive Growth
MS American Value
VKAC Comstock
VKAC Emerging Growth
VKAC Enterprise
VKAC Equity Income
VKAC Growth
VKAC Growth and Income
VKAC Harbor
VKAC Pace
VKAC Real Estate Securities
MS U.S. Real Estate
VKAC Utility
MS Value
International/Global
MS Asian Growth
MS Emerging Markets
MS Global Equity
VKAC Global Equity
MS Global Equity Allocation
VKAC Global Managed Assets
MS International Magnum
MS Latin American
FIXED-INCOME FUNDS
Income
VKAC Corporate Bond
MS Global Fixed Income
VKAC Global Government Securities
VKAC Government Securities
VKAC High Income Corporate Bond
MS High Yield
VKAC High Yield
VKAC Short-Term Global Income
VKAC Strategic Income
VKAC U.S. Government
VKAC U.S. Government Trust for Income
MS Worldwide High Income
Tax Exempt Income
VKAC California Insured Tax Free
VKAC Florida Insured Tax Free Income
VKAC High Yield Municipal
VKAC Insured Tax Free Income
VKAC Intermediate Term Municipal Income
VKAC Municipal Income
VKAC New York Tax Free Income
VKAC Pennsylvania Tax Free Income
VKAC Tax Free High Income
Capital Preservation
VKAC Limited Maturity Government
VKAC Prime Rate Income Trust
VKAC Reserve
VKAC Senior Floating Rate
VKAC Tax Free Money
To find out more about any of these funds, ask your financial adviser for a
prospectus, which contains more complete information, including sales
charges, risks, and expenses. Please read it carefully before you invest or
send money.
To view a current Van Kampen American Capital or Morgan Stanley fund
prospectus or to receive additional fund information, choose from one of the
following:
- visit our web site at WWW.VKAC.COM -- to view prospectuses, select
Investors' Place, then Download a Prospectus
- call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time
(Telecommunications Device for the Deaf users, call 1-800-421-2833)
- e-mail us by visiting WWW.VKAC.COM and selecting Investors' Place
30
<PAGE> 32
VAN KAMPEN AMERICAN CAPITAL HIGH YIELD FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
ALAN T. SACHTLEBEN*
PAUL R. WOLKENBERG*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
DISTRIBUTOR
VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
SHAREHOLDER SERVICING AGENT
ACCESS INVESTOR
SERVICES, INC.
P.O. Box 418256
Kansas City, Missouri 64141-9256
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601
* "Interested" persons of the Fund, as defined in the Investment Company Act of
1940.
(C) Van Kampen American Capital Distributors, Inc., 1998. All rights reserved.
(SM) denotes a service mark of Van Kampen American Capital Distributors, Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After June 30, 1998, the report, if used with prospective
investors, must be accompanied by a quarterly performance update.
31
<PAGE> 33
VAN KAMPEN AMERICAN CAPITAL HIGH YIELD FUND
THIS PAGE INTENTIONALLY LEFT BLANK
32
<PAGE> 34
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 4
Portfolio Management Review...................... 5
Portfolio Highlights............................. 8
Portfolio of Investments......................... 9
Statement of Assets and Liabilities.............. 11
Statement of Operations.......................... 12
Statement of Changes in Net Assets............... 13
Financial Highlights............................. 14
Notes to Financial Statements.................... 17
</TABLE>
STGI SAR 2/98
<PAGE> 35
LETTER TO SHAREHOLDERS
February 3, 1998
Dear Shareholder,
The new year ushers in what
promises to be an exciting and
challenging time for investors. The [PHOTO]
Taxpayer Relief Act of 1997 passed by
President Clinton in August creates
many new opportunities for you and
your family to take a more active role DENNIS J. MCDONNELL AND DON G. POWELL
in achieving your long-term financial
goals.
Most Americans will benefit from
the bill's $95 billion in tax cuts
over five years. The so-called Kiddie Credit gives parents $400 in immediate tax
relief for every child under age 17, and families will find it easier to save
for their children's college expenses through the new Education IRA. The bill
also cuts capital gains tax rates for the first time in over a decade, and
loosens restrictions on tax-deductible IRA contributions. Perhaps the most
exciting feature of all is the new Roth IRA, which allows investment earnings to
grow tax free, not just tax deferred.
This year more than ever, it could be important for you to talk with your
financial adviser about how to make the tax code work to your advantage. At Van
Kampen American Capital, we have prepared a variety of publications to help you
understand your choices under the new tax legislation. And with the help of your
adviser, we'll help you locate the many benefits hidden among the changing tax
landscape.
ECONOMIC OVERVIEW
After years of breakneck growth and rapid expansion of credit, Asia
experienced a severe economic setback during the reporting period. The region's
problems first became evident in July, when Thailand responded to a growing
trade deficit by allowing its currency to float freely in international markets.
The Thai government's move set in motion a chain reaction of devaluations which
ultimately severed much of the region's traditional currency link to the U.S.
dollar. At the height of the crisis in October, the Hong Kong dollar, pegged to
the American dollar since 1983, also came under attack from speculators.
While Chinese officials defended the currency and retained the U.S. dollar
peg, Asia's turmoil was far from finished. The crisis next spread to South
Korea, where that country's ailing financial sector required a massive infusion
of liquidity from the International Monetary Fund to stave off widespread
bankruptcies.
Compared to Asia, economic conditions in Europe and the United States were
healthy and tranquil. Europe continues to enjoy solid economic growth with low
inflation. The relatively tight fiscal policies required to accomplish a move to
a single currency, however, have left Europe's unemployment rate in double
digits.
Continued on page two
1
<PAGE> 36
In the United States, economic growth remains strong, unemployment is low,
consumers are optimistic, the budget is headed for surplus this year, and our
nation's currency is rising around the world. Despite the strength in the U.S.
economy, there was no indication of troublesome inflation. In fact, the producer
price index fell by 1.2 percent during the year, the largest annual decline in
wholesale prices since 1986. Inflation at the consumer level was also virtually
nonexistent, with the consumer price index rising by only 1.7 percent during
1997. A strong dollar and significant productivity gains helped offset the
inflationary pressures caused by rising wages.
MARKET REVIEW
After gliding through a strong and mostly uneventful first half of 1997,
global equity markets experienced a sharp increase in volatility during the
later stages of the year. In particular, the currency crisis that roiled most
Southeast Asian economies spilled over into the region's equity markets,
creating an avalanche of selling that unnerved markets in Europe, Latin America,
and the United States as well.
Despite the shifting global economic conditions, U.S. stocks continued to
post solid returns. For the year, the Wilshire 5000 Index, which measures the
performance of all publicly traded U.S. companies, gained 29.17 percent. But
while the general upward trend in U.S. stocks continued, volatility also picked
up. Between early August and late October, the Dow Jones Industrial Average fell
by 16 percent before rebounding sharply to close the reporting period near
record-high territory.
In Europe, falling interest rates, low inflation, and improving corporate
profitability provided a strong underpinning to the region's equity markets. In
local currency terms, every European market gained at least 13 percent, led by
the 79 percent gain in Portugal and the nearly 51 percent rise in Switzerland.
However, the strong U.S. dollar offset a significant portion of those gains for
American investors.
In Asia, falling currencies exacerbated the impact of tumbling stock prices.
For the year, the Dow Jones Asia/Pacific Index fell 29.13 percent in dollar
terms. Equity markets in Indonesia, Malaysia, South Korea, Thailand, and the
Philippines each finished 1997 with losses of more than 60 percent. The negative
impact of the Asian crisis on prospects for world economic growth created a
positive environment for global bonds. For the 12 months ended December 31, the
Salomon Brothers World Government Bond Index gained 8.97 percent in local
currency terms. However, the strong dollar undermined the results for U.S.
investors, and the Index gained 0.23 percent in U.S. dollar terms during the
same period.
Bond markets were especially strong in European nations that are not
participating in the planned European Monetary Union, as interest rates in
non-EMU countries such as Sweden and the United Kingdom fell closer to those in
Germany and France. In the U.S., the yield on the Treasury's benchmark 30-year
bond began the year at 6.64 percent and climbed to 7.17 percent in April amid
fears of increasing inflation. When subsequent data showed the economy to be
slowing, bond yields drifted gradually lower. By the end of the reporting
period, the long-term Treasury bond yield had fallen to 5.92 percent, its lowest
level in more than four years, and bond prices, which move in the opposite
direction of bond yields, rose significantly.
Continued on page three
2
<PAGE> 37
OUTLOOK
We expect that the recent upheavals in Southeast Asia will have a mixed
impact on the U.S. economy and financial markets. Sales of American goods
overseas are likely to decline in coming months, and competition from relatively
inexpensive imports could pinch profit margins. Overall, we believe that lower
currency values in Asia will likely result in less inflation in the U.S. and a
greater likelihood of stable or falling interest rates. Such a scenario usually
benefits equity markets, and we believe that a portfolio of high-quality
domestic stocks should continue to perform well. We also anticipate that stock
selection will play a larger role in generating investment performance due to
the uneven impact of the Asian crisis on individual companies and the
broad-based nature of the advance in equity prices in recent years.
Within Asia itself, we believe that the turbulence has yet to run its
course. It is likely that Pacific Rim markets will continue to search for a
bottom until investors arrive at meaningful projections for economic growth
rates and corporate profits. As the reporting period ended, a clear vision of
the new economic order in Asia remained elusive.
We believe that European markets generally have the least amount to lose by
the Asian shock. European exports to Asia are relatively modest, and the region
continues to enjoy solid growth, declining budget deficits, and benign
inflation.
As we noted earlier, the Taxpayer Relief Act of 1997 provides attractive new
vehicles through which investors can save for a variety of goals, including
higher education and retirement. We encourage you to work with your financial
adviser to consider how the tax changes can work to your benefit.
Additional details about your Fund, including a question-and-answer section
with your portfolio management team, are provided in this report. As always, we
are pleased to have the opportunity to serve you and your family through our
diverse menu of quality investments.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen American Capital
Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen American Capital
Investment Advisory Corp.
Continued on page four
3
<PAGE> 38
PERFORMANCE RESULTS FOR THE PERIOD ENDED DECEMBER 31, 1997
VAN KAMPEN AMERICAN CAPITAL SHORT-TERM GLOBAL INCOME FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS
Six-months total return based on
NAV(1)................................. 2.20% 1.82% 1.82%
Six-months total return(2)............... -1.07% -1.16% 0.82%
One-year total return(2)................. 1.22% .94% 2.91%
Five-year average annual total
return(2).............................. 2.73% 2.63% N/A
Life-of-Fund average annual total
return(2).............................. 4.02% 3.50% 1.81%
Commencement date........................ 09/28/90 07/22/91 08/13/93
DISTRIBUTION RATE AND YIELD
Distribution rate(3)..................... 6.05% 5.49% 5.49%
SEC Yield(4)............................. 4.18% 3.57% 3.57%
</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 December 30, 1997. Had
certain expenses of the Fund not been assumed by VKAC, the SEC Yield would have
been 4.16%, 3.55% and 3.55% for Classes A, B and C, respectively, and the total
returns would have been lower.
See the Fund Performance section of the current prospectus. Past performance
does not guarantee future results. Investment return and net asset value will
fluctuate with market conditions. Fund shares, when redeemed, may be worth more
or less than their original cost.
The Fund's net asset value will fluctuate as a result of changes in foreign
exchange rates and fluctuations in market interest rates. Foreign investments
involve the risks of future foreign political and economic developments and
securities of many foreign companies are less liquid and their prices more
volatile than domestic companies.
Market forecasts provided in this report may not necessarily come to pass.
4
<PAGE> 39
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN AMERICAN CAPITAL SHORT-TERM GLOBAL INCOME FUND
We recently spoke with the management team of the Van Kampen American Capital
Short-Term Global Income Fund about the key events and economic forces that
shaped the markets during the past six months. The team is led by Thomas J.
Slefinger, portfolio manager, and Peter W. Hegel, chief investment officer for
fixed-income investments. The following excerpts reflect their views on the
Fund's performance during the six-month period ended December 31, 1997.
Q WHAT FACTORS SHAPED THE PERFORMANCE OF THE FUND OVER THE LAST SIX MONTHS?
A The big story has been the turmoil in Asian markets. Primarily, currency
devaluations in countries such as Indonesia, Malaysia, Thailand, the
Philippines, and South Korea triggered a steep sell-off in these markets--
reflected by a drop of 60 to 70 percent in some of the region's bond indices
over the course of just six months.
In part, investors were reacting to a perceived threat of worldwide
disinflation that could hamper the growth of world economies. The result was
ripple-effect selling that reached bond and stock markets around the world.
Other factors, including the current weakness of the Japanese economy and the
frailty of the Japanese banking system, have also contributed to uncertainty
among market participants.
In general, investors have responded by gravitating toward higher quality
securities, such as the government-backed bonds of industrialized countries.
This "flight to quality" has been a positive force behind the Fund's
performance, and a key factor in the strong performance of select worldwide bond
markets over the past six months. Active demand has pushed up the prices of such
securities, and conversely, driven yields down to levels that haven't been seen
in decades. The yield on the 30-year U.S. Treasury dropped below 6 percent at
year end for the first time since 1993.
In European markets, long-term interest rates converged as central banks
pursued policies geared toward the onset of the European Monetary Union.
Economic conditions such as low growth and low inflation, combined with fiscally
conservative spending and tight monetary policies, bode well for continued low
rates and a supportive environment for bonds.
Q WHAT STEPS DID YOU TAKE TO POSITION THE FUND IN LIGHT OF THESE CONDITIONS?
A We have maintained a moderately aggressive duration for the Fund. Duration
is a measure of a bond's sensitivity to interest rates. We feel that the
slightly longer duration of 1.72 years as of December 31, 1997, will put the
portfolio in a good position to benefit from a steady or declining interest
rate environment.
We have been heavily weighted in the U.S. market, partly because of its
"safe haven" status and partly because we expect the economy to grow more slowly
in coming months, which would be a positive development for bonds.
5
<PAGE> 40
Similarly, we have held substantial weightings in U.S. dollar holdings
(approximately 83 percent of total investments at year end), taking on minimal
exposure to foreign currencies. The dollar has been very strong, and appears
likely to remain so, given the outlook for conditions in the Asian sector.
Also, due to the dramatic weakening of various foreign currencies, we have
selectively added positions in certain smaller, less liquid, higher-yielding
markets, such as Mexico, Argentina, and Panama. We see the potential for
enhancing the Fund's yield and boosting total return by taking advantage of
opportunities in these markets.
Late in the year, we took on small exposure to selected Asian markets,
including Indonesia, Malaysia, Thailand, and the Philippines. While these
markets may decline further in the near term, we hope to find good relative
value in higher-quality issues that should benefit from a market rebound over
the longer term. For additional Fund portfolio highlights, please refer to page
eight.
Q HOW DID THE FUND PERFORM DURING THIS PERIOD?
A The Fund's performance was strong in the first half of the calendar year,
but less so during the second half. For the six-month period ended
December 31, 1997, the Fund generated a total return of 2.20 percent(1)
(Class A shares at net asset value). For calendar year 1997, the Fund posted a
total return of 4.68 percent(1) (Class A shares at net asset value). By
comparison, the J.P. Morgan Short-Term Global Index produced a total return of
1.78 percent for the six-month period. This tracks the major bond markets of the
world with maturities of three years or less. In addition, the average J.P.
Morgan 3-month U.S. LIBOR Return rate was 5.77 percent. This is an unmanaged
index that tracks the London Interbank Offered Rate, a key short-term interest
rate that the most creditworthy international banks dealing in Eurodollars
charge each other for large loans. These indices do not reflect any commissions
or fees that would be paid by an investor purchasing the securities they
represent.
The Fund's distribution rate was 6.05 percent(3) as of December 31, 1997
(based on a monthly dividend of $0.039 per share, and a maximum public offering
price of $7.73 per share). Please refer to the chart on page four for additional
Fund performance results.
Q WHAT IS YOUR OUTLOOK FOR THE MARKET IN THE MONTHS AHEAD?
A The longer-term disinflationary trends that have been in place over the
past two years have continued. Global economic growth rates have remained
slow and inflation rates have continued to fall, resulting in declining
interest rates in virtually every major bond market around the world.
To some extent, the decline in yields has been exacerbated by the
instability of the Asian region, triggering the flight to quality. This has
occurred against a backdrop of macroeconomic conditions which have generally
been favorable for bonds.
6
<PAGE> 41
We believe the world's central banks are committed to pursuing policies
which promote price stability, which should support the recent trend toward
stable or lower yields, creating positive long-term prospects for the
fixed-income markets.
While short-term volatility is likely, we are confident that recent events
will provide the Fund with ample investment opportunity.
[SIG.]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
[SIG.]
Thomas J. Slefinger
Portfolio Manager
Please see footnotes on page four
7
<PAGE> 42
PORTFOLIO HIGHLIGHTS
VAN KAMPEN AMERICAN CAPITAL SHORT-TERM GLOBAL INCOME FUND
HOLDINGS AS A PERCENTAGE OF TOTAL INVESTMENTS
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, 1997 JUNE 30, 1997
<S> <C> <C>
Repurchase Agreement.......... 40.4% ........... 3.9%
U.S. Treasury Notes........... 37.3% ........... 64.7%
New Zealand Government........ 8.3% ........... 15.4%
United Kingdom Treasury....... 5.3% ........... N/A
Bonos del Tesoro.............. 2.5% ........... N/A
World Bank -- European Bank
for Reconstruction &
Development................. 1.6% ........... 1.6%
International Bank for
Reconstruction &
Development................. 1.5% ........... N/A
Banco Latinoamericano......... 1.3% ........... N/A
Industrial Financial
Corporation -- Thailand..... 1.2% ........... N/A
Republic of Panama............ 0.6% ........... N/A
</TABLE>
N/A = Not Applicable
ASSET ALLOCATION AS A PERCENTAGE OF TOTAL INVESTMENTS
<TABLE>
<CAPTION>
As of December 31, 1997
<S> <C>
Repurchase Agreement................ 40.4%
U.S. Government Bonds............... 37.3% [PIE CHART]
Foreign Investment Grade Bonds...... 22.3%
</TABLE>
<TABLE>
<CAPTION>
As of June 30, 1997
<S> <C>
U.S. Government Bonds............... 64.7%
Foreign Investment Grade Bonds...... 31.4% [PIE CHART]
Repurchase Agreement................ 3.9%
</TABLE>
8
<PAGE> 43
PORTFOLIO OF INVESTMENTS
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
in Local
Currency Maturity U.S. $
(000) Description Coupon Date Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FIXED INCOME SECURITIES
ARGENTINA 2.5% US$
Government/Agency
2,000 Bonos del Tesoro............................... 8.000% 12/13/98 $ 1,981,000
-----------
NEW ZEALAND 11.3% NZ$
Corporate
3,900 International Bank for Recon & Dev............. * 08/20/07 1,140,556
2,100 World Bank - European Bank for Recon & Dev..... 7.350 04/21/98 1,213,646
Government/Agency
10,500 New Zealand Government......................... 8.000 11/15/06 6,497,813
-----------
8,852,015
-----------
PANAMA 1.9% US$
Corporate
1,000 Banco Latinoamericano.......................... 6.375 05/28/98 996,250
Government/Agency
500 Republic of Panama, 144A - Private
Placement (a).................................. 7.875 02/13/02 483,750
-----------
1,480,000
-----------
THAILAND 1.2% US$
Corporate
1,000 Industrial Financial Corp., 144A - Private
Placement (a).................................. 7.750 08/04/07 945,788
-----------
UNITED KINGDOM 5.3% GBP
Government/Agency
2,500 United Kingdom Treasury........................ 7.000 06/07/02 4,181,312
-----------
UNITED STATES 37.2% US$
Government/Agency
20,000 U.S. Treasury Notes (b)........................ 5.000 01/31/98 19,995,200
2,500 U.S. Treasury Notes............................ 6.000 07/31/02 2,528,000
6,500 U.S. Treasury Notes............................ 6.125 08/15/07 6,682,130
-----------
29,205,330
-----------
REPURCHASE AGREEMENTS 40.4%
J P Morgan (Collateralized by U. S. Treasury Bonds, $25,822,000 par,
7.875% coupon, due 02/15/21, dated 12/31/97, to be sold on 01/02/98
at $31,654,988)............................................................. 31,644,000
-----------
TOTAL INVESTMENTS 99.8%
(Cost $79,612,376).......................................................... 78,289,445
OTHER ASSETS IN EXCESS OF LIABILITIES 0.2%................................... 142,398
-----------
NET ASSETS 100.0%............................................................ $78,431,843
===========
</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 forward currency contracts.
See Notes to Financial Statements
9
<PAGE> 44
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION BY CREDIT QUALITY
The following table summarizes the portfolio composition at December 31,
1997, based upon the highest credit quality ratings as determined by Standard &
Poor's or Moody's.
<TABLE>
<S> <C>
U.S. Government Obligations............. 37.3%
Repurchase Agreement.................... 40.4%
AAA..................................... 16.7%
A....................................... 1.2%
BBB..................................... 1.3%
BB...................................... 0.6%
B....................................... 2.5%
-----
100.0%
=====
</TABLE>
See Notes to Financial Statements
10
<PAGE> 45
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments, including repurchase agreement of
$31,644,000 (Cost $79,612,376)............................ $ 78,289,445
Cash........................................................ 23,886
Receivables:
Interest.................................................. 829,345
Forward Currency Contracts................................ 55,175
Fund Shares Sold.......................................... 367
------------
Total Assets.......................................... 79,198,218
------------
LIABILITIES:
Payables:
Income Distributions...................................... 147,662
Fund Shares Repurchased................................... 130,914
Distributor and Affiliates................................ 109,852
Investment Advisory Fee................................... 37,098
Accrued Expenses............................................ 236,512
Trustees' Deferred Compensation and Retirement Plans........ 104,337
------------
Total Liabilities..................................... 766,375
------------
NET ASSETS.................................................. $ 78,431,843
============
NET ASSETS CONSIST OF:
Capital..................................................... $145,298,171
Accumulated Distributions in Excess of Net Investment
Income.................................................... (1,003,519)
Net Unrealized Depreciation................................. (1,645,589)
Accumulated Net Realized Loss............................... (64,217,220)
------------
NET ASSETS.................................................. $ 78,431,843
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $39,671,387 and 5,305,385 shares of
beneficial interest issued and outstanding)............. $ 7.48
Maximum sales charge (3.25%* of offering price)......... .25
------------
Maximum offering price to public........................ $ 7.73
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $38,478,134 and 5,147,379 shares of
beneficial interest issued and outstanding)............. $ 7.48
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $282,322 and 37,761 shares of beneficial
interest issued and outstanding)........................ $ 7.48
============
</TABLE>
*On sales of $25,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
11
<PAGE> 46
STATEMENT OF OPERATIONS
For the Six Months Ended December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 2,734,143
-----------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $49,732, $232,678 and $1,063,
respectively)............................................. 283,473
Investment Advisory Fee..................................... 237,968
Shareholder Services........................................ 115,647
Custody..................................................... 29,099
Legal....................................................... 13,800
Trustees' Fees and Expenses................................. 13,018
Other....................................................... 96,806
-----------
Total Expenses.......................................... 789,811
Less Expenses Reimbursed................................ 8,804
-----------
Net Expenses............................................ 781,007
-----------
NET INVESTMENT INCOME....................................... $ 1,953,136
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 716,650
Options................................................... 18,292
Forwards.................................................. 2,815,371
Foreign Currency Transactions............................. (3,492,663)
-----------
Net Realized Gain........................................... 57,650
-----------
Net Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (1,420,976)
-----------
End of the Period:
Investments............................................. (1,322,931)
Forwards................................................ (319,283)
Foreign Currency Translation............................ (3,375)
-----------
(1,645,589)
-----------
Net Unrealized Depreciation During the Period............... (224,613)
-----------
NET REALIZED AND UNREALIZED LOSS............................ $ (166,963)
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 1,786,173
===========
</TABLE>
See Notes to Financial Statements
12
<PAGE> 47
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended December 31, 1997
and the Year Ended June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
December 31, 1997 June 30, 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income...................................... $ 1,953,136 $ 5,420,224
Net Realized Gain.......................................... 57,650 1,725,990
Net Unrealized Depreciation During the Period.............. (224,613) (1,136,411)
------------ ------------
Change in Net Assets from Operations....................... 1,786,173 6,009,803
------------ ------------
Distributions from Net Investment Income................... (1,953,136) (5,420,224)
Distributions in Excess of Net Investment Income........... (548,242) (1,573,147)
------------ ------------
Distributions from and in Excess of Net Investment
Income*.................................................. (2,501,378) (6,993,371)
Return of Capital Distribution*............................ -0- (91,680)
------------ ------------
Total Distributions........................................ (2,501,378) (7,085,051)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES........ (715,205) (1,075,248)
------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold.................................. 5,737,396 3,720,807
Net Asset Value of Shares Issued Through Dividend
Reinvestment............................................. 1,509,238 4,048,955
Cost of Shares Repurchased................................. (19,831,777) (46,302,530)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS......... (12,585,143) (38,532,768)
------------ ------------
TOTAL DECREASE IN NET ASSETS............................... (13,300,348) (39,608,016)
NET ASSETS:
Beginning of the Period.................................... 91,732,191 131,340,207
------------ ------------
End of the Period (Including accumulated distributions in
excess of net investment income of $1,003,519 and
$455,277, respectively)................................. $ 78,431,843 $ 91,732,191
============ ============
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended
*Distrubution by Class December 31, 1997 June 30, 1997
- --------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of
Net Investment Income:
Class A Shares......................... $(1,231,802) $(3,003,963)
Class B Shares......................... (1,263,826) (3,977,304)
Class C Shares......................... (5,750) (12,104)
----------- -----------
$(2,501,378) $(6,993,371)
=========== ===========
Return of Capital Distribution:
Class A Shares......................... $ -0- $ (40,726)
Class B Shares......................... -0- (50,795)
Class C Shares......................... -0- (159)
----------- -----------
$ -0- $ (91,680)
=========== ===========
</TABLE>
See Notes to Financial Statements
13
<PAGE> 48
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended June 30,
December 31, ---------------------------------
Class A Shares 1997 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period...... $7.55 $7.62 $7.56 $8.15 $9.11
----- ----- ----- ----- -----
Net Investment Income......................... .19 .42 .49 .50 .59
Net Realized and Unrealized Gain/Loss......... (.02) .03 .16 (.45) (.89)
----- ----- ----- ----- -----
Total from Investment Operations.............. .17 .45 .65 .05 (.30)
----- ----- ----- ----- -----
Less:
Distributions from and in Excess of Net
Investment Income......................... .24 .51 -0- .37 .35
Return of Capital Distribution.............. -0- .01 .59 .27 .31
----- ----- ----- ----- -----
Total Distributions........................... .24 .52 .59 .64 .66
----- ----- ----- ----- -----
Net Asset Value, End of the Period............ $7.48 $7.55 $7.62 $7.56 $8.15
===== ===== ===== ===== =====
Total Return* (a)............................. 2.20%** 6.09% 8.81% .69% (3.61%)
Net Assets at End of the Period (In
millions)................................... $39.7 $39.5 $50.1 $72.5 $147.7
Ratio of Expenses to Average Net Assets*
(b)......................................... 1.39% 1.33% 1.31% 1.14% 1.13%
Ratio of Net Investment Income to Average
Net Assets*................................. 4.91% 5.37% 6.54% 7.20% 6.64%
Portfolio Turnover............................ 80%** 378% 225% 204% 259%
* If certain expenses had not been assumed by VKAC, Total Return would have been
lower and the ratios would have been as follows:
Ratio of Expenses to Average Net Assets (b)... 1.42% 1.36% 1.34% N/A N/A
Ratio of Net Investment Income to Average
Net Assets.................................. 4.89% 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
14
<PAGE> 49
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended June 30,
December 31, -----------------------------------
Class B Shares 1997(a) 1997(a) 1996 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.... $7.55 $7.62 $7.56 $8.15 $9.10
----- ----- ---- ---- ----
Net Investment Income....................... .16 .35 .39 .41 .54
Net Realized and Unrealized Gain/Loss....... (.02) .04 .20 (.42) (.90)
----- ----- ---- ---- ----
Total from Investment Operations............ .14 .39 .59 (.01) (.36)
----- ----- ---- ---- ----
Less:
Distributions from and in Excess of Net
Investment Income....................... .21 .45 -0- .34 .32
Return of Capital Distribution............ -0- .01 .53 .24 .27
----- ----- ---- ---- ----
Total Distributions......................... .21 .46 .53 .58 .59
----- ----- ---- ---- ----
Net Asset Value, End of the Period.......... $7.48 $7.55 $7.62 $7.56 $8.15
===== ===== ===== ===== =====
Total Return* (b)........................... 1.82%** 5.29% 8.02% (.14%) (4.22%)
Net Assets at End of the Period (In
millions)................................. $38.5 $52.1 $81.1 $127.9 $271.8
Ratio of Expenses to Average Net Assets*
(c)....................................... 2.15% 2.09% 2.09% 1.96% 1.85%
Ratio of Net Investment Income to Average
Net Assets*............................... 4.17% 4.62% 5.79% 6.42% 5.91%
Portfolio Turnover.......................... 80%** 378% 225% 204% 259%
* If certain expenses had not been assumed by VKAC, Total Return would have been lower and
the ratios would have been as follows:
Ratio of Expenses to Average Net Assets
(c)....................................... 2.17% 2.12% 2.12% N/A N/A
Ratio of Net Investment Income to Average
Net Assets................................ 4.15% 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
15
<PAGE> 50
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
Six Months Ended Year Ended June 30, (Commencement of
December 31, --------------------------- Distribution) to
Class C Shares 1997(a) 1997(a) 1996 1995 June 30, 1994
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
Net Asset Value, Beginning of
the Period.................... $7.55 $7.62 $7.56 $8.16 $9.24
----- ----- ----- ----- -----
Net Investment Income........... .15 .35 .45 .50 .49
Net Realized and Unrealized
Gain/Loss..................... (.01) .04 .14 (.52) (1.05)
----- ----- ----- ----- -----
Total from Investment
Operations.................... .14 .39 .59 (.02) (.56)
----- ----- ----- ----- -----
Less:
Distributions from and in
Excess of Net Investment
Income...................... .21 .45 -0- .34 .27
Return of Capital
Distribution................ -0- .01 .53 .24 .25
----- ----- ----- ----- -----
Total Distributions............. .21 .46 .53 .58 .52
----- ----- ----- ----- -----
Net Asset Value, End of the
Period........................ $7.48 $7.55 $7.62 $7.56 $8.16
===== ===== ===== ===== =====
Total Return* (b)............... 1.82%** 5.29% 8.03% (.27%) (6.32%)**
Net Assets at End of the Period
(In millions)................. $.3 $.2 $.2 $.2 $.2
Ratio of Expenses to Average Net
Assets* (c)................... 2.16% 2.09% 2.07% 1.96% 1.84%
Ratio of Net Investment Income
to Average Net Assets*......... 4.08% 4.63% 5.72% 6.30% 5.83%
Portfolio Turnover.............. 80%** 378% 225% 204% 259%
* If certain expenses had not been assumed by VKAC, Total Return would have been
lower and the ratios would have been as follows:
Ratio of Expenses to Average Net
Assets (c).................... 2.18% 2.12% 2.09% N/A N/A
Ratio of Net Investment Income
to Average Net Assets......... 4.06% 4.60% 5.69% N/A N/A
</TABLE>
** Non-Annualized
(a) Based on average month-end shares outstanding.
(b) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(c) Beginning with the year ended June 30, 1997, the Ratios of Expenses to
Average Net Assets are based upon expense amounts which do not reflect
credits earned on overnight cash balances.
N/A = Not Applicable
See Notes to Financial Statements
16
<PAGE> 51
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Short-Term Global Income Fund (the "Fund") is
organized as a series of Van Kampen American Capital Trust (the "Trust"), a
Delaware business trust, and is registered as a non-diversified open-end
management investment company under the Investment Company Act of 1940, as
amended. The Fund's investment objective is to seek a high level of current
income, consistent with prudent investment risk through investment in a global
portfolio of investment grade debt securities denominated in various currencies
and multi-national currency units and having an average duration of three years
or less. The Fund commenced investment operations on September 28, 1990. The
distribution of the Fund's Class B and Class C shares commenced on July 22,
1991, and August 13, 1993, respectively.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION--Investments are stated at value using the last available
bid price, or if not available, yield equivalents obtained from dealers in the
over-the-counter (OTC) or interbank market. Short-term securities with remaining
maturities of 60 days or less are valued at amortized cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made. At December 31, 1997, there were no
when issued or delayed delivery purchase commitments.
The Fund may invest in repurchase agreements, which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund may invest independently in
17
<PAGE> 52
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
repurchase agreements, or transfer uninvested cash balances into a pooled cash
account along with other investment companies advised by Van Kampen American
Capital Investment Advisory Corp. (the "Adviser") or its affiliates, the daily
aggregate of which is invested in repurchase agreements. Repurchase agreements
are fully collateralized by the underlying debt security. The Fund will make
payment for such security only upon physical delivery or evidence of book entry
transfer to the account of the custodian bank. The seller is required to
maintain the value of the underlying security at not less than the repurchase
proceeds due the Fund.
C. 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, 1997, the Fund had an accumulated capital loss carryforward
for tax purposes of $64,274,870 which will expire between June 30, 2001 and June
30, 2004. Net realized gains or losses may differ for financial and tax
reporting purposes primarily as a result of post October 31 losses which are not
recognized for tax purposes until the first day of the following fiscal year and
as a result of gains or losses recognized for tax purposes on open options and
forward transactions at June 30, 1997.
At December 31, 1997, for federal income tax purposes, cost of long- and
short-term investments is $79,612,376; the aggregate gross unrealized
appreciation is $1,969,101
18
<PAGE> 53
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
and the aggregate gross unrealized depreciation is $3,614,690 resulting in net
unrealized depreciation including forward currency contracts of $1,645,589.
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 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 six
months ended December 31, 1997.
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 six months ended December 31, 1997, Van Kampen American Capital
Distributors, Inc. or its affiliates (collectively "VKAC") has agreed to assume
the Fund's registration and filing fees. This waiver is voluntary and may be
discontinued at any time.
For the six months ended December 31, 1997, the Fund recognized expenses of
approximately $2,200 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the six months ended December 31, 1997, the Fund recognized expenses of
approximately $19,100 representing VKAC's cost of providing accounting, cash
management and legal services to the Fund.
ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the six months ended
December 31, 1997, the Fund recognized expenses of approximately $73,300,
representing ACCESS' cost of providing transfer agency and shareholder services
plus a profit.
Certain officers and trustees of the Fund are also officers and directors of
VKAC. The Fund does not compensate its officers or trustees who are officers of
VKAC.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of VKAC. Under the deferred compensation plan,
trustees may elect to
19
<PAGE> 54
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
defer all or a portion of their compensation to a later date. Benefits under the
retirement plan are payable for a ten-year period and are based upon each
trustee's years of service to the Fund. The maximum annual benefit per trustee
under the plan is equal to $2,500.
3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of shares of beneficial interest, Classes
A, B and C, each with a par value of $.01 per share. There are an unlimited
number of shares of each class authorized.
At December 31, 1997, capital aggregated $62,172,099, $82,838,653 and
$287,419, for Classes A, B and C, respectively. For the six months ended
December 31, 1997, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.......................................... 704,160 $ 5,321,236
Class B.......................................... 39,932 301,352
Class C.......................................... 15,201 114,808
----------- ------------
Total Sales........................................ 759,293 $ 5,737,396
=========== ============
Dividend Reinvestment:
Class A.......................................... 111,194 $ 841,476
Class B.......................................... 87,476 662,079
Class C.......................................... 752 5,683
----------- ------------
Total Dividend Reinvestment........................ 199,422 $ 1,509,238
=========== ============
Repurchases:
Class A.......................................... (736,937) $ (5,576,975)
Class B.......................................... (1,883,322) (14,240,092)
Class C.......................................... (1,946) (14,710)
----------- ------------
Total Repurchases.................................. (2,622,205) $(19,831,777)
=========== ============
</TABLE>
20
<PAGE> 55
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
At June 30, 1997, capital aggregated $61,586,362, $96,115,314 and $181,638,
for Classes A, B and C, respectively. For the year ended June 30, 1997,
transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.......................................... 258,752 $ 1,966,958
Class B.......................................... 212,311 1,604,749
Class C.......................................... 19,713 149,100
---------- ------------
Total Sales........................................ 490,776 $ 3,720,807
========== ============
Dividend Reinvestment:
Class A.......................................... 261,651 $ 1,982,096
Class B.......................................... 271,233 2,054,943
Class C.......................................... 1,572 11,916
---------- ------------
Total Dividend Reinvestment........................ 534,456 $ 4,048,955
========== ============
Repurchases:
Class A.......................................... (1,868,594) $(14,169,926)
Class B.......................................... (4,219,580) (31,987,407)
Class C.......................................... (19,067) (145,197)
---------- ------------
Total Repurchases.................................. (6,107,241) $(46,302,530)
========== ============
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). The CDSC will be imposed
on most redemptions made within three years of the purchase for Class B and one
year of the purchase for Class C as detailed in the following schedule.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
YEAR OF REDEMPTION CLASS B CLASS C
- ------------------------------------------------------------------------------
<S> <C> <C>
First.............................................. 3.00% 1.00%
Second............................................. 2.00% None
Third.............................................. 1.00% None
Fourth and Thereafter.............................. None None
</TABLE>
21
<PAGE> 56
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
For the six months ended December 31, 1997, VKAC, as Distributor for the
Fund, received commissions on sales of the Fund's Class A shares of
approximately $200 and CDSC on redeemed shares of approximately $8,100. Sales
charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $50,993,395 and $80,371,243,
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.
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.
Transactions in options for the six months ended December 31, 1997, 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 December 31, 1997.................. -0- $ -0-
==== =========
</TABLE>
22
<PAGE> 57
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
B. FORWARD CURRENCY CONTRACTS--These instruments are commitments to purchase or
sell a foreign currency at a future date at a negotiated forward rate. The gain
or loss arising from the difference between the original value of the contract
and the closing value of such contract is included as a component of realized
gain/loss on forwards.
At December 31, 1997, the Fund has outstanding forward currency contracts as
follows:
<TABLE>
<CAPTION>
UNREALIZED
FORWARD CURRENT APPRECIATION/
CURRENCY CONTRACTS VALUE DEPRECIATION
- ------------------------------------------------------------------------
<S> <C> <C>
LONG CONTRACTS:
Canadian Dollar,
3,441,250 expiring 02/17/98.............. $ 2,411,893 $ (88,107)
Deutsche Mark,
64,635,475 expiring 02/27/98-10/07/98.... 36,117,866 (1,412,822)
Greek Drachma,
324,106,741 expiring 09/29/98............ 1,076,111 (41,683)
Indonesian Rupiah,
842,500,000 expiring 09/29/98............ 141,275 (108,725)
Japanese Yen,
545,925,000 expiring 02/17/98-04/27/98... 4,225,876 (275,390)
Malaysian Ringgit,
441,625 expiring 09/29/98................ 111,441 (27,151)
Mexican Peso,
23,155,000 expiring 10/30/98-12/01/98.... 2,575,645 75,645
Philippine Peso,
4,910,000 expiring 09/29/98.............. 107,344 (32,145)
Swiss Franc,
5,846,400 expiring 02/17/98.............. 4,024,041 (29,344)
Thailand Baht,
5,302,000 expiring 09/29/98.............. 105,508 (34,511)
Turkish Lira,
316,000,000,000 expiring 10/09/98........ 883,595 (116,405)
----------- -----------
$51,780,595 (2,090,638)
=========== ===========
SHORT CONTRACTS:
Deutsche Mark,
49,980,150 expiring 02/12/98-04/03/98.... $27,878,917 1,265,797
European Currency Unit,
2,660,754 expiring 09/29/98.............. 2,954,184 45,816
</TABLE>
23
<PAGE> 58
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNREALIZED
FORWARD CURRENT APPRECIATION/
CURRENCY CONTRACTS VALUE DEPRECIATION
- ------------------------------------------------------------------------
<S> <C> <C>
SHORT CONTRACTS (CONTINUED)
Greek Drachma,
269,856,741 expiring 01/05/98............ $ 949,040 $ 11,988
New Zealand Dollar,
15,337,998 expiring 01/05/98............. 8,902,105 334,897
Pound Sterling,
1,485,531 expiring 02/20/98.............. 2,433,936 66,064
Swiss Franc,
5,601,038 expiring 10/07/98.............. 3,953,207 46,793
----------- -----------
$47,071,389 1,771,355
=========== -----------
($ 319,283)
============
</TABLE>
At December 31, 1997, the Fund had realized gains on closed but unsettled
forward currency contracts of $374,458 scheduled to settle between January 5,
1998 and October 27, 1999.
6. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these fees
for the six months ended December 31, 1997, are payments retained by VKAC of
approximately $195,000.
24
<PAGE> 59
VAN KAMPEN AMERICAN CAPITAL SHORT-TERM GLOBAL INCOME FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
ALAN T. SACHTLEBEN*
PAUL R. WOLKENBERG*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
DISTRIBUTOR
VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
SHAREHOLDER SERVICING AGENT
ACCESS INVESTOR SERVICES, INC.
P.O. Box 418256
Kansas City, Missouri 64141-9256
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601
* "Interested" persons of the Fund, as defined in the Investment Company Act of
1940.
(C) Van Kampen American Capital Distributors, Inc., 1998 All rights reserved.
SM denotes a service mark of Van Kampen American Capital Distributors, Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After June 30, 1998, this report, if used with prospective
investors, must be accompanied by a quarterly performance update.
25
<PAGE> 60
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 4
Portfolio Management Review...................... 5
Portfolio Highlights............................. 8
Portfolio of Investments......................... 9
Statement of Assets and Liabilities.............. 14
Statement of Operations.......................... 15
Statement of Changes in Net Assets............... 16
Financial Highlights............................. 17
Notes to Financial Statements.................... 20
</TABLE>
SIF SAR 2/98
<PAGE> 61
LETTER TO SHAREHOLDERS
February 3, 1998
Dear Shareholder,
The new year ushers in what
promises to be an exciting and
challenging time for investors. The
Taxpayer Relief Act of 1997 passed by
President Clinton in August creates
many new opportunities for you and [PHOTO]
your family to take a more active
role in achieving your long-term
financial goals.
Most Americans will benefit from DENNIS J. MCDONNELL AND DON G. POWELL
the bill's $95 billion in tax cuts
over five years. The so-called Kiddie
Credit gives parents $400 in immediate tax relief for every child under age 17,
and families will find it easier to save for their children's college expenses
through the new Education IRA. The bill also cuts capital gains tax rates for
the first time in over a decade, and loosens restrictions on tax-deductible IRA
contributions. Perhaps the most exciting feature of all is the new Roth IRA,
which allows investment earnings to grow tax free, not just tax deferred.
This year more than ever, it could be important for you to talk with your
financial adviser about how to make the tax code work to your advantage. At Van
Kampen American Capital, we have prepared a variety of publications to help you
understand your choices under the new tax legislation. And with the help of your
adviser, we'll help you locate the many benefits hidden among the changing tax
landscape.
ECONOMIC OVERVIEW
After years of breakneck growth and rapid expansion of credit, Asia
experienced a severe economic setback during the reporting period. The region's
problems first became evident in July, when Thailand responded to a growing
trade deficit by allowing its currency to float freely in international markets.
The Thai government's move set in motion a chain reaction of devaluations which
ultimately severed much of the region's traditional currency link to the U.S.
dollar. At the height of the crisis in October, the Hong Kong dollar, pegged to
the American dollar since 1983, also came under attack from speculators.
While Chinese officials defended the currency and retained the U.S. dollar
peg, Asia's turmoil was far from finished. The crisis next spread to South
Korea, where that country's ailing financial sector required a massive infusion
of liquidity from the International Monetary Fund to stave off widespread
bankruptcies.
Compared to Asia, economic conditions in Europe and the United States were
healthy and tranquil. Europe continues to enjoy solid economic growth with low
inflation. The relatively tight fiscal policies required to accomplish a move to
a single currency, however, have left Europe's unemployment rate in double
digits.
Continued on page two
1
<PAGE> 62
In the United States, economic growth remains strong, unemployment is low,
consumers are optimistic, the budget is headed for surplus this year, and our
nation's currency is rising around the world. Despite the strength in the U.S.
economy, there was no indication of troublesome inflation. In fact, the producer
price index fell by 1.2 percent during the year, the largest annual decline in
wholesale prices since 1986. Inflation at the consumer level was also virtually
nonexistent, with the consumer price index rising by only 1.7 percent during
1997. A strong dollar and significant productivity gains helped offset the
inflationary pressures caused by rising wages.
MARKET REVIEW
After gliding through a strong and mostly uneventful first half of 1997,
global equity markets experienced a sharp increase in volatility during the
later stages of the year. In particular, the currency crisis that roiled most
Southeast Asian economies spilled over into the region's equity markets,
creating an avalanche of selling that unnerved markets in Europe, Latin America,
and the United States as well.
Despite the shifting global economic conditions, U.S. stocks continued to
post solid returns. For the year, the Wilshire 5000 Index, which measures the
performance of all publicly traded U.S. companies, gained 29.17 percent. But
while the general upward trend in U.S. stocks continued, volatility also picked
up. Between early August and late October, the Dow Jones Industrial Average fell
by 16 percent before rebounding sharply to close the reporting period near
record-high territory.
In Europe, falling interest rates, low inflation, and improving corporate
profitability provided a strong underpinning to the region's equity markets. In
local currency terms, every European market gained at least 13 percent, led by
the 79 percent gain in Portugal and the nearly 51 percent rise in Switzerland.
However, the strong U.S. dollar offset a significant portion of those gains for
American investors.
In Asia, falling currencies exacerbated the impact of tumbling stock prices.
For the year, the Dow Jones Asia/Pacific Index fell 29.13 percent in dollar
terms. Equity markets in Indonesia, Malaysia, South Korea, Thailand, and the
Philippines each finished 1997 with losses of more than 60 percent. The negative
impact of the Asian crisis on prospects for world economic growth created a
positive environment for global bonds. For the 12 months ended December 31, the
Salomon Brothers World Government Bond Index gained 8.97 percent in local
currency terms. However, the strong dollar undermined the results for U.S.
investors, and the Index gained 0.23 percent in U.S. dollar terms during the
same period.
Bond markets were especially strong in European nations that are not
participating in the planned European Monetary Union, as interest rates in
non-EMU countries such as Sweden and the United Kingdom fell closer to those in
Germany and France. In the U.S., the yield on the Treasury's benchmark 30-year
bond began the year at 6.64 percent and climbed to 7.17 percent in April amid
fears of increasing inflation. When subsequent data showed the economy to be
slowing, bond yields drifted gradually lower. By the end of the reporting
period, the long-term Treasury bond yield had fallen to 5.92 percent, its lowest
level in more than four years, and bond prices, which move in the opposite
direction of bond yields, rose significantly.
Continued on page three
2
<PAGE> 63
OUTLOOK
We expect that the recent upheavals in Southeast Asia will have a mixed
impact on the U.S. economy and financial markets. Sales of American goods
overseas are likely to decline in coming months, and competition from relatively
inexpensive imports could pinch profit margins. Overall, we believe that lower
currency values in Asia will likely result in less inflation in the U.S. and a
greater likelihood of stable or falling interest rates. Such a scenario usually
benefits equity markets, and we believe that a portfolio of high-quality
domestic stocks should continue to perform well. We also anticipate that stock
selection will play a larger role in generating investment performance due to
the uneven impact of the Asian crisis on individual companies and the
broad-based nature of the advance in equity prices in recent years.
Within Asia itself, we believe that the turbulence has yet to run its
course. It is likely that Pacific Rim markets will continue to search for a
bottom until investors arrive at meaningful projections for economic growth
rates and corporate profits. As the reporting period ended, a clear vision of
the new economic order in Asia remained elusive.
We believe that European markets generally have the least amount to lose by
the Asian shock. European exports to Asia are relatively modest, and the region
continues to enjoy solid growth, declining budget deficits, and benign
inflation.
As we noted earlier, the Taxpayer Relief Act of 1997 provides attractive new
vehicles through which investors can save for a variety of goals, including
higher education and retirement. We encourage you to work with your financial
adviser to consider how the tax changes can work to your benefit.
Additional details about your Fund, including a question-and-answer section
with your portfolio management team, are provided in this report. As always, we
are pleased to have the opportunity to serve you and your family through our
diverse menu of quality investments.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen American Capital
Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen American Capital
Investment Advisory Corp.
3
<PAGE> 64
PERFORMANCE RESULTS FOR THE PERIOD ENDED DECEMBER 31, 1997
VAN KAMPEN AMERICAN CAPITAL STRATEGIC INCOME FUND
TOTAL RETURNS
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
Six-month total return based on NAV(1).. 0.96% 0.58% 0.58%
Six-month total return(2)............... (3.86)% (3.31)% (0.39)%
One-year total return(2)................ 1.09% 1.32% 4.36%
Life-of-Fund average annual total
return(2)............................. 4.23% 4.18% 4.64%
Commencement date....................... 12/31/93 12/31/93 12/31/93
DISTRIBUTION RATE AND YIELD
Distribution rate(3).................... 7.60% 7.20% 7.21%
SEC Yield(4)............................ 6.48% 6.04% 6.04%
</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 December 31, 1997. Had
certain expenses of the Fund not been assumed by VKAC, total returns would have
been lower and the SEC Yield would have been 6.45%, 6.01% and 6.01% 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. This performance was achieved during generally
rising stock prices. Fund shares, when redeemed, may be worth more or less than
their original cost.
The Fund may react to changes in interest rate cycles, business or economic
conditions, rates of inflation, or other market conditions. Global investing,
investing in lower rated securities, and investing in a limited number of
sectors each hold the potential for risks not associated with many other types
of fixed-income investments.
Market Forecasts provided in this report may not necessarily come to pass.
4
<PAGE> 65
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN AMERICAN CAPITAL STRATEGIC INCOME FUND
We recently spoke with the management team of the Van Kampen American Capital
Strategic Income Fund about the key events and economic forces that shaped the
markets during the past six months. The team is led by Robert Hickey, portfolio
manager, and Peter W. Hegel, chief investment officer for fixed-income
investments. The following excerpts reflect their views on the Fund's
performance during the six-month period ended December 31, 1997.
Q WHAT FACTORS HAD THE GREATEST INFLUENCE ON THE MARKETS DURING THE LAST SIX
MONTHS?
A The last six months have been rather challenging on a number of fronts.
Most notably, the meltdown in Asian markets during the fourth quarter of
1997 triggered a concurrent sell-off of emerging markets issues,
especially those issued by countries facing economic challenges -- high deficit,
vulnerable currency -- similar to those of the hard-hit Asian countries. So even
though we had virtually no direct exposure to Asian markets until late in
December, we still felt the effects of the sell-off.
At the heart of the Asian situation were the currency devaluations in
countries such as Thailand, Malaysia, and South Korea. The sharp decline in the
value of these currencies raised concerns of widespread debt-service default and
possible bankruptcies. Coming at a time when the U.S. dollar has been
exceptionally strong, these fears triggered a "flight to quality," wherein
investors moved assets into more stable venues, such as the U.S. bond market.
The U.S. economy continued its pattern of relatively modest growth
accompanied by surprisingly low inflation and low unemployment. Europe has been
similarly stable, benefiting in part from the policies enacted to prepare for
the upcoming European Monetary Union. Corporate earnings in these regions, while
not historically high, have been solid relative to inflation.
Q HOW DID YOU REACT TO THESE CONDITIONS?
A We were active in the emerging markets (Foreign Non-Investment Grade)
sector, reducing our allocation to approximately 25 percent of the
portfolio's long-term investments by early December, down from
approximately 34 percent of long-term investments in June. As of December 31,
1997, this sector represented approximately 29 percent of the Fund's long-term
investments. While we were able to sidestep the hit to Asian markets, we did add
to our position there late in the year. We continued to hold substantial
weightings in Mexico, United Kingdom, and Argentina, but reduced weightings in
Brazil and Russia.
In the Foreign Investment Grade sector, we maintained an allocation of 17.4
percent of long-term investments, while decreasing our Domestic Investment Grade
holdings to 14.9 percent of long-term investments. We saw corporates as an
attractive, and fairly safe sector. Spreads were tight, and we saw good
opportunities to add value to the portfolio.
5
<PAGE> 66
U.S. corporates and governments have been beneficiaries of the flight to
quality, which is to be expected as long as the U.S. economy continues to behave
the way it has.
We added Treasuries to the portfolio and increased weightings to
mortgage-backed securities during the reporting period. The mix of government
issues and mortgage-backed securities shifted so that we had an allocation of
around 89 percent governments and 11 percent mortgages, respectively, by year
end.
Our allocation to domestic high yield securities remains at about 15 percent
of long-term investments. Our holdings here are predominately in the upper
quality echelon (the average rating is B+). We believe the spreads in this
sector are so narrow that investors are not being adequately compensated for
taking on the added credit risk, so we tend to favor the higher-quality issues
within this market.
In terms of currencies, we have been overweighted toward the U.S. dollar,
which was clearly the appropriate strategy over the past six months. The dollar
has been and continues to be very strong relative to most foreign currencies. We
added exposure to the Japanese yen late in the year, as the yen hit four-year
lows against the dollar. For additional Fund portfolio highlights, please refer
to page eight.
Q HOW DID THE FUND PERFORM OVER THE REPORTING PERIOD?
A For the six months ended December 31, 1997, the Fund's total return was
0.96 percent(1) (Class A shares at net asset value). The Fund's total
return for the 12 months ended December 31,1997 was 6.13 percent. By
comparison, the Lehman Brothers Aggregate Bond Index, a broad-based, unmanaged
index, produced a total return of 6.36 percent over the six-month period ended
December 31. Similarly, a composite index of 20 percent of each Salomon Brothers
indices for Mortgages, High Yield, Corporate, Non-U.S. Dollar World Government
Bond, and Brady Bonds produced a total return of 11.60 percent of the six-month
period. Keep in mind that neither indices reflect any commissions or fees that
would be paid by an investor purchasing the securities they represent.
The Fund's current distribution rate as of December 31 was 7.60 percent(3),
based on a monthly dividend of $0.0825 per Class A share and a maximum public
offering price of $13.03 per share. The Fund's dividend was unchanged during the
period.
Looking at performance from a longer-term perspective, the Fund's A shares
received an overall rating and three-year rating of four stars from Morningstar,
among 1,371 funds in the Taxable Bond category, reflecting its stellar
performance in 1995 and 1996 (five- and ten-year period ratings were not
available). Obviously, it's not realistic to expect double-digit gains year
after year -- a reality that we were reminded of in the fourth quarter of 1997.
Morningstar is an independent rating company that reviews and assigns ratings to
mutual funds.* While past performance is no guarantee of future results,
Morningstar ratings provide a means to measure a funds ability to achieve its
investment goals. The ratings calculate the funds' three-, five-, and ten-year
average annual returns, if applicable, with 10 percent of the funds in a
category receiving five stars, 22.5 percent receiving four stars, 35 percent
receiving three stars, 22.5 percent receiving two stars, and 10 percent
receiving one star. Please refer to the chart on page four for additional Fund
performance results.
6
<PAGE> 67
Q WHAT IS YOUR OUTLOOK FOR THE MARKET IN THE MONTHS AHEAD?
A We are still bullish on the U.S. dollar and expect that the domestic
economy will remain strong. With the Asian markets down so sharply, there
may be a buying opportunity as we go forward, though we anticipate further
volatility in the short term. Generally, we believe most emerging markets will
be solid performers in 1998, though quite volatile; still, we do not consider
the Latin American markets as good prospects at this time.
We would expect to move the portfolio's duration (a measure of its
sensitivity to interest rate changes) to a neutral or slightly lower level, as
rates are more likely to edge up after the sharp, knee-jerk moves caused by the
Asian situation. At year-end, the Fund's duration was at 4.49 years, compared to
its benchmark of 4.42 years.
The Fund maintained weightings in the utility sector -- predominantly those
of the United States and the United Kingdom -- due to the opportunities created
there by deregulation. We had no exposure to the banking and finance sectors,
which could experience lower earnings due to the Asian market sell-off. We think
Thailand and Korea offer some interesting opportunities, but we will avoid
Indonesia and Malaysia in the near term.
In short, we're being very selective about our choice of securities for the
portfolio. We feel this has been the key to our success over the past three
years, and will continue to pursue this strategy, supported by our strong
research and analysis staff. Overall, we feel we are well positioned for 1998.
[SIG]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
[SIG]
Robert Hickey
Portfolio Manager
* The four-star rating is a composite rating. Morningstar is an independent
mutual fund performance monitor. Morningstar proprietary ratings reflect
historical risk-adjusted performance as of December 31, 1997. The ratings are
subject to change every month. Past performance is no guarantee of future
results. Morningstar ratings are calculated from the funds' three-, five-, and
ten-year average annual returns (if applicable) in excess of 90-day Treasury
bill returns with appropriate fee adjustments, and a risk factor that reflects
fund performance below 90-day T-bill returns. Ratings for other share classes
will vary.
Please see footnotes on page four
7
<PAGE> 68
PORTFOLIO HIGHLIGHTS
VAN KAMPEN AMERICAN CAPITAL STRATEGIC INCOME FUND
TOP TEN HOLDINGS AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, 1997 JUNE 30, 1997
<S> <C> <C>
US Treasury Note, 6.625%,
05/15/07..................... 6.8% ............ N/A
US Treasury Bond, 6.375%,
08/15/27..................... 5.4% ............ N/A
Mexican Par Bond............... 3.3% ............ N/A
Bonos del Tesoro............... 2.8% ............ 1.2%
Republic of Colombia........... 2.8% ............ 1.5%
Westinghouse Credit Corp....... 2.8% ............ 2.5%
Republic of Panama............. 2.8% ............ 2.9%
Provident Cap Trust I.......... 2.7% ............ N/A
US Treasury Note, 6.125%,
08/15/07..................... 2.6% ............ N/A
US Treasury Bond, 6.125%,
11/15/27..................... 2.6% ............ N/A
</TABLE>
N/A = Not Applicable
ASSET ALLOCATION AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997 AS OF JUNE 30, 1997
<S> <C> <S> <C>
Foreign Non-Investment Grade................28.9% Foriegn Non-Investment Grade................33.9%
Domestic Non-Investment Grade...............15.1% Domestic Non-Investment Grade...............21.6%
Foreign Investment Grade....................17.4% [PIE CHART] Foreign Investment Grade....................16.9% [PIE CHART]
Domestic Investment Grade...................14.9% Domestic Investment Grade...................17.1%
U.S. Government/Mortgage Backed Securities..21.1% U.S. Government/Mortgage Backed Securities.. 6.8%
Common Stock and Preferred Stock............ 2.6% Common Stock and Preferred Stock............ 3.7%
</TABLE>
TOP TEN COUNTRIES AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997 AS OF JUNE 30, 1997
<S> <C> <S> <C>
U.S................... 51.9% U.S................... 47.5%
Mexico................ 9.0% Argentina............. 11.1%
United Kingdom........ 7.4% Mexico................ 5.1%
Argentina............. 6.9% Brazil................ 4.6%
Thailand.............. 3.1% United Kingdom........ 4.5%
Colombia.............. 2.8% Cayman Islands........ 4.0%
Panama................ 2.8% Colombia.............. 3.6%
Virgin Islands........ 2.2% Russia................ 3.1%
Chile................. 2.0% Panama................ 2.9%
Romania............... 1.3% Croatia............... 2.9%
</TABLE>
8
<PAGE> 69
PORTFOLIO OF INVESTMENTS
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
in Local
Currency Maturity U.S.$
(000) Description Coupon Date Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORPORATE BONDS 62.3%
BANKING 9.1%
2,000 Banco Credito Argentino 144A - US$ (b)
(e)...................................... 9.500% 04/24/00 $ 2,015,000
300 Korea Development Bank - US$............. 6.250 05/01/00 256,500
3,000 MBNA Capital I - US$ (b)................. 8.278 12/01/26 3,110,394
4,000 Provident Cap Trust I - US$ (b).......... 8.600 12/01/26 4,249,532
2,000 Romanian Commercial Bank - US$........... 9.125 03/10/00 1,955,000
------------
11,586,426
------------
BEVERAGE, FOOD & TOBACCO 2.8%
1,000 Embotelladora Andina S.A. - US$ (b)...... 7.875 10/01/97 970,961
2,500 Pepsi - Gemex - US$ (b).................. 9.750 03/30/04 2,575,000
------------
3,545,961
------------
BROADCASTING/TELEVISION 2.4%
500 Central Euro Media Enterprises - US$
(b)...................................... 9.375 08/15/04 492,500
500 TV Azteca S.A. - US$..................... 10.125 02/15/04 518,750
2,000 Viacom, Inc. - US$ (b)................... 7.750 06/01/05 2,043,218
------------
3,054,468
------------
BUILDINGS AND REAL ESTATE 3.7%
2,000 Bradley Operating L.P. - US$ (b)......... 7.000 11/15/04 2,005,200
2,500 Dynex Capital, Inc. - US$ (b)............ 7.875 07/15/02 2,503,200
250 Kevco, Inc. 144A - US$ (b) (e)........... 10.375 12/01/07 255,000
------------
4,763,400
------------
CHEMICALS, PLASTICS & RUBBER 1.6%
2,000 Solutia, Inc. - US$ (b).................. 7.375 10/15/27 2,072,400
------------
CONTAINERS, PACKAGING & GLASS 0.4%
500 SD Warren Co. - US$...................... 12.000 12/15/04 557,500
------------
ELECTRONICS 0.6%
1,000 Philippine Long Distance Telephone Co.
- US$.................................... 8.350 03/06/17 799,150
------------
FINANCE 4.2%
1,000 Pera Financial 144A - US$ (b) (e)........ 9.375 10/15/02 940,000
3,945 Westinghouse Credit Corp - US$ (b)....... 8.875 06/14/14 4,349,363
------------
5,289,363
------------
GROCERY 0.4%
500 Pantry, Inc. 144A - US$ (b) (e).......... 10.250 10/15/07 512,500
------------
HEALTHCARE 0.4%
500 Tenet Healthcare Corp - US$ (b).......... 10.125 03/01/05 546,250
------------
INSURANCE 1.0%
1,000 American Annuity 144A - US$ (b) (e)...... 7.250 09/25/01 1,022,640
250 Superior National Trust I 144A - US$
(e)...................................... 10.750 12/01/17 256,250
------------
1,278,890
------------
</TABLE>
See Notes to Financial Statements
9
<PAGE> 70
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
in Local
Currency Maturity U.S.$
(000) Description Coupon Date Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MINING 0.8%
1,250 CSN Iron S.A. 144A - US$ (b)............. 9.125% 06/01/07 $ 1,068,750
------------
OIL & GAS 9.4%
1,000 Bridas Corp. - US$ (b)................... 12.500 11/15/99 1,075,000
2,000 Bridas Corp. - US$....................... 12.500 06/10/03 2,350,260
500 Dawson Product Services - US$ (b)........ 9.375 02/01/07 525,000
1,100 DI Industries, Inc. - US$ (b)............ 8.875 07/01/07 1,144,000
500 Giant Industries - US$................... 9.750 11/15/03 516,250
300 KCS Energy, Inc. - US$ (b)............... 11.000 01/15/03 329,250
1,000 Lukinter Finance B.V. 144A - US$ (b)
(e)...................................... 1.000 11/03/03 850,000
2,000 Northwest Pipeline Corp. - US$........... 6.625 12/01/07 2,017,800
3,000 Oryx Energy Co. - US$.................... 8.375 07/15/04 3,243,216
------------
12,050,776
------------
PRINTING, PUBLISHING & BROADCASTING 1.7%
500 Cablevision System Corp - US$ (b)........ 7.875 12/15/07 510,000
500 Cablevision System Corp - US$ (b)........ 10.500 05/15/16 582,500
1,000 SCI Television - US$ (b)................. 11.000 06/30/05 1,032,500
------------
2,125,000
------------
RETAIL 3.0%
3,500 Grupo Elektra sa de CV -US$.............. 12.750 05/15/01 3,843,000
------------
TELECOMMUNICATIONS 12.6%
1,500 CIA International Telecommunication 144A
-US$ (b) (e)............................. 8.850 08/01/04 1,447,500
1,500 CIA International Telecommunication 144A
-ARS (e)................................. 10.375 08/01/04 847,500
2,000 Compania Telecommunication Chile - US$
(b)...................................... 7.625 07/15/06 2,073,980
500 Esprit Telecommunication Group - US$..... 11.500 12/15/07 517,500
500 Intermedia Communications 144A - US$ (b)
(e)...................................... 8.875 11/01/07 515,000
500 IXC Communications, Inc. - US$ (b)....... 12.500 10/01/05 577,500
3,690 MFS Communications - US$................. 8.875 01/15/06 3,984,714
1,000 Millicom International - US$ (b) (c)..... 0/13.500 06/01/06 735,000
750 Netia Holdings B.V. 144A - US$ (e)....... 11.250 11/01/07 427,500
2,000 Viatel, Inc. - US$ (b) (c)............... 0/15.000 01/15/05 1,237,500
3,500 Worldcom, Inc. - US$ (b)................. 7.750 04/01/07 3,755,458
------------
16,119,152
------------
TEXTILES 0.5%
250 Pillowtex Corp. - US$.................... 10.000 11/15/06 266,250
100 Pillowtex Corp. 144A - US$ (e)........... 9.000 12/15/07 102,250
250 Scovill Fasteners, Inc. 144A - US$ (e)... 11.250 11/30/07 255,624
------------
624,124
------------
</TABLE>
See Notes to Financial Statements
10
<PAGE> 71
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
in Local
Currency Maturity U.S.$
(000) Description Coupon Date Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UTILITIES 7.7%
2,000 Avon Energy Partners 144A - US$ (b)
(e)...................................... 7.050% 12/11/07 $ 2,042,760
1,000 Central Termica Guemes S.A. 144A - US$
(b) (e).................................. 12.000 11/26/01 1,000,000
2,000 DR Investments 144A - US$ (e)............ 7.450 05/15/07 2,117,434
628 Midland Funding Corp II - US$ (b)........ 10.330 07/23/02 670,278
2,000 Niagara Mohawk Power - US$ (b)........... 6.875 03/01/01 2,006,546
2,000 Southern Investments UK - US$............ 6.800 12/01/06 2,019,742
------------
9,856,760
------------
Total Corporate Bonds............................................ 79,693,870
------------
FOREIGN GOVERNMENT AND AGENCY
SECURITIES 30.7%
ARGENTINA 4.3%
1,500 Argentina Par Bond - US$ (d)............. 5.500 03/31/23 1,099,695
2,500 Bonos del Tesoro - US$................... 8.000 12/13/98 2,476,250
2,000 Bonos del Tesoro - US$................... 8.750 05/09/02 1,894,000
------------
5,469,945
------------
AUSTRALIA 1.1%
2,000 Australian Government - AU$.............. 6.750 11/15/06 1,370,226
------------
BULGARIA 0.9%
1,500 Bulgaria Disc - Ser A - US$.............. 6.750 07/28/24 1,155,000
------------
CANADA 0.7%
1,250 Canadian Government - CA$................ 7.500 03/01/01 927,889
------------
COLOMBIA 3.4%
3,000 Republic of Colombia - US$ (b)........... 7.625 02/15/07 2,788,080
1,500 Republic of Colombia - US$ (b)........... 8.660 10/07/16 1,557,675
------------
4,345,755
------------
COSTA RICA 0.6%
1,000 Costa Rica - Prin, Ser A - US$ (d)....... 6.250 05/21/10 850,000
------------
ITALY 0.7%
1,500,000 Republic of Italy BTPS - ITL............. 9.500 05/01/01 962,408
------------
KAZAKHSTAN 0.7%
1,000 Republic of Kazakhstan - US$............. 8.375 10/02/02 892,500
------------
MEXICO 5.5%
1,500 Mexico Global Bond - US$................. 11.500 05/15/26 1,770,000
750 Mexican Par Bond, Ser W-A - US$.......... 6.250 12/31/19 626,250
5,500 Mexican Par Bond, Ser W-B - US$.......... 6.250 12/31/19 4,592,500
------------
6,988,750
------------
MOROCCO 0.7%
1,000 Moroccan Loan Agreement - US$ (a)........ 6.813 01/01/09 867,500
------------
</TABLE>
See Notes to Financial Statements
11
<PAGE> 72
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
in Local
Currency Maturity U.S.$
(000) Description Coupon Date Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NEW ZEALAND 1.0%
2,000 New Zealand Government - NZ$............. 8.000% 11/15/06 $ 1,231,659
------------
PANAMA 3.4%
3,000 Republic of Panama 144A - US$ (b) (e).... 7.875 02/13/02 2,902,500
1,500 Republic of Panama - US$................. 8.875 09/30/27 1,413,750
------------
4,316,250
------------
RUSSIA 0.7%
1,000 Oblast Nizhniy Novgorod 144A - US$ (b)
(e)...................................... 8.750 10/03/02 880,000
------------
THAILAND 3.7%
1,000 Industrial Fin Corp - Thailand 144A - US$
(e)...................................... 7.875 08/04/02 980,000
4,000 Industrial Fin Corp - Thailand 144A - US$
(e)...................................... 7.750 08/04/07 3,783,152
------------
4,763,152
------------
UNITED KINGDOM 1.7%
1,000 UK Treasury Bonds - GBP.................. 7.000 11/06/01 1,662,518
350 UK Treasury Bonds - GBP.................. 6.750 11/26/04 585,654
------------
2,248,172
------------
URUGUAY 0.7%
1,000 Banco Centrl Del Uruguay - Ser B - US$
(d)...................................... 6.750 02/19/21 930,000
------------
VENEZUELA 0.9%
500 Venezuela (Euro) - US$................... 9.250 09/15/27 448,500
750 Venezuela Par Bond, Ser A - US$.......... 6.750 03/31/20 650,625
------------
1,099,125
------------
Total Foreign Government and Agency Securities............. 39,298,231
------------
U.S. GOVERNMENT AND GOVERNMENT AGENCY
OBLIGATIONS 22.2%
4,000 U.S. T-Bonds............................. 6.125 11/15/27 4,111,160
8,000 U.S. T-Bonds............................. 6.375 8/15/27 8,442,720
1,100 U.S. T-Bonds............................. 6.625 2/15/27 1,194,765
4,000 U.S. T-Notes............................. 6.125 8/15/07 4,112,080
1,000 U.S. T-Notes............................. 6.625 5/15/07 10,589,500
------------
Total U.S. Government and Government Agency Obligations.... 28,450,225
------------
MORTGAGE BACKED SECURITIES (U.S.) 2.7%
2,208 DLJ Mortgage Acceptance Corp 1996-E1
(b)...................................... 9.184 12/28/25 2,276,570
21,392 FNMA REMIC #97-20 IB (Interest Only)
(b)...................................... 1.840 03/25/27 1,189,417
------------
Total Mortgage Backed Securities (U.S.).................... 3,465,987
------------
ASSET BACKED SECURITY 0.8%
1,000 California Infrastructure 1997-1 A7...... 6.420 12/26/09 1,013,906
------------
</TABLE>
See Notes to Financial Statements
12
<PAGE> 73
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON AND PREFERRED STOCKS 3.3%
Avalon Properties - Preferred - US$ (b)............................ 50,000 $ 1,296,875
Grupo Casa Autrey - ADR (Mexico) - US$............................. 8,500 173,719
MEPC International Capital L.P. - Preferred - US$ (b).............. 100,000 2,662,500
Thai Military Bank - THB........................................... 15,000 3,170
------------
Total Common and Preferred Stocks......................................... 4,136,264
------------
SWAP TRANSACTIONS 0.0%
Goldman Sachs, 40.0 million US$ notional amount, maturing 01/23/00, payment
based upon the spread between the 6 year French Franc fixed swap interest rate
versus the 6 year German Mark fixed swap interest rate........................ $ (18,042)
------------
TOTAL INVESTMENTS 122.0%
(Cost $155,892,847)......................................................... 156,040,441
LIABILITIES IN EXCESS OF OTHER ASSETS (22.0%)................................ (28,102,878)
------------
NET ASSETS 100.0%............................................................ $127,937,563
============
</TABLE>
(a) Securities purchased on a when issued or delayed delivery basis.
(b) Assets segregated as collateral for when issued or delayed delivery purchase
commitments, open futures, forwards or swaps transactions or borrowings of
the Fund.
(c) Security is a "Step-up" bond where the coupon increases, or steps up, at a
predetermined date.
(d) Item represents a "Brady Bond" which is a product of the "Brady Plan" under
which various Latin American, African and southeast Asian nations have
converted their outstanding external defaulted commercial bank loans into
bonds. Certain Brady Bonds have been collateralized, as to principal due at
maturity, by U.S. Treasury zero coupon bonds with a maturity date equal to
the final maturity date of such Brady Bonds.
(e) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may only be resold in
transactions exempt from registration which are normally those transactions
with qualified institutional buyers.
PORTFOLIO COMPOSITION BY CREDIT QUALITY
The following table summarizes the portfolio composition at December 31,
1997, based upon the highest credit quality ratings as determined by Standard &
Poor's or Moody's.
<TABLE>
<CAPTION>
<S> <C>
U.S. Government and Government Agency Obligations........... 21.1%
AAA......................................................... 4.3%
A........................................................... 7.0%
BBB......................................................... 23.5%
BB.......................................................... 27.1%
B........................................................... 11.8%
Non-Rated................................................... 5.2%
------
100.0%
======
</TABLE>
See Notes to Financial Statements
13
<PAGE> 74
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $155,892,847)....................... $156,040,441
Receivables:
Interest.................................................. 2,858,587
Fund Shares Sold.......................................... 281,640
Unamortized Organizational Costs............................ 33,888
------------
Total Assets............................................ 159,214,556
------------
LIABILITIES:
Payables:
Reverse Repurchase Agreement.............................. 27,532,183
Bank Borrowings........................................... 906,047
Investments Purchased..................................... 852,500
Income Distributions...................................... 428,868
Distributor and Affiliates................................ 189,780
Variation Margin on Futures............................... 175,027
Investment Advisory Fee................................... 103,955
Fund Shares Repurchased................................... 86,218
Forward Currency Contracts.................................. 723,257
Accrued Expenses............................................ 187,855
Trustees' Deferred Compensation and Retirement Plans........ 91,303
------------
Total Liabilities....................................... 31,276,993
------------
NET ASSETS.................................................. $127,937,563
============
NET ASSETS CONSIST OF:
Capital..................................................... $134,031,439
Net Unrealized Depreciation................................. (1,215,143)
Accumulated Distribution in Excess of Net Investment
Income.................................................... (708,467)
Accumulated Net Realized Loss............................... (4,170,266)
------------
NET ASSETS.................................................. $127,937,563
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $46,389,948 and 3,737,555 shares of
beneficial interest issued and outstanding)............. $ 12.41
Maximum sales charge (4.75%* of offering price)......... .62
------------
Maximum offering price to public........................ $ 13.03
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $77,949,257 and 6,280,183 shares of
beneficial interest issued and outstanding)............. $ 12.41
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $3,598,358 and 290,204 shares of
beneficial interest issued and outstanding)............. $ 12.40
============
</TABLE>
*On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
14
<PAGE> 75
STATEMENT OF OPERATIONS
For the Six months Ended December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest (Net of foreign withholding taxes of $4,841)....... $ 6,730,058
Dividends (Net of foreign withholding taxes of $53)......... 170,538
-----------
Total Income.......................................... 6,900,596
-----------
EXPENSES:
Investment Advisory Fee..................................... 629,765
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $57,472, $392,730 and $19,201,
respectively)............................................. 469,403
Shareholder Services........................................ 118,583
Custody..................................................... 93,064
Amortization of Organizational Costs........................ 17,130
Legal....................................................... 9,200
Trustees' Fees and Expenses................................. 2,432
Other....................................................... 115,223
-----------
Total Operating Expenses.............................. 1,454,800
Less Expenses Reimbursed.............................. 19,922
-----------
Net Operating Expenses................................ 1,434,878
Interest Expense...................................... 1,071,698
-----------
NET INVESTMENT INCOME....................................... $ 4,394,020
===========
NET REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 3,410,876
Options................................................... (479,803)
Futures................................................... (2,344,379)
Forwards.................................................. (294,674)
Foreign Currency Transactions............................. (6,882)
-----------
Net Realized Gain........................................... 285,138
-----------
Net Unrealized Appreciation/Depreciation:
Beginning of the Period..................................... 2,587,120
-----------
End of the Period:
Investments............................................... 147,594
Futures................................................... (218,351)
Forwards.................................................. (1,142,723)
Foreign Currency Translation.............................. (1,663)
-----------
(1,215,143)
-----------
Net Unrealized Depreciation During the Period............... (3,802,263)
-----------
NET REALIZED AND UNREALIZED LOSS............................ ($3,517,125)
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 876,895
===========
</TABLE>
See Notes to Financial Statements
15
<PAGE> 76
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended December 31, 1997
and the Year Ended June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
December 31, 1997 June 30, 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.................................... $ 4,394,020 $ 8,581,357
Net Realized Gain........................................ 285,138 2,999,390
Net Unrealized Appreciation/Depreciation During the
Period.................................................. (3,802,263) 3,381,566
------------ ------------
Change in Net Assets from Operations..................... 876,895 14,962,313
------------ ------------
Distributions from Net Investment Income................. (4,544,416) (8,604,269)
Distributions in Excess of Net Investment Income......... (97,519) (27,347)
------------ ------------
Distributions from and in Excess of Net Investment
Income*................................................. (4,641,935) (8,631,616)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES...... (3,765,040) 6,330,697
------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................ 19,898,261 40,557,345
Net Asset Value of Shares Issued Through Dividend
Reinvestment............................................ 2,053,932 3,498,095
Cost of Shares Repurchased............................... (14,116,462) (25,388,033)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS....... 7,835,731 18,667,407
------------ ------------
TOTAL INCREASE IN NET ASSETS............................. 4,070,691 24,998,104
NET ASSETS:
Beginning of the Period.................................. 123,866,872 98,868,768
------------ ------------
End of the Period (Including accumulated undistributed
net investment income of $(708,467) and $150,395,
respectively)........................................... $127,937,563 $123,866,872
============ ============
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended
*Distributions by Class December 31, 1997 June 30, 1997
- ----------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of
Net Investment Income:
Class A Shares....................... $(1,774,005) $(3,189,748)
Class B Shares....................... (2,734,131) (5,177,891)
Class C Shares....................... (133,799) (263,977)
----------- -----------
$(4,641,935) $(8,631,616)
=========== ===========
</TABLE>
See Notes to Financial Statements
16
<PAGE> 77
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
Year Ended June 30, of Investment
Six Months Ended --------------------------- Operations) to
Class A Shares December 31, 1997 1997 1996 1995 June 30, 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Period............. $12.778 $12.065 $11.704 $11.975 $14.300
------- ------- ------- ------- -------
Net Investment Income....... .470 1.019 1.013 .657 .566
Net Realized and Unrealized
Gain/Loss................. (.341) .714 .446 .272 (2.391)
------- ------- ------- ------- -------
Total from Investment
Operations................ .129 1.733 1.459 .929 (1.825)
------- ------- ------- ------- -------
Less:
Distributions from and in
Excess of Net Investment
Income.................. .495 1.020 1.098 .793 .500
Return of Capital
Distribution............ -0- -0- -0- .407 -0-
------- ------- ------- ------- -------
Total Distributions......... .495 1.020 1.098 1.200 .500
------- ------- ------- ------- -------
Net Asset Value, End of the
Period.................... $12.412 $12.778 $12.065 $11.704 $11.975
======= ======= ======= ======= =======
Total Return* (a)........... 0.96%** 14.92% 12.92% 8.46% (12.83%)**
Net Assets at End of the
Period (In millions)...... $ 46.4 $ 43.8 $ 33.8 $ 29.6 $ 24.5
Ratio of Operating Expenses
to Average Net Assets*.... 1.75% 1.81% 1.84% 1.98% 1.88%
Ratio of Interest Expense to
Average Net Assets........ 1.67% 1.99% 2.27% 2.38% .96%
Ratio of Net Investment
Income to Average Net
Assets*................... 7.34% 8.12% 8.34% 5.88% 9.27%
Portfolio Turnover.......... 308%** 474% 343% 253% 114%**
* If certain expenses had not been reimbursed by VKAC, Total Return would
have been lower and the ratios would have been as follows:
Ratio of Operating Expenses
to Average Net Assets..... 1.78% 1.86% 1.92% N/A N/A
Ratio of Net Investment
Income to Average Net
Assets.................... 7.30% 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
17
<PAGE> 78
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
Year Ended June 30, of Investment
Six Months Ended --------------------------- Operations) to
Class B Shares December 31, 1997 1997 1996 1995 June 30, 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Period............. $12.779 $12.069 $11.706 $11.968 $14.300
------- ------- ------- ------- -------
Net Investment Income....... .422 .920 .926 .585 .515
Net Realized and Unrealized
Gain/Loss................. (.342) .717 .443 .245 (2.392)
------- ------- ------- ------- -------
Total from Investment
Operations................ .080 1.637 1.369 .830 (1.877)
------- ------- ------- ------- -------
Less:
Distributions from and in
Excess of Net Investment
Income.................. .447 .927 1.006 .722 .455
Return of Capital
Distribution............ -0- -0- -0- .370 -0-
------- ------- ------- ------- -------
Total Distributions......... .447 .927 1.006 1.092 .455
------- ------- ------- ------- -------
Net Asset Value, End of the
Period.................... $12.412 $12.779 $12.069 $11.706 $11.968
======= ======= ======= ======= =======
Total Return* (a)........... 0.58%** 13.98% 12.06% 7.62% (13.21%)**
Net Assets at End of the
Period (In millions)...... $ 77.9 $ 76.2 $ 61.9 $ 52.6 $ 46.4
Ratio of Operating Expenses
to Average Net Assets*.... 2.51% 2.57% 2.59% 2.68% 2.63%
Ratio of Interest Expense to
Average Net Assets........ 1.67% 1.98% 2.26% 2.38% .96%
Ratio of Net Investment
Income to Average Net
Assets*................... 6.57% 7.33% 7.58% 5.30% 8.48%
Portfolio Turnover.......... 308%** 474% 343% 253% 114%**
* If certain expenses had not been reimbursed by VKAC, Total Return would
have been lower and the ratios would have been as follows:
Ratio of Operating Expenses
to Average Net Assets..... 2.54% 2.61% 2.67% N/A N/A
Ratio of Net Investment
Income to Average Net
Assets.................... 6.54% 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
18
<PAGE> 79
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
Year Ended June 30, of Investment
Six Months Ended --------------------------- Operations) to
Class C Shares December 31, 1997 1997 1996 1995 June 30, 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Period............. $12.768 $12.059 $11.699 $11.966 $14.300
------- ------- ------- ------- -------
Net Investment Income....... .423 .913 .944 .598 .509
Net Realized and Unrealized
Gain/Loss................. (.345) .723 .422 .227 (2.388)
------- ------- ------- ------- -------
Total from Investment
Operations................ .078 1.636 1.366 .825 (1.879)
------- ------- ------- ------- -------
Less:
Distributions from and in
Excess of Net Investment
Income.................. .447 .927 1.006 .722 .455
Return of Capital
Distribution............ -0- -0- -0- .370 -0-
------- ------- ------- ------- -------
Total Distributions......... .447 .927 1.006 1.092 .455
------- ------- ------- -------
Net Asset Value, End of the
Period.................... $12.399 $12.768 $12.059 $11.699 $11.966
======= ======= ======= ======= =======
Total Return* (a)........... 0.58%** 13.99% 12.07% 7.53% (13.21%)**
Net Assets at End of the
Period (In millions)...... $ 3.6 $ 3.8 $ 3.1 $ 1.7 $ 2.1
Ratio of Operating Expenses
to Average Net Assets*.... 2.50% 2.56% 2.58% 2.69% 2.65%
Ratio of Interest Expense to
Average Net Assets........ 1.67% 1.98% 2.22% 2.38% .95%
Ratio of Net Investment
Income to Average Net
Assets*................... 6.58% 7.31% 7.49% 5.92% 8.36%
Portfolio Turnover.......... 308%** 474% 343% 253% 114%**
* If certain expenses had not been reimbursed by VKAC, Total Return would
have been lower and the ratios would have been as follows:
Ratio of Operating Expenses
to Average Net Assets..... 2.53% 2.61% 2.66% N/A N/A
Ratio of Net Investment
Income to Average Net
Assets.................... 6.55% 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
19
<PAGE> 80
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Strategic Income Fund (the "Fund") is organized as a
series of Van Kampen American Capital Trust (the "Trust"), a Delaware business
trust, and is registered as a non-diversified open-end management investment
company under the Investment Company Act of 1940, as amended. The Fund's primary
investment objective is to seek to provide shareholders with high current
income, while its' secondary investment objective is to seek capital
appreciation. The Fund will allocate its investments among the following market
sectors: U.S. government securities, domestic investment grade income
securities, domestic lower grade income securities, foreign investment grade
income securities and foreign lower grade income securities. The Fund borrows
money for investment purposes which will create the opportunity for enhanced
return, but also should be considered a speculative technique and may increase
the Fund's volatility. The Fund commenced investment operations on December 31,
1993, with three classes of common shares, Class A, Class B and Class C shares.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
A. SECURITY VALUATION--Investments are stated at value using market quotations,
prices provided by market makers or, if such valuations are not available,
estimates obtained from yield data relating to instruments or securities with
similar characteristics in accordance with procedures established in good faith
by the Board of Trustees. Foreign investments are stated at value using the last
available bid price or yield equivalents obtained from dealers in the
over-the-counter (OTC) or interbank market. Short-term securities with remaining
maturities of 60 days or less are valued at amortized cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account
20
<PAGE> 81
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
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 American Capital
Distributors, Inc. or its affiliates (collectively "VKAC") for costs incurred in
connection with the Fund's organization in the amount of $170,000. These costs
are being amortized on a straight line basis over the 60 month period ending
December 31, 1998. Van Kampen American Capital Investment Advisory Corp. (the
"Adviser") has agreed that in the event any of the initial shares of the Fund
originally purchased by VKAC are redeemed during the amortization period, the
Fund will be reimbursed for any unamortized organizational costs in the same
proportion as the number of shares redeemed bears to the number of initial
shares held at the time of redemption.
F. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At June 30, 1997, the Fund had an accumulated capital loss carryforward
for tax purposes of $5,050,946 which will expire between June 30, 2003 and June
30, 2004. Net realized gains or losses may differ for financial and tax
reporting purposes primarily as a result of post October 31 losses which are not
recognized for tax purposes until the first day of the following fiscal year and
as a result of gains or losses recognized for tax purposes on the mark to market
of open options, futures and forward transactions at June 30, 1997.
21
<PAGE> 82
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
At December 31, 1997, for federal income tax purposes, cost of long-term
investments is $155,892,847; the aggregate gross unrealized appreciation is
$2,847,035 and the aggregate gross unrealized depreciation is $4,062,178,
resulting in net unrealized depreciation on investments, swap, foreign currency
translation of other assets and liabilities, former currency contracts and
futures transactions of $1,215,143.
G. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily and pays monthly
dividends from net investment income. Net investment income for federal income
tax purposes includes gains and losses realized on transactions in foreign
currencies and options and futures on foreign currencies. These realized gains
and losses are included as net realized gains or losses for financial reporting
purposes. Permanent book and tax basis differences relating to net currency
losses totaling $610,947 were reclassified from accumulated net realized
gain/loss to accumulated undistributed net investment income.
Net realized gains, if any, are distributed annually.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
<TABLE>
<CAPTION>
AVERAGE MANAGED ASSETS % PER ANNUM
- ------------------------------------------------------------------------
<S> <C>
First $500 million...................................... .75 of 1%
Next $500 million....................................... .70 of 1%
Over $1 billion......................................... .65 of 1%
</TABLE>
For the year ended December 31, 1997, VKAC has agreed to assume a portion of
the Fund's registration and filing fees. This waiver is voluntary and may be
discontinued at any time.
For the six months ended December 31, 1997, the Fund recognized expenses of
approximately $2,400 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the six months ended December 31, 1997, the Fund recognized expenses of
approximately $14,100 representing VKAC's cost of providing accounting, cash
management and legal services to the Fund.
ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the six months ended
December 31, 1997, the Fund recognized expenses of approximately $90,300,
representing ACCESS' cost of providing transfer agency and shareholder services
plus a profit.
22
<PAGE> 83
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Certain officers and trustees of the Fund are also officers and directors of
VKAC. The Fund does not compensate its officers or trustees who are officers of
VKAC.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of VKAC. Under the deferred compensation plan,
trustees may elect to defer all or a portion of their compensation to a later
date. Benefits under the retirement plan are payable for a ten-year period and
are based upon each trustee's years of service to the Fund. The maximum annual
benefit per trustee under the plan is equal to $2,500.
At December 31, 1997, VKAC owned 100 shares each of Classes A, B and C.
3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of shares of beneficial interest, Classes
A, B and C, each with a par value of $.01 per share. There are an unlimited
number of shares of each class authorized.
At December 31, 1997, capital aggregated $48,433,822, $81,758,746 and
$3,838,871 for Classes A, B and C, respectively. For the six months ended
December 31, 1997, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................... 638,375 $ 8,164,317
Class B.................................... 858,477 10,925,881
Class C.................................... 63,412 808,063
---------- ------------
Total Sales.................................. 1,560,264 $ 19,898,261
========== ============
Dividend Reinvestment:
Class A.................................... 66,617 $ 843,962
Class B.................................... 88,628 1,123,341
Class C.................................... 6,836 86,629
---------- ------------
Total Dividend Reinvestment.................. 162,081 $ 2,053,932
========== ============
Repurchases:
Class A.................................... (396,052) $ (5,057,625)
Class B.................................... (631,578) (8,037,780)
Class C.................................... (80,345) (1,021,057)
---------- ------------
Total Repurchases............................ (1,107,975) $(14,116,462)
========== ============
</TABLE>
23
<PAGE> 84
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 (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). 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>
24
<PAGE> 85
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
For the six months ended December 31, 1997, VKAC, as Distributor for the
Fund, received commissions on sales of the Fund's Class A shares of
approximately $13,100 and CDSC on redeemed shares of approximately $114,200.
Sales charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $490,697,472 and $563,378,404,
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.
25
<PAGE> 86
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Transactions in options for the six months ended December 31, 1997, were as
follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- ---------------------------------------------------------------------------
<S> <C> <C>
Outstanding at June 30, 1997................... 1,627 $ (246,766)
Options Written and Purchased (Net)............ 2,582 (1,138,096)
Options Terminated in Closing
Transactions (Net)........................... (3,531) 1,019,696
Options Expired (Net).......................... (678) 365,166
------ -----------
Outstanding at December 31, 1997............... 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 Bonds and typically closes
the contract prior to the delivery date. These contracts are generally used to
manage the portfolio's effective maturity and duration.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, securities with a value equal to its obligation
under the futures contracts. During the period the futures contract is open,
payments are received from or made to the broker based upon changes in the value
of the contract (the variation margin). The cost of securities acquired through
delivery under a contract is adjusted by the unrealized gain or loss on the
contract.
26
<PAGE> 87
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Transactions in futures contracts for the year ended June 30, 1997, were as
follows:
<TABLE>
<CAPTION>
CONTRACTS
- ------------------------------------------------------------------------
<S> <C>
Outstanding at June 30, 1997............................... 689
Futures Opened............................................. 4,627
Futures Closed............................................. (4,777)
------
Outstanding at December 31, 1997........................... 539
======
</TABLE>
The futures contracts outstanding as of December 31, 1997, and the
descriptions and unrealized depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS DEPRECIATION
- ---------------------------------------------------------------------------
<S> <C> <C>
SHORT CONTRACTS:
10-Year British Gilt Future Dec 1998
(Current notional value $60,578 per
contract)................................... 10 (15,888)
10-Year German Mark Future Dec 1998
(Current notional value $260,475 per
contract)................................... 10 (18,794)
10-Year Japanese Bond Future Mar 1998
(Current notional value $994,103 per
contract)................................... 3 (13,919)
U.S. Treasury Bond Future Mar 1998
(Current notional value $120,469 per
contract)................................... 250 (45,625)
2-Year U.S. Treasury Note Future Mar 1998
(Current notional value $207,734 per
contract)................................... 41 (21,781)
5-Year U.S. Treasury Note Future Mar 1998
(Current notional value $108,625 per
contract)................................... 225 (102,344)
--- ---------
539 $(218,351)
=== =========
</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.
27
<PAGE> 88
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
At December 31, 1997, the Fund has outstanding forward currency contracts as
follows:
<TABLE>
<CAPTION>
UNREALIZED
FORWARD CURRENT APPRECIATION/
CURRENCY VALUE DEPRECIATION
- ------------------------------------------------------------------------
<S> <C> <C>
LONG CONTRACTS:
Canadian Dollar,
2,751,100 expiring 01/30/98.............. $ 1,927,207 $ (75,049)
German Mark,
15,827,100 expiring 01/26/98-02/27/98.... 8,820,634 (283,060)
Indonesian Rupiah,
842,500,000 expiring 09/29/98............ 141,275 (108,725)
Japanese Yen,
1,522,490,000 expiring
01/29/98-04/27/98........................ 11,748,232 (864,562)
Malaysian Ringgit,
796,625 expiring 09/28/98................ 201,023 (48,977)
Philippine Peso,
8,800,000 expiring 09/29/98.............. 192,388 (57,612)
Thailand Baht,
9,467,500 expiring 09/29/98.............. 188,382 (61,618)
----------- -----------
$23,219,141 $(1,499,603)
=========== ===========
SHORT CONTRACTS:
Japanese Yen,
624,416,000 expiring 01/16/98-11/27/98... $ 4,891,545 $ 356,880
=========== -----------
$(1,142,723)
===========
</TABLE>
At December 31, 1997, the Fund has realized gains on closed but unsettled
forward currency contracts of $419,467 scheduled to settle between March 9, 1998
and November 27, 1998.
D. SWAP TRANSACTIONS--These securities, which are identified in the portfolio of
investments, represent an agreement between two parties to exchange a series of
cash flows based upon various indices at specified intervals.
E. INVERSE FLOATING SECURITY--These instruments, which are identified in the
portfolio of investments, have a coupon which is inversely indexed to a
short-term floating interest rate multiplied by a specified factor. As the
floating rate rises, the coupon is reduced. Conversely, as the floating rate
declines, the coupon is increased. The price of these
28
<PAGE> 89
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
securities may be more volatile than the price of a comparable fixed rate
security. These instruments are typically used by the Fund to enhance the yield
of the portfolio.
6. MORTGAGE-BACKED SECURITIES
A Mortgage-Backed Security (MBS) is a pass-through security created by pooling
mortgages and selling participations in the principal and interest payments
received from borrowers. Most of these securities are guaranteed by federally
sponsored agencies such as Federal National Mortgage Association (FNMA).
A REMIC (Real Estate Mortgage Investment Conduit) is a bond which is
collateralized by a pool of MBS's. These MBS pools are divided into classes or
tranches with each class having its own characteristics.
A MBS may also be stripped to create an Interest Only (IO) security. An IO
represents ownership in the cash flows of the interest payments made from a
specific pool of MBS. The cash flow on this instrument decreases as the mortgage
principal balance is repaid by the borrower. IO's are typically used to manage
interest rate exposure in the Fund's portfolio.
7. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these fees
for the six months ended December 31, 1997, are payments to VKAC of
approximately $303,100.
8. BORROWINGS
In accordance with its investment policies, the Fund may borrow money from banks
or enter into reverse repurchase agreements or dollar rolls for investment
purposes in an amount up to 33.3% of its total assets.
The Fund has entered into a $60,000,000 revolving credit agreement which
expires on March 31, 1998. Interest is charged under the agreement at a rate of
.425% above the federal funds rate. The interest rate in effect at December 31,
1997, was 6.363%. An annual commitment fee of .075% is charged on the unused
portion of the credit line.
29
<PAGE> 90
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
The Fund has entered into reverse repurchase agreements under which the Fund
sells securities and agrees to repurchase them at a mutually agreed upon date
and price. At December 31, 1997, the average interest rate in effect for reverse
repurchase agreements was 5.255%.
The average daily balance of bank borrowings and reverse repurchase
agreements for the six months ended December 31, 1997, was approximately
$47,327,799 with an average interest rate of 5.34%.
At December 31, 1997, these agreements represented 17.9% of the Fund's total
assets.
30
<PAGE> 91
FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL
EQUITY FUNDS
Domestic
MS Aggressive Equity
VKAC Aggressive Growth
MS American Value
VKAC Comstock
VKAC Emerging Growth
VKAC Enterprise
VKAC Equity Income
VKAC Growth
VKAC Growth and Income
VKAC Harbor
VKAC Pace
VKAC Real Estate Securities
MS U.S. Real Estate
VKAC Utility
MS Value
International/Global
MS Asian Growth
MS Emerging Markets
MS Global Equity
VKAC Global Equity
MS Global Equity Allocation
VKAC Global Managed Assets
MS International Magnum
MS Latin American
FIXED-INCOME FUNDS
Income
VKAC Corporate Bond
MS Global Fixed Income
VKAC Global Government Securities
VKAC Government Securities
VKAC High Income Corporate Bond
MS High Yield
VKAC High Yield
VKAC Short-Term Global Income
VKAC Strategic Income
VKAC U.S. Government
VKAC U.S. Government Trust for Income
MS Worldwide High Income
Tax Exempt Income
VKAC California Insured Tax Free
VKAC Florida Insured Tax Free Income
VKAC High Yield Municipal
VKAC Insured Tax Free Income
VKAC Intermediate Term Municipal Income
VKAC Municipal Income
VKAC New York Tax Free Income
VKAC Pennsylvania Tax Free Income
VKAC Tax Free High Income
Capital Preservation
VKAC Limited Maturity Government
VKAC Prime Rate Income Trust
VKAC Reserve
VKAC Senior Floating Rate
VKAC Tax Free Money
To find out more about any of these funds, ask your financial adviser for a
prospectus, which contains more complete information, including sales
charges, risks, and expenses. Please read it carefully before you invest or
send money.
To view a current Van Kampen American Capital or Morgan Stanley fund
prospectus or to receive additional fund information, choose from one of the
following:
- visit our web site at www.vkac.com -- to view prospectuses, select
Investors' Place, then Download a Prospectus
- call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time
(Telecommunications Device for the Deaf users, call 1-800-421-2833)
- e-mail us by visiting www.vkac.com and selecting Investors' Place
32
<PAGE> 92
VAN KAMPEN AMERICAN CAPITAL 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
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
ALAN T. SACHTLEBEN*
PAUL R. WOLKENBERG*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
DISTRIBUTOR
VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
SHAREHOLDER SERVICING AGENT
ACCESS INVESTOR
SERVICES, INC.
P.O. Box 418256
Kansas City, Missouri 64141-9256
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601
* "Interested" persons of the Fund, as defined in the Investment Company Act of
1940.
(C) Van Kampen American Capital Distributors, Inc., 1998 All rights reserved.
(SM) denotes a service mark of Van Kampen American Capital Distributors, Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After June 30, 1998, the report, if used with prospective
investors, must be accompanied by a quarterly performance update.
33
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> High Yield Class A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998<F1>
<PERIOD-START> JUL-01-1997<F1>
<PERIOD-END> DEC-31-1997<F1>
<INVESTMENTS-AT-COST> 429,146,739<F1>
<INVESTMENTS-AT-VALUE> 439,441,888<F1>
<RECEIVABLES> 8,848,391<F1>
<ASSETS-OTHER> 16,626<F1>
<OTHER-ITEMS-ASSETS> 0<F1>
<TOTAL-ASSETS> 448,306,905<F1>
<PAYABLE-FOR-SECURITIES> 2,415,613<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 3,055,707<F1>
<TOTAL-LIABILITIES> 5,471,320<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 379,384,096
<SHARES-COMMON-STOCK> 29,340,171
<SHARES-COMMON-PRIOR> 29,228,811
<ACCUMULATED-NII-CURRENT> (2,392,438)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (90,329,310)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 10,293,832<F1>
<NET-ASSETS> 291,819,260
<DIVIDEND-INCOME> 561,563<F1>
<INTEREST-INCOME> 20,070,917<F1>
<OTHER-INCOME> 344,510<F1>
<EXPENSES-NET> (3,039,409)<F1>
<NET-INVESTMENT-INCOME> 17,937,581<F1>
<REALIZED-GAINS-CURRENT> 5,940,865<F1>
<APPREC-INCREASE-CURRENT> (1,504,524)<F1>
<NET-CHANGE-FROM-OPS> 22,373,922<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (12,647,436)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,067,615
<NUMBER-OF-SHARES-REDEEMED> (5,469,762)
<SHARES-REINVESTED> 513,507
<NET-CHANGE-IN-ASSETS> 3,800,977
<ACCUMULATED-NII-PRIOR> (1,905,853)<F1>
<ACCUMULATED-GAINS-PRIOR> (96,270,175)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 1,636,647<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 3,257,629<F1>
<AVERAGE-NET-ASSETS> 288,864,605
<PER-SHARE-NAV-BEGIN> 9.854
<PER-SHARE-NII> 0.425
<PER-SHARE-GAIN-APPREC> 0.102
<PER-SHARE-DIVIDEND> (0.435)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.946
<EXPENSE-RATIO> 1.14
<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> 012
<NAME> High Yield Class B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998<F1>
<PERIOD-START> JUL-01-1997<F1>
<PERIOD-END> DEC-31-1997<F1>
<INVESTMENTS-AT-COST> 429,146,739<F1>
<INVESTMENTS-AT-VALUE> 439,441,888<F1>
<RECEIVABLES> 8,848,391<F1>
<ASSETS-OTHER> 16,626<F1>
<OTHER-ITEMS-ASSETS> 0<F1>
<TOTAL-ASSETS> 448,306,905<F1>
<PAYABLE-FOR-SECURITIES> 2,415,613<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 3,055,707<F1>
<TOTAL-LIABILITIES> 5,471,320<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 136,562,821
<SHARES-COMMON-STOCK> 14,220,476
<SHARES-COMMON-PRIOR> 13,054,923
<ACCUMULATED-NII-CURRENT> (2,392,438)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (90,329,310)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 10,293,832<F1>
<NET-ASSETS> 141,421,370
<DIVIDEND-INCOME> 561,563<F1>
<INTEREST-INCOME> 20,070,917<F1>
<OTHER-INCOME> 344,510<F1>
<EXPENSES-NET> (3,039,409)<F1>
<NET-INVESTMENT-INCOME> 17,937,581<F1>
<REALIZED-GAINS-CURRENT> 5,940,865<F1>
<APPREC-INCREASE-CURRENT> (1,504,524)<F1>
<NET-CHANGE-FROM-OPS> 22,373,922<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (5,419,599)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,408,390
<NUMBER-OF-SHARES-REDEEMED> (1,449,407)
<SHARES-REINVESTED> 206,570
<NET-CHANGE-IN-ASSETS> 12,766,257
<ACCUMULATED-NII-PRIOR> (1,905,853)<F1>
<ACCUMULATED-GAINS-PRIOR> (96,270,175)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 1,636,647<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 3,257,629<F1>
<AVERAGE-NET-ASSETS> 135,098,292
<PER-SHARE-NAV-BEGIN> 9.855
<PER-SHARE-NII> 0.386
<PER-SHARE-GAIN-APPREC> 0.102
<PER-SHARE-DIVIDEND> (0.399)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.944
<EXPENSE-RATIO> 1.90
<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> 013
<NAME> High Yield Class C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998<F1>
<PERIOD-START> JUL-01-1997<F1>
<PERIOD-END> DEC-31-1997<F1>
<INVESTMENTS-AT-COST> 429,146,739<F1>
<INVESTMENTS-AT-VALUE> 439,441,888<F1>
<RECEIVABLES> 8,848,391<F1>
<ASSETS-OTHER> 16,626<F1>
<OTHER-ITEMS-ASSETS> 0<F1>
<TOTAL-ASSETS> 448,306,905<F1>
<PAYABLE-FOR-SECURITIES> 2,415,613<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 3,055,707<F1>
<TOTAL-LIABILITIES> 5,471,320<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9,316,584
<SHARES-COMMON-STOCK> 965,194
<SHARES-COMMON-PRIOR> 820,064
<ACCUMULATED-NII-CURRENT> (2,392,438)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (90,329,310)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 10,293,832<F1>
<NET-ASSETS> 9,594,955
<DIVIDEND-INCOME> 561,563<F1>
<INTEREST-INCOME> 20,070,917<F1>
<OTHER-INCOME> 344,510<F1>
<EXPENSES-NET> (3,039,409)<F1>
<NET-INVESTMENT-INCOME> 17,937,581<F1>
<REALIZED-GAINS-CURRENT> 5,940,865<F1>
<APPREC-INCREASE-CURRENT> (1,504,524)<F1>
<NET-CHANGE-FROM-OPS> 22,373,922<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (357,131)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 353,386
<NUMBER-OF-SHARES-REDEEMED> (226,995)
<SHARES-REINVESTED> 18,739
<NET-CHANGE-IN-ASSETS> 1,516,718
<ACCUMULATED-NII-PRIOR> (1,905,853)<F1>
<ACCUMULATED-GAINS-PRIOR> (96,270,175)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 1,636,647<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 3,257,629<F1>
<AVERAGE-NET-ASSETS> 8,892,751
<PER-SHARE-NAV-BEGIN> 9.851
<PER-SHARE-NII> 0.384
<PER-SHARE-GAIN-APPREC> 0.105
<PER-SHARE-DIVIDEND> (0.399)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.941
<EXPENSE-RATIO> 1.90
<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> 021
<NAME> S-T GBL CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 79,612,376<F1>
<INVESTMENTS-AT-VALUE> 78,289,445<F1>
<RECEIVABLES> 884,887<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 23,886<F1>
<TOTAL-ASSETS> 79,198,218<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 766,375<F1>
<TOTAL-LIABILITIES> 766,375<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 62,172,099
<SHARES-COMMON-STOCK> 5,305,385
<SHARES-COMMON-PRIOR> 5,226,968
<ACCUMULATED-NII-CURRENT> (1,003,519)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (64,217,220)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (1,645,589)<F1>
<NET-ASSETS> 39,671,387
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 2,734,143<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (781,007)<F1>
<NET-INVESTMENT-INCOME> 1,953,136<F1>
<REALIZED-GAINS-CURRENT> 57,650<F1>
<APPREC-INCREASE-CURRENT> (224,613)<F1>
<NET-CHANGE-FROM-OPS> 1,786,173<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (1,231,802)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 704,160
<NUMBER-OF-SHARES-REDEEMED> (736,937)
<SHARES-REINVESTED> 111,194
<NET-CHANGE-IN-ASSETS> 211,501
<ACCUMULATED-NII-PRIOR> (455,277)<F1>
<ACCUMULATED-GAINS-PRIOR> (64,274,870)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 237,968<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 789,811<F1>
<AVERAGE-NET-ASSETS> 39,461,396
<PER-SHARE-NAV-BEGIN> 7.550
<PER-SHARE-NII> 0.190
<PER-SHARE-GAIN-APPREC> (0.020)
<PER-SHARE-DIVIDEND> (0.240)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 7.480
<EXPENSE-RATIO> 1.39
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>Indicates composite number for the fund.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 022
<NAME> S-T GBL CLASS B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 79,612,376<F1>
<INVESTMENTS-AT-VALUE> 78,289,445<F1>
<RECEIVABLES> 884,887<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 23,886<F1>
<TOTAL-ASSETS> 79,198,218<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 766,375<F1>
<TOTAL-LIABILITIES> 766,375<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 82,838,653
<SHARES-COMMON-STOCK> 5,147,379
<SHARES-COMMON-PRIOR> 6,903,293
<ACCUMULATED-NII-CURRENT> (1,003,519)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (64,217,220)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (1,645,589)<F1>
<NET-ASSETS> 38,478,134
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 2,734,143<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (781,007)<F1>
<NET-INVESTMENT-INCOME> 1,953,136<F1>
<REALIZED-GAINS-CURRENT> 57,650<F1>
<APPREC-INCREASE-CURRENT> (224,613)<F1>
<NET-CHANGE-FROM-OPS> 1,786,173<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (1,263,826)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 39,932
<NUMBER-OF-SHARES-REDEEMED> (1,883,322)
<SHARES-REINVESTED> 87,476
<NET-CHANGE-IN-ASSETS> (13,614,943)
<ACCUMULATED-NII-PRIOR> (455,277)<F1>
<ACCUMULATED-GAINS-PRIOR> (64,274,870)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 237,968<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 789,811<F1>
<AVERAGE-NET-ASSETS> 46,151,738
<PER-SHARE-NAV-BEGIN> 7.550
<PER-SHARE-NII> 0.160
<PER-SHARE-GAIN-APPREC> (0.020)
<PER-SHARE-DIVIDEND> (0.210)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 7.480
<EXPENSE-RATIO> 2.15
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>Indicates composite number for the fund.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 023
<NAME> S-T GBL CLASS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 79,612,376<F1>
<INVESTMENTS-AT-VALUE> 78,289,445<F1>
<RECEIVABLES> 884,887<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 23,886<F1>
<TOTAL-ASSETS> 79,198,218<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 766,375<F1>
<TOTAL-LIABILITIES> 766,375<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 287,419
<SHARES-COMMON-STOCK> 37,761
<SHARES-COMMON-PRIOR> 23,754
<ACCUMULATED-NII-CURRENT> (1,003,519)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (64,217,220)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (1,645,589)<F1>
<NET-ASSETS> 282,322
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 2,734,143<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (781,007)<F1>
<NET-INVESTMENT-INCOME> 1,953,136<F1>
<REALIZED-GAINS-CURRENT> 57,650<F1>
<APPREC-INCREASE-CURRENT> (224,613)<F1>
<NET-CHANGE-FROM-OPS> 1,786,173<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (5,750)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 15,201
<NUMBER-OF-SHARES-REDEEMED> (1,946)
<SHARES-REINVESTED> 752
<NET-CHANGE-IN-ASSETS> 103,094
<ACCUMULATED-NII-PRIOR> (455,277)<F1>
<ACCUMULATED-GAINS-PRIOR> (64,274,870)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 237,968<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 789,811<F1>
<AVERAGE-NET-ASSETS> 210,502
<PER-SHARE-NAV-BEGIN> 7.550
<PER-SHARE-NII> 0.150
<PER-SHARE-GAIN-APPREC> (0.010)
<PER-SHARE-DIVIDEND> (0.210)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 7.480
<EXPENSE-RATIO> 2.16
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>Indicates composite number for the fund.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 041
<NAME> STRAT INC CLASS A <F1>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS <F1>
<FISCAL-YEAR-END> JUN-30-1998<F1>
<PERIOD-START> JUL-01-1997<F1>
<PERIOD-END> DEC-31-1997<F1>
<INVESTMENTS-AT-COST> 155,892,847<F1>
<INVESTMENTS-AT-VALUE> 156,040,441<F1>
<RECEIVABLES> 3,140,227<F1>
<ASSETS-OTHER> 33,888<F1>
<OTHER-ITEMS-ASSETS> 0<F1>
<TOTAL-ASSETS> 159,214,556<F1>
<PAYABLE-FOR-SECURITIES> 852,500<F1>
<SENIOR-LONG-TERM-DEBT> 28,438,230<F1>
<OTHER-ITEMS-LIABILITIES> 1,986,263<F1>
<TOTAL-LIABILITIES> 31,276,993<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 48,433,822
<SHARES-COMMON-STOCK> 3,737,555
<SHARES-COMMON-PRIOR> 3,428,615
<ACCUMULATED-NII-CURRENT> (708,467)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (4,170,266)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (1,215,143)<F1>
<NET-ASSETS> 46,389,948
<DIVIDEND-INCOME> 170,538<F1>
<INTEREST-INCOME> 6,730,058<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (2,506,576)<F1>
<NET-INVESTMENT-INCOME> 4,394,020<F1>
<REALIZED-GAINS-CURRENT> 285,138<F1>
<APPREC-INCREASE-CURRENT> (3,802,263)<F1>
<NET-CHANGE-FROM-OPS> 876,895<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (1,774,005)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 638,375
<NUMBER-OF-SHARES-REDEEMED> (396,052)
<SHARES-REINVESTED> 66,617
<NET-CHANGE-IN-ASSETS> 2,579,727
<ACCUMULATED-NII-PRIOR> 150,395<F1>
<ACCUMULATED-GAINS-PRIOR> (5,066,351)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 629,765<F1>
<INTEREST-EXPENSE> 1,071,698<F1>
<GROSS-EXPENSE> 1,454,800<F1>
<AVERAGE-NET-ASSETS> 45,604,580
<PER-SHARE-NAV-BEGIN> 12.778
<PER-SHARE-NII> 0.470
<PER-SHARE-GAIN-APPREC> (0.341)
<PER-SHARE-DIVIDEND> (0.495)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 12.412
<EXPENSE-RATIO> 1.75
<AVG-DEBT-OUTSTANDING> 47,327,799<F1>
<AVG-DEBT-PER-SHARE> 4.591<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> 042
<NAME> STRAT INC CLASS B
<MULTIPLIER> 1 <F1>
<S> <C>
<PERIOD-TYPE> 6-MOS <F1>
<FISCAL-YEAR-END> JUN-30-1998<F1>
<PERIOD-START> JUL-01-1997<F1>
<PERIOD-END> DEC-31-1997<F1>
<INVESTMENTS-AT-COST> 155,892,847<F1>
<INVESTMENTS-AT-VALUE> 156,040,441<F1>
<RECEIVABLES> 3,140,227<F1>
<ASSETS-OTHER> 33,888<F1>
<OTHER-ITEMS-ASSETS> 0<F1>
<TOTAL-ASSETS> 159,214,556<F1>
<PAYABLE-FOR-SECURITIES> 852,500<F1>
<SENIOR-LONG-TERM-DEBT> 28,438,230<F1>
<OTHER-ITEMS-LIABILITIES> 1,986,263<F1>
<TOTAL-LIABILITIES> 31,276,993<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 81,758,746
<SHARES-COMMON-STOCK> 6,280,183
<SHARES-COMMON-PRIOR> 5,964,656
<ACCUMULATED-NII-CURRENT> (708,467)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (4,170,266)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (1,215,143)<F1>
<NET-ASSETS> 77,949,257
<DIVIDEND-INCOME> 170,538<F1>
<INTEREST-INCOME> 6,730,058<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (2,506,576)<F1>
<NET-INVESTMENT-INCOME> 4,394,020<F1>
<REALIZED-GAINS-CURRENT> 285,138<F1>
<APPREC-INCREASE-CURRENT> (3,802,263)<F1>
<NET-CHANGE-FROM-OPS> 876,895<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (2,734,131)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 858,477
<NUMBER-OF-SHARES-REDEEMED> (631,578)
<SHARES-REINVESTED> 88,628
<NET-CHANGE-IN-ASSETS> 1,726,705
<ACCUMULATED-NII-PRIOR> 150,395<F1>
<ACCUMULATED-GAINS-PRIOR> (5,066,351)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 629,765<F1>
<INTEREST-EXPENSE> 1,071,698<F1>
<GROSS-EXPENSE> 1,454,800<F1>
<AVERAGE-NET-ASSETS> 77,905,110
<PER-SHARE-NAV-BEGIN> 12.779
<PER-SHARE-NII> 0.422
<PER-SHARE-GAIN-APPREC> (0.342)
<PER-SHARE-DIVIDEND> (0.447)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 12.412
<EXPENSE-RATIO> 2.51
<AVG-DEBT-OUTSTANDING> 47,327,799<F1>
<AVG-DEBT-PER-SHARE> 4.591<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> 043
<NAME> STRAT INC CLASS C
<MULTIPLIER> 1 <F1>
<S> <C>
<PERIOD-TYPE> 6-MOS <F1>
<FISCAL-YEAR-END> JUN-30-1998<F1>
<PERIOD-START> JUL-01-1997<F1>
<PERIOD-END> DEC-31-1997<F1>
<INVESTMENTS-AT-COST> 155,892,847<F1>
<INVESTMENTS-AT-VALUE> 156,040,441<F1>
<RECEIVABLES> 3,140,227<F1>
<ASSETS-OTHER> 33,888<F1>
<OTHER-ITEMS-ASSETS> 0<F1>
<TOTAL-ASSETS> 159,214,556<F1>
<PAYABLE-FOR-SECURITIES> 852,500<F1>
<SENIOR-LONG-TERM-DEBT> 28,438,230<F1>
<OTHER-ITEMS-LIABILITIES> 1,986,263<F1>
<TOTAL-LIABILITIES> 31,276,993<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,838,871
<SHARES-COMMON-STOCK> 290,204
<SHARES-COMMON-PRIOR> 300,301
<ACCUMULATED-NII-CURRENT> (708,467)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (4,170,266)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (1,215,143)<F1>
<NET-ASSETS> 3,598,358
<DIVIDEND-INCOME> 170,538<F1>
<INTEREST-INCOME> 6,730,058<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (2,506,576)<F1>
<NET-INVESTMENT-INCOME> 4,394,020<F1>
<REALIZED-GAINS-CURRENT> 285,138<F1>
<APPREC-INCREASE-CURRENT> (3,802,263)<F1>
<NET-CHANGE-FROM-OPS> 876,895<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (133,799)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 63,412
<NUMBER-OF-SHARES-REDEEMED> (80,345)
<SHARES-REINVESTED> 6,836
<NET-CHANGE-IN-ASSETS> (235,741)
<ACCUMULATED-NII-PRIOR> 150,395<F1>
<ACCUMULATED-GAINS-PRIOR> (5,066,351)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 629,765<F1>
<INTEREST-EXPENSE> 1,071,698<F1>
<GROSS-EXPENSE> 1,454,800<F1>
<AVERAGE-NET-ASSETS> 3,808,038
<PER-SHARE-NAV-BEGIN> 12.768
<PER-SHARE-NII> 0.423
<PER-SHARE-GAIN-APPREC> (0.345)
<PER-SHARE-DIVIDEND> (0.447)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 12.399
<EXPENSE-RATIO> 2.50
<AVG-DEBT-OUTSTANDING> 47,327,799<F1>
<AVG-DEBT-PER-SHARE> 4.591<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
