<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 3
Performance in Perspective....................... 4
Glossary of Terms................................ 5
Portfolio Management Review...................... 6
Portfolio Highlights............................. 9
Portfolio of Investments......................... 10
Statement of Assets and Liabilities.............. 17
Statement of Operations.......................... 18
Statement of Changes in Net Assets............... 19
Financial Highlights............................. 20
Notes to Financial Statements.................... 23
Report of Independent Accountants................ 32
</TABLE>
HYF ANR 8/98
<PAGE> 2
LETTER TO SHAREHOLDERS
July 15, 1998
Dear Shareholder,
As you may know, Van Kampen
American Capital is consolidating all
of the retail mutual funds that we
distribute under the single name of
Van Kampen Funds. This move
accompanies the change in our legal [PHOTO]
name to Van Kampen Funds Inc.
You can be assured that the change
in your fund's name will not affect
its management or daily operations. DENNIS J. MCDONNELL AND DON G. POWELL
You will begin seeing the application
of this change with this report. In addition, as of August 31, your fund will be
listed in the daily newspapers by share class under the heading "Van Kampen
Funds." For your convenience, we have enclosed a separate brochure that covers
additional details related to these changes.
ECONOMIC REVIEW
The U.S. economy continued to expand at a robust pace despite a deepening
recession in Asia. The nation's inflation-adjusted output of goods and services
ran at 5.4 percent during the first quarter, an annualized rate considered by
many economists to be virtually unsustainable without leading to inflation. As
the reporting period ended, however, there were indications that the Asian
financial crisis was finally having a moderating impact on the economy. Also,
the Conference Board's index of leading indicators has forecasted a slowdown in
economic growth for later this year.
Despite the generally solid pace of economic activity, inflation remained
benign. Consumer prices rose by 1.7 percent during the 12 months through June,
while producer prices actually declined during the same period. Falling
commodity prices and the impact of the strong dollar helped to offset the
inflationary implications of a tight labor market and strong consumer spending.
While the Federal Reserve kept short-term interest rates steady at 5.5
percent during the reporting period, minutes from the central bank's May policy
meeting indicated growing sentiment for tightening monetary policy if the drag
from Asia does not slow the American economy on its own.
MARKET REVIEW
Domestic fixed-income securities benefited from a global flight to quality
by investors--caused by turmoil in Asia and by the growing perception that the
domestic economy was slowing. After starting the year at 5.92 percent, the yield
on the 30-year Treasury benchmark bond rose to over 6.00 percent during the
spring amid signs that some Asian economies were beginning to recover. When
weakness in the Japanese yen
Continued on page two
1
<PAGE> 3
undercut that recovery, U.S. bond prices surged, causing long-term government
yields to fall to 5.62 percent by the end of the reporting period.
While all sectors of the domestic fixed-income market posted positive
returns, strength was concentrated among longer-term, higher-quality issues. For
the first six months of 1998, long-term government bonds gained 6.27 percent,
compared to 4.51 percent for high-yield corporate bonds.
OUTLOOK
We believe economic growth is likely to moderate in coming months as the
impact of the Asian crisis becomes more evident. A return to the "Goldilocks"
economy--not too hot, not too cold--should allow long-term interest rates to
fall modestly from current levels. If fallout from Asia does not slow economic
activity enough to counteract the inflationary pressures building in the
economy, we would expect the Federal Reserve to raise short-term interest rates
by the end of the year.
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 Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
2
<PAGE> 4
PERFORMANCE RESULTS FOR THE PERIOD ENDED JUNE 30, 1998
VAN KAMPEN HIGH YIELD FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
TOTAL RETURNS
<S> <C> <C> <C>
One-year total return based on NAV(1).... 9.36% 9.28% 8.47%
One-year total return(2)................. 4.18% 5.28% 7.47%
Five-year average annual total
return(2)................................ 8.01% 8.17% N/A
Ten-year average annual total
return(2)................................ 8.31% N/A N/A
Life-of-Fund average annual total
return(2)................................ 8.54% 8.72% 8.27%
Commencement date........................ 06/27/86 05/17/93 08/13/93
DISTRIBUTION RATE AND YIELD
Distribution rate(3)..................... 8.09% 7.77% 7.77%
SEC Yield(4)............................. 7.77% 7.38% 7.38%
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 June 30, 1998. Had certain
expenses of the Fund not been assumed Van Kampen, the SEC Yield would have been
7.67%, 7.28%, and 7.28% 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
PUTTING YOUR FUND'S PERFORMANCE IN PERSPECTIVE
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment portfolio's performance at regular intervals.
A good starting point is a comparison of your investment holdings to an
applicable benchmark, such as a broad-based market index. Such a comparison can:
- Illustrate the general market environment in which your investments are
being managed
- Reflect the impact of favorable market trends or difficult market
conditions
- Help you evaluate the extent to which your Fund's management team has
responded to the opportunities and challenges presented to them over the
period measured
For these reasons, you may find it helpful to review the chart below, which
compares your Fund's performance to that of the Credit Suisse First Boston High
Yield Index over time. As a broad-based, statistical composite, this index does
not reflect any commissions which would be incurred by an investor purchasing
the securities it represents. Similarly, its performance does not reflect any
other costs which would be applicable to an actively managed portfolio, such as
that of the Fund.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen High Yield Fund vs. Credit Suisse First Boston High Yield Index
(June 30, 1988 through June 30, 1998)
<TABLE>
<CAPTION>
Measurement Period First Boston High Yield
(Fiscal Year Covered) VKAC High Yield - A Index
<S> <C> <C>
6/30/88 9525.00 10000.00
7/31/88 9611.00 10114.00
8/31/88 9597.00 10084.70
9/30/88 9699.00 10176.40
10/31/88 9830.00 10315.90
11/30/88 9831.00 10338.50
12/31/88 10043.00 10404.70
1/31/89 10183.00 10613.90
2/28/89 10230.00 10662.70
3/31/89 10154.00 10585.90
4/30/89 10055.00 10560.50
5/31/89 10134.00 10811.80
6/30/89 10284.00 10967.50
7/31/89 10197.00 10991.70
8/31/89 10206.00 10990.60
9/30/89 9970.00 10741.10
10/31/89 9541.00 10471.50
11/30/89 9434.00 10492.40
12/31/89 9184.00 10445.20
1/31/90 8996.00 10077.50
2/28/90 8779.00 9891.09
3/31/90 8908.00 10176.00
4/30/90 8853.00 10218.70
5/31/90 8976.00 10431.20
6/30/90 9165.00 10759.80
7/31/90 9365.00 11107.40
8/31/90 8981.00 10594.20
9/30/90 8527.00 9786.93
10/31/90 8037.00 9540.30
11/30/90 8141.00 9732.06
12/31/90 8119.00 9778.78
1/31/91 8196.00 10046.70
2/28/91 8820.00 10912.70
3/31/91 9351.00 11589.30
4/30/91 9701.00 12070.30
5/31/91 9740.00 12130.60
6/30/91 9919.00 12448.50
7/31/91 10175.00 12869.20
8/31/91 10379.00 13103.40
9/30/91 10576.00 13400.90
10/31/91 10886.00 13844.50
11/30/91 10894.00 13955.20
12/31/91 10971.00 14057.10
1/31/92 11489.00 14629.20
2/28/92 11696.00 14984.70
3/31/92 11752.00 15208.00
4/30/92 12003.00 15221.70
5/31/92 12112.00 15428.70
6/30/92 12185.00 15581.40
7/31/92 12394.00 15821.40
8/31/92 12568.00 16039.70
9/30/92 12719.00 16144.00
10/31/92 12541.00 15976.10
11/30/92 12708.00 16215.70
12/31/92 12837.00 16399.00
1/31/93 13177.00 16846.60
2/28/93 13507.00 17180.20
3/31/93 13800.00 17542.70
4/30/93 13841.00 17642.70
5/31/93 14004.00 17900.30
6/30/93 14388.00 18224.30
7/31/93 14527.00 18413.80
8/31/93 14457.00 18570.30
9/30/93 14570.00 18676.20
10/31/93 14954.00 19018.00
11/30/93 14997.00 19257.60
12/31/93 15113.00 19500.20
1/31/94 15442.00 19847.30
2/28/94 15537.00 19877.10
3/31/94 14996.00 19292.70
4/30/94 14809.00 19034.20
5/31/94 14771.00 19142.70
6/30/94 14809.00 19014.40
7/31/94 14709.00 19103.80
8/31/94 14670.00 19241.30
9/30/94 14678.00 19318.30
10/31/94 14639.00 19331.80
11/30/94 14471.00 19107.60
12/31/94 14608.00 19310.10
1/31/95 14738.00 19512.90
2/28/95 15082.00 19992.90
3/31/95 15263.00 20218.80
4/30/95 15630.00 20667.70
5/31/95 16000.00 21250.50
6/30/95 16068.00 21390.80
7/31/95 16324.00 21722.30
8/31/95 16393.00 21783.10
9/30/95 16602.00 22033.60
10/31/95 16794.00 22278.20
11/30/95 16918.00 22382.90
12/31/95 17168.00 22667.20
1/31/96 17554.00 23097.90
2/28/96 17618.00 23220.30
3/31/96 17572.00 23157.60
4/30/96 17710.00 23282.60
5/31/96 17812.00 23471.20
6/30/96 17877.00 23522.90
7/31/96 17981.00 23734.60
8/31/96 18237.00 23993.30
9/30/96 18630.00 24406.00
10/31/96 18755.00 24611.00
11/30/96 19110.00 24994.90
12/31/96 19310.00 25482.30
1/31/97 19493.00 25668.30
2/28/97 19796.00 26150.90
3/31/97 19541.00 25858.00
4/30/97 19667.00 26088.10
5/31/97 20058.00 26612.50
6/30/97 20309.00 26974.40
7/31/97 20685.00 27546.30
8/31/97 20732.00 27695.00
9/30/97 21092.00 28243.40
10/31/97 20971.00 28240.60
11/30/97 21189.00 28441.10
12/31/97 21429.00 28699.90
1/31/98 21752.00 29187.80
2/28/98 21904.00 29415.50
3/31/98 22144.00 29562.50
4/30/98 22254.00 29784.30
5/31/98 22254.00 29873.60
6/30/98 22210.00 29936.30
</TABLE>
The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of other share classes of
the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions and includes payment of the maximum
sales charge (4.75% for A shares).
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.
4
<PAGE> 6
GLOSSARY OF TERMS
BASIS POINT: A measure used in quoting bond yields. One hundred basis points is
equal to 1 percent. For example, if a bond's yield changes from 7.00 to 6.65
percent, it is a 35 basis-point move.
CREDIT SPREAD: Also called quality spread, the difference in yield between
higher-quality issues (such as Treasury securities) and lower-quality issues.
Normally, lower-quality issues provide higher yields to compensate investors for
the additional credit risk.
DURATION: A measure of 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 financial institution
lending federal funds to another. This overnight rate is used to meet banks'
daily reserve requirements. The Federal Reserve Board uses the federal funds
rate to affect the direction of interest rates.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank system of the United States. Its policy-making
committee, called the Federal Open Market Committee, meets eight times a year to
establish monetary policy and monitor the economic pulse of the U.S.
INFLATION: An economic state in which the money supply and business activity
dramatically increase, accompanied by sharply rising prices. Inflation is widely
measured by the Consumer Price Index, an economic indicator that measures the
change in the cost of purchased goods and services.
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 par value,
or the redemption of a bond by the issuer prior to its maturity date.
YIELD: The annual rate of return on an investment, expressed as a percentage.
For bonds and notes, the yield is the annual interest divided by the market
price.
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 do. The
resulting spread is commonly expressed in basis points.
5
<PAGE> 7
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN HIGH YIELD FUND
We recently spoke with the management team of the Van Kampen High Yield Fund
about the key events and economic forces that shaped the markets during the past
12 months. The team is led by Robert J. 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 for the fiscal year ended
June 30, 1998.
Q HOW WOULD YOU CHARACTERIZE THE MARKET CONDITIONS IN WHICH THE FUND
OPERATED DURING THE PAST 12 MONTHS?
A In sharp contrast to the confusing and frequently volatile overseas
markets, the United States provided refuge and a happy combination of
strong economic growth and mild inflation for investors during the past 12
months. Trouble in Asia, which emerged in the third quarter of 1997,
overshadowed the period and had a negative effect on emerging market debt. A
"flight to quality" ensued as investors rushed to invest in conservative
domestic bonds and Treasury securities. This high demand kept pressure on the
benchmark 10-year Treasury, pushing the yield from 6.50 percent at the beginning
of the period to 5.45 percent at fiscal year end.
The impact from Asia also tempered fears of inflation in the United States
in spite of continued strong economic growth. Consequently, Federal Reserve
Board meetings during the period resulted in no change to the federal funds
rate. Chairman Alan Greenspan vocalized his support for the theory that ongoing
problems in Asia will likely continue to affect the U.S. economy for some time,
decreasing the need for a more restrictive monetary policy.
During most of the Fund's fiscal year, the high-yield market benefited from
positive technical conditions, including strong supply and demand, and a low
default rate. In the last months of the period, however, this balance faltered a
bit. While Treasury rates dropped, floods of new issuance hit the high-yield
market to set record high levels. Although cash flows into high-yield
investments continued to flow at a record pace, the initial supply was met with
decreased demand. As a result, the spread between high-yield bonds and
Treasuries widened during the period, indicating that high-yield investments
underperformed Treasuries.
Q HOW DID YOU MANAGE THE FUND IN LIGHT OF THESE CONDITIONS?
A We reviewed the Fund's sector allocations with an eye on performance and
valuations. After participating in the positive performance of the
telecommunications sector through the second quarter, we intend to
decrease our weighting in the summer. This shift reflects our concerns that the
sector will underperform after several consecutive quarters of flooding the
market with new issuance. We maintained overweighted positions in health care
and the automotive industry; although both industries are currently undervalued
due to changes in the industries, we believe these changes will ultimately be
beneficial. We decreased the portfolio's exposure to the depressed oil and
6
<PAGE> 8
gas industry, and did not aggressively pursue overseas investments due to
volatility in the international high yield market during the period.
In terms of the portfolio's credit quality, we reduced the Fund's position
in BB-rated bonds, focusing instead on the good valuations available within the
B-rated category. As of June 30, approximately 24 percent of the Fund's
long-term debt securities were BB-rated, which is the highest quality rating
within the noninvestment-grade category, and 59.7 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 helps compensate 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, which
also helps 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. For
additional Fund portfolio highlights, please refer to page nine.
Q HOW DID THE FUND PERFORM FOR THE FISCAL YEAR?
A The Fund posted a total return of 9.36 percent(1) (Class A shares at net
asset value) for the 12-month period ended June 30, 1998. By comparison,
the Credit Suisse First Boston High Yield Index returned 10.98 percent for
the same period. Please keep in mind that this index is a broad-based 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 that would be
paid by an investor purchasing the securities it represents. As of June 30,
1998, the Fund's distribution rate stood at 8.09 percent(3) per Class A share.
As of June 30, 1998, the Fund's duration stood at 3.77 years, compared
to a 3.40 year duration as of December 31, 1997. The Fund's slightly longer
duration at the end of the 12-month period reflects the fact that much of the
Fund's previously held cash position was invested in the market in the first
part of 1998. By comparison, the Credit Suisse First Boston High Yield
Benchmark duration was 4.6 years as of June 30, 1998. Please refer to the chart
on page three for additional Fund performance results.
Q WHAT IS YOUR OUTLOOK FOR THE MARKET IN THE COMING MONTHS?
A Although the economy has grown at a strong pace and surpassed
expectations, we expect its growth rate to slow in the second half of
1998. The ongoing presence of volatility in Asia seems to be a
contributing factor to frighten inflation away, leading us to believe that there
is little chance that the Fed will raise interest rates in the near term. Of
course, international turmoil can also work against the high-yield market, as
this kind of volatility tends to steer investors toward safety instead of risk.
We believe the next six months will be crucial to Asia's recovery, particularly
in monitoring whether or not
7
<PAGE> 9
Japan is capable of stabilizing its currency. Unless the Japanese government
commits to change, we envision a long recovery, but recent indications give us
reason for optimism.
With a lack of clarity regarding Asia and the possibility that other
factors, such as the overvalued stock market, might negatively affect high-yield
securities, we are pursuing a somewhat defensive position for the Fund. While we
will continue to seek the Fund's objective of high current income and capital
appreciation, we may emphasize dividend income if external conditions warrant a
more conservative positioning for the Fund. We will continue to monitor events
in Asia and other market developments in order to assess their effects on the
portfolio so that we can be prepared to react accordingly.
[SIG]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
[SIG]
Robert J. Hickey
Portfolio Manager
Please see footnotes on page three
8
<PAGE> 10
PORTFOLIO HIGHLIGHTS
VAN KAMPEN HIGH YIELD FUND
TOP TEN ISSUERS AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
LONG-TERM INVESTMENTS
<S> <C>
Intermedia Communications,
Inc. ......................... 1.94%
Selmer, Inc. ................... 1.60%
Millicom International
Cellular...................... 1.60%
Fonorola, Inc. ................. 1.46%
Giant Industries................ 1.42%
AES Corp. ...................... 1.42%
Cole National Group, Inc........ 1.35%
American Standard............... 1.34%
Pantry, Inc..................... 1.33%
Time Warner..................... 1.30%
</TABLE>
CREDIT QUALITY AS A PERCENTAGE OF LONG-TERM DEBT SECURITIES
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998 AS OF DECEMBER 31, 1997(1)
<S> <C> <C> <C>
Foreign Securities.... 20.3% Telecommunications...... 13.6%
Telecommunications.... 15.0% Foreign Securities...... 13.1%
Printing, Publishing, Printing, Publishing, and
and Broadcasting.... 10.8% [PIE CHART] Broadcasting.......... 9.7% [PIE CHART]
Oil & Gas............. 5.0% Oil & Gas............... 5.8%
Health Care........... 5.0% Health Care............. 5.2%
</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
DURATION
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998(1) AS OF DECEMBER 31, 1997(1)
<S> <C> <C>
Duration 3.77 years 3.40 years
</TABLE>
(1)Unaudited
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
DOMESTIC CORPORATE BONDS 72.7%
AEROSPACE & DEFENSE 2.5%
$ 1,000 Compass Aerospace Corp., 144A Private
Placement (a)................................ 10.125% 04/15/05 $ 1,020,000
4,850 Dyncorp...................................... 9.500 03/01/07 4,995,500
2,200 Sequa Corp................................... 9.625 10/15/99 2,271,500
2,600 Sequa Corp................................... 9.375 12/15/03 2,717,000
------------
11,004,000
------------
AUTOMOBILE 3.2%
2,750 Aetna Industries, Inc........................ 11.875 10/01/06 2,983,750
2,800 Collins and Aikman Products Co............... 11.500 04/15/06 3,129,000
2,400 Insilco Corp................................. 10.250 08/15/07 2,520,000
2,000 Standyne Automotive Corp., (Including 3,000
common stock warrants) 144A Private Placement
(a).......................................... 10.250 12/15/07 2,045,000
3,100 Talon Automotive Group, Inc., 144A Private
Placement (a)................................ 9.625 05/01/08 3,123,250
------------
13,801,000
------------
BEVERAGE, FOOD & TOBACCO 3.2%
1,000 Aurora Foods, Inc., 144A Private Placement
(a).......................................... 8.750 07/01/08 1,010,000
2,250 Fleming Cos., Inc............................ 10.500 12/01/04 2,334,375
900 Fleming Cos., Inc............................ 10.625 07/31/07 940,500
3,700 Jitney Jungle Stores America, Inc............ 12.000 03/01/06 4,181,000
2,078 Pantry, Inc.................................. 12.500 11/15/00 2,187,095
3,200 Pantry, Inc.................................. 10.250 10/15/07 3,256,000
------------
13,908,970
------------
BUILDINGS & REAL ESTATE 3.5%
5,300 American Standard, Inc. (c).................. 10.875 05/15/99 5,512,000
500 Cemex International Capital, Inc., 144A
Private Placement (a)........................ 9.660 12/29/49 483,100
1,750 Home Interiors & Gifts, Inc., 144A Private
Placement (a)................................ 10.125 06/01/08 1,793,750
1,500 Kevco, Inc................................... 10.375 12/01/07 1,563,750
2,750 Schuler Homes Inc., 144A Private Placement
(a).......................................... 9.000 04/15/08 2,660,625
3,250 Webb (Del E.) Corp........................... 9.375 05/01/09 3,193,125
------------
15,206,350
------------
CHEMICALS, PLASTICS & RUBBER 1.8%
4,258 ISP Holdings, Inc............................ 9.750 02/15/02 4,513,480
3,210 Pioneer Americas Acquisition Corp............ 9.250 06/15/07 3,177,900
------------
7,691,380
------------
CONTAINERS, PACKAGING & GLASS 1.3%
3,700 Fonda Group, Inc............................. 9.500 03/01/07 3,607,500
900 Sweetheart Cup, Inc.......................... 9.625 09/01/00 895,500
1,000 Vicap SA, 144A Private Placement (a)......... 10.250 05/15/02 1,006,200
------------
5,509,200
------------
DIVERSIFIED/CONGLOMERATE MANUFACTURING 1.4%
4,600 Communications & Power Industries, Inc....... 12.000 08/01/05 5,175,000
1,000 Moll Industries, Inc., 144A Private Placement
(a).......................................... 10.500 07/01/08 1,020,000
------------
6,195,000
------------
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ECOLOGICAL 0.8%
$ 2,500 Envirosource, Inc............................ 9.750% 06/15/03 $ 2,512,500
500 Envirosource, Inc. Series B.................. 9.750 06/15/03 495,000
550 Norcal Waste Systems, Inc.................... 13.250 11/15/05 639,375
------------
3,646,875
------------
ELECTRONICS 0.9%
1,950 DecisionOne Corp............................. 9.750 08/01/07 1,881,750
3,100 DecisionOne Corp. (Including 3,100 common
stock warrants) (b).......................... 0/11.500 08/01/08 1,829,000
------------
3,710,750
------------
ENERGY 1.0%
2,000 Chesapeake Energy Corp., 144A Private
Placement (a)................................ 9.625 05/01/05 2,010,000
1,000 Hurricane Hydrocarbons....................... 11.750 11/01/04 980,000
2,200 Universal Compression, Inc., 144A Private
Placement (a)................................ * 02/15/08 1,380,500
------------
4,370,500
------------
FINANCE 2.5%
3,300 Americo Life, Inc., 144A Private Placement
(a) (c)...................................... 9.250 06/01/05 3,399,000
2,800 Americredit Corp............................. 9.250 02/01/04 2,856,000
2,000 Americredit Corp., 144A Private Placement
(a).......................................... 9.250 02/01/04 2,040,000
2,750 Contifinancial Corp.......................... 8.125 04/01/08 2,777,500
------------
11,072,500
------------
HEALTHCARE 4.6%
2,000 Alliance Imaging, Inc........................ 9.625 12/15/05 2,050,000
3,000 Hudson Respiratory Care, Inc., 144A Private
Placement (a)................................ 9.125 04/15/08 2,955,000
1,100 Imagyn Medical Technologies, Inc............. 12.500 04/01/04 440,000
2,000 Mediq, Inc., 144A Private Placement (a)...... 11.000 06/01/08 2,050,000
4,000 Oxford Health Plans, Inc., 144A Private
Placement (a)................................ 11.000 05/15/05 4,100,000
4,500 Paragon Health Network, Inc.................. * 11/01/07 2,970,000
1,700 Paragon Health Network, Inc.................. 9.500 11/01/07 1,729,750
2,000 Sun Healthcare Group, Inc., 144A Private
Placement (a)................................ 9.375 05/01/08 2,040,000
2,000 Vencor, Inc.................................. 9.875 05/01/05 1,970,000
------------
20,304,750
------------
HOTEL, MOTEL, INNS & GAMING 3.4%
3,250 Argosy Gaming Co............................. 13.250 06/01/04 3,672,500
3,075 Coast Hotels & Casinos, Inc.................. 13.000 12/15/02 3,551,625
3,950 Grand Casino, Inc. (c)....................... 10.125 12/01/03 4,285,750
1,000 Hard Rock Hotel, Inc., 144A Private Placement
(a).......................................... 9.250 04/01/05 1,025,000
2,000 Majestic Star Casino......................... 12.750 05/15/03 2,180,000
------------
14,714,875
------------
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
LEISURE 4.3%
$ 1,800 Booth Creek Ski Holdings, Inc................ 12.500% 03/15/07 $ 1,948,500
300 Booth Creek Ski Holdings, Inc., 144A Private
Placement (a)................................ 12.500 03/15/07 324,750
2,000 Premier Parks, Inc........................... 9.250 04/01/06 2,065,000
6,000 Selmer, Inc.................................. 11.000 05/15/05 6,570,000
4,000 Silver Cinemas International, Inc., 144A
Private Placement (a)........................ 10.500 04/15/05 4,060,000
1,650 Viacom International, Inc.................... 10.250 09/15/01 1,823,250
1,703 Waterford Gaming............................. 12.750 11/15/03 1,890,330
------------
18,681,830
------------
MINING, STEEL, IRON & NON-PRECIOUS METAL 1.6%
1,000 Inland Steel Co.............................. 12.000 12/01/98 1,025,000
2,000 Pen Holdings, Inc., 144A Private Placement
(a).......................................... 9.875 06/15/08 2,005,000
1,950 Renco Steel Holdings, Inc., 144A Private
Placement (a)................................ 10.875 02/01/05 1,959,750
2,000 WCI Steel, Inc............................... 10.000 12/01/04 2,060,000
------------
7,049,750
------------
OIL & GAS 4.7%
4,700 Dawson Production Services, Inc.............. 9.375 02/01/07 4,617,750
1,150 Giant Industries, Inc........................ 9.750 11/15/03 1,201,750
4,450 Giant Industries, Inc........................ 9.000 09/01/07 4,639,125
1,350 KCS Energy, Inc.............................. 11.000 01/15/03 1,451,250
3,700 National Energy Group, Inc................... 10.750 11/01/06 3,367,000
1,000 Petroleum Heat & Power, Inc.................. 12.250 02/01/05 992,500
2,200 Pride Petroleum Services, Inc................ 9.375 05/01/07 2,348,500
2,050 Wainoco Oil Corp., 144A Private Placement (a) 9.125 02/15/06 2,065,375
------------
20,683,250
------------
PERSONAL & NON-DURABLE 1.3%
5,100 Cole National Group, Inc..................... 9.875 12/31/06 5,520,750
------------
PRINTING, PUBLISHING & BROADCASTING 8.9%
3,000 Capstar Broadcasting Partners................ 9.250 07/01/07 3,150,000
2,500 Century Communications Corp.................. 8.875 01/15/07 2,656,250
1,850 Century Communications Corp.................. 8.750 10/01/07 1,956,375
1,050 CSC Holdings, Inc............................ 8.125 08/15/09 1,123,500
2,600 CSC Holdings, Inc............................ 10.500 05/15/16 3,055,000
3,500 EZ Communications, Inc....................... 9.750 12/01/05 3,867,500
3,350 Gray Communications Systems, Inc............. 10.625 10/01/06 3,676,625
1,250 Interep National Radio Sales, Inc. 144A
Private Placement (a)........................ 10.000 07/01/08 1,250,000
2,700 International Cabletel, Inc. (b)............. 0/12.750 04/15/05 2,369,250
2,750 International Cabletel, Inc. (b)............. 0/11.500 02/01/06 2,248,125
4,000 K-III Communications Corp.................... 10.250 06/01/04 4,290,000
2,100 Northland Cable Television, Inc.............. 10.250 11/15/07 2,247,000
4,700 Pegasus Communications Corp.................. 9.625 10/15/05 4,841,000
2,000 Young Broadcasting, Inc...................... 11.750 11/15/04 2,220,000
------------
38,950,625
------------
RAIL & SHIPPING 0.4%
1,750 Alpha Shipping, 144A Private Placement (a)... 9.500 02/15/08 1,649,375
------------
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
RAW MATERIALS/PROCESSING INDUSTRIES 0.7%
$ 2,900 S.D. Warren Co. (c).......................... 12.000% 12/15/04 $ 3,204,500
------------
RETAIL 1.2%
1,250 Big 5 Corp................................... 10.875 11/15/07 1,300,000
2,050 Community Distributors, Inc.................. 10.250 10/15/04 2,142,250
1,750 Hosiery Corp. America, Inc................... 13.750 08/01/02 1,929,375
------------
5,371,625
------------
TELECOMMUNICATIONS 14.0%
2,000 American Mobile Satellite Corp., 144A Private
Placement (a)................................ 12.250 04/01/08 1,870,000
4,205 Centennial Cellular Corp..................... 10.125 05/15/05 4,730,625
1,500 Clearview Cinema Group, Inc., 144A Private
Placement (a)................................ 10.875 06/01/08 1,526,250
3,000 CTI Holdings, 144A Private Placement (a)..... 11.500 04/15/08 1,665,000
4,000 Echostar Communications Corp. (b)............ 0/12.875 06/01/04 3,910,000
4,000 GST Network Funding, Inc., 144A Private
Placement (a) (b)............................ 0/10.500 05/01/08 2,390,000
1,350 Intermedia Communications of Florida, Inc.... 13.500 06/01/05 1,599,750
2,600 Intermedia Communications, Inc. (b).......... 0/11.250 07/15/07 1,907,750
6,000 Intermedia Communications, Inc., 144A Private
Placement (a)................................ 8.600 06/01/08 6,060,000
4,000 Metronet Communications Corp. (b)............ 0/9.950 06/15/08 2,460,000
2,000 MJD Communications, Inc., 144A Private
Placement (a)................................ 9.500 05/01/08 2,045,000
3,500 Nextlink Communications, Inc., 144A Private
Placement (a)................................ 9.450 04/15/08 2,135,000
1,000 Onepoint Communications Corp. (Including
1,000 common stock warrants) 144A Private
Placement (a)................................ 14.500 06/01/08 945,000
2,500 Optel, Inc., 144A Private Placement (a) (d).. 11.500 07/01/08 2,503,125
1,000 Park N View, Inc., 144A Private Placement (a) 13.000 05/15/08 997,500
8,000 Pinnacle Holdings, Inc., 144A Private
Placement (a)................................ 10.000 03/15/08 5,260,000
4,355 PSINet, Inc.................................. 10.000 02/15/05 4,431,213
2,500 RSL Communications, 144A Private Placement (a) * 03/01/08 1,487,500
3,750 Spectrasite Holdings, Inc., 144A Private
Placement (a)................................ 12.000 07/15/08 2,081,250
3,000 Startec Global Communications, 144A Private
Placement (a)................................ 12.000 05/15/08 2,925,000
2,000 Telecommunications Tech Co., 144A Private
Placement (a)................................ 9.750 05/15/08 2,045,000
2,750 Triton Communications, Inc., 144A Private
Placement (a)................................ * 05/01/08 1,553,750
7,550 United International Holdings, Inc........... 10.750 02/15/08 4,681,000
------------
61,209,713
------------
TEXTILES 1.8%
1,750 Cluett American Corp., 144A Private Placement
(a).......................................... 10.125 05/15/08 1,732,500
1,650 Pillowtex Corp............................... 10.000 11/15/06 1,769,625
2,850 Pillowtex Corp............................... 9.000 12/15/07 2,928,375
1,500 Scovill Fasteners, Inc....................... 11.250 11/30/07 1,548,750
------------
7,979,250
------------
TRANSPORTATION 1.6%
3,000 Atlas Air, Inc. 144A Private Placement (a)... 9.250 04/15/08 2,992,500
4,000 U.S. Airways, Inc............................ 8.625 09/01/98 4,015,760
------------
7,008,260
------------
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
UTILITIES 2.1%
$ 4,250 AES Corp. (c)................................ 10.250% 07/15/06 $ 4,621,875
1,200 AES Corp..................................... 8.375 08/15/07 1,215,000
600 El Paso Electric Co.......................... 8.250 02/01/03 640,500
1,500 El Paso Electric Co.......................... 8.900 02/01/06 1,680,000
854 Midland Cogeneration Venture................. 10.330 07/23/02 922,185
------------
9,079,560
------------
TOTAL DOMESTIC CORPORATE BONDS 72.7%............................. 317,524,638
------------
</TABLE>
<TABLE>
<CAPTION>
Par
Amount
in Local
Currency
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FOREIGN BONDS AND DEBT SECURITIES 19.1%
ARGENTINA 2.1%
$ 3,000 Banco De Credito Argentino (US$)............. 9.500% 04/24/00 $ 3,045,000
1,000 Credito Argentino Sa (US$)................... 9.500 04/24/00 1,015,000
1,000 Federal Republic of Argentina (Var. Rate
Cpn.) (US$).................................. 5.750 03/31/23 744,375
1,000 Republic of Argentina (Var. Rate Cpn.)
(US$)........................................ 6.625 03/31/23 812,500
3,800 Republic of Argentina (US$).................. 6.625 03/31/05 3,355,400
------------
8,972,275
------------
AUSTRALIA 0.2%
1,100 Commonwealth of Australia (AU$).............. 10.000 10/15/02 803,145
------------
BRAZIL 1.6%
1,806 Brazil Media Trust (US$)..................... 6.5625 09/15/07 1,461,403
3,000 Companhia Paranaen (US$)..................... 9.750 05/02/05 2,805,000
2,000 Federal Republic of Brazil (US$)............. 10.125 05/15/27 1,726,000
500 Multicanal Participacoes Series B (US$)...... 12.625 06/18/04 501,250
500 Multicanal Participacoes (US$)............... 12.625 06/18/04 501,250
------------
6,994,903
------------
CANADA 3.6%
1,000 Canadian Airlines Corp. (US$)................ 10.000 05/01/05 1,010,000
5,400 Fonorola, Inc. (US$)......................... 12.500 08/15/02 5,980,500
3,500 Fundy Cable Ltd. (US$)....................... 11.000 11/15/05 3,850,000
4,500 Trizec Finance (US$)......................... 10.875 10/15/05 5,085,000
------------
15,925,500
------------
CHILE 0.2%
1,000 Empresa Electrica Delaware Norte Sa, (US$)
144A Private Placement (a)................... 7.750 03/15/06 863,530
------------
COLUMBIA 1.1%
2,500 Financiera Energetica (US$).................. 9.375 06/15/06 2,425,000
2,300 Financiera Energetica (US$), 144A Private
Placement (a)................................ 9.375 06/15/06 2,231,000
------------
4,656,000
------------
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
in Local
Currency
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ITALY 0.2%
1,500,000 Federal Republic of Italy (Lira)............. 10.000% 08/01/03 1,042,212
------------
KOREA 0.5%
1,100 Korea Dev Bk (US$)........................... 6.250 05/01/00 1,006,478
1,500 Republic of Korea (US$)...................... 8.875 04/15/08 1,365,000
------------
2,371,478
------------
LUXEMBOURG 1.5%
8,500 Millicom International Cellular (US$) (b)
(c).......................................... 0/13.500 06/01/06 6,566,250
------------
MEXICO 1.9%
5,000 Satelites Mexicanos S A De CV, (US$) 144A
Private Placement (a)........................ 10.125 11/01/04 4,900,000
2,000 United Mexican States (US$).................. 11.375 09/15/16 2,226,000
1,000 United Mexican States (US$).................. 6.250 12/31/19 828,125
500 United Mexican States (US$).................. 11.500 05/15/26 568,750
------------
8,522,875
------------
MOROCCO 1.0%
5,000 Morocco Trust A Loan (US$) (e)............... 6.5625 01/01/09 4,287,500
------------
PANAMA 0.9%
4,000 Republic of Panama (US$)..................... 8.875 09/30/27 3,780,000
------------
POLAND 1.2%
1,000 Government of Poland (Var. Rate Cpn.)
(US$)........................................ 6.6875 10/27/24 984,375
4,250 Netia Holdings B V (US$)..................... 10.250 11/01/07 4,122,500
------------
5,106,875
------------
RUSSIA 1.7%
2,000 City of Moscow (US$)......................... 9.500 05/31/00 1,701,400
4,000 Ministry of Finance Russia (US$)............. 10.000 06/26/07 3,010,000
2,000 Russia Principal Loans (US$) (e)............. 6.625 12/15/20 953,750
3,000 Vnesheconombank (US$) (e).................... * 12/15/15 1,430,625
768 Vnesheconombank (US$) 144A Private Placement
(Var. Rate Cpn.) (a)......................... 6.625 12/02/98 427,498
------------
7,523,273
------------
UNITED KINGDOM 1.4%
1,500 Cenargo International Ltd., (US$) 144A
Private Placement (a)........................ 9.75 06/15/08 1,477,500
2,700 Diamond Cable Commerce Plc (US$) (b)......... 0/10.75 02/15/07 1,984,500
1,400 Esprit Telecom Group Plc (US$)............... 11.500 12/15/07 1,445,500
1,250 Esprit Telecom Group Plc, (US$) 144A Private
Placement (a)................................ 10.875 06/15/08 1,246,875
------------
6,154,375
------------
TOTAL FOREIGN BONDS AND DEBT SECURITIES 19.1%.................... 83,570,191
------------
TOTAL CORPORATE BONDS 91.8%...................................... 401,094,829
------------
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Market Value
- ----------------------------------------------------------------------------------------------
<S> <C>
EQUITIES 2.1%
American Telecasting, Inc. (8,370 common stock warrants)(g)..................... $ 4,185
Capital Gaming International, Inc. (5,000 common stock warrants) (g)............ 0
Coastal Finance, Inc. (40,000 preferred shares)................................. 980,000
CSC Holdings, Inc. (1 preferred share).......................................... 122
El Paso Electric Co. (22,459 preferred shares)(f)............................... 2,425,610
Hosiery Corp. America, Inc. (1,000 common stock warrants)(g).................... 52,500
Intermedia Communications of Florida, Inc. (3,150 common stock warrants), 144A
Private Placement (a) (g)..................................................... 441,000
Meditrust (3,867 common stock warrants)(g)...................................... 107,793
Time Warner, Inc. (4,799 preferred shares) (f).................................. 5,338,887
Urohealth Systems, Inc. (2,550 common stock warrants), 144A Private Placement
(a) (g)....................................................................... 26
------------
TOTAL EQUITIES.................................................................. 9,350,123
------------
SWAP TRANSACTIONS 0.0%
Merrill Lynch, 20.0 million US$ notional amount, maturing 9/1/98, payment based
upon the spread of the Merrill Lynch Master Index............................... 23,798
------------
TOTAL LONG-TERM INVESTMENTS 93.9%
(Cost $407,409,972)........................................................... 410,468,750
------------
REPURCHASE AGREEMENT 4.1%
J.P. Morgan Securities, (U.S. T-Note, $13,355,000 par, 12.000% coupon, due
05/15/05 dated 06/30/98 to be sold on 07/01/98 at $18,004,750)
(Cost $18,002,000)............................................................ 18,002,000
------------
TOTAL INVESTMENTS 98.0%
(Cost $425,411,972)........................................................... 428,470,750
OTHER ASSETS IN EXCESS OF LIABILITIES 2.0%..................................... 8,589,321
------------
NET ASSETS 100.0%.............................................................. $437,060,071
============
</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, open options, futures, forwards or swap transactions.
(d) Securities purchased on a when issued or delayed delivery basis.
(e) Security is a bank loan participation.
(f) Payment-in-kind security.
(g) Non-income producing security.
See Notes to Financial Statements
16
<PAGE> 18
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $425,411,972)....................... $ 428,470,750
Cash........................................................ 213,636
Receivables:
Investments Sold.......................................... 8,559,865
Interest.................................................. 7,169,496
Fund Shares Sold.......................................... 768,415
Forward Currency Contracts.................................. 15,198
Other....................................................... 14,161
--------------
Total Assets.......................................... 445,211,521
--------------
LIABILITIES:
Payables:
Investments Purchased..................................... 4,750,000
Income Distributions...................................... 1,817,044
Fund Shares Repurchased................................... 632,649
Distributor and Affiliates................................ 380,544
Investment Advisory Fee................................... 236,298
Variation Margin on Futures............................... 28,125
Trustees' Deferred Compensation and Retirement Plans........ 127,410
Options at Market Value (Net premiums paid of $1,775)....... 3,750
Accrued Expenses............................................ 175,630
--------------
Total Liabilities..................................... 8,151,450
--------------
NET ASSETS.................................................. $ 437,060,071
==============
NET ASSETS CONSIST OF:
Capital..................................................... $ 521,893,588
Net Unrealized Appreciation................................. 2,966,018
Accumulated Distributions in Excess of Net Investment
Income.................................................... (1,685,377)
Accumulated Net Realized Loss............................... (86,114,158)
--------------
NET ASSETS.................................................. $ 437,060,071
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $280,565,914 and 28,360,164 shares of
beneficial interest issued and outstanding)............. $ 9.89
Maximum sales charge (4.75%* of offering price)......... .49
--------------
Maximum offering price to public........................ $ 10.38
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $145,003,244 and 14,662,143 shares of
beneficial interest issued and outstanding)............. $ 9.89
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $11,490,913 and 1,162,594 shares of
beneficial interest issued and outstanding)............. $ 9.88
==============
*On sales of $100,000 or more, the sales charge will be
reduced.
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
STATEMENT OF OPERATIONS
For the Year Ended June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest (Net of foreign withholding taxes of $7,881)....... $40,758,538
Dividends................................................... 951,901
Other....................................................... 1,196,387
-----------
Total Income............................................ 42,906,826
-----------
EXPENSES:
Investment Advisory Fee..................................... 3,298,466
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B, and C of $687,422, $1,410,829, and $98,799,
respectively)............................................. 2,197,050
Shareholder Services........................................ 644,982
Custody..................................................... 120,938
Trustees' Fees and Expenses................................. 31,475
Legal....................................................... 28,850
Other....................................................... 297,676
-----------
Total Expenses.......................................... 6,619,437
Less Fees Waived........................................ 439,795
-----------
Net Expenses............................................ 6,179,642
-----------
NET INVESTMENT INCOME....................................... $36,727,184
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................. $ 9,805,802
Options................................................. (104,912)
Futures................................................. 497,291
Forwards................................................ 46,182
Foreign Currency Transactions........................... (6,359)
-----------
Net Realized Gain........................................... 10,238,004
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 11,798,356
-----------
End of the Period:
Investments............................................. 3,058,778
Options................................................. (5,525)
Futures................................................. (87,188)
Foreign Currency Translation............................ (47)
-----------
2,966,018
-----------
Net Unrealized Depreciation During the Period............... (8,832,338)
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 1,405,666
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $38,132,850
===========
</TABLE>
See Notes to Financial Statements
18
<PAGE> 20
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended June 30, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1998 June 30, 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................ $ 36,727,184 $ 34,529,017
Net Realized Gain.................................... 10,238,004 9,725,173
Net Unrealized Appreciation/Depreciation During the
Period............................................. (8,832,338) 6,256,307
----------- ----------
Change in Net Assets from Operations................. 38,132,850 50,510,497
----------- ----------
Distributions from Net Investment Income............. (36,588,695) (34,529,017)
Distributions in Excess of Net Investment Income..... -0- (412,288)
----------- ----------
Distributions from and in Excess of Net Investment
Income*.......................................... (36,588,695) (34,941,305)
Return of Capital Distribution*...................... -0- (612,243)
----------- ----------
Total Distributions................................ (36,588,695) (35,553,548)
----------- ----------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES......................................... 1,544,155 14,956,949
----------- ----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold............................ 141,976,974 151,222,275
Net Asset Value of Shares Issued Through Dividend
Reinvestment....................................... 14,616,655 13,768,097
Cost of Shares Repurchased........................... (145,829,346) (130,375,583)
----------- -----------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS... 10,764,283 34,614,789
----------- -----------
TOTAL INCREASE IN NET ASSETS......................... 12,308,438 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
$1,685,377 and $1,905,853, respectively)........... $437,060,071 $424,751,633
============ ============
</TABLE>
<TABLE>
<CAPTION>
Year Ended Year Ended
*Distributions by Class June 30, 1998 June 30, 1997
- -------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of
Net Investment Income:
Class A Shares................... $(24,757,453) $(24,888,535)
Class B Shares................... (11,057,055) (9,438,468)
Class C Shares................... (774,187) (614,302)
------------- ------------
$(36,588,695) $(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
19
<PAGE> 21
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended June 30
--------------------------------------------------
Class A Shares 1998 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............. .857 .857 .878 .844 .908
Net Realized and Unrealized
Gain/Loss....................... .037 .384 .147 (.099) (.595)
-------- ------- -------- ------- --------
Total from Investment Operations.... .894 1.241 1.025 .745 .313
-------- ------- -------- ------- --------
Less:
Distributions from and in Excess
of Net Investment Income........ .855 .865 .880 .815 .950
Return of Capital Distribution.... -0- .015 .050 .175 .100
-------- ------- -------- ------- --------
Total Distributions................. .855 .880 .930 .990 1.050
-------- ------- -------- ------- --------
Net Asset Value, End of the
Period............................ $ 9.893 $ 9.854 $ 9.493 $ 9.398 $ 9.643
======== ======= ======== ======= ========
Total Return* (a)................... 9.36% 13.60% 11.26% 8.50% 2.92%
Net Assets at End of the Period (In
millions)......................... $ 280.6 $ 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 *.............. 8.61% 8.83% 9.16% 9.13% 8.85%
Portfolio Turnover.................. 154% 125% 102% 152% 203%
*If certain expenses had not been waived or reimbursed by Van Kampen, total return would
have been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net
Assets............................ 1.24% 1.26% 1.31% N/A N/A
Ratio of Net Investment Income to
Average Net Assets................ 8.51% 8.73% 9.15% N/A N/A
</TABLE>
(a) Total return is based upon Net Asset Value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
N/A -- Not applicable.
See Notes to Financial Statements
20
<PAGE> 22
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------------------------------
Class B Shares 1998 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................. .782 .777 .797 .788 .889
Net Realized and Unrealized
Gain/Loss........................... .036 .389 .160 (.115) (.665)
------- ------- ------- ------- -------
Total from Investment Operations........ .818 1.166 .957 .673 .224
------- ------- ------- ------- -------
Less:
Distributions from and in Excess of
Net Investment Income............... .783 .794 .812 .751 .877
Return of Capital Distribution........ -0- .014 .046 .162 .091
------- ------- ------- ------- -------
Total Distributions..................... .783 .808 .858 .913 .968
------- ------- ------- ------- -------
Net Asset Value, End of the Period...... $ 9.890 $ 9.855 $ 9.497 $ 9.398 $ 9.638
======= ======= ======= ======= =======
Total Return* (a)....................... 9.28% 12.64% 10.55% 7.61% 2.11%
Net Assets at End of the Period (In
millions)............................. $ 145.0 $ 128.7 $ 97.1 $ 55.9 $ 33.2
Ratio of Expenses to Average Net
Assets*............................... 1.91% 1.93% 2.07% 2.04% 2.13%
Ratio of Net Investment Income to
Average Net Assets*................... 7.84% 8.03% 8.39% 8.35% 7.94%
Portfolio Turnover...................... 154% 125% 102% 152% 203%
*If certain expenses had not been waived or reimbursed by Van Kampen, total return would
have been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net
Assets................................ 2.01% 2.02% 2.07% N/A N/A
Ratio of Net Investment Income to
Average Net Assets.................... 7.74% 7.94% 8.38% N/A N/A
</TABLE>
(a) Total Return is based upon Net Asset Value which does not include payment of
maximum sales charge or contingent deferred sales charge.
N/A -- Not applicable.
See Notes to Financial Statements
21
<PAGE> 23
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
August 13, 1993
Year Ended June 30, (Commencement of
------------------------------------- Distribution) to
Class C Shares 1998 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............... .780 .780 .828 .745 .761
Net Realized and Unrealized
Gain/Loss......................... .036 .384 .129 (.079) (.605)
------- ------- ------- ------- -------
Total from Investment Operations...... .816 1.164 .957 .666 .156
------- ------- ------- ------- -------
Less:
Distributions from and in Excess of
Net Investment Income............. .783 .794 .812 .751 .763
Return of Capital Distribution...... -0- .014 .046 .162 .090
------- ------- ------- ------- -------
Total Distributions................... .783 .808 .858 .913 .853
------- ------- ------- ------- -------
Net Asset Value, End of Period........ $ 9.884 $ 9.851 $ 9.495 $ 9.396 $ 9.643
======= ======= ======= ======= =======
Total Return* (b)..................... 8.47% 12.65% 10.55% 7.61% 1.37%**
Net Assets at End of Period
(In millions)....................... $ 11.5 $ 8.1 $ 7.0 $ 2.0 $ 2.2
Ratio of Expenses to Average Net
Assets*............................. 1.91% 1.93% 2.06% 2.12% 2.14%
Ratio of Net Investment Income to
Average Net Assets*................. 7.83% 8.08% 8.38% 8.13% 7.91%
Portfolio Turnover.................... 154% 125% 102% 152% 203%**
*If certain expenses had not been waived or reimbursed by Van Kampen, total return would have
been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net
Assets.............................. 2.01% 2.03% 2.07% N/A N/A
Ratio of Net Investment Income to
Average Net Assets.................. 7.73% 7.99% 8.38% N/A N/A
</TABLE>
** Non-Annualized
(a) Based on average shares outstanding.
(b) Total Return is based upon Net Asset Value which does not include payment of
maximum sales charge or contingent deferred sales charge.
N/A -- Not applicable.
See Notes to Financial Statements
22
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen High Yield Fund, formerly known as Van Kampen American Capital High
Yield Fund, (the "Fund") is organized as a series of Van Kampen Trust, a
Delaware business trust (the "Trust"), and is registered as a diversified
open-end management investment company under the Investment Company Act of 1940,
as amended. The Fund's primary investment objective is to provide a high level
of current income through investment in medium and lower grade domestic
corporate debt securities. The Fund also may invest up to 35% of its assets in
foreign government and corporate debt securities of comparable quality. The Fund
commenced investment operations on June 27, 1986. The Fund commenced
distribution of its Class B and C shares on May 17, 1993 and August 13, 1993,
respectively.
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 may invest in repurchase agreements, which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account
23
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
along with other investment companies advised by Van Kampen Investment Advisory
Corp. (the "Adviser") or its affiliates, the daily aggregate of which is
invested in repurchase agreements. Repurchase agreements are fully
collateralized by the underlying debt security. The Fund will make payment for
such securities only upon physical delivery or evidence of book entry transfer
to the account of the custodian bank. The seller is required to maintain the
value of the underlying security at not less than the repurchase proceeds due
the Fund.
C. INCOME AND EXPENSES--Interest income is recorded on an accrual basis and
dividend income is recorded on the ex-dividend date. Bond discount is amortized
over the expected life of each applicable security. Expenses of the Fund are
allocated on a pro rata basis to each class of shares, except for distribution
and service fees and transfer agency costs which are unique to each class of
shares.
D. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At June 30, 1998, the Fund had an accumulated capital loss carryforward
for tax purposes of $85,906,541, which will expire between June 30, 1999 and
June 30, 2004. Of this amount, $39,385,731 will expire on June 30, 1999. Net
realized gains or losses may differ for financial and tax reporting purposes
primarily as a result of wash sales, currency gains, and mark to market on
futures contracts at June 30, 1998.
At June 30, 1998, for federal income tax purposes, the cost of long- and
short-term investments is $425,712,303; the aggregate gross unrealized
appreciation is $9,418,800 and the aggregate gross unrealized depreciation is
$6,684,151, resulting in net unrealized appreciation of $2,734,649.
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.
24
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
Net realized gains, if any, are distributed annually. Distributions from net
realized gains for book purposes may include short-term capital gains, which are
included as ordinary income for tax purposes.
Due to inherent differences in the recognition of income, expenses and
realized gains/losses under generally accepted accounting principles and federal
income tax purposes, permanent differences between book and tax basis reporting
for the 1998 fiscal year have been identified and appropriately reclassified.
Permanent book and tax basis differences relating to the recognition of net
realized gains on foreign currency transactions of $81,987 were reclassified
from accumulated net realized gain/loss to accumulated undistributed net
investment income.
F. CURRENCY TRANSLATION--Assets and liabilities denominated in foreign
currencies and commitments under forward currency contracts are translated into
U.S. dollars at the mean of the quoted bid and ask prices of such currencies
against the U.S. dollar. Purchases and sales of portfolio securities are
translated at the rate of exchange prevailing when such securities were acquired
or sold. Income and expenses are translated at rates prevailing when accrued.
G. BANK LOAN PARTICIPATIONS--The Fund invests in participation interests of
loans to foreign entities. When the Fund purchases a participation of a foreign
loan interest, the Fund typically enters into a contractual agreement with the
lender or other third party selling the participation, but not with the borrower
directly. As such, the Fund assumes credit risk for the borrower, selling
participant or other persons positioned between the Fund and the borrower.
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 year ended June 30, 1998, the Adviser waived a portion of its
advisory fee. This waiver is voluntary and may be discontinued at any time.
For the year ended June 30, 1998, the Fund recognized expenses of
approximately $15,900 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.
25
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
For the year ended June 30, 1998, the Fund recognized expenses of
approximately $55,000 representing Van Kampen Funds Inc.'s or its affiliates'
(collectively "Van Kampen") cost of providing accounting and legal services to
the Fund.
Van Kampen Investor Services Inc., ("VKIS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the year ended June
30, 1998, the Fund recognized expenses of approximately $458,900. Beginning in
1998, the transfer agency fees are determined through negotiations with the
Fund's Board of Trustees and are based on competitive market benchmarks.
Additionally, for the year ended June 30, 1998, the Fund reimbursed Van
Kampen approximately $19,600 related to the direct cost of consolidating the Van
Kampen open-end fund complex. Payment was contingent upon the realization by the
Fund of cost efficiencies resulting from the consolidation.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of shares of beneficial interest, Classes
A, B and C, each with a par value of $.01 per share. There are an unlimited
number of shares of each class authorized. At June 30, 1998, capital aggregated
$369,566,903,
26
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
$141,033,457 and $11,293,228 for Class A, B and C shares, respectively. For the
year ended June 30, 1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................. 8,945,784 $ 89,317,500
Class B.................................. 4,588,921 45,799,499
Class C.................................. 687,284 6,859,975
----------- -------------
Total Sales................................ 14,221,989 $ 141,976,974
=========== =============
Dividend Reinvestment:
Class A.................................. 997,599 $ 9,948,016
Class B.................................. 427,244 4,261,071
Class C.................................. 40,893 407,568
----------- -------------
Total Dividend Reinvestment................ 1,465,736 $ 14,616,655
=========== =============
Repurchases:
Class A.................................. (10,812,030) $(107,994,896)
Class B.................................. (3,408,945) (33,992,220)
Class C.................................. (385,647) (3,842,230)
----------- -------------
Total Repurchases.......................... (14,606,622) $(145,829,346)
=========== =============
</TABLE>
27
<PAGE> 29
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
At June 30, 1997, capital aggregated $378,296,283, $124,965,107 and
$7,867,915 for Class A, B and C shares, respectively. For the year ended June
30, 1997, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................. 9,665,241 $ 93,909,024
Class B.................................. 5,509,891 53,363,176
Class C.................................. 406,766 3,950,075
---------- -------------
Total Sales................................ 15,581,898 $ 151,222,275
=========== =============
Dividend Reinvestment:
Class A.................................. 1,014,981 $ 9,862,811
Class B.................................. 369,698 3,593,610
Class C.................................. 32,085 311,676
----------- -------------
Total Dividend Reinvestment................ 1,416,764 $ 13,768,097
=========== =============
Repurchases:
Class A.................................. (10,008,711) $ (97,324,996)
Class B.................................. (3,049,089) (29,617,644)
Class C.................................. (353,416) (3,432,943)
----------- -------------
Total Repurchases.......................... (13,411,216) $(130,375,583)
=========== =============
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B shares will
automatically convert to Class A shares after the eighth year following
purchase. The CDSC will be imposed on most redemptions made within six years of
the purchase for Class B and one year of the purchase for Class C as detailed in
the following schedule.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
YEAR OF REDEMPTION CLASS B CLASS C
- ---------------------------------------------------------------------------
<S> <C> <C>
First............................................ 4.00% 1.00%
Second........................................... 3.75% None
Third............................................ 3.50% None
Fourth........................................... 2.50% None
Fifth............................................ 1.50% None
Sixth............................................ 1.00% None
Seventh and Thereafter........................... None None
</TABLE>
28
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
For the year ended June 30, 1998, Van Kampen, as Distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately
$78,100 and CDSC on redeemed shares of approximately $342,100. 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 $657,401,849 and $607,133,236,
respectively.
5. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, foreign currency
exposure, maturity and duration, or generate potential gain. All of the Fund's
portfolio holdings, including derivative instruments, are marked to market each
day with the change in value reflected in unrealized appreciation/depreciation.
Upon disposition, a realized gain or loss is recognized accordingly, except when
exercising a call option contract or taking delivery of a security underlying a
futures or forward contract. In these instances, the recognition of gain or loss
is postponed until the disposal of the security underlying the option, futures
or forward contract. Risks may arise as a result of the potential inability of
the counterparties to meet the terms of their contracts.
Summarized below are the specific types of derivative financial instruments
used by the Fund.
A. OPTION CONTRACTS--An option contract gives the buyer the right, but not the
obligation to buy (call) or sell (put) an underlying item at a fixed exercise
price during a specified period. These contracts are generally used by the Fund
to manage the portfolio's effective maturity and duration.
Transactions in options for the year ended June 30, 1998, were as follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- -----------------------------------------------------------------------
<S> <C> <C>
Outstanding at June 30, 1997.................... 0 $ 0
Options Written and Purchased (Net)............. 700 (179,977)
Options Terminated in Closing Transactions
(Net)......................................... (200) 60,976
Options Expired (Net)........................... (200) 117,226
---- ---------
Outstanding at June 30, 1998.................... 300 $ (1,775)
==== =========
</TABLE>
29
<PAGE> 31
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
The related futures contracts of the outstanding option transactions as of
June 30, 1998, and the descriptions and market values are as follows:
<TABLE>
<CAPTION>
MARKET
EXPIRATION MONTH/ VALUE OF
CONTRACTS EXERCISE PRICE OPTIONS
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Euro Dollar Options
Sep 1998--Purchased Put..... 100 Sep/94 $ 2,500
Sep 1998--Purchased Put..... 50 Sep/94 1,250
Sep 1998--Written Call...... 100 Sep/94.5 (5,000)
Sep 1998--Written Call...... 50 Sep/94.5 (2,500)
--- --------
300 $(3,750)
=== ========
</TABLE>
B. FUTURES CONTRACTS--A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Fund generally invests in futures on U.S. Treasury Bonds and typically closes
the contract prior to the delivery date. These contracts are generally used to
manage the portfolio's effective maturity and duration.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, securities with a value equal to its obligation
under the futures contracts. During the period the futures contract is open,
payments are received from or made to the broker based upon changes in the value
of the contract (the variation margin). The risk of loss associated with a
futures contract is in excess of the variation margin reflected on the Statement
of Assets and Liabilities.
Transactions in futures contracts for the year ended June 30, 1998, were as
follows:
<TABLE>
<CAPTION>
Contracts
- ------------------------------------------------------------------
<S> <C>
Outstanding at June 30, 1997......................... -0-
Futures Opened....................................... 1,675
Futures Closed....................................... (1,575)
------
Outstanding at June 30, 1998......................... 100
======
</TABLE>
30
<PAGE> 32
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
The futures contracts outstanding as of June 30, 1998, and the descriptions
and unrealized depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS DEPRECIATION
- -----------------------------------------------------------------------
<S> <C> <C>
LONG CONTRACTS:
U.S. Treasury Bond Future Sep 1998
(Current notional value $123,594 per
contract).................................. 20 $ 49,375
U.S. Treasury Bond Future Sep 1998
(Current notional value $123,594 per
contract).................................. 30 25,313
U.S. Treasury Bond Future Sep 1998
(Current notional value $123,594 per
contract).................................. 25 5,469
U.S. Treasury Bond Future Sep 1998
(Current notional value $123,594 per
contract).................................. 25 7,031
--- --------
100 $ 87,188
=== ========
</TABLE>
C. FORWARD CURRENCY CONTRACTS--These instruments are commitments to purchase or
sell a foreign currency at a future date at a negotiated forward rate. The gain
or loss arising from the difference between the original value of the contract
and the closing value of such contract is included as a component of realized
gain/loss on forwards.
At June 30, 1998, the Fund has realized gains on closed but unsettled
forward currency contracts of $15,198 scheduled to settle on July 15, 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.
6. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% for Class A net assets and 1.00%
each for Class B and Class C net assets are accrued daily. Included in these
fees for the year ended June 30, 1998, are payments retained by Van Kampen of
approximately $1,017,300.
31
<PAGE> 33
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen High Yield Fund:
We have audited the accompanying statement of assets and liabilities of Van
Kampen High Yield Fund (the "Fund"), including the portfolio of investments, as
of June 30, 1998, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
presented. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1998, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen High Yield Fund as of June 30, 1998, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
August 3, 1998
32
<PAGE> 34
VAN KAMPEN HIGH YIELD FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
PAUL R. WOLKENBERG*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN INVESTMENT
ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 418256
Kansas City, Missouri 64141-9256
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601
TAX NOTICE TO CORPORATE SHAREHOLDERS
For year ended June 30, 1998, 2.58%
of the dividends taxable as ordinary
income
qualified for the 70% dividends
received
deduction for corporations.
* "Interested" persons of the Fund, as defined in the Investment Company Act of
1940.
(C) Van Kampen Funds Inc., 1998. All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After December 31, 1998, the report, if used with
prospective investors, must be accompanied by a quarterly performance update.
33
<PAGE> 35
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 4
Performance in Perspective....................... 5
Glossary of Terms................................ 6
Portfolio Management Review...................... 7
Portfolio Highlights............................. 10
Portfolio of Investments......................... 11
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
Report of Independent Accountants................ 29
</TABLE>
STGI ANR 8/98
<PAGE> 36
LETTER TO SHAREHOLDERS
July 15, 1998
Dear Shareholder,
As you may know, Van Kampen
American Capital is consolidating all
of the retail mutual funds that we [PHOTO]
distribute under the single name of
Van Kampen Funds. This move
accompanies the change in our legal
name to Van Kampen Funds Inc. DENNIS J. MCDONNELL AND DON G. POWELL
You can be assured that the change
in your fund's name will not affect
its management or daily operations.
You will begin seeing the application of this change with this report. In
addition, as of August 31, your fund will be listed in the daily newspapers by
share class under the heading "Van Kampen Funds." For your convenience, we have
enclosed a separate brochure that covers additional details related to these
changes.
ECONOMIC REVIEW
The economic crisis in Asia deepened late in the reporting period while
growth continued at a robust pace in the United States and Europe. After last
fall's currency crisis, signs of recovery began to appear in Asia early in 1998
as equity markets rebounded and currency values stabilized. But a steep decline
in the Japanese yen beginning in February undermined investor confidence in the
region and ignited fears of yet another round of currency devaluations. At the
heart of the problem was a sudden worsening of economic conditions in Japan and
the perceived inability of Japanese leaders to rescue the country's ailing
banking system.
Despite the drag from Asia, the U.S. economy continued to expand at a
healthy rate. The nation's inflation-adjusted output of goods and services ran
at 5.4 percent during the first quarter, an annualized rate considered by many
economists to be virtually unsustainable without leading to inflation. As the
reporting period ended, however, there were indications that the Asian financial
crisis was finally having a moderating impact on domestic economic growth. Also,
the Conference Board's index of leading indicators points toward a slowdown in
economic growth for later this year.
In Europe, economic growth accelerated as the region looked forward to
monetary union, set to begin in January 1999. At that time, a common currency
(the euro) will begin to replace the currencies of the 11 participant nations.
The elimination of foreign-exchange risk and widespread financial reforms has
led to a wave of mergers and acquisitions across the region.
Continued on page two
1
<PAGE> 37
MARKET REVIEW
The wide variation of returns from global financial markets during the
reporting period reflected the vastly different circumstances in the three major
economic blocks of the United States, Europe, and Asia. In Europe, where
companies have relatively little exposure to Asia, stocks posted impressive
gains. During the six months ended in June, the Dow Jones Europe/Africa Index
climbed 24.48 percent in U.S. dollar terms. The rally was broad based, with
markets in Finland, France, Germany, Greece, Ireland, Italy, Portugal, and Spain
each climbing more than 30 percent. European bonds also benefited from stable
monetary policy and low inflation. The average European bond market gained 5.77
percent in U.S. dollar terms during the first six months of 1998.
Stock prices in the United States continued to move higher during the
period, but the Asian financial crisis had an uneven impact on corporate
profits. The Wilshire 5000 Index consisting of all publicly traded U.S.
companies gained 14.68 percent during the first six months of 1998. Companies
with heavy exposure to domestic consumers benefited from strength in the
American economy, while commodity-related issues lagged. U.S. bonds benefited
from a global flight to quality and from a growing perception that domestic
economic growth was slowing. The yield on the Treasury's 30-year benchmark bond
declined from 5.92 percent on December 31, 1997 to 5.63 percent by the end of
the period.
In Asia, renewed currency concerns caused major declines in nearly all
equity markets. Despite a solid rally in January, the Dow Jones Asia/Pacific
Index (excluding Japan) fell 48.77 percent during the 12 months through June and
by 18.69 percent during the first half of 1998. The worst-performing Asian
market was Indonesia, where the average stock lost nearly two-thirds of its
value amid a deepening recession, political turmoil, and social unrest. For the
12 months through June, the Dow Jones Indonesia Index declined by 87.66 percent
in U.S. dollar terms.
OUTLOOK
We remain optimistic about the prospects for European equity markets, based
on the region's accelerating growth rate and the introduction of a common
currency next year. As interest rates decline, liquidity should increase as more
European investors leave the sanctuary of money-market funds in favor of
equities.
Our outlook for Asia is guarded. As the reporting period ended, the Japanese
government announced a bank bailout package that ignited a rally in Asian
financial markets. While we view the latest reforms in a positive light, we are
concerned that investor reaction to the news may have been overly euphoric.
In the United States, economic growth is likely to slow in coming months as
the impact of the Asian crisis becomes more evident. With equities already
trading at record-high valuations, we are cautious about the ability of U.S.
stocks to rally significantly from current levels. On a longer-term basis,
however, the environment for domestic equities remains highly positive.
Several factors are helping to sustain a generally bullish environment for
global bonds. Extreme economic weakness in Asia is exerting downward pressure on
energy, commodity,
Continued on page three
2
<PAGE> 38
and goods prices. Also, the strong dollar is containing U.S. inflation despite a
tight labor market and above-trend economic growth.
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 Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
3
<PAGE> 39
PERFORMANCE RESULTS FOR THE PERIOD ENDED JUNE 30, 1998
VAN KAMPEN SHORT-TERM GLOBAL INCOME FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
TOTAL RETURNS
<S> <C> <C> <C>
One-year total return based on NAV(1).... 3.46% 2.67% 2.67%
One-year total return(2)................. 0.14% (0.25%) 1.69%
Five-year average annual total
return(2).............................. 2.31% 2.24% N/A
Life-of-Fund average annual total
return(2).............................. 3.92% 3.37% 1.80%
Commencement date........................ 09/28/90 07/22/91 08/13/93
DISTRIBUTION RATE AND YIELD
Distribution rate(3)..................... 5.84% 5.26% 5.26%
SEC Yield(4)............................. 6.05% 5.50% 5.50%
</TABLE>
N/A Not Applicable
(1) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge (3.25% for A shares) or contingent
deferred sales charge for early withdrawal (3% for B shares and 1% for C
shares).
(2) Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (A shares) or contingent
deferred sales charge for early withdrawal (B and C shares).
(3) Distribution rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.
(4) SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending June 30, 1998.
See the Fund Performance section of the current prospectus. Past performance
does not guarantee future results. Investment return and net asset value will
fluctuate with market conditions. Fund shares, when redeemed, may be worth more
or less than their original cost.
The Fund's net asset value will fluctuate as a result of changes in foreign
exchange rates and fluctuations in market interest rates. Foreign investments
involve the risks of future foreign political and economic developments and
securities of many foreign companies are less liquid and their prices more
volatile than domestic companies.
Market forecasts provided in this report may not necessarily come to pass.
4
<PAGE> 40
PUTTING YOUR FUND'S PERFORMANCE IN PERSPECTIVE
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment portfolio's performance at regular intervals.
A good starting point is a comparison of your investment holdings to an
applicable benchmark, such as a broad-based market index. Such a comparison can:
- Illustrate the general market environment in which your investments are
being managed
- Reflect the impact of favorable market trends or difficult market
conditions
- Help you evaluate the extent to which your Fund's management team has
responded to the opportunities and challenges presented to them over the
period measured
For these reasons, you may find it helpful to review the chart below, which
compares your Fund's performance to that of the J.P. Morgan Short-Term Global
Index and the J.P. Morgan 3-Month U.S. LIBOR Return Index over time. As
broad-based, statistical composites, these indices do not reflect any
commissions which would be incurred by an investor purchasing the securities
they represent. Similarly, their performances do not reflect any other costs
which would be applicable to an actively managed portfolio, such as that of the
Fund.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen Short-Term Global Income Fund vs. the J.P. Morgan Short-Term
Global Index and the J.P. Morgan 3-Month U.S. LIBOR Return Index
(September 28, 1990 through June 30, 1998)
[GRAPH]
<TABLE>
<CAPTION>
Van Kampen J.P. Morgan 3-
Measurement Period Short-Term J.P. Morgan Short- Month U.S. LIBOR
(Fiscal Year Covered) Global Income Fund Term Global Index Return Index*
<S> <C> <C> <C>
9/30/90 9671.00 10000.00 10000.00
10/31/90 9651.00 10250.00 10080.60
11/30/90 9688.00 10354.00 10136.50
12/31/90 9755.00 10458.00 10223.50
1/31/91 9822.00 10610.00 10301.30
2/28/91 9932.00 10630.00 10358.20
3/31/91 10060.00 10410.00 10425.50
4/30/91 10106.00 10504.00 10488.70
5/31/91 10172.00 10547.00 10547.40
6/30/91 10152.00 10473.00 10595.90
7/31/91 10205.00 10649.00 10660.00
8/31/91 10299.00 10799.00 10720.80
9/30/91 10412.00 11065.00 10774.40
10/31/91 10546.00 11168.00 10838.40
11/30/91 10548.00 11348.00 10886.00
12/31/91 10695.00 11722.00 10947.10
1/31/92 10775.00 11584.00 10988.00
2/29/92 10970.00 11568.00 11021.70
3/31/92 11027.00 11541.00 11061.70
4/30/92 11108.00 11647.00 11109.70
5/31/92 11259.00 11856.00 11146.50
6/30/92 11304.00 12130.00 11190.40
7/31/92 11338.00 12339.00 11239.40
8/31/92 11313.00 12609.00 11270.70
9/30/92 11241.00 12665.00 11308.00
10/31/92 11323.00 12393.00 11335.80
11/30/92 11238.00 12215.00 11359.20
12/31/92 11257.00 12278.00 11410.40
1/31/93 11362.00 12402.00 11448.00
2/29/93 11284.00 12456.00 11478.60
3/31/93 11127.00 12619.00 11512.10
4/30/93 11218.00 12811.00 11546.00
5/31/93 11346.00 12833.00 11574.10
6/30/93 11627.00 12724.00 11609.80
7/31/93 11780.00 12669.00 11643.30
8/31/93 11945.00 12866.00 11679.00
9/30/93 11823.00 12980.00 11707.10
10/31/93 11958.00 12951.00 11741.90
11/30/93 11924.00 12899.00 11776.00
12/31/93 12074.00 12960.00 11814.20
1/31/94 12106.00 13064.00 11852.80
2/29/94 11752.00 13067.00 11872.50
3/31/94 11489.00 13138.00 11910.00
4/30/94 11360.00 13168.00 11942.00
5/31/94 11311.00 13170.00 11985.70
6/30/94 11207.00 13332.00 12027.60
7/31/94 11226.00 13424.00 12078.30
8/31/94 11218.00 13457.00 12132.20
9/30/94 11224.00 13556.00 12171.70
10/31/94 11243.00 13745.00 12235.60
11/30/94 11221.00 13549.00 12279.80
12/31/94 11184.00 13592.00 12339.80
1/31/95 11132.00 13826.00 12419.80
2/29/95 11124.00 14088.00 12483.50
3/31/95 10955.00 14489.00 12552.40
4/30/95 11107.00 14629.00 12616.30
5/31/95 11299.00 14822.00 12691.00
6/30/95 11284.00 14959.00 12752.80
7/31/95 11448.00 15111.00 12822.20
8/31/95 11583.00 14868.00 12886.30
9/30/95 11704.00 15126.00 12944.30
10/31/95 11780.00 15291.00 13014.20
11/30/95 11857.00 15056.00 13077.70
12/31/95 11919.00 15533.00 13144.70
1/31/96 12089.00 15447.00 13218.20
2/29/96 11980.00 15508.00 13274.40
3/31/96 12022.00 15507.00 13326.20
4/30/95 12192.00 15443.00 13390.70
5/31/96 12219.00 15502.00 13454.00
6/30/96 12278.00 15616.00 13510.40
7/31/96 12305.00 15865.00 13579.30
8/31/96 12317.00 15950.00 13646.40
9/30/96 12453.00 15952.00 13712.10
10/31/96 12574.00 16170.00 13784.50
11/30/96 12695.00 16245.00 13844.90
12/31/96 12717.00 16251.00 13910.40
1/31/97 12790.00 15504.00 13978.20
2/29/97 12813.00 15728.00 14039.60
3/31/97 12713.00 15753.00 14100.80
4/30/97 12766.00 15641.00 14169.80
5/31/97 12921.00 15870.00 14240.00
6/30/97 13026.00 15906.00 14313.60
7/31/97 13217.00 15686.00 14387.80
8/31/97 13215.00 15796.00 14454.40
9/30/97 13336.00 16029.00 14526.80
10/31/97 13386.00 16261.00 14601.60
11/30/97 13314.00 16102.00 14661.40
12/31/97 13312.00 16050.00 14743.30
1/31/98 13414.00 16101.00 14819.50
2/29/98 13391.00 16206.00 14881.70
3/31/98 13529.00 16110.00 14951.80
4/30/98 13596.00 16365.00 15020.90
5/31/98 13590.00 16433.00 15095.00
6/30/98 13475.00 16421.00 15169.50
- --------------------------------
Fund's Total Return
1 Year Avg. Annual = 0.14%
5 Year Avg. Annual = 2.31%
Inception Avg. Annual = 3.92%
- --------------------------------
</TABLE>
The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of other share classes of
the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions and includes payment of the maximum
sales charge (3.25% for A shares).
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.
* The J.P. Morgan 3-Month U.S. LIBOR Return Index represents general stock
market performance and was initially selected as a benchmark for the Fund's
performance; however, based upon the Fund's asset composition, we believe the
J.P. Morgan Short-Term Global Index provides a more accurate benchmark for the
Fund. Therefore, the J.P. Morgan 3-Month U.S. LIBOR Return Index will not be
shown in future reports.
5
<PAGE> 41
GLOSSARY OF TERMS
BLUE-CHIP STOCKS: Stocks of large, well-known companies that have a long record
of growth. Examples of blue-chip stocks include General Motors, International
Business Machines (IBM), Coca-Cola, and General Electric.
BOTTOM-UP INVESTING: A management style that emphasizes the analysis of
individual stocks, rather than economic and market cycles.
CURRENCY HEDGING: A technique used to offset the risks associated with the
changing value of currency.
DOW JONES INDUSTRIAL AVERAGE: The oldest and most widely recognized stock market
average, which reflects the performance of 30 actively traded stocks of
well-established, blue-chip companies.
EMERGING MARKETS: The financial markets of developing economies. Many Latin
American and Asian countries are considered emerging markets.
EUROPEAN MONETARY UNION (EMU): A group of European countries creating one
currency for the entire region.
GROWTH INVESTING: An investment strategy that seeks to identify stocks that tend
to offer greater-than-average earnings growth. Growth stocks typically trade at
higher prices than value stocks, due to their higher expected earnings growth.
MARKET CAPITALIZATION: The size of a company, as measured by the value of its
stock. Morningstar, an independent mutual fund rating service, defines
"small-cap" as less than $1 billion, "mid-cap" as between $1 billion and $5
billion, and "large-cap" as more than $5 billion.
MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EAFE INDEX: An international index
composed of equity securities from Europe and Australasia.
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.
TOP-DOWN INVESTING: A management style in which general asset allocation
decisions are based on the strength of various market sectors, industries, or
countries. Individual securities are then selected from within the favored
sectors.
VALUATION: The estimated or determined relative worth of a stock, based on
financial measures such as the stock's current price relative to earnings,
revenue, book value, and cash flow.
VALUE INVESTING: A strategy that seeks to identify stocks that are sound
investments but are temporarily out of favor in the marketplace. As a result,
the stocks trade at prices below the value that value investors believe they are
actually worth.
6
<PAGE> 42
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN SHORT-TERM GLOBAL INCOME FUND
We recently spoke with the management team of the Van Kampen Short-Term Global
Income Fund about the key events and economic forces that shaped the markets
during the past 12 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 12-month period ended June 30, 1998.
Q HOW WOULD YOU DESCRIBE THE INVESTMENT ENVIRONMENT IN WHICH THE FUND HAS
OPERATED DURING THE PAST 12 MONTHS?
A The major theme of the past 12 months has been the worldwide decline of
interest rates in all of the major high-quality government bond markets.
Interest rates declined to record low levels despite strong economic
growth in the United States, Canada, the United Kingdom, and Europe. As a
result, global bond markets are becoming more integrated, which means that bond
yields, including the U.S. market, are determined on a global basis, rather than
a domestic one.
In sharp contrast to the strength of high-quality markets in the United
States and Europe, economic turmoil in Asia began in the fourth quarter of 1997
and intensified during the second quarter of 1998. This turmoil created
volatility in emerging markets and currency markets, which led investors to a
flight toward high-quality bond markets.
In May the European Monetary Union (EMU), set to begin in January 1999,
officially named its 11 participant nations in its agreement to create a single
European currency. The positive effects on the European economy were to improve
financial discipline, business growth, and consumer confidence within Europe. As
a result, we began to see further convergence of interest rates and the
emergence of a single European bond market.
Q WHAT STRATEGY DID YOU EMPLOY TO MANAGE THE FUND IN THIS INVESTMENT
ENVIRONMENT?
A At the beginning of the period, we chose to avoid noninvestment grade
fixed-income securities because of the Asian turmoil and its effect on
emerging markets. Yield spreads in noninvestment grade securities
tightened dramatically and there was minimal opportunity in these markets. As a
result, we continued to invest the Fund's assets in high-quality liquid markets.
In early 1998, we entered the emerging markets. We purchased our largest
holding, currently 10 percent of the Fund's portfolio, in Korean debt, which we
believe will enhance the Fund's long-term return potential. The position is in
dollar-denominated, short-term securities that have an average maturity of one
to three years. We see potential for yield spreads to converge, which would make
Korea a profitable holding. By the end of the period, we had allocated
approximately 20 percent of the Fund's assets in noninvestment grade markets,
most of which were emerging markets. For additional Fund portfolio highlights,
please refer to page ten.
7
<PAGE> 43
Q HOW DID THE FUND PERFORM DURING THE 12-MONTH
REPORTING PERIOD?
A The Fund's performance continues to outpace its benchmark. The Fund's
total return for the 12-month reporting period was 3.46 percent(1) (Class
A shares at net asset value). By comparison, the J.P. Morgan Short-Term
Global Index, a broad-based index that tracks the major bond markets of the
world with maturities of three years or less, produced a total return of 3.24
percent for the 12-month period. In addition, the J.P. Morgan 3-month U.S. LIBOR
Return Index generated a one-year return of 5.98 percent. This broad-based index
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 that would
be paid by an investor purchasing the securities they represent.
The Fund's distribution rate as of June 30, 1998 was 5.84 percent(3)
(based on a monthly dividend of $.037 per share and a maximum public offering
price of $7.60 per share). Please refer to the chart on page four for
additional Fund performance results.
Q MUCH HAS BEEN SAID AND WRITTEN ABOUT ASIA'S EFFECT ON THE GLOBAL
MARKETPLACE. WHAT IS YOUR OUTLOOK FOR THESE MARKETS IN THE MONTH'S AHEAD?
A We believe that Japan must stabilize in order for Asia to begin its
recovery. Regionally, the economy is paying the price with high interest
rates, bank failures, and corporate failures. After two consecutive
quarters of negative growth, Japan is officially in a recession and we feel that
unless it makes a commitment to significant change, it will be unable to do
what needs to be done in order to stimulate aggregate demand, deregulate the
economy, and eliminate the bad debt.
Because Japan is the second largest economy in the world, any action they
take will have a major impact on the global economy. We expect that unless
Japan stabilizes its economy, the volatility, which has spread into emerging
markets, including Brazil and Russia, will continue during the next few months
and may begin to affect the United States.
Q HOW DO YOU FEEL ABOUT THE POSITIONING OF THE FUND'S PORTFOLIO BASED ON
THIS OUTLOOK?
A We are comfortable with our current strategy because we have positioned
the Fund to take advantage of what we believe will be a shift toward
emerging markets. For the past 12 months the volatility of Asia and
emerging markets has led to a flight to high-quality, liquid bond markets,
primarily in the United States and Western Europe. We expect that once the dust
settles in Asia and emerging markets, investors will eventually return to these
high-risk markets in search of higher yields.
We believe that in the near term emerging markets will stabilize and offer
good relative value on an intermediate and long-term basis. We have positioned
the Fund with 20 percent exposure to noninvestment grade securities, including
emerging markets, and believe that this will help increase the Fund's return
during the rest of this year. As a
8
<PAGE> 44
defensive measure, designed to help reduce the Fund's volatility, we currently
maintain a short duration of 2.54 years.
Although we are underweight in the U.S. bond market, we find it attractive
because, among the seven largest bond markets, it has the highest nominal and
real return rates along the yield curve. The reason we are underweight the
United States is because we increased our exposure to New Zealand. We find New
Zealand more attractive because it has the highest nominal and real return rates
among the 15 largest bond markets, including the United States.
In Europe we are underweight in our holdings because nominal and real
returns are very low and there is too much currency exposure to achieve those
yields. Furthermore, EMU's effect is unknown with regard to monetary policy and
the credibility of the overall bond market. We think Greece, however, offers
good value as it prepares to join EMU in 2001. In order to earn acceptance, it
must demonstrate currency stability and credible fiscal discipline, which we
think will stabilize its generally erratic economy.
[SIG.]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
[SIG]
Thomas J. Slefinger
Portfolio Manager
Please see footnotes on page four
9
<PAGE> 45
PORTFOLIO HIGHLIGHTS
VAN KAMPEN SHORT-TERM GLOBAL INCOME FUND
PORTFOLIO HOLDINGS AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
PERCENTAGE OF
TOP TEN HOLDINGS THESE INVESTMENTS
AS OF JUNE 30, 1998 SIX MONTHS AGO(1)
<S> <C> <C>
Repurchase Agreement ........ 16.1% ............ 40.4%
RAST 1998-A4 ................ 11.7% ............ N/A
Korea Development
Bank ...................... 7.5% ............. N/A
United Kingdom
Treasury .................. 6.5% ............. 5.3%
Hellenic Republic ........... 4.7% ............. N/A
Niagara Mohawk Power
Corp. .................... 4.6% ............. N/A
Petroliam Nasional
Berhad ................... 4.6% ............. N/A
Poland PDI Bond ............. 4.1% ............. N/A
Empresa Electrica Del
Notre .................... 3.9% ............. N/A
New Zealand
Government ................ 3.9% ............. 8.3%
</TABLE>
N/A = Not Applicable
ASSET ALLOCATION AS A PERCENTAGE OF TOTAL INVESTMENTS
[PIE CHART]
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
<S> <C>
Foreign Investment Grade Bonds 42.7%
Other 16.1%
U.S. Government/Mortgage Backed Securities 13.8%
Domestic Investment Bonds 8.4%
Foreign Non-Investment Grade Bonds 18.3%
Preferred Stock 0.6%
Foreign Currency 0.1%
</TABLE>
[PIE CHART]
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997(1)
<S> <C>
Other 40.4%
U.S. Government Bonds 37.3%
Foreign Investment Grade Bonds 22.3%
</TABLE>
(1) Unaudited
10
<PAGE> 46
PORTFOLIO OF INVESTMENTS
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
in Local
Currency Maturity U.S. $
(000) Description Coupon Date Market Value
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BONDS 39.2%
ELECTRONICS 1.5%
1,000 CIA Transporte Energia, 144A -- US$ (a)........ 8.625% 04/01/03 $ 972,500
-----------
ENERGY 8.3%
2,500 Empresa Col de Petrolos -- US$................. 7.250 07/08/98 2,500,000
1,850 Petroliam Nasional Berhad, 144A -- US$
(a)(b)......................................... 6.875 07/01/03 1,629,110
1,500 Petroliam Nasional Berhad, 144A -- US$
(a)(b)......................................... 6.625 10/18/01 1,360,950
-----------
5,490,060
-----------
FINANCE 19.4%
1,000 Exp-Imp Bank Korea -- US$...................... 6.500 05/15/00 928,040
1,200 GMAC -- GBP.................................... 5.839 09/25/02 1,999,633
500 Korea Development Bank -- US$ (b).............. 6.625 11/21/03 401,415
1,000 Korea Development Bank -- US$.................. 7.900 02/01/02 891,510
3,990 Korea Development Bank -- US$ (b).............. 6.250 05/01/00 3,650,770
1,000 NBG Finance PLC -- US$......................... * 06/24/07 991,250
2,500 Nordic Investment Bank -- NZ$.................. 6.750 09/16/99 1,276,289
500 SB Treasury Co. LLC, 144A -- GBP (a)(b)........ 9.400 12/29/49 492,813
2,000 Union Bank of Norway, 144A -- US$ (a).......... 9.100 10/25/00 2,115,000
-----------
12,746,720
-----------
UTILITIES 10.0%
3,000 Empresa Electrica Del Notre, 144A -- US$ (a)... 7.750 03/15/06 2,590,590
1,000 Korea Electric Power Co., 144A -- US$ (a)...... 10.000 04/01/01 951,600
3,000 Niagara Mohawk Power Corp -- US$............... 6.500 07/01/99 2,994,300
-----------
6,536,490
-----------
Total Corporate Bonds................................................ 25,745,770
-----------
FOREIGN GOVERNMENT AND AGENCY SECURITIES 30.2%
COLOMBIA 3.0%
1,000 Republic of Colombia -- US$.................... 8.000 06/14/01 997,500
1,000 Republic of Colombia -- US$.................... 7.250 02/15/03 935,000
-----------
1,932,500
-----------
GREECE 4.7%
320,000 Hellenic Republic -- GRD....................... 9.800 03/21/00 1,034,483
599,000 Hellenic Republic -- GRD....................... 8.800 06/19/07 2,079,314
-----------
3,113,797
-----------
MEXICO 2.4%
1,680 United Mexican States -- US$................... 5.820 06/28/01 1,589,246
-----------
NEW ZEALAND 5.6%
3,900 International Bank for Recon & Dev -- NZ$...... * 08/20/07 1,109,495
4,500 New Zealand Government -- NZ$.................. 8.000 11/15/06 2,574,750
-----------
3,684,245
-----------
PANAMA 2.3%
1,500 Republic of Panama, 144A -- US$ (a)(b)......... 7.875 02/13/02 1,485,000
-----------
</TABLE>
See Notes to Financial Statements
11
<PAGE> 47
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
in Local
Currency Maturity U.S. $
(000) Description Coupon Date Market Value
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
POLAND 4.1%
3,000 Poland PDI Bond -- US$......................... 4.000% 10/27/14 2,701,875
-----------
SOUTH AFRICA 1.6%
1,000 Republic of South Africa -- US$................ 9.625 12/15/99 1,041,500
-----------
UNITED KINGDOM 6.5%
2,500 United Kingdom Treasury -- GBP................. 7.000 06/07/02 4,248,551
-----------
Total Foreign Government and Agency Securities....................... 19,796,714
-----------
US GOVERNMENT AND AGENCY OBLIGATIONS 2.0%
2,600 FNMA -- NZ$.................................... 7.250 06/20/02 1,342,790
-----------
MORTGAGE BACKED OBLIGATIONS 11.8%
7,650 RAST 1998-A4 -- US$.............................. 6.750 05/25/98 7,693,031
-----------
PREFERRED STOCK 0.6%
6,000 Avalon Bay Communities, Inc. -- US$.................................. 155,250
10,000 First Industrial Realty Trust -- US$................................. 252,500
-----------
Total Preferred Stock................................................ 407,750
-----------
REPURCHASE AGREEMENT 16.2%
J P Morgan (Collateralized by U. S. Treasury Bonds, $10,598,000 par,
5.500% coupon, due 08/15/13, dated 06/30/98, to be sold on 07/01/98
at $10,599,619)
(Cost $10,598,000)............................................................ 10,598,000
-----------
TOTAL INVESTMENTS 100.0%
(Cost $67,049,220)............................................................ 65,584,055
FOREIGN CURRENCY 0.0%
(Cost $38,824)................................................................ 38,824
LIABILITIES IN EXCESS OF OTHER ASSETS 0.0%..................................... (12,868)
-----------
NET ASSETS 100.0%.............................................................. $65,610,011
===========
</TABLE>
* Zero coupon bond
(a) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may only be resold in
transactions exempt from registration which are normally those transactions
with qualified institutional buyers.
(b) Assets segregated as collateral for open futures and forward currency
contracts.
See Notes to Financial Statements
12
<PAGE> 48
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION BY CREDIT QUALITY
The following table summarizes the portfolio composition at June 30, 1998,
based upon the highest credit quality ratings as determined by Standard & Poor's
or Moody's.
<TABLE>
<S> <C>
Repurchase Agreement...... 16.2%
AAA....................... 27.8
A......................... 12.3
BBB....................... 20.8
BB........................ 18.2
NR........................ 4.7
-----
100.0%
=====
</TABLE>
See Notes to Financial Statements
13
<PAGE> 49
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments, including repurchase agreement of
$10,598,000 (Cost $67,049,220)............................ $ 65,584,055
Cash........................................................ 219,403
Foreign Currency (Cost $38,824)............................. 38,824
Receivables:
Investments Sold.......................................... 3,031,497
Interest.................................................. 687,419
Fund Shares Sold.......................................... 4,148
Variation Margin on Futures............................... 2,494
Other....................................................... 821
------------
Total Assets.......................................... 69,568,661
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 2,151,356
Forward Currency Contracts................................ 1,110,289
Fund Shares Repurchased................................... 149,104
Income Distributions...................................... 117,946
Distributor and Affiliates................................ 98,860
Investment Advisory Fee................................... 30,165
Accrued Expenses............................................ 180,497
Trustees' Deferred Compensation and Retirement Plans........ 120,433
------------
Total Liabilities..................................... 3,958,650
------------
NET ASSETS.................................................. $ 65,610,011
============
NET ASSETS CONSIST OF:
Capital..................................................... $133,355,401
Accumulated Distributions in Excess of Net Investment
Income.................................................... (1,985,847)
Net Unrealized Depreciation................................. (2,416,979)
Accumulated Net Realized Loss............................... (63,342,564)
------------
NET ASSETS.................................................. $ 65,610,011
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $45,725,525 and 6,222,565 shares of
beneficial interest issued and outstanding)............. $ 7.35
Maximum sales charge (3.25%* of offering price)......... .25
------------
Maximum offering price to public........................ $ 7.60
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $19,551,829 and 2,661,333 shares of
beneficial interest issued and outstanding)............. $ 7.35
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $332,657 and 45,275 shares of beneficial
interest issued and outstanding)........................ $ 7.35
============
</TABLE>
*On sales of $25,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
14
<PAGE> 50
STATEMENT OF OPERATIONS
For the Year Ended June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest (net of foreign withholding taxes of $13,886)...... $ 5,294,057
Dividends................................................... 14,298
-----------
Total Income............................................ 5,308,355
-----------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $102,020, $379,656 and $2,737,
respectively)............................................. 484,413
Investment Advisory Fee..................................... 434,761
Shareholder Services........................................ 196,607
Custody..................................................... 51,999
Trustees' Fees and Expenses................................. 28,422
Legal....................................................... 12,375
Other....................................................... 199,558
-----------
Total Expenses.......................................... 1,408,135
Less Expenses Reimbursed................................ 14,546
-----------
Net Expenses............................................ 1,393,589
-----------
NET INVESTMENT INCOME....................................... $ 3,914,766
-----------
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 863,170
Options................................................... 18,292
Futures................................................... (119,252)
Forwards.................................................. 3,165,132
Foreign Currency Transactions............................. (4,194,518)
-----------
Net Realized Loss........................................... (267,176)
-----------
Net Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (1,420,976)
-----------
End of the Period:
Investments............................................. (1,465,165)
Forwards................................................ (939,286)
Futures................................................. (12,353)
Foreign Currency Translation............................ (175)
-----------
(2,416,979)
-----------
Net Unrealized Depreciation During the Period............... (996,003)
-----------
NET REALIZED AND UNREALIZED LOSS............................ $(1,263,179)
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 2,651,587
-----------
</TABLE>
See Notes to Financial Statements
15
<PAGE> 51
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended June 30, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1998 June 30, 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income....................................... $ 3,914,766 $ 5,420,224
Net Realized Gain/Loss...................................... (267,176) 1,725,990
Net Unrealized Depreciation During the Period............... (996,003) (1,136,411)
------------ ------------
Change in Net Assets from Operations........................ 2,651,587 6,009,803
------------ ------------
Distributions from Net Investment Income.................... (3,914,766) (5,420,224)
Distributions in Excess of Net Investment Income............ (331,088) (1,573,147)
------------ ------------
Distributions from and in Excess of Net Investment
Income*................................................... (4,245,854) (6,993,371)
Return of Capital Distribution*............................. (290,326) (91,680)
------------ ------------
Total Distributions......................................... (4,536,180) (7,085,051)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... (1,884,593) (1,075,248)
------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................... 19,032,931 3,720,807
Net Asset Value of Shares Issued Through Dividend
Reinvestment.............................................. 2,772,850 4,048,955
Cost of Shares Repurchased.................................. (46,043,368) (46,302,530)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.......... (24,237,587) (38,532,768)
------------ ------------
TOTAL DECREASE IN NET ASSETS................................ (26,122,180) (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 $1,985,847 and
$455,277, respectively)................................... $ 65,610,011 $ 91,732,191
============ ============
</TABLE>
<TABLE>
<CAPTION>
Year Ended Year Ended
*Distributions by Class June 30, 1998 June 30, 1997
- ------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of
Net Investment Income:
Class A Shares.......................... $(2,310,645) $(3,003,963)
Class B Shares.......................... (1,921,964) (3,977,304)
Class C Shares.......................... (13,245) (12,104)
----------- -----------
$(4,245,854) $(6,993,371)
=========== ===========
Return of Capital Distribution:
Class A Shares.......................... $ (179,548) $ (40,726)
Class B Shares.......................... (109,531) (50,795)
Class C Shares.......................... (1,247) (159)
----------- -----------
$ (290,326) $ (91,680)
=========== ===========
</TABLE>
See Notes to Financial Statements
16
<PAGE> 52
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------------------------
Class A Shares 1998 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......................... .39 .42 .49 .50 .59
Net Realized and Unrealized Gain/Loss......... (.13) .03 .16 (.45) (.89)
----- ----- ----- ----- -----
Total from Investment Operations.............. .26 .45 .65 .05 (.30)
----- ----- ----- ----- -----
Less:
Distributions from and in Excess of Net
Investment Income......................... .42 .51 -0- .37 .35
Return of Capital Distribution.............. .04 .01 .59 .27 .31
----- ----- ----- ----- -----
Total Distributions........................... .46 .52 .59 .64 .66
----- ----- ----- ----- -----
Net Asset Value, End of the Period............ $7.35 $7.55 $7.62 $7.56 $8.15
===== ===== ===== ===== =====
Total Return* (a)............................. 3.46% 6.09% 8.81% .69% (3.61%)
Net Assets at End of the Period (In
millions)................................... $45.7 $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*................................. 5.40% 5.37% 6.54% 7.20% 6.64%
Portfolio Turnover............................ 175% 378% 225% 204% 259%
* If certain expenses had not been assumed by Van Kampen, Total Return would
have been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net Assets (b)... 1.41% 1.36% 1.34% N/A N/A
Ratio of Net Investment Income to Average
Net Assets.................................. 5.38% 5.34% 6.51% N/A N/A
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) Beginning with the year ended June 30, 1997, the Ratios of Expenses to
Average Net Assets are based upon expense amounts which do not reflect
credits earned on overnight cash balances.
N/A = Not Applicable
See Notes to Financial Statements
17
<PAGE> 53
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------------------
Class B Shares 1998(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....................... .36 .35 .39 .41 .54
Net Realized and Unrealized Gain/Loss....... (.16) .04 .20 (.42) (.90)
----- ----- ----- ----- -----
Total from Investment Operations............ .20 .39 .59 (.01) (.36)
----- ----- ----- ----- -----
Less:
Distributions from and in Excess of Net
Investment Income....................... .37 .45 -0- .34 .32
Return of Capital Distribution............ .03 .01 .53 .24 .27
----- ----- ----- ----- -----
Total Distributions......................... .40 .46 .53 .58 .59
----- ----- ----- ----- -----
Net Asset Value, End of the Period.......... $7.35 $7.55 $7.62 $7.56 $8.15
===== ===== ===== ===== =====
Total Return* (b)........................... 2.67% 5.29% 8.02% (.14%) (4.22%)
Net Assets at End of the Period (In
millions)................................. $19.6 $52.1 $81.1 $127.9 $271.8
Ratio of Expenses to Average Net
Assets* (c)............................... 2.16% 2.09% 2.09% 1.96% 1.85%
Ratio of Net Investment Income to Average
Net Assets*............................... 4.48% 4.62% 5.79% 6.42% 5.91%
Portfolio Turnover.......................... 175% 378% 225% 204% 259%
* If certain expenses had not been assumed by Van Kampen, Total Return would
have been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net Assets
(c)....................................... 2.18% 2.12% 2.12% N/A N/A
Ratio of Net Investment Income to Average
Net Assets................................ 4.46% 4.59% 5.76% N/A N/A
</TABLE>
(a) Based on average month-end shares outstanding.
(b) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(c) Beginning with the year ended June 30, 1997, the Ratios of Expenses to
Average Net Assets are based upon expense amounts which do not reflect
credits earned on overnight cash balances.
N/A = Not Applicable
See Notes to Financial Statements
18
<PAGE> 54
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
August 13, 1993
Year Ended June 30, (Commencement of
-------------------------------------- Distribution) to
Class C Shares 1998(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........... .34 .35 .45 .50 .49
Net Realized and Unrealized
Gain/Loss..................... (.14) .04 .14 (.52) (1.05)
----- ----- ----- ----- -----
Total from Investment
Operations.................... .20 .39 .59 (.02) (.56)
----- ----- ----- ----- -----
Less:
Distributions from and in
Excess of Net Investment
Income...................... .37 .45 -0- .34 .27
Return of Capital
Distribution................ .03 .01 .53 .24 .25
----- ----- ----- ----- -----
Total Distributions............. .40 .46 .53 .58 .52
----- ----- ----- ----- -----
Net Asset Value, End of the
Period........................ $7.35 $7.55 $7.62 $7.56 $8.16
===== ===== ===== ===== =====
Total Return* (b)............... 2.67% 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*........ 4.67% 4.63% 5.72% 6.30% 5.83%
Portfolio Turnover.............. 175% 378% 225% 204% 259%
* If certain expenses had not been assumed by Van Kampen, Total Return would
have been lower and the ratios would have been as follows:
Ratio of Expenses to Average Net
Assets (c).................... 2.17% 2.12% 2.09% N/A N/A
Ratio of Net Investment Income
to Average Net Assets......... 4.65% 4.60% 5.69% N/A N/A
</TABLE>
** Non-Annualized
(a) Based on average month-end shares outstanding.
(b) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(c) Beginning with the year ended June 30, 1997, the Ratios of Expenses to
Average Net Assets are based upon expense amounts which do not reflect
credits earned on overnight cash balances.
N/A = Not Applicable
See Notes to Financial Statements
19
<PAGE> 55
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Short-Term Global Income Fund, formerly known as Van Kampen American
Capital Short-Term Global Income Fund, (the "Fund") is organized as a series of
Van Kampen Trust (the "Trust"), a Delaware business trust, and is registered as
a non-diversified open-end management investment company under the Investment
Company Act of 1940, as amended. The Fund's investment objective is to seek a
high level of current income, consistent with prudent investment risk through
investment in a global portfolio of investment grade debt securities denominated
in various currencies and multi-national currency units and having an average
duration of three years or less. The Fund commenced investment operations on
September 28, 1990. The distribution of the Fund's Class B and Class C shares
commenced on July 22, 1991, and August 13, 1993, respectively.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION--Investments are stated at value using the last available
bid price, or if not available, yield equivalents obtained from dealers in the
over-the-counter (OTC) or interbank market. Short-term securities with remaining
maturities of 60 days or less are valued at amortized cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made. At June 30, 1998, 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
20
<PAGE> 56
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
repurchase agreements, or transfer uninvested cash balances into a pooled cash
account along with other investment companies advised by Van Kampen Investment
Advisory Corp. (the "Adviser") or its affiliates, the daily aggregate of which
is invested in repurchase agreements. Repurchase agreements are fully
collateralized by the underlying debt security. The Fund will make payment for
such security only upon physical delivery or evidence of book entry transfer to
the account of the custodian bank. The seller is required to maintain the value
of the underlying security at not less than the repurchase proceeds due the
Fund.
C. INCOME AND EXPENSES--Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security. Expenses of the Fund are allocated on a pro rata basis to
each class of shares, except for distribution and service fees and transfer
agency costs which are unique to each class of shares.
D. CURRENCY TRANSLATION--Assets and liabilities denominated in foreign
currencies and commitments under forward currency contracts are translated into
U.S. dollars at the mean of the quoted bid and ask prices of such currencies
against the U.S. dollar. Purchases and sales of portfolio securities are
translated at the rate of exchange prevailing when such securities were acquired
or sold. Income and expenses are translated at rates prevailing when accrued.
E. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At June 30, 1998, the Fund had an accumulated capital loss carryforward
for tax purposes of $63,342,563 which will expire between June 30, 2001 and June
30, 2004. Net realized gains or losses may differ for financial and tax
reporting purposes primarily as a result of post October 31 losses which are not
recognized for tax purposes until the first day of the following fiscal year and
as a result of gains or losses recognized for tax purposes on open options and
forward transactions at June 30, 1998.
At June 30, 1998, for federal income tax purposes, cost of long- and
short-term investments is $67,088,044; the aggregate gross unrealized
appreciation is $280,558 and
21
<PAGE> 57
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
the aggregate gross unrealized depreciation is $1,745,723 resulting in net
unrealized depreciation of $1,465,165.
F. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily and pays monthly
dividends from net investment income. Net investment income for federal income
tax purposes includes gains and losses realized on transactions in foreign
currencies and options on foreign currencies. These realized gains and losses
are included as net realized gains or losses for financial reporting purposes.
Permanent book and tax differences relating to net realized currency losses
totaling $1,199,482 were reclassified from accumulated net realized gain/loss to
accumulated undistributed net investment income.
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 of .55% of the Fund's average net assets.
For the year ended June 30, 1998, the Fund recognized expenses of
approximately $2,800 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the year ended June 30, 1998, the Fund recognized expenses of
approximately $23,000 representing Van Kampen's cost of providing accounting and
legal services to the Fund.
Van Kampen Investor Services Inc. ("VKIS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the year ended June
30, 1998, the Fund recognized expenses of approximately $133,400. Beginning in
1998, the transfer agency fees are determined through negotiations with the
Fund's Board of Trustees and are based on competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
22
<PAGE> 58
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of shares of beneficial interest, Classes
A, B and C, each with a par value of $.01 per share. There are an unlimited
number of shares of each class authorized.
At June 30, 1998, capital aggregated $68,828,371, $64,184,630 and $342,400,
for Classes A, B and C, respectively. For the year ended June 30, 1998,
transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.......................................... 2,451,703 $ 18,354,657
Class B.......................................... 64,808 487,442
Class C.......................................... 25,354 190,832
----------- ------------
Total Sales........................................ 2,541,865 $ 19,032,931
=========== ============
Dividend Reinvestment:
Class A.......................................... 227,701 $ 1,709,854
Class B.......................................... 139,292 1,048,650
Class C.......................................... 1,914 14,346
----------- ------------
Total Dividend Reinvestment........................ 368,907 $ 2,772,850
=========== ============
Repurchases:
Class A.......................................... (1,683,807) $(12,642,954)
Class B.......................................... (4,446,060) (33,357,245)
Class C.......................................... (5,747) (43,169)
----------- ------------
Total Repurchases.................................. (6,135,614) $(46,043,368)
=========== ============
</TABLE>
23
<PAGE> 59
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
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). Class B shares purchased
on or after June 1, 1996 will automatically convert to Class A shares after the
eighth year following purchase. Class B shares purchased before June 1, 1996
automatically convert to Class A shares after the sixth year following purchase.
Class C shares purchased before January 1, 1997 will automatically convert to
Class A shares after the tenth year following purchase. The CDSC will be imposed
on most redemptions made within three years of the
24
<PAGE> 60
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
purchase for Class B and one year of the purchase for Class C as detailed in the
following schedule.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
YEAR OF REDEMPTION CLASS B CLASS C
- ------------------------------------------------------------------------------
<S> <C> <C>
First.............................................. 3.00% 1.00%
Second............................................. 2.00% None
Third.............................................. 1.00% None
Fourth and Thereafter.............................. None None
</TABLE>
For the year ended June 30, 1998, Van Kampen, as Distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately $200
and CDSC on redeemed shares of approximately $10,200. 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 $116,378,688 and $135,900,050,
respectively.
5. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, foreign currency
exposure, maturity and duration. All of the Fund's portfolio holdings, including
derivative instruments, are marked to market each day with the change in value
reflected in unrealized appreciation/depreciation. Upon disposition, a realized
gain or loss is recognized accordingly, except when exercising a call option
contract or taking delivery of a security underlying a forward contract. In this
instance, the recognition of gain or loss is postponed until the disposal of the
security underlying the option or forward contract. Risks may arise as a result
of the potential inability of the counterparties to meet the terms of their
contracts.
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.
25
<PAGE> 61
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
Transactions in options for the year ended June 30, 1998, were as follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- ------------------------------------------------------------------------
<S> <C> <C>
Outstanding at June 30, 1997...................... 1 $ (27,698)
Options Written and
Purchased (Net)................................. 12 444,910
Options Terminated in Closing
Transactions (Net).............................. (12) (444,910)
Options Expired (Net)............................. (1) 27,698
---- ---------
Outstanding at June 30, 1998...................... -0- $ -0-
==== =========
</TABLE>
B. FUTURES CONTRACTS--A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Fund generally invests in futures on U.S. Treasury Notes and typically closes
the contract prior to the delivery date. These contracts are generally used to
manage the portfolio's effective maturity and duration.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, securities with a value equal to its obligation
under the futures contracts. During the period the futures contract is open,
payments are received from or made to the broker based upon changes in the value
of the contract (the variation margin). The potential risk of loss associated
with a futures contract could be in excess of the variation margin reflected on
the Statement of Assets and Liabilities. The cost of securities acquired through
delivery under a contract is adjusted by the unrealized gain or loss on the
contract.
Transactions in futures contracts for the year ended June 30, 1998, were as
follows:
<TABLE>
<CAPTION>
CONTRACTS
- ----------------------------------------------------------------------
<S> <C>
Outstanding at June 30, 1997................................ -0-
Futures Opened.............................................. 371
Futures Closed.............................................. (356)
-----
Outstanding at June 30, 1998................................ 15
=====
</TABLE>
The futures contracts outstanding as of June 30, 1998, and the descriptions
and unrealized depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS DEPRECIATION
- --------------------------------------------------------------------------
<S> <C> <C>
SHORT CONTRACTS:
10-Year German Mark Future June 1998
(Current notional value $270,900 per
contract).................................. 15 $ 12,353
==== ============
</TABLE>
26
<PAGE> 62
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
C. FORWARD CURRENCY CONTRACTS--These instruments are commitments to purchase or
sell a foreign currency at a future date at a negotiated forward rate. The gain
or loss arising from the difference between the original value of the contract
and the closing value of such contract is included as a component of realized
gain/loss on forwards.
At June 30, 1998, 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,
2,131,875 expiring 07/09/98.............. $ 1,449,027 $ (50,973)
Deutsche Mark,
31,914,400 expiring 07/01/98-10/07/98.... 17,729,210 (270,790)
Indonesian Rupiah,
4,045,000,000 expiring
09/29/98-10/13/98........................ 245,862 (354,139)
Japanese Yen,
1,509,287,000 expiring
07/15/98-08/10/98........................ 10,952,247 (547,753)
Philippine Peso,
4,910,000 expiring 09/29/98.............. 114,725 (24,763)
South Korea Won,
2,282,750,000 expiring
07/20/98-03/03/99........................ 1,537,838 137,838
Thailand Baht,
33,692,500 expiring 09/28/98-10/13/98.... 751,058 (88,960)
----------- -----------
$32,779,967 (1,199,540)
=========== -----------
SHORT CONTRACTS:
Greek Drachma,
915,060,000 expiring 07/09/98............ $ 3,005,690 (5,690)
Japanese Yen,
1,520,782,500 expiring
07/01/98-07/27/98........................ 11,020,331 479,669
New Zealand Dollar,
8,166,298 expiring 07/10/98-07/15/98..... 4,245,357 (41,073)
Pound Sterling,
3,650,917 expiring 07/02/98-07/15/98..... 6,093,874 (86,938)
South Korean Won,
2,220,000,000 expiring 07/15/98.......... 1,585,714 (85,714)
----------- -----------
$25,950,966 260,254
=========== -----------
$ (939,286)
===========
</TABLE>
27
<PAGE> 63
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
At June 30, 1998, the Fund had realized losses on closed but unsettled
forward currency contracts of $171,003 scheduled to settle between July 1, 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 year ended June 30, 1998, are payments retained by Van Kampen of
approximately $320,100.
28
<PAGE> 64
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen Short-Term Global Income Fund:
We have audited the accompanying statement of assets and liabilities of Van
Kampen Short-Term Global Income Fund (the "Fund"), including the portfolio of
investments, as of June 30, 1998, and the related statement of operations for
the year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
periods presented. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1998, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen Short-Term Global Income Fund as of June 30, 1998, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the periods presented, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Chicago, Illinois
August 7, 1998
29
<PAGE> 65
VAN KAMPEN FUNDS
EQUITY FUNDS
Domestic
Aggressive Equity
Aggressive Growth
American Value
Comstock
Emerging Growth
Enterprise
Equity Growth
Equity Income
Growth
Growth and Income
Harbor
Pace
Real Estate Securities
U.S. Real Estate
Utility
Value
International/Global
Asian Growth
Emerging Markets
Global Equity
Global Equity Allocation
Global Managed Assets
International Magnum
Latin American
FIXED-INCOME FUNDS
Income
Corporate Bond
Global Fixed Income
Global Government Securities
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
Short-Term Global Income
Strategic Income
U.S. Government
U.S. Government Trust for Income
Worldwide High Income
Tax Exempt Income
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal
Insured Tax Free Income
Intermediate Term Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
Capital Preservation and
Senior Loan Fund
Prime Rate Income Trust
Reserve
Senior Floating Rate
Tax Free Money
To find out more about any of these funds, ask your financial adviser for a
prospectus, which contains more complete information, including sales
charges, risks, and expenses. Please read it carefully before you invest or
send money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- visit our web site at
WWW.VAN-KAMPEN.COM -- to view prospectuses, select Investors' Place, then
Download a Prospectus
- call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time
(Telecommunications Device for the Deaf users, call 1-800-421-2833)
- e-mail us by visiting
WWW.VAN-KAMPEN.COM and selecting Investors' Place
30
<PAGE> 66
VAN KAMPEN SHORT-TERM GLOBAL INCOME FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
PAUL R. WOLKENBERG*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR
SERVICES INC.
P.O. Box 418256
Kansas City, Missouri 64141-9256
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601
* "Interested" persons of the Fund, as defined in
the Investment Company Act of 1940.
(C) Van Kampen Funds Inc. 1998
All rights reserved.
(SM) denotes a service mark of
Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After December 31, 1998, this report, if used with
prospective investors, must be accompanied by a quarterly performance update.
31
<PAGE> 67
VAN KAMPEN SHORT-TERM GLOBAL INCOME FUND
THIS PAGE INTENTIONALLY LEFT BLANK
32
<PAGE> 68
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 4
Performance in Perspective....................... 5
Glossary of Terms................................ 6
Portfolio Management Review...................... 7
Portfolio Highlights............................. 10
Portfolio of Investments......................... 11
Statement of Assets and Liabilities.............. 17
Statement of Operations.......................... 18
Statement of Changes in Net Assets............... 19
Financial Highlights............................. 20
Notes to Financial Statements.................... 23
Report of Independent Accountants................ 34
</TABLE>
SIF ANR 8/98
<PAGE> 69
LETTER TO SHAREHOLDERS
PHOTO OF MCDONNEL & POWELL
DENNIS J. MCDONNELL AND DON G.
POWELL
July 15, 1998
Dear Shareholder,
As you may know, Van Kampen
American Capital is consolidating all
of the retail mutual funds that we
distribute under the single name of
Van Kampen Funds. This move
accompanies the change in our legal
name to Van Kampen Funds Inc.
You can be assured that the change
in your fund's name will not affect
its management or daily operations.
You will begin seeing the application of this change with this report. In
addition, as of August 31, your fund will be listed in the daily newspapers by
share class under the heading "Van Kampen Funds." For your convenience, we have
enclosed a separate brochure that covers additional details related to these
changes.
ECONOMIC REVIEW
The economic crisis in Asia deepened late in the reporting period while
growth continued at a robust pace in the United States and Europe. After last
fall's currency crisis, signs of recovery began to appear in Asia early in 1998
as equity markets rebounded and currency values stabilized. But a steep decline
in the Japanese yen beginning in February undermined investor confidence in the
region and ignited fears of yet another round of currency devaluations. At the
heart of the problem was a sudden worsening of economic conditions in Japan and
the perceived inability of Japanese leaders to rescue the country's ailing
banking system.
Despite the drag from Asia, the U.S. economy continued to expand at a
healthy rate. The nation's inflation-adjusted output of goods and services ran
at 5.4 percent during the first quarter, an annualized rate considered by many
economists to be virtually unsustainable without leading to inflation. As the
reporting period ended, however, there were indications that the Asian financial
crisis was finally having a moderating impact on domestic economic growth. Also,
the Conference Board's index of leading indicators points toward a slowdown in
economic growth for later this year.
In Europe, economic growth accelerated as the region looked forward to
monetary union, set to begin in January 1999. At that time, a common currency
(the euro) will begin to replace the currencies of the 11 participant nations.
The elimination of foreign-exchange risk and widespread financial reforms has
led to a wave of mergers and acquisitions across the region.
Continued on page two
1
<PAGE> 70
MARKET REVIEW
The wide variation of returns from global financial markets during the
reporting period reflected the vastly different circumstances in the three major
economic blocks of the United States, Europe, and Asia. In Europe, where
companies have relatively little exposure to Asia, stocks posted impressive
gains. During the six months ended in June, the Dow Jones Europe/Africa Index
climbed 24.48 percent in U.S. dollar terms. The rally was broad based, with
markets in Finland, France, Germany, Greece, Ireland, Italy, Portugal, and Spain
each climbing more than 30 percent. European bonds also benefited from stable
monetary policy and low inflation. The average European bond market gained 5.77
percent in U.S. dollar terms during the first six months of 1998.
Stock prices in the United States continued to move higher during the
period, but the Asian financial crisis had an uneven impact on corporate
profits. The Wilshire 5000 Index consisting of all publicly traded U.S.
companies gained 14.68 percent during the first six months of 1998. Companies
with heavy exposure to domestic consumers benefited from strength in the
American economy, while commodity-related issues lagged. U.S. bonds benefited
from a global flight to quality and from a growing perception that domestic
economic growth was slowing. The yield on the Treasury's 30-year benchmark bond
declined from 5.92 percent on December 31, 1997 to 5.63 percent by the end of
the period.
In Asia, renewed currency concerns caused major declines in nearly all
equity markets. Despite a solid rally in January, the Dow Jones Asia/Pacific
Index (excluding Japan) fell 48.77 percent during the 12 months through June and
by 18.69 percent during the first half of 1998. The worst-performing Asian
market was Indonesia, where the average stock lost nearly two-thirds of its
value amid a deepening recession, political turmoil, and social unrest. For the
12 months through June, the Dow Jones Indonesia Index declined by 87.66 percent
in U.S. dollar terms.
OUTLOOK
We remain optimistic about the prospects for European equity markets, based
on the region's accelerating growth rate and the introduction of a common
currency next year. As interest rates decline, liquidity should increase as more
European investors leave the sanctuary of money-market funds in favor of
equities.
Our outlook for Asia is guarded. As the reporting period ended, the Japanese
government announced a bank bailout package that ignited a rally in Asian
financial markets. While we view the latest reforms in a positive light, we are
concerned that investor reaction to the news may have been overly euphoric.
In the United States, economic growth is likely to slow in coming months as
the impact of the Asian crisis becomes more evident. With equities already
trading at record-high valuations, we are cautious about the ability of U.S.
stocks to rally significantly from current levels. On a longer-term basis,
however, the environment for domestic equities remains highly positive.
Several factors are helping to sustain a generally bullish environment for
global bonds. Extreme economic weakness in Asia is exerting downward pressure on
energy, commodity,
Continued on page three
2
<PAGE> 71
and goods prices. Also, the strong dollar is containing U.S. inflation despite a
tight labor market and above-trend economic growth.
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 Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
3
<PAGE> 72
PERFORMANCE RESULTS FOR THE PERIOD ENDED JUNE 30, 1998
VAN KAMPEN STRATEGIC INCOME FUND
TOTAL RETURNS
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
One-year total return based on NAV1..... 3.89% 3.11% 3.03%
One-year total return2.................. (1.06%) (0.74%) 2.07%
Life-of-Fund average annual total
return2............................... 4.41% 4.46% 4.68%
Commencement date....................... 12/31/93 12/31/93 12/31/93
</TABLE>
DISTRIBUTION RATE AND YIELD
<TABLE>
<S> <C> <C> <C>
Distribution rate3...................... 7.35% 6.93% 6.94%
SEC Yield4.............................. 7.45% 7.05% 7.05%
</TABLE>
1Assumes 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).
2Standardized 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).
3Distribution rate represents the monthly annualized distributions of the Fund
at the end of the period and not the earnings of the Fund.
4SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending June 30, 1998. Had certain
expenses of the Fund not been assumed by VKAC, total returns would have been
lower and the SEC Yield would have been 7.14%, 6.74% and 6.74% 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> 73
PUTTING YOUR FUND'S PERFORMANCE IN PERSPECTIVE
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment portfolio's performance at regular intervals.
A good starting point is a comparison of your investment holdings to an
applicable benchmark, such as a broad-based market index. Such a comparison can:
- Reflect the impact of favorable market trends or difficult market
conditions
- Help you evaluate the extent to which your Fund's management team has
responded to the opportunities and challenges presented to them over the
period measured
For these reasons, you may find it helpful to review the chart below, which
compares your Fund's performance to that of the Lehman Brothers Aggregate Bond
Index and the Composite of Salomon Brothers Indices presented. These indices are
statistical composites and do not reflect any commissions that would be incurred
by an investor purchasing the securities they represent. Similarly, their
performance does not reflect any other costs that would be applicable to an
actively managed portfolio, such as that of the Fund.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen Strategic Income Fund vs. Lehman Brothers Aggregate Bond Index
and
Composite of Salomon Brothers Indices* (December 31, 1993 through June
30, 1998)
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) Van Kampen Lehman Brothers Salomon Brothers
<S> <C> <C> <C>
12/31/93 9527.00 10000.00 10000.00
1/31/94 9480.00 10135.00 10105.00
2/28/94 9167.00 9958.65 9866.00
3/31/94 8617.00 9712.67 9487.00
4/30/94 8326.00 9634.97 9427.00
5/31/94 8422.00 9634.01 9490.00
6/30/94 8305.00 9612.81 9379.00
7/31/94 8416.00 9804.11 9555.00
8/31/94 8423.00 9815.87 9677.00
9/30/94 8465.00 9671.58 9609.00
10/31/94 8316.00 9662.87 9569.00
11/30/94 8136.00 9641.62 9566.00
12/31/94 7985.00 9708.14 9542.00
1/31/95 8028.00 9900.36 9675.00
2/28/95 8102.00 10136.00 9802.00
3/31/95 8080.00 10197.80 9842.00
4/30/95 8485.00 10340.60 10100.00
5/31/95 8962.00 10740.80 10532.00
6/30/95 9007.00 10819.20 10628.00
7/31/95 9084.00 10795.40 10639.00
8/31/95 9125.00 10926.00 10759.00
9/30/95 9346.00 11032.00 10924.00
10/31/95 9396.00 11175.40 11007.00
11/30/95 9620.00 11343.00 11196.00
12/31/95 9854.00 11501.80 11436.00
1/31/96 10187.00 11577.80 11663.00
2/29/96 9986.00 11376.30 11435.00
3/31/96 9869.00 11296.70 11438.00
4/30/96 9966.00 11233.40 11482.00
5/31/96 10047.00 11210.90 11518.00
6/30/96 10171.00 11361.20 11678.00
7/31/96 10295.00 11391.80 11726.00
8/31/96 10378.00 11372.50 11816.00
9/30/96 10693.00 11570.40 12124.00
10/31/96 10837.00 11827.20 12337.00
11/30/96 11121.00 12029.50 12625.00
12/31/96 11119.00 11917.60 12594.00
1/31/97 11244.00 11954.50 12747.00
2/28/97 11370.00 11984.40 12827.00
3/31/97 11230.00 11851.40 12630.00
4/30/97 11331.00 12029.20 12839.00
5/31/97 11559.00 12143.40 13041.00
6/30/97 11688.00 12287.90 13243.00
7/31/97 11928.00 12619.70 13616.00
8/31/97 11857.00 12512.50 13535.00
9/30/97 12045.00 12697.60 13781.00
10/31/97 11786.00 12881.80 13650.00
11/30/97 11770.00 12941.00 13812.00
12/31/97 11800.00 13071.70 14005.00
1/31/98 11974.00 13239.00 14169.00
2/28/98 12120.00 13228.40 14256.00
3/31/98 12196.00 13273.40 14389.00
4/30/98 12263.00 13342.40 14448.00
5/31/98 12193.00 13469.20 14486.00
6/30/98 12143.00 13583.70 14492.00
</TABLE>
Fund's Total Return
1 Year Avg. Annual = -1.06%
3 Year Avg. Annual = 8.70%
Inception Avg. Annual = 4.41%
The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of other share classes of
the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions and includes payment of the maximum
sales charge (4.75% for A shares).
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.
*This index is a composite reflecting 20% of each of the following Salomon
Brothers Indices: Mortgage, High Yield Market, Corporate, Non-U.S. Dollar World
Government Bond and Brady Bond.
5
<PAGE> 74
GLOSSARY OF TERMS
BASIS POINT: A measure used in quoting bond yields. One hundred basis points is
equal to 1 percent. For example, if a bond's yield changes from 7.00 to 6.65
percent, it is a 35 basis-point move.
CURRENCY HEDGING: A technique used to offset the risks associated with the
changing value of currency.
DURATION: A measure of the sensitivity of a bond's price to changes in interest
rates, expressed in years. Each year of duration represents an expected 1
percent change in the price of a bond for every 1 percent change in interest
rates. The longer a fund's duration, the greater the effect of interest rate
movements on net asset value. Typically, funds with shorter durations have
performed better in rising rate environments, while funds with longer durations
have performed better when rates decline.
EMERGING MARKETS: The financial markets of developing economies. Many Latin
American and Asian countries are considered emerging markets.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank system of the United States. Its policy-making
committee, called the Federal Open Market Committee, meets eight times a year to
establish monetary policy and monitor the economic pulse of the U.S.
INFLATION: An economic state in which the money supply and business activity
dramatically increases, accompanied by sharply rising prices. Inflation is
widely measured by the Consumer Price Index, an economic indicator that measures
the change in the cost of purchased goods and services.
MORTGAGE-BACKED SECURITIES: Securities backed by pools of similar mortgages.
These securities are generally issued by agencies of the U.S. government, such
as Government National Mortgage Association (GNMA, or "Ginnie Mae") and Federal
Home Loan Mortgage Corporation (FHLMC, or "Freddie Mac").
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.
YIELD: The annual rate of return on an investment, expressed as a percentage.
For bonds and notes, the yield is the annual interest divided by the market
price.
YIELD CURVE: A result of viewing the yields of U.S. Treasury securities maturing
in 1, 5, 10, and 30 years. When grouped together and graphed, a pattern of
increasing yield is often reflected as the time to maturity extends. This
pattern creates an upward sloping "curve." A "flat" yield curve represents
little difference between short- and long-term interest rates.
6
<PAGE> 75
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN STRATEGIC INCOME FUND
We recently spoke with the management team of the Van Kampen Strategic Income
Fund about the key events and economic forces that shaped the markets during the
past 12 months. The team is led by Robert Hickey, portfolio manager, and Peter
W. Hegel, chief investment officer for fixed-income investments. The following
excerpts reflect their views on the Fund's performance during the 12-month
period ended June 30, 1998.
Q
HOW WOULD YOU DESCRIBE THE INVESTMENT ENVIRONMENT IN WHICH THE FUND HAS
OPERATED DURING THE PAST 12 MONTHS?
A
It has been a difficult, volatile environment. Asia's economic turmoil
began in the fourth quarter of 1997 and intensified during the second
quarter of 1998. This turmoil created most of the volatility, especially
in emerging markets and currency markets. This volatility was in sharp contrast
to the U.S. economy, which enjoyed mild inflation, steadily declining interest
rates, and a strong dollar.
Of the five fixed-income market sectors in which we invest, the two that had
the most favorable conditions were domestic investment grade and U.S. government
and mortgage-backed securities. Sectors in which we encountered more difficult
or volatile economic conditions included foreign lower grade income securities
(primarily emerging markets securities), foreign investment grade, and domestic
lower grade income securities (primarily high-yield corporate bonds).
Q
HOW DID YOU MANAGE THE FUND UNDER THESE CONDITIONS?
A
Our strategy during the past 12 months was to take advantage of the strong
U.S. economy, opportunities outside the United States, and credit-risk
opportunities. Following this strategy, we were overweight in the domestic
investment-grade corporate and the government/mortgage-backed sectors. As a
result of the strong economic conditions in the United States, we did well in
both sectors during the past 12 months.
Our search for opportunities outside the United States focused on emerging
markets. We were optimistic about emerging markets because we expected improving
credit fundamentals. Accordingly, we started the period with an overweight
exposure of 30 percent. Although we had no exposure to Asia during the 1997
fourth-quarter turmoil, its influence on emerging markets made our position in
the sector a challenge. Strong first quarter returns helped us, but near the end
of the period the turbulence reemerged. By the end of the period, we decreased
our exposure to emerging markets to 21 percent by reducing the Fund's positions
in Brazil and Russia.
One sector that has done well was the domestic high-yield, high-risk sector.
Early in the period we were underweight in the high-yield sector and that hurt
us. We did, however, increase that position as we lowered our exposure to
emerging markets.
7
<PAGE> 76
In terms of currency plays, we were not as involved as in the past because
of the lack of yield and low global interest rates. Opportunities outside the
United States have been limited. We did, however, find value in dollar-bloc
countries, such as Canada, Australia, and New Zealand, through the end of 1997.
For additional Fund portfolio highlights, please refer to page ten.
Q
HOW DID THE FUND PERFORM OVER THE 12-MONTH REPORTING PERIOD?
A
The Fund generated a total return of 3.89 percent(1) (Class A shares at
net asset value) for the 12 months ended June 30, 1998. By comparison, the
Lehman Brothers Aggregate Bond Index, a broad-based index, generated a
total return of 10.54 percent for the same period. Similarly, a composite index
of 20 percent of each Salomon Brothers Index for Mortgages, High Yield,
Corporate, Non-U.S. Dollar World Government Bond, and Brady Bonds produced a
total return of 9.44 percent over the same period. Keep in mind that neither
index reflects any commissions that would be paid by an investor purchasing the
securities they represent.
The Fund's current distribution rate as of June 30, 1998 was 7.35
percent(3)--based on a monthly dividend of $0.079 per Class A share and a
maximum public offering price of $12.90 per share. Please refer to the chart on
page four for additional Fund performance results.
Q
MUCH HAS BEEN SAID AND WRITTEN ABOUT ASIA'S EFFECT ON THE DOMESTIC AND
GLOBAL MARKETPLACE. WHAT IS YOUR OUTLOOK FOR THESE MARKETS IN THE MONTH'S
AHEAD?
A
We missed the Asian turmoil in late 1997 but benefited from a slight
rebound in the first quarter of 1998 and believe there is still value in
certain parts of the region. We made investments in Thailand and Korea
near the end of the period that we believe will be profitable during the next
few months.
Other parts of Asia, including Indonesia and Malaysia, are not as attractive
because the political and economic turmoil in those countries is too great.
Overall, the portfolio has been affected by the region's volatility, which has
influenced emerging markets and currency markets on a daily basis.
The next six months will be crucial to Asia's recovery--the key is whether
Japan can stabilize its currency. The Japanese yen has dropped approximately 40
percent in value during the past six months, and that puts pressure on the
entire region. Unless the Japanese government commits to significant change, we
envision a long, slow recovery.
Q
HOW DO YOU FEEL ABOUT THE POSITIONING OF THE FUND AND WHAT CHANGES WILL
YOU MAKE?
A
We ended the period neutral to our benchmark in emerging markets at 21
percent and slightly overweight in high yield--22 percent compared to the
benchmark of
8
<PAGE> 77
20 percent. Our corporate investment grade holdings were overweight with an
exposure of roughly 29 percent. Due to the strength of the U.S. dollar, we
remained underweight in nondollar currencies at 3 percent. And, because of our
concern about prepayments of mortgage-backed securities and the continued
movement toward quality bonds in the U.S. market, we ended very overweight in
the U.S. treasury market.
During the next six months, we can envision a decline in the U.S. dollar. If
this occurs, we expect to increase our exposure to foreign currencies. In
addition, we continue to feel that emerging markets will be solid performers in
1998.
Exposure to emerging markets has contributed to the Fund's success in the
past and we believe that it will contribute to it in the future. This period we
experienced turbulence in emerging markets. We must accept that on occasion this
might happen in the short-term. However, in the long run, the Fund's exposure to
five separate fixed-income market sectors, including one focused on emerging
markets, is designed to provide potentially greater returns. By continuing to
adhere to our selective strategy of acquiring securities where we see the
greatest opportunity, we feel we can look forward to strong returns for the
remainder of 1998.
[SIG]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
[SIG]
Robert Hickey
Portfolio Manager
Please see footnotes on page four
9
<PAGE> 78
PORTFOLIO HIGHLIGHTS
VAN KAMPEN STRATEGIC INCOME FUND
PORTFOLIO HOLDINGS AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
PERCENTAGE OF
TOP TEN HOLDINGS THESE INVESTMENTS
AS OF JUNE 30, 1998 SIX MONTHS AGO(1)
<S> <C> <C>
US Treasury Notes ..... 9.3% ............. 9.4%
US Treasury Bonds ..... 7.5% ............. 8.8%
Korea Development
Bank ................ 5.4% ............. 0.2%
SD Warren Co .......... 3.4% ............. 0.4%
Niagara Mohawk Power .. 2.5% ............. 1.3%
MFS Communications .... 2.3% ............. 2.6%
Republic of Panama .... 2.2% ............. 2.8%
Mexican Par Bond ...... 2.1% ............. 3.3%
Tele-Communications,
Inc. ............... 1.9% ............. N/A
MBNA Capital I ........ 1.9% ............. 2.0%
</TABLE>
N/A = Not Applicable
ASSET ALLOCATION AS A PERCENTAGE OF LONG-TERM INVESTMENTS
[PIE CHART]
<TABLE>
<CAPTION>
As of June 30, 1998
<S> <C>
Foreign Non-Investment Grade 21.8%
Domestic Non-Investment Grade 24.4%
Foreign Investment Grade 12.9%
Domestic Investment Grade 15.9%
U.S. Government/Mortgage Backed Securities 21.8%
Common Stock and Preferred Stock 3.2%
</TABLE>
[PIE CHART]
<TABLE>
<CAPTION>
As of December 31, 1997(1)
<S> <C>
Foreign Non-Investment Grade 28.9%
Domestic Non-Investment Grade 15.1%
Foreign Investment Grade 17.4%
Domestic Investment Grade 14.9%
U.S. Government/Mortgage Backed Securities 21.1%
Common Stock and Preferred Stock 2.6%
</TABLE>
TOP TEN COUNTRIES AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
<S> <C>
U.S. ................. 62.4%
South Korea........... 5.4%
Mexico................ 5.4%
United Kingdom........ 3.7%
Panama................ 3.3%
Argentina............. 2.9%
Columbia.............. 2.6%
Chile................. 2.2%
Cayman Islands........ 2.0%
Canada................ 1.6%
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997(1)
<S> <C>
U.S. ................... 51.9%
Mexico.................. 9.0%
United Kingdom.......... 7.4%
Argentina............... 6.9%
Thailand................ 3.1%
Columbia................ 2.8%
Panama.................. 2.8%
Virgin Islands.......... 2.2%
Chile................... 2.0%
Romania................. 1.3%
</TABLE>
1Unaudited
10
<PAGE> 79
PORTFOLIO OF INVESTMENTS
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
in Local
Currency Maturity U.S.$
(000) Description Coupon Date Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ASSET BACKED SECURITY 0.8%
1,000 California Infrastructure 1997-1 A7 (b)..... 6.420% 12/26/09 $ 1,034,180
------------
CORPORATE BONDS 82.2%
AUTOMOBILE 3.6%
250 Aetna Industries, Inc. - US$................ 11.875 10/01/06 271,250
1,000 Federal-Mogul Corp. - US$................... 7.875 07/01/10 997,540
2,565 General Motors Corp. - US$.................. 8.100 06/15/24 2,822,296
400 Talon Automotive Group, 144A - Private
Placement - US$ (e)......................... 9.625 05/01/08 403,000
------------
4,494,086
------------
BANKING 15.4%
2,000 Banco Credito Argentino, 144A - Private
Placement - US$ (b) (e)..................... 9.500 04/24/00 2,030,000
2,000 Banco Latinoamericano de Exportaciones, SA,
144A - Private Placement - US$ (b) (e)...... 6.625 10/01/02 1,962,620
9,078 Korea Development Bank - US$ (b)............ 6.250 05/01/00 8,306,189
1,500 Korea Development Bank - US$ (b)............ 6.625 11/21/03 1,204,245
3,000 MBNA Capital I - US$ (b).................... 8.278 12/02/26 3,257,397
2,400 Sovereign Bancorp, Inc., 144A - Private
Placement - US$ (e)......................... 8.000 03/15/03 2,521,159
------------
19,281,610
------------
BEVERAGE, FOOD & TOBACCO 6.2%
1,000 Embotelladora Andina SA - US$ (b)........... 7.875 10/01/97 942,506
2,000 Kroger Co. - US$............................ 7.000 05/01/18 2,056,306
2,500 Pepsi - Gemex - US$ (b)..................... 9.750 03/01/04 2,550,000
2,000 Shoppers Food Warehouse - US$............... 9.750 06/15/04 2,220,000
------------
7,768,812
------------
BROADCASTING/TELEVISION 0.8%
1,000 TV Azteca SA - US$.......................... 10.125 02/15/04 997,500
------------
BUILDINGS AND REAL ESTATE 4.3%
1,000 Cemex Intl Cap, LLC, 144A - Private
Placement - US$ (e)......................... 9.660 12/29/49 966,200
250 Dell Webb Corp. - US$....................... 9.375 05/01/09 245,625
2,500 Dynex Capital, Inc. - US$ (b)............... 7.875 07/15/02 2,451,200
250 Kevco, Inc., 144A - Private Placement - US$
(e)......................................... 10.375 12/01/07 260,625
1,500 Tyco International Group, SA - US$.......... 6.250 06/15/13 1,498,695
------------
5,422,345
------------
CHEMICALS, PLASTICS & RUBBER 0.3%
325 Pioneer Americas Acquisition, Ser B - US$... 9.250 06/15/07 321,750
------------
CONTAINERS, PACKAGING & GLASS 4.7%
5,355 SD Warren Co. - US$......................... 12.000 12/15/04 5,917,275
------------
</TABLE>
See Notes to Financial Statements
11
<PAGE> 80
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
in Local
Currency Maturity U.S.$
(000) Description Coupon Date Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ELECTRONICS 1.9%
1,500 Panamsat Corp., 144A - Private Placement -
US$ (b) (e)................................. 6.375% 01/15/08 $ 1,493,267
1,000 Philippine Long Distance Telephone Co. -
US$......................................... 7.850 03/06/07 866,900
------------
2,360,167
------------
ENERGY 0.8%
1,000 Hurricane Hydrocarbons, 144A - Private
Placement - US$ (e)......................... 11.750 11/01/04 980,000
------------
FINANCE 0.7%
1,000 Pera Financial, 144A - Private Placement -
US$ (b) (e)................................. 9.375 10/15/02 900,000
------------
GROCERY 0.4%
500 Pantry, Inc., 144A - Private Placement - US$
(e)......................................... 10.250 10/15/07 508,750
------------
HEALTHCARE 0.6%
750 Oxford Health Plans, 144A - Private
Placement - US$ (e)......................... 11.000 05/15/05 768,750
------------
HOTEL & GAMING 1.2%
575 Booth Creek Ski Holdings, Ser B, 144A -
Private Placement - US$ (b) (e)............. 12.500 03/15/07 622,438
750 Majestic Star Casino, LLC - US$............. 12.750 05/15/03 817,500
------------
1,439,938
------------
INSURANCE 0.8%
1,000 American Annuity, 144A - Private Placement -
US$ (b) (e)................................. 7.250 09/28/01 1,025,120
------------
MINING 1.0%
1,250 CSN Iron SA, 144A - Private
Placement - US$ (b) (e)..................... 9.125 06/01/07 1,006,250
250 Renco Steel Holdings, 144A - Private
Placement - US$ (e)......................... 10.875 02/01/05 251,250
------------
1,257,500
------------
OIL & GAS 6.5%
500 Dawson Product Services - US$ (b)........... 9.375 02/01/07 491,250
500 Frontier Oil Corp., 144A - Private Placement
-US$ (e).................................... 9.125 02/15/06 503,750
500 Giant Industries - US$ (b).................. 9.750 11/15/03 522,500
1,000 Lukinter Finance BV, 144A - Private
Placement - US$ (b) (e)..................... * 11/03/03 750,000
1,000 Noble Drilling Corp. - US$ (b).............. 9.125 07/01/06 1,116,090
3,000 Oryx Energy Co. - US$ (b)................... 8.375 07/15/04 3,247,356
1,500 Union Pacific Resources - US$............... 6.750 05/15/08 1,510,558
------------
8,141,504
------------
PRINTING, PUBLISHING & BROADCASTING 0.9%
1,000 CSC Holdings, Inc. - US$ (b)................ 10.500 05/15/16 1,175,000
------------
</TABLE>
See Notes to Financial Statements
12
<PAGE> 81
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
in Local
Currency Maturity U.S.$
(000) Description Coupon Date Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
RETAIL 2.6%
250 Big 5 Corp., Ser B - US$ (b)................ 10.875% 11/15/07 $ 260,000
500 Community Distributors, Ser B - US$ (b)..... 10.250 10/15/04 522,500
400 Duane Reade, Inc. - US$ (b)................. 9.250 02/15/08 408,000
2,000 Fred Meyer, Inc. - US$ (b).................. 7.375 03/01/05 2,018,192
------------
3,208,692
------------
TELECOMMUNICATIONS 14.8%
1,500 Airtouch Communications - US$ (b)........... 6.650 05/01/08 1,534,011
1,000 CIA International Telecommunication, 144A -
Private Placement - US$ (e)................. 10.375 08/01/04 820,000
1,000 Century Communications - US$................ 8.750 10/01/07 1,057,500
500 Century Communications - US$ (b)............ 9.500 03/01/05 543,750
750 Fonorola, Inc. - US$........................ 12.500 08/15/02 830,625
500 Hermes Europe Railtel, BV - US$............. 11.500 08/15/07 567,500
500 Intermedia Communications, Ser B - US$
(c)......................................... 0/11.250 07/15/07 366,875
500 Intermedia Communications, 144A - Private
Placement - US$ (e)......................... 8.600 07/15/07 505,000
3,689 MFS Communications - US$ (b)................ 8.875 01/15/06 4,011,788
1,000 Metronet Communications, 144A - Private
Placement - US$ (c) (e)..................... 0/9.950 06/15/08 615,000
1,500 Millicom International - US$ (b) (c)........ 0/13.500 06/01/06 1,158,750
750 Netia Holdings BV, 144A - Private Placement
- US$ (e)................................... 10.250 11/01/07 727,500
500 Pinnacle Holdings, Inc., 144A - Private
Placement - US$ (e)......................... 10.000 03/15/08 328,750
1,000 PSINET, Inc., Ser B - US$................... 10.000 02/15/05 1,017,500
500 Satelites Mexicanos, SA, 144A - Private
Placement - US$ (e)......................... 10.125 11/01/04 490,000
750 Spectrasite Holdings, Inc., 144A - Private
Placement - US$ (e)......................... 12.000 07/15/08 416,250
3,000 Tele-Communications, Inc. - US$ (b)......... 6.580 02/15/05 3,274,719
500 Triton Communications, LLC, 144A - Private
Placement - US$ (e)......................... 11.000 05/01/08 282,500
------------
18,548,018
------------
TEXTILES 0.7%
350 Pillowtex Corp. - US$....................... 10.000 11/15/06 375,375
250 Pillowtex Corp., 144A - Private Placement -
US$ (e)..................................... 9.000 12/15/07 256,875
250 Scovill Fasteners, Inc., 144A - Private
Placement - US$ (e)......................... 11.250 11/30/07 258,125
------------
890,375
------------
UTILITIES 14.0%
1,000 Central Termica Guemes SA, 144A - Private
Placement - US$ (b) (e)..................... 12.000 11/26/01 970,000
2,000 DR Investments, 144A - Private Placement -
US$ (b) (e)................................. 7.450 05/15/07 2,138,372
1,000 Edelnor, 144A - Private Placement - US$
(e)......................................... 7.750 03/15/06 863,530
</TABLE>
See Notes to Financial Statements
13
<PAGE> 82
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
in Local
Currency Maturity U.S.$
(000) Description Coupon Date Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
UTILITIES (CONTINUED)
1,000 Edelnor, 144A - Private Placement - US$
(e)......................................... 10.500% 06/15/05 $ 992,000
1,000 Endesa - Chile, 144A - Private Placement -
US$ (e)..................................... 7.750 07/14/08 986,210
569 Midland Funding Corp. II - US$ (b).......... 10.330 07/23/02 614,790
500 Niagara Mohawk Power, Ser H - US$ (c)....... 0/8.500 07/01/10 343,750
2,000 Niagara Mohawk Power - US$ (b).............. 6.875 03/01/01 2,024,722
2,000 Niagara Mohawk Power, Ser B - US$........... 7.000 10/01/00 2,001,000
2,000 Southern Investments UK - US$ (b)........... 6.800 12/01/06 2,076,192
2,000 United Utilities - US$ (b).................. 6.450 04/01/08 2,032,974
2,500 Yorkshire Power Finance, 144A - Private
Placement - US$ (b) (e)..................... 6.154 02/25/03 2,510,148
------------
17,553,688
------------
Total Corporate Bonds 82.2%...................................... 102,960,880
------------
FOREIGN GOVERNMENT AND AGENCY SECURITIES 22.4%
ARGENTINA 1.0%
1,425 Argentina Par Bond - US$ (d)................ 6.625 03/31/05 1,258,275
------------
AUSTRALIA 1.1%
2,000 Australian Government - AU$................. 6.750 11/15/06 1,343,042
------------
BULGARIA 0.9%
1,500 Bulgaria Disc - Ser A - US$................. 6.750 07/28/24 1,145,625
------------
CANADA 0.7%
1,250 Canadian Government - CA$................... 7.500 03/01/01 894,890
------------
COLOMBIA 3.5%
3,000 Financiera Energetica Nacional, 144A -
Private Placement - US$ (b) (e)............. 9.375 06/15/06 2,910,000
1,500 Republic of Colombia - US$ (b).............. 8.660 10/07/16 1,543,215
------------
4,453,215
------------
COSTA RICA 0.7%
1,000 Costa Rica - Prin, Ser A - US$ (d).......... 6.250 05/21/10 880,000
------------
ITALY 0.8%
1,500,000 Republic of Italy BTPS - ITL................ 9.500 05/01/01 954,664
------------
KAZAKHSTAN 0.9%
1,000 Republic of Kazakhstan - US$ (b)............ 8.375 10/02/02 900,000
250 Republic of Kazakhstan - US$................ 12.750 10/02/02 225,000
------------
1,125,000
------------
MEXICO 4.3%
1,500 Mexico Global Bond - US$.................... 11.500 05/15/26 1,706,250
750 Mexican Par Bond, Ser W-A - US$............. 6.250 12/31/19 621,094
3,750 Mexican Par Bond, Ser W-B - US$............. 6.250 12/31/19 3,105,469
------------
5,432,813
------------
</TABLE>
See Notes to Financial Statements
14
<PAGE> 83
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
in Local
Currency Maturity U.S.$
(000) Description Coupon Date Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MOROCCO 0.7%
1,000 Moroccan Loan Agreement - US$............... 6.813% 01/01/09 $ 857,500
------------
NEW ZEALAND 0.9%
2,000 New Zealand Government - NZ$................ 8.000 11/15/06 1,144,333
------------
PANAMA 3.1%
2,000 Republic of Panama, 144A - Private Placement
-US$ (b) (e)................................ 7.875 02/13/02 1,980,000
2,000 Republic of Panama - US$.................... 8.875 09/30/27 1,890,000
------------
3,870,000
------------
RUSSIA 0.9%
1,500 Ministry Finance of Russia, 144A - Private
Placement - US$ (e)......................... 10.000 06/26/07 1,128,750
------------
UNITED KINGDOM 1.8%
1,000 UK Treasury Bonds - GBP..................... 7.000 11/06/01 1,687,232
350 UK Treasury Bonds - GBP..................... 6.750 11/26/04 605,141
------------
2,292,373
------------
URUGUAY 0.8%
1,000 Banco Centrl Del Uruguay - Ser B - US$
(d)......................................... 6.750 02/19/21 940,000
------------
VENEZUELA 0.3%
500 Venezuela (Euro) - US$...................... 9.250 09/15/27 387,000
------------
Total Foreign Government and Agency Securities 22.4%............. 28,107,480
------------
MORTGAGE BACKED SECURITIES (U.S.) 6.1%
1,986 DLJ Mortgage Acceptance Corp. 1996-E1 (b)... 8.517 09/28/25 2,025,840
2,500 Government National Mortgage Association
Pool (a).................................... 7.000 07/21/28 2,538,275
18,210 FNMA REMIC #97-20 IB (Interest Only) (b).... 1.840 03/25/27 796,672
28,370 SBA Strip................................... 2.313 08/24/19 2,306,058
------------
Total Mortgage Backed Securities (U.S.).......................... 7,666,845
------------
U.S. GOVERNMENT AND GOVERNMENT AGENCY
OBLIGATIONS 23.5%
12,250 U.S. T-Bonds................................ 6.125 11/15/27 13,117,055
11,275 U.S. T-Notes................................ 5.500 2/15/08 11,264,063
5,000 U.S. T-Notes................................ 5.625 5/15/08 5,065,600
------------
Total U.S. Government and Government Agency Obligations.......... 29,446,718
------------
</TABLE>
See Notes to Financial Statements
15
<PAGE> 84
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Shares Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C>
COMMON AND PREFERRED STOCKS 4.4%
Avalon Bay Communities, Ser G - Preferred - US$.............
50,000 $ 1,293,750
Costal Finance - Preferred - US$............................
60,000 1,470,000
Grupo Casa Autrey - ADR (Mexico) - US$......................
8,500 55,250
MEPC International Capital L.P. - Preferred - US$ (b).......
100,000 2,681,250
Thai Military Bank - THB....................................
15,000 1,848
------------
Total Common and Preferred Stocks................................ 5,502,098
------------
SWAP TRANSACTIONS 0.0%
Goldman Sachs, 10.0 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................................................................. 426
------------
TOTAL INVESTMENTS 139.4%
(Cost $175,150,250).............................................. 174,718,627
LIABILITIES IN EXCESS OF OTHER ASSETS (39.4)%....................... (49,354,326)
------------
NET ASSETS 100.0%................................................... $125,364,301
----------
</TABLE>
* Zero coupon bond
(a) Securities purchased on a when issued or delayed delivery basis.
(b) Assets segregated as collateral for when issued or delayed delivery purchase
commitments, open options, futures, forwards or swaps transactions or
borrowings of the Fund.
(c) Security is a "Step-up" bond where the coupon increases, or steps up, at a
predetermined date.
(d) Item represents a "Brady Bond" which is a product of the "Brady Plan" under
which various Latin American, African and southeast Asian nations have
converted their outstanding external defaulted commercial bank loans into
bonds. Certain Brady Bonds have been collateralized, as to principal due at
maturity, by U.S. Treasury zero coupon bonds with a maturity date equal to
the final maturity date of such Brady Bonds.
(e) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may only be resold in
transactions exempt from registration which are normally those transactions
with qualified institutional buyers.
PORTFOLIO COMPOSITION BY CREDIT QUALITY
The following table summarizes the portfolio composition at June 30, 1998,
based upon the highest credit quality ratings as determined by Standard & Poor's
or Moody's.
<TABLE>
<S> <C>
U.S. Government and Government Agency Obligations........... 22.6%
AAA......................................................... 3.9%
A........................................................... 7.7%
BBB......................................................... 18.1%
BB.......................................................... 28.6%
B........................................................... 14.1%
CCC......................................................... 0.2%
Non-Rated................................................... 4.8%
------
100.0%
------
</TABLE>
See Notes to Financial Statements
16
<PAGE> 85
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $175,150,250)....................... $174,718,627
Cash........................................................ 2,359,022
Receivables:
Investments Sold.......................................... 7,728,010
Interest.................................................. 2,947,683
Fund Shares Sold.......................................... 136,198
Dividend.................................................. 100,000
Options at Market Value (Net premiums paid of $271,775)..... 583,680
Forward Currency Contracts.................................. 290,302
Unamortized Organizational Costs............................ 17,036
Other....................................................... 1,293
------------
Total Assets............................................ 188,881,851
------------
LIABILITIES:
Payables:
Reverse Repurchase Agreements............................. 29,381,337
Bank Borrowings........................................... 27,990,926
Investments Purchased..................................... 4,566,863
Income Distributions...................................... 415,314
Fund Shares Repurchased................................... 246,609
Distributor and Affiliates................................ 172,472
Investment Advisory Fee................................... 163,412
Variation Margin on Futures............................... 42,188
Accrued Expenses............................................ 432,716
Trustees' Deferred Compensation and Retirement Plans........ 105,713
------------
Total Liabilities....................................... 63,517,550
------------
NET ASSETS.................................................. $125,364,301
----------
NET ASSETS CONSIST OF:
Capital..................................................... $132,732,669
Net Unrealized Depreciation................................. (1,176,688)
Accumulated Distribution in Excess of Net Investment
Income.................................................... (1,909,557)
Accumulated Net Realized Loss............................... (4,282,123)
------------
NET ASSETS.................................................. $125,364,301
----------
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $45,310,860 and 3,688,102 shares of
beneficial interest issued and outstanding)............. $ 12.29
Maximum sales charge (4.75%* of offering price)......... .61
------------
Maximum offering price to public........................ $ 12.90
----------
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $76,199,068 and 6,201,916 shares of
beneficial interest issued and outstanding)............. $ 12.29
----------
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $3,854,373 and 314,039 shares of
beneficial interest issued and outstanding)............. $ 12.27
----------
</TABLE>
*On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
17
<PAGE> 86
STATEMENT OF OPERATIONS
For the Year Ended June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest (Net of foreign withholding taxes of $9,201)....... $ 13,354,450
Dividends (Net of foreign withholding taxes of $53)......... 786,323
------------
Total Income.......................................... 14,140,773
------------
EXPENSES:
Investment Advisory Fee..................................... 1,262,844
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $113,849, $781,645 and $37,816,
respectively)............................................. 933,310
Shareholder Services........................................ 185,508
Custody..................................................... 86,456
Amortization of Organizational Costs........................ 33,982
Trustees' Fees and Expenses................................. 29,318
Legal....................................................... 16,532
Other....................................................... 343,480
------------
Total Operating Expenses.............................. 2,891,430
Less Expenses Waived.................................. 118,837
------------
Net Operating Expenses................................ 2,772,593
Interest Expense...................................... 2,151,078
------------
NET INVESTMENT INCOME....................................... $ 9,217,102
----------
NET REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 3,963,593
Options................................................... (467,470)
Futures................................................... (3,234,026)
Forwards.................................................. (1,497,004)
Foreign Currency Transactions............................. (19,018)
------------
Net Realized Loss........................................... (1,253,925)
------------
Net Unrealized Appreciation/Depreciation:
Beginning of the Period..................................... 2,587,120
------------
End of the Period:
Investments............................................... (431,623)
Options................................................... 311,905
Futures................................................... (727,773)
Forwards.................................................. (329,325)
Foreign Currency Translation.............................. 128
------------
(1,176,688)
------------
Net Unrealized Depreciation During the Period............... (3,763,808)
------------
NET REALIZED AND UNREALIZED LOSS............................ $ (5,017,733)
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 4,199,369
----------
</TABLE>
See Notes to Financial Statements
18
<PAGE> 87
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED
JUNE 30, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1998 June 30, 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.................................... $ 9,217,102 $ 8,581,357
Net Realized Gain/Loss................................... (1,253,925) 2,999,390
Net Unrealized Appreciation/Depreciation During the
Period.................................................. (3,763,808) 3,381,566
------------ ------------
Change in Net Assets from Operations..................... 4,199,369 14,962,313
------------ ------------
Distributions from Net Investment Income................. (9,238,901) (8,604,269)
Distributions in Excess of Net Investment Income......... -0- (27,347)
------------ ------------
Distributions from and in Excess of Net Investment
Income*................................................. (9,238,901) (8,631,616)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES...... (5,039,532) 6,330,697
------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................ 37,212,204 40,557,345
Net Asset Value of Shares Issued Through Dividend
Reinvestment............................................ 4,088,237 3,498,095
Cost of Shares Repurchased............................... (34,763,480) (25,388,033)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS....... 6,536,961 18,667,407
------------ ------------
TOTAL INCREASE IN NET ASSETS............................. 1,497,429 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 $(1,909,557) and $150,395,
respectively)........................................... $125,364,301 $123,866,872
============ ============
</TABLE>
<TABLE>
<CAPTION>
Year Ended Year Ended
*Distributions by Class June 30, 1998 June 30, 1997
- ------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of
Net Investment Income:
Class A Shares....................... $(3,523,499) $(3,189,748)
Class B Shares....................... (5,451,394) (5,177,891)
Class C Shares....................... (264,008) (263,977)
----------- -----------
$(9,238,901) $(8,631,616)
=========== ===========
</TABLE>
See Notes to Financial Statements
19
<PAGE> 88
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1993
(Commencement
Year Ended June 30, of Investment
------------------------------------- Operations) to
Class A Shares 1998 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............ .973 1.019 1.013 .657 .566
Net Realized and Unrealized
Gain/Loss...................... (.489) .714 .446 .272 (2.391)
------- ------- ------- ------- -------
Total from Investment
Operations..................... .484 1.733 1.459 .929 (1.825)
------- ------- ------- ------- -------
Less:
Distributions from and in
Excess of Net Investment
Income....................... .976 1.020 1.098 .793 .500
Return of Capital
Distribution................. -0- -0- -0- .407 -0-
------- ------- ------- ------- -------
Total Distributions.............. .976 1.020 1.098 1.200 .500
------- ------- ------- ------- -------
Net Asset Value, End of the
Period......................... $12.286 $12.778 $12.065 $11.704 $11.975
======= ======= ======= ======= =======
Total Return* (a)................ 3.89% 14.92% 12.92% 8.46% (12.83%)**
Net Assets at End of the Period
(In millions).................. $ 45.3 $ 43.8 $ 33.8 $ 29.6 $ 24.5
Ratio of Operating Expenses to
Average Net Assets*............ 1.68% 1.81% 1.84% 1.98% 1.88%
Ratio of Interest Expense to
Average Net Assets............. 1.69% 1.99% 2.27% 2.38% .96%
Ratio of Net Investment Income to
Average Net Assets*............ 7.72% 8.12% 8.34% 5.88% 9.27%
Portfolio Turnover............... 523% 474% 343% 253% 114%**
* If certain expenses had not been reimbursed by Van Kampen, Total
Return would have been lower and the ratios would have been as
follows:
Ratio of Operating Expenses to
Average Net Assets............. 1.78% 1.86% 1.92% N/A N/A
Ratio of Net Investment Income to
Average Net Assets............. 7.63% 8.07% 8.26% N/A N/A
</TABLE>
** Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
N/A = Not Applicable
See Notes to Financial Statements
20
<PAGE> 89
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1993
(Commencement
Year Ended June 30, of Investment
------------------------------------- Operations) to
Class B Shares 1998 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............ .878 .920 .926 .585 .515
Net Realized and Unrealized
Gain/Loss...................... (.491) .717 .443 .245 (2.392)
------- ------- ------- ------- -------
Total from Investment
Operations..................... .387 1.637 1.369 .830 (1.877)
------- ------- ------- ------- -------
Less:
Distributions from and in
Excess of Net Investment
Income....................... .880 .927 1.006 .722 .455
Return of Capital
Distribution................. -0- -0- -0- .370 -0-
------- ------- ------- ------- -------
Total Distributions.............. .880 .927 1.006 1.092 .455
------- ------- ------- ------- -------
Net Asset Value, End of the
Period......................... $12.286 $12.779 $12.069 $11.706 $11.968
======= ======= ======= ======= =======
Total Return* (a)................ 3.11% 13.98% 12.06% 7.62% (13.21%)**
Net Assets at End of the Period
(In millions).................. $ 76.2 $ 76.2 $ 61.9 $ 52.6 $ 46.4
Ratio of Operating Expenses to
Average Net Assets*............ 2.44% 2.57% 2.59% 2.68% 2.63%
Ratio of Interest Expense to
Average Net Assets............. 1.69% 1.98% 2.26% 2.38% .96%
Ratio of Net Investment Income to
Average Net Assets*............ 6.96% 7.33% 7.58% 5.30% 8.48%
Portfolio Turnover............... 523% 474% 343% 253% 114%**
* If certain expenses had not been reimbursed by Van Kampen, Total
Return would have been lower and the ratios would have been as
follows:
Ratio of Operating Expenses to
Average Net Assets............. 2.54% 2.61% 2.67% N/A N/A
Ratio of Net Investment Income to
Average Net Assets............. 6.86% 7.28% 7.50% N/A N/A
</TABLE>
** Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
N/A = Not Applicable
See Notes to Financial Statements
21
<PAGE> 90
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1993
(Commencement
Year Ended June 30, of Investment
------------------------------------- Operations) to
Class C Shares 1998 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............ .876 .913 .944 .598 .509
Net Realized and Unrealized
Gain/Loss...................... (.490) .723 .422 .227 (2.388)
------- ------- ------- ------- -------
Total from Investment
Operations..................... .386 1.636 1.366 .825 (1.879)
------- ------- ------- ------- -------
Less:
Distributions from and in
Excess of Net Investment
Income....................... .880 .927 1.006 .722 .455
Return of Capital
Distribution................. -0- -0- -0- .370 -0-
------- ------- ------- ------- -------
Total Distributions.............. .880 .927 1.006 1.092 .455
------- ------- ------- ------- -------
Net Asset Value, End of the
Period......................... $12.274 $12.768 $12.059 $11.699 $11.966
======= ======= ======= ======= =======
Total Return* (a)................ 3.03% 13.99% 12.07% 7.53% (13.21%)**
Net Assets at End of the Period
(In millions).................. $ 3.9 $ 3.8 $ 3.1 $ 1.7 $ 2.1
Ratio of Operating Expenses to
Average Net Assets*............ 2.44% 2.56% 2.58% 2.69% 2.65%
Ratio of Interest Expense to
Average Net Assets............. 1.69% 1.98% 2.22% 2.38% .95%
Ratio of Net Investment Income to
Average Net Assets*............ 6.96% 7.31% 7.49% 5.92% 8.36%
Portfolio Turnover............... 523% 474% 343% 253% 114%**
* If certain expenses had not been reimbursed by Van Kampen, Total
Return would have been lower and the ratios would have been as
follows:
Ratio of Operating Expenses to
Average Net Assets............. 2.54% 2.61% 2.66% N/A N/A
Ratio of Net Investment Income to
Average Net Assets............. 6.87% 7.27% 7.41% N/A N/A
</TABLE>
** Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
N/A = Not Applicable
See Notes to Financial Statements
22
<PAGE> 91
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Strategic Income Fund, formerly known as Van Kampen American Capital
Strategic Income Fund, (the "Fund") is organized as a series of Van Kampen Trust
(the "Trust"), a Delaware business trust, and is registered as a non-diversified
open-end management investment company under the Investment Company Act of 1940,
as amended. The Fund's primary investment objective is to seek to provide
shareholders with high current income, while its' secondary investment objective
is to seek capital appreciation. The Fund will allocate its investments among
the following market sectors: U.S. government securities, domestic investment
grade income securities, domestic lower grade income securities, foreign
investment grade income securities and foreign lower grade income securities.
The Fund borrows money for investment purposes which will create the opportunity
for enhanced return, but also should be considered a speculative technique and
may increase the Fund's volatility. The Fund commenced investment operations on
December 31, 1993, with three classes of common shares, Class A, Class B and
Class C shares.
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
23
<PAGE> 92
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
with its custodian, assets having an aggregate value at least equal to the
amount of the when issued or delayed delivery purchase commitments until payment
is made.
C. INCOME AND EXPENSES--Interest income is recorded on an accrual basis and
dividend income is recorded on the ex-dividend date. Original issue discount is
amortized over the expected life of each applicable security. Expenses of the
Fund are allocated on a pro rata basis to each class of shares, except for
distribution and service fees and transfer agency costs which are unique to each
class of shares.
D. CURRENCY TRANSLATION--Assets and liabilities denominated in foreign
currencies and commitments under forward currency contracts are translated into
U.S. dollars at the mean of the quoted bid and ask prices of such currencies
against the U.S. dollar. Purchases and sales of portfolio securities are
translated at the rate of exchange prevailing when such securities were acquired
or sold. Income and expenses are translated at rates prevailing when accrued.
E. ORGANIZATIONAL COSTS--The Fund has reimbursed Van Kampen Funds Inc. or its
affiliates (collectively "Van Kampen") for costs incurred in connection with the
Fund's organization in the amount of $170,000. These costs are being amortized
on a straight line basis over the 60 month period ending December 31, 1998. Van
Kampen Investment Advisory Corp. (the "Adviser") has agreed that in the event
any of the initial shares of the Fund originally purchased by Van Kampen are
redeemed during the amortization period, the Fund will be reimbursed for any
unamortized organizational costs in the same proportion as the number of shares
redeemed bears to the number of initial shares held at the time of redemption.
F. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At June 30, 1998, the Fund had an accumulated capital loss carryforward
for tax purposes of $4,278,802 which will expire between June 30, 2003 and June
30, 2004. Net realized gains or losses may differ for financial and tax
reporting purposes primarily as a result of post October 31 losses which are not
recognized for tax purposes until the first day of the following fiscal year and
as a result of gains or losses recognized for tax purposes on the mark to market
of open options, futures and forward transactions at June 30, 1998.
24
<PAGE> 93
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
At June 30, 1998, for federal income tax purposes, cost of long-term
investments is $175,236,004; the aggregate gross unrealized appreciation is
$2,676,509 and the aggregate gross unrealized depreciation is $3,194,312,
resulting in net unrealized depreciation on investments and swaps of $517,803.
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 the recognition
of net realized losses on foreign currency translations totaling $2,038,153 were
reclassified from accumulated net realized gain/loss to accumulated
undistributed net investment income.
Net realized gains, if any, are distributed annually.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
<TABLE>
<CAPTION>
AVERAGE MANAGED ASSETS % PER ANNUM
- ------------------------------------------------------------------------
<S> <C>
First $500 million...................................... .75 of 1%
Next $500 million....................................... .70 of 1%
Over $1 billion......................................... .65 of 1%
</TABLE>
For the year ended June 30, 1998, the Fund recognized expenses of
approximately $4,600 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the year ended June 30, 1998, the Fund recognized expenses of
approximately $29,600 representing Van Kampen's cost of providing accounting,
cash management and legal services to the Fund.
Van Kampen Investor Services Inc. ("VKIS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the year ended June
30, 1998, the Fund recognized expenses of approximately $129,400. Beginning in
1998, the transfer agency fees are determined through negotiations with the
Fund's Board of Trustees and are based on competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
25
<PAGE> 94
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
At June 30, 1998, Van Kampen owned 100 shares each of Classes A, B and C.
3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of shares of beneficial interest, Classes
A, B and C, each with a par value of $.01 per share. There are an unlimited
number of shares of each class authorized.
At June 30, 1998, capital aggregated $47,827,145, $80,771,259 and $4,134,265
for Classes A, B and C, respectively. For the year ended June 30, 1998,
transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................... 1,118,648 $ 14,164,929
Class B.................................... 1,677,599 21,153,724
Class C.................................... 150,464 1,893,551
---------- ------------
Total Sales.................................. 2,946,711 $ 37,212,204
---------- ------------
Dividend Reinvestment:
Class A.................................... 131,101 $ 1,649,403
Class B.................................... 180,125 2,266,285
Class C.................................... 13,723 172,549
---------- ------------
Total Dividend Reinvestment.................. 324,949 $ 4,088,237
---------- ------------
Repurchases:
Class A.................................... (990,262) $(12,470,355)
Class B.................................... (1,620,464) (20,396,054)
Class C.................................... (150,449) (1,897,071)
---------- ------------
Total Repurchases............................ (2,761,175) $(34,763,480)
---------- ------------
</TABLE>
26
<PAGE> 95
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
At June 30, 1997, capital aggregated $44,483,168, $77,747,304 and $3,965,236
for Classes A, B and C, respectively. For the year ended June 30, 1997,
transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................... 1,136,784 $ 14,246,123
Class B.................................... 1,951,416 24,358,899
Class C.................................... 156,283 1,952,323
---------- ------------
Total Sales.................................. 3,244,483 $ 40,557,345
========== =============
Dividend Reinvestment:
Class A.................................... 102,757 $ 1,289,971
Class B.................................... 163,577 2,052,790
Class C.................................... 12,383 155,334
---------- ------------
Total Dividend Reinvestment.................. 278,717 $ 3,498,095
========== =============
Repurchases:
Class A.................................... (614,505) $ (7,723,135)
Class B.................................... (1,282,624) (16,096,646)
Class C.................................... (125,528) (1,568,252)
---------- ------------
Total Repurchases............................ (2,022,657) $(25,388,033)
========== =============
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B shares will
automatically convert to Class A shares after the eighth year following
purchase. The CDSC will be imposed on most redemptions made within six years of
the purchase for Class B and one year of the purchase for Class C as detailed in
the following schedule.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
YEAR OF REDEMPTION CLASS B CLASS C
- ------------------------------------------------------------------------------
<S> <C> <C>
First.............................................. 4.00% 1.00%
Second............................................. 3.75% None
Third.............................................. 3.50% None
Fourth............................................. 2.50% None
Fifth.............................................. 1.50% None
Sixth.............................................. 1.00% None
Seventh and Thereafter............................. None None
</TABLE>
27
<PAGE> 96
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
For the year ended June 30, 1998, Van Kampen, as Distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately
$27,600 and CDSC on redeemed shares of approximately $236,400. 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 $858,569,959 and $859,486,340,
respectively.
5. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio, manage the portfolio's effective yield, foreign currency exposure,
maturity and duration or generate potential gain. All of the Fund's portfolio
holdings, including derivative instruments, are marked to market each day with
the change in value reflected in unrealized appreciation/ depreciation. Upon
disposition, a realized gain or loss is recognized accordingly, except when
exercising an option contract or taking delivery of a security underlying a
futures or forward contract. In these instances, the recognition of gain or loss
is postponed until the disposal of the security underlying the option, futures
or forward contract. Risks may arise as a result of the potential inability of
the counterparties to meet the terms of their contracts.
Summarized below are the specific types of derivative financial instruments
used by the Fund.
A. OPTION CONTRACTS--An option contract gives the buyer the right, but not the
obligation to buy (call) or sell (put) an underlying item at a fixed exercise
price during a specified period. These contracts are generally used by the Fund
to manage the portfolio's effective maturity and duration.
28
<PAGE> 97
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
Transactions in options for the year ended June 30, 1998, were as follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- ---------------------------------------------------------------------------
<S> <C> <C>
Outstanding at June 30, 1997................... 1,627 $ (246,766)
Options Written and Purchased (Net)............ 3,233 (1,540,015)
Options Terminated in Closing
Transactions (Net)........................... (3,781) 1,130,290
Options Expired (Net).......................... (778) 384,716
------ -----------
Outstanding at June 30, 1998................... 301 $ (271,775)
========= ============
</TABLE>
The related futures contracts of the outstanding option transactions as of
June 30, 1998, and the descriptions and market values are as follows:
<TABLE>
<CAPTION>
MARKET
EXPIRATION MONTH/ VALUE OF
DESCRIPTION CONTRACTS EXERCISE PRICE OPTIONS
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Euro $ Futures
Sep 1998--Purchased Put.......... 100 Sep/94 $ 2,500
Sep 1998--Purchased Put.......... 50 Sep/94 1,250
Sep 1998--Written Call........... 100 Sep/94.50 (5,000)
Sep 1998--Written Call........... 50 Sep/94.50 (2,500)
J.P. Morgan Emerging Markets
Index
Written Put...................... 1 Jul/364.56 587,430
------ --------
301 $583,680
------- --------
</TABLE>
B. FUTURES CONTRACTS--A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Fund generally invests in futures on U.S. Treasury Bonds and typically closes
the contract prior to the delivery date. These contracts are generally used to
manage the portfolio's effective maturity and duration.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, securities with a value equal to its obligation
under the futures contracts. During the period the futures contract is open,
payments are received from or made to the broker based upon changes in the value
of the contract (the variation margin). The risk of loss associated with a
futures contract may be in excess of the variation margin reflected on the
Statement of Assets and Liabilities. The cost of securities acquired through
delivery under a contract is adjusted by the unrealized gain or loss on the
contract.
29
<PAGE> 98
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
Transactions in futures contracts for the year ended June 30, 1998, were as
follows:
<TABLE>
<CAPTION>
CONTRACTS
- ------------------------------------------------------------------------
<S> <C>
Outstanding at June 30, 1997............................... 689
Futures Opened............................................. 7,096
Futures Closed............................................. (7,156)
------
Outstanding at June 30, 1998............................... 629
=========
</TABLE>
The futures contracts outstanding as of June 30, 1998, and the descriptions
and unrealized appreciation/depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
- ---------------------------------------------------------------------------
<S> <C> <C>
SHORT CONTRACTS:
10-Year British Gilt Future Sep 1998
(Current notional value $108,680 per
contract)................................... 10 10,153
10-Year German Mark Future Sep 1998
(Current notional value $270,900 per
contract)................................... 20 (51,940)
10-Year Japanese Bond Future Sep 1998
(Current notional value $959,716 per
contract)................................... 3 20,818
U.S. Treasury Bond Future Sep 1998
(Current notional value $123,594 per
contract)................................... 205 (489,258)
2-Year U.S. Treasury Note Future Sep 1998
(Current notional value $208,375 per
contract)................................... 41 (17,937)
5-Year U.S. Treasury Note Future Sep 1998
(Current notional value $109,688 per
contract)................................... 350 (199,609)
--- ---------
629 $(727,773)
========= =============
</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.
30
<PAGE> 99
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
At June 30, 1998, the Fund has outstanding forward currency contracts as
follows:
<TABLE>
<CAPTION>
UNREALIZED
FORWARD CURRENT APPRECIATION/
CURRENCY VALUE DEPRECIATION
- ------------------------------------------------------------------------
<S> <C> <C>
LONG CONTRACTS:
German Mark,
13,952,655 expiring 07/01/98-08/03/98.... $ 7,745,288 $ (172,982)
Indonesian Rupiah,
1,762,500,000 expiring
09/29/98-02/02/99........................ 101,722 (198,278)
Japanese Yen,
558,900,000 expiring 07/01/98............ 4,042,696 (16,128)
Philippine Peso,
49,900,000 expiring 08/04/98-09/29/98.... 1,181,968 (68,032)
South Korean Won,
650,000,000 expiring 08/03/98-03/04/99... 431,077 31,078
Thailand Baht,
12,550,000 expiring 09/29/98-01/28/99.... 276,883 (23,117)
----------- -----------
$13,779,634 (447,459)
----------- -------------
SHORT CONTRACTS:
Hong Kong Dollar,
1,948,750 expiring 08/14/98.............. 250,515 (515)
Japanese Yen,
262,300,000 expiring 08/03/98............ 1,906,635 93,365
Malaysian Ringgit,
1,000,000 expiring 08/14/98.............. 235,907 14,093
New Taiwan Dollar,
8,500,000 expiring 08/14/98.............. 243,902 6,098
Singapore Dollar,
413,750 expiring 08/14/98................ 244,907 5,093
----------- -----------
$ 2,881,866 118,134
----------- -------------
$ (329,325)
-------------
</TABLE>
At June 30, 1998, the Fund has realized gains on closed but unsettled
forward currency contracts of $619,628 scheduled to settle between July 2, 1998
and February 3, 1999.
31
<PAGE> 100
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 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 securities may be more
volatile than the price of a comparable fixed rate security. These instruments
are typically used by the Fund to enhance the yield of the portfolio.
6. MORTGAGE-BACKED SECURITIES
A Mortgage-Backed Security (MBS) is a pass-through security created by pooling
mortgages and selling participations in the principal and interest payments
received from borrowers. Most of these securities are guaranteed by federally
sponsored agencies such as Federal National Mortgage Association (FNMA).
A REMIC (Real Estate Mortgage Investment Conduit) is a bond which is
collateralized by a pool of MBS's. These MBS pools are divided into classes or
tranches with each class having its own characteristics.
A MBS may also be stripped to create an Interest Only (IO) security. An IO
represents ownership in the cash flows of the interest payments made from a
specific pool of MBS. The cash flow on this instrument decreases as the mortgage
principal balance is repaid by the borrower. IO's are typically used to manage
interest rate exposure in the Fund's portfolio.
7. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these fees
for the year ended June 30, 1998, are payments retained by Van Kampen of
approximately $604,600.
32
<PAGE> 101
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998
- --------------------------------------------------------------------------------
8. BORROWINGS
In accordance with its investment policies, the Fund may borrow money from banks
or enter into reverse repurchase agreements or dollar rolls for investment
purposes in an amount up to 33.3% of its total assets.
The Fund has entered into a $60,000,000 revolving credit agreement which
expires on May 31, 1999. Interest is charged under the agreement at a rate of
.425% above the federal funds rate. The interest rate in effect at June 30,
1998, was 6.800%. An annual facility fee of .075% is charged on the unused
portion of the credit line.
The Fund has entered into reverse repurchase agreements with Warburg Dillon
Read LLC, formerly Union Bank of Switzerland, under which the Fund sells
securities and agrees to repurchase them on July 1, 1998 at a mutually agreed
upon price. At June 30, 1998, the average interest rate in effect for reverse
repurchase agreements was 4.18%.
The average daily balance of bank borrowings and reverse repurchase
agreements for the year ended June 30, 1998, was approximately $43,522,971 with
an average interest rate of 5.10%.
At June 30, 1998, these agreements represented 30.1% of the Fund's total
assets.
33
<PAGE> 102
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen Strategic Income Fund:
We have audited the accompanying statement of assets and liabilities of Van
Kampen Strategic Income Fund (the "Fund"), including the portfolio of
investments, as of June 30, 1998, and the related statement of operations for
the year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
periods presented. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1998, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen Strategic Income Fund as of June 30, 1998, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
August 7, 1998
34
<PAGE> 103
VAN KAMPEN FUNDS
EQUITY FUNDS
Domestic
Aggressive Equity
Aggressive Growth
American Value
Comstock
Emerging Growth
Enterprise
Equity Growth
Equity Income
Growth
Growth and Income
Harbor
Pace
Real Estate Securities
U.S. Real Estate
Utility
Value
International/Global
Asian Growth
Emerging Markets
Global Equity
Global Equity Allocation
Global Managed Assets
International Magnum
Latin American
FIXED-INCOME FUNDS
Income
Corporate Bond
Global Fixed Income
Global Government Securities
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
Short-Term Global Income
Strategic Income
U.S. Government
U.S. Government Trust for Income
Worldwide High Income
Tax Exempt Income
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal
Insured Tax Free Income
Intermediate Term Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
Capital Preservation and
Senior Loan Fund
Prime Rate Income Trust
Reserve
Senior Floating Rate
Tax Free Money
To find out more about any of these funds, ask your financial adviser for a
prospectus, which contains more complete information, including sales
charges, risks, and expenses. Please read it carefully before you invest or
send money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- visit our web site at
WWW.VAN-KAMPEN.COM -- to view prospectuses, select Investors' Place, then
Download a Prospectus
- call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time
(Telecommunications Device for the Deaf users, call 1-800-421-2833)
- e-mail us by visiting
WWW.VAN-KAMPEN.COM and selecting Investors' Place
35
<PAGE> 104
VAN KAMPEN STRATEGIC INCOME FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
PAUL R. WOLKENBERG*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR
SERVICES INC.
P.O. Box 418256
Kansas City, Missouri 64141-9256
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601
<TABLE>
<C> <S>
TAX NOTICE TO CORPORATE SHAREHOLDERS
For the year ended June 30, 1998, 8.64% * "Interested" persons of the
of the dividends taxables as ordinary Fund, as defined in the
income qualified for the 70% dividends Investment Company Act of
received 1940.
deduction for corporations. (C) Van Kampen Funds Inc.,
1998
All rights reserved.
(SM) denotes a service mark of
Van Kampen Funds Inc.
</TABLE>
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After December 31, 1998, the report, if used with
prospective investors, must be accompanied by a quarterly performance update.
36
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> HIGH YIELD CLASS A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 425,411,972<F1>
<INVESTMENTS-AT-VALUE> 428,470,750<F1>
<RECEIVABLES> 16,497,776<F1>
<ASSETS-OTHER> 14,161<F1>
<OTHER-ITEMS-ASSETS> 228,834<F1>
<TOTAL-ASSETS> 445,211,521<F1>
<PAYABLE-FOR-SECURITIES> 4,750,000<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 3,401,450<F1>
<TOTAL-LIABILITIES> 8,151,450<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 369,566,903
<SHARES-COMMON-STOCK> 28,360,164
<SHARES-COMMON-PRIOR> 29,228,811
<ACCUMULATED-NII-CURRENT> (1,685,377)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (86,114,158)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 2,966,018<F1>
<NET-ASSETS> 280,565,914
<DIVIDEND-INCOME> 951,901<F1>
<INTEREST-INCOME> 40,758,538<F1>
<OTHER-INCOME> 1,196,387<F1>
<EXPENSES-NET> (6,179,642)<F1>
<NET-INVESTMENT-INCOME> 36,727,184<F1>
<REALIZED-GAINS-CURRENT> 10,238,004<F1>
<APPREC-INCREASE-CURRENT> (8,832,338)<F1>
<NET-CHANGE-FROM-OPS> 38,132,850<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (24,757,453)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,945,784
<NUMBER-OF-SHARES-REDEEMED> (10,812,030)
<SHARES-REINVESTED> 997,599
<NET-CHANGE-IN-ASSETS> (7,452,369)
<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> 3,298,466<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 6,619,437<F1>
<AVERAGE-NET-ASSETS> 288,847,126
<PER-SHARE-NAV-BEGIN> 9.854
<PER-SHARE-NII> 0.857
<PER-SHARE-GAIN-APPREC> 0.037
<PER-SHARE-DIVIDEND> (0.855)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.893
<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> 12
<NAME> HIGH YIELD CLASS B
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 425,411,972<F1>
<INVESTMENTS-AT-VALUE> 428,470,750<F1>
<RECEIVABLES> 16,497,776<F1>
<ASSETS-OTHER> 14,161<F1>
<OTHER-ITEMS-ASSETS> 228,834<F1>
<TOTAL-ASSETS> 445,211,521<F1>
<PAYABLE-FOR-SECURITIES> 4,750,000<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 3,401,450<F1>
<TOTAL-LIABILITIES> 8,151,450<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 141,033,457
<SHARES-COMMON-STOCK> 14,662,143
<SHARES-COMMON-PRIOR> 13,054,923
<ACCUMULATED-NII-CURRENT> (1,685,377)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (86,114,158)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 2,966,018<F1>
<NET-ASSETS> 145,003,244
<DIVIDEND-INCOME> 951,901<F1>
<INTEREST-INCOME> 40,758,538<F1>
<OTHER-INCOME> 1,196,387<F1>
<EXPENSES-NET> (6,179,642)<F1>
<NET-INVESTMENT-INCOME> 36,727,184<F1>
<REALIZED-GAINS-CURRENT> 10,238,004<F1>
<APPREC-INCREASE-CURRENT> (8,832,338)<F1>
<NET-CHANGE-FROM-OPS> 38,132,850<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (11,057,055)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,588,921
<NUMBER-OF-SHARES-REDEEMED> (3,408,945)
<SHARES-REINVESTED> 427,244
<NET-CHANGE-IN-ASSETS> 16,348,131
<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> 3,298,466<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 6,619,437<F1>
<AVERAGE-NET-ASSETS> 141,136,790
<PER-SHARE-NAV-BEGIN> 9.855
<PER-SHARE-NII> 0.782
<PER-SHARE-GAIN-APPREC> 0.036
<PER-SHARE-DIVIDEND> (0.783)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.890
<EXPENSE-RATIO> 1.91
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 13
<NAME> HIGH YIELD CLASS C
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 425,411,972<F1>
<INVESTMENTS-AT-VALUE> 428,470,750<F1>
<RECEIVABLES> 16,497,776<F1>
<ASSETS-OTHER> 14,161<F1>
<OTHER-ITEMS-ASSETS> 228,834<F1>
<TOTAL-ASSETS> 445,211,521<F1>
<PAYABLE-FOR-SECURITIES> 4,750,000<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 3,401,450<F1>
<TOTAL-LIABILITIES> 8,151,450<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,293,228
<SHARES-COMMON-STOCK> 1,162,594
<SHARES-COMMON-PRIOR> 820,064
<ACCUMULATED-NII-CURRENT> (1,685,377)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (86,114,158)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 2,966,018<F1>
<NET-ASSETS> 11,490,913
<DIVIDEND-INCOME> 951,901<F1>
<INTEREST-INCOME> 40,758,538<F1>
<OTHER-INCOME> 1,196,387<F1>
<EXPENSES-NET> (6,179,642)<F1>
<NET-INVESTMENT-INCOME> 36,727,184<F1>
<REALIZED-GAINS-CURRENT> 10,238,004<F1>
<APPREC-INCREASE-CURRENT> (8,832,338)<F1>
<NET-CHANGE-FROM-OPS> 38,132,850<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (774,187)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 687,284
<NUMBER-OF-SHARES-REDEEMED> (385,647)
<SHARES-REINVESTED> 40,893
<NET-CHANGE-IN-ASSETS> 3,412,676
<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> 3,298,466<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 6,619,437<F1>
<AVERAGE-NET-ASSETS> 9,889,417
<PER-SHARE-NAV-BEGIN> 9.851
<PER-SHARE-NII> 0.780
<PER-SHARE-GAIN-APPREC> 0.036
<PER-SHARE-DIVIDEND> (0.783)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.884
<EXPENSE-RATIO> 1.91
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 21
<NAME> S-T GBL CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 67,049,220<F1>
<INVESTMENTS-AT-VALUE> 65,584,055<F1>
<RECEIVABLES> 3,725,558<F1>
<ASSETS-OTHER> 821<F1>
<OTHER-ITEMS-ASSETS> 258,227<F1>
<TOTAL-ASSETS> 69,568,661<F1>
<PAYABLE-FOR-SECURITIES> 2,151,356<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 1,807,294<F1>
<TOTAL-LIABILITIES> 3,958,650<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 68,828,371
<SHARES-COMMON-STOCK> 6,222,565
<SHARES-COMMON-PRIOR> 5,226,968
<ACCUMULATED-NII-CURRENT> (1,985,847)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (63,342,564)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (2,416,979)<F1>
<NET-ASSETS> 45,725,525
<DIVIDEND-INCOME> 14,298<F1>
<INTEREST-INCOME> 5,294,057<F1>
<OTHER-INCOME> 0
<EXPENSES-NET> (1,393,589)
<NET-INVESTMENT-INCOME> 3,914,766<F1>
<REALIZED-GAINS-CURRENT> (267,176)<F1>
<APPREC-INCREASE-CURRENT> (996,003)<F1>
<NET-CHANGE-FROM-OPS> 2,651,587<F1>
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,310,645)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,451,703
<NUMBER-OF-SHARES-REDEEMED> (1,683,807)
<SHARES-REINVESTED> 227,701
<NET-CHANGE-IN-ASSETS> (6,265,639)
<ACCUMULATED-NII-PRIOR> (445,277)<F1>
<ACCUMULATED-GAINS-PRIOR> (64,274,870)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 434,761<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 1,408,135<F1>
<AVERAGE-NET-ASSETS> 40,809,966
<PER-SHARE-NAV-BEGIN> 7.550
<PER-SHARE-NII> 0.390
<PER-SHARE-GAIN-APPREC> (0.130)
<PER-SHARE-DIVIDEND> (0.420)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> (0.040)
<PER-SHARE-NAV-END> 7.350
<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> 22
<NAME> S-T GBL CLASS B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 67,049,220<F1>
<INVESTMENTS-AT-VALUE> 65,584,055<F1>
<RECEIVABLES> 3,725,558<F1>
<ASSETS-OTHER> 821<F1>
<OTHER-ITEMS-ASSETS> 258,227<F1>
<TOTAL-ASSETS> 69,568,661<F1>
<PAYABLE-FOR-SECURITIES> 2,151,356<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 1,807,294<F1>
<TOTAL-LIABILITIES> 3,958,650<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 64,184,630
<SHARES-COMMON-STOCK> 2,661,333
<SHARES-COMMON-PRIOR> 6,903,293
<ACCUMULATED-NII-CURRENT> (1,985,847)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (63,342,564)<F1>
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2,416,979)<F1>
<NET-ASSETS> 19,551,829
<DIVIDEND-INCOME> 14,298<F1>
<INTEREST-INCOME> 5,294,057<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (1,393,589)<F1>
<NET-INVESTMENT-INCOME> 3,914,766<F1>
<REALIZED-GAINS-CURRENT> (267,176)<F1>
<APPREC-INCREASE-CURRENT> (996,003)<F1>
<NET-CHANGE-FROM-OPS> 2,651,587<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (1,921,964)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 64,808
<NUMBER-OF-SHARES-REDEEMED> (4,446,060)
<SHARES-REINVESTED> 139,292
<NET-CHANGE-IN-ASSETS> (32,541,248)
<ACCUMULATED-NII-PRIOR> (445,277)<F1>
<ACCUMULATED-GAINS-PRIOR> (64,274,870)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 434,761<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 1,408,135<F1>
<AVERAGE-NET-ASSETS> 37,912,576
<PER-SHARE-NAV-BEGIN> 7.550
<PER-SHARE-NII> 0.360
<PER-SHARE-GAIN-APPREC> (0.160)
<PER-SHARE-DIVIDEND> (0.370)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> (0.030)
<PER-SHARE-NAV-END> 7.350
<EXPENSE-RATIO> 2.18
<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> 23
<NAME> S-T GBL CLASS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 67,049,220<F1>
<INVESTMENTS-AT-VALUE> 65,584,055<F1>
<RECEIVABLES> 3,725,558<F1>
<ASSETS-OTHER> 821<F1>
<OTHER-ITEMS-ASSETS> 258,227<F1>
<TOTAL-ASSETS> 69,568,661<F1>
<PAYABLE-FOR-SECURITIES> 2,151,356<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 1,807,294<F1>
<TOTAL-LIABILITIES> 3,958,650<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 342,400
<SHARES-COMMON-STOCK> 45,275
<SHARES-COMMON-PRIOR> 23,754
<ACCUMULATED-NII-CURRENT> (1,985,847)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (63,342,564)<F1>
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2,416,979)<F1>
<NET-ASSETS> 332,657
<DIVIDEND-INCOME> 14,298<F1>
<INTEREST-INCOME> 5,294,057<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (1,393,589)<F1>
<NET-INVESTMENT-INCOME> 3,914,766<F1>
<REALIZED-GAINS-CURRENT> (267,176)<F1>
<APPREC-INCREASE-CURRENT> (996,003)<F1>
<NET-CHANGE-FROM-OPS> 2,651,587<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (13,245)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 25,354
<NUMBER-OF-SHARES-REDEEMED> (5,747)
<SHARES-REINVESTED> 1,914
<NET-CHANGE-IN-ASSETS> 153,429
<ACCUMULATED-NII-PRIOR> (445,277)<F1>
<ACCUMULATED-GAINS-PRIOR> (64,274,870)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 434,761<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 1,408,135<F1>
<AVERAGE-NET-ASSETS> 274,117
<PER-SHARE-NAV-BEGIN> 7.550
<PER-SHARE-NII> 0.340
<PER-SHARE-GAIN-APPREC> (0.140)
<PER-SHARE-DIVIDEND> (0.370)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> (0.030)
<PER-SHARE-NAV-END> 7.350
<EXPENSE-RATIO> 2.17
<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> 41
<NAME> STRAT INC CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 175,150,250<F1>
<INVESTMENTS-AT-VALUE> 174,718,627<F1>
<RECEIVABLES> 10,911,891<F1>
<ASSETS-OTHER> 17,036<F1>
<OTHER-ITEMS-ASSETS> 3,234,297<F1>
<TOTAL-ASSETS> 188,881,851<F1>
<PAYABLE-FOR-SECURITIES> 4,566,863<F1>
<SENIOR-LONG-TERM-DEBT> 57,372,263<F1>
<OTHER-ITEMS-LIABILITIES> 1,578,424<F1>
<TOTAL-LIABILITIES> 63,517,550<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 47,827,145
<SHARES-COMMON-STOCK> 3,688,102
<SHARES-COMMON-PRIOR> 3,428,615
<ACCUMULATED-NII-CURRENT> (1,909,557)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (4,282,123)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (1,176,688)<F1>
<NET-ASSETS> 45,310,860
<DIVIDEND-INCOME> 786,323<F1>
<INTEREST-INCOME> 13,354,450<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (4,923,671)<F1>
<NET-INVESTMENT-INCOME> 9,217,102<F1>
<REALIZED-GAINS-CURRENT> (1,253,925)<F1>
<APPREC-INCREASE-CURRENT> (3,763,808)<F1>
<NET-CHANGE-FROM-OPS> 4,199,369<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (3,523,499)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,118,648
<NUMBER-OF-SHARES-REDEEMED> (990,262)
<SHARES-REINVESTED> 131,101
<NET-CHANGE-IN-ASSETS> 1,500,639
<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> 1,262,844<F1>
<INTEREST-EXPENSE> 2,151,078<F1>
<GROSS-EXPENSE> 5,042,508<F1>
<AVERAGE-NET-ASSETS> 45,536,818
<PER-SHARE-NAV-BEGIN> 12.778
<PER-SHARE-NII> 0.973
<PER-SHARE-GAIN-APPREC> (0.489)
<PER-SHARE-DIVIDEND> (0.976)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 12.286
<EXPENSE-RATIO> 1.68
<AVG-DEBT-OUTSTANDING> 43,522,971<F1>
<AVG-DEBT-PER-SHARE> 4.3<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 42
<NAME> STRAT INC CLASS B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 175,150,250<F1>
<INVESTMENTS-AT-VALUE> 174,718,627<F1>
<RECEIVABLES> 10,911,891<F1>
<ASSETS-OTHER> 17,036<F1>
<OTHER-ITEMS-ASSETS> 3,234,297<F1>
<TOTAL-ASSETS> 188,881,851<F1>
<PAYABLE-FOR-SECURITIES> 4,566,863<F1>
<SENIOR-LONG-TERM-DEBT> 57,372,263<F1>
<OTHER-ITEMS-LIABILITIES> 1,578,424<F1>
<TOTAL-LIABILITIES> 63,517,550<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 80,771,259
<SHARES-COMMON-STOCK> 6,201,916
<SHARES-COMMON-PRIOR> 5,964,656
<ACCUMULATED-NII-CURRENT> (1,909,557)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (4,282,123)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (1,176,688)<F1>
<NET-ASSETS> 76,199,068
<DIVIDEND-INCOME> 786,323<F1>
<INTEREST-INCOME> 13,354,450<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (4,923,671)<F1>
<NET-INVESTMENT-INCOME> 9,217,102<F1>
<REALIZED-GAINS-CURRENT> (1,253,925)<F1>
<APPREC-INCREASE-CURRENT> (3,763,808)<F1>
<NET-CHANGE-FROM-OPS> 4,199,369<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (5,451,394)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,677,599
<NUMBER-OF-SHARES-REDEEMED> (1,620,464)
<SHARES-REINVESTED> 180,125
<NET-CHANGE-IN-ASSETS> (23,484)
<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> 1,262,844<F1>
<INTEREST-EXPENSE> 2,151,078<F1>
<GROSS-EXPENSE> 5,042,508<F1>
<AVERAGE-NET-ASSETS> 78,175,372
<PER-SHARE-NAV-BEGIN> 12.779
<PER-SHARE-NII> 0.878
<PER-SHARE-GAIN-APPREC> (0.491)
<PER-SHARE-DIVIDEND> (0.880)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 12.286
<EXPENSE-RATIO> 2.44
<AVG-DEBT-OUTSTANDING> 43,522,971<F1>
<AVG-DEBT-PER-SHARE> 4.3<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 43
<NAME> STRAT INC CLASS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 175,150,250<F1>
<INVESTMENTS-AT-VALUE> 174,718,627<F1>
<RECEIVABLES> 10,911,891<F1>
<ASSETS-OTHER> 17,036<F1>
<OTHER-ITEMS-ASSETS> 3,234,297<F1>
<TOTAL-ASSETS> 188,881,851<F1>
<PAYABLE-FOR-SECURITIES> 4,566,863<F1>
<SENIOR-LONG-TERM-DEBT> 57,372,263<F1>
<OTHER-ITEMS-LIABILITIES> 1,578,424<F1>
<TOTAL-LIABILITIES> 63,517,550<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,134,265
<SHARES-COMMON-STOCK> 314,039
<SHARES-COMMON-PRIOR> 300,301
<ACCUMULATED-NII-CURRENT> (1,909,557)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (4,282,123)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (1,176,688)<F1>
<NET-ASSETS> 3,854,373
<DIVIDEND-INCOME> 786,323<F1>
<INTEREST-INCOME> 13,354,450<F1>
<OTHER-INCOME> 0
<EXPENSES-NET> (4,923,671)<F1>
<NET-INVESTMENT-INCOME> 9,217,102<F1>
<REALIZED-GAINS-CURRENT> (1,253,925)<F1>
<APPREC-INCREASE-CURRENT> (3,763,808)<F1>
<NET-CHANGE-FROM-OPS> 4,199,369<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (264,008)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 150,464
<NUMBER-OF-SHARES-REDEEMED> (150,449)
<SHARES-REINVESTED> 13,723
<NET-CHANGE-IN-ASSETS> 20,274
<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> 1,262,844<F1>
<INTEREST-EXPENSE> 2,151,078<F1>
<GROSS-EXPENSE> 5,042,508<F1>
<AVERAGE-NET-ASSETS> 3,781,050
<PER-SHARE-NAV-BEGIN> 12.768
<PER-SHARE-NII> 0.876
<PER-SHARE-GAIN-APPREC> (0.490)
<PER-SHARE-DIVIDEND> (0.880)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 12.274
<EXPENSE-RATIO> 2.44
<AVG-DEBT-OUTSTANDING> 43,522,971<F1>
<AVG-DEBT-PER-SHARE> 4.3<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis.
</FN>
</TABLE>
