<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............................. 10
Portfolio of Investments......................... 11
Statement of Assets and Liabilities.............. 22
Statement of Operations.......................... 23
Statement of Changes in Net Assets............... 24
Financial Highlights............................. 25
Notes to Financial Statements.................... 28
Report of Independent Accountants................ 39
</TABLE>
HYF ANR 5/99
<PAGE> 2
LETTER TO SHAREHOLDERS
April 20, 1999
Dear Shareholder,
The past decade has been a remarkable time for investors. Together we've
witnessed one of the greatest bull markets in investment history, unprecedented
growth in mutual fund investing, and a surge in personal retirement planning.
The coming millennium promises to hold even more opportunities.
To lead us into this new era of investing, Richard F. Powers III has joined
Van Kampen as Chairman and Chief Executive Officer. He comes to us from our
parent company, Morgan Stanley Dean Witter & Co., where he served as Executive
Vice President and Director of Marketing. He brings 27 years of experience in
the financial services industry, including an extensive background in product
management, strategic planning, and brand development.
Although former Chairman Don G. Powell retired on January 1, he will remain
active in the industry and the community. Mr. Powell plans to continue his
service as a member of the board of directors of the Investment Company
Institute, the leading mutual fund industry association, and he will remain a
trustee of your fund.
ECONOMIC OVERVIEW
The U.S. economy continued to grow at a robust pace, despite financial
problems abroad. In the fourth quarter, the nation's gross domestic product
(GDP) rose at an astounding 6.0 percent annual rate, surprising most economists,
whose estimates had been much more conservative. GDP remained strong through the
first quarter of 1999, posting a 4.5 percent annual growth rate. However, the
economy began to show signs of slowing down early in 1999, as corporate profits
and wage growth declined.
A series of interest rate cuts by the Federal Reserve helped the U.S.
economy avoid the economic slump that plagued many global markets. The Fed's
0.25 percent interest rate cut in September was followed by additional cuts in
October and November. These rate cuts, coupled with a wave of corporate mergers
and cost-cutting measures, lent the support needed to foster continued growth.
In addition, the outlook for troubled areas such as Asia and Latin America
improved significantly, and most experts agree that these economies are on the
slow road to recovery.
Despite the improvements abroad and record economic growth in the United
States, inflation remained at bay as commodity prices tumbled. This low
inflationary environment--only a 1.7 percent increase in the consumer price
index over the past 12 months--contributed to the strong domestic economy and
kept inflation-adjusted interest rates attractive. A low level of unemployment,
vibrant consumer spending, and an active housing market also supported the
positive economic conditions.
Continued on page 2
1
<PAGE> 3
MARKET REVIEW
Most areas of the bond market were quite active during the reporting period,
with U.S. Treasury bonds experiencing the greatest price appreciation. Intense
demand, decreasing supply, and a flight to quality that included investors
around the globe pushed the 30-year Treasury bond to its lowest yield ever in
October 1998.
At the same time, investors shied away from lower-rated securities, causing
the prices of high-yield bonds to plummet. This lack of demand for lower-rated
bonds led to unusually high yields in the marketplace as investors required
significant premiums in exchange for purchasing these out-of-favor securities.
The difference in yields between U.S. Treasury bonds and high-yield bonds of
comparable maturity widened to as much as 7.79 percent in mid-October. The
high-yield market rebounded late in 1998 as investors saw that the economy was
performing well and that the global financial crisis was on its way to recovery.
The prices of most investment-grade bonds experienced similar, though much less
dramatic, movement during this period. Investors' preference for quality also
held true for international bonds, although there was some renewed interest in
lower-rated foreign bonds in recent months.
OUTLOOK
Our outlook for the domestic economy remains positive, although the pattern
of reduced growth may continue into the second half of the year. We look for a
slow but steady rise in inflation throughout 1999 to more normal, but certainly
not alarming levels. Internationally, low interest rates and improving financial
conditions should continue to support the economic improvements we've witnessed
in Asia and Latin America.
We believe the markets may still favor higher-quality securities such as
large-company stocks and investment-grade bonds in the near term. In addition,
we anticipate continued day-to-day volatility in the markets, although we
probably won't see sustained high or low periods during the next six months.
Additional details about your fund, including a question-and-answer section
with your portfolio management team, are provided in this report. As always, we
are pleased to have the opportunity to share with you the progress of your
investment.
Sincerely,
[SIG]
Richard F. Powers III
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 MARCH 31, 1999
VAN KAMPEN HIGH YIELD FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS
Nine-month total return based on
NAV(1)................................... (2.13%) (2.71%) (2.71%)
Nine-month total return(2)............... (6.75%) (6.36%) (3.63%)
One-year total return(2)................. (6.49%) (6.18%) (3.50%)
Five-year average annual total
return(2)................................ 6.66% 6.68% 6.86%
Ten-year average annual total
return(2)................................ 7.38% N/A N/A
Life-of-Fund average annual total
return(2)................................ 7.84% 6.95% 6.61%
Commencement date........................ 06/27/86 05/17/93 08/13/93
DISTRIBUTION RATE AND YIELD
Distribution rate(3)..................... 8.86% 8.50% 8.51%
SEC Yield(4)............................. 9.22% 8.90% 8.90%
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 March 30, 1999. Had certain
expenses of the Fund not been assumed Van Kampen, the SEC Yield would have been
9.12%, 8.80%, and 8.80% 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 performance at regular intervals. A
comparison of your Fund's performance to an applicable benchmark can:
- Illustrate the market environment in which your Fund is being managed.
- Reflect the impact of favorable market trends or difficult market
conditions.
- Help you evaluate how your Fund's management team has responded to
opportunities and challenges.
The following graph compares your Fund's performance to that of the Credit
Suisse First Boston High Yield Index over time. This index is a broad-based
statistical composite that does not include any commissions that would be paid
by an investor purchasing the securities it represents.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen High Yield Fund vs. Credit Suisse First Boston High Yield Index
(March 31, 1989 through March 31, 1999)
[INVESTMENT PERFORMANCE GRAPH]
- -------------------------------------
Fund's Total Return
1 Year Total Return = -6.49%
5 Year Avg. Annual = 6.66%
10 Year Avg. Annual = 7.38%
Inception Avg. Annual = 7.84%
- -------------------------------------
<TABLE>
<CAPTION>
CREDIT SUISSE FIRST BOSTON HIGH YIELD
VAN KAMPEN HIGH YIELD FUND INDEX
-------------------------- -------------------------------------
<S> <C> <C>
Mar 1989 9525 10000
9432 9976
9507 10213
9647 10361
9566 10383
9574 10382
9353 10147
8950 9892
8850 9112
8615 9867
8439 9520
8235 9344
Mar 1990 8357 9613
8305 9653
8421 9854
8598 10164
8785 10493
8425 10008
7999 9245
7540 9012
7637 9193
7617 9238
7689 9491
8274 10309
Mar 1991 8772 10948
9100 11402
9137 11459
9305 11759
9545 12157
9737 12378
9921 12659
10212 13078
10220 13182
10292 13279
10778 13820
10972 14155
Mar 1992 11025 14366
11260 14379
11362 14575
11431 14719
11627 14946
11790 15152
11931 15250
11765 15092
11921 15318
12043 15491
12361 15914
12671 16229
Mar 1993 12946 16572
12964 16666
13137 16910
13498 17216
13628 17395
13562 17543
13668 17642
14028 17965
14069 18192
14177 18421
14486 18749
14575 18777
Mar 1994 14067 18225
13892 17981
13856 18083
13892 17962
13798 18046
13762 18176
13769 18249
13732 18262
13576 18050
13704 18241
13826 18433
14148 18886
Mar 1995 14319 19100
14662 19524
15009 20074
15073 20207
15313 20520
15378 20577
15574 20814
15755 21045
15871 21144
16105 21413
16468 21819
16527 21935
Mar 1996 16484 21876
16614 21994
16709 22172
16771 22221
16868 22421
17108 22665
17476 23055
17594 23249
17927 23611
18115 24072
18286 24248
18570 24703
Mar 1997 18331 24427
18449 24644
18816 25140
19051 25481
19404 26022
19448 26162
19787 26680
19673 26678
19877 26867
20103 27111
20406 27572
20548 27787
Mar 1998 20774 27926
20677 28136
20877 28220
20835 28279
21046 28477
19242 26544
19093 26541
18791 26013
19942 27332
19811 27269
20009 27525
20009 27467
Mar 1999 20390 27717
</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
BOND: A debt security issued by a government or corporation that generally pays
a bondholder a stated rate of interest and repays the principal at maturity
date.
CREDIT RATING: An evaluation of an issuer's credit history and capability of
repaying obligations. Standard & Poor's and Moody's Investors Service are
two companies that assign bond ratings. Standard & Poor's ratings range from
a high of AAA to a low of D, while Moody's ratings range from a high of Aaa
to a low of C.
CREDIT SPREAD: Also called quality spread, the difference in yield between
higher-quality issues (such as Treasury securities) and lower-quality
issues. Normally, lower-quality issues provide higher yields to compensate
investors for the additional credit risk.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank of the United States. Its policy-making
committee, called the Federal Open Market Committee, meets eight times a
year to establish monetary policy and monitor the economic pulse of the
United States.
INFLATION: A persistent and measurable rise in the general level of prices.
Inflation is widely measured by the Consumer Price Index, an economic
indicator that measures the change in the cost of purchased goods and
services.
YIELD: The annual rate of return on an investment, expressed as a percentage.
YIELD SPREAD: The additional yield investors can earn by either investing in
bonds with longer maturities or by investing in bonds with lower ratings.
The spread is the difference in yield between bonds with short versus long
maturities or the difference in yield between high-quality bonds and
lower-quality bonds.
5
<PAGE> 7
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN HIGH YIELD FUND
We recently spoke with the management team of the Van Kampen High Yield Fund
about the key events and economic forces that shaped the markets during the most
recent reporting period. The team is led by Robert Hickey, portfolio manager,
and Peter W. Hegel, chief investment officer for fixed-income investments.
The Fund's fiscal year end was recently changed from June 30 to March 31.
Going forward, your semiannual reports will be dated September 30, and your
annual reports will be dated March 31. The following interview discusses the
Fund's performance during the nine-month period since your last annual report,
from July 1, 1998, to March 31, 1999.
Q HOW WOULD YOU CHARACTERIZE THE ECONOMIC ENVIRONMENT IN WHICH THE FUND
OPERATED DURING THE REPORTING PERIOD?
A The reporting period opened on a note of continued volatility in the
overseas markets. As Asia, Russia, and Latin America struggled to recover
from economic weakness, investors rushed toward the relative safety of
U.S. Treasury securities. By October, the yield for the benchmark 10-year
Treasury--which, like all bond yields, moves in the opposite direction of its
price--had fallen from 5.52 percent in July to 4.16 percent, near record lows.
In the final months of 1998, the Federal Reserve Board broke its two-year
hiatus by ushering in a series of three interest rate cuts. Although the first
cut did little to stabilize the markets, the cumulative effect of the Fed's
actions soothed investors' frayed nerves and settled the rocky 10-year Treasury.
Toward the end of the 1998, fixed-income investors anxiously turned their
attention to the release of year-end data indicating that the domestic economy
showed no signs of slowing down. In a message to Congress, Fed chairman Alan
Greenspan alluded to the Fed's willingness to increase rates if necessary. In
response, the 10-year Treasury yield bounced to 5.28 percent at the end of
February. However, a March-end Fed meeting passed uneventfully, and the weary
10-year Treasury settled at 5.24 percent to end the reporting period.
Q HOW DID THESE FACTORS AFFECT THE HIGH-YIELD MARKET?
A The third quarter marked a period of extreme volatility and uncertainty
for the market. The yield spread between high yield securities and
Treasuries hit its widest point in October, indicating that high yield
securities dramatically underperformed Treasuries during this time. Gradually,
the high-yield market began to show signs of improvement, responding positively
to the Fed cuts and rising steadily through the end of the calendar year. By the
end of the first quarter 1999, the spreads in the high-yield market had narrowed
substantially on their way back to the more favorable levels established at the
beginning of the period, although not all areas of the market bounced back as
quickly or smoothly.
6
<PAGE> 8
The general decline in investor confidence in the high-yield sector
coincided with a slight increase in defaults, although the default rate remained
meaningfully below historical averages. Problems in the sector were multiplied
by significant underperformance in emerging markets debt, where sharply widening
yield spreads created ripple effects throughout the high yield universe. By the
end of the reporting period, the high-yield market boasted some excellent values
relative to other fixed-income securities, although our feeling is that it may
take time for investors to become comfortable again with the risk-reward
relationship of this asset class.
Another positive technical aspect of the high-yield market during the period
was a healthy flow of new issuance. Despite the shortage of new issues in August
and September, 1998 saw $157 billion in new issues, marking one of the strongest
markets in history. Overall, we felt the market released attractive issues of a
relatively consistent quality (predominately B rated with very little CCC or
non-rated issues).
Q HOW DID YOU MANAGE THE FUND IN LIGHT OF THESE CONDITIONS?
A We continued to search for value in the market by focusing on attractive
sectors and monitoring the individual securities within those sectors.
Once again, telecommunications and media/cable companies dominated new
issuance during the period. We increased the portfolio's allocation to the
telecommunications sector, which benefited from industry consolidation as well
as growing investor interest in the new generation of communications spawned by
the computer age. Within this sector, we held a significant position in
competitive local exchange companies as well as a strong position in cellular
phone companies. One of our holdings, Millicom, was a standout in this sector
because of its market positioning and international exposure.
We also held positions in the consumer services sector, which includes food
and beverage companies, and the consumer cyclical sector, which includes
automobile and housing companies. The former provided some defensive
characteristics to the portfolio during the period, but we expect to reduce our
weighting in both of these areas as we feel that they may be nearing a downturn.
The latter sector was supported by a strong consumer and healthy economy and, in
turn, benefited the portfolio. For additional Fund portfolio highlights, please
refer to page 10.
Q WERE THERE ANY SECTORS THAT DISAPPOINTED YOU DURING THE PERIOD?
A Once again, we were disappointed by the health-care industry and were
relieved to have an underweighted position in some of the hardest hit
areas of this sector. Changes in legislation have affected how health-care
providers are paid, and the transition has been a rocky one, particularly for
long-term health-care providers such as nursing homes. The market assumed
incorrectly that providers had been sufficiently prepared for this change, but
the economic impact was tremendous. We do maintain some holdings in this sector
and feel that value opportunities will present themselves in time, but we are
proceeding with caution.
7
<PAGE> 9
Although the impact to the portfolio was small, we also were disappointed
with performance in the oil and gas industry, as energy prices scraped bottom
before being resuscitated by an OPEC agreement. The Fund's exposure to this
sector was limited and carefully chosen to exclude exploration and production
companies, which suffered greatly during this downturn.
Q HOW WAS THE PORTFOLIO STRUCTURED IN TERMS OF CREDIT QUALITY?
A We largely maintained the Fund's credit quality profile, with an added
emphasis on B rated bonds, which provide a yield advantage over
higher-quality investments and comprised the majority of new issues
purchased during the period. In September, we cited the narrow yield spreads
between B and BB rated securities as a rationale for increasing the Fund's
allocation to the latter. However, third-quarter volatility widened the gulf
between each credit quality, which meant that we would be better rewarded for
assuming a higher level of risk during this time.
Q HOW DID THE FUND PERFORM?
A The Fund posted a total return of -2.13 percent(1) (Class A shares at net
asset value) for the nine-month period ended March 31, 1999. By
comparison, the Credit Suisse First Boston High Yield Index returned -1.99
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, fees, or sales charges that would be paid by an investor purchasing
the securities it represents. Of course, past performance does not guarantee
future results. As of March 31, 1999, the Fund's distribution rate stood at 8.86
percent(3). Please refer to the chart and footnotes on page 3 for additional
Fund performance results.
Q WHAT IS YOUR OUTLOOK FOR THE MARKET AND THE FUND IN THE COMING MONTHS?
A Although investors have expected an economic slowdown in the United States
for some time, we do not see signs that this might materialize in the near
future. We also continue to see low inflation numbers, backed by
indications of a tight job market and high consumer confidence. With continuing
difficulties in many foreign economies, we cannot rule out the possibility that,
at some point, domestic GDP growth could lag. At the same time, the fundamentals
currently underpinning the U.S. bond market are as healthy as at any time in
recent years, and we expect the market to remain strong in the months ahead.
From our post, we will scrutinize companies very closely before we decide to
invest in their debt, considering their business plans and practices as we
maintain a high standard for the Fund's portfolio. We'll also study how those
companies behave as interest rates fluctuate. Finally, we'll keep a close eye on
problems in the emerging markets, as we remain unconvinced that countries like
Brazil have formed complete solutions to their
8
<PAGE> 10
economic woes. As we saw in 1998, the impact of volatility in overseas markets
can impose direct and immediate effects on our domestic markets.
[SIG]
Robert Hickey
Portfolio Manager
[SIG.]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
9
<PAGE> 11
PORTFOLIO HIGHLIGHTS
VAN KAMPEN HIGH YIELD FUND
TOP TEN ISSUERS AS OF MARCH 31, 1999
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
LONG-TERM INVESTMENTS
<S> <C>
Intermedia Communications, Inc. .... 2.80%
Metronet Communications Corp.
(US$) ............................ 1.60%
CSC Holdings, Inc. ................. 1.53%
Argosy Gaming Co. .................. 1.38%
E Spire Communications, Inc. ....... 1.34%
Capstar Broadcasting Partners....... 1.32%
Pantry, Inc. ....................... 1.29%
Giant Industries, Inc. ............. 1.25%
United International Holdings,
Inc. ............................. 1.24%
Selmer, Inc. ....................... 1.22%
</TABLE>
CREDIT QUALITY AS A PERCENTAGE OF LONG-TERM DEBT SECURITIES
PIE CHART
<TABLE>
<CAPTION>
AAA AA A BBB BB B CCC CC NON-RATED
- --- -- - --- -- - --- -- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0.7 1.50 2.50 6.90 13.60 66.00 4.50 1.50 7.20
</TABLE>
PIE CHART
<TABLE>
<CAPTION>
AAA BBB BB B CCC NON-RATED
- --- --- -- - --- ---------
<S> <C> <C> <C> <C> <C>
1 7.30 24.00 59.70 2.00 7.50
</TABLE>
Based upon the highest credit quality ratings as determined by Standard & Poor's
or Moody's.
TOP FIVE PORTFOLIO SECTORS AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999 AS OF JUNE 30, 1998
<S> <C> <C> <C>
Foreign Bonds ............. 24.0% Foreign Bonds.............. 20.3%
Telecommunications ........ 22.5% Telecommunications......... 15.0%
Printing, Publishing & Printing, Publishing &
Broadcasting............. 10.0% Broadcasting............. 10.8%
Automobile ................ 5.1% Oil & Gas.................. 5.0%
Beverage, Food & Tobacco... 4.0% Health Care................ 5.0%
</TABLE>
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS
March 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DOMESTIC CORPORATE BONDS 73.8%
AEROSPACE & DEFENSE 2.9%
$ 3,120 Compass Aerospace Corp., 144A Private
Placement (a) (g)..................... 10.125% 04/15/05 $ 2,995,200
4,500 Dyncorp............................... 9.500 03/01/07 4,567,500
2,200 Sequa Corp............................ 9.625 10/15/99 2,246,750
2,600 Sequa Corp............................ 9.375 12/15/03 2,697,500
------------
12,506,950
------------
AUTOMOBILE 4.9%
4,750 Aetna Industries, Inc. (g)............ 11.875 10/01/06 4,963,750
2,250 Cambridge Industries, Inc., Series
B..................................... 10.250 07/15/07 1,912,500
2,000 Eagle Picher Industries, Inc.......... 9.375 03/01/08 1,940,000
2,700 Oxford Automotive, Inc., Series C,
144A Private Placement (a)............ 10.125 06/15/07 2,794,500
1,200 Stanadyne Automotive Corp., Series
B..................................... 10.250 12/15/07 1,158,000
4,430 Talon Automotive Group, Inc., Series B
(g)................................... 9.625 05/01/08 3,898,400
4,500 Venture Holdings, Inc................. 9.750 04/01/04 4,432,500
------------
21,099,650
------------
BEVERAGE, FOOD & TOBACCO 3.9%
2,000 Agrilink Foods, Inc., 144A Private
Placement (a) (g)..................... 11.875 11/01/08 2,155,000
1,500 Fleming Cos., Inc. (g)................ 10.625 07/31/07 1,395,000
2,250 Fleming Cos., Inc., Series B (g)...... 10.500 12/01/04 2,120,625
1,700 Jitney Jungle Stores America, Inc..... 12.000 03/01/06 1,895,500
2,750 Luiginos, Inc., 144A Private Placement
(a)................................... 10.000 02/01/06 2,760,312
1,000 National Wine and Spirit, 144A Private
Placement (a)......................... 10.125 01/15/09 1,035,000
5,100 Pantry, Inc. (g)...................... 10.250 10/15/07 5,380,500
------------
16,741,937
------------
BUILDINGS & REAL ESTATE 2.8%
750 Cemex International Capital, Inc...... 9.660 11/29/49 697,500
500 Cemex International Capital, Inc.,
144A Private Placement (a)............ 9.660 12/29/49 465,000
1,000 Formica Corp., 144A Private Placement
(a)................................... 10.875 03/01/09 1,000,000
1,500 Group Maintenance America Corp., 144A
Private Placement (a)................. 9.750 01/15/09 1,537,500
1,750 Home Interiors Gifts, Inc............. 10.125 06/01/08 1,776,250
1,500 Kevco, Inc., Series B................. 10.375 12/01/07 810,000
2,750 Schuler Homes, Inc.................... 9.000 04/15/08 2,653,750
2,075 Webb (Del E.) Corp. (g)............... 9.375 05/01/09 2,023,125
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BUILDINGS & REAL ESTATE (CONTINUED)
$ 1,000 Webb (Del E.) Corp.................... 10.250% 02/15/10 $ 1,015,000
------------
11,978,125
------------
CHEMICALS, PLASTICS & RUBBER 1.9%
4,258 ISP Holdings, Inc..................... 9.750 02/15/02 4,407,030
3,210 Pioneer Americas Acquisition Corp.,
Series B (g).......................... 9.250 06/15/07 2,712,450
1,000 United Industries Corp., 144A Private
Placement (a)......................... 9.875 04/01/09 1,030,000
------------
8,149,480
------------
CONSUMER SERVICES 0.4%
1,800 Muzak, Inc., 144A Private Placement
(a)................................... 9.875 03/15/09 1,831,500
------------
CONTAINERS, PACKAGING & GLASS 1.8%
3,700 Fonda Group, Inc., Series B (g)....... 9.500 03/01/07 3,108,000
2,250 Packaging Corp. of America, 144A
Private Placement (a) (f)............. 9.625 04/01/09 2,250,000
1,800 Russell Stanley Holdings, Inc., 144A
Private Placement (a)................. 10.875 02/15/09 1,797,750
370 Sweetheart Cup, Inc................... 9.625 09/01/00 352,425
------------
7,508,175
------------
DIVERSIFIED/CONGLOMERATE
MANUFACTURING 1.1%
4,600 Communications & Power Industries,
Inc. (g).............................. 12.000 08/01/05 4,876,000
------------
ECOLOGICAL 0.2%
500 Envirosource, Inc., Series B.......... 9.750 06/15/03 420,000
550 Norcal Waste Systems, Inc. ........... 13.500 11/15/05 607,750
------------
1,027,750
------------
ELECTRONICS 0.3%
1,950 DecisionOne Corp...................... 9.750 08/01/07 175,500
3,100 DecisionOne Corp. (Including 3,100
common stock warrants) (b)............ 0/11.500 08/01/08 93,000
2,000 Radio Unica Corp. (b) (g)............. 0/11.750 08/01/06 1,132,500
------------
1,401,000
------------
ENERGY 0.7%
1,000 Chesapeake Energy Corp., Series B..... 9.625 05/01/05 835,000
1,000 Houston Exploration Co................ 8.625 01/01/08 1,000,000
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ENERGY (CONTINUED)
$ 2,200 Universal Compression Holdings, Inc.
(g)................................... 9.875% 02/15/08 $ 1,320,000
------------
3,155,000
------------
FINANCE 1.4%
3,300 Americo Life, Inc., 144A Private
Placement (a) (g)..................... 9.250 06/01/05 3,366,000
1,500 BNP US Funding LLC, Series A, 144A
Private Placement (a)................. 7.738 12/31/49 1,445,850
1,500 Contifinancial Corp................... 8.125 04/01/08 1,125,000
------------
5,936,850
------------
HEALTHCARE 3.8%
2,000 Alliance Imaging, Inc. (g)............ 9.625 12/15/05 1,990,000
1,500 Biovail Corp. International........... 10.875 11/15/05 1,541,250
3,000 Hudson Respiratory Care, Inc. (g)..... 9.125 04/15/08 2,625,000
2,000 King Pharmaceuticals, Inc., 144A
Private Placement (a)................. 10.750 02/15/09 2,070,000
4,500 Mariner Post Acute Network, Inc.
(b)................................... 0/10.500 11/01/07 810,000
1,700 Mariner Post Acute Network, Inc....... 9.500 11/01/07 527,000
2,000 Mediq, Inc............................ 11.000 06/01/08 1,750,000
4,000 Oxford Health Plans, Inc., 144A
Private Placement (a)(g).............. 11.000 05/15/05 4,100,000
1,000 Team Health, Inc., 144A Private
Placement (a)......................... 12.000 03/15/09 1,010,000
------------
16,423,250
------------
HOTEL, MOTEL, INNS & GAMING 2.4%
2,000 Argosy Gaming Co...................... 12.000 06/01/01 2,060,000
3,250 Argosy Gaming Co. (g)................. 13.250 06/01/04 3,684,688
3,000 Majestic Star Casino LLC.............. 12.750 05/15/03 3,330,000
1,000 Mohegan Tribal Gaming Authority, 144A
Private Placement (a)................. 8.125 01/01/06 1,027,500
------------
10,102,188
------------
LEISURE 2.7%
2,100 Booth Creek Ski Holdings, Inc., Series
B (g)................................. 12.500 03/15/07 2,005,500
2,250 Intrawest Corp........................ 9.750 08/15/08 2,320,313
2,000 Premier Parks, Inc.................... 9.250 04/01/06 2,095,000
4,750 Selmer, Inc. (g)...................... 11.000 05/15/05 5,106,250
------------
11,527,063
------------
MACHINERY 0.3%
1,300 Terex Corp., Series C, 144A Private
Placement (a)......................... 8.875 04/01/08 1,283,750
------------
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MINING, STEEL, IRON & NON-PRECIOUS
METAL 0.9%
$ 2,000 Pen Holdings, Inc., Series B.......... 9.875% 06/15/08 $ 2,070,000
1,950 Renco Steel Holdings, Inc............. 10.875 02/01/05 1,725,750
------------
3,795,750
------------
OIL & GAS 3.2%
2,050 Frontier Oil Corp..................... 9.125 02/15/06 2,009,000
1,150 Giant Industries, Inc................. 9.750 11/15/03 1,138,500
4,450 Giant Industries, Inc. (g)............ 9.000 09/01/07 4,071,750
1,350 KCS Energy, Inc....................... 11.000 01/15/03 931,500
3,700 National Energy Group, Inc., Series D
(e) (g)............................... 10.750 11/01/06 1,258,000
2,200 Pride Petroleum Services, Inc......... 9.375 05/01/07 2,156,000
2,000 Triton Energy Ltd..................... 8.750 04/15/02 1,890,000
------------
13,454,750
------------
PAPER 1.4%
1,800 Pacifica Papers, Inc., 144A Private
Placement (a)......................... 10.000 03/15/09 1,858,500
4,100 Repap New Brunswick, Inc.............. 9.000 06/01/04 3,997,500
------------
5,856,000
------------
PRINTING, PUBLISHING &
BROADCASTING 9.8%
3,000 Capstar Broadcasting Partners (g)..... 9.250 07/01/07 3,180,000
2,750 Capstar Broadcasting Partners......... 12.750 02/01/09 2,337,500
2,500 Century Communications Corp. (g)...... 8.875 01/15/07 2,640,625
1,850 Century Communications Corp........... 8.750 10/01/07 1,944,813
2,600 CSC Holdings, Inc..................... 10.500 05/15/16 3,094,000
3,205 CSC Holdings, Inc. (g)................ 7.875 02/15/18 3,293,137
3,500 EZ Communications, Inc. (g)........... 9.750 12/01/05 3,815,000
3,350 Gray Communications Systems, Inc.
(g)................................... 10.625 10/01/06 3,584,500
2,450 International Cabletel, Inc. (b)...... 0/12.750 04/15/05 2,318,313
2,750 International Cabletel, Inc. (b)...... 0/11.500 02/01/06 2,423,437
4,000 K-III Communications Corp............. 10.250 06/01/04 4,225,000
2,000 Northland Cable Television, Inc....... 10.250 11/15/07 2,140,000
2,500 Pegasus Communications Corp., Series B
(g)................................... 9.625 10/15/05 2,593,750
2,000 Premier Graphics, Inc., 144A Private
Placement (a)......................... 11.500 12/01/05 1,970,000
2,000 Young Broadcasting, Inc............... 11.750 11/15/04 2,150,000
------------
41,710,075
------------
RETAIL 1.1%
1,250 Big 5 Corp., Series B (g)............. 10.875 11/15/07 1,275,000
1,650 Community Distributors, Inc., Series B
(g)................................... 10.250 10/15/04 1,526,250
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RETAIL (CONTINUED)
$ 1,750 Hosiery Corp. of America, Inc. (e).... 13.750% 08/01/02 $ 1,890,000
------------
4,691,250
------------
TELECOMMUNICATIONS 21.8%
2,000 AMSC Acquisition, Inc................. 12.250 04/01/08 1,020,000
3,800 Centennial Cellular Operating Co.,
144A Private Placement (a)............ 10.750 12/15/08 4,037,500
1,800 Charter Communications Holdings, 144A
Private Placement (a)................. 8.250 04/01/07 1,845,000
900 Charter Communications Holdings, 144A
Private Placement (a)................. 8.625 04/01/09 922,500
1,100 Citadel Broadcasting Co............... 9.250 11/15/08 1,185,250
1,000 Crown Castle International Corp.
(b)................................... 0/10.625 11/15/07 695,000
1,800 E Spire Communications, Inc. (b)...... 0/13.000 11/01/05 1,305,000
2,280 E Spire Communications, Inc. (b)...... 0/12.750 04/01/06 1,561,800
1,750 E Spire Communications, Inc........... 13.750 07/15/07 1,732,500
2,000 E Spire Communications, Inc. (b)...... 0/10.625 07/01/08 1,010,000
3,000 Echostar DBS Corp., 144A Private
Placement (a) (g)..................... 9.375 02/01/09 3,135,000
2,000 Fairchild Semiconductor Corp., 144A
Private Placement (a) (f)............. 10.375 10/01/07 2,035,000
2,000 Filtronic PLC, 144A Private Placement
(a)................................... 10.000 12/01/05 2,090,000
2,000 Firstworld Communications, Inc. (b)... 0/13.000 04/15/08 770,000
2,000 GST Network Funding, Inc., 144A
Private Placement (a) (b)............. 0/10.500 05/01/08 1,070,000
1,350 Intermedia Communications of Florida,
Inc................................... 13.500 06/01/05 1,542,375
8,690 Intermedia Communications, Inc. (b)... 0/11.250 07/15/07 6,647,850
5,000 Intermedia Communications, Inc. ...... 8.600 06/01/08 5,037,500
2,000 KMC Telecommunications Holdings,
Inc. (b).............................. 0/12.500 02/15/08 1,110,000
3,000 Level 3 Communications, Inc., 144A
Private Placement (a) (b)............. 0/10.500 12/01/08 1,890,000
2,000 Metromedia Fiber Network, Inc., 144A
Private Placement (a)................. 10.000 11/15/08 2,155,000
2,000 MJD Communications, Inc. ............. 9.500 05/01/08 2,030,000
2,250 Nextel Communications, Inc. .......... 9.750 08/15/04 2,340,000
2,250 Nextel Communications, Inc. (b)....... 0/10.650 09/15/07 1,641,737
2,500 Optel, Inc. .......................... 11.500 07/01/08 2,312,500
1,000 Park N View, Inc., Series B........... 13.000 05/15/08 570,000
4,625 Pinnacle Holdings, Inc. (b) (g)....... 0/10.000 03/15/08 2,809,688
3,548 Price Communication Cellular (d)...... 11.250 08/15/08 3,441,560
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TELECOMMUNICATIONS (CONTINUED)
$ 2,000 Price Communications Wireless......... 11.750% 07/15/07 $ 2,210,000
1,250 Primus Telecommunications Group, 144A
Private Placement (a)................. 11.250 01/15/09 1,290,625
3,000 PSINet, Inc. ......................... 11.500 11/01/08 3,390,000
2,500 RSL Communications (b)................ 0/10.125 03/01/08 1,637,500
3,750 SBA Communications Corp. (b).......... 0/12.000 03/01/08 2,381,250
3,500 Splitrock Services, Inc., Series B.... 11.750 07/15/08 3,342,500
2,000 Sprint Spectrum (b)................... 0/12.500 08/15/06 1,825,000
3,000 Startec Global Communications......... 12.000 05/15/08 2,745,000
2,000 Telecommunications Techniques (g)..... 9.750 05/15/08 2,030,000
4,000 Triton Communications, Inc. (b)....... 0/11.000 05/01/08 2,380,000
7,550 United International Holdings, Inc.
(g)................................... 10.750 02/15/08 5,171,750
2,415 Verio, Inc. (g)....................... 10.375 04/01/05 2,596,125
1,000 Verio, Inc., 144A Private
Placement (a)......................... 11.250 12/01/08 1,130,000
3,250 Viatel, Inc. (b) (f).................. 0/12.500 04/15/08 2,047,500
1,000 Viatel, Inc. (EUR) (f)................ 11.500 03/15/09 1,123,148
------------
93,243,158
------------
TEXTILES 1.7%
2,000 Cluett American Corp., Series B....... 10.125 05/15/08 1,840,000
3,000 Globe Manufacturing Corp. ............ 10.000 08/01/08 2,385,000
1,500 Scovill Fasteners, Inc., Series B..... 11.250 11/30/07 1,155,000
500 Simmons Co., 144A Private
Placement (a)......................... 10.250 03/15/09 519,375
1,350 Supreme International, Inc., 144A
Private Placement (a) (f)............. 12.250 04/01/06 1,334,502
------------
7,233,877
------------
TRANSPORTATION 1.1%
3,000 Atlas Air, Inc. (g)................... 9.250 04/15/08 2,985,000
1,750 Atlas Air, Inc., 144A Private
Placement (a)......................... 9.375 11/15/06 1,767,500
------------
4,752,500
------------
UTILITIES 1.3%
2,250 AES Corp. (g)......................... 10.250 07/15/06 2,385,000
600 El Paso Electric Co. ................. 8.250 02/01/03 634,500
1,500 El Paso Electric Co. ................. 8.900 02/01/06 1,680,000
748 Midland Funding Corp. ................ 10.330 07/23/02 796,147
------------
5,495,647
------------
TOTAL DOMESTIC CORPORATE BONDS 73.8%..................... 315,781,675
------------
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
in Local
Currency
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOREIGN BONDS AND DEBT SECURITIES 22.7%
ARGENTINA 1.7%
1,000 Banco de Galicia Y Buenos Aires (US$),
144A Private Placement (a)............ 10.000% 12/15/00 $ 1,012,500
3,000 CTI Holdings SA (US$) (b)............. 0/11.500 04/15/08 1,650,000
875 Republic of Argentina (US$)........... 11.000 12/04/05 831,250
3,000 Republic of Argentina (US$) (f)....... 11.750 04/07/09 2,925,000
1,000 Republic of Argentina (Var. Rate
Coupon) (US$)......................... 6.063 03/31/23 735,000
------------
7,153,750
------------
AUSTRALIA 0.2%
1,100 Commonwealth of Australia (AU$)....... 10.000 10/15/02 808,059
------------
BRAZIL 1.4%
5,888 Federal Republic of Brazil (Var. Rate
Coupon) (US$)......................... 8.000 04/15/14 3,761,024
400 Globo Participacoe (US$), 144A Private
Placement (a)......................... 10.625 12/05/08 266,000
1,000 Globo Participacoe (US$).............. 10.625 12/05/08 665,000
500 Multicanal Participacoes (US$)........ 12.625 06/18/04 432,500
1,200 Multicanal Participacoes, Series B
(US$)................................. 12.625 06/18/04 1,038,000
------------
6,162,524
------------
CANADA 4.7%
2,000 Clearnet Communications, Inc.
(US$) (b)............................. 0/14.750 12/15/05 1,860,000
3,500 Fundy Cable Ltd. (US$) (g)............ 11.000 11/15/05 3,806,250
1,000 Hurricane Hydrocarbons (US$).......... 11.750 11/01/04 460,000
2,000 Metronet Communications Corp. (US$)... 12.000 08/15/07 2,385,000
5,500 Metronet Communications Corp.
(US$) (b)............................. 0/9.950 06/15/08 4,276,250
3,000 Microcell Telecommunications, Series B
(US$) (b)............................. 0/14.000 06/01/06 2,475,000
4,500 Trizec Finance (US$) (g).............. 10.875 10/15/05 4,882,500
------------
20,145,000
------------
CAYMAN ISLANDS 0.5%
2,000 PDVSA Finance Ltd. (US$), 144A Private
Placement (a) (f)..................... 8.750 02/15/04 1,993,140
------------
CHILE 0.2%
2,000 Empresa Electrica Delaware Norte SA
(US$), 144A Private Placement (a)..... 7.750 03/15/06 1,040,000
------------
COLUMBIA 1.7%
2,300 Financiera Energetica (US$), 144A
Private Placement (a)................. 9.375 06/15/06 2,024,000
2,500 Financiera Energetica (US$)........... 9.375 06/15/06 2,200,000
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
in Local
Currency
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COLUMBIA (CONTINUED)
1,250 Republic of Colombia (DEM)............ 4.479% 11/21/01 $ 606,390
2,500 Republic of Colombia (US$)............ 10.986 08/13/05 2,281,250
------------
7,111,640
------------
FRANCE 0.4%
2,000 Credit Lyonnais (Var. Rate Coupon)
(US$)................................. 6.313 09/19/49 1,860,000
------------
HUNGARY 0.2%
216,650 Hungary Govt (HUF).................... 16.000 11/24/00 939,126
------------
ITALY 0.2%
775 Federal Republic of Italy (EUR)....... 10.000 08/01/03 1,056,080
------------
KOREA 0.4%
1,200 Korea Development Bank (DEM).......... 5.625 10/25/99 661,742
1,000 Korea Electric Power Corp. (US$)...... 7.000 02/01/27 934,700
------------
1,596,442
------------
LUXEMBOURG 0.7%
4,000 Millicom International Cellular SA
(US$) (b) (g)......................... 0/13.500 06/01/06 3,000,000
------------
MEXICO 3.0%
1,000 Gruma SA (US$)........................ 7.625 10/15/07 890,000
3,000 Grupo Televisa Corp. (US$) (b)........ 0/13.250 05/15/08 2,527,500
1,000 Mexico Par Bond, Series A (US$)....... 6.250 12/31/19 785,625
2,000 Petroleos Mexicanos (US$), 144A
Private Placement (a)................. 9.857 07/15/05 1,860,000
5,000 Satelites Mexicanos SA (US$), 144A
Private Placement (a)................. 10.125 11/01/04 4,125,000
1,000 United Mexican States (US$)........... 10.375 02/17/09 1,033,750
750 United Mexican States (US$)........... 6.250 12/31/19 589,219
1,000 Vicap SA (US$)........................ 10.250 05/15/02 975,000
------------
12,786,094
------------
MOROCCO 0.9%
4,762 Morocco Trust A Loan (US$) (c)........ 6.063 01/01/09 3,877,976
------------
PANAMA 0.9%
4,000 Republic of Panama (US$).............. 8.875 09/30/27 3,660,000
------------
POLAND 1.0%
2,250 Netia Holdings, Inc., Series B
(US$) (b)............................. 0/11.250 11/01/07 1,552,500
3,000 Netia Holdings, Inc. (US$)............ 10.250 11/01/07 2,865,000
------------
4,417,500
------------
RUSSIA 0.7%
1,000 Russia Principal Loans (US$).......... 11.000 07/24/18 260,000
22,750 Russia Principal Loans
(US$) (c) (d)......................... 5.969 12/15/20 1,649,375
</TABLE>
See Notes to Financial Statements
18
<PAGE> 20
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
in Local
Currency
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RUSSIA (CONTINUED)
3,000 Russian Federation (US$).............. 8.750% 07/24/05 $ 735,000
362 Russian Ian (US$)..................... 5.969 12/15/15 28,962
3,000 Vnesheconombank (US$) (c) (e)......... 6.625 12/15/15 240,000
------------
2,913,337
------------
UNITED KINGDOM 3.4%
2,750 Cenargo International PLC (US$)....... 9.750 06/15/08 2,475,000
3,450 Diamond Cable Commerce PLC
(US$) (b) (g)......................... 0/10.750 02/15/07 2,682,375
1,400 Espirit Telecom Group PLC (US$)....... 11.500 12/15/07 1,505,000
1,250 Espirit Telecom Group PLC (US$)....... 10.875 06/15/08 1,321,875
1,000 NTL, Inc. (b) (US$)................... 0/9.750 04/01/08 685,000
1,000 NTL, Inc. (G.B.P.).................... 9.500 04/01/08 1,646,789
2,000 NTL, Inc. (US$), 144A Private
Placement (a)......................... 11.500 10/01/08 2,245,000
2,000 Orange PLC (EUR)...................... 7.625 08/01/08 2,324,686
------------
14,885,725
------------
VENEZUELA 0.5%
1,000 Republic of Venezuela (US$)........... 6.750 03/31/20 696,250
2,000 Republic of Venezuela (US$)........... 9.250 09/15/27 1,230,000
------------
1,926,250
------------
TOTAL FOREIGN BONDS AND DEBT SECURITIES 22.7%............. 97,332,643
------------
TOTAL CORPORATE BONDS 96.5%............................... 413,114,318
------------
</TABLE>
See Notes to Financial Statements
19
<PAGE> 21
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Market Value
- ---------------------------------------------------------------------------------------
<S> <C>
EQUITIES 1.0%
American Mobile Satellite Corp., (2,000 common stock warrants) 144A
Private Placement (a) (e)............................................. $ 50,000
American Telecasting, Inc. (8,370 common stock warrants) (e)............ 8,370
Coastal Finance, Inc. (40,000 preferred shares)......................... 1,000,000
Crown Castle International Corp. (2,064 preferred shares) (d)........... 2,259,806
Firstworld Communications, Inc., (2,000 common stock warrants) 144A
Private Placement (a) (e)............................................. 20,000
Hosiery Corp. of America, Inc., (1,000 common shares)................... 40,500
Intermedia Communications of Florida, Inc., (3,150 common stock
warrants), 144A Private Placement (a) (e)............................. 288,115
KMC Telecommunications Holdings, Inc., (1,000 common stock warrants)
144A Private Placement (a) (e)........................................ 10,000
Meditrust (3,867 common stock warrants) (e)............................. 47,854
NTL, Inc., (5,178 common stock warrants) 144A Private
Placement (a) (e)..................................................... 310,473
Park N View, Inc., (1,000 common stock warrants) 144A Private
Placement (a) (e)..................................................... 13,000
Republic of Argentina (875 bond warrants) (e)........................... 34,125
Splitrock Services, Inc., (3,500 common stock warrants) 144A Private
Placement (a) (e)..................................................... 227,500
Star Gas Partners LP (441 common shares)................................ 6,226
Startec Global Communications (3,000 common stock warrants) (e)......... 3,000
United Mexican States (1,000 bond warrants) (US$) (e)................... 35,000
Urohealth Systems, Inc., (2,550 common stock warrants) 144A Private
Placement (a) (e)..................................................... 0
------------
TOTAL EQUITIES.......................................................... 4,353,969
------------
</TABLE>
See Notes to Financial Statements
20
<PAGE> 22
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Market Value
- ---------------------------------------------------------------------------------------
<S> <C>
TOTAL LONG-TERM INVESTMENTS 97.5%
(Cost $439,646,882)................................................... 417,468,287
SHORT-TERM INVESTMENTS 5.6%
State Street Bank and Trust Repurchase Agreement (Collateralized by
U.S. T-Note, $14,990,000 par, 13.25% coupon, due 05/15/14, dated
03/31/99, to be sold on 04/01/99 at $23,932,224) (Cost $23,929,000)... 23,929,000
------------
TOTAL INVESTMENTS 103.1%
(Cost $463,575,882)................................................... 441,397,287
LIABILITIES IN EXCESS OF OTHER ASSETS (3.1%)........................... (13,434,232)
------------
NET ASSETS 100.0%...................................................... $427,963,055
============
</TABLE>
(a) 144A Securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may be resold in
transactions exempt from registration which are normally transactions with
qualified institutional buyers.
(b) Security is a "Step-up" bond where the coupon increases or steps up at a
pre-determined date.
(c) Security is a bank loan participation.
(d) Payment-in-Kind Security.
(e) Non-income producing security.
(f) Securities purchased on a when issued or delayed delivery basis.
(g) Assets segregated as collateral for open options transactions, futures
transactions or when issued or delayed delivery purchase commitments.
See Notes to Financial Statements
21
<PAGE> 23
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $463,575,882)....................... $441,397,287
Cash........................................................ 279
Receivables:
Interest.................................................. 10,205,211
Investments Sold.......................................... 2,115,666
Fund Shares Sold.......................................... 649,055
Variation Margin on Futures............................... 40,000
Options at Market Value (Net premiums paid of $33,613)...... 26,563
Other....................................................... 10,756
------------
Total Assets.......................................... 454,444,817
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 23,269,159
Income Distributions...................................... 1,843,581
Fund Shares Repurchased................................... 393,794
Distributor and Affiliates................................ 338,702
Investment Advisory Fee................................... 241,922
Accrued Expenses............................................ 241,606
Trustees' Deferred Compensation and Retirement Plans........ 152,998
------------
Total Liabilities..................................... 26,481,762
------------
NET ASSETS.................................................. $427,963,055
============
NET ASSETS CONSIST OF:
Capital..................................................... $550,655,957
Accumulated Distributions in Excess of Net Investment
Income.................................................... (2,433,418)
Net Unrealized Depreciation................................. (22,324,238)
Accumulated Net Realized Loss............................... (97,935,246)
------------
NET ASSETS.................................................. $427,963,055
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $277,921,376 and 30,761,644 shares of
beneficial interest issued and outstanding)............. $ 9.03
Maximum sales charge (4.75%* of offering price)......... .45
------------
Maximum offering price to public........................ $ 9.48
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $135,389,202 and 14,990,680 shares of
beneficial interest issued and outstanding)............. $ 9.03
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $14,652,477 and 1,623,895 shares of
beneficial interest issued and outstanding)............. $ 9.02
============
*On sales of $100,000 or more, the sales charge will be
reduced.
</TABLE>
See Notes to Financial Statements
22
<PAGE> 24
STATEMENT OF OPERATIONS
For the Nine Months Ended March 31, 1999
and the Year Ended June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
March 31, 1999 June 30, 1998
- -----------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest (Net of foreign withholding taxes of $5,113
for the nine months ended 3/31/99 and $7,881 for the
year ended 6/30/98)................................. $ 30,971,247 $ 40,758,538
Dividends............................................. 383,121 951,901
Other................................................. 90,486 1,196,387
------------- -------------
Total Income...................................... 31,444,854 42,906,826
------------- -------------
EXPENSES:
Investment Advisory Fee............................... 2,325,843 3,298,466
Distribution (12b-1) and Service Fees (Attributed to
Classes A, B, and C of $477,598, $1,003,243, and
$91,166, respectively, for the nine months ended
3/31/99 and $687,422, $1,410,829, and $98,799,
respectively, for the year ended 6/30/98)........... 1,572,007 2,197,050
Shareholder Services.................................. 502,766 644,982
Custody............................................... 93,034 120,938
Trustees' Fees and Expenses........................... 26,730 31,475
Legal................................................. 30,140 28,850
Other................................................. 212,486 297,676
------------- -------------
Total Expenses.................................... 4,763,006 6,619,437
Investment Advisory Fee Reduction................. 310,112 439,795
------------- -------------
Net Expenses...................................... 4,452,894 6,179,642
------------- -------------
NET INVESTMENT INCOME................................. $ 26,991,960 $ 36,727,184
============= =============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments....................................... $ (11,634,256) $ 9,805,802
Options........................................... (53,687) (104,912)
Futures........................................... 62,668 497,291
Forwards.......................................... (90,210) 46,182
Foreign Currency Transactions..................... (105,603) (6,359)
------------- -------------
Net Realized Gain/Loss................................ (11,821,088) 10,238,004
------------- -------------
Unrealized Appreciation/Depreciation:
Beginning of the Period............................. 2,966,018 11,798,356
------------- -------------
End of the Period:
Investments....................................... (22,178,595) 3,058,778
Options........................................... (7,050) (5,525)
Futures........................................... (133,125) (87,188)
Foreign Currency Translation...................... (5,468) (47)
------------- -------------
(22,324,238) 2,966,018
------------- -------------
Net Unrealized Depreciation During the Period......... (25,290,256) (8,832,338)
------------- -------------
NET REALIZED AND UNREALIZED GAIN/LOSS................. $ (37,111,344) $ 1,405,666
============= =============
NET INCREASE/DECREASE IN NET ASSETS FROM OPERATIONS... $ (10,119,384) $ 38,132,850
============= =============
</TABLE>
See Notes to Financial Statements
23
<PAGE> 25
STATEMENT OF CHANGES IN NET ASSETS
For the Nine Months Ended March 31, 1999 and
the Years Ended June 30, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended Year Ended Year Ended
March 31, 1999 June 30, 1998 June 30, 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................ $26,991,960 $36,727,184 $34,529,017
Net Realized Gain/Loss........................... (11,821,088) 10,238,004 9,725,173
Net Unrealized Appreciation/Depreciation During
the Period...................................... (25,290,256) (8,832,338) 6,256,307
----------- ----------- -----------
Change in Net Assets from Operations............. (10,119,384) 38,132,850 50,510,497
----------- ----------- -----------
Distributions from Net Investment Income......... (26,991,960) (36,588,695) (34,529,017)
Distributions in Excess of Net Investment
Income.......................................... (748,041) -0- (412,288)
----------- ----------- -----------
Distributions from and in Excess of Net
Investment Income*.............................. (27,740,001) (36,588,695) (34,941,305)
Return of Capital Distribution*.................. -0- -0- (612,243)
----------- ----------- -----------
Total Distributions.............................. (27,740,001) (36,588,695) (35,553,548)
----------- ----------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES...................................... (37,859,385) 1,544,155 14,956,949
----------- ----------- -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold........................ 127,864,335 141,976,974 151,222,275
Net Asset Value of Shares Issued Through Dividend
Reinvestment.................................... 11,396,598 14,616,655 13,768,097
Cost of Shares Repurchased....................... (110,498,564) (145,829,346) (130,375,583)
----------- ----------- -----------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS.................................... 28,762,369 10,764,283 34,614,789
----------- ----------- -----------
TOTAL INCREASE/DECREASE IN NET ASSETS............ (9,097,016) 12,308,438 49,571,738
NET ASSETS:
Beginning of the Period.......................... 437,060,071 424,751,633 375,179,895
----------- ----------- -----------
End of the Period (Including accumulated
distributions in excess of net investment income
of $2,433,418, $1,685,377, and $1,905,853,
respectively)................................... $427,963,055 $437,060,071 $424,751,633
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended Year Ended Year Ended
*Distributions by Class March 31, 1999 June 30, 1998 June 30, 1997
- -----------------------------------------------------------------
<S> <C> <C> <C>
Distributions from and in
Excess of
Net Investment Income:
Class A Shares.............. (18,$518,999) $(24,757,453) $(24,888,535)
Class B Shares.............. (8,450,628) (11,057,055) (9,438,468)
Class C Shares.............. (770,374) (774,187) (614,302)
--------------- ----------- -----------
(27,$740,001) $(36,588,695) $(34,941,305)
--------------- ----------- -----------
Return of Capital
Distribution:
Class A Shares.............. $ -0- $ -0- $ (430,710)
Class B Shares.............. -0- -0- (170,818)
Class C Shares.............. -0- -0- (10,715)
--------------- ----------- -----------
$ -0- $ -0- $ (612,243)
--------------- ----------- -----------
</TABLE>
See Notes to Financial Statements
24
<PAGE> 26
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Year Ended June 30
Ended -----------------------------------------------
Class A Shares March 31, 1999 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period................. $ 9.893 $ 9.854 $ 9.493 $ 9.398 $ 9.643 $10.380
------- ------- ------- ------- ------- -------
Net Investment Income...... .619 .857 .857 .878 .844 .908
Net Realized and Unrealized
Gain/Loss................ (.848) .037 .384 .147 (.099) (.595)
------- ------- ------- ------- ------- -------
Total from Investment
Operations................. (.229) .894 1.241 1.025 .745 .313
------- ------- ------- ------- ------- -------
Less:
Distributions from and in
Excess of Net Investment
Income................... .630 .855 .865 .880 .815 .950
Return of Capital
Distribution............. -0- -0- .015 .050 .175 .100
------- ------- ------- ------- ------- -------
Total Distributions.......... .630 .855 .880 .930 .990 1.050
------- ------- ------- ------- ------- -------
Net Asset Value, End of the
Period..................... $ 9.034 $ 9.893 $ 9.854 $ 9.493 $ 9.398 $ 9.643
======= ======= ======= ======= ======= =======
Total Return* (a)............ (2.13%)** 9.36% 13.60% 11.26% 8.50% 2.92%
Net Assets at End of the
Period (In millions)....... $ 277.9 $ 280.6 $ 288.0 $ 271.1 $ 253.3 $ 260.7
Ratio of Expenses to Average
Net Assets *............... 1.17% 1.14% 1.17% 1.31% 1.31% 1.32%
Ratio of Net Investment
Income to Average Net
Assets *................... 8.98% 8.61% 8.83% 9.16% 9.13% 8.85%
Portfolio Turnover........... 104%** 154% 125% 102% 152% 203%
*If certain expenses had not been waived or reimbursed by Van Kampen, total return would have
been lower and the ratios would have been as follows:
Ratio of Expenses to Average
Net Assets................. 1.27% 1.24% 1.26% 1.31% N/A N/A
Ratio of Net Investment
Income to Average Net
Assets..................... 8.88% 8.51% 8.73% 9.15% N/A N/A
</TABLE>
** Non-Annualized
(a) Total return is based upon Net Asset Value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
N/A -- Not applicable.
See Notes to Financial Statements
25
<PAGE> 27
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Year Ended June 30,
Ended -----------------------------------------------
Class B Shares March 31, 1999 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period................. $ 9.890 $ 9.855 $ 9.497 $ 9.398 $ 9.638 $10.382
------- ------- ------- ------- ------- -------
Net Investment Income...... .560 .782 .777 .797 .788 .889
Net Realized and Unrealized
Gain/Loss................ (.842) .036 .389 .160 (.115) (.665)
------- ------- ------- ------- ------- -------
Total from Investment
Operations................. (.282) .818 1.166 .957 .673 .224
------- ------- ------- ------- ------- -------
Less:
Distributions from and in
Excess of Net Investment
Income................... .576 .783 .794 .812 .751 .877
Return of Capital
Distribution............. -0- -0- .014 .046 .162 .091
------- ------- ------- ------- ------- -------
Total Distributions.......... .576 .783 .808 .858 .913 .968
------- ------- ------- ------- ------- -------
Net Asset Value, End of the
Period..................... $ 9.032 $ 9.890 $ 9.855 $ 9.497 $ 9.398 $ 9.638
======= ======= ======= ======= ======= =======
Total Return* (a)............ (2.71%)** 9.28% 12.64% 10.55% 7.61% 2.11%
Net Assets at End of the
Period (In millions)....... $ 135.4 $ 145.0 $ 128.7 $ 97.1 $ 55.9 $ 33.2
Ratio of Expenses to Average
Net Assets*................ 1.93% 1.91% 1.93% 2.07% 2.04% 2.13%
Ratio of Net Investment
Income to Average Net
Assets*.................... 8.19% 7.84% 8.03% 8.39% 8.35% 7.94%
Portfolio Turnover........... 104%** 154% 125% 102% 152% 203%
*If certain expenses had not been waived or reimbursed by Van Kampen, total return would have
been lower and the ratios would have been as follows:
Ratio of Expenses to Average
Net Assets................. 2.03% 2.01% 2.02% 2.07% N/A N/A
Ratio of Net Investment
Income to Average Net
Assets..................... 8.09% 7.74% 7.94% 8.38% N/A N/A
</TABLE>
** Non-Annualized
(a) Total Return is based upon Net Asset Value which does not include payment of
maximum sales charge or contingent deferred sales charge.
N/A -- Not applicable.
See Notes to Financial Statements
26
<PAGE> 28
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
Nine Months Year Ended June 30, (Commencement of
Ended --------------------------------- Distribution) to
Class C Shares March 31, 1999 1998 1997 1996 1995 June 30, 1994(a)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period................. $ 9.884 $9.851 $9.495 $9.396 $9.643 $10.340
------- ------ ------ ------ ------ -------
Net Investment Income..... .562 .780 .780 .828 .745 .761
Net Realized and
Unrealized Gain/Loss.... (.847) .036 .384 .129 (.079) (.605)
------- ------ ------ ------ ------ -------
Total from Investment
Operations................ (.285) .816 1.164 .957 .666 .156
------- ------ ------ ------ ------ -------
Less:
Distributions from and in
Excess of Net Investment
Income.................. .576 .783 .794 .812 .751 .763
Return of Capital
Distribution............ -0- -0- .014 .046 .162 .090
------- ------ ------ ------ ------ -------
Total Distributions......... .576 .783 .808 .858 .913 .853
------- ------ ------ ------ ------ -------
Net Asset Value, End of
Period.................... $ 9.023 $9.884 $9.851 $9.495 $9.396 $ 9.643
======= ====== ====== ====== ====== =======
Total Return* (b)........... (2.71%)** 8.47% 12.65% 10.55% 7.61% 1.37%**
Net Assets at End of Period
(In millions)............. $14.7 $11.5 $8.1 $7.0 $2.0 $2.2
Ratio of Expenses to Average
Net Assets*............... 1.93% 1.91% 1.93% 2.06% 2.12% 2.14%
Ratio of Net Investment
Income to Average Net
Assets*................... 8.25% 7.83% 8.08% 8.38% 8.13% 7.91%
Portfolio Turnover.......... 104%** 154% 125% 102% 152% 203%**
*If certain expenses had not been waived or reimbursed by Van Kampen, total return would have been
lower and the ratios would have been as follows:
Ratio of Expenses to Average
Net Assets................ 2.03% 2.01% 2.03% 2.07% N/A N/A
Ratio of Net Investment
Income to Average Net
Assets.................... 8.15% 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
27
<PAGE> 29
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen High Yield Fund (the "Fund"), is organized as a series of Van Kampen
Trust, a Delaware business trust (the "Trust"), and is registered as a
diversified open-end management investment company under the Investment Company
Act of 1940, as amended. The Fund's primary investment objective is to provide a
high level of current income through investment in medium and lower grade
domestic corporate debt securities. The Fund also may invest up to 35% of its
assets in foreign government and corporate debt securities of comparable
quality. The Fund commenced investment operations on June 27, 1986. The Fund
commenced distribution of its Class B and C shares on May 17, 1993 and August
13, 1993, respectively. In July, 1998, the Fund's Board of Trustees approved a
change in the Fund's fiscal year end from June 30 to March 31. As a result, this
financial report reflects the nine-month period commencing on July 1, 1998, and
ending on March 31, 1999.
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 indications of value obtained from an independent pricing service. For those
securities where quotations or prices are not available valuations are 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
28
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
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 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. Although the
Fund's fiscal year end was recently changed from June 30 to March 31, the Fund's
tax year end remains June 30.
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 the difference in the Fund's tax year end, wash sales,
and mark to market on futures contracts at June 30, 1998.
At March 31, 1999, for federal income tax purposes, the cost of long- and
short-term investments is $464,304,230; the aggregate gross unrealized
appreciation is
29
<PAGE> 31
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
$10,497,938 and the aggregate gross unrealized depreciation is $33,404,881,
resulting in net unrealized depreciation on long- and short-term investments of
$22,906,943.
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.
Net realized gains, if any, are distributed annually. Distributions from net
realized gains for book purposes may include short-term capital gains, which are
included as ordinary income for tax purposes.
Due to inherent differences in the recognition of certain expenses under
generally accepted accounting principles and federal income tax purposes, the
amount of distributed net investment income may differ for a particular period.
These differences are temporary in nature, but may result in book basis
distribution in excess of net investment income for certain periods.
Due to inherent differences in the recognition of income, expenses and
realized gains/losses under generally accepted accounting principles and federal
income tax purposes, permanent differences between book and tax basis reporting
for the 1998 fiscal year have been identified and appropriately reclassified.
For the year ended June 30, 1998, permanent book and tax basis differences
relating to the recognition of net realized gains on foreign currency
transactions of $81,987 were reclassified from accumulated net realized
gain/loss to accumulated undistributed net investment income.
For tax purposes, the determination of a return of capital distribution is
made at the end of the Fund's taxable year (June 30). Therefore, while it is
likely that a portion of the Fund's distribution will ultimately be
characterized as a return of capital for tax purposes, no such designation has
been made for the nine months ended March 31, 1999.
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.
30
<PAGE> 32
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
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 nine months ended March 31, 1999 and the year ended June 30, 1998,
the Adviser waived a portion of its advisory fee. This waiver is voluntary and
may be discontinued at any time.
For the nine months ended March 31, 1999 and the year ended June 30, 1998,
the Fund recognized expenses of approximately $14,600 and $15,900, respectively,
representing legal services provided by Skadden, Arps, Slate, Meagher & Flom
(Illinois), counsel to the Fund, of which a trustee of the Fund is an affiliated
person.
For the nine months ended March 31, 1999 and the year ended June 30, 1998,
the Fund recognized expenses of approximately $34,500 and $55,000, respectively,
representing Van Kampen Funds Inc.'s or its affiliates' (collectively "Van
Kampen") cost of providing accounting and legal services to the Fund.
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.
Van Kampen Investor Services Inc., ("VKIS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the nine months
ended March 31, 1999 and the year ended June 30, 1998, the Fund recognized
expenses of approximately $347,700 and $458,900, respectively. 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.
31
<PAGE> 33
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
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 March 31, 1999, capital aggregated
$391,207,193, $144,042,232 and $15,406,532 for Class A, B and C shares,
respectively. For the nine months ended March 31, 1999, transactions were as
follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................... 8,548,658 $ 77,472,960
Class B.................................... 4,618,109 42,170,273
Class C.................................... 916,995 8,221,102
----------- -------------
Total Sales.................................. 14,083,762 $ 127,864,335
=========== =============
Dividend Reinvestment:
Class A.................................... 850,491 $ 7,690,242
Class B.................................... 364,542 3,296,841
Class C.................................... 45,353 409,515
----------- -------------
Total Dividend Reinvestment.................. 1,260,386 $ 11,396,598
=========== =============
Repurchases:
Class A.................................... (6,997,669) $ (63,522,912)
Class B.................................... (4,654,114) (42,458,339)
Class C.................................... (501,047) (4,517,313)
----------- -------------
Total Repurchases............................ (12,152,830) $(110,498,564)
=========== =============
</TABLE>
32
<PAGE> 34
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
At June 30, 1998, capital aggregated $369,566,903, $141,033,457 and
$11,293,228 for Class A, B and C shares, respectively. For the year ended June
30, 1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................... 8,945,784 $ 89,317,500
Class B.................................... 4,588,921 45,799,499
Class C.................................... 687,284 6,859,975
----------- -------------
Total Sales.................................. 14,221,989 $ 141,976,974
=========== =============
Dividend Reinvestment:
Class A.................................... 997,599 $ 9,948,016
Class B.................................... 427,244 4,261,071
Class C.................................... 40,893 407,568
----------- -------------
Total Dividend Reinvestment.................. 1,465,736 $ 14,616,655
=========== =============
Repurchases:
Class A.................................... (10,812,030) $(107,994,896)
Class B.................................... (3,408,945) (33,992,220)
Class C.................................... (385,647) (3,842,230)
----------- -------------
Total Repurchases............................ (14,606,622) $(145,829,346)
=========== =============
</TABLE>
33
<PAGE> 35
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
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>
34
<PAGE> 36
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
For the nine months ended March 31, 1999 and the year ended June 30, 1998,
Van Kampen, as Distributor for the Fund, received commissions on sales of the
Fund's Class A shares of approximately $59,200 and $78,100, respectively, and
CDSC on redeemed shares of approximately $297,900 and $342,100, respectively.
Sales charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
For the nine months ended March 31, 1999, the cost of purchases and proceeds
from sales of investments, excluding short-term investments, were $449,913,313
and $411,248,128, respectively. For the year ended June 30, 1998, the cost of
purchases and proceeds from sales of investments, excluding short-term
investments were $657,401,849 and $607,133,236, respectively.
5. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, foreign currency
exposure, maturity and duration, or generate potential gain. All of the Fund's
portfolio holdings, including derivative instruments, are marked to market each
day with the change in value reflected in unrealized appreciation/depreciation.
Upon disposition, a realized gain or loss is recognized accordingly, except when
exercising a call option contract or taking delivery of a security underlying a
futures or forward contract. In these instances, the recognition of gain or loss
is postponed until the disposal of the security underlying the option, futures
or forward contract. Risks may arise as a result of the potential inability of
the counterparties to meet the terms of their contracts.
Summarized below are the specific types of derivative financial instruments
used by the Fund.
A. OPTION CONTRACTS--An option contract gives the buyer the right, but not the
obligation to buy (call) or sell (put) an underlying item at a fixed exercise
price during a specified period. These contracts are generally used by the Fund
to manage the portfolio's effective maturity and duration.
35
<PAGE> 37
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
Transactions in options for the year ended June 30, 1998 and the nine months
ended March 31, 1999, were as follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- -----------------------------------------------------------------------
<S> <C> <C>
Outstanding at June 30, 1997.................... 0 $ 0
Options Written and Purchased (Net)........... 700 (179,977)
Options Terminated in Closing Transactions
(Net)...................................... (200) 60,976
Options Expired (Net)......................... (200) 117,226
---- ---------
Outstanding at June 30, 1998.................... 300 (1,775)
Options Written and Purchased (Net)........... 900 (61,108)
Options Terminated in Closing Transactions
(Net)...................................... (600) (7,075)
Options Expired (Net)......................... (500) 36,345
---- ---------
Outstanding at March 31, 1999................... 100 $ (33,613)
==== =========
</TABLE>
The related futures contracts of the outstanding option transactions as of
March 31, 1999, and the descriptions and market values are as follows:
<TABLE>
<CAPTION>
MARKET
EXPIRATION MONTH/ VALUE OF
CONTRACTS EXERCISE PRICE OPTIONS
- -------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury Bond Options
May 1999--Purchased Put..... 100 Dec/118 $26,563
--- --------
</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, cash or liquid 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.
36
<PAGE> 38
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
Transactions in futures contracts for the year ended June 30, 1998 and the
nine months ended March 31, 1999, were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- -----------------------------------------------------------------
<S> <C>
Outstanding at June 30, 1997........................ -0-
Futures Opened.................................... 1,675
Futures Closed.................................... (1,575)
------
Outstanding at June 30, 1998........................ 100
Futures Opened.................................... 3,583
Futures Closed.................................... (3,433)
------
Outstanding at March 31, 1999....................... 250
-----
</TABLE>
The futures contracts outstanding as of March 31, 1999, and the descriptions
and unrealized depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
- -----------------------------------------------------------------------
<S> <C> <C>
LONG CONTRACTS:
Euro Bond Future Sept. 1999
(Current notional value $237,238 per
contract)................................. 150 $(133,125)
SHORT CONTRACTS:
U.S. Treasury Bond Future June 1999
(Current notional value $120,563 per
contract)................................. 100 -0-
--- ---------
250 $(133,125)
------ ------------
</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.
D. SWAP TRANSACTIONS--These securities represent an agreement between two
parties to exchange a series of cash flows based upon various indices at
specified intervals. During the period ended, March 31, 1999, the Fund made net
payments of $936,983 on a Merrill Lynch High Yield Master Index swap which is
included as a component of interest income. There were no open swap transactions
at March 31, 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").
37
<PAGE> 39
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
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 nine months ended March 31, 1999 and the year ended June 30, 1998,
are payments retained by Van Kampen of approximately $708,100 and $1,017,300,
respectively.
38
<PAGE> 40
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 March 31, 1999, and the related statement of operations for the nine-month
period ended March 31, 1999 and the year ended June 30, 1998, the statement of
changes in net assets for the nine-month period ended March 31, 1999 and for
each of the years in the two-year period ended June 30, 1998, 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 March
31, 1999, by correspondence with the custodian and brokers and by the
application of alternative auditing procedures where broker replies were not
received. 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 March 31, 1999, the results of its operations for
the nine-month period ended March 31, 1999 and the year ended June 30, 1998, the
changes in its net assets for the nine-month period ended March 31, 1999 and for
each of the years in the two-year period ended June 30, 1998, and the financial
highlights for each of the periods presented, in conformity with generally
accepted accounting principles.
KPMG LLP
Chicago, Illinois
May 5, 1999
39
<PAGE> 41
VAN KAMPEN HIGH YIELD FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN*
Chairman
PAUL G. YOVOVICH
OFFICERS
DENNIS J. MCDONNELL*
President
JOHN L. SULLIVAN*
Vice President, Treasurer
and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
PAUL R. WOLKENBERG*
EDWARD C. WOOD, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN INVESTMENT
ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 418256
Kansas City, Missouri 64141-9256
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG LLP
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., 1999.
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 August 31, 1999, the report, if used with
prospective investors, must be accompanied by a monthly performance update.
40
<PAGE> 42
YEAR 2000 READINESS DISCLOSURE
Like other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by the Fund's investment adviser and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Fund's
investment adviser is taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to computer systems that it uses and
to obtain reasonable assurances that comparable steps are being taken by the
Fund's other major service providers. At this time, there can be no assurances
that these steps will be sufficient to avoid any adverse impact to the Fund. In
addition, the Year 2000 Problem may adversely affect the markets and the issuers
of securities in which the Fund may invest that, in turn, may adversely affect
the net asset value of the Fund. Improperly functioning trading systems may
result in settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Fund's investments may be adversely affected. The
statements above are subject to the Year 2000 Information and Readiness
Disclosure Act, which may limit the legal rights regarding the use of such
statements in the case of dispute.
<PAGE> 43
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.............. 13
Statement of Operations.......................... 14
Statement of Changes in Net Assets............... 15
Financial Highlights............................. 16
Notes to Financial Statements.................... 19
Report of Independent Accountant................. 30
</TABLE>
STGI ANR 5/99
<PAGE> 44
LETTER TO SHAREHOLDERS
April 20, 1999
Dear Shareholder,
The past decade has been a remarkable time for investors. Together we've
witnessed one of the greatest bull markets in investment history, unprecedented
growth in mutual fund investing, and a surge in personal retirement planning.
The coming millennium promises to hold even more opportunities.
To lead us into this new era of investing, Richard F. Powers III has joined
Van Kampen as Chairman and Chief Executive Officer. He comes to us from our
parent company, Morgan Stanley Dean Witter & Co., where he served as Executive
Vice President and Director of Marketing. He brings 27 years of experience in
the financial services industry, including an extensive background in product
management, strategic planning, and brand development.
Although former Chairman Don G. Powell retired on January 1, he will remain
active in the industry and the community. Mr. Powell plans to continue his
service as a member of the board of directors of the Investment Company
Institute, the leading mutual fund industry association, and he will remain a
trustee of your fund.
ECONOMIC OVERVIEW
The U.S. economy continued to grow at a robust pace, despite financial
problems abroad. In the fourth quarter, the nation's gross domestic product
(GDP) rose at an astounding 6.0 percent annual rate, surprising most economists,
whose estimates had been much more conservative. GDP remained strong through the
first quarter of 1999, posting a 4.5 percent annual growth rate. However, the
economy began to show signs of slowing down early in 1999, as corporate profits
and wage growth declined.
A series of interest rate cuts by the Federal Reserve helped the U.S.
economy avoid the economic slump that plagued many global markets. The Fed's
0.25 percent interest rate cut in September was followed by additional cuts in
October and November. These rate cuts, coupled with a wave of corporate mergers
and cost-cutting measures, lent the support needed to foster continued growth.
In addition, the outlook for troubled areas such as Asia and Latin America
improved significantly, and most experts agree that these economies are on the
slow road to recovery.
Despite the improvements abroad and record economic growth in the United
States, inflation remained at bay as commodity prices tumbled. This low
inflationary environment--only a 1.7 percent increase in the consumer price
index over the past 12 months--contributed to the strong domestic economy and
kept inflation-adjusted interest rates attractive. A low level of unemployment,
vibrant consumer spending, and an active housing market also supported the
positive economic conditions.
Continued on page 2
1
<PAGE> 45
MARKET REVIEW
Most areas of the bond market were quite active during the reporting period,
with U.S. Treasury bonds experiencing the greatest price appreciation. Intense
demand, decreasing supply, and a flight to quality that included investors
around the globe pushed the 30-year Treasury bond to its lowest yield ever in
October 1998.
At the same time, investors shied away from lower-rated securities, causing
the prices of high-yield bonds to plummet. This lack of demand for lower-rated
bonds led to unusually high yields in the marketplace as investors required
significant premiums in exchange for purchasing these out-of-favor securities.
The difference in yields between U.S. Treasury bonds and high-yield bonds of
comparable maturity widened to as much as 7.79 percent in mid-October. The
high-yield market rebounded late in 1998 as investors saw that the economy was
performing well and that the global financial crisis was on its way to recovery.
The prices of most investment-grade bonds experienced similar, though much less
dramatic, movement during this period. Investors' preference for quality also
held true for international bonds, although there was some renewed interest in
lower-rated foreign bonds in recent months.
OUTLOOK
Our outlook for the domestic economy remains positive, although the pattern
of reduced growth may continue into the second half of the year. We look for a
slow but steady rise in inflation throughout 1999 to more normal, but certainly
not alarming levels. Internationally, low interest rates and improving financial
conditions should continue to support the economic improvements we've witnessed
in Asia and Latin America.
We believe the markets may still favor higher-quality securities such as
large-company stocks and investment-grade bonds in the near term. In addition,
we anticipate continued day-to-day volatility in the markets, although we
probably won't see sustained high or low periods during the next six months.
Additional details about your fund, including a question-and-answer section
with your portfolio management team, are provided in this report. As always, we
are pleased to have the opportunity to share with you the progress of your
investment.
Sincerely,
[SIG]
Richard F. Powers III
Chairman
Van Kampen Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
2
<PAGE> 46
PERFORMANCE RESULTS FOR THE PERIOD ENDED MARCH 31, 1999
VAN KAMPEN SHORT-TERM GLOBAL INCOME FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS
Nine-month total return based on
NAV(1)................................... 1.76% 1.15% 1.15%
Nine-month total return(2)............... (1.58%) (1.76%) 0.18%
One-year total return(2)................. (1.91%) (2.30%) (0.39%)
Five-year average annual total
return(2)................................ 2.91% 2.80% 2.78%
Life-of-Fund average annual total
return(2)................................ 3.78% 3.19% 1.76%
Commencement date........................ 09/28/90 07/22/91 08/13/93
DISTRIBUTION RATE AND YIELD
Distribution rate(3)..................... 6.02% 5.41% 5.41%
SEC Yield(4)............................. 6.14% 5.59% 5.59%
</TABLE>
(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 March 31, 1999.
See the Fund Performance section of the current prospectus. Past performance
does not guarantee future results. Investment return and net asset value will
fluctuate with market conditions. Fund shares, when redeemed, may be worth more
or less than their original cost.
The Fund's net asset value will fluctuate as a result of changes in foreign
exchange rates and fluctuations in market interest rates. Foreign investments
involve the risks of future foreign political and economic developments and
securities of many foreign companies are less liquid and their prices more
volatile than domestic companies.
Market forecasts provided in this report may not necessarily come to pass.
On July 31, 1998, the Fund's Board of Trustees voted to change the Fund's fiscal
year end from June 30 to March 31. As a result, this annual report reflects the
9-month period commencing on July 1, 1998 and ending on March 31, 1999.
3
<PAGE> 47
PUTTING YOUR FUND'S PERFORMANCE IN PERSPECTIVE
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment performance at regular intervals. A
comparison of your Fund's performance to an applicable benchmark can:
- Illustrate the market environment in which your Fund is being managed.
- Reflect the impact of favorable market trends or difficult market
conditions.
- Help you evaluate how your Fund's management team has responded to
opportunities and challenges.
The following graph compares your Fund's performance to that of J.P. Morgan
Short-Term Global Index over time. This index is a broad-based, statistical
composite that does not include any commissions or sales charges that would be
paid by an investor purchasing the securities it represents.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen Short-Term Global Income Fund vs. the J.P. Morgan Short-Term
Global Index (September 28, 1990 through March 31, 1999)
[INVESTMENT PERFORMANCE GRAPH]
- ------------------------------------
Fund's Total Return
1 Year Total Return = -1.91%
5 Year Avg. Annual = 2.91%
Inception Avg. Annual = 3.78%
- ------------------------------------
<TABLE>
<CAPTION>
VAN KAMPEN SHORT-TERM GLOBAL
INCOME FUND J.P. MORGAN SHORT-TERM GLOBAL INDEX
---------------------------- -----------------------------------
<S> <C> <C>
Sep 1990 9671.00 10000.00
9651.00 10250.00
9688.00 10354.00
9755.00 10450.00
9822.00 10610.00
9932.00 10630.00
Mar 1991 10060.00 10410.00
10108.00 10504.00
10172.00 10547.00
10152.00 10473.00
10205.00 10649.00
10299.00 10799.00
10412.00 11065.00
10546.00 11168.00
10548.00 11348.00
10695.00 11722.00
10775.00 11684.00
10970.00 11560.00
Mar 1992 11027.00 11541.00
11108.00 11647.00
11259.00 11656.00
11304.00 12130.00
11338.00 12339.00
11313.00 12600.00
11241.00 12664.00
11323.00 12393.00
11238.00 12215.00
11257.00 12278.00
11362.00 12402.00
11264.00 12456.00
Mar 1993 11127.00 12619.00
11218.00 12811.00
11346.00 12833.00
11627.00 12724.00
11780.00 12669.00
11945.00 12668.00
11823.00 12960.00
11958.00 12951.00
11924.00 12699.00
12074.00 12960.00
12106.00 13084.00
11752.00 13067.00
Mar 1994 11489.00 13138.00
11360.00 13167.00
11311.00 13170.00
11207.00 13332.00
11226.00 13424.00
11218.00 13457.00
11224.00 13558.00
11243.00 13745.00
11221.00 13549.00
11184.00 13592.00
11132.00 13826.00
11124.00 14089.00
Mar 1995 10955.00 14489.00
11107.00 14629.00
11299.00 14822.00
11284.00 14959.00
11448.00 15111.00
11583.00 14668.00
11704.00 15126.00
11780.00 15291.00
11857.00 15356.00
11919.00 15533.00
12089.00 15447.00
11980.00 15508.00
Mar 1996 12022.00 15507.00
12192.00 15443.00
12219.00 15502.00
12276.00 15616.00
12305.00 15865.00
12317.00 15950.00
12453.00 15952.00
12574.00 16170.00
12695.00 16245.00
12717.00 16251.00
12790.00 15904.00
12813.00 15728.00
Mar 1997 12713.00 15753.00
12766.00 15641.00
12921.00 15878.00
13028.00 15908.00
13217.00 15686.00
13215.00 15786.00
13336.00 16029.00
13366.00 16261.00
13314.00 16102.00
13312.00 16050.00
13414.00 16101.00
13391.00 16206.00
Mar 1998 13529.00 16110.00
13596.00 16365.00
13590.00 16433.00
13475.00 16421.00
13580.00 16542.00
12930.00 16787.00
13035.00 17427.00
13402.00 17727.00
13565.00 17530.00
13597.00 17842.00
13591.00 17681.00
13623.00 17281.00
Mar 1999 13713.00 17283.00
</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.
4
<PAGE> 48
GLOSSARY OF TERMS
BASIS POINT: A measure used in quoting bond yields. One hundred basis points is
equal to 1 percent. For example, if a bond's yield changes from 7.00 to 6.65
percent, it is a 35 basis-point move.
BOND: A debt security issued by a government or corporation that generally pays
a bondholder a stated rate of interest and repays the principal at the
maturity date.
CREDIT SPREAD: Also called quality spread, the difference in yield between
higher-quality issues (such as Treasury securities) and lower-quality
issues. Normally, lower-quality issues provide higher yields to compensate
investors for the additional credit risk.
DURATION: A measure of the sensitivity of a bond's price to changes in interest
rates, expressed in years. Each year of duration represents an expected 1
percent change in the price of a bond for every 1 percent change in interest
rates. The longer a fund's duration, the greater the effect of interest rate
movements on net asset value. Typically, funds with shorter durations have
performed better in rising rate environments, while funds with longer
durations have performed better when rates decline.
EMERGING MARKETS: The financial markets of developing economies. Many Latin
American and Asian countries are considered emerging markets.
EUROPEAN MONETARY UNION (EMU): A group of European countries creating one
currency for the entire region.
FEDERAL FUNDS RATE: The interest rate charged by one financial institution
lending federal funds to another. This overnight rate is used to meet banks'
daily reserve requirements. The Federal Reserve Board uses the federal funds
rate to affect the direction of interest rates.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank system of the United States. Its
policy-making committee, called the Federal Open Market Committee, meets
eight times a year to establish monetary policy and monitor the economic
pulse of the United States.
INVESTMENT GRADE BONDS: Securities rated BBB and above by Standard & Poor's or
Baa and above by Moody's Investor Services. Bonds rated below BBB or Baa are
noninvestment grade.
NET ASSET VALUE (NAV): The value of a mutual fund share, calculated by deducting
a fund's liabilities from its total assets and dividing this amount by the
number of shares outstanding. The NAV does not include any initial or
contingent deferred sales charge.
VOLATILITY: A measure of the fluctuation in the market price of a security. A
security that is volatile has frequent and large swings in price.
YIELD: The annual rate of return on an investment, expressed as a percentage.
5
<PAGE> 49
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 nine months. The team is led by Thomas J. Slefinger, portfolio
manager, and Peter W. Hegel, chief investment officer for fixed-income
investments.
The Fund's fiscal year end was recently changed from June 30 to March 31.
Going forward, your semiannual reports will be dated September 30, and your
annual reports will be dated March 31. The following interview discusses the
Fund's performance during the nine-month period since your last annual report,
from July 1, 1998, to March 31, 1999.
Q HOW WOULD YOU DESCRIBE THE INVESTMENT ENVIRONMENT IN WHICH THE FUND
OPERATED DURING THE PAST NINE MONTHS?
A During the third quarter of 1998, continued economic weakness in Asia and
Japan spread to Russia and Latin America, and there were warning signs
that Asia's problems were beginning to affect Europe and the United
States. With turmoil in the emerging markets and a crisis of confidence in the
domestic and European markets, many investors moved into high-quality government
bonds, primarily those issued by the United States.
Paced by the Federal Reserve Board and the European Central Bank (ECB),
banks worldwide lowered interest rates during the fourth quarter of 1998. The
interest rate cuts renewed investor confidence and helped revive stock and bond
markets in Europe and the United States. During the first quarter of 1999,
global stock and bond markets began to settle down, but recent political
rumblings in Eastern Europe left many investors cautious about potential market
volatility.
Q WHAT STRATEGY DID YOU EMPLOY TO MANAGE THE FUND IN THIS INVESTMENT
ENVIRONMENT?
A Because of the global problems in the third quarter, we experienced
extreme volatility during most of the period in securities that are
sensitive to liquidity and credit concerns, primarily high-yield and
emerging market securities. Our investments in these securities were key
obstacles to Fund performance during the period. During the first quarter of
1999, both sectors rebounded, despite lower-than-expected demand for high-yield
securities, which has usually been strong in the first quarter. We decreased our
exposure to these sectors during the turbulent period but increased our exposure
as the recovery began.
Q HOW IS THE FUND POSITIONED TO TAKE ADVANTAGE OF THIS RECOVERY IN THE
EMERGING MARKETS?
A Generally, we look for select opportunities within the emerging markets
that we feel have the potential to benefit the Fund. One example is
Mexico, where approximately 5 percent of the Fund is currently invested.
We believe Mexico's prudent
6
<PAGE> 50
financial management, policy initiatives, and proximity to the United States
make it attractive, and the recent recovery in oil pricing may help its
performance.
We also have significant positions in Hungary and Greece, countries that are
expected to join the second wave of European economic and monetary union (EMU),
which had performed well until the Kosovo situation erupted in the first quarter
of 1999. Going forward, we look for interest rates and currencies in these
countries to become more closely aligned with those countries already
participating in EMU. For additional Fund portfolio highlights, please refer to
page 9.
Q HOW DID THE FUND PERFORM DURING THE NINE-MONTH REPORTING PERIOD?
A The Fund's total return for the nine-month reporting period was 1.76
percent(1) (Class A shares at net asset value). The Fund's total return
for the 12 months ending March 31, 1999, was 1.36 percent (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 5.25 percent for
the nine-month period. This index does not reflect any commissions or sales
charges that would be paid by an investor purchasing the securities or
investments it represents.
The Fund's Class A distribution rate as of March 31, 1999 was 6.02
percent(3) (based on a monthly dividend of $0.037 per share and a maximum public
offering price of $7.38 per share). Please refer to the chart and footnotes on
page 3 for additional Fund performance results. Past performance does not
guarantee future results.
Q WHAT INFLUENCE MIGHT JAPAN PLAY ON GLOBAL BOND MARKETS IN THE COMING
MONTHS?
A Currently, we have no exposure to Japan. The country began 1999 with an
expansionary fiscal policy and plans to issue a tremendous amount of debt
during the year. We expect the demand for this debt to be weak, which
could affect their interest rates and weaken the Japanese bond market. The
problem we see is that the major bond markets--including Japan, Europe, and the
United States--are highly correlated, meaning they generally follow similar
patterns. If Japan's bond market weakens, we look for European and U.S. bond
markets to follow.
Q ARE YOU INVESTED IN ANY CURRENCIES?
A We currently have approximately 8 percent of the Fund invested in the
euro. In September, we felt the euro would be a strong currency in the
short term because of the initial excitement surrounding its launch.
Although this has not happened, we still believe that the currency has the
potential to strengthen and, if it does, we believe this position should benefit
the Fund.
In addition, we are maintaining significant currency exposure to Canada and
New Zealand because of the high correlation between these currencies and their
7
<PAGE> 51
commodity-based economies. The pattern has been that as their economies recover,
their currencies generally strengthen.
Q WHAT IS YOUR OUTLOOK FOR THE FUND IN THE NEXT SIX MONTHS?
A Events such as the situation in Kosovo indicate to us that volatility in
the global market place will probably continue. In the short term, we have
positioned the Fund to take advantage of the strong U.S. dollar and plan
to maintain a short duration because we expect interest rates to rise worldwide.
Duration is a measure of a bond's sensitivity to interest rates, and a short
duration can be used to help reduce the Fund's volatility in a rising rate
environment.
From a long-term perspective, we expect the U.S. dollar to weaken during the
second half of the year and, if it does, we intend to decrease the Fund's
exposure to U.S. dollar-denominated securities. Overall, we feel that rising
long-term interest rates should benefit potentially higher-yielding spread
products, including mortgage-backed, high-yield, and emerging market securities.
[SIG]
Thomas J. Slefinger
Portfolio Manager
[SIG]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
8
<PAGE> 52
PORTFOLIO HIGHLIGHTS
VAN KAMPEN SHORT-TERM GLOBAL INCOME FUND
PORTFOLIO HOLDINGS AS A PERCENTAGE OF TOTAL INVESTMENTS
<TABLE>
<CAPTION>
TOP TEN HOLDINGS PERCENTAGE OF
AS OF THESE INVESTMENTS
MARCH 31, 1999 NINE MONTHS AGO
<S> <C> <C> <C>
RAST 1998-A4 ....................... 14.2% ................. 11.7%
Eurodollar Time Deposit ............ 7.9% ................. N/A
Repurchase Agreement ............... 5.7% ................. 16.1%
Petro Mexicanos .................... 5.2% ................. N/A
Union Bank of Norway ............... 3.8% ................. 3.2%
Canadian Time Deposit .............. 3.8% ................. N/A
GMAC ............................... 3.6% ................. 3.0%
Hungary Government ................. 3.4% ................. N/A
Petroliam Nasional Berhad .......... 3.2% ................. 4.6%
Empresa Electrica Del Notre ........ 2.9% ................. 3.9%
</TABLE>
N/A = Not Applicable
ASSET ALLOCATION AS A PERCENTAGE OF TOTAL INVESTMENTS
[PIE CHART]
<TABLE>
<CAPTION>
U.S.
FOREIGN FOREIGN NON- GOVERNMENT/MORTGAGE- DOMESTIC
INVESTMENT INVESTMENT BACKED FOREIGN INVESTMENT REPURCHASE PREFERRED
GRADE BONDS GRADE BONDS SECURITIES CURRENCY GRADE BONDS AGREEMENT STOCKS
----------- ------------ ------------------- -------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
AS OF MARCH 31, 1999 32.90 18.30 16.90 11.70 13.80 5.70 0.7%
</TABLE>
[PIE CHART]
<TABLE>
<CAPTION>
U.S.
FOREIGN FOREIGN NON- GOVERNMENT/MORTGAGE- DOMESTIC
INVESTMENT INVESTMENT BACKED FOREIGN INVESTMENT REPURCHASE PREFERRED
GRADE BONDS GRADE BONDS SECURITIES CURRENCY GRADE BONDS AGREEMENT STOCK
----------- ------------ -------------------- -------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
AS OF JUNE 30, 1998 42.70 18.30 13.80 0.1% 8.40 16.10 0.6%
</TABLE>
9
<PAGE> 53
PORTFOLIO OF INVESTMENTS
March 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
in Local
Currency Maturity U.S. $
(000) Description Coupon Date Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORPORATE BONDS 47.0%
CONSUMER NON-DURABLES 4.6%
1,500 Gillette -- US$.......................... 6.000% 11/14/00 $ 1,511,250
1,000 Glaxo Welcome -- US$..................... 6.750 05/31/00 1,003,500
-----------
2,514,750
-----------
ELECTRONICS 1.7%
1,000 CIA Transporte Energia, 144A -- US$
(a)...................................... 8.625 04/01/03 937,500
-----------
ENERGY 8.4%
3,000 Petro Mexicanos, 144A -- US$ (a)......... 9.857 07/15/05 2,790,000
1,850 Petroliam Nasional Berhad, 144A -- US$
(a) (b).................................. 6.875 07/01/03 1,754,170
-----------
4,544,170
-----------
FINANCE 27.6%
1,000 Bank of Ireland -- US$................... 6.625 09/29/29 950,000
2,500 Export-Import Bank Korea -- DEM.......... 4.063 10/06/00 1,337,167
1,500 GE Capital Corp. -- US$.................. 5.500 01/16/01 1,497,600
1,000 GMAC -- US$.............................. 5.330 10/20/00 996,820
1,200 GMAC -- GBP.............................. 5.330 09/25/02 1,927,712
1,500 Interamer Development Bank -- US$........ 6.375 08/01/00 1,513,950
1,000 Korea Development Bank -- US$............ 7.900 02/01/02 1,002,400
1,600 Korea Development Bank -- DEM............ 5.625 10/25/99 882,323
1,000 NBG Finance PLC -- US$................... * 06/24/07 970,000
2,500 Nordic Investment Bank -- NZ$............ 6.750 09/16/99 1,346,726
500 SB Treasury Co. LLC, 144A -- US$ (a)
(b)...................................... 9.400 12/29/49 490,890
2,000 Union Bank of Norway, 144A -- US$ (a).... 9.100 10/25/00 2,065,000
-----------
14,980,588
-----------
UTILITIES 4.7%
3,000 Empresa Electrica Del Notre, 144A -- US$
(a)...................................... 7.750 03/15/06 1,560,000
1,000 Telecom Brazil -- US$.................... 11.250 12/09/99 970,000
-----------
2,530,000
-----------
Total Corporate Bonds........................................ 25,507,008
-----------
</TABLE>
See Notes to Financial Statements
10
<PAGE> 54
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
in Local
Currency Maturity U.S. $
(000) Description Coupon Date Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOREIGN GOVERNMENT AND AGENCY SECURITIES 17.7%
COLOMBIA 5.6%
2,500 Republic of Colombia -- Euro............. 4.900% 11/21/01 $ 1,212,780
1,000 Republic of Colombia -- US$.............. 8.660 10/07/16 885,000
1,000 Republic of Colombia -- US$.............. 12.243 08/13/05 912,500
-----------
3,010,280
-----------
GREECE 3.9%
300,000 Hellenic Republic -- GRD................. 9.200 03/21/02 1,047,756
320,000 Hellenic Republic -- GRD................. 9.800 03/21/00 1,068,471
-----------
2,116,227
-----------
HUNGARY 3.3%
425,000 Hungary Government -- HUF................ 16.000 11/24/00 1,842,274
-----------
PANAMA 2.7%
1,500 Republic of Panama, 144A -- US$ (a)
(b)...................................... 7.875 02/13/02 1,455,000
-----------
RUSSIA 0.3%
42 Russian Ian -- US$....................... 5.969 12/15/15 3,367
2,500 Russia Principal Loan -- Vnesh -- US$ (c)
(d)...................................... 5.969 12/15/20 181,250
-----------
184,617
-----------
SOUTH AFRICA 1.9%
1,000 Republic of South Africa -- US$.......... 9.625 12/15/99 1,018,800
-----------
Total Foreign Government and Agency Securities............... 9,627,198
-----------
US GOVERNMENT AND AGENCY OBLIGATIONS 2.7%
2,600 FNMA -- NZ$.............................. 7.250 06/20/02 1,451,157
-----------
MORTGAGE BACKED OBLIGATIONS 14.1%
7,650 RAST 1998-A4 -- US$ (b).................. 6.750 05/25/28 7,672,711
-----------
PREFERRED STOCK 0.7%
Avalon Bay Communities, Inc. -- US$ (6,000 preferred
shares)...................................................... 148,875
First Industrial Realty Trust -- US$ (10,000 preferred
shares)...................................................... 218,750
-----------
Total Preferred Stock........................................ 367,625
-----------
REPURCHASE AGREEMENT 5.7%
State Street Bank and Trust (collateralized by $1,935,000 of U.S.
Treasury Bonds, 13.25% coupon, due 05/15/14 dated 03/31/99, to be sold
on 04/01/99 at $3,082,415).............................................. 3,082,000
-----------
</TABLE>
See Notes to Financial Statements
11
<PAGE> 55
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
in Local
Currency Maturity U.S. $
(000) Description Coupon Date Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHORT TERM NOTES 11.6%
2,043 Canadian Time Deposit.................... 4.750% 04/26/99 $ 2,043,420
4,264 Eurodollar Time Deposit.................. * 04/12/99 4,263,632
-----------
6,307,052
-----------
TOTAL INVESTMENTS 99.5%
(Cost $56,708,110).................................................... 54,014,751
OTHER ASSETS IN EXCESS OF LIABILITIES 0.5%............................. 265,670
-----------
NET ASSETS 100.0%...................................................... $54,280,421
------------
</TABLE>
* Zero coupon bond
(a) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may only be resold in
transactions exempt from registration which are normally those transactions
with qualified institutional buyers.
(b) Assets segregated as collateral for open forward currency contracts.
(c) Payment in kind security.
(d) Security is accruing at less than the stated coupon.
PORTFOLIO COMPOSITION BY CREDIT QUALITY
The following table summarizes the portfolio composition at March 31, 1999,
based upon the highest credit quality ratings as determined by Standard & Poor's
or Moody's.
<TABLE>
<S> <C>
Short Term Notes............... 11.7%
Repurchase Agreement........... 5.7%
AAA............................ 28.5%
AA............................. 4.7%
A.............................. 10.9%
BBB............................ 20.2%
BB............................. 12.4%
NR............................. 5.9%
-----
100.0%
=====
</TABLE>
See Notes to Financial Statements
12
<PAGE> 56
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $56,708,110)........................ $ 54,014,751
Cash........................................................ 871
Receivables:
Interest.................................................. 784,814
Investments Sold.......................................... 62,108
Forward Currency Contracts................................ 28,889
Fund Shares Sold.......................................... 900
------------
Total Assets.......................................... 54,892,333
------------
LIABILITIES:
Payables:
Income Distributions...................................... 148,581
Distributor and Affiliates................................ 92,397
Investment Advisory Fee................................... 25,511
Fund Shares Repurchased................................... 23,491
Accrued Expenses............................................ 178,674
Trustees' Deferred Compensation and Retirement Plans........ 143,258
------------
Total Liabilities..................................... 611,912
------------
NET ASSETS.................................................. $ 54,280,421
============
NET ASSETS CONSIST OF:
Capital..................................................... $123,851,003
Accumulated Distributions in Excess of Net Investment
Income.................................................... (1,974,455)
Net Unrealized Depreciation................................. (2,802,037)
Accumulated Net Realized Loss............................... (64,794,090)
------------
NET ASSETS.................................................. $ 54,280,421
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $50,986,605 and 7,142,474 shares of
beneficial interest issued and outstanding)............. $ 7.14
Maximum sales charge (3.25%* of offering price)......... .24
------------
Maximum offering price to public........................ $ 7.38
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $3,029,945 and 424,495 shares of
beneficial interest issued and outstanding)............. $ 7.14
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $263,871 and 36,957 shares of beneficial
interest issued and outstanding)........................ $ 7.14
============
</TABLE>
*On sales of $25,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
13
<PAGE> 57
STATEMENT OF OPERATIONS
For the Nine Months Ended March 31, 1999
and the Year Ended June 30, 1998
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
March 31, 1999 June 30, 1998
- -----------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest (net of foreign withholding taxes of $2,676
and $13,886, respectively, for the nine months ended
3/31/99 and the year ended 6/30/98)................. $ 3,400,269 $ 5,294,057
Dividends............................................. 26,486 14,298
----------- -----------
Total Income...................................... 3,426,755 5,308,355
----------- -----------
EXPENSES:
Investment Advisory Fee............................... 242,697 434,761
Distribution (12b-1) and Service Fees (Attributed to
Classes A, B and C of $93,706, $64,108 and $2,336,
respectively for the nine months ended 3/31/99 and
$102,020, $379,656 and $2,737, respectively, for the
year ended 6/30/98)................................. 160,150 484,413
Shareholder Services.................................. 117,791 196,607
Custody............................................... 50,511 51,999
Blue Sky Expense...................................... 39,037 53,912
Trustees' Fees and Expenses........................... 24,361 28,422
Legal................................................. 20,550 12,375
Other................................................. 81,905 145,646
----------- -----------
Total Expenses.................................... 737,002 1,408,135
Less Expenses Reimbursed.......................... -0- 14,546
----------- -----------
Net Expenses...................................... 737,002 1,393,589
----------- -----------
NET INVESTMENT INCOME................................. $ 2,689,753 $ 3,914,766
=========== ===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments......................................... $ (137,078) $ 863,170
Options............................................. -0- 18,292
Futures............................................. (366,635) (119,252)
Forwards............................................ 82,459 3,165,132
Foreign Currency Transactions....................... (1,030,272) (4,194,518)
----------- -----------
Net Realized Loss..................................... (1,451,526) (267,176)
----------- -----------
Net Unrealized Appreciation/Depreciation:
Beginning of the Period............................. (2,416,979) (1,420,976)
----------- -----------
End of the Period:
Investments....................................... (2,693,359) (1,465,165)
Forwards.......................................... (87,945) (939,286)
Futures........................................... -0- (12,353)
Foreign Currency Translation...................... (20,733) (175)
----------- -----------
(2,802,037) (2,416,979)
----------- -----------
Net Unrealized Depreciation During the Period......... (385,058) (996,003)
----------- -----------
NET REALIZED AND UNREALIZED LOSS...................... $(1,836,584) $(1,263,179)
=========== ===========
NET INCREASE IN NET ASSETS FROM OPERATIONS............ $ 853,169 $ 2,651,587
=========== ===========
</TABLE>
See Notes to Financial Statements
14
<PAGE> 58
STATEMENT OF CHANGES IN NET ASSETS
For the Nine Months Ended March 31, 1999 and the
Years Ended June 30, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended Year Ended Year Ended
March 31, 1999 June 30, 1998 June 30, 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
From Investment Activities:
Operations:
Net Investment Income..................... $ 2,689,753 $ 3,914,766 $ 5,420,224
Net Realized Gain/Loss.................... (1,451,526) (267,176) 1,725,990
Net Unrealized Depreciation During the
Period.................................. (385,058) (996,003) (1,136,411)
----------- ------------ ------------
Change in Net Assets from Operations...... 853,169 2,651,587 6,009,803
----------- ------------ ------------
Distributions from Net Investment
Income.................................. (2,678,361) (3,914,766) (5,420,224)
Distributions in Excess of Net Investment
Income.................................. -0- (331,088) (1,573,147)
----------- ------------ ------------
Distributions from and in Excess of Net
Investment Income*...................... (2,678,361) (4,245,854) (6,993,371)
Return of Capital Distribution*........... -0- (290,326) (91,680)
----------- ------------ ------------
Total Distributions....................... (2,678,361) (4,536,180) (7,085,051)
----------- ------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES.............................. (1,825,192) (1,884,593) (1,075,248)
----------- ------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................. 14,681,976 19,032,931 3,720,807
Net Asset Value of Shares Issued Through
Dividend Reinvestment................... 1,300,796 2,772,850 4,048,955
Cost of Shares Repurchased................ (25,487,170) (46,043,368) (46,302,530)
----------- ------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS............................ (9,504,398) (24,237,587) (38,532,768)
----------- ------------ ------------
TOTAL DECREASE IN NET ASSETS.............. (11,329,590) (26,122,180) (39,608,016)
NET ASSETS:
Beginning of the Period................... 65,610,011 91,732,191 131,340,207
----------- ------------ ------------
End of the Period (Including accumulated
distributions in excess of net
investment income of $1,974,455,
$1,985,847 and $455,277,
respectively)........................... $54,280,421 $ 65,610,011 $ 91,732,191
=========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended Year Ended Year Ended
*Distributions by Class March 31, 1999 June 30, 1998 June 30, 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Distributions from and in Excess of Net
Investment Income:
Class A Shares........................... $(2,323,505) (2,310,645) $ (3,003,963)
Class B Shares........................... (342,314) (1,921,964) (3,977,304)
Class C Shares........................... (12,542) (13,245) (12,104)
----------- ------------ ------------
$(2,678,361) $ (4,245,854) $ (6,993,371)
=========== ============ ============
Return of Capital Distribution:
Class A Shares........................... $ -0- $ (179,548) $ (40,726)
Class B Shares........................... -0- (109,531) (50,795)
Class C Shares........................... -0- (1,247) (159)
----------- ------------ ------------
$ -0- $ (290,326) $ (91,680)
=========== ============ ============
</TABLE>
See Notes to Financial Statements
15
<PAGE> 59
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,
Nine Months Ended --------------------------------------
Class A Shares March 31, 1999 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period................. $7.35 $7.55 $7.62 $7.56 $8.15 $9.11
----- ----- ----- ----- ----- ------
Net Investment Income........ .33 .39 .42 .49 .50 .59
Net Realized and Unrealized
Gain/Loss.................. (.21) (.13) .03 .16 (.45) (.89)
----- ------ ----- ----- ----- ------
Total from Investment
Operations................. .12 .26 .45 .65 .05 (.30)
----- ----- ----- ----- ----- ------
Less:
Distributions from and in
Excess of Net Investment
Income................... .33 .42 .51 -0- .37 .35
Return of Capital
Distribution............. -0- .04 .01 .59 .27 .31
----- ----- ----- ----- ----- ------
Total Distributions.......... .33 .46 .52 .59 .64 .66
----- ----- ----- ----- ----- ------
Net Asset Value, End of the
Period..................... $7.14 $7.35 $7.55 $7.62 $7.56 $8.15
===== ===== ===== ===== ===== ======
Total Return* (a)............ 1.76%** 3.46% 6.09% 8.81% .69% (3.61%)
Net Assets at End of the
Period (In millions)....... $51.0 $45.7 $39.5 $50.1 $72.5 $147.7
Ratio of Expenses to Average
Net Assets* (b)............ 1.56% 1.39% 1.33% 1.31% 1.14% 1.13%
Ratio of Net Investment
Income to Average Net
Assets*.................... 6.21% 5.40% 5.37% 6.54% 7.20% 6.64%
Portfolio Turnover........... 53%** 175% 378% 225% 204% 259%
</TABLE>
* If certain expenses had not been assumed by Van Kampen, Total Return would
have been lower and the ratios would have been as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Ratio of Expenses to Average
Net Assets (b)............. N/A 1.41% 1.36% 1.34% N/A N/A
Ratio of Net Investment
Income to Average Net
Assets..................... N/A 5.38% 5.34% 6.51% N/A N/A
</TABLE>
**Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) Beginning with the year ended June 30, 1997, the Ratios of Expenses to
Average Net Assets are based upon expense amounts which do not reflect
credits earned on overnight cash balances.
N/A = Not Applicable
See Notes to Financial Statements
16
<PAGE> 60
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,
Nine Months Ended ------------------------------------------
Class B Shares March 31, 1999(a) 1998(a) 1997(a) 1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period................. $7.35 $7.55 $7.62 $7.56 $8.15 $9.10
----- ----- ----- ----- ----- ------
Net Investment Income........ .36 .36 .35 .39 .41 .54
Net Realized and Unrealized
Gain/Loss.................. (.28) (.16) .04 .20 (.42) (.90)
----- ----- ----- ----- ----- ------
Total from Investment
Operations................. .08 .20 .39 .59 (.01) (.36)
----- ----- ----- ----- ----- ------
Less:
Distributions from and in
Excess of Net Investment
Income................... .29 .37 .45 -0- .34 .32
Return of Capital
Distribution............. -0- .03 .01 .53 .24 .27
----- ----- ----- ----- ----- ------
Total Distributions.......... .29 .40 .46 .53 .58 .59
----- ----- ----- ----- ----- ------
Net Asset Value, End of the
Period..................... $7.14 $7.35 $7.55 $7.62 $7.56 $8.15
===== ===== ===== ===== ===== ======
Total Return* (b)............ 1.15%** 2.67% 5.29% 8.02% (.14%) (4.22%)
Net Assets at End of the
Period (In millions)....... $3.0 $19.6 $52.1 $81.1 $127.9 $271.8
Ratio of Expenses to Average
Net Assets* (c)............ 2.31% 2.16% 2.09% 2.09% 1.96% 1.85%
Ratio of Net Investment
Income to Average Net
Assets*.................... 5.46% 4.48% 4.62% 5.79% 6.42% 5.91%
Portfolio Turnover........... 53%** 175% 378% 225% 204% 259%
* If certain expenses had not been
assumed by Van Kampen, Total
Return would have been lower and
the ratios would have been
as follows:
Ratio of Expenses to Average
Net Assets (c)............. N/A 2.18% 2.12% 2.09% N/A N/A
Ratio of Net Investment
Income to Average Net
Assets..................... N/A 4.46% 4.59% 5.76% N/A N/A
</TABLE>
** Non-Annualized
(a) Based on average month-end shares outstanding.
(b) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(c) Beginning with the year ended June 30, 1997, the Ratios of Expenses to
Average Net Assets are based upon expense amounts which do not reflect
credits earned on overnight cash balances.
N/A = Not Applicable
See Notes to Financial Statements
17
<PAGE> 61
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
Nine Months Ended --------------------------------- Distribution) to
Class C Shares March 31, 1999(a) 1998(a) 1997(a) 1996 1995 June 30, 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period................ $ 7.35 $7.55 $7.62 $7.56 $8.16 $ 9.24
------ ----- ----- ----- ----- -------
Net Investment Income... .29 .34 .35 .45 .50 .49
Net Realized and
Unrealized
Gain/Loss............. (.21) (.14) .04 .14 (.52) (1.05)
------ ----- ----- ----- ----- -------
Total from Investment
Operations............ .08 .20 .39 .59 (.02) (.56)
------ ----- ----- ----- ----- -------
Less:
Distributions from and
in Excess of Net
Investment Income... .29 .37 .45 -0- .34 .27
Return of Capital
Distribution........ -0- .03 .01 .53 .24 .25
------ ----- ----- ----- ----- -------
Total Distributions..... .29 .40 .46 .53 .58 .52
------ ----- ----- ----- ----- -------
Net Asset Value, End of
the Period............ $ 7.14 $7.35 $7.55 $7.62 $7.56 $ 8.16
====== ===== ===== ===== ===== =======
Total Return* (b)....... 1.15%** 2.67% 5.29% 8.03% (.27%) (6.32%)**
Net Assets at End of the
Period (In
millions)............. $.3 $.3 $.2 $.2 $.2 $.2
Ratio of Expenses to
Average Net Assets*
(c)................... 2.33% 2.16% 2.09% 2.07% 1.96% 1.84%
Ratio of Net Investment
Income to Average Net
Assets*............... 5.46% 4.67% 4.63% 5.72% 6.30% 5.83%
Portfolio Turnover...... 53%** 175% 378% 225% 204% 259%
</TABLE>
* If certain expenses had not been
assumed by Van Kampen, Total
Return would have been lower and
the ratios would have been
as follows:
<TABLE>
Ratio of Expenses to
<S> <C> <C> <C> <C> <C> <C>
Average Net Assets
(c)................... N/A 2.17% 2.12% 2.09% N/A N/A
Ratio of Net Investment
Income to Average Net
Assets................ N/A 4.65% 4.60% 5.69% N/A N/A
</TABLE>
** Non-Annualized
(a) Based on average month-end shares outstanding.
(b) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(c) Beginning with the year ended June 30, 1997, the Ratios of Expenses to
Average Net Assets are based upon expense amounts which do not reflect
credits earned on overnight cash balances.
N/A = Not Applicable
See Notes to Financial Statements
18
<PAGE> 62
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Short-Term Global Income Fund (the "Fund") is organized as a series
of Van Kampen Trust (the "Trust"), a Delaware business trust, and is registered
as a non-diversified open-end management investment company under the Investment
Company Act of 1940, as amended. The Fund's investment objective is to seek a
high level of current income, consistent with prudent investment risk through
investment in a global portfolio of investment grade debt securities denominated
in various currencies and multi-national currency units and having an average
duration of three years or less. The Fund commenced investment operations on
September 28, 1990. The distribution of the Fund's Class B and Class C shares
commenced on July 22, 1991, and August 13, 1993, respectively. In July, 1998,
the Fund's Board of Trustees approved a change in the Fund's fiscal year end
from June 30 to March 31. As a result, this financial report reflects the
nine-month period commencing on July 1, 1998, and ending on March 31, 1999.
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 March 31, 1999, there were no
when issued or delayed delivery purchase commitments.
19
<PAGE> 63
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
The Fund may invest in repurchase agreements, which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen Investment Advisory Corp. (the "Adviser") or its
affiliates, the daily aggregate of which is invested in repurchase agreements.
Repurchase agreements are fully collateralized by the underlying debt security.
The Fund will make payment for such security only upon physical delivery or
evidence of book entry transfer to the account of the custodian bank. The seller
is required to maintain the value of the underlying security at not less than
the repurchase proceeds due the Fund.
C. INCOME AND EXPENSES--Interest income is recorded on an accrual basis. Bond
premium and original issue discount are amortized over the expected life of each
applicable security. Expenses of the Fund are allocated on a pro rata basis to
each class of shares, except for distribution and service fees and transfer
agency costs which are unique to each class of shares.
D. CURRENCY TRANSLATION--Assets and liabilities denominated in foreign
currencies and commitments under forward currency contracts are translated into
U.S. dollars at the mean of the quoted bid and ask prices of such currencies
against the U.S. dollar. Purchases and sales of portfolio securities are
translated at the rate of exchange prevailing when such securities were acquired
or sold. Income and expenses are translated at rates prevailing when accrued.
E. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required. Although the
Fund's fiscal year end was recently changed from June 30 to March 31, the Fund's
tax year end remains June 30.
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
20
<PAGE> 64
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
differ for financial and tax reporting purposes primarily as a result of the
difference in the Fund's tax year end, 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 forward
transactions at June 30, 1998.
At March 31, 1999, for federal income tax purposes, cost of long- and
short-term investments is $56,708,110; the aggregate gross unrealized
appreciation is $174,424 and the aggregate gross unrealized depreciation is
$2,867,783 resulting in net unrealized depreciation of $2,693,359.
F. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily and pays monthly
dividends from net investment income. Net investment income for federal income
tax purposes includes gains and losses realized on transactions in foreign
currencies and options on foreign currencies. These realized gains and losses
are included as net realized gains or losses for financial reporting purposes.
Net realized gains, if any, are distributed annually.
For the year ended June 30, 1998, permanent book and tax differences
relating to net realized currency losses totaling $1,199,482 were reclassified
from accumulated net realized gain/loss to accumulated undistributed net
investment income.
For tax purposes, the determination of a return of capital distribution is
made at the Fund's taxable year end (June 30). Therefore, while it is likely
that a portion of the Fund's distribution will ultimately be characterized as a
return of capital for tax purposes, no such designation has been made for the
nine months ended March 31, 1999.
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 nine months ended March 31, 1999 and the year ended June 30, 1998,
the Fund recognized expenses of approximately $12,900 and $2,800, respectively,
representing legal services provided by Skadden, Arps, Slate, Meagher & Flom
(Illinois), counsel to the Fund, of which a trustee of the Fund is an affiliated
person.
For the nine months ended March 31, 1999 and the year ended June 30, 1998,
the Fund recognized expenses of approximately $17,600 and $23,000, respectively,
representing Van Kampen's cost of providing accounting and legal services to the
Fund.
21
<PAGE> 65
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
Van Kampen Investor Services Inc. ("VKIS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the nine months
ended March 31, 1999 and the year ended June 30, 1998, the Fund recognized
expenses of approximately $73,700 and $133,400, respectively. Transfer agency
fees are determined through negotiations with the Fund's Board of Trustees and
are based on competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of shares of beneficial interest, Classes
A, B and C, each with a par value of $.01 per share. There are an unlimited
number of shares of each class authorized.
22
<PAGE> 66
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
At March 31, 1999, capital aggregated $75,377,296, $48,190,817 and $282,890,
for Classes A, B and C, respectively. For the nine months ended March 31, 1999,
transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A..................................... 2,006,866 $ 14,345,350
Class B..................................... 38,305 277,659
Class C..................................... 8,367 58,967
---------- ------------
Total Sales................................... 2,053,538 $ 14,681,976
========== ============
Dividend Reinvestment:
Class A..................................... 155,386 $ 1,111,883
Class B..................................... 24,804 177,510
Class C..................................... 1,596 11,403
---------- ------------
Total Dividend Reinvestment................... 181,786 $ 1,300,796
========== ============
Repurchases:
Class A..................................... (1,242,343) $ (8,908,308)
Class B..................................... (2,299,947) (16,448,982)
Class C..................................... (18,281) (129,880)
---------- ------------
Total Repurchases............................. (3,560,571) $(25,487,170)
========== ============
</TABLE>
23
<PAGE> 67
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
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>
24
<PAGE> 68
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
At June 30, 1997, capital aggregated $61,586,372, $96,115,314 and $181,638,
for Classes A, B and C, respectively. For the year ended June 30, 1997,
transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A..................................... 258,752 $ 1,966,958
Class B..................................... 212,311 1,604,749
Class C..................................... 19,713 149,100
---------- ------------
Total Sales................................... 490,776 $ 3,720,807
========== ============
Dividend Reinvestment:
Class A..................................... 261,651 $ 1,982,096
Class B..................................... 271,233 2,054,943
Class C..................................... 1,572 11,916
---------- ------------
Total Dividend Reinvestment................... 534,456 $ 4,048,955
========== ============
Repurchases:
Class A..................................... (1,868,594) $(14,169,926)
Class B..................................... (4,219,580) (31,987,407)
Class C..................................... (19,067) (145,197)
---------- ------------
Total Repurchases............................. (6,107,241) $(46,302,530)
========== ============
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B shares purchased
on or after June 1, 1996 will automatically convert to Class A shares after the
eighth year following purchase. Class B shares purchased before June 1, 1996
automatically convert to Class A shares after the sixth year following purchase.
Class C shares purchased before January 1, 1997 will automatically convert to
Class A shares after the tenth year following purchase. The CDSC will be imposed
on most redemptions made within three years of the
25
<PAGE> 69
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
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 nine months ended March 31, 1999 and the year ended June 30, 1998,
Van Kampen, as Distributor for the Fund, received commissions on sales of the
Fund's Class A shares of approximately $200 and $200, respectively, and CDSC on
redeemed shares of approximately $1,900 and $10,200, respectively. Sales charges
do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
For the nine months ended March 31, 1999, the cost of purchases and proceeds
from sales of investments, excluding short-term investments were $27,537,985 and
$36,216,139, respectively.
For the year ended June 30, 1998, the cost of purchases and proceeds from
sales of investments, excluding short-term investments, were $116,378,688 and
$135,900,050, respectively.
5. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, foreign currency
exposure, maturity and duration. All of the Fund's portfolio holdings, including
derivative instruments, are marked to market each day with the change in value
reflected in unrealized appreciation/depreciation. Upon disposition, a realized
gain or loss is recognized accordingly, except when exercising a call option
contract or taking delivery of a security underlying a forward contract. In this
instance, the recognition of gain or loss is postponed until the disposal of the
security underlying the option or forward contract. Risks may arise as a result
of the potential inability of the counterparties to meet the terms of their
contracts.
26
<PAGE> 70
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
Summarized below are the specific types of derivative financial instruments
used by the Fund.
A. OPTION CONTRACTS--An option contract gives the buyer the right, but not the
obligation to buy (call) or sell (put) an underlying item at a fixed exercise
price during a specified period.
There were no transactions in options for the nine months ended March 31, 1999.
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.
27
<PAGE> 71
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
Transactions in futures contracts for the nine months ended March 31, 1999
and the year ended June 30, 1998, were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- ----------------------------------------------------------------------
<S> <C>
Outstanding at June 30, 1997............................... -0-
Futures Opened............................................. 371
Futures Closed............................................. (356)
----
Outstanding at June 30, 1998............................... 15
Futures Opened............................................. 257
Futures Closed............................................. (272)
----
Outstanding at March 31, 1999.............................. -0-
====
</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 March 31, 1999, the Fund has outstanding forward currency contracts as
follows:
<TABLE>
<CAPTION>
FORWARD CURRENT UNREALIZED
CURRENCY CONTRACTS VALUE DEPRECIATION
- ---------------------------------------------------------------------------
<S> <C> <C>
SHORT CONTRACTS:
Euro Currency,
6,906,480 expiring 06/01/99..... $ 7,493,579 $(70,840)
Greek Drachma,
593,600,000 expiring 05/17/99... 1,956,350 (9,802)
New Zealand Dollar,
1,901,502 expiring 05/06/99..... 1,013,786 -0-
Pound Sterling,
1,124,805 expiring
04/06/99-05/06/99............... 1,815,012 (7,303)
----------- --------
$12,278,727 $(87,945)
=========== ========
</TABLE>
D. CLOSED BUT UNSETTLED FORWARD COMMITMENTS--In certain situations, the Fund has
entered into offsetting transactions for outstanding forward commitments prior
to settlement of the obligation. In doing so, the Fund realizes a gain or loss
on the transactions at the time the forward commitment is closed. Risk may
result due to the potential inability of counterparties to meet the terms of
their contracts. At March 31,
28
<PAGE> 72
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
1999, the Fund has net realized gains on closed but unsettled forward currency
contracts of $116,834 scheduled to settle between April 1, 1999 and October 27,
1999. This amount is due from two counterparties.
6. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these fees
for the nine months ended March 31, 1999 and the year ended June 30, 1998, are
payments retained by Van Kampen of approximately $71,300 and $320,100,
respectively.
29
<PAGE> 73
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 March 31, 1999, and the related statement of operations for
the nine-month period ended March 31, 1999 and the year ended June 30, 1998, the
statement of changes in net assets for the nine-month period ended March 31,
1999 and for each of the years in the two year period ended June 30, 1998, 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 March
31, 1999, 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 March 31, 1999, the results of its
operations for the nine-month period ended March 31, 1999 and the year ended
June 30, 1998, the changes in its net assets for the nine-month period ended
March 31, 1999 and for each of the years in the two year period ended June 30,
1998, and the financial highlights for each of the periods presented, in
conformity with generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
May 6, 1999
30
<PAGE> 74
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
Utility
Value
Global/International
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
Global Franchise
Global Managed Assets
International Magnum
Latin American
FIXED-INCOME FUNDS
Income
Corporate Bond
Global Fixed Income
Global Government Securities
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
Short-Term Global Income
Strategic Income
U.S. Government
U.S. Government Trust for Income
Worldwide High Income
Tax Exempt Income
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal
Insured Tax Free Income
Intermediate Term Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
Capital Preservation
Reserve
Tax Free Money
SENIOR LOAN
Prime Rate Income Trust
Senior Floating Rate
To find out more about any of these
funds, ask your financial advisor for
a prospectus, which contains more
complete information, including sales
charges, risks, and expenses. Please
read it carefully before you invest
or send money.
To view a current Van Kampen fund
prospectus or to receive additional
fund information, choose from one of
the following:
- - visit our Web site at WWW.VANKAMPEN.COM--to view a prospectus, select Download
Prospectus
- - call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time.
Telecommunications Device for the Deaf users, call 1-800-421-2833.
- - e-mail us by visiting WWW.VANKAMPEN.COM and selecting Contact Us
31
<PAGE> 75
VAN KAMPEN SHORT-TERM GLOBAL INCOME FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
PAUL G. YOVOVICH
OFFICERS
DENNIS J. MCDONNELL*
President
JOHN L. SULLIVAN*
Vice President, Treasurer and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
PAUL R. WOLKENBERG*
EDWARD C. WOOD III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN
INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR
SERVICES INC.
P.O. Box 418256
Kansas City, Missouri 64141-9256
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG LLP
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. 1999 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 August 31, 1999, this report, if used with
prospective investors, must be accompanied by a quarterly performance update.
32
<PAGE> 76
YEAR 2000 READINESS DISCLOSURE
Like other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by the Fund's investment adviser and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Fund's
investment adviser is taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to computer systems that it uses and
to obtain reasonable assurances that comparable steps are being taken by the
Fund's other major service providers. At this time, there can be no assurances
that these steps will be sufficient to avoid any adverse impact to the Fund. In
addition, the Year 2000 Problem may adversely affect the markets and the issuers
of securities in which the Fund may invest that, in turn, may adversely affect
the net asset value of the Fund. Improperly functioning trading systems may
result in settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Fund's investments may be adversely affected. The
statements above are subject to the Year 2000 Information and Readiness
Disclosure Act, which may limit the legal rights regarding the use of such
statements in the case of dispute.
<PAGE> 77
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.............. 20
Statement of Operations.......................... 21
Statement of Changes in Net Assets............... 22
Financial Highlights............................. 23
Notes to Financial Statements.................... 26
Report of Independent Accountants................ 39
</TABLE>
SIF ANR 5/99
<PAGE> 78
LETTER TO SHAREHOLDERS
April 20, 1999
Dear Shareholder,
The past decade has been a remarkable time for investors. Together we've
witnessed one of the greatest bull markets in investment history, unprecedented
growth in mutual fund investing, and a surge in personal retirement planning.
The coming millennium promises to hold even more opportunities.
To lead us into this new era of investing, Richard F. Powers III has joined
Van Kampen as Chairman and Chief Executive Officer. He comes to us from our
parent company, Morgan Stanley Dean Witter & Co., where he served as Executive
Vice President and Director of Marketing. He brings 27 years of experience in
the financial services industry, including an extensive background in product
management, strategic planning, and brand development.
Although former Chairman Don G. Powell retired on January 1, he will remain
active in the industry and the community. Mr. Powell plans to continue his
service as a member of the board of directors of the Investment Company
Institute, the leading mutual fund industry association, and he will remain a
trustee of your fund.
ECONOMIC OVERVIEW
The U.S. economy continued to grow at a robust pace, despite financial
problems abroad. In the fourth quarter, the nation's gross domestic product
(GDP) rose at an astounding 6.0 percent annual rate, surprising most economists,
whose estimates had been much more conservative. GDP remained strong through the
first quarter of 1999, posting a 4.5 percent annual growth rate. However, the
economy began to show signs of slowing down early in 1999, as corporate profits
and wage growth declined.
A series of interest rate cuts by the Federal Reserve helped the U.S.
economy avoid the economic slump that plagued many global markets. The Fed's
0.25 percent interest rate cut in September was followed by additional cuts in
October and November. These rate cuts, coupled with a wave of corporate mergers
and cost-cutting measures, lent the support needed to foster continued growth.
In addition, the outlook for troubled areas such as Asia and Latin America
improved significantly, and most experts agree that these economies are on the
slow road to recovery.
Despite the improvements abroad and record economic growth in the United
States, inflation remained at bay as commodity prices tumbled. This low
inflationary environment--only a 1.7 percent increase in the consumer price
index over the past 12 months--contributed to the strong domestic economy and
kept inflation-adjusted interest rates attractive. A low level of unemployment,
vibrant consumer spending, and an active housing market also supported the
positive economic conditions.
Continued on page 2
1
<PAGE> 79
MARKET REVIEW
Most areas of the bond market were quite active during the reporting period,
with U.S. Treasury bonds experiencing the greatest price appreciation. Intense
demand, decreasing supply, and a flight to quality that included investors
around the globe pushed the 30-year Treasury bond to its lowest yield ever in
October 1998.
At the same time, investors shied away from lower-rated securities, causing
the prices of high-yield bonds to plummet. This lack of demand for lower-rated
bonds led to unusually high yields in the marketplace as investors required
significant premiums in exchange for purchasing these out-of-favor securities.
The difference in yields between U.S. Treasury bonds and high-yield bonds of
comparable maturity widened to as much as 7.79 percent in mid-October. The
high-yield market rebounded late in 1998 as investors saw that the economy was
performing well and that the global financial crisis was on its way to recovery.
The prices of most investment-grade bonds experienced similar, though much less
dramatic, movement during this period. Investors' preference for quality also
held true for international bonds, although there was some renewed interest in
lower-rated foreign bonds in recent months.
OUTLOOK
Our outlook for the domestic economy remains positive, although the pattern
of reduced growth may continue into the second half of the year. We look for a
slow but steady rise in inflation throughout 1999 to more normal, but certainly
not alarming levels. Internationally, low interest rates and improving financial
conditions should continue to support the economic improvements we've witnessed
in Asia and Latin America.
We believe the markets may still favor higher-quality securities such as
large-company stocks and investment-grade bonds in the near term. In addition,
we anticipate continued day-to-day volatility in the markets, although we
probably won't see sustained high or low periods during the next six months.
Additional details about your fund, including a question-and-answer section
with your portfolio management team, are provided in this report. As always, we
are pleased to have the opportunity to share with you the progress of your
investment.
Sincerely,
<TABLE>
<S> <C>
[SIG] [SIG]
Richard F. Powers III Dennis J. McDonnell
Chairman President
Van Kampen Investment Advisory Van Kampen Investment Advisory
Corp. Corp.
</TABLE>
2
<PAGE> 80
PERFORMANCE RESULTS FOR THE PERIOD ENDED MARCH 31, 1999
VAN KAMPEN STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS
Nine-month total return based on
NAV(1).................................. (4.47%) (4.99%) (5.01%)
Nine-month total return(2)............... (8.99%) (8.58%) (5.90%)
One-year total return(2)................. (9.42%) (9.09%) (6.55%)
Five-year average annual total
return(2).............................. 5.09% 5.09% 5.27%
Life-of-Fund average annual total
return(2).............................. 2.87% 2.89% 2.99%
Commencement date........................ 12/31/93 12/31/93 12/31/93
DISTRIBUTION RATE AND YIELD
Distribution rate(3)..................... 8.19% 7.72% 7.74%
SEC Yield(4)............................. 8.32% 7.97% 7.97%
</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 March 31, 1999. Had certain
expenses of the Fund not been assumed by Van Kampen, total returns would have
been lower and the SEC Yield would have been 8.05%, 7.70% and 7.70% for Classes
A, B and C, respectively.
See the Fund Performance section of the current prospectus. Past performance
does not guarantee future results. Investment return and net asset value will
fluctuate with market conditions. Fund shares, when redeemed, may be worth more
or less than their original cost.
A substantial portion of the Fund's assets may be invested in lower-grade income
securities, including issues of emerging market countries and securities rated
in the lowest categories, commonly referred to as junk bonds. The Fund's
investments in these securities hold the potential for risks not associated with
investments in the United States or other types of fixed income securities.
The Fund may react to changes in interest rate cycles, business or economic
conditions, rates of inflation, or other market conditions. Global investing,
investing in lower rated securities, and investing in a limited number of
sectors each hold the potential for risks not associated with many other types
of fixed-income investments.
Market Forecasts provided in this report may not necessarily come to pass.
On July 31, 1998, the Fund's Board of Trustees voted to change the Fund's
fiscal year end from June 30 to March 31. As a result, this annual report
reflects the nine-month period commencing on July 1, 1998, and ending on March
31, 1999.
3
<PAGE> 81
PUTTING YOUR FUND'S PERFORMANCE IN PERSPECTIVE
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment at regular intervals. A comparison of your
Fund's performance to an applicable benchmark can:
- Illustrate the market environment in which your Fund is being managed.
- Reflect the impact of favorable market trends or difficult market
conditions.
- Help you evaluate how your Fund's management team has responded to
opportunities and challenges.
The following graph compares your Fund's performance to that of the Lehman
Brothers Aggregate Bond Index and the Composite of Salomon Brothers Indices over
time. These indices are broad-based, statistical composites that do not include
any commissions or sales charges that would be paid by an investor purchasing
the securities they represent.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen Strategic Income Fund vs. the Lehman Brothers Aggregate Bond Index
and the Composite of Salomon Brothers Indices* (December 31, 1993 through
March 31, 1999)
[INVESTMENT PERFORMANCE GRAPH]
- -----------------------------
Fund's Toatal Return
1 Year Total Return = -9.42%
5 Year Avg. Annual = 5.09%
Inception Avg. annual = 2.87%
- -----------------------------
<TABLE>
<CAPTION>
VAN KAMPEN STRATEGIC LEHMAN BROTHERS AGGREGATE COMPOSITE OF SALOMON
INCOME FUND BOND INDEX BROTHERS INDICES*
-------------------- ------------------------- --------------------
<S> <C> <C> <C>
Dec 1993 9525.00 10000.00 10000.00
9480.00 10135.00 10105.00
9167.00 9958.65 9866.00
Mar 1994 8617.00 9712.67 9487.00
8326.00 9634.97 9427.00
8422.00 9634.01 9490.00
8305.00 9612.81 9379.00
8416.00 9804.11 9555.00
8423.00 9815.87 9677.00
8465.00 9671.58 9609.00
8316.00 9662.87 9569.00
8136.00 9641.62 9566.00
7985.00 9708.14 9542.00
8028.00 9900.36 9675.00
8102.00 10136.00 9802.00
Mar 1995 8080.00 10197.80 9842.00
8485.00 10340.60 10100.00
8962.00 10740.80 10532.00
9007.00 10819.20 10628.00
9084.00 10795.40 10639.00
9125.00 10926.00 10759.00
9346.00 11032.00 10924.00
9396.00 11175.40 11007.00
9620.00 11343.00 11196.00
9854.00 11501.80 11436.00
10187.00 11577.80 11663.00
9986.00 11376.30 11435.00
Mar 1996 9869.00 11296.70 11438.00
9986.00 11233.40 11482.00
10047.00 11210.90 11518.00
10171.00 11361.20 11678.00
10295.00 11391.80 11726.00
10378.00 11372.50 11816.00
10693.00 11570.40 12124.00
10637.00 11827.20 12337.00
11121.00 12029.50 12625.00
11119.00 11917.60 12594.00
11244.00 11954.50 12747.00
11370.00 11984.40 12827.00
Mar 1997 11230.00 11851.40 12630.00
11331.00 12029.20 12039.00
11559.00 12143.40 13041.00
11688.00 12287.90 13243.00
11928.00 12619.70 13616.00
11857.00 12512.50 13535.00
12045.00 12697.60 13701.00
11786.00 12881.80 13650.00
11770.00 12941.00 13012.00
11800.00 13071.70 14005.00
11974.00 13239.00 14169.00
12120.00 13228.40 14256.00
Mar 1998 12196.00 13273.40 14389.00
12263.00 13342.40 14440.00
12193.00 13469.20 14486.00
12143.00 13583.70 14492.00
12182.00 13612.20 14578.00
11027.00 13834.10 13952.00
11046.00 14157.80 14358.00
11066.00 14082.80 14389.00
11562.00 14163.00 14737.00
11623.00 14205.50 14678.00
11581.00 14148.70 14695.00
11403.00 13728.50 14595.00
Mar 1999 11601.00 13746.30 14878.00
</TABLE>
The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of other share classes of
the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions, and includes payment of the maximum
sales charge (4.75% for A shares).
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.
*This index is a composite reflecting 20% of each of the following Salomon
Brothers Indices: Mortgage, High Yield Market, Corporate, Non-U.S. Dollar World
Government Bond and Brady Bond.
4
<PAGE> 82
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 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 bond's duration, the greater the effect of interest rate
movements on its price. Typically, funds with shorter durations perform
better in rising rate environments, while funds with longer durations
perform better when rates decline.
EMERGING MARKETS: The financial markets of developing economies. Many Latin
American and Asian countries are considered emerging markets.
EUROPEAN MONETARY UNION (EMU): A group of European countries creating one
currency, the euro dollar, for the entire region.
FEDERAL FUNDS RATE: The interest rate charged by one financial institution
lending federal funds to another. The Federal Reserve Board adjusts 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 of the United States. Its policy-making
committee, called the Federal Open Market Committee, meets eight times a
year to establish monetary policy and monitor the economic pulse of the
United States.
INVESTMENT GRADE BONDS: Securities rated BBB and above by Standard & Poor's or
Baa and above by Moody's Investors Service.
NET ASSET VALUE (NAV): The value of a mutual fund share, calculated by deducting
a fund's liabilities from the total assets in its portfolio and dividing
this amount by the number of shares outstanding. The NAV does not include
any initial or contingent deferred sales charge.
VOLATILITY: A measure of the fluctuation in the market price of a security. A
security that is volatile has frequent and large swings in price.
YIELD: The annual rate of return on an investment, expressed as a percentage.
5
<PAGE> 83
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 nine months. The team is led by Robert Hickey, portfolio manager, and Peter
W. Hegel, chief investment officer for fixed-income investments.
The Fund's fiscal year end was recently changed from June 30 to March 31.
Going forward, your semiannual reports will be dated September 30, and your
annual reports will be dated March 31. The following interview discusses the
Fund's performance during the nine-month period since your last annual report,
from July 1, 1998, to March 31, 1999.
Q HOW WOULD YOU DESCRIBE THE INVESTMENT ENVIRONMENT IN WHICH THE FUND
OPERATED DURING THE PAST NINE MONTHS?
A During the third quarter of 1998, continued economic weakness in Asia and
in the Japanese banking system spread to Russia and Latin America, and
there were warning signs that Asia's problems were beginning to affect
Europe and the United States. With turmoil in the emerging markets and a crisis
of confidence in the domestic and European markets, many investors moved into
high-quality government bonds, primarily those issued by the United States.
Paced by the Federal Reserve Board and the European Central Bank (ECB),
banks worldwide lowered interest rates during the fourth quarter of 1998. The
interest rate cuts renewed investor confidence and helped revive stock and bond
markets in Europe and the United States. During the first quarter of 1999,
global stock and bond markets began to settle down, but recent political
rumblings in Eastern Europe have left many investors cautious about potential
market volatility.
Q HOW DID THE VARIOUS MARKET SECTORS IN WHICH THE FUND INVESTS PERFORM
DURING THE PERIOD?
A Due to investors' preference for high-quality government bonds, the best-
performing sector during the past nine months was the U.S. government and
mortgage-backed securities sector. During the first six months of the period, we
benefited by investing most of this sector in U.S. Treasuries. In January, we
repositioned this sector by increasing our exposure to mortgage-backed
securities to take advantage of the rise in long-term interest rates and an
expected reduction in pricing volatility in mortgages.
Because of the global problems in the third quarter, we experienced extreme
volatility during most of the period in the remaining four sectors in which the
Fund invests. Domestic lower-grade income securities (primarily high-yield
corporate bonds) and foreign lower-grade income securities (primarily emerging
market securities) suffered the most as investors flocked into U.S. Treasuries.
During the first quarter of 1999, both sectors rebounded, despite
lower-than-expected demand for high-yield securities, which has usually been
strong in the first quarter.
6
<PAGE> 84
Overall, domestic investment-grade securities were weak because of a heavy
supply of new issues, which continued to grow during the first quarter. Finally,
foreign investment-grade securities were negatively affected by the U.S.
Treasury rally in September and October, but have rebounded slightly as the
Japanese yen has strengthened relative to the U.S. dollar.
Q HOW DID THE FUND PERFORM DURING THE NINE-MONTH REPORTING PERIOD?
A The Fund generated a total return of -4.47 percent(1) (Class A shares at
net asset value) for the nine months ended March 31, 1999. By comparison,
the Lehman Brothers Aggregate Bond Index, a broad-based index, generated a
total return of 3.99 percent for the same nine-month period. Similarly, a
composite index of 20 percent of each Salomon Brothers Index for Mortgages, High
Yield, Corporate, Non-U.S. Dollar World Government Bond, and Brady Bonds
produced a total return of 2.66 percent during the nine-month period. Keep in
mind that neither index reflects any commissions or sales fees that would be
paid by an investor purchasing the securities or investments it represents.
The Fund's current distribution rate as of March 31, 1999, was 8.19
percent(3)--based on a monthly dividend of $.0790 per Class A share and a
maximum public offering price of $11.57 per share. Please refer to the chart and
footnotes on page 3 for additional Fund performance results. Past performance
does not guarantee future results.
Q WHAT WAS YOUR BIGGEST DISAPPOINTMENT DURING THE PERIOD?
A In early January, we eliminated all of the Fund's exposure to Brazil,
which initially turned out to be a good move as problems in that region
culminated with the devaluation of the Brazilian currency. The
disappointment came when Brazil bounced back because, although we anticipated
the problem, we missed the rally.
Q HOW IS THE FUND CURRENTLY POSITIONED AND WHY?
A At the end of the period, 29 percent of the Fund was allocated to the U.S.
government and mortgage-backed securities sector, most of which is
invested in mortgages to take advantage of the rise in long-term interest
rates. In addition, we have 22 percent of the Fund invested in domestic
lower-grade securities because we believe they will benefit from the continued
strength of the U.S. economy and the continuation of the strong merger and
acquisition environment. The remainder of the Fund is composed of a slightly
underweight position in emerging market securities and underweight positions in
foreign investment-grade securities and domestic investment-grade securities.
For additional Fund portfolio highlights, please refer to page 9.
7
<PAGE> 85
Q IF EMERGING MARKETS BEGAN TO REBOUND IN THE FIRST QUARTER OF 1999, WHY IS
THE FUND SLIGHTLY UNDERWEIGHT IN THESE SECURITIES?
A Because we are concerned about potential volatility, our exposure to
emerging market securities was 18 percent at the end of the period,
slightly below the neutral 20 percent. Remember, volatility can go either
way. At this time, we believe that there are too many unanswered questions that
could affect the performance of this sector during the next few months. For
example: What effect will the problems in Kosovo have? Will Brazil stabilize?
How will the equity market react after Dow 10,000? Will Russia continue to
disappoint? Any of these questions could have a positive or negative effect on
performance.
Overall, the Fund's approximately 7 percent position in Mexico is our
largest exposure outside of the United States. We believe Mexico's prudent
financial management, policy initiatives, and proximity to the United States
make it attractive, while the recent recovery in oil pricing should help its
performance. We also have positions in Hungary and Greece, countries that are
expected to join the second wave of European economic and monetary union (EMU),
which had performed well until the Kosovo situation erupted.
Generally, we look for select opportunities within the emerging markets that
we feel have the potential to benefit the Fund.
Q HOW DO YOU VIEW THE NEXT SIX MONTHS?
A We believe one key for the Fund during the next six months will be the
strength of the euro dollar. In September, we felt that the euro dollar
would be a strong currency in the short term because of the initial
excitement surrounding its launch. Although this has not happened, we still
believe that the currency will strengthen and, if it does, we expect to increase
our investments in euro-denominated securities.
In addition to the new European currency, we felt there would be an
opportunity for us to take advantage of monetary union, primarily in the
high-yield market. We did invest in this strategy and it helped the Fund until
the troubles in Kosovo began. Incidents such as this indicate to us that
volatility in the global bond markets will probably continue. Therefore, we will
monitor these developments closely.
[SIG]
Robert Hickey
Portfolio Manager
[SIG]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
8
<PAGE> 86
PORTFOLIO HIGHLIGHTS
VAN KAMPEN STRATEGIC INCOME FUND
PORTFOLIO HOLDINGS AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
TOP TEN HOLDINGS PERCENTAGE OF
AS OF THESE INVESTMENTS
MARCH 31, 1999 NINE MONTHS AGO
<S> <C> <C> <C>
U.S. Treasury Notes, 4.250%,
11/15/03 ......................... 3.7% ................. N/A
FNMA TBA 15, 6.000%, 12/01/13 ...... 3.5% ................. N/A
U.S. Treasury Notes, 4.750%,
11/15/08 ......................... 2.7% ................. N/A
U.S. Treasury Bonds, 5.500%,
08/15/28 ......................... 2.7% ................. N/A
Tele-Communications, Inc. .......... 2.3% ................. 1.9%
Niagara Mohawk Power ............... 2.1% ................. 2.5%
MBNA Capital I ..................... 2.0% ................. 1.9%
Petroleos Mexicanos ................ 2.0% ................. N/A
MCI Worldcom Inc./MFS
Communications ................... 1.9% ................. 2.3%
MEPC International Capital LP ...... 1.8% ................. N/A
</TABLE>
N/A = Not Applicable
ASSET ALLOCATION AS A PERCENTAGE OF LONG-TERM INVESTMENTS
[PIE CHART]
<TABLE>
<CAPTION>
U.S.
FOREIGN DOMESTIC FOREIGN DOMESTIC GOVERNMENT/MORTGAGE-
LOWER LOWER INVESTMENT INVESTMENT BACKED
GRADE GRADE GRADE GRADE SECURITIES
------------ ------------- ---------- ---------- --------------------
<S> <C> <C> <C> <C> <C>
3/31/99 20.7% 21.7% 14.6% 11.4% 28.8%
<CAPTION>
COMMON STOCK
AND PREFERRED
STOCK
-------------
<S> <C>
3/31/99 2.8%
</TABLE>
[PIE CHART]
<TABLE>
<CAPTION>
U.S.
GOVERNMENT/MORTGAGE- DOMESTIC FOREIGN
6-30-98 DOMESTIC LOWER FOREIGN LOWER BACKED INVESTMENT INVESTMENT
- ------- GRADE GRADE SECURITIES GRADE GRADE
-------------- ------------- -------------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
24.4% 21.8% 21.8% 15.9% 12.9%
<CAPTION>
6-30-98 COMMON STOCK
- ------- AND PREFERRED
STOCK
-------------
<S> <C>
3.2%
</TABLE>
TOP TEN COUNTRIES AS A PERCENTAGE OF LONG-TERM INVESTMENTS
AS OF MARCH 31, 1999 AS OF JUNE 30, 1998
United States............. 62.7% United States............. 62.4%
Mexico.................... 6.7% South Korea............... 5.4%
United Kingdom............ 6.2% Mexico.................... 5.4%
South Korea............... 2.7% United Kingdom............ 3.7%
Argentina................. 2.6% Panama.................... 3.3%
Panama.................... 2.4% Argentina................. 2.9%
Brazil.................... 1.9% Colombia.................. 2.6%
Russia.................... 1.7% Chile..................... 2.2%
Canada.................... 1.5% Cayman Islands............ 2.0%
Venezuela................. 1.4% Canada.................... 1.6%
9
<PAGE> 87
PORTFOLIO OF INVESTMENTS
March 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
in Local
Currency Maturity U.S.$
(000) Description Coupon Date Market Value
- ---------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ASSET BACKED SECURITIES 5.0%
2,000 PDVSA Finance Ltd. 1999-F-144A -
Private Placement-US$ (a) (b).... 8.750% 02/15/04 $ 1,993,140
2,500 PECO Energy Transport Trust, Ser
A2-US$........................... 5.630 03/01/05 2,495,309
1,000 PECO Energy Transport Trust, Ser
A6-US$........................... 6.050 03/01/09 995,781
------------
5,484,230
------------
CORPORATE BONDS 56.5%
AUTOMOBILE 2.7%
250 Aetna Industries, Inc.-US$ (c)... 11.875 10/01/06 261,250
250 Cambridge Industries Inc., Ser
B-US$............................ 10.250 07/15/07 212,500
1,125 Federal-Mogul Corp.-US$.......... 7.750 07/01/06 1,127,813
100 Oxford Automotive Inc., 144A -
Private Placement-US$ (a) (c).... 10.125 06/15/07 103,500
855 Talon Automotive Group, Inc., Ser
B................................ 9.625 05/01/08 752,400
500 Venture Holdings Trust-US$....... 9.750 04/01/04 492,500
------------
2,949,963
------------
BANKING 5.0%
3,000 MBNA Capital I-US$ (c)........... 8.278 12/01/26 2,884,956
2,400 Sovereign Bancorp Inc.-US$ (c)... 8.000 03/15/03 2,499,876
------------
5,384,832
------------
BEVERAGE, FOOD & TOBACCO 6.4%
300 Fleming Companies Inc., Ser B-US$
(c).............................. 10.625 07/31/07 279,000
1,000 Fred Meyer Inc.-US$ (c).......... 7.450 03/01/08 1,056,318
250 Luigino's Inc., 144A - Private
Placement- US$ (a) (c)........... 10.000 02/01/06 250,938
650 Pantry, Inc.-US$ (c)............. 10.250 10/15/07 685,750
2,500 Pepsi-Gemex SA, Ser B-US$ (c).... 9.750 03/30/04 2,474,750
2,000 Shoppers Food Warehouse-US$
(c).............................. 9.750 06/15/04 2,160,000
------------
6,906,756
------------
</TABLE>
See Notes to Financial Statements
10
<PAGE> 88
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
in Local
Currency Maturity U.S.$
(000) Description Coupon Date Market Value
- ---------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
BROADCASTING, TELEVISION &
MUSIC 1.6%
500 British Sky Broadcasting-US$
(c).............................. 6.875% 02/23/09 $ 493,228
250 Capstar Broadcasting-US$ (c)
(d).............................. 0/12.750 02/01/09 212,500
200 Muzak LLC, 144A - Private
Placement-US$ (a)............... 9.875 03/15/09 203,500
1,000 TV Azteca,SA-US$................ 10.125 02/15/04 842,500
------------
1,751,728
------------
BUILDINGS AND REAL ESTATE 1.6%
750 Cemex International Cap LLC-US$
(c).............................. 9.660 11/29/49 697,500
1,000 Cemex International Cap LLC,
144A - Private Placement-US$ (a)
(c).............................. 9.660 12/29/49 930,000
125 Del Webb Corp.-US$............... 9.375 05/01/09 121,875
------------
1,749,375
------------
CHEMICALS, PLASTIC & RUBBER .7%
500 Coastal Corp.-US$................ 6.500 06/01/08 502,922
325 Pioneer Americas Acquisition, Ser
B-US$ (c)....................... 9.250 06/15/07 274,625
------------
777,547
------------
CONTAINERS, PACKAGING, PAPER &
GLASS 1.5%
1,000 Owens Corning-US$ (c)............ 7.500 08/01/18 973,168
200 Pacifica Papers Inc., 144A -
Private Placement-US$ (a)........ 10.000 03/15/09 206,500
250 Packaging Corp. of America, 144A
-Private Placement-US$ (a) (b)... 9.625 04/01/09 250,000
200 Repap New Brunswick-US$ (c)...... 9.000 06/01/04 195,000
------------
1,624,668
------------
DIVERSIFIED/CONGLOMERATE
SERVICE .2%
200 Russell-Stanley Holdings Inc.,
144A - Private Placement-US$ (a)
(c).............................. 10.875 02/15/09 199,750
------------
</TABLE>
See Notes to Financial Statements
11
<PAGE> 89
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
in Local
Currency Maturity U.S.$
(000) Description Coupon Date Market Value
- ---------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FINANCE 1.1%
500 Citigroup Inc.-US$............... 5.800% 03/15/04 $ 497,355
1,000 Dynex Capital Inc.-US$ (c)....... 7.875 07/15/02 700,000
------------
1,197,355
------------
HEALTHCARE .6%
625 Oxford Health Plans, 144A -
Private Placement-US$ (a) (c).... 11.000 05/15/05 640,625
------------
HOTEL & GAMING 1.3%
575 Booth Creek Ski Holdings, Ser
B-US$ (c)........................ 12.500 03/15/07 549,125
750 Majestic Star Casino, LLC-US$
(c).............................. 12.750 05/15/03 832,500
------------
1,381,625
------------
MACHINERY .2%
200 Terex Corp., Ser C, 144A -
Private Placement-US$ (a)........ 8.875 04/01/08 197,500
------------
MANUFACTURING .1%
100 Compass Aerospace Corp., 144A -
Private Placement-US$ (a) (c).... 10.125 04/15/05 96,000
------------
MINING .2%
250 Renco Steel Holdings, 144A -
Private Placement-US$ (a) (c).... 10.875 02/01/05 221,250
------------
OIL & GAS 4.3%
500 Frontier Oil Corp., Ser A-US$
(c).............................. 9.125 02/15/06 490,000
500 Giant Industries-US$ (c)......... 9.750 11/15/03 495,000
1,000 Hurricane Hydrocarbons, 144A -
Private Placement-US$ (a) (c).... 11.750 11/01/04 460,000
1,000 Lukinter Finance, B, 144A -
Private Placement-US$ (a) (c).... * 11/03/03 400,000
3,000 Petroleos Mexicanos, 144A -
Private Placement-US$ (a) (c).... 9.857 07/15/05 2,790,000
------------
4,635,000
------------
PRINTING, PUBLISHING &
BROADCASTING 1.1%
1,000 CSC Holdings, Inc.-US$ (c)....... 10.500 05/15/16 1,190,000
------------
</TABLE>
See Notes to Financial Statements
12
<PAGE> 90
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
in Local
Currency Maturity U.S.$
(000) Description Coupon Date Market Value
- ---------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
RETAIL 1.4%
250 Big 5 Corp., Ser B-US$........... 10.875% 11/15/07 $ 255,000
400 Community Distributors, Ser
B-US$............................ 10.250 10/15/04 370,000
400 Duane Reade Inc.-US$ (c)......... 9.250 02/15/08 418,000
500 Saks Inc.-US$.................... 7.375 02/15/19 487,659
------------
1,530,659
------------
TELECOMMUNICATIONS 18.3%
500 AT&T Corp.-US$................... 6.000 03/15/09 497,799
1,000 CIA International
Telecommunication-ARP (c)........ 10.375 08/01/04 755,533
200 Centennial Cellular,
144A - Private Placement-US$ (a). 10.750 12/15/08 212,500
500 Century Communications-US$ (c)... 9.500 03/01/05 538,125
100 Charter Communications Holdings,
144A - Private Placement-US$ (a). 8.625 04/01/09 102,500
200 Charter Communications Holdings,
144A - Private Placement-US$
(a).............................. 8.250 04/01/07 205,000
500 E. Spire Communications Inc.-US$
(c) (d).......................... 0/10.625 07/01/08 252,500
200 E. Spire Communications Inc.-US$
(d).............................. 0/13.000 11/01/05 145,000
250 E. Spire Communications Inc.-US$
(c).............................. 13.750 07/15/07 247,500
200 Fairchild Semiconductor,
144A - Private Placement-US$ (a)
(b).............................. 10.375 10/01/07 203,500
235 Globo Communicacoes
Participacoes, 144A - Private
Placement-US$ (a)................ 10.625 12/05/08 153,925
500 Globo Communicacoes
Participacoes- US$ (c)........... 10.625 12/05/08 327,500
500 Hermes Europe Railtel BV-US$
(c).............................. 11.500 08/15/07 550,000
1,000 Hermes Europe Railtel BV-EUR$.... 10.375 01/15/06 1,156,937
500 Intermedia Communications, Ser B-
US$ (c) (d)...................... 0/11.250 07/15/07 382,500
500 Intermedia Communications, Ser
B-US$ (c)........................ 8.600 06/01/08 503,750
1,000 Level 3 Communications, Inc.,
144A - Private Placement-US$ (a)
(c) (d).......................... 0/10.500 12/01/08 630,000
2,500 MCI Worldcom Inc.-US$ (c)........ 8.875 01/15/06 2,693,498
1,000 Metronet Communications Corp.-US$
(c) (d).......................... 0/9.950 06/15/08 777,500
</TABLE>
See Notes to Financial Statements
13
<PAGE> 91
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
in Local
Currency Maturity U.S.$
(000) Description Coupon Date Market Value
- ---------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TELECOMMUNICATIONS (CONTINUED)
250 Millicom International-US$ (c)
(d).............................. 0/13.500% 06/01/06 $ 187,500
500 Netia Holdings BV, Ser B-US$
(c).............................. 10.250 11/01/07 477,500
250 Netia Holdings BV, Ser B-US$ (c)
(d).............................. 0/11.250 11/01/07 172,500
750 Nextel Communications, Inc.-US$
(c).............................. 9.750 08/15/04 780,000
500 Nextel Communications, Inc.-US$
(c) (d).......................... 0/10.650 09/15/07 364,830
250 NTL Inc., Ser A-US$ (c) (d)...... 0/12.750 04/15/05 236,563
500 NTL Inc., 144A - Private
Placement-US$ (a) (c)............ 11.500 10/01/08 561,250
500 Orange PLC-EUR$.................. 7.625 08/01/08 581,172
375 Pinnacle Holdings, Inc.-US$ (c)
(d).............................. 0/10.000 03/15/08 227,813
500 Price Communication Cellular
Holdings-US$ (c) (f)............. 11.250 08/15/08 485,000
250 Primus Telecommunications Group,
144A - Private Placement-US$ (a)
(c).............................. 11.250 01/15/09 258,125
500 Satelites Mexicanos SA, Ser
B-US$............................ 10.125 11/01/04 412,500
750 SBA Communications Corp.-US$ (c)
(d).............................. 0/12.000 03/01/08 476,250
250 Splitrock Services, Inc., Ser
B-US$............................ 11.750 07/15/08 238,750
3,000 Tele-Communications Inc.-US$
(c).............................. 8.350 02/15/05 3,334,197
750 Triton PCS Inc.-US$ (d).......... 0/11.000 05/01/08 446,250
500 Viatel Inc.-US$ (d).............. 0/12.500 04/15/08 315,000
------------
19,890,767
------------
TEXTILES .3%
250 Scovill Fasteners Inc., Ser B-US$
(c).............................. 11.250 11/30/07 192,500
150 Supreme International Corp.,
144A - Private Placement-US$ (a)
(b).............................. 12.250 04/01/06 148,278
------------
340,778
------------
UTILITIES 7.9%
1,000 Central Termica Guemes, SA,
144A - Private Placement-US$ (a)
(c).............................. 12.000 11/26/01 330,000
1,000 Edelnor, 144A - Private
Placement-US$ (a) (c)............ 10.500 06/15/05 610,000
1,750 Edelnor, 144A - Private
Placement-US$ (a) (c)............ 7.750 03/15/06 910,000
</TABLE>
See Notes to Financial Statements
14
<PAGE> 92
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
in Local
Currency Maturity U.S.$
(000) Description Coupon Date Market Value
- ---------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
UTILITIES (CONTINUED)
2,000 Korea Electric Power-US$ (c)..... 7.000% 02/01/27 $ 1,869,400
375 Midamerican Energy Holdings-US$
(c).............................. 7.230 09/15/05 387,188
498 Midland Cogeneration Vent, Ser
C-91- US$ (c).................... 10.330 07/23/02 530,765
3,000 Niagara Mohawk Power, Ser B-US$
(c).............................. 7.000 10/01/00 3,041,250
1,000 South Carolina Electric & Gas
Co.-US$.......................... 6.125 03/01/09 1,000,790
------------
8,679,393
------------
Total Corporate Bonds 56.5%............................... 61,345,571
------------
FOREIGN GOVERNMENT AND AGENCY SECURITIES 28.5%
ARGENTINA 2.3%
625 Republic of Argentina, Ser XW-US$
(c).............................. 11.000 12/04/05 593,750
2,000 Republic of Argentina-US$ (b).... 11.750 04/07/09 1,947,500
------------
2,541,250
------------
AUSTRALIA 1.3%
2,000 Australian Government-AU$ (c).... 6.750 11/15/06 1,376,321
------------
BRAZIL 2.1%
3,533 Federal Republic of Brazil-US$... 8.000 04/15/14 2,253,965
------------
BULGARIA .9%
1,500 Bulgaria Disc, Ser A-US$ (c)..... 5.875 07/28/24 1,012,500
------------
CANADA .8%
1,250 Canadian Government, Ser
VR22-CA$......................... 7.500 03/01/01 866,264
------------
COLUMBIA .6%
1,250 Republic of Columbia-DEM......... 4.479 11/21/01 606,390
------------
COSTA RICA .8%
1,000 Costa Rica - Prin, Ser A-US$
(e).............................. 6.250 05/21/10 862,500
------------
GREECE 1.0%
300,000 Hellenic Republic-GRD (c)........ 9.200 03/21/02 1,047,756
------------
HUNGARY 1.7%
433,350 Hungary Government-HUF........... 16.000 11/24/00 1,878,469
------------
ITALY .9%
775 Republic of Italy BTPS-EUR$...... 9.500 05/01/01 945,680
------------
</TABLE>
See Notes to Financial Statements
15
<PAGE> 93
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
in Local
Currency Maturity U.S.$
(000) Description Coupon Date Market Value
- ---------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MEXICO 2.8%
1,000 United Mexican States, Ser
XW-US$........................... 10.375% 02/17/09 $ 1,032,500
2,500 United Mexican States, Ser
W-B-US$ (e)...................... 6.250 12/31/19 1,959,375
------------
2,991,875
------------
MOROCCO .7%
952 Moroccan Loan Agreement-US$...... 6.063 01/01/09 775,595
------------
NEW ZEALAND 1.1%
2,000 New Zealand Government-NZ$ (c)... 8.000 11/15/06 1,217,319
------------
PANAMA 3.1%
1,650 Republic of Panama,
144A - Private Placement-US$ (a)
(c).............................. 7.875 02/13/02 1,600,500
2,000 Republic of Panama-US$........... 8.875 09/30/27 1,830,000
------------
3,430,500
------------
RUSSIA 1.9%
216 Russia-Ian-US$ (e)............... 5.969 12/15/15 17,243
17,800 Russia Principal Loan-Vnesh-US$
(f) (g).......................... 5.969 12/15/20 1,290,500
2,000 Russian Federation-US$........... 8.750 07/24/05 490,000
1,000 Russian Federation-US$........... 11.000 07/24/18 260,000
------------
2,057,743
------------
SOUTH KOREA 1.8%
2,500 Export-Import Bank Korea-DEM
(c).............................. 3.721 10/06/00 1,337,167
1,200 Korea Development Bank-DEM....... 5.625 10/25/99 661,742
------------
1,998,909
------------
UNITED KINGDOM 2.1%
1,000 U.K. Treasury-GBP................ 7.000 11/06/01 1,702,490
350 U.K. Treasury-GBP................ 6.750 11/26/04 626,385
------------
2,328,875
------------
URUGUAY .8%
1,000 Banco Central Del Uruguay, Ser
B-US$............................ 6.750 02/19/21 880,000
------------
</TABLE>
See Notes to Financial Statements
16
<PAGE> 94
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount
in Local
Currency Maturity U.S.$
(000) Description Coupon Date Market Value
- ---------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
VENEZUELA 1.8%
1,000 Republic of Venezuela, Ser
W-A-US$ (c)...................... 6.750% 03/31/20 $ 696,250
2,000 Republic of Venezuela-US$........ 9.250 09/15/27 1,230,000
------------
1,926,250
------------
Total Foreign Government and Agency Securities 28.5%...... 30,998,161
------------
MORTGAGE BACKED SECURITIES (U.S.) 25.0%
1,548 DLJ Mortgage Acceptance Corp.
1996-E1 (c)...................... 7.410 09/28/25 1,502,154
2,608 FNMA Benchmark Note.............. 5.125 04/01/99 2,560,682
14,496 FNMA REMIC #97-20 IB (Interest
Only) (c)........................ 1.840 03/25/27 471,106
5,000 FNMA TBA 15 (b).................. 6.000 12/01/13 4,959,400
10,531 FNMA............................. 6.000 05/01/28-
02/01/29 10,234,912
2,376 FNMA (c)......................... 7.000 02/01/27-
08/01/28 2,408,948
3,378 GNMA (c)......................... 7.000 05/15/26-
07/15/28 3,430,199
23,489 SBA Strip (Principal Only) (c)... * 08/24/19 1,581,709
------------
Total Mortgage Backed Securities (U.S.)................... 27,149,110
------------
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS 12.9%
4,000 U.S. Treasury Bonds (c).......... 5.500 08/15/28 3,830,160
1,000 U.S. Treasury Notes (c).......... 4.500 01/31/01 991,540
4,000 U.S. Treasury Notes (c).......... 4.750 11/15/08 3,852,480
5,500 U.S. Treasury Notes (c).......... 4.250 11/15/03 5,292,980
------------
Total U.S. Government and Government Agency Obligations... 13,967,160
------------
</TABLE>
See Notes to Financial Statements
17
<PAGE> 95
<TABLE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999
- ---------------------------------------------------------------------------------------
U.S.$
Description Shares Market Value
- ---------------------------------------------------------------------------------------
<S> <C> <C>
COMMON AND PREFERRED STOCKS 3.7%
Avalon Bay Communities, Ser G-Preferred
Shares-US$................................. 50,000 $ 1,240,625
Grupo Casa Autrey-ADR (Mexico)-US$......... 8,500 43,563
MEPC International Capital, LP-Preferred
Shares-US$ (c)............................ 100,000 2,631,250
Republic of Argentina-Warrants-US$......... 625 24,375
Splitrock Services Inc.,-Warrants, 144A -
Private Placement-US$ (a).................. 16,250 16,250
Thai Military Bank-THB..................... 15,000 7,189
United Mexican States-Warrants-US$......... 1,000 36,000
------------
Total Common and Preferred Stocks......................... 3,999,252
------------
SWAP TRANSACTIONS 0.0%
Goldman Sachs, 10.0 million US$ notional amount, maturing
01/19/00, payment based upon the spread between the 6 year
French Franc swap interest rate versus the 6 year German
Mark swap interest rate................................... (1,334)
------------
TOTAL LONG-TERM INVESTMENTS 131.6%
(Cost $150,136,280)....................................... 142,942,150
------------
</TABLE>
<TABLE>
<CAPTION>
Par Amount
in Local
Currency Maturity U.S.$
(000) Description Coupon Date Market Value
- ---------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENTS 8.1%
4,285 Euro Time Deposit-EUR$........... 2.900% 04/05/99 $ 4,633,561
3,892 Euro Time Deposit-EUR$........... 2.900 04/12/99 4,208,452
------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $8,905,313)......................................... 8,842,013
------------
TOTAL INVESTMENTS 139.7%
(Cost $159,041,593)....................................... 151,784,163
LIABILITIES IN EXCESS OF OTHER ASSETS (39.7%)............ (43,162,742)
------------
NET ASSETS 100.0%........................................ $108,621,421
============
</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) Securities purchased on a when issued or delayed delivery basis.
(c) Assets segregated as collateral for when issued or delayed delivery purchase
commitments, open options, futures, forwards or swaps transactions or
borrowings of the Fund.
(d) Security is a "step-up" bond where the coupon increases, or steps up, at a
predetermined date.
See Notes to Financial Statements
18
<PAGE> 96
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
(e) 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.
(f) Payment in kind security.
(g) Security is accruing at less than the stated coupon.
PORTFOLIO COMPOSITION BY CREDIT QUALITY
The following table summarizes the portfolio composition at March 31, 1999,
based upon the highest credit quality ratings as determined by Standard & Poor's
or Moody's.
<TABLE>
<S> <C>
U.S. Government and U.S. Government Agency Obligations...... 27.7%
AAA......................................................... 7.5%
AA.......................................................... 1.4%
A........................................................... 4.6%
BBB......................................................... 16.2%
BB.......................................................... 19.1%
B........................................................... 16.2%
CCC......................................................... 1.7%
Non-Rated................................................... 5.6%
------
100.0%
======
</TABLE>
See Notes to Financial Statements
19
<PAGE> 97
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $159,041,593)....................... $151,784,163
Cash........................................................ 81,577
Receivables:
Interest.................................................. 2,372,644
Investments Sold.......................................... 2,121,679
Variation Margin on Futures............................... 5,313
Fund Shares Sold.......................................... 113,714
------------
Total Assets.......................................... 156,479,090
------------
LIABILITIES:
Payables:
Bank Borrowings........................................... 19,525,597
Reverse Repurchase Agreements............................. 14,198,386
Investments Purchased..................................... 12,817,783
Income Distributions...................................... 406,856
Fund Shares Repurchased................................... 254,743
Distributor and Affiliates................................ 122,030
Investment Advisory Fee................................... 63,240
Forward Currency Contracts................................ 42,572
Options at Market Value (net of premium received of
$44,331)................................................ 23,828
Accrued Expenses............................................ 274,494
Trustees' Deferred Compensation and Retirement Plans........ 128,140
------------
Total Liabilities..................................... 47,857,669
------------
NET ASSETS.................................................. $108,621,421
============
NET ASSETS CONSIST OF:
Capital..................................................... $129,092,655
Accumulated Distribution in Excess of Net Investment
Income.................................................... (2,156,891)
Net Unrealized Depreciation................................. (7,276,985)
Accumulated Net Realized Loss............................... (11,037,358)
------------
NET ASSETS.................................................. $108,621,421
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $41,769,149 and 3,791,107 shares of
beneficial interest issued and outstanding)............. $ 11.02
Maximum sales charge (4.75%* of offering price)......... .55
------------
Maximum offering price to public........................ $ 11.57
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $62,812,837 and 5,696,756 shares of
beneficial interest issued and outstanding)............. $ 11.03
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $4,039,435 and 366,787 shares of
beneficial interest issued and outstanding)............. $ 11.01
============
</TABLE>
*On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
20
<PAGE> 98
STATEMENT OF OPERATIONS
For the Nine Months Ended March 31, 1999
and the Year Ended June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
March 31, 1999 June 30, 1998
- ----------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest (Net of foreign withholding taxes of $6,272
and $9,201, respectively).......................... $9,534,743 $13,354,450
Dividends (Net of foreign withholding taxes of $53
for the year ended June 30, 1998).................. 317,905 786,323
------------ -----------
Total Income................................... 9,852,648 14,140,773
------------ -----------
EXPENSES:
Investment Advisory Fee.............................. 893,505 1,262,844
Distribution (12b-1) and Service Fees (Attributed to
Classes A, B and C of $79,675, $516,080 and
$30,378, respectively, for the nine months ended
March 31, 1999 and $113,849, $781,645 and $37,816,
respectively, for the year ended June 30, 1998).... 626,133 933,310
Shareholder Services................................. 136,421 185,508
Custody.............................................. 72,673 86,456
Trustees' Fees and Expenses.......................... 23,540 29,318
Amortization of Organizational Costs................. 17,037 33,982
Legal................................................ 12,330 16,532
Other................................................ 205,468 343,480
------------ -----------
Total Operating Expenses....................... 1,987,107 2,891,430
Less Fees Waived and Reimbursed................ 247,950 118,837
------------ -----------
Net Operating Expenses......................... 1,739,157 2,772,593
Interest Expense............................... 1,555,993 2,151,078
------------ -----------
NET INVESTMENT INCOME................................ $ 6,557,498 $ 9,217,102
============ ===========
NET REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments........................................ $ (2,874,213) $ 3,963,593
Options............................................ 72,983 (467,470)
Futures............................................ (3,419,038) (3,234,026)
Forwards........................................... (94,457) (1,497,004)
Foreign Currency Transactions...................... (440,510) (19,018)
------------ -----------
Net Realized Loss.................................... (6,755,235) (1,253,925)
------------ -----------
Net Unrealized Appreciation/Depreciation:
Beginning of the Period.............................. (1,176,688) 2,587,120
------------ -----------
End of the Period:
Investments........................................ (7,257,430) (431,623)
Options............................................ 20,503 311,905
Futures............................................ (74,688) (727,773)
Forwards........................................... 44,812 (329,325)
Foreign Currency Translation....................... (10,182) 128
------------ -----------
(7,276,985) (1,176,688)
------------ -----------
Net Unrealized Depreciation During the Period........ (6,100,297) (3,763,808)
------------ -----------
NET REALIZED AND UNREALIZED LOSS..................... $(12,855,532) $(5,017,733)
============ ===========
NET INCREASE/DECREASE IN NET ASSETS FROM
OPERATIONS......................................... (6,298,034) $ 4,199,369
============ ===========
</TABLE>
See Notes to Financial Statements
21
<PAGE> 99
STATEMENT OF CHANGES IN NET ASSETS
For the Nine Months Ended March 31, 1999,
the Years Ended June 30, 1998 and June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended Year Ended Year Ended
March 31, 1999 June 30, 1998 June 30, 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................ $ 6,557,498 $ 9,217,102 $ 8,581,357
Net Realized Gain/Loss............................... (6,755,235) (1,253,925) 2,999,390
Net Unrealized Appreciation/Depreciation During the
Period.............................................. (6,100,297) (3,763,808) 3,381,566
------------ ------------ ------------
Change in Net Assets from Operations................. (6,298,034) 4,199,369 14,962,313
------------ ------------ ------------
Distributions from Net Investment Income............. (6,557,498) (9,238,901) (8,604,269)
Distributions in Excess of Net Investment Income..... (247,334) -0- (27,347)
------------ ------------ ------------
Distributions from and in Excess of Net Investment
Income*............................................. (6,804,832) (9,238,901) (8,631,616)
------------ ------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES.......................................... (13,102,866) (5,039,532) 6,330,697
------------ ------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold............................ 20,972,354 37,212,204 40,557,345
Net Asset Value of Shares Issued Through Dividend
Reinvestment........................................ 3,077,004 4,088,237 3,498,095
Cost of Shares Repurchased........................... (27,689,372) (34,763,480) (25,388,033)
------------ ------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS... (3,640,014) 6,536,961 18,667,407
------------ ------------ ------------
TOTAL INCREASE/DECREASE IN NET ASSETS................ (16,742,880) 1,497,429 24,998,104
NET ASSETS:
Beginning of the Period.............................. 125,364,301 123,866,872 98,868,768
------------ ------------ ------------
End of the Period (Including accumulated
undistributed net investment income of ($2,156,891),
($1,909,557), and $150,395, respectively)........... $108,621,421 $125,364,301 $123,866,872
============ ============ ============
*Distributions by Class
Distributions from and in Excess of
Net Investment Income:
Class A Shares...................................... $ (2,678,679) $ (3,523,499) $ (3,189,748)
Class B Shares...................................... (3,896,704) (5,451,394) (5,177,891)
Class C Shares...................................... (229,449) (264,008) (263,977)
------------ ------------- -------------
$ (6,804,832) $ (9,238,901) $ (8,631,616)
============ ============= =============
</TABLE>
See Notes to Financial Statements
22
<PAGE> 100
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
Nine Months Year Ended June 30, of Investment
Ended ------------------------------------- Operations) to
Class A Shares March 31, 1999 1998 1997 1996 1995 June 30, 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Period............. $12.286 $12.778 $12.065 $11.704 $11.975 $14.300
------- ------- ------- ------- ------- -------
Net Investment Income....... .679 .973 1.019 1.013 .657 .566
Net Realized and Unrealized
Gain/Loss................. (1.236) (.489) .714 .446 .272 (2.391)
------- ------- ------- ------- ------- -------
Total from Investment
Operations................ (.557) .484 1.733 1.459 .929 (1.825)
------- ------- ------- ------- ------- -------
Less:
Distributions from and in
Excess of Net Investment
Income.................. .711 .976 1.020 1.098 .793 .500
Return of Capital
Distribution............ -0- -0- -0- -0- .407 -0-
------- ------- ------- ------- ------- -------
Total Distributions......... .711 .976 1.020 1.098 1.200 .500
------- ------- ------- ------- ------- -------
Net Asset Value, End of the
Period.................... $11.018 $12.286 $12.778 $12.065 $11.704 $11.975
======= ======= ======= ======= ======= =======
Total Return* (a)........... (4.47%)** 3.89% 14.92% 12.92% 8.46% (12.83%)**
Net Assets at End of the
Period (In millions)...... $ 41.8 $ 45.3 $ 43.8 $ 33.8 $ 29.6 $ 24.5
Ratio of Operating Expenses
to Average Net Assets*.... 1.53% 1.68% 1.81% 1.84% 1.98% 1.88%
Ratio of Interest Expense to
Average Net Assets........ 1.79% 1.69% 1.99% 2.27% 2.38% .96%
Ratio of Net Investment
Income to Average Net
Assets*................... 8.06% 7.72% 8.12% 8.34% 5.88% 9.27%
Portfolio Turnover.......... 282%** 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..... 1.82% 1.78% 1.86% 1.92% N/A N/A
Ratio of Net Investment
Income to Average Net
Assets.................... 7.78% 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
23
<PAGE> 101
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
Nine Months Year Ended June 30, of Investment
Ended ------------------------------------- Operations) to
Class B Shares March 31, 1999 1998 1997 1996 1995 June 30, 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period................. $12.286 $12.779 $12.069 $11.706 $11.968 $14.300
------- ------- ------- ------- ------- -------
Net Investment Income.... .622 .878 .920 .926 .585 .515
Net Realized and
Unrealized Gain/Loss... (1.243) (.491) .717 .443 .245 (2.392)
------- ------- ------- ------- ------- -------
Total from Investment
Operations............. (.621) .387 1.637 1.369 .830 (1.877)
------- ------- ------- ------- ------- -------
Less:
Distributions from and
in Excess of Net
Investment Income.... .639 .880 .927 1.006 .722 .455
Return of Capital
Distribution......... -0- -0- -0- -0- .370 -0-
------- ------- ------- ------- ------- -------
Total Distributions...... .639 .880 .927 1.006 1.092 .455
------- ------- ------- ------- ------- -------
Net Asset Value, End of
the Period............. $11.026 $12.286 $12.779 $12.069 $11.706 $11.968
======= ======= ======= ======= ======= =======
Total Return* (a)........ (4.99%)** 3.11% 13.98% 12.06% 7.62% (13.21%)**
Net Assets at End of the
Period (In millions)... $ 62.8 $ 76.2 $ 76.2 $ 61.9 $ 52.6 $ 46.4
Ratio of Operating
Expenses to Average Net
Assets*................ 2.29% 2.44% 2.57% 2.59% 2.68% 2.63%
Ratio of Interest Expense
to Average Net
Assets................. 1.80% 1.69% 1.98% 2.26% 2.38% .96%
Ratio of Net Investment
Income to Average Net
Assets*................ 7.30% 6.96% 7.33% 7.58% 5.30% 8.48%
Portfolio Turnover....... 282%** 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................. 2.58% 2.54% 2.61% 2.67% N/A N/A
Ratio of Net Investment
Income to Average Net
Assets................. 7.02% 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
24
<PAGE> 102
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
Nine Months Year Ended June 30, of Investment
Ended ------------------------------------- Operations) to
Class C Shares March 31, 1999 1998 1997 1996 1995 June 30, 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Period............ $12.274 $12.768 $12.059 $11.699 $11.966 $14.300
------- ------- ------- ------- ------- -------
Net Investment Income...... .607 .876 .913 .944 .598 .509
Net Realized and Unrealized
Gain/Loss................ (1.229) (.490) .723 .422 .227 (2.388)
------- ------- ------- ------- ------- -------
Total from Investment
Operations............... (.622) .386 1.636 1.366 .825 (1.879)
------- ------- ------- ------- ------- -------
Less:
Distributions from and in
Excess of Net
Investment Income...... .639 .880 .927 1.006 .722 .455
Return of Capital
Distribution........... -0- -0- -0- -0- .370 -0-
------- ------- ------- ------- ------- -------
Total Distributions........ .639 .880 .927 1.006 1.092 .455
------- ------- ------- ------- ------- -------
Net Asset Value, End of the
Period................... $11.013 $12.274 $12.768 $12.059 $11.699 $11.966
======= ======= ======= ======= ======= =======
Total Return* (a).......... (5.01%)** 3.03% 13.99% 12.07% 7.53% (13.21%)**
Net Assets at End of the
Period (In millions)..... $ 4.0 $ 3.9 $ 3.8 $ 3.1 $ 1.7 $ 2.1
Ratio of Operating Expenses
to Average Net Assets*... 2.28% 2.44% 2.56% 2.58% 2.69% 2.65%
Ratio of Interest Expense
to Average Net Assets.... 1.77% 1.69% 1.98% 2.22% 2.38% .95%
Ratio of Net Investment
Income to Average Net
Assets*.................. 7.29% 6.96% 7.31% 7.49% 5.92% 8.36%
Portfolio Turnover......... 282%** 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.... 2.57% 2.54% 2.61% 2.66% N/A N/A
Ratio of Net Investment
Income to Average Net
Assets................... 7.01% 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
25
<PAGE> 103
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Strategic Income Fund (the "Fund") is organized as a series of Van
Kampen Trust (the "Trust"), a Delaware business trust, and is registered as a
non-diversified open-end management investment company under the Investment
Company Act of 1940, as amended. The Fund's primary investment objective is to
seek to provide shareholders with high current income, while its secondary
investment objective is to seek capital appreciation. The Fund will allocate its
investments among the following market sectors: U.S. government securities,
domestic investment grade income securities, domestic lower grade income
securities, foreign investment grade income securities and foreign lower grade
income securities. The Fund borrows money for investment purposes which will
create the opportunity for enhanced return, but also should be considered a
speculative technique and may increase the Fund's volatility. The Fund commenced
investment operations on December 31, 1993, with three classes of common shares,
Class A, Class B and Class C shares. In July 1998, the Fund's Board of Trustees
approved a change in the Fund's fiscal year end from June 30 to March 31. As a
result, this financial report reflects the nine-month period commencing on July
1, 1998, and ending on March 31, 1999.
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
26
<PAGE> 104
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
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.
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 were amortized on a
straight line basis over the 60 month period ended December 31, 1998.
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. Although the
Fund's fiscal year end was recently changed from June 30 to March 31, the Fund's
tax year end remains June 30.
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
27
<PAGE> 105
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
losses which are not recognized for tax purposes until the first day of the
following tax year, wash sales, the difference in the Fund's tax year end, and
gains or losses recognized for tax purposes on open options, futures and forward
transactions.
At March 31, 1999, for federal income tax purposes, cost of long- and
short-term investments is $159,237,593; the aggregate gross unrealized
appreciation is $1,998,380 and the aggregate gross unrealized depreciation is
$9,450,476, resulting in net unrealized depreciation on long- and short-term
investments and swaps of $7,452,096.
G. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily and pays dividends
monthly 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. Net realized gains, if any, are distributed annually.
For tax purposes, the determination of a return of capital distribution is
made at the end of the Fund's taxable year (June 30). Therefore, while it is
likely that a portion of the Fund's distribution will ultimately be
characterized as a return of capital for tax purposes, no such designation has
been made for the nine months ended March 31, 1999. At June 30, 1998, permanent
book and tax basis differences relating to the recognition of net realized
losses on foreign currency transactions totaling $2,038,153 were reclassified
from accumulated net realized gain/loss to accumulated undistributed net
investment income.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, Van Kampen
Investment Advisory Corp. ("the Adviser") will provide investment advice and
facilities to the Fund for an annual fee payable monthly as follows:
<TABLE>
<CAPTION>
AVERAGE 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 nine months ended March 31, 1999 and the year ended June 30, 1998,
the Adviser voluntarily waived approximately $248,000 and $86,000, respectively,
of its investment advisory fees. This waiver is voluntary and can be
discontinued at any time.
28
<PAGE> 106
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
Additionally, for the year ended June 30, 1998, the Adviser voluntarily assumed
approximately $33,000 of the Fund's registration and filing fees.
For the nine months ended March 31, 1999 and the year ended June 30, 1998,
the Fund recognized expenses of approximately $2,900 and $4,600, respectively,
representing legal services provided by Skadden, Arps, Slate, Meagher & Flom
(Illinois), counsel to the Fund, of which a trustee of the Fund is an affiliated
person.
For the nine months ended March 31, 1999 and the year ended June 30, 1998,
the Fund recognized expenses of approximately $21,200 and $29,600, respectively,
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 nine months
ended March 31, 1999 and the year ended June 30, 1998, the Fund recognized
expenses of approximately $98,400 and $129,400, respectively. Transfer agency
fees are determined through negotiations with the Fund's Board of Trustees and
are based on competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of shares of beneficial interest, Classes
A, B and C, each with a par value of $.01 per share. There are an unlimited
number of shares of each class authorized.
29
<PAGE> 107
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
At March 31, 1999, capital aggregated $49,062,509, $75,267,108 and
$4,763,038 for Classes A, B and C, respectively. For the nine months ended March
31, 1999, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................... 797,826 $ 9,027,495
Class B.................................... 895,851 10,155,513
Class C.................................... 156,680 1,789,346
---------- ------------
Total Sales.................................. 1,850,357 $ 20,972,354
========== ============
Dividend Reinvestment:
Class A.................................... 112,529 $ 1,258,452
Class B.................................... 148,695 1,664,203
Class C.................................... 13,820 154,349
---------- ------------
Total Dividend Reinvestment.................. 275,044 $ 3,077,004
========== ============
Repurchases:
Class A.................................... (807,350) $ (9,050,583)
Class B.................................... (1,549,706) (17,323,867)
Class C.................................... (117,752) (1,314,922)
---------- ------------
Total Repurchases............................ (2,474,808) $(27,689,372)
========== ============
</TABLE>
30
<PAGE> 108
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
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>
31
<PAGE> 109
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
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>
32
<PAGE> 110
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
For the nine months ended March 31, 1999 and the year ended June 30, 1998,
Van Kampen, as Distributor for the Fund, received commissions on sales of the
Fund's Class A shares of approximately $15,100 and $27,600, respectively, and
CDSC on redeemed shares of approximately $169,500 and $236,400, respectively.
Sales charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
For the nine months ended March 31, 1999, the cost of purchases and proceeds
from sales of investments, excluding short-term investments, were $447,277,701
and $469,694,392, respectively. For the year ended June 30, 1998, the cost of
purchases and proceeds from sales of investments, excluding short-term
investments, were $858,569,959 and $859,486,340, respectively.
5. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio, manage the portfolio's effective yield, foreign currency exposure,
maturity and duration or generate potential gain. All of the Fund's portfolio
holdings, including derivative instruments, are marked to market each day with
the change in value reflected in unrealized appreciation/ depreciation. Upon
disposition, a realized gain or loss is recognized accordingly, except when
exercising 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.
33
<PAGE> 111
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
Transactions in options for the nine months ended March 31, 1999 and the
year ended June 30, 1998, were as follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- -------------------------------------------------------------------------
<S> <C> <C>
Outstanding at June 30, 1997.................. 1,627 $ (246,766)
Options Written and Purchased (Net)........... 3,233 (1,540,015)
Options Terminated in Closing
Transactions (Net).......................... (3,781) 1,130,290
Options Expired (Net)......................... (778) 384,716
------ -----------
Outstanding at June 30, 1998.................. 301 (271,775)
Options Written and Purchased (Net)........... 650 72,144
Options Terminated in Closing
Transactions (Net).......................... (626) 218,593
Options Expired (Net)......................... (300) 25,369
------ -----------
Outstanding at March 31, 1999................. 25 $ 44,331
====== ===========
</TABLE>
The related futures contracts of the outstanding option transactions as of
March 31, 1999, and the description and market value are as follows:
<TABLE>
<CAPTION>
MARKET
EXPIRATION MONTH/ VALUE OF
DESCRIPTION CONTRACTS EXERCISE PRICE OPTIONS
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury Bond Future
Jun 1999--Purchased Put....... 25 Jun/122 $23,828
== =======
</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, cash or liquid 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. The cost of securities acquired through
delivery under a contract is adjusted by the unrealized gain or loss on the
contract.
34
<PAGE> 112
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
Transactions in futures contracts for the nine months ended March 31, 1999
and the year ended June 30, 1998, were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- -----------------------------------------------------------------------
<S> <C>
Outstanding at June 30, 1997.............................. 689
Futures Opened............................................ 7,096
Futures Closed............................................ (7,156)
------
Outstanding at June 30, 1998.............................. 629
Futures Opened............................................ 3,229
Futures Closed............................................ (3,708)
------
Outstanding at March 31, 1999............................. 150
======
</TABLE>
The futures contracts outstanding as of March 31, 1999, and the descriptions
and unrealized appreciation/depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
- --------------------------------------------------------------------------
<S> <C> <C>
LONG CONTRACTS
90 Day Eurodollar Future Sept 1999
(Current notional value $237,238 per
contract).............................. 100 (86,250)
SHORT CONTRACTS:
10-Year U.S. Treasury Note Future June
1999
(Current notional value $114,688 per
contract).............................. 50 11,562
--- --------
150 $(74,688)
=== ========
</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.
35
<PAGE> 113
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
At March 31, 1999, the Fund has outstanding forward currency contracts as
follows:
<TABLE>
<CAPTION>
UNREALIZED
FORWARD CURRENT APPRECIATION/
CURRENCY VALUE DEPRECIATION
- ------------------------------------------------------------------------
<S> <C> <C>
SHORT CONTRACTS:
Eurodollar,
2,331,496 expiring 4/15/99............... $2,523,090 $14,511
Eurodollar,
4,582,321 expiring 4/29/99............... 4,962,853 37,147
Eurodollar,
929,593 expiring 4/30/99................. 1,006,846 (6,846)
---------- -------
$8,492,789 $44,812
========== =======
</TABLE>
D. CLOSED BUT UNSETTLED FORWARD COMMITMENTS--In certain situations, the Fund has
entered into offsetting transactions for outstanding forward commitments prior
to settlement of the obligation. In doing so, the Fund realizes a gain or loss
on the transactions at the time the forward commitment is closed. Risk may
result due to the potential inability of counterparties to meet the terms of
their contracts. At March 31, 1999, the Fund has a net realized loss on closed
but unsettled forward currency contracts of $87,384 scheduled to settle between
April 15, 1999 and June 30, 1999. This amount is due from two counterparties,
the largest portion due from one counterparty represents 57% of this receivable.
E. SWAP TRANSACTIONS--These securities, which are identified in the portfolio of
investments, represent an agreement between two parties to exchange a series of
cash flows based upon various indices at specified intervals.
F. INVERSE FLOATING SECURITY--These instruments have a coupon which is inversely
indexed to a short-term floating interest rate multiplied by a specified factor.
As the floating rate rises, the coupon is reduced. Conversely, as the floating
rate declines, the coupon is increased. The price of these securities may be
more volatile than the price of a comparable fixed rate security. These
instruments are typically used by the Fund to enhance the yield of the
portfolio.
G. INTEREST ONLY/PRINCIPAL ONLY SECURITIES--A Mortgage-Backed Security or U.S.
Treasury Obligation may be stripped to create an Interest Only (IO) security and
a Principal
36
<PAGE> 114
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
Only (PO) security. An IO represents ownership in the cash flows of the interest
payments or coupon payments made. The cash flow from an IO instrument decreases
as the borrower repays the principal balance. Conversely, a PO represents
ownership in the cash flows of the principal payments made. A PO created from a
U.S. Treasury Obligation becomes a zero coupon bond. The cash flow on a PO
instrument increases as the borrowers repay the principal balance. These
instruments are typically used to manage interest rate exposure in the fund's
portfolio.
6. MORTGAGE-BACKED SECURITIES
A Mortgage-Backed Security (MBS) is a pass-through security created by pooling
mortgages and selling participations in the principal and interest payments
received from borrowers. Most of these securities are guaranteed by federally
sponsored agencies such as Federal National Mortgage Association (FNMA).
A REMIC (Real Estate Mortgage Investment Conduit) is a bond which is
collateralized by a pool of MBS's. These MBS pools are divided into classes or
tranches with each class having its own characteristics.
7. ASSET-BACKED SECURITIES
An Asset-Backed Security (ABS) is a security collateralized by assets such as
installment loans, leases, mortgage loans, receivables or other kinds of assets
that are issued independently of the originator.
8. 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 nine months ended March 31, 1999 and the year ended June 30, 1998, are
payments retained by Van Kampen of approximately $409,600 and $604,600,
respectively.
9. 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.
37
<PAGE> 115
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999
- --------------------------------------------------------------------------------
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 March 31,
1999, was 5.550%. 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, under which the Fund sells securities and agrees to repurchase them on
April 1, 1999 at a mutually agreed upon price. For the nine months ended March
31, 1999, the average interest rate in effect for reverse repurchase agreements
was 3.950%.
The average daily balance of bank borrowings and reverse repurchase
agreements for the nine months ended March 31, 1999, was approximately
$42,929,000 with an average interest rate of 4.67%.
At March 31, 1999, these agreements represented 21.6% of the Fund's total
assets.
38
<PAGE> 116
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 March 31, 1999, and the related statement of operations for
the nine-month period ended March 31, 1999 and the year ended June 30, 1998, the
statement of changes in net assets for the nine-month period ended March 31,
1999, and for each of the years in the two-year period ended June 30, 1998, 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 March
31, 1999, by correspondence with the custodian and brokers and by the
application of alternative auditing procedures where broker replies were not
received. 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 March 31, 1999, the results of its operations
for the nine-month period ended March 31, 1999 and the year ended June 30, 1998,
the changes in its net assets for the nine-month period ended March 31, 1999 and
for each of the years in the two-year period ended June 30, 1998, and the
financial highlights for each of the periods presented, in conformity with
generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
May 6, 1999
39
<PAGE> 117
VAN KAMPEN STRATEGIC INCOME FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
PAUL G. YOVOVICH
OFFICERS
DENNIS J. MCDONNELL*
President
JOHN L. SULLIVAN*
Vice President, Treasurer and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
PAUL R. WOLKENBERG*
EDWARD C. WOOD, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN
INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR
SERVICES INC.
P.O. Box 418256
Kansas City, Missouri 64141-9256
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG LLP
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., 1999
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 August 31, 1999, the report, if used with
prospective investors, must be accompanied by a monthly performance update.
40
<PAGE> 118
YEAR 2000 READINESS DISCLOSURE
Like other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by the Fund's investment adviser and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Fund's
investment adviser is taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to computer systems that it uses and
to obtain reasonable assurances that comparable steps are being taken by the
Fund's other major service providers. At this time, there can be no assurances
that these steps will be sufficient to avoid any adverse impact to the Fund. In
addition, the Year 2000 Problem may adversely affect the markets and the issuers
of securities in which the Fund may invest that, in turn, may adversely affect
the net asset value of the Fund. Improperly functioning trading systems may
result in settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Fund's investments may be adversely affected. The
statements above are subject to the Year 2000 Information and Readiness
Disclosure Act, which may limit the legal rights regarding the use of such
statements in the case of dispute.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> HIGH YIELD CLASS A
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999<F1>
<PERIOD-START> JUL-01-1998<F1>
<PERIOD-END> MAR-31-1999<F1>
<INVESTMENTS-AT-COST> 463,575,882<F1>
<INVESTMENTS-AT-VALUE> 441,397,287<F1>
<RECEIVABLES> 13,009,932<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 37,598<F1>
<TOTAL-ASSETS> 454,444,817<F1>
<PAYABLE-FOR-SECURITIES> 23,269,159<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 3,212,603<F1>
<TOTAL-LIABILITIES> 26,481,762<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 391,207,193
<SHARES-COMMON-STOCK> 30,761,644
<SHARES-COMMON-PRIOR> 28,360,164
<ACCUMULATED-NII-CURRENT> (2,433,418)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (97,935,246)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (22,324,238)<F1>
<NET-ASSETS> 277,921,376
<DIVIDEND-INCOME> 383,121<F1>
<INTEREST-INCOME> 30,971,247<F1>
<OTHER-INCOME> 90,486<F1>
<EXPENSES-NET> (4,452,894)<F1>
<NET-INVESTMENT-INCOME> 26,991,960<F1>
<REALIZED-GAINS-CURRENT> (11,821,088)<F1>
<APPREC-INCREASE-CURRENT> (25,290,256)<F1>
<NET-CHANGE-FROM-OPS> (10,119,384)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (18,518,999)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,548,658
<NUMBER-OF-SHARES-REDEEMED> (6,997,669)
<SHARES-REINVESTED> 850,491
<NET-CHANGE-IN-ASSETS> (2,644,538)
<ACCUMULATED-NII-PRIOR> (1,685,377)<F1>
<ACCUMULATED-GAINS-PRIOR> (86,114,158)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 2,325,843<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 4,763,006<F1>
<AVERAGE-NET-ASSETS> 267,351,703
<PER-SHARE-NAV-BEGIN> 9.893
<PER-SHARE-NII> 0.619
<PER-SHARE-GAIN-APPREC> (0.848)
<PER-SHARE-DIVIDEND> (0.630)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.034
<EXPENSE-RATIO> 1.17
<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
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999<F1>
<PERIOD-START> JUL-01-1998<F1>
<PERIOD-END> MAR-31-1999<F1>
<INVESTMENTS-AT-COST> 463,575,882<F1>
<INVESTMENTS-AT-VALUE> 441,397,287<F1>
<RECEIVABLES> 13,009,932<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 37,598<F1>
<TOTAL-ASSETS> 454,444,817<F1>
<PAYABLE-FOR-SECURITIES> 23,269,159<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 3,212,603<F1>
<TOTAL-LIABILITIES> 26,481,762<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,444,042,232
<SHARES-COMMON-STOCK> 14,990,680
<SHARES-COMMON-PRIOR> 14,662,143
<ACCUMULATED-NII-CURRENT> (2,433,418)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (97,935,246)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (22,324,238)<F1>
<NET-ASSETS> 135,389,202
<DIVIDEND-INCOME> 383,121<F1>
<INTEREST-INCOME> 30,971,247<F1>
<OTHER-INCOME> 90,486<F1>
<EXPENSES-NET> (4,452,894)<F1>
<NET-INVESTMENT-INCOME> 26,991,960<F1>
<REALIZED-GAINS-CURRENT> (11,821,088)<F1>
<APPREC-INCREASE-CURRENT> (25,290,256)<F1>
<NET-CHANGE-FROM-OPS> (10,119,384)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (8,450,628)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,618,109
<NUMBER-OF-SHARES-REDEEMED> (4,654,114)
<SHARES-REINVESTED> 364,542
<NET-CHANGE-IN-ASSETS> (9,614,042)
<ACCUMULATED-NII-PRIOR> (1,685,377)<F1>
<ACCUMULATED-GAINS-PRIOR> (86,114,158)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 2,325,843<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 4,763,006<F1>
<AVERAGE-NET-ASSETS> 133,616,096
<PER-SHARE-NAV-BEGIN> 9.890
<PER-SHARE-NII> 0.560
<PER-SHARE-GAIN-APPREC> (0.842)
<PER-SHARE-DIVIDEND> (0.576)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.032
<EXPENSE-RATIO> 1.93
<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
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999<F1>
<PERIOD-START> JUL-01-1998<F1>
<PERIOD-END> MAR-31-1999<F1>
<INVESTMENTS-AT-COST> 463,575,882<F1>
<INVESTMENTS-AT-VALUE> 441,397,287<F1>
<RECEIVABLES> 13,009,932<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 37,598<F1>
<TOTAL-ASSETS> 454,444,817<F1>
<PAYABLE-FOR-SECURITIES> 23,269,159<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 3,212,603<F1>
<TOTAL-LIABILITIES> 26,481,762<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 15,406,532<F1>
<SHARES-COMMON-STOCK> 1,623,895<F1>
<SHARES-COMMON-PRIOR> 1,162,594<F1>
<ACCUMULATED-NII-CURRENT> (2,433,418)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (97,935,246)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (22,324,238)<F1>
<NET-ASSETS> 14,652,477
<DIVIDEND-INCOME> 383,121<F1>
<INTEREST-INCOME> 30,971,247<F1>
<OTHER-INCOME> 90,486<F1>
<EXPENSES-NET> (4,452,894)<F1>
<NET-INVESTMENT-INCOME> 26,991,960<F1>
<REALIZED-GAINS-CURRENT> (11,821,088)<F1>
<APPREC-INCREASE-CURRENT> (25,290,256)<F1>
<NET-CHANGE-FROM-OPS> (10,119,384)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (770,374)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 916,995
<NUMBER-OF-SHARES-REDEEMED> (501,047)
<SHARES-REINVESTED> 45,353
<NET-CHANGE-IN-ASSETS> 3,161,564
<ACCUMULATED-NII-PRIOR> (1,685,377)<F1>
<ACCUMULATED-GAINS-PRIOR> (86,114,158)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 2,325,843<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 4,763,006<F1>
<AVERAGE-NET-ASSETS> 12,154,883
<PER-SHARE-NAV-BEGIN> 9.884
<PER-SHARE-NII> 0.562
<PER-SHARE-GAIN-APPREC> (0.847)
<PER-SHARE-DIVIDEND> (0.576)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.023
<EXPENSE-RATIO> 1.93
<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
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<INVESTMENTS-AT-COST> 56,708,110<F1>
<INVESTMENTS-AT-VALUE> 54,014,751<F1>
<RECEIVABLES> 876,711<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 871<F1>
<TOTAL-ASSETS> 54,892,333<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 611,912<F1>
<TOTAL-LIABILITIES> 611,912<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 75,377,296
<SHARES-COMMON-STOCK> 7,142,474
<SHARES-COMMON-PRIOR> 6,222,565
<ACCUMULATED-NII-CURRENT> (1,974,455)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (64,794,090)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (2,802,037)<F1>
<NET-ASSETS> 50,986,605
<DIVIDEND-INCOME> 26,486<F1>
<INTEREST-INCOME> 3,400,269<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (737,002)<F1>
<NET-INVESTMENT-INCOME> 2,689,753<F1>
<REALIZED-GAINS-CURRENT> (1,451,526)<F1>
<APPREC-INCREASE-CURRENT> (385,058)<F1>
<NET-CHANGE-FROM-OPS> 853,169<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (2,323,505)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,006,866
<NUMBER-OF-SHARES-REDEEMED> (1,242,343)
<SHARES-REINVESTED> 155,386
<NET-CHANGE-IN-ASSETS> 5,261,080
<ACCUMULATED-NII-PRIOR> (1,985,847)<F1>
<ACCUMULATED-GAINS-PRIOR> (63,342,564)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 242,697<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 737,002<F1>
<AVERAGE-NET-ASSETS> 49,946,089
<PER-SHARE-NAV-BEGIN> 7.350
<PER-SHARE-NII> 0.330
<PER-SHARE-GAIN-APPREC> (0.210)
<PER-SHARE-DIVIDEND> (0.330)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 7.140
<EXPENSE-RATIO> 1.56
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 22
<NAME> S-T GBL CLASS B
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<INVESTMENTS-AT-COST> 56,708,110<F1>
<INVESTMENTS-AT-VALUE> 54,014,751<F1>
<RECEIVABLES> 876,711<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 871<F1>
<TOTAL-ASSETS> 54,892,333<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 611,912<F1>
<TOTAL-LIABILITIES> 611,912<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 48,190,817
<SHARES-COMMON-STOCK> 424,495
<SHARES-COMMON-PRIOR> 2,661,333
<ACCUMULATED-NII-CURRENT> (1,974,455)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (64,794,090)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (2,802,037)<F1>
<NET-ASSETS> 3,029,945
<DIVIDEND-INCOME> 26,486<F1>
<INTEREST-INCOME> 3,400,269<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (737,002)<F1>
<NET-INVESTMENT-INCOME> 2,689,753<F1>
<REALIZED-GAINS-CURRENT> (1,451,526)<F1>
<APPREC-INCREASE-CURRENT> (385,058)<F1>
<NET-CHANGE-FROM-OPS> 853,169<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (342,314)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 38,305
<NUMBER-OF-SHARES-REDEEMED> (2,299,947)
<SHARES-REINVESTED> 24,804
<NET-CHANGE-IN-ASSETS> (16,521,884)
<ACCUMULATED-NII-PRIOR> (1,985,847)<F1>
<ACCUMULATED-GAINS-PRIOR> (63,342,564)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 242,697<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 737,002<F1>
<AVERAGE-NET-ASSETS> 8,491,941
<PER-SHARE-NAV-BEGIN> 7.350
<PER-SHARE-NII> 0.360
<PER-SHARE-GAIN-APPREC> (0.280)
<PER-SHARE-DIVIDEND> (0.290)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 7.140
<EXPENSE-RATIO> 2.31
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 23
<NAME> S-T GBL CLASS C
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<INVESTMENTS-AT-COST> 56,708,110<F1>
<INVESTMENTS-AT-VALUE> 54,014,751<F1>
<RECEIVABLES> 876,711<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 871<F1>
<TOTAL-ASSETS> 54,892,333<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 611,912<F1>
<TOTAL-LIABILITIES> 611,912<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 282,890
<SHARES-COMMON-STOCK> 36,957
<SHARES-COMMON-PRIOR> 45,275
<ACCUMULATED-NII-CURRENT> (1,974,455)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (64,794,090)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (2,802,037)<F1>
<NET-ASSETS> 263,871
<DIVIDEND-INCOME> 26,486<F1>
<INTEREST-INCOME> 3,400,269<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (737,002)<F1>
<NET-INVESTMENT-INCOME> 2,689,753<F1>
<REALIZED-GAINS-CURRENT> (1,451,526)<F1>
<APPREC-INCREASE-CURRENT> (385,058)<F1>
<NET-CHANGE-FROM-OPS> 853,169<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (12,542)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,367
<NUMBER-OF-SHARES-REDEEMED> (18,281)
<SHARES-REINVESTED> 1,596
<NET-CHANGE-IN-ASSETS> (68,786)
<ACCUMULATED-NII-PRIOR> (1,985,847)<F1>
<ACCUMULATED-GAINS-PRIOR> (63,342,564)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 242,697<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 737,002<F1>
<AVERAGE-NET-ASSETS> 310,696
<PER-SHARE-NAV-BEGIN> 7.350
<PER-SHARE-NII> 0.290
<PER-SHARE-GAIN-APPREC> (0.210)
<PER-SHARE-DIVIDEND> (0.290)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 7.140
<EXPENSE-RATIO> 2.33
<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> 31
<NAME> STRAT INC CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999<F1>
<PERIOD-START> JUL-01-1998<F1>
<PERIOD-END> MAR-31-1999<F1>
<INVESTMENTS-AT-COST> 159,041,593<F1>
<INVESTMENTS-AT-VALUE> 151,784,163<F1>
<RECEIVABLES> 4,613,350<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 81,577<F1>
<TOTAL-ASSETS> 156,479,090<F1>
<PAYABLE-FOR-SECURITIES> 12,817,783<F1>
<SENIOR-LONG-TERM-DEBT> 33,723,983<F1>
<OTHER-ITEMS-LIABILITIES> 1,315,903<F1>
<TOTAL-LIABILITIES> 47,857,669<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 49,062,509
<SHARES-COMMON-STOCK> 3,791,107
<SHARES-COMMON-PRIOR> 3,688,102
<ACCUMULATED-NII-CURRENT> (2,156,891)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (11,037,358)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (7,276,985)<F1>
<NET-ASSETS> 41,769,149
<DIVIDEND-INCOME> 317,905<F1>
<INTEREST-INCOME> 9,534,743<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (3,295,150)<F1>
<NET-INVESTMENT-INCOME> 6,557,498<F1>
<REALIZED-GAINS-CURRENT> (6,755,235)<F1>
<APPREC-INCREASE-CURRENT> (6,100,297)<F1>
<NET-CHANGE-FROM-OPS> (6,298,034)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (2,678,679)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 797,826
<NUMBER-OF-SHARES-REDEEMED> (807,350)
<SHARES-REINVESTED> 112,529
<NET-CHANGE-IN-ASSETS> (3,541,711)
<ACCUMULATED-NII-PRIOR> (1,909,557)<F1>
<ACCUMULATED-GAINS-PRIOR> (4,282,123)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 893,505<F1>
<INTEREST-EXPENSE> 1,555,993<F1>
<GROSS-EXPENSE> 3,543,100<F1>
<AVERAGE-NET-ASSETS> 42,441,098
<PER-SHARE-NAV-BEGIN> 12.286
<PER-SHARE-NII> 0.679
<PER-SHARE-GAIN-APPREC> (1.236)
<PER-SHARE-DIVIDEND> (0.711)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 11.018
<EXPENSE-RATIO> 1.53
<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> 32
<NAME> STRAT INC CLASS B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999<F1>
<PERIOD-START> JUL-01-1998<F1>
<PERIOD-END> MAR-31-1999<F1>
<INVESTMENTS-AT-COST> 159,041,593<F1>
<INVESTMENTS-AT-VALUE> 151,784,163<F1>
<RECEIVABLES> 4,613,350<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 81,577<F1>
<TOTAL-ASSETS> 156,479,090<F1>
<PAYABLE-FOR-SECURITIES> 12,817,783<F1>
<SENIOR-LONG-TERM-DEBT> 33,723,983<F1>
<OTHER-ITEMS-LIABILITIES> 1,315,903<F1>
<TOTAL-LIABILITIES> 47,857,669<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 75,267,108
<SHARES-COMMON-STOCK> 5,696,756
<SHARES-COMMON-PRIOR> 6,201,916
<ACCUMULATED-NII-CURRENT> (2,156,891)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (11,037,358)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (7,276,985)<F1>
<NET-ASSETS> 62,812,837
<DIVIDEND-INCOME> 317,905<F1>
<INTEREST-INCOME> 9,534,743<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (3,295,150)<F1>
<NET-INVESTMENT-INCOME> 6,557,498<F1>
<REALIZED-GAINS-CURRENT> (6,755,235)<F1>
<APPREC-INCREASE-CURRENT> (6,100,297)<F1>
<NET-CHANGE-FROM-OPS> (6,298,034)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (3,896,704)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 895,851
<NUMBER-OF-SHARES-REDEEMED> (1,549,706)
<SHARES-REINVESTED> 148,695
<NET-CHANGE-IN-ASSETS> (13,386,231)
<ACCUMULATED-NII-PRIOR> (1,909,557)<F1>
<ACCUMULATED-GAINS-PRIOR> (4,282,123)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 893,505<F1>
<INTEREST-EXPENSE> 1,555,993<F1>
<GROSS-EXPENSE> 3,543,100<F1>
<AVERAGE-NET-ASSETS> 68,706,348
<PER-SHARE-NAV-BEGIN> 12.286
<PER-SHARE-NII> 0.622
<PER-SHARE-GAIN-APPREC> (1.243)
<PER-SHARE-DIVIDEND> (0.639)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 11.026
<EXPENSE-RATIO> 2.29
<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> 33
<NAME> STRAT INC CLASS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999<F1>
<PERIOD-START> JUL-01-1998<F1>
<PERIOD-END> MAR-31-1999<F1>
<INVESTMENTS-AT-COST> 159,041,593<F1>
<INVESTMENTS-AT-VALUE> 151,784,163<F1>
<RECEIVABLES> 4,613,350<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 81,577<F1>
<TOTAL-ASSETS> 156,479,090<F1>
<PAYABLE-FOR-SECURITIES> 12,817,783<F1>
<SENIOR-LONG-TERM-DEBT> 33,723,983<F1>
<OTHER-ITEMS-LIABILITIES> 1,315,903<F1>
<TOTAL-LIABILITIES> 47,857,669<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,763,038
<SHARES-COMMON-STOCK> 366,787
<SHARES-COMMON-PRIOR> 314,039
<ACCUMULATED-NII-CURRENT> (2,156,891)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (11,037,358)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (7,276,985)<F1>
<NET-ASSETS> 4,039,435
<DIVIDEND-INCOME> 317,905<F1>
<INTEREST-INCOME> 9,534,743<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (3,295,150)<F1>
<NET-INVESTMENT-INCOME> 6,557,498<F1>
<REALIZED-GAINS-CURRENT> (6,755,235)<F1>
<APPREC-INCREASE-CURRENT> (6,100,297)<F1>
<NET-CHANGE-FROM-OPS> (6,298,034)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (229,449)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 156,680
<NUMBER-OF-SHARES-REDEEMED> (117,752)
<SHARES-REINVESTED> 13,820
<NET-CHANGE-IN-ASSETS> 185,062
<ACCUMULATED-NII-PRIOR> (1,909,557)<F1>
<ACCUMULATED-GAINS-PRIOR> (4,282,123)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 893,505<F1>
<INTEREST-EXPENSE> 1,555,993<F1>
<GROSS-EXPENSE> 3,543,100<F1>
<AVERAGE-NET-ASSETS> 4,046,723
<PER-SHARE-NAV-BEGIN> 12.274
<PER-SHARE-NII> 0.607
<PER-SHARE-GAIN-APPREC> (1.229)
<PER-SHARE-DIVIDEND> (0.639)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 11.013
<EXPENSE-RATIO> 2.28
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
