<PAGE> 1
<TABLE>
<S> <C>
Table of Contents
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 4
PORTFOLIO AT A GLANCE
CREDIT QUALITY 6
SIX-MONTH DIVIDEND HISTORY 6
TOP FIVE SECTORS 6
Q&A WITH YOUR PORTFOLIO MANAGERS 7
GLOSSARY OF TERMS 10
BY THE NUMBERS
YOUR FUND'S INVESTMENTS 11
FINANCIAL STATEMENTS 22
NOTES TO FINANCIAL STATEMENTS 28
FUND OFFICERS AND IMPORTANT ADDRESSES 37
</TABLE>
Our generations
of money-
management
experience
may help you
pursue life's
true wealth.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE> 2
OVERVIEW
LETTER TO SHAREHOLDERS
October 20, 2000
Dear Shareholder,
The first three quarters of 2000 proved to be especially volatile, with all of
the major markets declining in the spring and spending the following months
trying to recover. To manage one's portfolio during such unpredictable times
requires investment-management experience, and the following pages should give
you some insight into how we have performed in this difficult environment.
In this report, the portfolio managers will explain how your investment
performed during the reporting period and describe the strategies they used to
manage your fund during that span. The report will also show you how your
investment has performed over time. Helpful charts summarize the fund's largest
investments, and you can examine the complete portfolio to see all of your
fund's holdings as of the end of your fund's reporting period.
At Van Kampen, we place a high priority on providing you and
your financial advisor with the information you need to help
you monitor your investments during all types of markets. With
nearly four generations of investment-management experience,
we've been around long enough to understand that by investing
with Van Kampen you're entrusting us with much more than your money. Your
investments may help make it possible to afford your next house, keep up with
rising college costs, or enjoy a comfortable retirement.
No matter what your reasons for investing, we're thankful that you've chosen to
place your investments with Van Kampen. We will continue to apply our
generations of money-management experience to helping you pursue life's true
wealth.
Sincerely,
[SIG]
Richard F. Powers, III
President and CEO
Van Kampen Investments
1
<PAGE> 3
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
ECONOMIC GROWTH WAS STRONG DURING THE REPORTING PERIOD, UNDERPINNED BY LOW
UNEMPLOYMENT AND RISING PRODUCTIVITY, YET THERE WERE SIGNS THAT A HEALTHY
SLOWDOWN WAS UNDERWAY. GROSS DOMESTIC PRODUCT, THE PRIMARY MEASURE OF ECONOMIC
GROWTH, INCREASED AT A 2.7 PERCENT ANNUALIZED RATE FOR THE THIRD QUARTER OF
2000. FOLLOWING MILD FIRST- AND SECOND-QUARTER DATA, THIS THIRD-QUARTER FIGURE
OFFERS FURTHER EVIDENCE THAT GROWTH MIGHT BE SETTLING BACK TO A MORE MODERATE
AND SUSTAINABLE PACE THAN ITS RAPID RATE IN LATE 1999.
CONSUMER SPENDING AND EMPLOYMENT
CONCERNS ABOUT INFLATION REMAINED AT BAY DUE IN PART TO A GRADUAL SLOWDOWN IN
CONSUMER SPENDING. RISING INTEREST RATES, HIGHER ENERGY COSTS, AND A
DISAPPOINTING STOCK MARKET BEGAN TO TEMPER RETAIL SALES, WHICH LEVELED OFF FROM
THE BLISTERING PACE OF LATE 1999 AND EARLY 2000. AND WHILE CONSUMER SPENDING WAS
BRISK, THE OVERALL TREND HAS BEEN DOWNWARD THIS YEAR.
THE JOBLESS RATE CONTINUED TO BE EXTREMELY LOW BY HISTORICAL STANDARDS, BUT
RECENT CUTS IN MANUFACTURING PAYROLLS SUPPORT THE POPULAR BELIEF THAT THE
ECONOMY IS MODERATING. ALTHOUGH EMPLOYER COSTS SUCH AS WAGES AND BENEFITS WERE
RISING AT THE END OF 1999 AND IN THE BEGINNING OF 2000, OVER THE PAST SIX MONTHS
THE EMPLOYMENT COST INDEX HAS SHOWN MARKED DECELERATION, WHICH SHOULD HELP EASE
INFLATION CONCERNS.
INTEREST RATES AND INFLATION
THE FEDERAL RESERVE BOARD (THE FED) RAISED INTEREST RATES FOUR TIMES DURING THE
LAST 12 MONTHS IN AN EFFORT TO WARD OFF INFLATION BY CURBING ECONOMIC GROWTH.
OVER THE SAME PERIOD, THE CONSUMER PRICE INDEX ROSE 3.5 PERCENT, WHICH INDICATED
THAT INFLATION GENERALLY REMAINS UNDER CONTROL.
THE FED HAS ACKNOWLEDGED THE RISK OF RISING INFLATION AND WILL STAY ON GUARD, AS
RISING ENERGY COSTS AND LOW UNEMPLOYMENT THREATEN TO PROPEL THIS FIGURE UPWARD
IN THE COMING MONTHS. AS LONG AS INFLATION IS CONTAINED AND THE PACE OF ECONOMIC
GROWTH REMAINS FAVORABLE, THE FED IS LIKELY TO HOLD INTEREST RATES STEADY IN THE
SHORT TERM, WHICH COULD HELP STABILIZE THE STOCK AND BOND MARKETS.
2
<PAGE> 4
U.S. GROSS DOMESTIC PRODUCT
SEASONALLY ADJUSTED ANNUALIZED RATES
(September 30, 1998--September 30, 2000)
[BAR GRAPH]
<TABLE>
<CAPTION>
U.S. GROSS DOMESTIC PRODUCT
---------------------------
<S> <C>
Sep 98 3.80%
Dec 98 5.90%
Mar 99 3.50%
Jun 99 2.50%
Sep 99 5.70%
Dec 99 8.30%
Mar 00 4.80%
Jun 00 5.60%
Sep 00 2.70%
</TABLE>
Source: Bureau of Economic Analysis
INTEREST RATES AND INFLATION
(September 30, 1998--September 30, 2000)
[LINE GRAPH]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Sep 98 5.25 1.50
5.00 1.50
4.75 1.50
Dec 98 4.75 1.60
4.75 1.70
4.75 1.60
Mar 99 4.75 1.70
4.75 2.30
4.75 2.10
Jun 99 5.00 2.00
5.00 2.10
5.25 2.30
Sep 99 5.25 2.60
5.25 2.60
5.50 2.60
Dec 99 5.50 2.70
5.50 2.70
5.75 3.20
Mar 00 6.00 3.70
6.00 3.00
6.50 3.10
Jun 00 6.50 3.70
6.50 3.70
6.50 3.30
Sep 00 6.50 3.50
</TABLE>
Interest rates are represented by the closing midline federal funds target rate
on the last day of each month. Inflation is indicated by the annual percent
change of the Consumer Price Index for all urban consumers at the end of each
month.
3
<PAGE> 5
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(as of September 30, 2000)
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Six-month total return based on
NAV(1) -1.20% -1.51% -1.51%
-------------------------------------------------------------------------
Six-month total return(2) -5.85% -5.27% -2.45%
-------------------------------------------------------------------------
One-year total return(2) -2.47% -2.06% 0.73%
-------------------------------------------------------------------------
Five-year average annual total
return(2) 4.99% 4.99% 5.20%
-------------------------------------------------------------------------
Ten-year average annual total
return(2) 9.52% N/A N/A
-------------------------------------------------------------------------
Life-of-Fund average annual
total return(2) 7.15% 5.91%(3) 5.34%
-------------------------------------------------------------------------
Commencement date 06/27/86 05/17/93 08/13/93
-------------------------------------------------------------------------
Distribution rate(4) 10.04% 9.62% 9.64%
-------------------------------------------------------------------------
SEC Yield(5) 11.60% 11.39% 11.39%
-------------------------------------------------------------------------
</TABLE>
N/A = Not Applicable
(1) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge (4.75% for Class A Shares) or
contingent deferred sales charge ("CDSC"). On purchases of Class A Shares of
$1 million or more, a CDSC of 1% may be imposed on certain redemptions made
within one year of purchase. Returns for Class B Shares are calculated
without the effect of the maximum 4% CDSC, charged on certain redemptions
made within one year of purchase and declining to 0% after the sixth year.
Returns for Class C Shares are calculated without the effect of the maximum
1% CDSC, charged on certain redemptions made within one year of purchase. If
the sales charges were included, total returns would be lower. These returns
do include Rule 12b-1 fees of up to .25% for Class A Shares and 1% for Class
B and Class C Shares.
(2) Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (4.75% for Class A
Shares) or contingent deferred sales charge ("CDSC") for Class B and C
Shares and Rule 12b-1 fee. On purchases of Class A Shares of $1 million or
more, a CDSC of 1% may be imposed on certain redemptions made within one
year of purchase. Returns for Class B Shares are calculated with the effect
of the maximum 4% CDSC, charged on certain redemptions made within one year
of purchase and declining to 0% after the sixth year. Returns for Class C
Shares are calculated with the effect of the maximum 1% CDSC, charged on
certain redemptions made within one year of purchase. The Rule 12b-1 fee for
Class A Shares is up to .25% and for Class B and Class C Shares is 1%.
(3) The total return reflects the conversion of Class B Shares into Class A
Shares six year after the end of the calendar month in which the shares were
purchased. See Footnote 3 in the Notes to Financial Statements for
additional information.
(4) Distribution rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.
4
<PAGE> 6
(5) SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio
should theoretically generate for the 30-day period ending September 30,
2000. Had certain expenses of the Fund not been assumed by Van Kampen, the
SEC Yield would have been 11.50%, 11.29%, and 11.29% for Classes A, B and C,
respectively, and the total returns would have been lower.
An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. Please review the Risk/Return Summary
of the Prospectus for further details on investment risks. Fund shares, when
redeemed, may be worth more or less than their original cost. Past
performance is no guarantee of future results. Investment return and net
asset value will fluctuate with market conditions.
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.
5
<PAGE> 7
PORTFOLIO AT A GLANCE
CREDIT QUALITY
(as a percentage of long-term debt investments)
<TABLE>
<CAPTION>
As of September 30, 2000
<S> <C> <C>
- A/A................ 0.2% [PIE CHART]
- BBB/Baa............ 0.7%
- BB/Ba.............. 13.5%
- B/B................ 73.7%
- CCC/Caa............ 7.7%
- CC/Ca.............. 0.3%
- C/C................ 0.1%
- Non-Rated.......... 3.8%
<CAPTION>
As of March 31, 2000
<S> <C> <C>
- A/A................ 0.2% [PIE CHART]
- BBB/Baa............ 0.3%
- BB/Ba.............. 13.2%
- B/B................ 74.0%
- CCC/Caa............ 4.6%
- CC/Ca.............. 0.7%
- C/C................ 0.3%
- Non-Rated.......... 6.7%
</TABLE>
Based upon the highest credit quality ratings as issued by Standard & Poor's or
Moody's, respectively.
SIX-MONTH DIVIDEND HISTORY
(for the six months ending September 30, 2000)
[BAR GRAPH]
<TABLE>
<CAPTION>
DIVIDENDS
---------
<S> <C>
4/00 $ 0.0700
5/00 $ 0.0700
6/00 $ 0.0700
7/00 $ 0.0700
8/00 $ 0.0700
9/00 $ 0.0700
</TABLE>
The dividend history represents past performance of the fund's Class A shares
and is no guarantee of the fund's future dividends.
TOP FIVE SECTORS
(as a percentage of long-term investments)
[BAR GRAPH]
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 MARCH 31, 2000
------------------ --------------
<S> <C> <C>
Telecommunications 27.10% 26.80%
Foreign Bonds 20.30% 22.10%
Printing, Publishing, & Broadcasting 9.60% 10.20%
Energy 4.10% 1.90%
Beverage, Food, & Tobacco 4.00% 4.60%
</TABLE>
6
<PAGE> 8
[PHOTO]
[PHOTO]
Q&A WITH YOUR PORTFOLIO MANAGERS
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 AND INFLUENCED THE FUND'S
RETURN DURING THE PAST SIX MONTHS. THE TEAM IS LED BY
ROBERT J. HICKEY, SENIOR PORTFOLIO MANAGER, WHO HAS
MANAGED THE FUND SINCE FEBRUARY 1998 AND WORKED IN THE
INVESTMENT INDUSTRY SINCE 1988. HE IS JOINED BY PORTFOLIO
MANAGER PETER E. EHRET. THE FOLLOWING DISCUSSION REFLECTS
THEIR VIEWS ON THE FUND'S PERFORMANCE.
Q HOW WOULD YOU CHARACTERIZE
THE MARKET ENVIRONMENT OF THE LAST SIX MONTHS AND HOW DID IT AFFECT THE
HIGH-YIELD MARKET AND FUND PERFORMANCE?
A As the economy picked up
momentum, the Federal Reserve Board continued its policy of raising interest
rates to fight inflationary risks. As interest rates rose, yield spreads between
Treasuries and other types of bonds, including high-yield/high-risk bonds,
widened dramatically, putting downward pressure on high-yield bond prices.
Throughout the past six months, we've seen steady consumer activity, a
strong U.S. dollar, and inflation hovering around 2 to 3 percent. Given the
current low-inflation environment, many companies have been unable to raise the
prices of their outputs. At the same time, labor and borrowing costs have crept
up with rising interest rates. The result has been reduced earnings for some
companies--especially those carrying a higher debt load--and an increase in
defaults.
In addition, fixed-income funds as a whole experienced outflows throughout
much of the reporting period. These redemptions were fueled in part by concerns
about defaults and rising interest rates. And despite the deceleration of the
stock market in recent months, we continued to see a general investor preference
for equities. These factors all contributed to reduced overall demand for high-
yield securities. This reduced demand, coupled with the higher cost of capital
for high-yield debt issuers, led to an extremely low supply of high-yield
bonds--creating more demand/supply equilibrium in the market than we have seen
in many months.
The fund did experience some outflows in April and early May. However, this
trend reversed in June and July as consumer confidence in the market returned,
money flowed back into the high-yield market, and prices
7
<PAGE> 9
rebounded. The momentum of the high-yield market reversed again in August as a
rash of negative earnings announcements in the telecommunications sector hit the
market, negatively impacting the fund's performance at the end of the reporting
period.
For the six-months ended September 30, 2000, the fund posted a total return
of -1.20% percent (Class A shares at net asset value; if the maximum sales
charge of 4.75 percent were included, the return would be lower). By comparison,
the Credit Suisse First Boston High Yield Index returned 1.52 percent for the
same period. This broad-based, unmanaged index reflects the general performance
of a wide range of selected bonds within the public high-yield debt market, but
it does not reflect any commissions or fees that would be paid by an investor
purchasing the securities it represents. Such costs would lower its performance.
It is not possible to invest directly in an index. Of course, past performance
is no guarantee of future results. As a result of recent market activity,
current performance may vary from the figures shown. Please refer to the chart
and footnotes on page 4 for additional fund performance results.
Q CAN YOU ELABORATE ON THE FUND'S
SECTOR ALLOCATIONS AND HOW THESE WERE AFFECTED BY THE HIGH-YIELD MARKET
ENVIRONMENT?
A As mentioned earlier, the end of
the reporting period was especially turbulent for the telecommunications
industry. Negative earnings announcements within this sector, predominantly by
wired-line phone companies, led to repeated earnings adjustments and reduced
market interest. ICG Holdings bonds, in particular, were battered after the
company endured three consecutive earnings adjustments and announced financial
and operating problems. As a result, the fund's performance was hampered by its
higher weighting in telecommunications.
The U.S. dollar value has been very strong versus other currencies
throughout the reporting period. For companies with operations abroad, however,
a strong U.S. dollar had a depreciating effect upon their earnings streams as
this money was converted from its foreign-currency denomination back into U.S.
dollars. For this reason, the fund's holdings in companies with European
operations experienced weaker performance due to the euro's relatively lower
value versus the U.S. dollar. It should be noted, however, that these companies
represent a relatively small portion of the portfolio and therefore did not
greatly influence fund performance.
On a better note, a rally in energy companies--particularly refiners--and
the auto sector helped to bolster fund performance. And while the emerging
markets environment was weak early in the reporting period, the sector rebounded
in July and August as the Russian Republic bankruptcy was completed and recovery
efforts got underway. An improved political environment in Russia and a positive
shift in the psychology of the marketplace were the main contributors to this
sector's strong performance. The fund itself had moderate exposure to emerging
markets, but this sector
8
<PAGE> 10
clearly added value to the portfolio. Keep in mind that there is no guarantee
that these sectors will continue to perform well or continue to be held by the
fund in the future.
Q GIVEN THE CHALLENGING
CONDITIONS OF THE HIGH-YIELD MARKET, WHAT WAS THE FUND'S INVESTMENT
STRATEGY?
A We maintained the fund's
exposure to the emerging markets sector through August. In doing so, we were
able to ride the upswing of the Russian debt market and capture strong returns.
As performance peaked in late August, we began reducing our exposure to this
sector.
We sustained the fund's above-average weightings in casinos, commodities
(energy in particular), and telecommunications as we continued to see growth and
opportunities in these arenas.
Our weightings in the industrial, financial, and retail sectors remained
modest, and the cash and cash equivalents portion of the portfolio was held
within its normal range of 2 to 6 percent.
Finally, we continued to implement an investment strategy focused on
fundamental credit analysis, maintaining the fund's credit quality profile of
primarily B rated bonds. It is our belief that this segment of the high-yield
market still offers the best risk-return profile and has proved to serve the
fund well.
Q HOW DO YOU ANTICIPATE THE HIGH-
YIELD MARKET WILL PERFORM IN THE MONTHS AHEAD, AND HOW DO YOU EXPECT TO
MANAGE THE FUND IN LIGHT OF THIS OUTLOOK?
A Market indicators point to slowing
economic growth in the near term. Consumer spending has leveled off from its
pace of a year ago, and inflation is still modest. Oil prices have increased
significantly, which typically has been associated with a slowing economy. If
this proves to be the case and interest rates stabilize, we could see upward
momentum in the fixed-income marketplace and potentially stronger fund
performance.
It is difficult to predict whether we will see additional assets flowing
into the high-yield sector in the coming months. We don't anticipate seeing any
additional large outflows or higher default-levels in the coming months. It's
important to note that, historically, Van Kampen high-yield funds have
experienced lower default rates than the market as a whole.
We continue to find attractive opportunities in the high-yield market and
anticipate that it may continue to be a strong performer versus other
fixed-income investments. Our fundamental strategy will focus on identifying
those issuers that we believe will remain financially sound, perform well in a
range of market conditions, and add the most value to the portfolio.
9
<PAGE> 11
GLOSSARY OF TERMS
A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.
DIVERSIFICATION: A method of portfolio allocation and management aimed at
balancing investment risk and return; a balanced portfolio may combine stocks,
bonds, and cash equivalents.
EMERGING MARKETS: The financial markets of developing economies. Many Latin
American and Asian countries are considered emerging markets.
EURO: The official currency unit for the countries comprising Europe's Economic
and Monetary Union.
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 at least eight times
a year to establish monetary policy and monitor the economic pulse of the United
States.
LIQUIDITY: The ease with which an investor can buy or sell a security at a
reasonable price.
YIELD: The annual rate of return on an investment, expressed as a percentage.
YIELD CURVE: The pattern that results from viewing the yields of U.S. Treasury
securities maturing in 1, 5, 10, and 30 years. When grouped together and
graphed, a pattern of increasing yield is often reflected as the time to
maturity extends. This pattern creates an upward sloping "curve." A "flat" yield
curve represents little difference between short- and long-term interest rates.
YIELD SPREAD: The additional yield investors can earn by either investing in
bonds with longer maturities or by investing in bonds with lower credit 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.
10
<PAGE> 12
BY THE NUMBERS
YOUR FUND'S INVESTMENTS
September 30, 2000 (Unaudited)
THE FOLLOWING PAGES DETAIL YOUR FUND'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
DOMESTIC CORPORATE BONDS 74.5%
AEROSPACE & DEFENSE 1.2%
$1,720 Compass Aerospace Corp., Ser B (c)........ 10.125% 04/15/05 $ 258,000
4,500 Dyncorp................................... 9.500 03/01/07 3,555,000
------------
3,813,000
------------
AUTOMOBILE 3.8%
5,360 Aetna Industries, Inc. ................... 11.875 10/01/06 4,716,800
1,125 Cambridge Industries, Inc., Ser B (c) .... 10.250 07/15/07 337,500
2,000 Eagle-Picher Industries, Inc. ............ 9.375 03/01/08 1,690,000
2,700 Oxford Automotive, Inc., Ser D............ 10.125 06/15/07 2,416,500
4,430 Talon Automotive Group, Inc., Ser B....... 9.625 05/01/08 1,550,500
2,825 Venture Holdings, Inc. ................... 12.000 06/01/09 1,638,500
------------
12,349,800
------------
BEVERAGE, FOOD & TOBACCO 3.5%
1,550 Agrilink Foods, Inc. (g).................. 11.875 11/01/08 1,154,750
2,500 Chiquita Brands International, Inc. ...... 10.000 06/15/09 1,525,000
3,900 Fleming Cos., Inc., Ser B................. 10.500 12/01/04 3,412,500
500 Jitney Jungle Stores America,
Inc. (c) (e) (h).......................... 12.000 03/01/06 10,000
2,000 Luiginos, Inc. ........................... 10.000 02/01/06 1,590,000
500 National Wine & Spirits, Inc. ............ 10.125 01/15/09 480,000
3,500 Pantry, Inc. ............................. 10.250 10/15/07 3,377,500
------------
11,549,750
------------
BUILDINGS & REAL ESTATE 2.4%
900 American Plumbing & Mechanical............ 11.625 10/15/08 900,000
900 Building One Services Corp. .............. 10.500 05/01/09 792,000
750 Cemex International Capital, Inc. ........ 9.660 11/29/49 750,000
2,750 Schuler Homes, Inc. ...................... 9.000 04/15/08 2,488,750
3,075 Webb (Del E.) Corp. ...................... 10.250 02/15/10 2,998,125
------------
7,928,875
------------
CHEMICALS, PLASTICS & RUBBER 1.3%
600 Georgia Gulf Corp......................... 10.375 11/01/07 606,000
1,748 ISP Holdings, Inc., Ser B................. 9.750 02/15/02 1,660,600
2,200 ISP Holdings, Inc., Ser B ............... 9.000 10/15/03 1,991,000
------------
4,257,600
------------
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
YOUR FUND'S INVESTMENTS
September 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
CONSUMER DURABLES 0.8%
$1,000 American Tissue, Inc., Ser B............... 12.500% 07/15/06 $ 1,005,000
1,800 Sleepmaster LLC............................ 11.000 05/15/09 1,620,000
------------
2,625,000
------------
CONSUMER SERVICES 0.5%
1,800 Muzak, Inc. ............................... 9.875 03/15/09 1,602,000
------------
CONTAINERS, PACKAGING & GLASS 0.4%
500 Fonda Group, Inc., Ser B................... 9.500 03/01/07 417,500
1,000 Sweetheart Cup, Inc. ...................... 10.500 09/01/03 945,000
------------
1,362,500
------------
DIVERSIFIED/CONGLOMERATE MANUFACTURING 1.2%
4,600 Communications & Power Industries, Inc.,
Ser B...................................... 12.000 08/01/05 3,151,000
780 Intersil Corp. ............................ 13.250 08/15/09 908,700
------------
4,059,700
------------
ENERGY 4.0%
1,215 DI Industries, Inc. ....................... 8.875 07/01/07 1,190,700
1,915 Frontier Oil Corp. ........................ 11.750 11/15/09 1,943,725
2,835 Giant Industries, Inc. .................... 9.750 11/15/03 2,820,825
1,050 Giant Industries, Inc...................... 9.000 09/01/07 981,750
1,500 Hydrochem Industrial Services, Inc., Ser
B.......................................... 10.375 08/01/07 1,147,500
2,425 Port Arthur Finance Corp................... 12.500 01/15/09 2,467,438
1,000 Pride Petroleum Services, Inc. ............ 9.375 05/01/07 1,025,000
1,700 Universal Compression Holdings, Inc. (b)... 0/9.875 02/15/08 1,317,500
------------
12,894,438
------------
FINANCE 0.9%
3,175 Americo Life, Inc. (g)..................... 9.250 06/01/05 3,000,375
------------
HEALTHCARE 3.9%
480 HCA Healthcare Co. ........................ 8.750 09/01/10 489,600
3,000 Hudson Respiratory Care, Inc. ............. 9.125 04/15/08 1,740,000
1,600 Iasis Healthcare Corp. .................... 13.000 10/15/09 1,576,000
2,500 King Pharmaceuticals, Inc. ................ 10.750 02/15/09 2,662,500
2,000 Mediq, Inc. (c) (e)........................ 11.000 06/01/08 160,000
4,000 Oxford Health Plans, Inc. ................. 11.000 05/15/05 4,260,000
1,785 Tenet Healthcare Corp. .................... 8.000 01/15/05 1,771,613
------------
12,659,713
------------
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
YOUR FUND'S INVESTMENTS
September 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
HOTEL, MOTEL, INNS & GAMING 3.7%
$1,110 Argosy Gaming Co. ........................ 10.750% 06/01/09 $ 1,165,500
1,320 Autotote Corp., 144A Private Placement
(a)....................................... 12.500 08/15/10 1,346,400
2,900 Hollywood Casino Corp. ................... 11.250 05/01/07 3,045,000
2,880 Horseshoe Gaming LLC, Ser B............... 8.625 05/15/09 2,829,600
2,225 Isle of Capri Casinos, Inc. .............. 8.750 04/15/09 2,085,938
1,085 Majestic Star Casino LLC.................. 10.875 07/01/06 981,925
500 Park Place Entertainment Corp............. 7.875 12/15/05 481,250
300 Park Place Entertainment Corp............. 8.875 09/15/08 297,000
------------
12,232,613
------------
LEISURE 1.4%
3,000 Booth Creek Ski Holdings, Inc., Ser B..... 12.500 03/15/07 2,310,000
450 Intrawest Corp. .......................... 10.500 02/01/10 470,250
2,000 Premier Parks, Inc. ...................... 9.250 04/01/06 1,870,000
------------
4,650,250
------------
MACHINERY 0.7%
1,000 Flowserve Corp., 144A Private Placement
(a)....................................... 12.250 08/15/10 1,035,000
1,300 Terex Corp., Ser D........................ 8.875 04/01/08 1,157,000
------------
2,192,000
------------
MINING, STEEL, IRON & NON-PRECIOUS
METAL 1.6%
2,670 Doe Run Resources Corp., Ser B............ 11.250 03/15/05 1,388,400
1,000 GS Technologies Operating, Inc. .......... 12.000 09/01/04 90,000
2,000 Pen Holdings, Inc., Ser B................. 9.875 06/15/08 1,520,000
1,950 Renco Steel Holdings, Inc., Ser B......... 10.875 02/01/05 1,267,500
4,275 Republic Technologies International,
Inc....................................... 13.750 07/15/09 1,026,000
------------
5,291,900
------------
OIL & GAS 3.2%
3,360 Chesapeake Energy Corp., Ser B............ 9.625 05/01/05 3,360,000
3,205 Houston Exploration Co., Ser B............ 8.625 01/01/08 3,188,975
1,885 KCS Energy, Inc., Ser B (c) (e)........... 11.000 01/15/03 1,828,450
2,000 Triton Energy Ltd. ....................... 8.750 04/15/02 2,040,000
------------
10,417,425
------------
PRINTING, PUBLISHING & BROADCASTING 9.3%
3,000 @Entertainment, Inc., Ser B (b)........... 0/14.500 02/01/09 1,770,000
1,500 Cadmus Communications Corp. .............. 9.750 06/01/09 1,481,250
3,750 Capstar Broadcasting Partners............. 12.750 02/01/09 3,604,687
3,350 Century Communications Corp. ............. 8.875 01/15/07 3,040,125
600 Classic Cable, Inc., Ser B................ 9.375 08/01/09 480,000
2,100 Coaxial Commerce Central Ohio, Inc. ...... 10.000 08/15/06 2,058,000
2,600 CSC Holdings, Inc. ....................... 10.500 05/15/16 2,782,000
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
YOUR FUND'S INVESTMENTS
September 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
PRINTING, PUBLISHING & BROADCASTING (CONTINUED)
$1,705 Gray Communications Systems, Inc. ........ 10.625% 10/01/06 $ 1,705,000
2,450 International Cabletel, Inc. ............. 12.750 04/15/05 2,474,500
1,970 James Cable Partners LP, Ser B............ 10.750 08/15/04 1,684,350
1,850 Northland Cable Television, Inc. ......... 10.250 11/15/07 1,461,500
2,550 Pegasus Communications Corp., Ser B....... 9.625 10/15/05 2,499,000
2,035 Radio Unica Corp. (b)..................... 0/11.750 08/01/06 1,475,375
2,000 Telewest Communications PLC (b)........... 0/11.000 10/01/07 1,880,000
2,000 Young Broadcasting, Inc. ................. 11.750 11/15/04 2,060,000
------------
30,455,787
------------
PRODUCER MANUFACTURING 0.3%
150 Anvil Knitwear, Inc., Ser B............... 10.875 03/15/07 135,000
1,060 Numatics, Inc., Ser B..................... 9.625 04/01/08 837,400
------------
972,400
------------
RAW MATERIALS/PROCESSING INDUSTRIES 0.3%
1,125 Tekni Plex, Inc., 144A Private Placement
(a)....................................... 12.750 06/15/10 1,113,750
------------
RETAIL 2.0%
1,250 Big 5 Corp., Ser B........................ 10.875 11/15/07 1,143,750
1,800 Community Distributors, Inc. Ser B........ 10.250 10/15/04 1,413,000
1,750 Home Interiors Gifts, Inc. ............... 10.125 06/01/08 533,750
1,750 Hosiery Corp. of America, Inc. (e) ....... 13.750 08/01/02 1,513,750
480 Musicland Group, Inc...................... 9.000 06/15/03 446,400
1,650 Supreme International, Inc., Ser B........ 12.250 04/01/06 1,546,875
------------
6,597,525
------------
TELECOMMUNICATIONS 24.6%
1,200 360 Network, Inc. (EUR) (i)............... 13.000 05/01/08 1,002,172
1,140 360 Network, Inc. ........................ 13.000 05/01/08 1,054,500
3,800 Airgate PCS, Inc. (b)..................... 0/13.500 10/01/09 2,337,000
1,565 Alamosa Holdings, Inc. (b) ............... 0/12.875 02/15/10 860,750
1,000 AMSC Acquisition, Inc. ................... 12.250 04/01/08 725,000
3,800 Centennial Cellular Operating Co.......... 10.750 12/15/08 3,705,000
1,515 Charter Communication Holdings............ 8.250 04/01/07 1,386,225
4,000 Charter Communications Holdings (b)....... 0/11.750 01/15/10 2,340,000
850 Crown Castle International Corp. (b)...... 0/10.625 11/15/07 671,500
1,200 Crown Castle International Corp. ......... 10.750 08/01/11 1,227,000
2,000 DLJ Secured Loan Trust, 144A Private
Placement (a)............................. 10.125 07/07/07 2,100,000
2,150 E Spire Communications, Inc. (b).......... 0/13.000 11/01/05 1,139,500
2,000 Fairchild Semiconductor Corp. ............ 10.375 10/01/07 2,030,000
1,050 Global Telesystems Europe (EUR) (i)....... 11.000 12/01/09 417,572
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
YOUR FUND'S INVESTMENTS
September 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
TELECOMMUNICATIONS (CONTINUED)
$2,945 GST Network Funding, Inc. (b) (c)......... 0/10.500% 05/01/08 $ 1,413,600
1,500 Horizon PCS, Inc., 144A Private Placement
(a) (b)................................... 0/14.000 10/01/10 757,500
5,050 ICG Holdings, Inc. (b) (f) ............... 0/13.500 09/15/05 1,161,500
600 ICG Holdings, Inc. (b) ................... 0/12.500 05/01/06 126,000
400 Intermedia Communications of Florida, Inc.
(b) ...................................... 0/12.500 05/15/06 380,000
4,350 Intermedia Communications, Inc. (b) ...... 0/12.250 03/01/09 3,045,000
2,250 Intermedia Communications, Inc. (b) ...... 0/11.250 07/15/07 1,856,250
1,425 IPCS, Inc., 144A Private Placement (a)
(b)....................................... 0/14.000 07/15/10 812,250
3,700 KMC Telecommunications Holdings, Inc.
(b) ...................................... 0/12.500 02/15/08 1,665,000
900 Level 3 Communications, Inc. (EUR) (i) ... 10.750 03/15/08 741,687
900 Level 3 Communications, Inc. (b) ......... 0/12.875 03/15/10 477,000
2,030 Madison River Capital LLC................. 13.250 03/01/10 1,634,150
1,000 Metromedia Fiber Network, Inc. (EUR)
(i) ...................................... 10.000 12/15/09 835,144
1,000 Metromedia Fiber Network, Inc. ........... 10.000 12/15/09 925,000
825 MGC Communications, Inc., Ser B........... 13.000 10/01/04 742,500
2,000 MJD Communications, Inc. ................. 9.500 05/01/08 1,750,000
1,450 Nextel Communications, Inc. .............. 9.375 11/15/09 1,428,250
1,385 Nextlink Communications, Inc. (b)......... 0/12.125 12/01/09 727,125
2,080 Nextlink Communications, Inc. ............ 10.500 12/01/09 1,913,600
3,750 NTL Communications Corp. (EUR) (i)........ 9.250 11/15/06 2,982,656
2,750 NTL Inc., Ser B (b)....................... 0/11.500 02/01/06 2,571,250
1,000 NTL, Inc., Ser B (b)...................... 0/9.750 04/01/08 600,000
1,000 Park N View, Inc., Ser B.................. 13.000 05/15/08 100,000
1,800 PF Net Communications Inc................. 13.750 05/15/10 1,773,000
3,030 Pinnacle Holdings, Inc. (b) .............. 0/10.000 03/15/08 2,196,750
2,000 Price Communications Wireless, Inc. ...... 11.750 07/15/07 2,140,000
570 Primus Telecommunications Group........... 11.250 01/15/09 290,700
4,620 PSINet, Inc............................... 10.500 12/01/06 2,979,900
750 PSINet, Inc., 144A Private Placement (EUR)
(a) (i)................................... 10.500 12/01/06 457,341
350 Rural Cellular Corp....................... 9.625 05/15/08 334,250
3,750 SBA Communications Corp. (b).............. 0/12.000 03/01/08 2,850,000
3,000 Startec Global Communications............. 12.000 05/15/08 2,415,000
2,000 Telecommunications Techniques............. 9.750 05/15/08 1,880,000
1,000 Telecorp PCS, Inc., 144A Private Placement
(a)....................................... 10.625 07/15/10 1,015,000
4,015 Telecorp PCS, Inc. (b) ................... 0/11.625 04/15/09 2,740,237
2,735 Triton Communications, Inc. (b) .......... 0/11.000 05/01/08 2,071,762
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
YOUR FUND'S INVESTMENTS
September 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
TELECOMMUNICATIONS (CONTINUED)
$3,520 United International Holdings, Inc.,
Ser B (b) ................................ 0/10.750% 02/15/08 $ 2,411,200
1,835 US Unwired Inc., Ser B (b)................ 0/13.375 11/01/09 986,313
3,460 Viatel, Inc............................... 11.500 03/15/09 1,747,300
2,160 Viatel, Inc. (b) ......................... 0/12.500 04/15/08 626,400
1,300 Williams Communications Corp., 144A
Private Placement (a)..................... 11.700 08/01/08 1,246,375
1,500 Winstar Communications, Inc., 144A Private
Placement (a) (b)......................... 0/14.750 04/15/10 480,000
------------
80,283,209
------------
TECHNOLOGY 1.1%
1,250 Exodus Communications, Inc. (EUR) (i) .... 11.375 07/15/08 1,082,593
1,820 Exodus Communications, Inc., 144A Private
Placement (a)............................. 11.625 07/15/10 1,829,100
1,025 Globix Corp............................... 12.500 02/01/10 753,375
------------
3,665,068
------------
TEXTILES 0.4%
750 Galey & Lord, Inc. ....................... 9.125 03/01/08 481,875
3,000 Globe Manufacturing Corp. (c) ............ 10.000 08/01/08 315,000
1,650 Pillowtex Corp., Ser B ................... 9.000 12/15/07 297,000
640 Scovill Fasteners, Inc., Ser B............ 11.250 11/30/07 300,800
------------
1,394,675
------------
TRANSPORTATION 2.0%
1,750 Atlas Air, Inc. .......................... 9.375 11/15/06 1,758,750
1,125 Atlas Air, Inc. .......................... 9.250 04/15/08 1,126,406
1,100 Avis Rent A Car, Inc. .................... 11.000 05/01/09 1,201,750
3,000 Greyhound Lines, Inc., Ser B.............. 11.500 04/15/07 2,370,000
------------
6,456,906
------------
TOTAL DOMESTIC CORPORATE BONDS 74.5%................................... $243,826,259
============
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
YOUR FUND'S INVESTMENTS
September 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT
IN LOCAL
CURRENCY MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
FOREIGN BONDS AND DEBT SECURITIES 19.7%
ARGENTINA 0.3%
2,000 CTI Holdings SA (US$) (b)............... 0/11.500% 04/15/08 $ 1,040,000
------------
BERMUDA 1.2%
4,000 Global Crossing Holdings Ltd. (US$)..... 9.125 11/15/06 3,975,000
------------
BRAZIL 1.2%
2,463 Federal Republic of Brazil (US$)........ 8.000 04/15/14 1,884,057
860 Federal Republic of Brazil (US$)........ 10.125 05/15/27 670,585
540 Globo Communicacoes Participacoe (US$).. 10.625 12/05/08 471,150
500 Multicanal Participacoes (US$).......... 12.625 06/18/04 517,500
275 Multicanal Participacoes, Ser B (US$)... 12.625 06/18/04 284,625
------------
3,827,917
------------
CANADA 4.8%
2,000 Clearnet Communications, Inc. (US$)
(b)..................................... 0/14.750 12/15/05 2,110,000
2,065 Doman Industries Ltd. (US$) (f)......... 12.000 07/01/04 2,065,000
5,270 GT Group Telecom, Inc. (US$) (b)........ 0/13.250 02/01/10 2,266,100
239 Hurricane Hydrocarbons Ltd. (US$), 144A
Private Placement (a)................... 16.000 12/31/01 236,929
4,300 Microcell Telecommunications, Ser B
(US$) (b)............................... 0/14.000 06/01/06 4,138,750
1,425 Pacifica Papers, Inc. (US$)............. 10.000 03/15/09 1,432,125
825 Repap New Brunswick, Inc. (US$)......... 9.000 06/01/04 861,094
2,750 Worldwide Fiber, Inc. (US$)............. 12.000 08/01/09 2,406,250
------------
15,516,248
------------
CHILE 0.1%
1,185 Empresa Electrica Del Norte SA (US$),
144A Private Placement (a).............. 7.750 03/15/06 308,100
------------
COLUMBIA 0.9%
750 Republic of Colombia (Var. Rate Coupon)
(DEM)................................... 6.233 11/21/01 331,266
2,500 Republic of Columbia (US$).............. 9.750 04/23/09 2,231,250
500 Republic of Columbia (US$).............. 9.750 04/23/09 446,250
------------
3,008,766
------------
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
YOUR FUND'S INVESTMENTS
September 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT
IN LOCAL
CURRENCY MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
FRANCE 0.4%
1,200 Go Outdoor Systems Holdings SA (EUR).... 10.500% 07/15/09 $ 1,227,528
------------
HUNGARY 0.2%
216,650 Hungary Government (HUF)................ 16.000 11/24/00 730,562
------------
KOREA 0.3%
1,000 Korea Electric Power Corp. (US$)........ 7.000 02/01/27 929,700
------------
LUXEMBOURG 1.1%
4,000 Millicom International Cellular SA (US$)
(b)..................................... 0/13.500 06/01/06 3,500,000
------------
MEXICO 1.2%
1,000 Gruma SA (US$).......................... 7.625 10/15/07 805,000
4,850 Satelites Mexicanos SA, Ser B (US$)..... 10.125 11/01/04 3,055,500
125 United Mexican States (US$)............. 9.875 02/01/10 132,875
------------
3,993,375
------------
MOROCCO 0.5%
1,923 Morocco Trust A Loan (US$).............. 7.750 01/01/09 1,739,970
------------
NETHERLANDS 2.0%
2,000 Global Telesystems Europe (EUR)......... 10.500 12/01/06 795,375
355 Kappa Beheer BV (EUR)................... 10.625 07/15/09 325,496
4,030 United Pan-Europe Communication NV, Ser
B (US$) (b)............................. 0/12.500 08/01/09 1,914,250
650 United Pan-Europe Commerce NV, Ser B
(US$) (b)............................... 0/13.750 02/01/10 295,750
1,665 United Pan-Europe Communication NV, Ser
B (US$)................................. 10.875 08/01/09 1,406,925
2,140 United Pan-Europe Communication NV, Ser
B (US$)................................. 11.250 02/01/10 1,861,800
------------
6,599,596
------------
PHILIPPINES 0.3%
1,150 Philippine Long Distance Telephone
(US$)................................... 10.500 04/15/09 1,042,475
------------
</TABLE>
See Notes to Financial Statements
18
<PAGE> 20
YOUR FUND'S INVESTMENTS
September 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT
IN LOCAL
CURRENCY MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
POLAND 1.0%
3,000 Netia Holdings, Inc., Ser B (US$)....... 10.250% 11/01/07 $ 2,430,000
870 Netia Holdings, Inc. (EUR).............. 13.750 06/15/10 738,108
------------
3,168,108
------------
RUSSIA 0.9%
7,350 Russian Federation, 144A Private
Placement (US$) (a)(b).................. 2.50/7.50 03/31/30 2,848,125
------------
UNITED KINGDOM 3.1%
2,750 Cenargo International PLC (US$)......... 9.750 06/15/08 $ 2,220,625
3,450 Diamond Cable Commerce PLC (US$) (b).... 0/10.750 02/15/07 2,622,000
1,400 Espirit Telecom Group PLC (US$)......... 11.500 12/15/07 525,000
1,250 Espirit Telecom Group PLC (US$)......... 10.875 06/15/08 468,750
1,550 Filtronic PLC (US$)..................... 10.000 12/01/05 1,433,750
1,600 Jazztel PLC (EUR)....................... 13.250 12/15/09 1,194,830
1,550 Jazztel PLC (EUR)....................... 14.000 07/15/10 1,332,142
2,500 RSL Communications (US$) (b)............ 0/10.125 03/01/08 300,000
------------
10,097,097
------------
VENEZUELA 0.2%
1,000 Republic of Venezuela (US$) (j)......... 6.750 03/31/20 745,000
------------
TOTAL FOREIGN BONDS AND DEBT SECURITIES 19.7%............................ 64,297,567
------------
EQUITIES 3.1%
Airgate PCS, Inc. (2,673 Common Shares) (e)............................... $ 119,951
Anvil Holdings, Inc. (76,632 preferred shares) (d)........................ 1,302,746
Crown Castle International Corp. (3,824 preferred shares) (d)............. 3,871,803
Decisionone Corp. (5,234 Common Shares) (e)............................... 10,272
Decisionone Corp. (2,671 Common Stock Warrants Class A) (e)............... 27
Decisionone Corp. (4,603 Common Stock Warrants Class B) (e)............... 46
Decisionone Corp. (2,730 Common Stock Warrants Class C) (e)............... 27
Dobson Communications Corp. (1 preferred share) (d)....................... 976
Firstworld Communications, Inc., (2,525 common stock warrants) 144A
Private Placement (a) (e)............................................... 50,500
GT Group Telecom, Inc., (5,270 Common Stock Warrants) 144A Private
Placement (a) (e)....................................................... 368,900
Hosiery Corp. of America, Inc., (1,000 common shares)..................... 40,500
Intermedia Communications, Inc., (15,297 common shares) (e)............... 451,262
</TABLE>
See Notes to Financial Statements
19
<PAGE> 21
YOUR FUND'S INVESTMENTS
September 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
MARKET
DESCRIPTION VALUE
<C> <S> <C> <C> <C>
EQUITIES (CONTINUED)
Intersil Holding Corp., (1,200 common stock warrants) 144A Private Placement
(a) (e).................................................................... $ 1,084,800
KMC Telecommunications Holdings, Inc., (3,235 common stock warrants), 144A
Private Placement (a) (e).................................................. 97,050
McLeodUSA, Inc. (29,874 common shares) (e)................................... 427,572
Motient Corp., (2,000 Common Stock Warrants) 144A Private Placement
(a) (e).................................................................... 80,000
NTL, Inc. (5,178 common stock warrants) 144A Private Placement (a) (e)....... 258,760
Park N View, Inc., (1,000 common stock warrants) 144A Private Placement
(a) (e).................................................................... 250
Pathmark Stores, Inc. (83,645 common shares) (e)............................. 1,029,883
Pathmark Stores, Inc. (59,165 common stock warrants) (e)..................... 177,496
PF Net Communications, Inc., (1,800 common stock warrants) 144A Private
Placement (a) (e).......................................................... 18
Price Communications Corp. (35,572 common shares) (e)........................ 695,877
Republic Technologies International, Inc., (4,275 common stock warrants) 144A
Private Placement (a) (e).................................................. 43
Star Gas Partners LP (440 common shares)..................................... 7,755
Startec Global Communications (3,000 common stock warrants) 144A Private
Placement (a) (e).......................................................... 12,000
------------
TOTAL EQUITIES 3.1%.......................................................... 10,088,514
------------
TOTAL LONG-TERM INVESTMENTS 97.3%
(Cost $372,299,262)........................................................ 318,212,340
REPURCHASE AGREEMENT 0.7%
State Street Bank and Trust Co. ($1,830,000 par collateralized by U.S.
T-Note, 7.875% coupon, due 02/15/21, dated 09/29/00, to be sold on 10/02/00
at $2,172,167) (Cost $2,171,000)........................................... 2,171,000
------------
TOTAL INVESTMENTS 98.0%
(Cost $374,470,262)........................................................ 320,383,340
FOREIGN CURRENCY 0.1%
(Cost $309,061)............................................................ 312,165
OTHER ASSETS IN EXCESS OF LIABILITIES 1.9%.................................. 6,296,190
------------
NET ASSETS 100.0%............................................................ $326,991,695
============
</TABLE>
See Notes to Financial Statements
20
<PAGE> 22
YOUR FUND'S INVESTMENTS
September 30, 2000 (Unaudited)
(a) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933, as amended. These securities may be resold in
transactions exempt from registration which are normally transactions with
qualified institutional buyers.
(b) Security is a "step-up" bond where the coupon increases or steps up at a
predetermined date.
(c) Security is in default.
(d) Payment-in-kind security.
(e) Non-income producing security.
(f) Securities purchased on a when-issued or delayed delivery basis.
(g) Assets segregated as collateral for when-issued or delayed delivery purchase
commitments.
(h) This borrower has filed for protection in federal bankruptcy court.
(i) This security is a United States company denominated in a foreign currency.
(j) Item represents a "Brady Bond" which is the product of the "Brady Plan"
under which various Latin American, African, and Southeast Asian nations
have converted their outstanding external defaulted commercial bank loans
into bonds. Certain Brady Bonds have been collateralized, as to principal
due at maturity, by U.S. Treasury zero coupon bonds with a maturity date
equal to the final maturity date of such Brady Bonds.
DEM--German Mark
EUR--Eurodollar
HUF--Hungaria Forint
US$--United States Dollar
See Notes to Financial Statements
21
<PAGE> 23
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
September 30, 2000 (Unaudited)
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $374,470,262)....................... $320,383,340
Foreign Currency (Cost $309,061)............................ 312,165
Cash........................................................ 724
Receivables:
Interest.................................................. 9,692,087
Investments Sold.......................................... 1,226,292
Fund Shares Sold.......................................... 801,361
Other....................................................... 36,539
------------
Total Assets............................................ 332,452,508
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 2,372,750
Income Distributions...................................... 1,339,736
Fund Shares Repurchased................................... 911,196
Distributor and Affiliates................................ 237,570
Investment Advisory Fee................................... 190,611
Trustees' Deferred Compensation and Retirement Plans........ 229,734
Accrued Expenses............................................ 179,216
------------
Total Liabilities....................................... 5,460,813
------------
NET ASSETS.................................................. $326,991,695
============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $425,021,226
Accumulated Undistributed Net Investment Income............. 2,072,868
Accumulated Net Realized Loss............................... (45,991,067)
Net Unrealized Depreciation................................. (54,111,332)
------------
NET ASSETS.................................................. $326,991,695
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $216,576,824 and 27,165,976 shares of
beneficial interest issued and outstanding)............. $ 7.97
Maximum sales charge (4.75%* of offering price)......... .40
------------
Maximum offering price to public........................ $ 8.37
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $97,738,861 and 12,248,718 shares of
beneficial interest issued and outstanding)............. $ 7.98
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $12,676,010 and 1,590,375 shares of
beneficial interest issued and outstanding)............. $ 7.97
============
</TABLE>
* On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
22
<PAGE> 24
Statement of Operations
For the Six Months Ended September 30, 2000 (Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest (Net of foreign withholding taxes of $1,757)....... $ 22,869,813
Dividends................................................... 338,036
Other....................................................... 118,351
------------
Total Income............................................ 23,326,200
------------
EXPENSES:
Investment Advisory Fee..................................... 1,316,610
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B, and C of $276,972, $529,352, and $64,625,
respectively)............................................. 870,949
Shareholder Services........................................ 229,077
Custody..................................................... 46,134
Trustees' Fees and Related Expenses......................... 20,914
Legal....................................................... 14,337
Other....................................................... 180,802
------------
Total Expenses.......................................... 2,678,823
Less:
Investment Advisory Fee Reduction..................... 175,548
Credits Earned on Cash Balances....................... 23,790
------------
Net Expenses............................................ 2,479,485
------------
NET INVESTMENT INCOME....................................... $ 20,846,715
============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ (8,061,945)
Forwards.................................................. 63,321
Foreign Currency Transactions............................. (469,768)
------------
Net Realized Loss........................................... (8,468,392)
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (37,660,699)
------------
End of the Period:
Investments............................................. (54,086,922)
Foreign Currency Translation............................ (24,410)
------------
(54,111,332)
------------
Net Unrealized Depreciation During the Period............... (16,450,633)
------------
NET REALIZED AND UNREALIZED LOSS............................ $(24,919,025)
============
NET DECREASE IN NET ASSETS FROM OPERATIONS.................. $ (4,072,310)
============
</TABLE>
See Notes to Financial Statements
23
<PAGE> 25
Statement of Changes in Net Assets
For the Six Months Ended September 30, 2000 and the Year Ended March 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
SEPTEMBER 30, MARCH 31,
2000 2000
------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.................................. $ 20,846,715 $ 37,903,957
Net Realized Loss...................................... (8,468,392) (10,483,726)
Net Unrealized Depreciation During the Period.......... (16,450,633) (15,336,461)
------------ -------------
Change in Net Assets from Operations................... (4,072,310) 12,083,770
------------ -------------
Distributions from Net Investment Income*.............. (17,327,641) (36,085,784)
Return of Capital Distribution*........................ -0- (471,642)
------------ -------------
Total Distributions.................................... (17,327,641) (36,557,426)
------------ -------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES.... (21,399,951) (24,473,656)
------------ -------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold.............................. 53,608,391 95,859,095
Net Asset Value of Shares Issued Through Dividend
Reinvestment......................................... 9,056,144 17,763,113
Cost of Shares Repurchased............................. (67,052,760) (164,331,736)
------------ -------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS..... (4,388,225) (50,709,528)
------------ -------------
TOTAL DECREASE IN NET ASSETS........................... (25,788,176) (75,183,184)
NET ASSETS:
Beginning of the Period................................ 352,779,871 427,963,055
------------ -------------
End of the Period (Including accumulated undistributed
net investment income of $2,072,868 and ($1,446,206),
respectively)........................................ $326,991,695 $ 352,779,871
============ =============
* Distributions by Class
-------------------------------------------------------
Distributions from Net Investment Income:
Class A Shares....................................... $(11,810,182) $ (24,250,603)
Class B Shares....................................... (4,916,016) (10,671,518)
Class C Shares....................................... (601,443) (1,163,663)
------------ -------------
$(17,327,641) $ (36,085,784)
============ =============
Return of Capital Distribution:
Class A Shares....................................... $ -0- $ (314,838)
Class B Shares....................................... -0- (141,491)
Class C Shares....................................... -0- (15,313)
------------ -------------
$ -0- $ (471,642)
============ =============
</TABLE>
See Notes to Financial Statements
24
<PAGE> 26
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
NINE
SIX MONTHS YEAR MONTHS
ENDED ENDED ENDED YEAR ENDED JUNE 30
CLASS A SHARES SEPTEMBER 30, MARCH 31, MARCH 31, ------------------------
2000 2000 1999 1998 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
THE PERIOD.................. $ 8.48 $ 9.03 $ 9.89 $ 9.85 $ 9.49 $ 9.40
------ ------ ------ ------ ------ ------
Net Investment Income....... .51 .85 .62 .86 .86 .88
Net Realized and Unrealized
Gain/Loss................. (.60) (.56) (.85) .03 .38 .14
------ ------ ------ ------ ------ ------
Total from Investment
Operations.................. (.09) .29 (.23) .89 1.24 1.02
------ ------ ------ ------ ------ ------
Less:
Distributions from and in
Excess of Net Investment
Income.................... .42 .83 .62 .85 .87 .88
Return of Capital
Distribution.............. -0- .01 .01 -0- .01 .05
------ ------ ------ ------ ------ ------
Total Distributions........... .42 .84 .63 .85 .88 .93
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE
PERIOD...................... $ 7.97 $ 8.48 $ 9.03 $ 9.89 $ 9.85 $ 9.49
====== ====== ====== ====== ====== ======
Total Return* (a)............. -1.20%** 3.50% -2.13%** 9.36% 13.60% 11.26%
Net Assets at End of the
Period (In millions)........ $216.6 $230.6 $277.9 $280.6 $288.0 $271.1
Ratio of Expenses to Average
Net Assets *................ 1.17% 1.15% 1.17% 1.14% 1.17% 1.31%
Ratio of Net Investment Income
to Average Net Assets *..... 12.20% 9.96% 8.98% 8.61% 8.83% 9.16%
Portfolio Turnover............ 46%** 109% 104%** 154% 125% 102%
* 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% 1.25% 1.27% 1.24% 1.26% 1.31%
Ratio of Net Investment Income
to Average Net Assets....... 12.10% 9.86% 8.88% 8.51% 8.73% 9.15%
</TABLE>
** Non-Annualized
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge of 4.75% or contingent deferred
sales charge ("CDSC"). On purchases of Class A Shares of $1 million or more,
a CDSC of 1% may be imposed on certain redemptions made within one year of
purchase. If the sales charges were included, total returns would be lower.
See Notes to Financial Statements
25
<PAGE> 27
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
SIX MONTHS YEAR NINE MONTHS
ENDED ENDED ENDED YEAR ENDED JUNE 30,
CLASS B SHARES SEPTEMBER 30, MARCH 31, MARCH 31, ------------------------
2000 2000 1999 1998 1997 1996
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF THE PERIOD............ $ 8.49 $ 9.03 $ 9.89 $ 9.86 $ 9.50 $ 9.40
------ ------ ------ ------ ------ ------
Net Investment Income.... .46 .80 .56 .78 .78 .80
Net Realized and
Unrealized Gain/Loss... (.59) (.58) (.84) .03 .39 .16
------ ------ ------ ------ ------ ------
Total from Investment
Operations............... (.13) .22 (.28) .81 1.17 .96
------ ------ ------ ------ ------ ------
Less:
Distributions from and in
Excess of Net
Investment Income...... .38 .75 .57 .78 .79 .81
Return of Capital
Distribution........... -0- .01 .01 -0- .02 .05
------ ------ ------ ------ ------ ------
Total Distributions........ .38 .76 .58 .78 .81 .86
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE
PERIOD................... $ 7.98 $ 8.49 $ 9.03 $ 9.89 $ 9.86 $ 9.50
====== ====== ====== ====== ====== ======
Total Return* (a).......... -1.51%** 2.65% -2.71%** 8.58% 12.64% 10.55%
Net Assets at End of the
Period (In millions)..... $ 97.7 $109.2 $135.4 $145.0 $128.7 $ 97.1
Ratio of Expenses to
Average Net Assets*...... 1.94% 1.93% 1.93% 1.91% 1.93% 2.07%
Ratio of Net Investment
Income to Average Net
Assets*.................. 11.41% 9.17% 8.19% 7.84% 8.03% 8.39%
Portfolio Turnover......... 46%** 109% 104%** 154% 125% 102%
* 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....... 2.04% 2.03% 2.03% 2.01% 2.02% 2.07%
Ratio of Net Investment
Income to Average Net
Assets................... 11.31% 9.07% 8.09% 7.74% 7.94% 8.38%
</TABLE>
** Non-Annualized
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum contingent deferred sales charge of 4%,
charged on certain redemptions made within one year of purchase and
declining to 0% after the sixth year. If the sales charge was included,
total returns would be lower.
See Notes to Financial Statements
26
<PAGE> 28
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
SIX MONTHS YEAR NINE MONTHS
ENDED ENDED ENDED YEAR ENDED JUNE 30,
CLASS C SHARES SEPTEMBER 30, MARCH 31, MARCH 31, -----------------------
2000 2000 1999 1998 1997 1996
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................. $ 8.47 $ 9.02 $ 9.88 $9.85 $ 9.50 $ 9.40
------ ------ ------ ----- ------ ------
Net Investment Income..... .46 .80 .56 .78 .78 .83
Net Realized and
Unrealized Gain/Loss.... (.58) (.58) (.85) .03 .38 .13
------ ------ ------ ----- ------ ------
Total from Investment
Operations................ (.12) .22 (.29) .81 1.16 .96
------ ------ ------ ----- ------ ------
Less:
Distributions from and in
Excess of Net Investment
Income.................. .38 .76 .56 .78 .79 .81
Return of Capital
Distribution............ -0- .01 .01 -0- .02 .05
------ ------ ------ ----- ------ ------
Total Distributions......... .38 .77 .57 .78 .81 .86
------ ------ ------ ----- ------ ------
NET ASSET VALUE, END OF
PERIOD.................... $ 7.97 $ 8.47 $ 9.02 $9.88 $ 9.85 $ 9.50
====== ====== ====== ===== ====== ======
Total Return* (a)........... -1.51%** 2.65% -2.71%** 8.47% 12.65% 10.55%
Net Assets at End of Period
(In millions)............. $ 12.7 $ 13.0 $ 14.7 $11.5 $ 8.1 $ 7.0
Ratio of Expenses to Average
Net Assets*............... 1.94% 1.93% 1.93% 1.91% 1.93% 2.06%
Ratio of Net Investment
Income to Average Net
Assets*................... 11.39% 9.17% 8.25% 7.83% 8.08% 8.38%
Portfolio Turnover.......... 46%** 109% 104%** 154% 125% 102%
* 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................ 2.04% 2.03% 2.03% 2.01% 2.03% 2.07%
Ratio of Net Investment
Income to Average Net
Assets.................... 11.29% 9.07% 8.15% 7.73% 7.99% 8.38%
</TABLE>
** Non-Annualized
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum contingent deferred sales charge of 1%,
charged on certain redemptions made within one year of purchase. If the
sales charge was included, total returns would be lower.
See Notes to Financial Statements
27
<PAGE> 29
NOTES TO
FINANCIAL STATEMENTS
September 30, 2000 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen High Yield Fund (the "Fund") is organized as a series of Van Kampen
Trust, a Delaware business trust (the "Trust"), and is registered as a
diversified open-end management investment company under the Investment Company
Act of 1940, as amended. The Fund's primary investment objective is to provide a
high level of current income. The Fund invests primarily in a portfolio of
medium and lower grade domestic corporate debt securities. The Fund also may
invest up to 35% of its assets in foreign government and corporate debt
securities of comparable quality. The Fund commenced investment operations on
June 27, 1986. The Fund commenced distribution of its Class B and C shares on
May 17, 1993 and August 13, 1993, respectively.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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, which approximates market value.
Fund investments include lower rated debt securities which may be more
susceptible to adverse economic conditions than other investment grade holdings.
These securities are often subordinated to the prior claims of other senior
lenders and uncertainties exist as to an issuers ability to meet principal and
interest payments. Debt securities rated below investment grade and comparable
unrated securities represented approximately 94% of the investment portfolio at
the end of the period.
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
28
<PAGE> 30
NOTES TO
FINANCIAL STATEMENTS
September 30, 2000 (Unaudited)
segregated account with its custodian, assets having an aggregate value at least
equal to the amount of the when-issued or delayed delivery purchase commitments
until payment is made.
The Fund may invest in repurchase agreements, which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account 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 net of applicable withholding taxes on the ex-
dividend date. Bond premium is amortized and original issue discount is accreted
over the expected life of each applicable security. Income and 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 is March 31, the Fund's tax year end is December 31.
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 December 31, 1999, the Fund had an accumulated capital loss
carryforward for tax purposes of $32,438,270, which will expire between December
31, 2001 and December 31, 2007. 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 reclass of consent fee income.
At September 30, 2000, for federal income tax purposes, the cost of long-
and short-term investments is $374,855,209; the aggregate gross unrealized
appreciation is $7,914,567 and the aggregate gross unrealized depreciation is
$62,386,436,
29
<PAGE> 31
NOTES TO
FINANCIAL STATEMENTS
September 30, 2000 (Unaudited)
resulting in net unrealized depreciation on long- and short-term investments of
$54,471,869.
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 distributions from income
under generally accepted accounting principles and federal income tax purposes,
the amount of distributable net investment income may differ between book and
federal income tax purposes for a particular period. These differences are
temporary in nature, but may result in distributions in excess of net investment
income for certain periods.
For tax purposes, the determination of a return of capital distribution is
made at the end of the Fund's taxable year (December 31).
F. CURRENCY TRANSLATION Assets and liabilities denominated in foreign currencies
and commitments under forward currency contracts are translated into U.S.
dollars at the mean of the quoted bid and ask prices of such currencies against
the U.S. dollar. Purchases and sales of portfolio securities are translated at
the rate of exchange prevailing when such securities were acquired or sold.
Income and expenses are translated at rates prevailing when accrued.
G. EXPENSE REDUCTIONS During the six months ended September 30, 2000, the Fund's
custody fee was reduced by $23,790 as a result of credits earned on overnight
cash balances.
30
<PAGE> 32
NOTES TO
FINANCIAL STATEMENTS
September 30, 2000 (Unaudited)
2. INVESTMENT ADVISORY AGREEMENT AND
OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
<S> <C>
First $500 million.......................................... .75 of 1%
Over $500 million........................................... .65 of 1%
</TABLE>
For the six months ended September 30, 2000, the Adviser waived
approximately $175,500 of its advisory fee. This waiver is voluntary and may be
discontinued at any time.
For the six months ended September 30, 2000, the Fund recognized expenses of
approximately $6,400, representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the six months ended September 30, 2000, the Fund recognized expenses of
approximately $27,400, representing Van Kampen Funds Inc.'s or its affiliates'
(collectively "Van Kampen") cost of providing accounting and legal services to
the Fund.
Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as
the shareholder servicing agent for the Fund. For the six months ended September
30, 2000, the Fund recognized expenses of approximately $173,500. 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.
31
<PAGE> 33
NOTES TO
FINANCIAL STATEMENTS
September 30, 2000 (Unaudited)
3. CAPITAL TRANSACTIONS
At September 30, 2000, capital aggregated $314,200,151, $98,147,526, and
$12,673,549 for Class A, B and C shares, respectively. For the six months ended
September 30, 2000, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A................................................. 4,209,586 $ 34,667,080
Class B................................................. 1,788,698 14,754,149
Class C................................................. 506,551 4,187,162
---------- ------------
Total Sales............................................... 6,504,835 $ 53,608,391
========== ============
Dividend Reinvestment:
Class A................................................. 828,126 $ 6,767,184
Class B................................................. 247,482 2,025,342
Class C................................................. 32,247 263,618
---------- ------------
Total Dividend Reinvestment............................... 1,107,855 $ 9,056,144
========== ============
Repurchases:
Class A................................................. (5,055,882) $(41,245,142)
Class B................................................. (2,658,280) (21,838,433)
Class C................................................. (480,410) (3,969,185)
---------- ------------
Total Repurchases......................................... (8,194,572) $(67,052,760)
========== ============
</TABLE>
32
<PAGE> 34
NOTES TO
FINANCIAL STATEMENTS
September 30, 2000 (Unaudited)
At March 31, 2000, capital aggregated $314,011,029, $103,206,468 and
$12,191,954 for Class A, B and C shares, respectively. For the year ended March
31, 2000, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A............................................... 6,099,454 $ 53,846,860
Class B............................................... 3,889,246 34,206,260
Class C............................................... 888,416 7,805,975
----------- -------------
Total Sales............................................. 10,877,116 $ 95,859,095
=========== =============
Dividend Reinvestment:
Class A............................................... 1,461,944 $ 12,717,402
Class B............................................... 512,719 4,469,956
Class C............................................... 66,098 575,755
----------- -------------
Total Dividend Reinvestment............................. 2,040,761 $ 17,763,113
=========== =============
Repurchases:
Class A............................................... (11,138,896) $ (97,954,546)
Class B............................................... (6,521,827) (57,161,016)
Class C............................................... (1,046,422) (9,216,174)
----------- -------------
Total Repurchases....................................... (18,707,145) $(164,331,736)
=========== =============
</TABLE>
Class B Shares purchased on or after June 1, 1996, and any dividend
reinvestment plan Class B Shares received thereon, automatically convert to
Class A Shares eight years after the end of the calendar month in which the
shares were purchased. Class B Shares purchased before June 1, 1996, and any
dividend reinvestment plan Class B Shares received thereon, automatically
convert to Class A Shares six years after the end of the calendar month in which
the shares were purchased. For the six months ended September 30, 2000 and the
year ended March 31, 2000, 451,779 and 783,210 Class B Shares converted to Class
A Shares, and are shown in the above tables as sales of Class A Shares and
repurchases of Class B Shares. Class C Shares purchased before January 1, 1997,
and any dividend reinvestment plan Class C Shares received thereon,
automatically convert to Class A Shares ten years after the end of the calendar
month in which such shares were purchased. Class C Shares purchased on or after
January 1, 1997 do not possess a conversion feature. For the six months ended
September 30, 2000 and the year ended March 31, 2000, no Class C Shares
converted to Class A Shares.
Class B and C Shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). The CDSC will be imposed
33
<PAGE> 35
NOTES TO
FINANCIAL STATEMENTS
September 30, 2000 (Unaudited)
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>
For the six months ended September 30, 2000, Van Kampen, as Distributor for
the Fund, received commissions on sales of the Fund's Class A Shares of
approximately $25,400, and CDSC on redeemed shares of approximately $142,700.
Sales charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
During the period ended September 30, 2000, the cost of purchases and proceeds
from sales of investments, excluding short-term investments, were $153,004,770
and $157,271,630, 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.
34
<PAGE> 36
NOTES TO
FINANCIAL STATEMENTS
September 30, 2000 (Unaudited)
Summarized below are the specific types of derivative financial instruments
used by the Fund.
A. OPTION CONTRACTS An option contract gives the buyer the right, but not the
obligation to buy (call) or sell (put) an underlying item at a fixed exercise
price during a specified period. These contracts are generally used by the Fund
to manage the portfolio's effective maturity and duration. As of September 30,
2000, there were no option contracts outstanding.
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). As of September 30, 2000,
there were no futures contracts outstanding.
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. As of September 30, 2000, there were no forward currency
contracts outstanding.
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. There were no open swap transactions at September 30, 2000.
6. 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.
35
<PAGE> 37
NOTES TO
FINANCIAL STATEMENTS
September 30, 2000 (Unaudited)
7. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940, as amended, and a service plan
(collectively the "Plans"). The Plans govern payments for the distribution of
the Fund's shares, ongoing shareholder services and maintenance of shareholder
accounts.
Annual fees under the Plans of up to .25% for Class A net assets and 1.00%
each for Class B and Class C net assets are accrued daily. Included in these
fees for the six months ended September 30, 2000, are payments retained by Van
Kampen of approximately $448,800.
8. BORROWINGS
In accordance with its investment policies, the Fund may borrow from banks for
temporary purposes and is subject to certain other customary restrictions.
Effective November 30, 1999, the Fund, in conjunction with certain other funds
of Van Kampen, entered in to a $650,000,000 committed line of credit facility
with a group of banks which expires on November 28, 2000, but is renewable with
the consent of the participating banks. Each fund is permitted to utilize the
facility in accordance with the restrictions of its prospectus. In the event the
demand for the credit facility meets or exceeds $650 million on a complex-wide
basis, each fund will be limited to its pro-rata percentage based on the net
assets of each participating fund. Interest on borrowings is charged under the
agreement at a rate of 0.50% above the federal funds rate per annum. An annual
commitment fee of 0.09% per annum is charged on the unused portion of the credit
facility, which each fund incurs based on its pro-rata percentage of quarterly
net assets. The Fund has not borrowed against the credit facility during the
period.
36
<PAGE> 38
FUND OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN HIGH YIELD FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
JERRY D. CHOATE
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
MITCHELL M. MERIN*
JACK E. NELSON
RICHARD F. POWERS, III*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY
OFFICERS
RICHARD F. POWERS, III*
President
STEPHEN L. BOYD*
Executive Vice President and
Chief Investment Officer
A. THOMAS SMITH III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer and
Chief Financial Officer
RICHARD A. CICCARONE*
JOHN R. REYNOLDSON*
MICHAEL H. SANTO*
JOHN H. ZIMMERMANN, 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 218256
Kansas City, Missouri 64121-8256
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 AUDITORS(1)
ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, Illinois 60606
(1) Independent auditors for the Fund perform an annual audit of the Fund's
financial statements. The Board of Trustees has engaged Ernst & Young LLP to
be the Fund's independent auditors. PricewaterhouseCoopers LLP ceased being
the Fund's independent auditors effective May 18, 2000. The cessation of the
client-auditor relationship between the Fund and PricewaterhouseCoopers was
based solely on a possible future business relationship by
PricewaterhouseCoopers with an affiliate for the Fund's investment Adviser.
* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
(C) Van Kampen Funds Inc., 2000. 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 February 29,
2001, the report, if used with prospective investors, must be accompanied by a
monthly performance update.
37
<PAGE> 39
<TABLE>
<S> <C>
Table of Contents
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 4
PORTFOLIO AT A GLANCE
TOP TEN HOLDINGS 6
TOP FIVE COUNTRIES 6
Q&A WITH YOUR PORTFOLIO MANAGERS 7
GLOSSARY OF TERMS 10
BY THE NUMBERS
YOUR FUND'S INVESTMENTS 11
FINANCIAL STATEMENTS 19
NOTES TO FINANCIAL STATEMENTS 25
VAN KAMPEN FUNDS
THE VAN KAMPEN FAMILY OF FUNDS 34
FUND OFFICERS AND IMPORTANT ADDRESSES 35
</TABLE>
Our generations
of money-
management
experience
may help you
pursue life's
true wealth.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE> 40
OVERVIEW
LETTER TO SHAREHOLDERS
October 20, 2000
Dear Shareholder,
The first three quarters of 2000 proved to be especially volatile, with all of
the major markets declining in the spring and spending the following months
trying to recover. To manage one's portfolio during such unpredictable times
requires investment-management experience, and the following pages should give
you some insight into how we have performed in this difficult environment.
In this report, the portfolio managers will explain how your investment
performed during the reporting period and describe the strategies they used to
manage your fund during that span. The report will also show you how your
investment has performed over time. Helpful charts summarize the fund's largest
investments, and you can examine the complete portfolio to see all of your
fund's holdings as of the end of your fund's reporting period.
At Van Kampen, we place a high priority on providing you and
your financial advisor with the information you need to help
you monitor your investments during all types of markets. With
nearly four generations of investment-management experience,
we've been around long enough to understand that by investing
with Van Kampen you're entrusting us with much more than your money. Your
investments may help make it possible to afford your next house, keep up with
rising college costs, or enjoy a comfortable retirement.
No matter what your reasons for investing, we're thankful that you've chosen to
place your investments with Van Kampen. We will continue to apply our
generations of money-management experience to helping you pursue life's true
wealth.
Sincerely,
[SIG]
Richard F. Powers, III
President and CEO
Van Kampen Investments
1
<PAGE> 41
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
ECONOMIC GROWTH WAS STRONG DURING THE REPORTING PERIOD, UNDERPINNED BY LOW
UNEMPLOYMENT AND RISING PRODUCTIVITY, YET THERE WERE SIGNS THAT A HEALTHY
SLOWDOWN WAS UNDERWAY. GROSS DOMESTIC PRODUCT, THE PRIMARY MEASURE OF ECONOMIC
GROWTH, INCREASED AT A 2.7 PERCENT ANNUALIZED RATE FOR THE THIRD QUARTER OF
2000. FOLLOWING MILD FIRST- AND SECOND-QUARTER DATA, THIS THIRD-QUARTER FIGURE
OFFERS FURTHER EVIDENCE THAT GROWTH MIGHT BE SETTLING BACK TO A MORE MODERATE
AND SUSTAINABLE PACE THAN ITS RAPID RATE IN LATE 1999.
CONSUMER SPENDING AND EMPLOYMENT
CONCERNS ABOUT INFLATION REMAINED AT BAY DUE IN PART TO A GRADUAL SLOWDOWN IN
CONSUMER SPENDING. RISING INTEREST RATES, HIGHER ENERGY COSTS, AND A
DISAPPOINTING STOCK MARKET BEGAN TO TEMPER RETAIL SALES, WHICH LEVELED OFF FROM
THE BLISTERING PACE OF LATE 1999 AND EARLY 2000. AND WHILE CONSUMER SPENDING WAS
BRISK, THE OVERALL TREND HAS BEEN DOWNWARD THIS YEAR.
THE JOBLESS RATE CONTINUED TO BE EXTREMELY LOW BY HISTORICAL STANDARDS, BUT
RECENT CUTS IN MANUFACTURING PAYROLLS SUPPORT THE POPULAR BELIEF THAT THE
ECONOMY IS MODERATING. ALTHOUGH EMPLOYER COSTS SUCH AS WAGES AND BENEFITS WERE
RISING AT THE END OF 1999 AND IN THE BEGINNING OF 2000, OVER THE PAST SIX MONTHS
THE EMPLOYMENT COST INDEX HAS SHOWN MARKED DECELERATION, WHICH SHOULD HELP EASE
INFLATION CONCERNS.
INTEREST RATES AND INFLATION
THE FEDERAL RESERVE BOARD (THE FED) RAISED INTEREST RATES FOUR TIMES DURING THE
LAST 12 MONTHS IN AN EFFORT TO WARD OFF INFLATION BY CURBING ECONOMIC GROWTH.
OVER THE SAME PERIOD, THE CONSUMER PRICE INDEX ROSE 3.5 PERCENT, WHICH INDICATED
THAT INFLATION GENERALLY REMAINS UNDER CONTROL.
THE FED HAS ACKNOWLEDGED THE RISK OF RISING INFLATION AND WILL STAY ON GUARD, AS
RISING ENERGY COSTS AND LOW UNEMPLOYMENT THREATEN TO PROPEL THIS FIGURE UPWARD
IN THE COMING MONTHS. AS LONG AS INFLATION IS CONTAINED AND THE PACE OF ECONOMIC
GROWTH REMAINS FAVORABLE, THE FED IS LIKELY TO HOLD INTEREST RATES STEADY IN THE
SHORT TERM, WHICH COULD HELP STABILIZE THE STOCK AND BOND MARKETS.
2
<PAGE> 42
U.S. GROSS DOMESTIC PRODUCT
SEASONALLY ADJUSTED ANNUALIZED RATES
(September 30, 1998--September 30, 2000)
[BAR GRAPH]
<TABLE>
<CAPTION>
U.S. GROSS DOMESTIC PRODUCT
---------------------------
<S> <C>
Sep 98 3.80
Dec 98 5.90
Mar 99 3.50
Jun 99 2.50
Sep 99 5.70
Dec 99 8.30
Mar 00 4.80
Jun 00 5.60
Sep 00 2.70
</TABLE>
Source: Bureau of Economic Analysis
INTEREST RATES AND INFLATION
(September 30, 1998--September 30, 2000)
[LINE GRAPH]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Sep 98 5.25 1.50
5.00 1.50
4.75 1.50
Dec 98 4.75 1.60
4.75 1.70
4.75 1.60
Mar 99 4.75 1.70
4.75 2.30
4.75 2.10
Jun 99 5.00 2.00
5.00 2.10
5.25 2.30
Sep 99 5.25 2.60
5.25 2.60
5.50 2.60
Dec 99 5.50 2.70
5.50 2.70
5.75 3.20
Mar 00 6.00 3.70
6.00 3.00
6.50 3.10
Jun 00 6.50 3.70
6.50 3.70
6.50 3.30
Sep 00 6.50 3.50
</TABLE>
Interest rates are represented by the closing midline federal funds target rate
on the last day of each month. Inflation is indicated by the annual percent
change of the Consumer Price Index for all urban consumers at the end of each
month.
3
<PAGE> 43
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(as of September 30, 2000)
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Six-month total return based on
NAV(1) 1.15% 0.77% 0.77%
-------------------------------------------------------------------------
Six-month total return(2) -3.68% -3.11% -0.20%
-------------------------------------------------------------------------
One-year total return(2) -0.23% 0.07% 2.96%
-------------------------------------------------------------------------
Five-year average annual total
return(2) 4.19% 4.22% 4.42%
-------------------------------------------------------------------------
Life-of-Fund average annual total
return(2) 2.80% 2.83%(3) 2.72%
-------------------------------------------------------------------------
Commencement date 12/31/93 12/31/93 12/31/93
-------------------------------------------------------------------------
Distribution rate(4) 7.95% 7.56% 7.57%
-------------------------------------------------------------------------
SEC Yield(5) 8.43% 8.08% 8.08%
-------------------------------------------------------------------------
</TABLE>
(1) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge (4.75% for Class A shares) or
contingent deferred sales charge ("CDSC") for Class B and C shares. On
purchases of Class A shares of $1 million or more, a CDSC of 1% may be
imposed on certain redemptions made within one year of purchase. Returns for
Class B shares are calculated without the effect of the maximum 4% CDSC,
charged on certain redemptions made within one year of purchase and
declining thereafter to 0% after the sixth year. Returns for Class C shares
are calculated without the effect of the maximum 1% CDSC, charged on certain
redemptions made within one year of purchase. If the sales charges were
included, total returns would be lower. These returns do include Rule 12b-1
fees of up to .25% for Class A Shares and 1% for Class B and Class C Shares.
(2) Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (4.75% for Class A
shares) or contingent deferred sales charge ("CDSC") for Class B and C
shares and Rule 12b-1 fee. On purchases of Class A shares of $1 million or
more, a CDSC of 1% may be imposed on certain redemptions made within one
year of purchase. Returns for Class B shares are calculated with the effect
of the maximum 4% CDSC, charged on certain redemptions made within one year
of purchase and declining thereafter to 0% after the sixth year. Returns for
Class C shares are calculated with the effect of the maximum 1% CDSC,
charged on certain redemptions made within one year of purchase. The Rule
12b-1 fee for Class A Shares is up to .25% and for Class B and Class C
Shares is 1%.
(3) The total return reflects the conversion of Class B shares into Class A
shares six years after the end of the calendar month in which the shares
were purchased.
(4) Distribution rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.
4
<PAGE> 44
(5) SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio
should theoretically generate for the 30-day period ending September 30,
2000. 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 8.24%, 7.89%
and 7.89% for Classes A, B and C, respectively.
See the Comparative Performance section of the current prospectus. Past
performance is no guarantee of 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 emerging market securities have the
potential for risks not associated with investments in the United States.
The Fund's investments in junk bonds have the potential for risks not
generally associated with higher rated 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.
As a result of recent market activity, current performance may vary from the
figures shown.
5
<PAGE> 45
PORTFOLIO AT A GLANCE
TOP TEN HOLDINGS
(as a percentage of long-term investments--September 30, 2000)
<TABLE>
<S> <C> <C>
Republic of Italy BTPS, 4.000% Coupon, 09/01/01 Maturity... 4.0%
---------------------------------------------------------------------
Bundesschatzanweisungen, Ser 99, 3.500% Coupon, 09/14/01
Maturity................................................... 4.0%
---------------------------------------------------------------------
Spanish Government, 4.250% Coupon, 07/30/02 Maturity....... 4.0%
---------------------------------------------------------------------
PECO Energy Transport Trust, Ser A2, 5.630% Coupon,
03/01/05 Maturity.......................................... 3.7%
---------------------------------------------------------------------
Sovereign Bancorp, Inc., 8.000% Coupon, 03/15/03
Maturity................................................... 3.5%
---------------------------------------------------------------------
GNMA, 7.000% Coupon, 07/15/28 Maturity..................... 3.1%
---------------------------------------------------------------------
Republic of Brazil, 8.000% Coupon, 04/15/14 Maturity....... 2.8%
---------------------------------------------------------------------
Federal Home Loan Mortgage Corp., 7.000% Coupon, 05/12/14
Maturity................................................... 2.8%
---------------------------------------------------------------------
United Mexican States, Ser D, 7.925% Coupon, 12/31/19
Maturity................................................... 2.3%
---------------------------------------------------------------------
U.K. Treasury - GBP, 7.000% Coupon, 11/06/01 Maturity...... 2.3%
</TABLE>
TOP FIVE COUNTRIES
(as a percentage of long-term investments)
[BAR GRAPH]
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 MARCH 31, 2000
------------------ --------------
<S> <C> <C>
United States 60 53.5
Mexico 5.8 6.1
Italy 4.4 3.3
Germany 3.5 2.5
Spain 3.5 2.6
</TABLE>
6
<PAGE> 46
[PHOTO]
[PHOTO]
[PHOTO]
Q&A WITH YOUR PORTFOLIO MANAGERS
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 AND INFLUENCED THE
FUND'S RETURN DURING THE PAST SIX MONTHS. THE FUND IS
CO-MANAGED BY TOM SLEFINGER, ROBERT J. HICKEY, AND TED
MUNDY. THE FOLLOWING DISCUSSION REFLECTS THEIR VIEWS ON THE FUND'S PERFORMANCE.
PLEASE NOTE: AFTER CONSIDERATION OF A NUMBER OF FACTORS, THE BOARD
OF TRUSTEES OF THE STRATEGIC INCOME FUND DETERMINED IT WOULD BE IN
THE BEST INTEREST OF THE FUND'S SHAREHOLDERS TO TERMINATE AND LIQUIDATE THE
FUND. THE PLAN OF LIQUIDATION FOR THE FUND WAS APPROVED BY THE BOARD ON
SEPTEMBER 12, 2000, AND WILL BE PRESENTED TO FUND SHAREHOLDERS FOR APPROVAL.
Q DESCRIBE THE MARKET CONDITIONS
OF THE LAST SIX MONTHS AND HOW THE FUND PERFORMED IN THIS ENVIRONMENT.
A Economic growth and consumer
spending were accelerating early in the reporting period. We saw continued
efforts by the Federal Reserve Board to slow the economy and fend off
inflationary risks through its policy of increasing interest rates. While this
aggressive policy pushed short-term rates up, the Treasury announced a plan to
buy back long-term Treasury bonds, which created a perceived shortage of long
bonds. The result was a highly unusual inverted yield curve--where yields on
long-term securities were actually lower than their short-term counterparts--and
a dramatic widening of credit spreads.
The curve inversion peaked in May as it appeared the Fed was done raising
rates. Subsequently, a series of economic reports indicated that economic growth
was moderating, market sentiment became more positive, and interest rates began
to stabilize. In turn, credit spreads
began to narrow again, enabling
mortgage-backed securities, high-yield
bonds, and corporate bonds to outperform Treasuries.
Turning to the markets abroad, the emerging markets sector was a very strong
performer for much of the last six months. Russian debt securities in particular
experienced a significant rebound as the Russian Republic bankruptcy was
completed and recovery efforts got underway.
For the six months ended September 30, 2000, the fund posted a total return
of 1.15% percent (Class A shares at net asset value; if the maximum sales charge
of 4.75 percent
7
<PAGE> 47
were included, the return would be lower). Of course, past performance is no
guarantee of future results. As a result of recent market activity, current
performance may vary from the figures shown. By comparison, the Lehman Brothers
Aggregate Bond Index, an unmanaged, broad-based index, generated a total return
of 4.81 percent for the same period. Similarly, a composite index of 20 percent
each of the Salomon Brothers Indexes for Mortgages, High Yield Market,
Corporate, Non-U.S. Dollar World Government, and Brady Bonds produced a total
return of 2.30 percent during the period. Keep in mind that these indexes do not
reflect any commissions or fees that would be paid by an investor purchasing the
securities they represent. Such costs would lower the performance of the
indexes. It is not possible to invest directly in an index. Please refer to the
chart and footnotes on page 4 for additional fund performance results.
Q CAN YOU EXPLAIN HOW THE FUND
WAS POSITIONED AT THE END OF THE PERIOD?
A As of September 30, 2000,
21 percent of the long-term portfolio of investments was allocated to the
foreign investment-grade sector, compared to 16.2 percent in the foreign
lower-grade sector, which consists primarily of emerging market securities. Of
the remaining sectors, 28.8 percent of the fund's long-term investments were in
domestic lower-grade securities, 8.8 percent were in domestic investment-grade
securities, and 18.9 percent were in the U.S. government and mortgage-backed
securities sector. For additional portfolio highlights, please refer to page 6.
Q WHAT WERE THE EFFECTS OF THE
MARKET CONDITIONS ON THE FUND, AND HOW DID YOU MANAGE THE FUND IN LIGHT OF
THESE CONDITIONS?
A The most notable interest-rate
declines in the inverted yield curve environment were within the
intermediate-term sector of the curve (five- to seven-year bonds). The fund had
a higher weighting in this maturity range than the benchmark, enabling us to
capture some positive performance here.
In addition, the fund had greater allocation in the higher-quality, more
liquid securities within the domestic high-yield sector of the bond market. This
component experienced better performance than the lower-quality component of the
high-yield market, due primarily to the fact that credit and default concerns
had a lesser impact on the higher-quality securities. The fund's emphasis on
this portion of the high-yield market added significant relative value to the
portfolio.
The emerging markets sector has been the best-performing fixed-income asset
class in 2000. As mentioned earlier, the substantial rebound of Russian debt was
the key reason for this upswing. We've seen an improved political environment
there and a favorable shift in the psychology of the marketplace. As a result,
the fund benefited from its above-average weighting in this sector.
8
<PAGE> 48
The world's developed markets were more erratic. Early in the reporting
period, the fund experienced positive performance due to its above-average
weighting in investment-grade foreign securities as the euro rallied against the
U.S. dollar. By July, however, this trend had reversed, and the dollar's value
climbed versus the European and dollar-bloc currencies (i.e., Canadian,
Australian, and New Zealand dollars), as well as the yen. Our strategy of
carrying a significant exposure to the investment-grade foreign sector had a
negative impact on the fund during the last few months of the reporting period.
9
<PAGE> 49
GLOSSARY OF TERMS
A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.
BRADY BOND: U.S. dollar-denominated bonds issued by developing markets,
particularly in Latin America.
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.
EMERGING MARKETS: The financial markets of developing economies. Many Latin
American and Asian countries are considered emerging markets.
EURO: The official currency unit for the countries comprising Europe's Economic
and Monetary Union.
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 at least eight times
a year to establish monetary policy and monitor the economic pulse of the United
States.
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.
YIELD CURVE: The pattern that results from viewing the yields of U.S. Treasury
securities maturing in 1, 5, 10, and 30 years. When grouped together and
graphed, a pattern of increasing yield is often reflected as the time to
maturity extends. This pattern creates an upward sloping "curve." A "flat" yield
curve represents little difference between short- and long-term interest rates.
10
<PAGE> 50
BY THE NUMBERS
YOUR FUND'S INVESTMENTS
September 30, 2000 (Unaudited)
THE FOLLOWING PAGES DETAIL YOUR FUND'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.
<TABLE>
<CAPTION>
PAR AMOUNT
IN LOCAL U.S. $
CURRENCY MATURITY MARKET
(000) DESCRIPTION COUPON DATE VALUE
<C> <S> <C> <C> <C>
ASSET BACKED SECURITIES 4.5%
$ 2,500 PECO Energy Transport Trust, Ser
A2--USD.................................. 5.630% 03/01/05 $ 2,434,708
1,000 PECO Energy Transport Trust, Ser
A6--USD.................................. 6.050 03/01/09 960,965
-----------
TOTAL ASSET BACKED SECURITIES................................ 3,395,673
-----------
CORPORATE BONDS 35.9%
AUTOMOBILE 1.1%
250 Aetna Industries, Inc.--USD.............. 11.875 10/01/06 220,000
125 Cambridge Industries, Inc., Ser B--USD
(d)...................................... 10.250 07/15/07 37,500
100 Oxford Automotive, Inc., Ser D--USD...... 10.125 06/15/07 89,500
855 Talon Automotive Group, Inc., Ser B--USD
(d)...................................... 9.625 05/01/08 299,250
275 Venture Holdings Trust--USD.............. 12.000 06/01/09 159,500
-----------
805,750
-----------
BANKING 4.1%
1,000 MBNA Capital I--USD...................... 8.278 12/01/26 826,158
2,400 Sovereign Bancorp Inc.--USD.............. 8.000 03/15/03 2,319,850
-----------
3,146,008
-----------
BEVERAGE, FOOD & TOBACCO 1.6%
250 Chiquita Brands International,
Inc.--USD................................ 10.000 06/15/09 152,500
350 Fleming Cos., Inc.--USD.................. 10.500 12/01/04 306,250
250 Luiginos, Inc.--USD...................... 10.000 02/01/06 198,750
200 National Wine & Spirits, Inc.--USD....... 10.125 01/15/09 192,000
400 Pantry, Inc.--USD........................ 10.250 10/15/07 386,000
-----------
1,235,500
-----------
BROADCASTING, TELEVISION & MUSIC 2.4%
500 British Sky Broadcasting--USD............ 6.875 02/23/09 435,000
1,250 Capstar Broadcasting Partners--USD (b)... 0/12.750 02/01/09 1,201,563
200 Muzak LLC--USD........................... 9.875 03/15/09 178,000
-----------
1,814,563
-----------
BUILDINGS & REAL ESTATE 2.3%
100 Building One Services Corp.--USD......... 10.500 05/01/09 88,000
750 Cemex International LLC--USD............. 9.660 11/29/49 750,000
</TABLE>
See Notes to Financial Statements
11
<PAGE> 51
YOUR FUND'S INVESTMENTS
September 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR AMOUNT
IN LOCAL U.S. $
CURRENCY MATURITY MARKET
(000) DESCRIPTION COUPON DATE VALUE
<C> <S> <C> <C> <C>
BUILDINGS & REAL ESTATE (CONTINUED)
$ 125 Del Webb Corp.--USD...................... 10.250% 02/15/10 $ 121,875
1,000 Owens Corning--USD....................... 7.500 08/01/18 345,000
450 Standard Pacific Corp.--USD.............. 8.500 04/01/09 427,500
-----------
1,732,375
-----------
CABLE/MEDIA 2.9%
300 Charter Communication Holdings--USD...... 8.250 04/01/07 274,500
1,000 CSC Holdings, Inc.--USD.................. 10.500 05/15/16 1,070,000
300 Go Outdoor Systems Holdings--EUR......... 10.500 07/15/09 306,882
100 James Cable Partners L.P, Ser B--USD..... 10.750 08/15/04 85,500
250 NTL Communications Corp.--EUR............ 9.250 11/15/06 198,844
250 NTL Inc., Ser A--USD (b)................. 0/12.750 04/15/05 252,500
-----------
2,188,226
-----------
CHEMICALS, PLASTIC & RUBBER 0.6%
500 Coastal Corp.--USD....................... 6.500 06/01/08 470,613
-----------
CONTAINERS, PACKAGING, PAPER & GLASS 1.2%
950 Sweetheart Cup Co., Inc.--USD............ 10.500 09/01/03 897,750
-----------
HEALTHCARE 1.4%
205 Columbia/HCA Healthcare Corp.--Ser
MTN--USD................................. 6.630 07/15/45 199,875
625 Oxford Health Plans--USD................. 11.000 05/15/05 665,625
200 Tenet Healthcare Corp. .................. 8.000 01/15/05 198,500
-----------
1,064,000
-----------
HOTEL & GAMING 1.6%
575 Booth Creek Ski Holdings, Ser B--USD..... 12.500 03/15/07 442,750
150 Hollywood Casino Corp.--USD.............. 11.250 05/01/07 157,500
150 Isle Capri Casinos, Inc.--USD............ 8.750 04/15/09 140,625
275 Majestic Star Casino LLC--USD............ 10.875 07/01/06 248,875
250 Park Place Entertainment Corp.--USD...... 7.875 12/15/05 240,625
-----------
1,230,375
-----------
MACHINERY 0.2%
200 Terex Corp., Ser D--USD.................. 8.875 04/01/08 178,000
-----------
MINING/STEEL 0.3%
250 Renco Steel Holdings, Inc.--USD.......... 10.875 02/01/05 162,500
250 Republic Technology/RTI Capital,
144A--Private Placement--USD (a)......... 13.750 07/15/09 60,000
-----------
222,500
-----------
</TABLE>
See Notes to Financial Statements
12
<PAGE> 52
YOUR FUND'S INVESTMENTS
September 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR AMOUNT
IN LOCAL U.S. $
CURRENCY MATURITY MARKET
(000) DESCRIPTION COUPON DATE VALUE
<C> <S> <C> <C> <C>
OIL & GAS 2.3%
$ 400 Frontier Oil Corp.--USD.................. 11.750% 11/15/09 $ 406,000
500 Giant Industries, Inc.--USD.............. 9.750 11/15/03 497,500
473 Hurricane Hydrocarbons Ltd.,
144A--Private Placement--USD (a)......... 16.000 12/31/01 468,090
125 Port Arthur Finance Corp., 144A Private
Placement--USD (a)....................... 12.500 01/15/09 127,188
235 R&B Falcon Corp.--USD.................... 9.500 12/15/08 254,388
-----------
1,753,166
-----------
RETAIL 1.1%
250 Big 5 Corp., Ser B--USD.................. 10.875 11/15/07 228,750
400 Community Distributors, Ser B--USD....... 10.250 10/15/04 314,000
500 Saks Inc.--USD........................... 7.375 02/15/19 275,000
-----------
817,750
-----------
TELECOMMUNICATIONS 8.9%
200 Centennial Cellular Operating Co.--USD... 10.750 12/15/08 195,000
1,000 CIA International
Telecommunication--ARP................... 10.375 08/01/04 830,507
400 E. Spire Communications, Inc.--USD (b)... 0/13.000 11/01/05 212,000
200 Fairchild Semiconductor--USD............. 10.375 10/01/07 203,000
500 Hermes Europe Railtel BV--USD............ 11.500 08/15/07 240,000
450 Intermedia Communications, Inc., Ser
B--USD (b)............................... 0/12.250 03/01/09 315,000
65 Intersil Corp, Ser UNIT--USD............. 13.250 08/15/09 75,725
500 KPNQWest BV--USD......................... 8.125 06/01/09 467,500
250 Millicom International--USD (b).......... 0/13.500 06/01/06 218,750
100 Netia Holdings BV--USD................... 13.750 06/15/10 84,840
500 Netia Holdings BV, Ser B--USD............ 10.250 11/01/07 405,000
630 Nextel Communications--USD............... 9.375 11/15/09 620,550
500 Nextlink Communications, Inc., 144A
Private Placement--USD (a)............... 10.500 12/01/09 460,000
350 Philippine Long Distance Telephone, Ser
EMTN--USD................................ 10.500 04/15/09 315,525
375 Pinnacle Holdings, Inc.--USD (b)......... 0/10.000 03/15/08 271,875
110 Primus Telecommunications Group--USD..... 11.250 01/15/09 56,100
200 Psinet Inc.--USD......................... 10.500 12/01/06 129,000
500 Satelites Mexicanos SA, Ser B--USD....... 10.125 11/01/04 315,000
500 Sun Microsystems, Inc.--USD.............. 7.500 08/15/06 508,541
555 Telecorp PCS, Inc. (b)................... 0/11.625 04/15/09 378,788
</TABLE>
See Notes to Financial Statements
13
<PAGE> 53
YOUR FUND'S INVESTMENTS
September 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR AMOUNT
IN LOCAL U.S. $
CURRENCY MATURITY MARKET
(000) DESCRIPTION COUPON DATE VALUE
<C> <S> <C> <C> <C>
TELECOMMUNICATIONS (CONTINUED)
$ 525 Triton PCS, Inc.--USD (b)................ 0/11.000% 05/01/08 $ 397,688
250 Viatel, Inc.--USD (b).................... 0/12.500 04/15/08 72,500
-----------
6,772,889
-----------
TEXTILES 0.3%
110 Scovill Fasteners, Inc, Ser B--USD....... 11.250 11/30/07 51,700
200 Sleepmaster LLC, Ser B--USD.............. 11.000 05/15/09 180,000
-----------
231,700
-----------
UTILITIES 3.6%
375 Calenergy Co.--USD....................... 7.230 09/15/05 373,594
900 Central Termica Guemes S A Note Variable
Rate--USD................................ 2.000 09/26/10 45,000
810 Edelnor, 144A--Private Placement--USD
(a)...................................... 7.750 03/15/06 210,600
1,000 Korea Electric Power Corp.--USD.......... 7.000 02/01/27 929,700
1,000 Southern Energy, Inc., 144A Private
Placement--USD (a)....................... 7.900 07/15/09 951,180
250 Western Resources, Inc.--USD............. 6.875 08/01/04 228,140
-----------
2,738,214
-----------
TOTAL CORPORATE BONDS 35.9%................................. 27,299,379
-----------
FOREIGN GOVERNMENT AND AGENCY SECURITIES 32.0%
ARGENTINA 0.6%
500 Republic of Argentina, Ser D--USD........ * 10/15/02 415,000
-----------
AUSTRALIA 0.7%
1,000 Australian Government--AUD............... 6.750 11/15/06 556,366
-----------
BRAZIL 2.5%
2,463 Republic of Brazil--USD (c).............. 8.000 04/15/14 1,881,102
-----------
BULGARIA 0.5%
500 Bulgaria Disc, Ser A--USD (c)............ 7.188 07/28/24 382,500
-----------
CANADA 2.8%
1,250 Canadian Government, Ser A83--CAD........ 7.500 03/01/01 835,152
2,000 Canadian Government--CAD................. 5.500 06/01/09 1,303,788
-----------
2,138,940
-----------
COLUMBIA 0.4%
750 Republic of Columbia--DEM................ 4.890 11/21/01 331,266
-----------
</TABLE>
See Notes to Financial Statements
14
<PAGE> 54
YOUR FUND'S INVESTMENTS
September 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR AMOUNT
IN LOCAL U.S. $
CURRENCY MATURITY MARKET
(000) DESCRIPTION COUPON DATE VALUE
<C> <S> <C> <C> <C>
GERMANY 3.4%
$ 3,000 Bundesschatzanweisungen, Ser 99--EUR..... 3.500% 09/14/01 $ 2,612,806
-----------
ITALY 4.4%
775 Republic of Italy BTPS--EUR.............. 9.500 05/01/01 701,537
3,000 Republic of Italy BTPS--EUR.............. 4.000 09/01/01 2,624,737
-----------
3,326,274
-----------
MEXICO 5.2%
1,000 United Mexican States, Ser XW--USD....... 10.375 02/17/09 1,089,000
1,500 United Mexican States, Ser D--USD (c).... 7.925 12/31/19 1,550,700
1,500 United Mexican States, Ser B--USD (c).... 6.250 12/31/19 1,336,800
-----------
3,976,500
-----------
MOROCCO 1.0%
810 Morocco Trust A Loan--USD................ 7.750 01/01/09 732,619
-----------
NEW ZEALAND 1.1%
2,000 New Zealand Government--NZD.............. 8.000 11/15/06 864,218
-----------
RUSSIA 1.9%
3,650 Russian Federation--USD.................. 2.500 03/31/30 1,405,250
-----------
SPAIN 3.4%
3,000 Spanish Government--EUR.................. 4.250 07/30/02 2,608,829
-----------
UNITED KINGDOM 2.0%
1,000 U.K. Treasury--GBP....................... 7.000 11/06/01 1,495,908
-----------
URUGUAY 1.1%
881 Republica Orient Uruguay--USD............ 7.875 07/15/27 863,380
-----------
VENEZUELA 1.0%
1,000 Republic of Venezuela--USD (c)........... 6.750 03/31/20 745,000
-----------
TOTAL FOREIGN GOVERNMENT AND AGENCY SECURITIES 32.0%........ 24,335,958
-----------
MORTGAGE BACKED SECURITIES (U.S) 13.5%
1,202 DLJ Mortgage Acceptance Corp. 1996-E,
144A--Private Placement--USD (a)......... 6.910 11/28/25 1,090,154
2,000 Federal Home Loan Mortgage Corporation... 7.000 05/12/14 1,879,180
10,478 FNMA REMIC #97-20 IB (Interest Only)..... 1.840 03/25/27 360,171
</TABLE>
See Notes to Financial Statements
15
<PAGE> 55
YOUR FUND'S INVESTMENTS
September 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR AMOUNT
IN LOCAL U.S. $
CURRENCY MATURITY MARKET
(000) DESCRIPTION COUPON DATE VALUE
<C> <S> <C> <C> <C>
MORTGAGE BACKED SECURITIES (U.S) (CONTINUED)
$ 706 FNMA..................................... 6.500% 12/01/14 $ 692,376
603 FNMA..................................... 6.500 01/01/15 591,816
606 FNMA..................................... 6.500 01/01/15 594,862
1,114 FNMA..................................... 6.500 02/01/15 1,092,574
40 FNMA..................................... 6.500 02/01/15 38,880
235 FNMA..................................... 6.500 03/01/15 230,560
72 FNMA..................................... 6.500 03/01/15 70,585
280 GNMA..................................... 7.000 05/15/26 275,904
299 GNMA..................................... 7.000 05/15/28 294,683
203 GNMA..................................... 7.000 06/15/28 200,493
2,047 GNMA..................................... 7.000 07/15/28 2,017,389
14,011 SBA Strip................................ 2.312 07/04/19 825,486
-----------
TOTAL MORTGAGE BACKED SECURITIES (U.S.)...................... 10,255,113
-----------
</TABLE>
<TABLE>
<CAPTION>
DESCRIPTION SHARES
<C> <S> <C> <C>
COMMON AND PREFERRED STOCK 1.0%
Crown Castle International Corp.--USD................. 265 $ 268,313
Grupo Casa Autrey ADR (Mexico)--USD................... 8,500 85,000
Intersil Holding Corp., Warrants, 144A--Private
Placement--USD (a).................................... 100 90,400
McLeodUSA, Inc.--USD.................................. 1,800 25,763
Pathmark Stores Inc.--USD............................. 19,010 234,064
Pathmark Stores Inc., Warrants--USD................... 13,447 40,340
Thai Military Bank--THB............................... 15,000 1,961
-----------
TOTAL COMMON AND PREFERRED STOCK............................. 745,841
-----------
TOTAL LONG-TERM INVESTMENTS 86.9%
(Cost $74,873,368)........................................... 66,031,964
</TABLE>
See Notes to Financial Statements
16
<PAGE> 56
YOUR FUND'S INVESTMENTS
September 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR AMOUNT
IN LOCAL U.S. $
CURRENCY MATURITY MARKET
(000) DESCRIPTION COUPON DATE VALUE
<C> <S> <C> <C> <C>
SHORT-TERM INVESTMENTS 12.3%
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS
$ 200 U.S. Treasury Bills...................... 5.970% 10/12/00 $ 199,635
400 U.S. Treasury Bills...................... 6.040 10/12/00 399,262
1900 U.S. Treasury Bills...................... 6.010 11/30/00 1,873,038
200 U.S. Treasury Bills...................... 6.100 11/30/00 196,848
1400 U.S. Treasury Bills...................... 5.900 12/07/00 1,380,497
1000 U.S. Treasury Bills...................... 5.960 12/07/00 986,921
400 U.S. Treasury Bills...................... 5.970 12/07/00 394,494
1100 U.S. Treasury Bills...................... 5.970 12/21/00 1,083,218
2900 U.S. Treasury Bills...................... 5.930 03/15/01 2,814,048
-----------
TOTAL U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS
(Cost $9,327,961)............................................ 9,327,961
-----------
TOTAL INVESTMENTS 99.2%
(Cost $84,201,329)...................................................... 75,359,925
FOREIGN CURRENCY (VARIOUS DENOMINATIONS) 0.7%
(Cost $501,889)......................................................... 516,594
OTHER ASSETS IN EXCESS OF LIABILITIES 0.1%............................... 89,055
-----------
NET ASSETS 100.0%........................................................ $75,965,574
===========
</TABLE>
* Zero coupon bond
ARP--Argentine Peso
AUD--Australian Dollar
CAD--Canadian Dollar
DEM--German Mark
EUR--Eurodollar
GBP--Great Britain Pound
NZD--New Zealand Dollar
THB--Thai Baht
USD--United States Dollar
(a) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933, as amended. These securities may only be
resold in transactions exempt from registration which are normally those
transactions with qualified institutional buyers.
See Notes to Financial Statements
17
<PAGE> 57
YOUR FUND'S INVESTMENTS
September 30, 2000 (Unaudited)
(b) Security is a "step-up" bond where the coupon increases, or steps up, at a
predetermined date.
(c) Item represents a "Brady Bond" which is the 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.
(d) Non-income producing security.
PORTFOLIO COMPOSITION BY CREDIT QUALITY*
The following table summarizes the portfolio composition at September 30, 2000,
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...... 16.1%
AAA......................................................... 12.5
AA.......................................................... 11.0
BBB......................................................... 15.0
BB.......................................................... 14.8
B........................................................... 26.0
CCC......................................................... 0.7
CC.......................................................... 0.7
Non-Rated................................................... 3.2
-----
100.0%
</TABLE>
* As a percentage of long-term investments.
See Notes to Financial Statements
18
<PAGE> 58
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
September 30, 2000 (Unaudited)
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $84,201,329)........................ $ 75,359,925
Foreign Currency (Cost $501,889)............................ 516,594
Receivables:
Interest.................................................. 1,411,052
Investments Sold.......................................... 323,719
Fund Shares Sold.......................................... 9,065
Other....................................................... 8,324
------------
Total Assets............................................ 77,628,679
------------
LIABILITIES:
Payables:
Fund Shares Repurchased................................... 914,719
Income Distributions...................................... 211,942
Distributor and Affiliates................................ 93,161
Custodian Bank............................................ 62,009
Investment Advisory Fee................................... 37,674
Trustees' Deferred Compensation and Retirement Plans........ 194,106
Accrued Expenses............................................ 149,494
------------
Total Liabilities....................................... 1,663,105
------------
NET ASSETS.................................................. $ 75,965,574
============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $101,099,106
Accumulated Undistributed Net Investment Income............. 162,225
Net Unrealized Depreciation................................. (8,832,357)
Accumulated Net Realized Loss............................... (16,463,400)
------------
NET ASSETS.................................................. $ 75,965,574
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $30,076,797 and 2,988,944 shares of
beneficial interest issued and outstanding)............. $ 10.06
Maximum sales charge (4.75%* of offering price)......... .50
------------
Maximum offering price to public........................ $ 10.56
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $40,306,037 and 3,999,161 shares of
beneficial interest issued and outstanding)............. $ 10.08
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $5,582,740 and 554,742 shares of
beneficial interest issued and outstanding)............. $ 10.06
============
</TABLE>
* On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
19
<PAGE> 59
Statement of Operations
For the Six Months Ended September 30, 2000 (Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest (Net of foreign withholding taxes of $468)......... $ 4,801,632
Dividends................................................... 81,352
-----------
Total Income............................................ 4,882,984
-----------
EXPENSES:
Investment Advisory Fee..................................... 325,041
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $40,690, $212,850 and $24,125,
respectively)............................................. 277,665
Shareholder Services........................................ 72,932
Custody..................................................... 30,269
Trustees' Fees and Related Expenses......................... 21,333
Legal....................................................... 8,052
Other....................................................... 143,793
-----------
Total Operating Expenses................................ 879,085
Less:
Investment Advisory Fee Reduction..................... 78,443
Credits Earned on Cash Balances....................... 5,800
-----------
Net Operating Expenses.................................. 794,842
Interest Expense........................................ 213,999
-----------
Net Expenses............................................ 1,008,841
-----------
NET INVESTMENT INCOME....................................... $ 3,874,143
===========
NET REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ (679,625)
Forwards.................................................. 140,957
Foreign Currency Transactions............................. (1,602,208)
-----------
Net Realized Loss........................................... (2,140,876)
-----------
Net Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (7,808,973)
-----------
End of the Period:
Investments............................................. (8,826,699)
Foreign Currency Translation............................ (5,658)
-----------
(8,832,357)
-----------
Net Unrealized Depreciation During the Period............... (1,023,384)
-----------
NET REALIZED AND UNREALIZED LOSS............................ $(3,164,260)
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 709,883
===========
</TABLE>
See Notes to Financial Statements
20
<PAGE> 60
Statement of Changes in Net Assets
For the Six Months Ended September 30, 2000 and the Year Ended March 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 2000 MARCH 31, 2000
-----------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................. $ 3,874,143 $ 7,061,584
Net Realized Loss................................. (2,140,876) (4,899,012)
Net Unrealized Depreciation During the Period..... (1,023,384) (531,988)
------------ ------------
Change in Net Assets from Operations.............. 709,883 1,630,584
------------ ------------
Distributions from Net Investment Income*......... (3,152,054) (5,032,864)
Return of Capital Distribution*................... -0- (2,704,412)
------------ ------------
Total Distributions............................... (3,152,054) (7,737,276)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES...................................... (2,442,171) (6,106,692)
------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold......................... 9,143,877 11,907,164
Net Asset Value of Shares Issued Through Dividend
Reinvestment.................................... 1,791,093 4,073,954
Cost of Shares Repurchased........................ (14,937,600) (36,085,472)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS.................................... (4,002,630) (20,104,354)
------------ ------------
TOTAL DECREASE IN NET ASSETS...................... (6,444,801) (26,211,046)
NET ASSETS:
Beginning of the Period........................... 82,410,375 108,621,421
------------ ------------
End of the Period (Including accumulated
undistributed net investment income of $162,225
and ($559,864), respectively)................... $ 75,965,574 $ 82,410,375
============ ============
* Distributions by Class
--------------------------------------------------
Distributions from
Net Investment Income:
Class A Shares.................................. $ (1,358,445) $ (2,118,740)
Class B Shares.................................. (1,611,842) (2,725,948)
Class C Shares.................................. (181,767) (188,176)
------------ ------------
$ (3,152,054) $ (5,032,864)
============ ============
Return of Capital Distribution:
Class A Shares.................................. $ -0- $ (1,125,756)
Class B Shares.................................. -0- (1,480,317)
Class C Shares.................................. -0- (98,339)
------------ ------------
$ -0- $ (2,704,412)
============ ============
</TABLE>
See Notes to Financial Statements
21
<PAGE> 61
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
SIX MONTHS YEAR NINE MONTHS
ENDED ENDED ENDED YEAR ENDED JUNE 30,
CLASS A SHARES SEPT. 30, MARCH 31, MARCH 31, ------------------------
2000(A) 2000(A) 1999 1998 1997 1996
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
THE PERIOD................... $10.37 $11.02 $12.29 $12.78 $12.07 $11.70
------ ------ ------ ------ ------ ------
Net Investment Income........ .52 .84 .68 .98 1.02 1.01
Net Realized and Unrealized
Gain/Loss.................. (.41) (.57) (1.24) (.49) .71 .45
------ ------ ------ ------ ------ ------
Total from Investment
Operations................... .11 .27 (.56) .49 1.73 1.46
------ ------ ------ ------ ------ ------
Less:
Distributions from and in
Excess of Net Investment
Income..................... .42 .60 .59 .98 1.02 1.09
Return of Capital
Distribution............... -0- .32 .12 -0- -0- -0-
------ ------ ------ ------ ------ ------
Total Distributions............ .42 .92 .71 .98 1.02 1.09
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE
PERIOD....................... $10.06 $10.37 $11.02 $12.29 $12.78 $12.07
====== ====== ====== ====== ====== ======
Total Return* (b).............. 1.15%** 2.66% -4.47%** 3.89% 14.92% 12.92%
Net Assets at End of the Period
(In millions)................ $ 30.1 $ 33.9 $ 41.8 $ 45.3 $ 43.8 $ 33.8
Ratio of Expenses to Average
Net Assets................... 2.10% 3.60% 3.32% 3.37% 3.80% 4.11%
Ratio of Expenses, excluding
Interest Expense, to Average
Net Assets*.................. 1.56% 1.52% 1.53% 1.68% 1.81% 1.84%
Ratio of Net Investment Income
to Average Net Assets*....... 10.14% 8.00% 8.06% 7.72% 8.12% 8.34%
Portfolio Turnover............. 15%** 122% 282%** 523% 474% 343%
* 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 Expenses, excluding
Interest Expense, to Average
Net Assets................... 1.75% 1.80% 1.82% 1.78% 1.86% 1.92%
Ratio of Net Investment Income
to Average Net Assets........ 9.95% 7.71% 7.78% 7.63% 8.07% 8.26%
</TABLE>
** Non-Annualized
(a) Based on average shares outstanding.
(b) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge of 4.75% or contingent deferred
sales charge ("CDSC"). On purchases of $1 million or more, a contingent
deferred sales charge of 1% may be imposed on certain redemptions made
within one year of purchase. If the sales charges were included, total
returns would be lower.
N/A = Not Applicable
See Notes to Financial Statements
22
<PAGE> 62
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
SIX MONTHS YEAR NINE MONTHS
ENDED ENDED ENDED YEAR ENDED JUNE 30,
CLASS B SHARES SEPT. 30, MARCH 31, MARCH 31, ------------------------
2000(A) 2000(A) 1999 1998 1997 1996
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
THE PERIOD................... $10.39 $11.03 $12.29 $12.78 $12.07 $11.71
------ ------ ------ ------ ------ ------
Net Investment Income........ .48 .77 .62 .88 .92 .93
Net Realized and Unrealized
Gain/Loss.................. (.40) (.58) (1.24) (.49) .72 .44
------ ------ ------ ------ ------ ------
Total from Investment
Operations................... .08 .19 (.62) .39 1.64 1.37
------ ------ ------ ------ ------ ------
Less:
Distributions from and in
Excess of Net Investment
Income..................... .39 .53 .53 .88 .93 1.01
Return of Capital
Distribution............... -0- .30 .11 -0- -0- -0-
------ ------ ------ ------ ------ ------
Total Distributions............ .39 .83 .64 .88 .93 1.01
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE
PERIOD....................... $10.08 $10.39 $11.03 $12.29 $12.78 $12.07
====== ====== ====== ====== ====== ======
Total Return* (b).............. 0.77%** 1.93% -4.99%** 3.11% 13.98% 12.06%
Net Assets at End of the Period
(In millions)................ $ 40.3 $ 45.1 $ 62.8 $ 76.2 $ 76.2 $ 61.9
Ratio of Expenses to Average
Net Assets................... 2.86% 4.36% 4.09% 4.13% 4.55% 4.85%
Ratio of Expenses, excluding
Interest Expense, to Average
Net Assets*.................. 2.32% 2.28% 2.29% 2.44% 2.57% 2.59%
Ratio of Net Investment Income
to Average Net Assets*....... 9.38% 7.25% 7.30% 6.96% 7.33% 7.58%
Portfolio Turnover............. 15%** 122% 282%** 523% 474% 343%
* 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 Expenses, excluding
Interest Expense, to Average
Net Assets................... 2.51% 2.56% 2.58% 2.54% 2.61% 2.67%
Ratio of Net Investment Income
to Average Net Assets........ 9.19% 6.97% 7.02% 6.86% 7.28% 7.50%
</TABLE>
** Non-Annualized
(a) Based on average shares outstanding.
(b) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum contingent deferred sales charge of 4%,
charged on certain redemptions made within one year of purchase and
declining thereafter to 0% after the sixth year. If the sales charge was
included, total returns would be lower.
N/A = Not Applicable
See Notes to Financial Statements
23
<PAGE> 63
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
SIX MONTHS YEAR NINE MONTHS
ENDED ENDED ENDED YEAR ENDED JUNE 30,
CLASS C SHARES SEPT. 30, MARCH 31, MARCH 31, ------------------------
2000(A) 2000(A) 1999 1998 1997 1996
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
THE PERIOD................... $10.37 $11.01 $12.27 $12.77 $12.06 $11.70
------ ------ ------ ------ ------ ------
Net Investment Income........ .49 .76 .61 .87 .91 .95
Net Realized and Unrealized
Gain/Loss.................. (.41) (.57) (1.23) (.49) .73 .42
------ ------ ------ ------ ------ ------
Total from Investment
Operations................... .08 .19 (.62) .38 1.64 1.37
------ ------ ------ ------ ------ ------
Less:
Distributions from and in
Excess of Net Investment
Income..................... .39 .54 .53 .88 .93 1.01
Return of Capital
Distribution............... -0- .29 .11 -0- -0- -0-
------ ------ ------ ------ ------ ------
Total Distributions............ .39 .83 .64 .88 .93 1.01
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE
PERIOD....................... $10.06 $10.37 $11.01 $12.27 $12.77 $12.06
====== ====== ====== ====== ====== ======
Total Return* (b).............. 0.77%** 1.93% -5.01%** 3.03% 13.99% 12.07%
Net Assets at End of the Period
(In millions)................ $ 5.6 $ 3.4 $ 4.0 $ 3.9 $ 3.8 $ 3.1
Ratio of Expense to Average Net
Assets....................... 2.86% 4.37% 4.05% 4.13% 4.54% 4.80%
Ratio of Expenses, excluding
Interest Expense, to Average
Net Assets*.................. 2.32% 2.29% 2.28% 2.44% 2.56% 2.58%
Ratio of Net Investment Income
to Average Net Assets*....... 9.38% 7.22% 7.29% 6.96% 7.31% 7.49%
Portfolio Turnover............. 15%** 122% 282%** 523% 474% 343%
* 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 Expenses, excluding
Interest Expense, to Average
Net Assets................... 2.51% 2.57% 2.57% 2.54% 2.61% 2.66%
Ratio of Net Investment Income
to Average Net Assets........ 9.19% 6.93% 7.01% 6.87% 7.27% 7.41%
</TABLE>
** Non-Annualized
(a) Based on average shares outstanding.
(b) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum contingent deferred sales charge of 1%,
charged on certain redemptions made within one year of purchase. If the
sales charge was included, total returns would be lower.
N/A = Not Applicable
See Notes to Financial Statements
24
<PAGE> 64
NOTES TO
FINANCIAL STATEMENTS
September 30, 2000 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Strategic Income Fund (the "Fund") is organized as a series of Van
Kampen Trust (the "Trust"), a Delaware business trust, and is registered as a
non-diversified open-end management investment company under the Investment
Company Act of 1940, as amended. The Fund's primary investment objective is to
seek to provide shareholders with high current income, while its secondary
investment objective is to seek capital appreciation. The Fund will allocate its
investments among the following market sectors: U.S. government securities,
domestic investment grade income securities, domestic lower grade income
securities, foreign investment grade income securities and foreign lower grade
income securities. The Fund borrows money for investment purposes which will
create the opportunity for enhanced return, but also should be considered a
speculative technique and may increase the Fund's volatility. The Fund commenced
investment operations on December 31, 1993, with three classes of common shares:
Class A, Class B and Class C shares.
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 accounting principles
generally accepted in the United States of America 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 which approximates
market value. Cash includes cash deposited in demand deposits at banks.
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
25
<PAGE> 65
NOTES TO
FINANCIAL STATEMENTS
September 30, 2000 (Unaudited)
equal to the amount of the when-issued or delayed delivery purchase commitments
until payment is made. At September 30, 2000, there were no when issued or
delayed delivery purchase commitments.
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
accreted over the expected life of each applicable security. Income and expenses
of the Fund are allocated on a pro rata basis to each class of shares, except
for distribution and service fees and transfer agency costs which are unique to
each class of shares.
D. CURRENCY TRANSLATION Assets and liabilities denominated in foreign currencies
and commitments under forward currency contracts are translated into U.S.
dollars at the mean of the quoted bid and ask prices of such currencies against
the U.S. dollar. Purchases and sales of portfolio securities are translated at
the rate of exchange prevailing when such securities were acquired or sold.
Income and expenses are translated at rates prevailing when accrued.
E. FEDERAL INCOME TAXES It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At December 31, 1999, the Fund had an accumulated capital loss
carryforward for tax purposes of $14,020,988 which will expire between December
31, 2002 and December 31, 2007. Net realized gains or losses may differ for
financial and tax reporting purposes primarily as a result of wash sales.
At September 30, 2000, for federal income tax purposes, the cost of long-
and short-term investments is $84,204,549; the aggregate gross unrealized
appreciation is $1,484,078 and the aggregate gross unrealized depreciation is
$10,328,702, resulting in net unrealized depreciation on long- and short-term
investments of $8,844,624.
F. 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
26
<PAGE> 66
NOTES TO
FINANCIAL STATEMENTS
September 30, 2000 (Unaudited)
losses are included as net realized gains or losses for financial reporting
purposes. Net realized gains, if any, are distributed annually.
G. EXPENSE REDUCTIONS During the six months ended September 30, 2000, the Fund's
custody fee was reduced by $5,800 as a result of credits earned on overnight
cash balances.
2. INVESTMENT ADVISORY AGREEMENT AND
OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, Van Kampen
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 DAILY 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 six months ended September 30, 2000, the Adviser voluntarily waived
approximately $78,400 of its investment advisory fees. This waiver is voluntary
and can be discontinued at any time.
For the six months ended September 30, 2000, the Fund recognized expenses of
approximately $1,100 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the six months ended September 30, 2000, the Fund recognized expenses of
approximately $18,500 representing Van Kampen's cost of providing accounting,
cash management and legal services to the Fund.
Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as
the shareholder servicing agent for the Fund. For the six months ended September
30, 2000, the Fund recognized expenses of approximately $41,000. 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
27
<PAGE> 67
NOTES TO
FINANCIAL STATEMENTS
September 30, 2000 (Unaudited)
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
At September 30, 2000, capital aggregated $39,168,302, $55,404,601 and
$6,526,203 for Classes A, B and C, respectively. For the six months ended
September 30, 2000, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A................................................. 193,715 $ 1,964,624
Class B................................................. 374,242 3,819,877
Class C................................................. 330,054 3,359,376
--------- ------------
Total Sales............................................... 898,011 $ 9,143,877
========= ============
Dividend Reinvestment:
Class A................................................. 91,436 $ 923,935
Class B................................................. 73,987 748,737
Class C................................................. 11,699 118,421
--------- ------------
Total Dividend Reinvestment............................... 177,122 $ 1,791,093
========= ============
Repurchases:
Class A................................................. (568,400) $ (5,758,369)
Class B................................................. (788,516) (7,997,076)
Class C................................................. (116,302) (1,182,155)
--------- ------------
Total Repurchases......................................... 1,473,218 $(14,937,600)
========= ============
</TABLE>
28
<PAGE> 68
NOTES TO
FINANCIAL STATEMENTS
September 30, 2000 (Unaudited)
At March 31, 2000, capital aggregated $42,038,112, $58,833,063 and $4,230,561
for Classes A, B and C, respectively. For the year ended March 31, 2000,
transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A................................................. 533,112 $ 5,646,285
Class B................................................. 482,908 5,139,871
Class C................................................. 105,631 1,121,008
---------- ------------
Total Sales............................................... 1,121,651 $ 11,907,164
========== ============
Dividend Reinvestment:
Class A................................................. 189,864 $ 1,991,033
Class B................................................. 180,422 1,899,204
Class C................................................. 17,480 183,717
---------- ------------
Total Dividend Reinvestment............................... 387,766 $ 4,073,954
========== ============
Repurchases:
Class A................................................. (1,241,890) $(13,070,612)
Class B................................................. (2,020,638) (21,315,857)
Class C................................................. (160,607) (1,699,003)
---------- ------------
Total Repurchases......................................... (3,423,135) $(36,085,472)
========== ============
</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, and any dividend reinvestment plan Class B shares
received thereon, automatically convert to Class A shares eight years after the
end of the calendar month in which the shares were purchased. Class B shares
purchased before June 1, 1996, and any dividend reinvestment plan Class B shares
received thereon, automatically convert to Class A shares six years after the
end of the calendar month in which the shares were purchased. For the six months
ended September 30, 2000 and the year ended March 31, 2000, 67,990 and 203,892
Class B shares converted to Class A shares, respectively, and are shown in the
above table as sales of Class A shares and repurchases of Class B shares. Class
C shares purchased before January 1, 1997, and any dividend reinvestment plan
Class C shares received thereon, automatically convert to Class A shares ten
years after the end of the calendar month in which such shares were purchased.
Class C shares purchased on or after January 1, 1997 do not possess a conversion
feature. For the six months ended September 30, 2000 and year ended March 31,
2000, no Class C shares converted to Class A shares. The CDSC will be imposed on
most
29
<PAGE> 69
NOTES TO
FINANCIAL STATEMENTS
September 30, 2000 (Unaudited)
redemptions made within six years of the purchase for Class B shares and one
year of the purchase for Class C shares as detailed in the following schedule.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF DOLLAR
AMOUNT SUBJECT TO 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>
For the six months ended September 30, 2000, Van Kampen, as Distributor for
the Fund, received commissions on sales of the Fund's Class A shares of
approximately $2,800, and CDSC on redeemed shares of approximately $68,200.
Sales charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $12,688,797 and $54,993,980,
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.
30
<PAGE> 70
NOTES TO
FINANCIAL STATEMENTS
September 30, 2000 (Unaudited)
Summarized below are the specific types of derivative financial instruments
used by the Fund.
A. OPTION CONTRACTS An option contract gives the buyer the right, but not the
obligation to buy (call) or sell (put) an underlying item at a fixed exercise
price during a specified period. These contracts are generally used by the Fund
to manage the portfolio's effective maturity and duration.
There were no transactions in option contracts for the six months ended
September 30, 2000.
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 cost of securities
acquired through delivery under a contract is adjusted by the unrealized gain or
loss on the contract.
There were no transactions in futures contracts for the six months ended
September 30, 2000.
C. FORWARD CURRENCY CONTRACTS These instruments are commitments to purchase or
sell a foreign currency at a future date at a negotiated forward rate. The gain
or loss arising from the difference between the original value of the contract
and the closing value of such contract is included as a component of realized
gain/loss on forwards.
At September 30, 2000 there were no open forward currency contracts.
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.
E. 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
31
<PAGE> 71
NOTES TO
FINANCIAL STATEMENTS
September 30, 2000 (Unaudited)
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.
F. INTEREST ONLY/PRINCIPAL ONLY SECURITIES A Mortgage-Backed Security or U.S.
Treasury Obligation may be stripped to create an Interest Only (IO) security and
a Principal Only (PO) security. An IO represents ownership in the cash flows of
the interest payments 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. 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.
32
<PAGE> 72
NOTES TO
FINANCIAL STATEMENTS
September 30, 2000 (Unaudited)
9. 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, as amended, and a service plan
(collectively the "Plans"). The Plans govern payments for the distribution of
the Fund's shares, ongoing shareholder services and maintenance of shareholder
accounts.
Annual fees under the Plans of up to .25% of Class A net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these fees
for the six months ended September 30, 2000, are payments retained by Van Kampen
of approximately $171,400.
10. 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.
During the period, the Fund entered into a $45,000,000 revolving credit
agreement which expired on May 31, 2000. Interest was charged under the
agreement at a rate of .425% above the federal funds rate. An annual facility
fee of .075% was charged on the maximum facility of this line of credit.
During the period, the Fund entered into reverse repurchase agreements with
Warburg Dillion Read LLC, under which the Fund would sell securities and agreed
to repurchase them at a mutually agreed upon date and price.
The average daily balance of bank borrowings and reverse repurchase
agreements for the six months ended September 30, 2000, was approximately
$6,703,000 with an average interest rate of 6.80%.
33
<PAGE> 73
VAN KAMPEN FUNDS
THE VAN KAMPEN
FAMILY OF FUNDS
Growth
Aggressive Growth
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth
Mid Cap Growth
Pace
Select Growth
Small Cap Value
Tax Managed Equity Growth
Technology
Growth and Income
Comstock
Equity Income
Growth and Income
Harbor
Real Estate Securities
Utility
Value
Global/International
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
International Magnum
Latin American
Strategic Income*
Tax Managed Global Franchise
Worldwide High Income
Income
Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
Limited Maturity Government
U.S. Government
U.S. Government Trust for Income
Capital Preservation
Reserve
Tax Free Money
Senior Loan
Prime Rate Income Trust
Senior Floating Rate
Tax Free
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
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 ongoing 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 [COMPUTER ICON]
- 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.
[PHONE ICON]
- e-mail us by visiting
WWW.VANKAMPEN.COM and
selecting Contact Us
[MAIL ICON]
* Closed to new investors
** Open to new investors for a limited time
34
<PAGE> 74
FUND OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN STRATEGIC INCOME FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
JERRY D. CHOATE
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
MITCHELL M. MERIN*
JACK E. NELSON
RICHARD F. POWERS, III*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY
OFFICERS
RICHARD F. POWERS, III*
President
STEPHEN L. BOYD*
Executive Vice President and
Chief Investment Officer
A. THOMAS SMITH III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer and
Chief Financial Officer
RICHARD A. CICCARONE*
JOHN R. REYNOLDSON*
MICHAEL H. SANTO*
JOHN H. ZIMMERMANN, 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 64121-9256
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 AUDITORS(1)
ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, Illinois 60606
(1) Independent auditors for the Fund perform an annual audit of the Fund's
financial statements. The Board of Trustees has engaged Ernst & Young LLP to be
the Fund's independent auditors. KPMG LLP ceased being the Fund's independent
auditors effective April 14, 2000. The cessation of the client-auditor
relationship between the Fund and KPMG was based solely on a possible future
business relationship by KPMG with an affiliate of the Fund's investment
adviser.
* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
(C) Van Kampen Funds Inc., 2000. 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 charges on
shares of the Fund, and other pertinent data. After
February 28, 2001, the report, if used with prospective investors, must be
accompanied by a quarterly performance update.
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