<PAGE> 1
<TABLE>
<S> <C>
Table of Contents
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 3
GROWTH OF A $10,000 INVESTMENT 5
PORTFOLIO AT A GLANCE
CREDIT QUALITY 6
TWELVE-MONTH DISTRIBUTION HISTORY 6
TOP FIVE INDUSTRIES 6
Q&A WITH YOUR PORTFOLIO MANAGERS 7
GLOSSARY OF TERMS 10
BY THE NUMBERS
PORTFOLIO OF INVESTMENTS 11
FINANCIAL STATEMENTS 22
NOTES TO FINANCIAL STATEMENTS 28
REPORT OF INDEPENDENT ACCOUNTANTS 39
FUND OFFICERS AND IMPORTANT ADDRESSES 40
RESULTS OF SHAREHOLDER VOTES 41
</TABLE>
One of the greatest shifts we've seen is the increasing importance of investing
for many Americans.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE> 2
OVERVIEW
LETTER TO SHAREHOLDERS
April 20, 2000
Dear Shareholder,
As we enter a new century--and millennium--it seems appropriate to take a look
back at the progress that's been made over the last 100 years and how the world
of investing has changed over the generations. Although rapid advances in
technology and science have dramatically altered the world that we live in
today, one of the greatest shifts we've seen is the increasing importance of
investing for many Americans.
Once considered primarily for the wealthy, investing in the stock market is now
available to most people. In fact, almost 79 million individuals--who represent
almost half of all U.S. households--own stocks either directly or through mutual
funds. This is even more impressive when considering that just 16 years earlier,
only 19 percent of households owned stocks. Another important shift has been the
need for retirement planning beyond a pension plan or Social Security. The
Investment Company Institute, the leading mutual fund industry association,
reports that 77 percent of all
mutual fund shareholders earmarked retirement as their primary
financial goal in 1998.
Through all the changes in the investment environment over the
past century, the general principles that have made
generations of investors successful remain the same. Some that have stood the
test of time include:
- - Investing for the long term
- - Basing investment decisions on sound research
- - Building a diversified portfolio
- - Acting on the value of professional investment advice
While no one can predict the future, at Van Kampen we believe that these ideas
will remain important tenets for investors well into this century. As we
continue to focus on these principles, we hope that our decades of investment
experience can help bring you closer to your financial goals as we welcome the
new millennium.
Sincerely,
<TABLE>
<S> <C>
[SIG]
Richard F. Powers, III
Chairman
Van Kampen
Investment Advisory Corp.
</TABLE>
1
<PAGE> 3
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
ECONOMIC GROWTH REMAINED VIBRANT DURING THE REPORTING PERIOD, PRIMARILY DUE TO
STRONG CONSUMER SPENDING. GROSS DOMESTIC PRODUCT (GDP), THE PRIMARY MEASURE OF
ECONOMIC GROWTH, INCREASED AT AN ANNUALIZED RATE OF 7.3 PERCENT IN THE FOURTH
QUARTER OF 1999, ITS FASTEST GROWTH RATE SINCE 1984. WITH GDP MEASURING 4.4
PERCENT FOR 1999, THIS WAS THE THIRD SUCCESSIVE YEAR IN WHICH GDP EXCEEDED 4
PERCENT.
CONSUMER SPENDING AND EMPLOYMENT
INFLATION CONCERNS MOUNTED DURING THE REPORTING PERIOD BECAUSE OF STRONG
CONSUMER SPENDING AND THE TIGHT LABOR MARKET. RISING INTEREST RATES HAVE DONE
LITTLE TO CURB CONSUMER SPENDING--RETAIL SALES GROWTH SOARED AS SHOPPERS SPENT
SOME OF THEIR STOCK-MARKET PROFITS.
IN ADDITION, UNEMPLOYMENT HOVERED NEAR A 30-YEAR LOW. THE LABOR SHORTAGE BEGAN
TO PUSH WAGES UPWARD, AS EMPLOYERS RAISED WAGES TO ATTRACT SKILLED WORKERS. WAGE
PRESSURE, IN TURN, BEGAN TO AFFECT PRICES, AS COMPANIES STARTED TO RAISE THE
COST OF GOODS AND SERVICES TO COMPENSATE FOR THEIR HIGHER LABOR COSTS.
INTEREST RATES AND INFLATION
STRONG GDP DATA, CONSUMER SPENDING, AND EMPLOYMENT PROMPTED THE FEDERAL RESERVE
BOARD TO MAINTAIN ITS ACTIVE STANCE IN TEMPERING ECONOMIC GROWTH TO WARD OFF
INFLATION. THE FED HAS INCREASED THE FEDERAL FUNDS RATE FIVE TIMES SINCE JUNE
1999. DESPITE THE FED'S ACTIONS, INFLATION BEGAN TO ACCELERATE, DRIVEN
PRINCIPALLY BY ESCALATING ENERGY PRICES. THE CONSUMER PRICE INDEX, A MEASURE OF
INFLATION, ROSE 3.7 PERCENT DURING THE 12 MONTHS ENDED MARCH 31, 2000--A NOTABLE
INCREASE OVER RECENT MONTHS. GIVEN THIS RECENT SURGE, FURTHER FED INTEREST-RATE
HIKES ARE WIDELY ANTICIPATED.
INTEREST RATES AND INFLATION
(March 31, 1998 - March 31, 2000)
[LINE GRAPH]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Mar 98 5.50 1.40
5.50 1.40
5.50 1.70
Jun 98 5.50 1.70
5.50 1.70
5.50 1.60
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
</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.
2
<PAGE> 4
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(as of March 31, 2000)
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
One-year total return based on
NAV(1) 3.50% 2.65% 2.65%
- -------------------------------------------------------------------------
One-year total return(2) (1.42%) (1.11%) 1.71%
- -------------------------------------------------------------------------
Five-year average annual total
return(2) 7.01% 7.04% 7.23%
- -------------------------------------------------------------------------
Ten-year average annual total
return(2) 9.17% N/A N/A
- -------------------------------------------------------------------------
Life-of-Fund average annual
total return(2) 7.52% 6.55%(3) 6.00%
- -------------------------------------------------------------------------
Commencement date 06/27/86 05/17/93 08/13/93
- -------------------------------------------------------------------------
Distribution rate(4) 9.43% 9.05% 9.06%
- -------------------------------------------------------------------------
SEC Yield(5) 10.50% 10.24% 10.24%
- -------------------------------------------------------------------------
</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 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.
(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"). 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.
(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. 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.
For additional Performance Summary disclosure, see page 4.
3
<PAGE> 5
Continued from page 3.
(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 March 31, 2000. Had certain
expenses of the Fund not been assumed by Van Kampen, the SEC Yield would have
been 10.40%, 10.14%, and 10.14% for Classes A, B and C, respectively, and the
total returns would have been lower.
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.
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.
4
<PAGE> 6
GROWTH OF A $10,000 INVESTMENT
(March 31, 1990 - March 31, 2000)
[INVESTMENT PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
CREDIT SUISSE FIRST BOSTON HIGH
HIGH YIELD FUND YIELD INDEX
--------------- -------------------------------
<S> <C> <C>
3/90 9525 10000
3/91 9998 11389
3/92 12566 14945
3/93 14756 17239
3/94 16034 18959
3/95 16320 19869
3/96 18789 22757
3/97 20894 25411
3/98 23678 29051
3/99 23241 28834
3/00 24054 28921
</TABLE>
This chart compares your Fund's performance to that of the Credit Suisse
First Boston High Yield Index over time.
This index is a broad-based, statistical composite that does not include
any commissions or fees that would be paid by an investor purchasing the
securities it represents. Such costs would lower the performance of this
index. An investment cannot be made directly in an index.
The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of other share classes of
the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions, and includes payment of the maximum
sales charge (4.75% for Class A shares).
While past performance is no guarantee of future results, the above information
provides a broader vantage point from which to evaluate the discussion of the
Fund's performance found in the following pages.
5
<PAGE> 7
PORTFOLIO AT A GLANCE
CREDIT QUALITY
(as a percentage of long-term debt investments)
As of March 31, 2000
[PIE CHART]
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
--------------------
<S> <C>
AAA/Aaa 0
AA/Aa 0
A/A 0.2
BBB/Baa 0.3
BB/Ba 13.2
B/B 74
CCC/Caa 4.6
CC/Ca 0.7
C/C 0.3
Non-Rated 6.7
</TABLE>
As of March 31, 1999
[PIE CHART]
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
--------------------
<S> <C>
AAA/Aaa 0.2
AA/Aa 0.3
A/A 1
BBB/Baa 6.9
BB/Ba 13.6
B/B 66
CCC/Caa 4.5
CC/Ca 0.3
C/C 0.0
Non-Rated 7.2
</TABLE>
Based upon the highest credit quality ratings as issued by Standard & Poor's or
Moody's, respectively.
TWELVE-MONTH DISTRIBUTION HISTORY
(for the period ended March 31, 2000)
[BAR GRAPH]
<TABLE>
<CAPTION>
DIVIDENDS
---------
<S> <C>
4/99 0.070
5/99 0.070
6/99 0.070
7/99 0.070
8/99 0.070
9/99 0.070
10/99 0.070
11/99 0.070
12/99 0.070
1/00 0.070
2/00 0.070
3/00 0.070
</TABLE>
The distribution history represents past performance of the Fund's Class A
shares and does not predict or guarantee the Fund's future distributions.
TOP FIVE INDUSTRIES
(as a percentage of long-term investments)
[BAR GRAPH]
<TABLE>
<CAPTION>
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
<S> <C> <C>
Telecommunications 26.8 23.1
Foreign Bonds 22.1 22.8
Printing, Publishing & Broadcasting 10.2 10.1
Beverage, Food & Tobacco 4.6 4
Automobile 4.4 5.1
</TABLE>
6
<PAGE> 8
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH REPRESENTATIVES OF THE ADVISER OF THE VAN KAMPEN HIGH
YIELD FUND ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE MARKETS
DURING THE PAST 12 MONTHS. THE REPRESENTATIVES ARE LED BY ROBERT J. HICKEY,
PORTFOLIO MANAGER, WHO HAS MANAGED THE FUND SINCE FEBRUARY 1998 AND WORKED IN
THE INVESTMENT INDUSTRY SINCE 1988. HE IS JOINED BY PETER E. EHRET, PORTFOLIO
COMANAGER, AND PETER W. HEGEL, CHIEF INVESTMENT OFFICER FOR FIXED-INCOME
INVESTMENTS. THE FOLLOWING DISCUSSION REFLECTS THEIR VIEWS ON THE FUND'S
PERFORMANCE FOR THE FISCAL YEAR ENDED MARCH 31, 2000.
Q HOW WOULD YOU CHARACTERIZE THE
ECONOMIC ENVIRONMENT IN WHICH THE FUND OPERATED DURING THE REPORTING PERIOD?
A The U.S. economy continued to
grow at a robust pace, driven by relentless consumer spending and rising
corporate expenditures. During the fourth quarter of 1999, the nation's total
output of goods and services grew at the fastest rate in 16 years. In the view
of the Federal Reserve Board, however, economic growth was too strong and
threatened to ignite inflation. In June 1999, the Fed instituted the first in a
series of interest-rate hikes that continued throughout the reporting period.
Overall, the Fed raised short-term interest rates by a total of 25 basis points
on five occasions. Because the impact of such rate increases is typically not
felt for 12 to 18 months, there were only slight indications that an economic
slowdown might be underway as the reporting period ended.
Despite the rapid pace of economic activity and escalation of energy prices,
core inflation remained relatively benign. However, the nation's solid economic
health was not necessarily matched on the corporate level. The prevailing
low-inflation environ-ment made it difficult for many businesses to raise
prices, even as labor costs have crept upward. This lack of pricing power, in
turn, pinched the earnings of some companies, especially commodity-based
businesses or those with elevated debt loads.
Q HOW DID THESE FACTORS AFFECT THE
HIGH-YIELD/HIGH-RISK MARKET?
A With the exception of the
telecommunications sector, high-yield/high-risk bonds did not benefit as much as
one might expect given the strong domestic economy. In particular, companies in
such "old economy" industries as mining, chemicals, and papers struggled to
maintain profit margins due to diminished pricing power. The high-yield market
also was negatively affected by a general imbalance between supply and demand.
While new issuance in 1999 was extremely
7
<PAGE> 9
high, public demand for high-yield funds was relatively tepid. This lack of
investor interest was not confined to the high-yield sector, however, as most
sectors of the fixed-income market suffered redemptions in an environment of
steep returns for the domestic equity market.
In addition, default rates spiked upwards in 1999 to almost double the
historical average. There were three major reasons for the increased default
activity. First, commodity-based businesses suffered a severe drop in revenues
as prices fell in delayed response to weak economic conditions in Asian emerging
markets during the previous year. Second, changes in federal reimbursement for
health-care services had a profoundly negative impact on the bottom lines of
many nursing-home companies. Finally, a number of businesses defaulted as a
result of poor business models. Default rates peaked in June 1999, and have
since returned to more normal levels. We expect the current pace of defaults to
continue during 2000.
Q HOW DID YOU MANAGE THE FUND
IN LIGHT OF THESE CONDITIONS?
A We focused on acquiring securities
for the Fund that enjoyed a high degree of liquidity. This strategy was
rewarded, thanks to the strong outperformance of larger issues, most of which
were in the "new economy" sector of the market. Specifically, we increased the
Fund's exposure to telecommunications companies in light of our optimistic
outlook for the cellular phone industry.
As the reporting period progressed, we also made selective purchases of
energy, chemical, and paper companies that had withstood the difficult
environment and appeared poised to benefit from a recovery in prices. As of the
end of the reporting period, the Fund was overweighted in energy, media,
telecommunications, and emerging markets. Meanwhile, we maintained underweighted
positions in basic materials, capital goods manufacturers, and consumer
cyclicals.
Q HOW DID THE FUND PERFORM
DURING THE REPORTING PERIOD?
A For the 12-month period ended
March 31, 2000, the Fund posted a total return of 3.50 percent (Class A shares
at net asset value; if the maximum sales charge of 4.75 percent were included,
the return would have been lower). By comparison, the Credit Suisse First Boston
High Yield Index returned 0.30 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. Keep in mind that this index
does not reflect any commissions or fees that would be paid by an investor
purchasing the securities it represents. Such costs would lower its perform-
ance. An investment cannot be made directly in an index. Of course, past
performance is no guarantee of future results. Please refer to the chart and
footnotes on page 3 for additional Fund performance results.
8
<PAGE> 10
Q WHAT IS YOUR OUTLOOK FOR THE
HIGH-YIELD/HIGH-RISK MARKET AND THE FUND IN THE COMING MONTHS?
A Assuming that equilibrium
develops between supply and demand, we are optimistic about the outlook for the
high-yield market. Based on historical relationships, yield spreads are very
wide given the current level of defaults. Over time, we expect spreads to revert
to more typical levels, a development that could be quite positive for
high-yield/high-risk securities.
We recognize, however, that the outlook for monetary policy and inflation is
highly uncertain. The Fed has made it clear that it will do whatever is
necessary to bring economic growth back to what it considers a sustainable level
without igniting inflation. In this environment, we will continue to manage the
Fund with an emphasis on highly liquid securities from the higher-quality sector
of the high-yield/high-risk market.
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.
BASIS POINT: A measure used in quoting bond yields. One hundred basis points is
equal to 1 percent. For example, if a bond's yield changes from 7.00 to 6.65
percent, it is a 35 basis-point move.
BOND: A debt security issued by a government or corporation that pays a
bondholder a stated rate of interest and repays the principal at the maturity
date.
CREDIT RATING: An evaluation of an issuer's credit history and capability of
repaying obligations. Standard & Poor's and Moody's Investors Service are two
companies that assign bond ratings. Standard & Poor's ratings range from a high
of AAA to a low of D, while Moody's ratings range from a high of Aaa to a low of
C.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank of the United States. Its policy-making
committee, called the Federal Open Market Committee, meets eight times a year to
establish monetary policy and monitor the economic pulse of the United States.
INFLATION: A persistent and measurable rise in the general level of prices.
Inflation is widely measured by the Consumer Price Index, an economic indicator
that measures the change in the cost of purchased goods and services.
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 SPREAD: The additional yield investors can earn by either investing in
bonds with longer maturities or by investing in bonds with lower ratings. The
spread is the difference in yield between bonds with short versus long
maturities or the difference in yield between high-quality bonds and lower-
quality bonds.
10
<PAGE> 12
BY THE NUMBERS
PORTFOLIO OF INVESTMENTS
March 31, 2000
THE FOLLOWING PAGES DETAIL THE SPECIFIC HOLDINGS OF YOUR FUND 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 72.4%
AEROSPACE & DEFENSE 1.2%
$1,720 Compass Aerospace Corp., Ser B......... 10.125% 04/15/05 $ 696,600
4,500 Dyncorp (g)............................ 9.500 03/01/07 3,577,500
------------
4,274,100
------------
AUTOMOBILE 4.3%
5,360 Aetna Industries, Inc. ................ 11.875 10/01/06 5,252,800
1,125 Cambridge Industries, Inc., Ser B...... 10.250 07/15/07 258,750
2,000 Eagle Picher Industries, Inc. ......... 9.375 03/01/08 1,705,000
2,700 Oxford Automotive, Inc., Ser D......... 10.125 06/15/07 2,524,500
1,200 Stanadyne Automotive Corp., Ser B...... 10.250 12/15/07 978,000
4,430 Talon Automotive Group, Inc., Ser B
(g).................................... 9.625 05/01/08 2,037,800
2,825 Venture Holdings, Inc. ................ 12.000 06/01/09 2,274,125
------------
15,030,975
------------
BEVERAGE, FOOD & TOBACCO 4.5%
2,000 Agrilink Foods, Inc. (g) .............. 11.875 11/01/08 1,850,000
2,500 Chiquita Brands International, Inc. ... 10.000 06/15/09 1,925,000
3,900 Fleming Cos., Inc., Ser B (g).......... 10.500 12/01/04 3,529,500
500 Jitney Jungle Stores America,
Inc. (e) (h) (k)....................... 12.000 03/01/06 100,000
2,000 Luiginos, Inc. ........................ 10.000 02/01/06 1,670,000
2,500 National Wine & Spirits, Inc. ......... 10.125 01/15/09 2,375,000
4,100 Pantry, Inc. (g)....................... 10.250 10/15/07 3,649,000
2,000 Pathmark Stores, Inc. ................. 11.625 06/15/02 680,000
------------
15,778,500
------------
BUILDINGS & REAL ESTATE 2.9%
1,650 American Plumbing & Mechanical......... 11.625 10/15/08 1,493,250
1,800 Building One Services Corp. ........... 10.500 05/01/09 1,620,000
750 Cemex International Capital, Inc. ..... 9.660 11/29/49 755,625
1,750 Home Interiors Gifts, Inc. ............ 10.125 06/01/08 1,408,750
2,750 Schuler Homes, Inc. ................... 9.000 04/15/08 2,310,000
3,075 Webb (Del E.) Corp. ................... 10.250 02/15/10 2,567,625
------------
10,155,250
------------
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS
March 31, 2000
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
CHEMICALS, PLASTICS & RUBBER 1.9%
$ 600 Georgia Gulf Corp., 144A Private
Placement (a).......................... 10.375% 11/01/07 $ 600,000
1,748 ISP Holdings, Inc. .................... 9.750 02/15/02 1,669,340
185 ISP Holdings, Inc., Ser B.............. 9.000 10/15/03 172,050
1,800 Lyondell Chemical Co., Ser A........... 9.625 05/01/07 1,719,000
1,000 Lyondell Chemical Co., Ser B........... 9.875 05/01/07 955,000
900 Sovereign Specialty Chemicals, 144A
Private Placement (a).................. 11.875 03/15/10 888,750
1,000 United Industries Corp., Ser B......... 9.875 04/01/09 710,000
------------
6,714,140
------------
CONSUMER DURABLES 0.5%
1,800 Sleepmaster LLC........................ 11.000 05/15/09 1,791,000
------------
CONSUMER SERVICES 0.5%
1,800 Muzak, Inc. ........................... 9.875 03/15/09 1,714,500
------------
DIVERSIFIED/CONGLOMERATE
MANUFACTURING 1.3%
4,600 Communications & Power Industries,
Inc., Ser B (g)........................ 12.000 08/01/05 3,634,000
780 Intersil Corp. ........................ 13.250 08/15/09 893,100
------------
4,527,100
------------
ELECTRONICS 0.3%
1,950 DecisionOne Corp. (e).................. 9.750 08/01/07 9,750
3,100 DecisionOne Corp. (Including 3,100
common stock warrants) (b) (e)......... 0/11.500 08/01/08 620
2,000 Radio Unica Corp. (b) (g).............. 0/11.750 08/01/06 1,225,000
------------
1,235,370
------------
ENERGY 1.8%
2,310 Cheasapeake Energy Corp., Ser B........ 9.625 05/01/05 2,159,850
3,190 Houston Exploration Co., Ser B......... 8.625 01/01/08 2,918,850
2,200 Universal Compression
Holdings, Inc. (b) (g)................. 0/9.875 02/15/08 1,320,000
------------
6,398,700
------------
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS
March 31, 2000
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
FINANCE 2.7%
$3,300 Americo Life, Inc., 144A Private
Placement (a) (g)...................... 9.250% 06/01/05 $ 3,283,500
2,000 DLJ Secured Loan Trust, 144A Private
Placement (a).......................... 10.125 07/07/07 2,000,000
2,000 Madison River Capital, 144A Private
Placement (a).......................... 13.250 03/01/10 1,930,000
2,425 Port Arthur Finance Corp., Ser A, 144A
Private Placement (a).................. 12.500 01/15/09 2,285,562
------------
9,499,062
------------
HEALTHCARE 3.5%
3,000 Hudson Respiratory Care, Inc. (g)...... 9.125 04/15/08 2,355,000
1,075 Iasis Healthcare Corp., 144A Private
Placement (a).......................... 13.000 10/15/09 1,072,312
2,500 King Pharmaceuticals, Inc. ............ 10.750 02/15/09 2,462,500
2,000 Mediq, Inc. ........................... 11.000 06/01/08 220,000
4,000 Oxford Health Plans, Inc. ............. 11.000 05/15/05 3,980,000
1,800 Tenet Healthcare Corp. ................ 8.125 12/01/08 1,656,000
545 Triad Hospitals........................ 11.000 05/15/09 550,450
------------
12,296,262
------------
HOTEL, MOTEL, INNS & GAMING 2.4%
1,110 Argosy Gaming Co. ..................... 10.750 06/01/09 1,134,975
2,000 Hollywood Casino Corp. ................ 11.250 05/01/07 2,025,000
780 Hollywood Casino Shreveport, 144A
Private Placement (a).................. 13.000 08/01/06 842,400
1,700 Horseshoe Gaming LLC................... 8.625 05/15/09 1,559,750
2,225 Isle of Capri Casinos, Inc. ........... 8.750 04/15/09 1,941,312
1,085 Majestic Star Casino LLC............... 10.875 07/01/06 1,022,613
------------
8,526,050
------------
LEISURE 1.1%
3,000 Booth Creek Ski Holdings, Inc., Ser B
(g).................................... 12.500 03/15/07 2,175,000
2,000 Premier Parks, Inc. ................... 9.250 04/01/06 1,865,000
------------
4,040,000
------------
MACHINERY 0.3%
1,300 Terex Corp., Ser D..................... 8.875 04/01/08 1,157,000
------------
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS
March 31, 2000
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
MINING, STEEL, IRON & NON-PRECIOUS
METAL 1.4%
$1,000 GS Technologies Operating, Inc. ....... 12.000% 09/01/04 $ 550,000
2,000 Pen Holdings, Inc., Ser B.............. 9.875 06/15/08 1,710,000
1,950 Renco Steel Holdings, Inc. ............ 10.875 02/01/05 1,745,250
725 Republic Technologies International,
Inc. .................................. 13.750 07/15/09 188,500
3,550 Republic Technologies International,
Inc., 144A Private Placement (a)....... 13.750 07/15/09 923,000
------------
5,116,750
------------
OIL & GAS 4.0%
1,915 Frontier Oil Corp. .................... 11.750 11/15/09 1,809,675
1,150 Giant Industries, Inc. ................ 9.750 11/15/03 1,112,625
2,735 Giant Industries, Inc. (g)............. 9.000 09/01/07 2,461,500
1,500 Hydrochem Industrial Services, Inc.,
Ser B.................................. 10.375 08/01/07 1,162,500
1,835 KCS Energy, Inc. (e) (k) .............. 11.000 01/15/03 1,513,875
3,700 National Energy Group, Inc.,
Ser D (e) (g) (k)...................... 10.750 11/01/06 1,933,250
2,000 Pride International, Inc. ............. 10.000 06/01/09 1,970,000
2,000 Triton Energy Ltd. .................... 8.750 04/15/02 2,010,000
------------
13,973,425
------------
PRINTING, PUBLISHING &
BROADCASTING 9.9%
3,000 @Entertainment, Inc., Ser B (b)........ 0/14.500 02/01/09 1,815,000
1,500 Cadmus Communications Corp. ........... 9.750 06/01/09 1,447,500
3,000 Capstar Broadcasting Partners (g)...... 9.250 07/01/07 3,075,000
3,750 Capstar Broadcasting Partners.......... 12.750 02/01/09 3,375,000
3,350 Century Communications Corp. (g)....... 8.875 01/15/07 3,115,500
600 Classic Cable, Inc. ................... 9.375 08/01/09 561,000
715 Classic Cable, Inc., 144A Private
Placement (a).......................... 10.500 03/01/10 711,425
2,100 Coaxial Commerce Central Ohio, Inc. ... 10.000 08/15/06 2,037,000
2,600 CSC Holdings, Inc. .................... 10.500 05/15/16 2,899,000
1,600 Gray Communications Systems, Inc.
(g).................................... 10.625 10/01/06 1,596,000
2,450 International Cabletel, Inc. (b)....... 0/12.750 04/15/05 2,486,750
2,750 International Cabletel, Inc. (b)....... 0/11.500 02/01/06 2,557,500
1,970 James Cable Partners LP, Ser B......... 10.750 08/15/04 1,970,000
1,850 Northland Cable Television, Inc. (g)... 10.250 11/15/07 1,766,750
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
PORTFOLIO OF INVESTMENTS
March 31, 2000
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
PRINTING, PUBLISHING & BROADCASTING (CONTINUED)
$2,550 Pegasus Communications Corp., Ser B
(g).................................... 9.625% 10/15/05 $ 2,473,500
2,000 Premier Graphics, Inc. ................ 11.500 12/01/05 910,000
2,000 Young Broadcasting, Inc. .............. 11.750 11/15/04 2,030,000
------------
34,826,925
------------
PRODUCER MANUFACTURING 0.5%
1,265 Anvil Knitwear, Inc. .................. 10.875 03/15/07 1,012,000
1,060 Numatics, Inc., Ser B ................. 9.625 04/01/08 848,000
------------
1,860,000
------------
RETAIL 1.4%
1,250 Big 5 Corp., Ser B (g)................. 10.875 11/15/07 1,181,250
1,800 Community Distributors, Inc., Ser B
(g).................................... 10.250 10/15/04 1,449,000
1,750 Hosiery Corp. of America, Inc. (e)..... 13.750 08/01/02 1,828,750
480 Musicland Group, Inc. ................. 9.000 06/15/03 424,800
------------
4,883,800
------------
TELECOMMUNICATIONS 23.5%
2,560 Airgate PCS, Inc. (b).................. 0/13.500 10/01/09 1,395,200
1,940 Alamosa Holdings, Inc. (b)............. 0/12.875 02/15/10 999,100
2,000 AMSC Acquisition, Inc. ................ 12.250 04/01/08 1,580,000
3,800 Centennial Cellular Operating Co. ..... 10.750 12/15/08 3,781,000
4,000 Charter Communications Holdings, 144A
Private Placement (a) (b).............. 0/11.750 01/15/10 2,200,000
750 Charter Communications Holdings, 144A
Private Placement (a).................. 10.000 04/01/09 725,625
1,100 Citadel Broadcasting Co. .............. 9.250 11/15/08 1,039,500
1,000 Crown Castle International Corp. (b)... 0/10.625 11/15/07 695,000
1,000 Crown Castle International Corp. ...... 9.500 08/01/11 930,000
2,600 E Spire Communications, Inc. (b)....... 0/13.000 11/01/05 1,560,000
2,000 Fairchild Semiconductor Corp. ......... 10.375 10/01/07 1,980,000
1,050 Global Telesystems Europe (EUR) (i).... 11.000 12/01/09 975,265
4,380 GST Network Funding, Inc. (b).......... 0/10.500 05/01/08 1,905,300
3,250 ICG Holdings, Inc. (b)................. 0/13.500 09/15/05 3,079,375
1,350 Intermedia Communications of Florida,
Inc., Ser B............................ 13.500 06/01/05 1,522,125
6,800 Intermedia Communications, Inc. (b).... 0/12.500 03/01/09 4,114,000
1,350 Intermedia Communications, Inc. (b).... 0/11.250 07/15/07 1,053,000
3,700 KMC Telecommunications Holdings, Inc.
(b).................................... 0/12.500 02/15/08 2,090,500
2,100 Level 3 Communications, Inc., 144A
Private Placement (a) (b).............. 0/12.875 03/15/10 1,044,750
1,000 Metromedia Fiber Network, Inc. (EUR)
(i).................................... 10.000 12/15/09 943,187
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
PORTFOLIO OF INVESTMENTS
March 31, 2000
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
TELECOMMUNICATIONS (CONTINUED)
$1,485 Metromedia Fiber Network, Inc. ........ 10.000% 12/15/09 $ 1,414,462
250 MGC Communications, Inc., Ser B........ 13.000 10/01/04 253,750
2,000 MJD Communications, Inc. .............. 9.500 05/01/08 1,910,000
2,250 Nextel Communications, Inc. (b)........ 0/10.650 09/15/07 1,639,687
1,450 Nextel Communications, Inc. ........... 9.375 11/15/09 1,319,500
1,800 Nextlink Communications, Inc., 144A
Private Placement (a) (b).............. 0/12.125 12/01/09 936,000
2,850 Nextlink Communications, Inc., 144A
Private Placement (a).................. 10.500 12/01/09 2,707,500
2,000 NTL Communications Corp., Ser B........ 11.500 10/01/08 2,060,000
1,000 NTL, Inc. (GBP) (i).................... 9.500 04/01/08 1,432,891
1,000 NTL, Inc., Ser B (b)................... 0/9.750 04/01/08 642,500
1,000 Park N View, Inc., Ser B............... 13.000 05/15/08 610,000
3,030 Pinnacle Holdings, Inc. (b) (g)........ 0/10.000 03/15/08 1,961,925
2,000 Price Communications Wireless, Inc. ... 11.750 07/15/07 2,155,000
570 Primus Telecommunications Group........ 11.250 01/15/09 521,550
750 PSINet, Inc. (EUR) (i)................. 10.500 12/01/06 703,799
2,315 PSINet, Inc. .......................... 11.500 11/01/08 2,303,425
1,930 PSINet, Inc., Ser B.................... 10.000 02/15/05 1,814,200
2,500 RSL Communications (b)................. 0/10.125 03/01/08 1,375,000
3,750 SBA Communications Corp. (b)........... 0/12.000 03/01/08 2,456,250
3,500 Splitrock Services, Inc., Ser B........ 11.750 07/15/08 3,727,500
3,000 Startec Global Communications.......... 12.000 05/15/08 2,475,000
2,000 Telecommunications Techniques (g)...... 9.750 05/15/08 1,835,000
2,200 Telecorp PCS, Inc. (b)................. 0/11.625 04/15/09 1,364,000
3,150 Triton Communications, Inc. (b)........ 0/11.000 05/01/08 2,142,000
3,520 United International Holdings, Inc. (b)
(g).................................... 0/10.750 02/15/08 2,428,800
530 US Unwired, Inc., 144A Private
Placement (a) (b)...................... 0/13.375 11/01/09 283,550
540 Verio, Inc. ........................... 13.500 06/15/04 579,150
1,420 Verio, Inc. (g)........................ 10.375 04/01/05 1,363,200
2,160 Viatel, Inc. (b)....................... 0/12.500 04/15/08 1,236,600
2,000 Viatel, Inc. .......................... 11.500 03/15/09 1,895,949
1,000 Williams Communications Group, Inc. ... 10.700 10/01/07 1,002,500
1,500 Winstar Communications, Inc., 144A
Private Placement (a) (b) (f).......... 0/14.750 04/15/10 720,000
------------
82,883,615
------------
TECHNOLOGY 0.3%
1,025 Globix Corp., 144A Private Placement
(a).................................... 12.500 02/01/10 963,500
------------
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
PORTFOLIO OF INVESTMENTS
March 31, 2000
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
TEXTILES 0.4%
$3,000 Globe Manufacturing Corp. ............. 10.000% 08/01/08 $ 1,050,000
640 Scovill Fasteners, Inc., Ser B......... 11.250 11/30/07 288,000
------------
1,338,000
------------
TRANSPORTATION 1.8%
1,750 Atlas Air, Inc. ....................... 9.375 11/15/06 1,636,250
1,125 Atlas Air, Inc. ....................... 9.250 04/15/08 1,040,625
1,000 Avis Rent A Car, Inc. ................. 11.000 05/01/09 995,000
3,795 Greyhound Lines, Inc., Ser B........... 11.500 04/15/07 2,865,225
------------
6,537,100
------------
TOTAL DOMESTIC CORPORATE BONDS 72.4%................................... 255,521,124
------------
<CAPTION>
PAR
AMOUNT
IN LOCAL
CURRENCY MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
FOREIGN BONDS AND DEBT
SECURITIES 21.4%
ARGENTINA 0.4%
2,000 CTI Holdings SA (US$) (b).............. 0/11.500 04/15/08 1,315,000
------------
BERMUDA 1.4%
4,000 Global Crossing Holdings Limited (US$),
144A Private Placement (a)............. 9.125 11/15/06 3,850,000
1,100 Globenet Communications Group (US$).... 13.000 07/15/07 1,083,500
------------
4,933,500
------------
BRAZIL 1.4%
2,426 Federal Republic of Brazil (US$)....... 8.000 04/15/14 1,819,815
1,000 Globo Communicacoes Participacoe
(US$).................................. 10.625 12/05/08 872,500
400 Globo Communicacoes Participacoe (US$),
144A Private Placement (a)............. 10.625 12/05/08 349,000
500 Multicanal Participacoes (US$)......... 12.625 06/18/04 520,000
1,200 Multicanal Participacoes, Ser B
(US$).................................. 12.625 06/18/04 1,248,000
------------
4,809,315
------------
CANADA 4.2%
2,000 Clearnet Communications, Inc. (US$)
(b).................................... 0/14.750 12/15/05 2,005,000
1,240 Doman Industries Ltd (US$)............. 12.000 07/01/04 1,289,600
4,035 GT Group Telecom, Inc. (US$), 144A
Private Placement (a) (b).............. 0/13.250 02/01/10 2,219,250
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
PORTFOLIO OF INVESTMENTS
March 31, 2000
<TABLE>
<CAPTION>
PAR
AMOUNT
IN LOCAL
CURRENCY MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
CANADA (CONTINUED)
910 Hurricane Hydrocarbons Ltd. (US$), 144A
Private Placement (a) (b) (e).......... 11.75/16.00% 11/01/04 $ 796,250
450 Intrawest Corp. (US$), 144A Private
Placement (a).......................... 10.500 02/01/10 434,250
3,300 Microcell Telecommunications, Ser B
(US$) (b).............................. 0/14.000 06/01/06 2,953,500
1,425 Pacifica Papers, Inc. (US$)............ 10.000 03/15/09 1,396,500
825 Repap New Brunswick, Inc. (US$)........ 9.000 06/01/04 779,625
2,750 Worldwide Fiber, Inc. (US$)............ 12.000 08/01/09 2,880,625
------------
14,754,600
------------
CHILE 0.1%
1,855 Empresa Electrica Delaware Norte SA
(US$), 144A Private Placement (a)
(c).................................... 7.750 03/15/06 519,400
------------
COLOMBIA 0.9%
750 Republic of Colombia (Var. Rate Coupon)
(DEM).................................. 4.890 11/21/01 358,011
2,500 Republic of Colombia (US$)............. 9.750 04/23/09 2,331,250
500 Republic of Colombia (US$)............. 9.750 04/23/09 465,000
------------
3,154,261
------------
FRANCE 0.4%
1,200 Go Outdoor Systems Holdings SA (EUR)... 10.500 07/15/09 1,332,909
------------
HUNGARY 0.2%
216,650 Hungary Government (HUF)............... 16.000 11/24/00 830,353
------------
KOREA 0.3%
1,000 Korea Electric Power Corp. (US$)....... 7.000 02/01/27 915,000
------------
LUXEMBOURG 1.0%
4,000 Millicom International Cellular SA
(US$) (b) (g).......................... 0/13.500 06/01/06 3,390,000
------------
MEXICO 1.4%
1,000 Gruma SA (US$)......................... 7.625 10/15/07 900,000
4,850 Satelites Mexicanos SA (US$), 144A
Private Placement (a).................. 10.125 11/01/04 4,098,250
125 United Mexican States (US$)............ 9.875 02/01/10 132,250
------------
5,130,500
------------
</TABLE>
See Notes to Financial Statements
18
<PAGE> 20
PORTFOLIO OF INVESTMENTS
March 31, 2000
<TABLE>
<CAPTION>
PAR
AMOUNT
IN LOCAL
CURRENCY MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
MOROCCO 0.5%
2,036 Morocco Trust A Loan (US$) (c)......... 6.844% 01/01/09 1,837,884
------------
NETHERLANDS 2.7%
2,000 Global Telesystems Europe (EUR)........ 10.500 12/01/06 1,862,435
1,800 Kappa Beheer BV (EUR) (b).............. 0/12.500 07/15/09 1,120,333
715 Kappa Beheer BV (EUR).................. 10.625 07/15/09 718,881
650 United Pan Europe Commerce NV (US$),
144A Private Placement (a) (b)......... 0/13.750 02/01/10 325,000
4,030 United Pan Europe Communication (US$)
(b).................................... 0/12.500 08/01/09 2,055,300
1,665 United Pan Europe Communication (US$).. 10.875 08/01/09 1,556,775
2,140 United Pan Europe Communication (US$),
Ser B, 144A Private Placement (a)...... 11.250 02/01/10 2,054,400
------------
9,693,124
------------
PHILIPPINES 0.3%
1,150 Philippine Long Distance Telephone
(US$).................................. 10.500 04/15/09 1,132,405
------------
POLAND 0.8%
3,000 Netia Holdings, Inc., Ser B (US$)...... 10.250 11/01/07 2,670,000
------------
RUSSIA 2.1%
22,750 Russia Principal Loans--Vnesh (US$) (d)
(e) (k)................................ 6.906 12/15/20 6,583,281
362 Russian--IAN (US$) (k)................. 6.906 12/15/15 107,704
3,000 Vnesheconombank (US$) (e) (k).......... 6.906 12/15/15 892,500
------------
7,583,485
------------
UNITED KINGDOM 3.1%
2,750 Cenargo International PLC (US$)........ 9.750 06/15/08 2,406,250
3,450 Diamond Cable Commerce PLC (US$) (b)
(g).................................... 0/10.750 02/15/07 2,708,250
1,400 Espirit Telecom Group PLC (US$)........ 11.500 12/15/07 1,253,000
1,250 Espirit Telecom Group PLC (US$)........ 10.875 06/15/08 1,093,750
2,000 Filtronic PLC (GBP).................... 10.000 12/01/05 1,930,000
1,600 Jazztel PLC (EUR)...................... 13.250 12/15/09 1,562,721
------------
10,953,971
------------
</TABLE>
See Notes to Financial Statements
19
<PAGE> 21
PORTFOLIO OF INVESTMENTS
March 31, 2000
<TABLE>
<CAPTION>
MARKET
DESCRIPTION VALUE
<C> <S> <C> <C> <C>
VENEZUELA 0.2%
1,000 Republic of Venezuela (US$) (j)........ 6.750% 03/31/20 710,000
------------
TOTAL FOREIGN BONDS AND DEBT SECURITIES 21.4%.......................... 75,665,707
------------
EQUITIES 3.0%
Airgate PCS, Inc. (2,560 common stock warrants) (e)..................... 486,400
American Mobile Satellite Corp., (2,000 common stock warrants)
144A Private Placement (a) (e)......................................... 240,000
Anvil Holdings, Inc. (67,160 preferred shares) (d)...................... 638,020
Crown Castle International Corp. (2,341 preferred shares) (d)........... 2,329,783
Dobson Communications Corp. (1,982 preferred shares) (d)................ 2,130,650
Firstworld Communications, Inc., (2,525 common stock warrants)
144A Private Placement (a) (e)......................................... 441,875
Hosiery Corp. of America, Inc., (1,000 common shares)................... 40,500
Intermedia Communications, Inc. (13,797 common shares) (e).............. 666,568
Intersil Holding Corp., (1,200 common stock warrants) 144A Private
Placement (a) (e)...................................................... 1,068,000
KMC Telecommunications Holdings, Inc., (3,235 common stock warrants),
144A Private Placement (a) (e)......................................... 64,700
McLeodUSA, Inc. (9,959 common shares) (e)............................... 844,630
NTL, Inc., (5,178 common stock warrants)
144A Private Placement (a) (e)......................................... 626,538
Park N View, Inc., (1,000 common stock warrants) 144A Private
Placement (a) (e)...................................................... 250
Price Communications Corp. (35,572 common shares) (e)................... 818,156
Republic Technologies International, Inc., (4,275 common stock warrants)
144A Private Placement (a) (e)......................................... 43
Star Gas Partners LP (440 common shares)................................ 5,995
Startec Global Communications (3,000 common stock warrants) (e)......... 55,500
------------
TOTAL EQUITIES.......................................................... 10,457,608
------------
TOTAL INVESTMENTS 96.8%
(Cost $379,289,160)................................................... 341,644,439
FOREIGN CURRENCY (GBP) 0.0%
(Cost $10,673)........................................................ 10,364
OTHER ASSETS IN EXCESS OF LIABILITIES 3.2%.............................. 11,125,068
------------
NET ASSETS 100.0%...................................................... $352,779,871
============
</TABLE>
See Notes to Financial Statements
20
<PAGE> 22
PORTFOLIO OF INVESTMENTS
March 31, 2000
(a) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933, as amended. These securities may be resold in
transactions exempt from registration which are normally transactions with
qualified institutional buyers.
(b) Security is a "step-up" bond where the coupon increases or steps up at a
predetermined date.
(c) Security is a bank loan participation.
(d) Payment-in-kind security.
(e) Non-income producing security.
(f) Securities purchased on a when issued or delayed delivery basis.
(g) Assets segregated as collateral for open forward commitments or when issued
or delayed delivery purchase commitments.
(h) This borrower has filed for protection in federal bankruptcy court.
(i) This security is a United States company denominated in a foreign currency.
(j) Item represents a "Brady Bond" which is the product of the "Brady Plan"
under which various Latin American, African, and Southeast Asian nations
have converted their outstanding external defaulted commercial bank loans
into bonds. Certain Brady Bonds have been collateralized, as to principal
due at maturity, by U.S. Treasury zero coupon bonds with a maturity date
equal to the final maturity date of such Brady Bonds.
(k) Security is in default.
DEM--German Mark
EUR--Eurodollar
GBP--British Pound
HUF--Hungarian Forint
US$--United States Dollar
See Notes to Financial Statements
21
<PAGE> 23
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
March 31, 2000
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $379,289,160)....................... $341,644,439
Foreign Currency (Cost $10,673)............................. 10,364
Receivables:
Interest.................................................. 9,290,679
Investments Sold.......................................... 8,542,525
Fund Shares Sold.......................................... 529,092
Other....................................................... 24,011
------------
Total Assets............................................ 360,041,110
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 2,620,165
Income Distributions...................................... 1,369,609
Custodian Bank............................................ 1,180,853
Fund Shares Repurchased................................... 1,178,413
Distributor and Affiliates................................ 273,052
Investment Advisory Fee................................... 206,603
Trustees' Deferred Compensation and Retirement Plans........ 211,266
Accrued Expenses............................................ 206,498
Forward Currency Contracts.................................. 14,780
------------
Total Liabilities....................................... 7,261,239
------------
NET ASSETS.................................................. $352,779,871
============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $429,409,451
Accumulated Distributions in Excess of Net Investment
Income.................................................... (1,446,206)
Accumulated Net Realized Loss............................... (37,522,675)
Net Unrealized Depreciation................................. (37,660,699)
------------
NET ASSETS.................................................. $352,779,871
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $230,583,027 and 27,184,146 shares of
beneficial interest issued and outstanding)............. $ 8.48
Maximum sales charge (4.75%* of offering price)......... .42
------------
Maximum offering price to public........................ $ 8.90
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $109,213,909 and 12,870,818 shares of
beneficial interest issued and outstanding)............. $ 8.49
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $12,982,935 and 1,531,987 shares of
beneficial interest issued and outstanding)............. $ 8.47
============
</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 Year Ended March 31, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest (Net of foreign withholding taxes of $3,938)....... $ 42,182,192
Dividends................................................... 475,874
Other....................................................... 842,458
------------
Total Income............................................ 43,500,524
------------
EXPENSES:
Investment Advisory Fee..................................... 2,944,704
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B, and C of $608,941, $1,233,272, and $134,425,
respectively)............................................. 1,976,638
Shareholder Services........................................ 532,762
Custody..................................................... 132,179
Trustees' Fees and Related Expenses......................... 79,640
Legal....................................................... 35,310
Other....................................................... 311,012
------------
Total Expenses.......................................... 6,012,245
Less:
Investment Advisory Fee Reduction..................... 392,628
Credits Earned on Cash Balances....................... 23,050
------------
Net Expenses............................................ 5,596,567
------------
NET INVESTMENT INCOME....................................... $ 37,903,957
============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ (8,436,882)
Options................................................... (33,668)
Futures................................................... (861,920)
Forwards.................................................. 185,778
Foreign Currency Transactions............................. (1,337,034)
------------
Net Realized Loss........................................... (10,483,726)
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (22,324,238)
------------
End of the Period:
Investments............................................. (37,644,721)
Forwards................................................ (14,780)
Foreign Currency Translation............................ (1,198)
------------
(37,660,699)
------------
Net Unrealized Depreciation During the Period............... (15,336,461)
------------
NET REALIZED AND UNREALIZED LOSS............................ $(25,820,187)
============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 12,083,770
============
</TABLE>
See Notes to Financial Statements
23
<PAGE> 25
Statement of Changes in Net Assets
For the Year Ended March 31, 2000, the Nine Months Ended March 31, 1999
and the Year Ended June 30, 1998
<TABLE>
<CAPTION>
YEAR NINE MONTHS YEAR
ENDED ENDED ENDED
MARCH 31, MARCH 31, JUNE 30,
2000 1999 1998
---------------------------------------------
<S> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................... $ 37,903,957 $ 26,991,960 $ 36,727,184
Net Realized Gain/Loss.................. (10,483,726) (11,821,088) 10,238,004
Net Unrealized Depreciation During
the Period............................ (15,336,461) (25,290,256) (8,832,338)
------------- ------------- -------------
Change in Net Assets from Operations.... 12,083,770 (10,119,384) 38,132,850
------------- ------------- -------------
Distributions from Net Investment
Income................................ (36,085,784) (26,991,960) (36,588,695)
Distributions in Excess of Net
Investment Income..................... -0- (161,827) -0-
------------- ------------- -------------
Distributions from and in Excess of Net
Investment Income*.................... (36,085,784) (27,153,787) (36,588,695)
Return of Capital Distribution*......... (471,642) (586,214) -0-
------------- ------------- -------------
Total Distributions..................... (36,557,426) (27,740,001) (36,588,695)
------------- ------------- -------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES............................ (24,473,656) (37,859,385) 1,544,155
------------- ------------- -------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold............... 95,859,095 127,864,335 141,976,974
Net Asset Value of Shares Issued Through
Dividend Reinvestment................. 17,763,113 11,396,598 14,616,655
Cost of Shares Repurchased.............. (164,331,736) (110,498,564) (145,829,346)
------------- ------------- -------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS.......................... (50,709,528) 28,762,369 10,764,283
------------- ------------- -------------
TOTAL INCREASE/DECREASE IN NET ASSETS... (75,183,184) (9,097,016) 12,308,438
NET ASSETS:
Beginning of the Period................. 427,963,055 437,060,071 424,751,633
------------- ------------- -------------
End of the Period (Including accumulated
distributions in excess of net
investment income of $1,446,206,
$1,847,204, and $1,685,377,
respectively)......................... $ 352,779,871 $ 427,963,055 $ 437,060,071
============= ============= =============
* Distributions by Class
- ----------------------------------------
Distributions from and in Excess of Net
Investment Income:
Class A Shares........................ $ (24,250,603) $ (18,127,647) $ (24,757,453)
Class B Shares........................ (10,671,518) (8,272,046) (11,057,055)
Class C Shares........................ (1,163,663) (754,094) (774,187)
------------- ------------- -------------
$ (36,085,784) $ (27,153,787) $ (36,588,695)
------------- ------------- -------------
Return of Capital Distribution:
Class A Shares........................ $ (314,838) $ (391,352) $ -0-
Class B Shares........................ (141,491) (178,582) -0-
Class C Shares........................ (15,313) (16,280) -0-
------------- ------------- -------------
$ (471,642) $ (586,214) $ -0-
============= ============= =============
</TABLE>
See Notes to Financial Statements
24
<PAGE> 26
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
YEAR NINE MONTHS
ENDED ENDED YEAR ENDED JUNE 30
CLASS A SHARES MARCH 31, MARCH 31, ---------------------------------
2000 1999 1998 1997 1996 1995
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
THE PERIOD.................... $9.034 $9.893 $9.854 $9.493 $9.398 $9.643
------ ------ ------ ------ ------ ------
Net Investment Income......... .848 .619 .857 .857 .878 .844
Net Realized and Unrealized
Gain/Loss................... (.560) (.848) .037 .384 .147 (.099)
------ ------ ------ ------ ------ ------
Total from Investment
Operations.................... .288 (.229) .894 1.241 1.025 .745
------ ------ ------ ------ ------ ------
Less:
Distributions from and in
Excess of Net Investment
Income...................... .828 .617 .855 .865 .880 .815
Return of Capital
Distribution................ .012 .013 -0- .015 .050 .175
------ ------ ------ ------ ------ ------
Total Distributions............. .840 .630 .855 .880 .930 .990
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE
PERIOD........................ $8.482 $9.034 $9.893 $9.854 $9.493 $9.398
====== ====== ====== ====== ====== ======
Total Return* (a)............... 3.50% (2.13%)** 9.36% 13.60% 11.26% 8.50%
Net Assets at End of the Period
(In millions)................. $230.6 $277.9 $280.6 $288.0 $271.1 $253.3
Ratio of Expenses to Average Net
Assets *...................... 1.15% 1.17% 1.14% 1.17% 1.31% 1.31%
Ratio of Net Investment Income
to Average Net Assets *....... 9.96% 8.98% 8.61% 8.83% 9.16% 9.13%
Portfolio Turnover.............. 109% 104%** 154% 125% 102% 152%
* 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........................ 1.25% 1.27% 1.24% 1.26% 1.31% N/A
Ratio of Net Investment Income
to Average Net Assets......... 9.86% 8.88% 8.51% 8.73% 9.15% N/A
</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 $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.
N/A -- Not applicable.
See Notes to Financial Statements
25
<PAGE> 27
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
YEAR NINE MONTHS
ENDED ENDED YEAR ENDED JUNE 30,
CLASS B SHARES MARCH 31, MARCH 31, ---------------------------------
2000 1999 1998 1997 1996 1995
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
THE PERIOD................... $9.032 $9.890 $9.855 $9.497 $9.398 $9.638
------ ------ ------ ------ ------ ------
Net Investment Income........ .803 .560 .782 .777 .797 .788
Net Realized and Unrealized
Gain/Loss.................. (.582) (.842) .036 .389 .160 (.115)
------ ------ ------ ------ ------ ------
Total from Investment
Operations................... .221 (.282) .818 1.166 .957 .673
------ ------ ------ ------ ------ ------
Less:
Distributions from and in
Excess of Net Investment
Income..................... .757 .564 .783 .794 .812 .751
Return of Capital
Distribution............... .011 .012 -0- .014 .046 .162
------ ------ ------ ------ ------ ------
Total Distributions............ .768 .576 .783 .808 .858 .913
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE
PERIOD....................... $8.485 $9.032 $9.890 $9.855 $9.497 $9.398
====== ====== ====== ====== ====== ======
Total Return* (a).............. 2.65% (2.71%)** 8.58% 12.64% 10.55% 7.61%
Net Assets at End of the Period
(In millions)................ $109.2 $135.4 $145.0 $128.7 $ 97.1 $ 55.9
Ratio of Expenses to Average
Net Assets*.................. 1.93% 1.93% 1.91% 1.93% 2.07% 2.04%
Ratio of Net Investment Income
to Average Net Assets*....... 9.17% 8.19% 7.84% 8.03% 8.39% 8.35%
Portfolio Turnover............. 109% 104%** 154% 125% 102% 152%
* If certain expenses had not been waived or reimbursed by Van Kampen, total return would
have been lower and the ratios would have been as follows:
Ratio of Expenses to Average
Net Assets................... 2.03% 2.03% 2.01% 2.02% 2.07% N/A
Ratio of Net Investment Income
to Average Net Assets........ 9.07% 8.09% 7.74% 7.94% 8.38% N/A
</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 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
26
<PAGE> 28
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
YEAR NINE MONTHS
ENDED ENDED YEAR ENDED JUNE 30,
CLASS C SHARES MARCH 31, MARCH 31, ---------------------------------
2000 1999 1998 1997 1996 1995
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD....................... $9.023 $9.884 $9.851 $9.495 $9.396 $9.643
------ ------ ------ ------ ------ ------
Net Investment Income........ .795 .562 .780 .780 .828 .745
Net Realized and Unrealized
Gain/Loss.................. (.576) (.847) .036 .384 .129 (.079)
------ ------ ------ ------ ------ ------
Total from Investment
Operations................... .219 (.285) .816 1.164 .957 .666
------ ------ ------ ------ ------ ------
Less:
Distributions from and in
Excess of Net Investment
Income..................... .757 .564 .783 .794 .812 .751
Return of Capital
Distribution............... .011 .012 -0- .014 .046 .162
------ ------ ------ ------ ------ ------
Total Distributions............ .768 .576 .783 .808 .858 .913
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF
PERIOD....................... $8.474 $9.023 $9.884 $9.851 $9.495 $9.396
====== ====== ====== ====== ====== ======
Total Return* (a).............. 2.65% (2.71%)** 8.47% 12.65% 10.55% 7.61%
Net Assets at End of Period (In
millions).................... $ 13.0 $ 14.7 $ 11.5 $ 8.1 $ 7.0 $ 2.0
Ratio of Expenses to Average
Net Assets*.................. 1.93% 1.93% 1.91% 1.93% 2.06% 2.12%
Ratio of Net Investment Income
to Average Net Assets*....... 9.17% 8.25% 7.83% 8.08% 8.38% 8.13%
Portfolio Turnover............. 109% 104%** 154% 125% 102% 152%
* If certain expenses had not been waived or reimbursed by Van Kampen, total return would
have been lower and the ratios would have been as follows:
Ratio of Expenses to Average
Net Assets................... 2.03% 2.03% 2.01% 2.03% 2.07% N/A
Ratio of Net Investment Income
to Average Net Assets........ 9.07% 8.15% 7.73% 7.99% 8.38% N/A
</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.
N/A -- Not applicable.
See Notes to Financial Statements
27
<PAGE> 29
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen High Yield Fund (the "Fund") is organized as a series of Van Kampen
Trust, a Delaware business trust (the "Trust"), and is registered as a
diversified open-end management investment company under the Investment Company
Act of 1940, as amended. The Fund's primary investment objective is to provide a
high level of current income through investment in medium and lower grade
domestic corporate debt securities. The Fund also may invest up to 35% of its
assets in foreign government and corporate debt securities of comparable
quality. The Fund commenced investment operations on June 27, 1986. The Fund
commenced distribution of its Class B and C shares on May 17, 1993 and August
13, 1993, respectively.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION Investments are stated at value using market quotations or
indications of value obtained from an independent pricing service. For those
securities where quotations or prices are not available valuations are obtained
from yield data relating to instruments or securities with similar
characteristics in accordance with procedures established in good faith by the
Board of Trustees. Short-term securities with remaining maturities of 60 days or
less are valued at amortized cost, which approximates market value.
At March 31, 2000, approximately 94% of the net assets of the Fund consisted
of high-yield securities rated below investment grade. Investments in high-yield
securities are accompanied by a greater degree of credit risk and the risk tends
to be more sensitive to economic conditions than higher rated securities.
Certain securities may be valued on the basis of bid prices provided by one
principal market maker.
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
28
<PAGE> 30
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000
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 discount is amortized 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 tax year end was recently changed from June 30 to December 31, the Fund's
fiscal year end remains March 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 March 31, 2000, for federal income tax purposes, the cost of long- and
short-term investments is $380,691,380; the aggregate gross unrealized
appreciation is $7,282,291 and the aggregate gross unrealized depreciation is
$46,329,232,
29
<PAGE> 31
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000
resulting in net unrealized depreciation on long- and short-term investments of
$39,046,941.
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 income, expenses and
realized gains/losses under generally accepted accounting principles and federal
income tax purposes, permanent differences between book and tax basis reporting
for the 1999 fiscal year have been identified and appropriately reclassified.
For the tax year ended December 31, 1999, permanent book and tax differences of
$379,210 relating to the recognition of net realized losses on foreign currency
transactions were reclassified from accumulated undistributed net investment
income to accumulated net realized gain/loss. Also, $1,037,965 relating to fee
income were reclassified from accumulated undistributed net investment income to
accumulated net realized gain/loss, and $69,479,123 relating to a portion of the
capital loss carryforward that expired during the year ended December 31, 1999
were reclassified from capital to accumulated net realized gain/loss.
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 year ended March 31, 2000, the Fund's custody
fee was reduced by $23,050 as a result of credits earned on overnight cash
balances.
30
<PAGE> 32
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000
2. INVESTMENT ADVISORY AGREEMENT AND
OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
<S> <C>
First $500 million.......................................... .75 of 1%
Over $500 million........................................... .65 of 1%
</TABLE>
For the year ended March 31, 2000, the Adviser waived approximately $392,600
of its advisory fee. This waiver is voluntary and may be discontinued at any
time.
For the year ended March 31, 2000, the Fund recognized expenses of
approximately $22,900, representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the year ended March 31, 2000, the Fund recognized expenses of
approximately $101,900, representing Van Kampen Funds Inc.'s or its affiliates'
(collectively "Van Kampen") cost of providing accounting and legal services to
the Fund.
Van Kampen Investor Services Inc., ("VKIS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the year ended March
31, 2000, the Fund recognized expenses of approximately $390,600. 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
March 31, 2000
3. CAPITAL TRANSACTIONS
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>
32
<PAGE> 34
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000
At March 31, 1999, capital aggregated $391,207,193, $144,042,232 and
$15,406,532 for Class A, B and C shares, respectively. For the nine months ended
March 31, 1999, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A............................................... 8,548,658 $ 77,472,960
Class B............................................... 4,618,109 42,170,273
Class C............................................... 916,995 8,221,102
----------- -------------
Total Sales............................................. 14,083,762 $ 127,864,335
=========== =============
Dividend Reinvestment:
Class A............................................... 850,491 $ 7,690,242
Class B............................................... 364,542 3,296,841
Class C............................................... 45,353 409,515
----------- -------------
Total Dividend Reinvestment............................. 1,260,386 $ 11,396,598
=========== =============
Repurchases:
Class A............................................... (6,997,669) $ (63,522,912)
Class B............................................... (4,654,114) (42,458,339)
Class C............................................... (501,047) (4,517,313)
----------- -------------
Total Repurchases....................................... (12,152,830) $(110,498,564)
=========== =============
</TABLE>
33
<PAGE> 35
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000
At June 30, 1998, capital aggregated $369,566,903, $141,033,457 and
$11,293,228 for Class A, B and C shares, respectively. For the year ended June
30, 1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A............................................... 8,945,784 $ 89,317,500
Class B............................................... 4,588,921 45,799,499
Class C............................................... 687,284 6,859,975
----------- -------------
Total Sales............................................. 14,221,989 $ 141,976,974
=========== =============
Dividend Reinvestment:
Class A............................................... 997,599 $ 9,948,016
Class B............................................... 427,244 4,261,071
Class C............................................... 40,893 407,568
----------- -------------
Total Dividend Reinvestment............................. 1,465,736 $ 14,616,655
=========== =============
Repurchases:
Class A............................................... (10,812,030) $(107,994,896)
Class B............................................... (3,408,945) (33,992,220)
Class C............................................... (385,647) (3,842,230)
----------- -------------
Total Repurchases....................................... (14,606,622) $(145,829,346)
=========== =============
</TABLE>
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 year ended March 31, 2000, 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 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
34
<PAGE> 36
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000
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 year ended March 31, 2000, Van Kampen, as Distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately
$45,600, and CDSC on redeemed shares of approximately $366,200. Sales charges do
not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
For the year ended March 31, 2000, the cost of purchases and proceeds from sales
of investments, excluding short-term investments, were $407,681,421 and
$467,671,407, 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.
35
<PAGE> 37
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000
Summarized below are the specific types of derivative financial instruments
used by the Fund.
A. OPTION CONTRACTS An option contract gives the buyer the right, but not the
obligation to buy (call) or sell (put) an underlying item at a fixed exercise
price during a specified period. These contracts are generally used by the Fund
to manage the portfolio's effective maturity and duration.
Transactions in options for the year ended March 31, 2000, were as follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
<S> <C> <C>
Outstanding at March 31, 1999............................... 100 $(33,613)
Options Expired (Net)....................................... (100) 33,613
---- --------
Outstanding at March 31, 2000............................... -0- $ -0-
==== ========
</TABLE>
B. FUTURES CONTRACTS A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Fund generally invests in futures on U.S. Treasury Bonds and typically closes
the contract prior to the delivery date. These contracts are generally used to
manage the portfolio's effective maturity and duration.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, 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).
Transactions in futures contracts for the year ended March 31, 2000, were as
follows:
<TABLE>
<CAPTION>
CONTRACTS
<S> <C>
Outstanding at March 31, 1999............................... 250
Futures Opened.............................................. 1,761
Futures Closed.............................................. (2,011)
------
Outstanding at March 31, 2000............................... -0-
======
</TABLE>
C. FORWARD CURRENCY CONTRACTS These instruments are commitments to purchase or
sell a foreign currency at a future date at a negotiated forward rate. The gain
or loss arising from the difference between the original value of the contract
and the closing value of such contract is included as a component of realized
gain/loss on forwards.
36
<PAGE> 38
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000
At March 31, 2000, the Fund has outstanding forward currency contracts as
follows:
<TABLE>
<CAPTION>
CURRENT UNREALIZED
FORWARD CURRENCY CONTRACTS VALUE DEPRECIATION
<S> <C> <C>
SHORT CONTRACTS:
British Pound
860,110 expiring 04/10/00................................ $1,369,454 $(14,780)
</TABLE>
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 March 31, 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.
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 year ended March 31, 2000, are payments retained by Van Kampen of
approximately $1,025,266.
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, has 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
37
<PAGE> 39
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000
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.
38
<PAGE> 40
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of Van Kampen High Yield Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen High Yield Fund (the
"Fund") at March 31, 2000, and the results of its operations, the changes in its
net assets and the financial highlights for the year then ended in conformity
with accounting principles generally accepted in the United States. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with auditing standards generally accepted in the Untied States, which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit, which included confirmation
of securities at March 31, 2000 by correspondence with the custodian and
brokers, provides a reasonable basis for the opinion expressed above. The
statement of changes in net assets and the financial highlights for each of the
periods ended on or prior to March 31, 1999 were audited by other independent
accountants whose report dated May 5, 1999 expressed an unqualified opinion
thereon.
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
May 5, 2000
39
<PAGE> 41
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*(1)
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
PETER W. HEGEL*
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 ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
200 E. Randolph
Chicago, Illinois 60601
(1) Appointed Executive Vice President and Chief Investment Officer effective
April 3, 2000.
* "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 August 31,
2000, the report, if used with prospective investors, must be accompanied by a
monthly performance update.
40
<PAGE> 42
RESULTS OF
SHAREHOLDER VOTES
A Joint Special Meeting of the Shareholders of the Fund was held on December 15,
1999, where shareholders voted on the election of trustees, and the ratification
of KPMG LLP as the independent public accountants.
1) With regard to the election of the following trustees:
<TABLE>
<CAPTION>
# OF SHARES
------------------------------
IN FAVOR WITHHELD
<S> <C> <C>
J. Miles Branagan..................................... 28,997,339 262,118
Jerry D. Choate....................................... 28,997,564 261,893
Linda Hutton Heagy.................................... 28,982,350 277,107
R. Craig Kennedy...................................... 28,998,715 260,742
Mitchell M. Merin..................................... 29,001,236 258,221
Jack E. Nelson........................................ 28,984,097 275,360
Richard F. Powers, III................................ 29,000,276 259,181
Phillip B. Rooney..................................... 28,993,370 260,087
Fernando Sisto........................................ 28,979,450 280,007
Wayne W. Whalen....................................... 28,998,388 261,069
Suzanne H. Woolsey.................................... 28,987,972 271,484
Paul G. Yovovich*..................................... 29,000,431 259,026
</TABLE>
2) With regard to the ratification of KPMG LLP as independent public accountants
for the Fund, 28,752,772 shares voted in favor of the proposal, 81,007 shares
voted against, and 425,677 shares abstained.**
* Effective April 14, 2000, Paul G. Yovovich resigned from the Board of
Trustees.
** KPMG LLP has ceased being the Fund's independent accountants 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.
41
<PAGE> 43
<TABLE>
<S> <C>
Table of Contents
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 3
GROWTH OF A $10,000 INVESTMENT 5
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 20
NOTES TO FINANCIAL STATEMENTS 27
REPORT OF INDEPENDENT ACCOUNTANTS 38
VAN KAMPEN FUNDS
THE VAN KAMPEN FAMILY OF FUNDS 39
FUND OFFICERS AND IMPORTANT ADDRESSES 40
RESULTS OF SHAREHOLDER VOTES 41
</TABLE>
One of the greatest shifts we've seen is the increasing importance of investing
for many Americans.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE> 44
OVERVIEW
LETTER TO SHAREHOLDERS
April 20, 2000
Dear Shareholder,
As we enter a new century--and millennium--it seems appropriate to take a look
back at the progress that's been made over the last 100 years and how the world
of investing has changed over the generations. Although rapid advances in
technology and science have dramatically altered the world that we live in
today, one of the greatest shifts we've seen is the increasing importance of
investing for many Americans.
Once considered primarily for the wealthy, investing in the stock market is now
available to most people. In fact, almost 79 million individuals--who represent
almost half of all U.S. households--own stocks either directly or through mutual
funds. This is even more impressive when considering that just 16 years earlier,
only 19 percent of households owned stocks. Another important shift has been the
need for retirement planning beyond a pension plan or Social Security. The
Investment Company Institute, the leading mutual fund industry association,
reports that 77 percent of all
mutual fund shareholders earmarked retirement as their primary
financial goal in 1998.
Through all the changes in the investment environment over the
past century, the general principles that have made
generations of investors successful remain the same. Some that have stood the
test of time include:
- - Investing for the long term
- - Basing investment decisions on sound research
- - Building a diversified portfolio
- - Acting on the value of professional investment advice
While no one can predict the future, at Van Kampen we believe that these ideas
will remain important tenets for investors well into this century. As we
continue to focus on these principles, we hope that our decades of investment
experience can help bring you closer to your financial goals as we welcome the
new millennium.
Sincerely,
<TABLE>
<S> <C>
[SIG]
Richard F. Powers, III
Chairman
Van Kampen
Investment Advisory Corp.
</TABLE>
1
<PAGE> 45
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
ECONOMIC GROWTH REMAINED VIBRANT DURING THE REPORTING PERIOD, PRIMARILY DUE TO
STRONG CONSUMER SPENDING. GROSS DOMESTIC PRODUCT (GDP), THE PRIMARY MEASURE OF
ECONOMIC GROWTH, INCREASED AT AN ANNUALIZED RATE OF 7.3 PERCENT IN THE FOURTH
QUARTER OF 1999, ITS FASTEST GROWTH RATE SINCE 1984. WITH GDP MEASURING 4.4
PERCENT FOR 1999, THIS WAS THE THIRD SUCCESSIVE YEAR IN WHICH GDP EXCEEDED 4
PERCENT.
CONSUMER SPENDING AND EMPLOYMENT
INFLATION CONCERNS MOUNTED DURING THE REPORTING PERIOD BECAUSE OF STRONG
CONSUMER SPENDING AND THE TIGHT LABOR MARKET. RISING INTEREST RATES HAVE DONE
LITTLE TO CURB CONSUMER SPENDING--RETAIL SALES GROWTH SOARED AS SHOPPERS SPENT
SOME OF THEIR STOCK-MARKET PROFITS.
IN ADDITION, UNEMPLOYMENT HOVERED NEAR A 30-YEAR LOW. THE LABOR SHORTAGE BEGAN
TO PUSH WAGES UPWARD, AS EMPLOYERS RAISED WAGES TO ATTRACT SKILLED WORKERS. WAGE
PRESSURE, IN TURN, BEGAN TO AFFECT PRICES, AS COMPANIES STARTED TO RAISE THE
COST OF GOODS AND SERVICES TO COMPENSATE FOR THEIR HIGHER LABOR COSTS.
INTEREST RATES AND INFLATION
STRONG GDP DATA, CONSUMER SPENDING, AND EMPLOYMENT PROMPTED THE FEDERAL RESERVE
BOARD TO MAINTAIN ITS ACTIVE STANCE IN TEMPERING ECONOMIC GROWTH TO WARD OFF
INFLATION. THE FED HAS INCREASED THE FEDERAL FUNDS RATE FIVE TIMES SINCE JUNE
1999. DESPITE THE FED'S ACTIONS, INFLATION BEGAN TO ACCELERATE, DRIVEN
PRINCIPALLY BY ESCALATING ENERGY PRICES. THE CONSUMER PRICE INDEX, A MEASURE OF
INFLATION, ROSE 3.7 PERCENT DURING THE 12 MONTHS ENDED MARCH 31, 2000--A NOTABLE
INCREASE OVER RECENT MONTHS. GIVEN THIS RECENT SURGE, FURTHER FED INTEREST-RATE
HIKES ARE WIDELY ANTICIPATED.
INTEREST RATES AND INFLATION
(March 31, 1998 - March 31, 2000)
[LINE GRAPH]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Mar 98 5.50 1.40
5.50 1.40
5.50 1.70
Jun 98 5.50 1.70
5.50 1.70
5.50 1.60
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
</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.
2
<PAGE> 46
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(as of March 31, 2000)
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
One-year total return based on
NAV(1) 2.66% 1.93% 1.93%
- -------------------------------------------------------------------------
One-year total return(2) (2.22%) (1.84%) 0.99%
- -------------------------------------------------------------------------
Five-year average annual total
return(2) 7.02% 7.00% 7.19%
- -------------------------------------------------------------------------
Life-of-Fund average annual total
return(2) 2.84% 2.77%(3) 2.82%
- -------------------------------------------------------------------------
Commencement date 12/31/93 12/31/93 12/31/93
- -------------------------------------------------------------------------
Distribution rate(4) 8.15% 7.80% 7.81%
- -------------------------------------------------------------------------
SEC Yield(5) 8.70% 8.36% 8.36%
- -------------------------------------------------------------------------
</TABLE>
(1) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge (4.75% for 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.
(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.
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.
(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.
(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 March 31, 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 8.37%, 8.03% and 8.03% for Classes
A, B and C, respectively.
For additional Performance Summary disclosure, see page 4.
3
<PAGE> 47
Continued from page 3.
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.
4
<PAGE> 48
GROWTH OF A $10,000 INVESTMENT
(December 31, 1993 - March 31, 2000)
[INVESTMENT PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
LEHMAN BROTHERS COMPOSITE OF SALOMON
STRATEGIC INCOME FUND AGGREGATE BOND INDEX BROTHERS INDICES
--------------------- -------------------- --------------------
<S> <C> <C> <C>
12/93 9527 10000 10000
3/94 8617 9713 9487
3/95 8080 10198 9842
3/96 9869 11297 11438
3/97 11230 11851 12630
3/98 12196 13273 14389
3/99 11601 13746 14878
3/00 11909 13479 15470
</TABLE>
This chart compares your Fund's performance to that of the Lehman Brothers
Aggregate Bond Index and the Composite of Salomon Brothers Indices* over
time.
These indices are broad-based, statistical composites that do not include
any commissions or fees that would be paid by an investor purchasing the
securities they represent. Such costs would lower the performance of these
indices. An investment cannot be made directly in an index.
The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of other share classes of
the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions, and includes payment of the maximum
sales charge (4.75% for Class A shares).
While past performance is no guarantee of future results, the above information
provides a broader vantage point from which to evaluate the discussion of the
Fund's performance found in the following pages.
* This index is a composite reflecting 20% of each of the following Salomon
Brothers Indices: Mortgage, High Yield Market, Corporate, Non-U.S. Dollar
World Government Bond and Brady Bond.
5
<PAGE> 49
PORTFOLIO AT A GLANCE
TOP TEN HOLDINGS
(as a percentage of long-term investments--March 31, 2000)
<TABLE>
<S> <C> <C>
Russia Principal Loan - Vnesh, 6.906% Coupon, 12/15/20
Maturity................................................... 3.3%
- ---------------------------------------------------------------------
FNMA 15 YR, 6.500% Coupon, TBA Maturity.................... 3.0%
- ---------------------------------------------------------------------
Canadian Government, 5.500% Coupon, 06/01/99 Maturity...... 3.0%
- ---------------------------------------------------------------------
French Treasury Note BTAN, 5.500% Coupon, 10/12/01
Maturity................................................... 2.6%
- ---------------------------------------------------------------------
Republic of Italy BTPS, 4.000% Coupon, 09/01/01 Maturity... 2.6%
- ---------------------------------------------------------------------
Spanish Government, 4.250% Coupon, 07/30/02 Maturity....... 2.6%
- ---------------------------------------------------------------------
Bundesschatzanweisungen, Ser 99, 3.500% Coupon, 09/14/01
Maturity................................................... 2.5%
- ---------------------------------------------------------------------
MCI Worldcom Inc., 8.875% Coupon, 01/15/06 Maturity........ 2.3%
- ---------------------------------------------------------------------
MBNA Master Credit Card Trust #96-J, 6.150% Coupon,
02/15/06 Maturity.......................................... 2.2%
- ---------------------------------------------------------------------
First USA Credit Card Master Trust #99-1, 6.221% Coupon,
10/19/06 Maturity.......................................... 2.2%
</TABLE>
TOP FIVE COUNTRIES
(as a percentage of long-term investments)
[BAR GRAPH]
<TABLE>
<CAPTION>
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
<S> <C> <C>
United States 53.50 62.70
Mexico 6.10 6.70
United Kingdom 4.80 6.20
Canada 4.70 1.50
Russia 3.40 1.70
</TABLE>
6
<PAGE> 50
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH REPRESENTATIVES OF THE ADVISER OF THE VAN KAMPEN
STRATEGIC INCOME FUND ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE
MARKETS DURING THE PAST 12 MONTHS. THE REPRESENTATIVES INCLUDE PETER W. HEGEL,
WHO LEADS THE FUND'S PORTFOLIO MANAGEMENT TEAM AND IS CHIEF INVESTMENT OFFICER
FOR FIXED-INCOME INVESTMENTS, ALONG WITH PORTFOLIO MANAGERS ROBERT J. HICKEY,
JOHN R. REYNOLDSON, AND THOMAS J. SLEFINGER. THE FOLLOWING DISCUSSION REFLECTS
THEIR VIEWS ON THE FUND'S PERFORMANCE FOR THE FISCAL YEAR ENDED MARCH 31, 2000.
Q DESCRIBE THE MARKET CONDITIONS
THAT AFFECTED THE FUND DURING THE REPORTING PERIOD.
A The Federal Reserve Board began
raising interest rates in June 1999 in an attempt to slow the racing U.S.
economy. By the end of the reporting period, policy makers had hiked short-term
interest rates by a total of 25 basis points on five separate occasions. Despite
the higher rates, economic growth continued to accelerate, fueled by strong
consumer spending resulting from stock-market profits. During the fourth quarter
of 1999, the nation's output of goods and services expanded at the fastest pace
in 16 years. Exceptional gains in business productivity helped to mitigate some
of the inflationary pressures that typically build during a time of robust
economic growth. Price pressures generally remained contained, as inflation at
the consumer level was 3.70 percent for the 12 months through March 31, 2000.
While the Fed's actions pushed short-term interest rates higher, trends on
the longer end of the yield curve were less predictable. After climbing steadily
during the first nine months of the reporting period, long-term Treasury yields
suddenly plummeted in mid-January as the government outlined plans for an
aggressive buyback program of Treasury debt. The combination of Fed rate hikes
and a perceived shortage of Treasury bonds created an inverted yield curve, in
which short-term yields were actually higher than their longer-term
counterparts. Meanwhile, credit spreads peaked in mid-1999 and declined during
the remainder of the year as year 2000 (Y2K) worries receded. However, spreads
widened again beginning in mid-January as Treasury yields plunged after news of
the government's buyback plan.
Q WHAT STRATEGIES DID YOU PURSUE
IN THIS ENVIRONMENT?
A Given our view that the high-yield,
high-risk and emerging markets sectors were attractively priced, the Fund was
generally overweighted in these areas during the reporting period. We
7
<PAGE> 51
maintained a slightly less-than-neutral weighting in the investment-grade global
sector due to our belief that the U.S. dollar would continue its recent
appreciation. Among domestic investment-grade bonds, we generally focused on
increasing the portfolio's credit quality by purchasing Treasury and
mortgage-backed securities. In particular, we took advantage of what we
considered to be extremely wide credit spreads in September and October of 1999
to add to positions in selected mortgages, especially on the short end of the
yield curve. In our view, these opportunities were the result of the market's
overreaction to potential liquidity issues related to Y2K. Such concerns caused
investors to favor Treasury securities, thus widening the yield spread between
Treasuries and mortgage-backed bonds.
At the end of the reporting period, approximately 32 percent of the Fund's
long-term portfolio of investments was allocated to domestic investment-grade
bonds (a category that includes government securities) compared to approximately
23 percent for domestic non-investment grade (high-yield, high risk) bonds.
Overseas, approximately 19 percent of the Fund's long-term portfolio of
investments were in lower-grade debt (most of which was comprised of
emerging-market securities) and approximately 22 percent was allocated to the
investment-grade sector.
Q HOW DID THE FUND'S STRATEGIES
CONTRIBUTE TO PERFORMANCE?
A The Fund benefited from its
exposure to global bond markets, some of which outperformed U.S. fixed-income
securities. The Fund also gained as a result of its purchases of long-term
Treasuries, a sector that rallied sharply during the second half of the
reporting period. Conversely, the Fund's short-term securities undermined
performance given the sharp rise in short-term interest rates.
Q HOW DID THE FUND PERFORM
DURING THE REPORTING PERIOD?
A For the 12 months ended
March 31, 2000, the Fund generated a total return of 2.66 percent (Class A
shares at net asset value; if the maximum sales charge of 4.75 percent were
included, the return would have been lower). By comparison, the Lehman Brothers
Aggregate Bond Index, an unmanaged broad-based index, generated a total return
of -1.94 percent for the same period. Similarly, a composite index of 20 percent
each of the Salomon Brothers Index for Mortgages, High Yield Market, Corporate,
Non-U.S. Dollar World Government, and Brady Bonds produced a total return of
3.98 percent during the period. Keep in mind that these indices do not reflect
any commissions or fees that would be paid by an investor purchasing the
securities they represent. Such costs would lower their performance. An
investment cannot be made directly in an index. Of course, past performance is
not a guarantee of future results. Please refer to the chart and footnotes on
page 3 for additional Fund performance results.
8
<PAGE> 52
Q WHAT IS YOUR OUTLOOK FOR THE
FUND IN THE MONTHS AHEAD?
A Despite a series of Fed rate hikes,
there remained only scant evidence that the U.S. economy was decelerating as the
reporting period drew to a close. Meanwhile, the Fed has made it clear that it
believes the economy is growing faster than its noninflationary speed limit. The
Fed has also stated that it believes a significant portion of the excess
economic growth is the result of consumers spending some of their stock-market
profits. Accordingly, we expect that the Fed will continue to raise short-term
interest rates until clear evidence emerges that economic activity has slowed to
around three percent. We believe that at least two additional 25 basis-point
hikes in the Fed funds rate will be required to accomplish the economic "soft
landing."
The wild card in our calculations concerns the U.S. stock market. Volatility
has increased, and the impact of any sizable drop in stock prices upon consumer
spending is difficult to predict. While we do not forecast such a drop on Wall
Street, we do expect to continue emphasizing higher-quality bonds in the Fund's
portfolio, given the highly fluid nature of the domestic economic environment.
On a global basis, the large U.S. trade deficit should exert modest downward
pressure on the dollar, especially against the euro, which we believe to be an
undervalued currency. A lower dollar could improve the return from fixed-income
overseas investments.
9
<PAGE> 53
GLOSSARY OF TERMS
A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.
BASIS POINT: A measure used in quoting bond yields. One hundred basis points is
equal to 1 percent. For example, if a bond's yield changes from 7.00 to 6.65
percent, it is a 35 basis-point move.
CREDIT RATING: An evaluation of an issuer's credit history and capability of
repaying obligations. Standard & Poor's and Moody's Investors Service are two
companies that assign bond ratings. Standard & Poor's ratings range from a high
of AAA to a low of D, while Moody's ratings range from a high of Aaa to a low of
C.
CREDIT SPREAD: Also called quality spread, the difference in yield between
higher-quality issues (such as Treasury securities) and lower-quality issues.
Normally, lower-quality issues provide higher yields to compensate investors for
the additional credit risk.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank of the United States. Its policy-making
committee, called the Federal Open Market Committee, meets eight times a year to
establish monetary policy and monitor the economic pulse of the United States.
INVESTMENT-GRADE BONDS: Securities rated BBB and above by Standard & Poor's or
Baa and above by Moody Investors Service. Bonds rated below BBB or Baa are
noninvestment grade.
YIELD: The annual rate of return on an investment, expressed as a percentage.
YIELD CURVE: A result of viewing the yields of U.S. Treasury securities maturing
in 1, 5, 10, and 30 years. When grouped together and graphed, a pattern of
increasing yield is often reflected as the time to maturity extends. This
pattern creates an upward sloping "curve." A "flat" yield curve represents
little difference between short- and long-term interest rates.
YIELD SPREAD: The additional yield investors can earn by either investing in
bonds with longer maturities or by investing in bonds with lower ratings. The
spread is the difference in yield between bonds with short versus long
maturities or the difference in yield between high-quality bonds and lower-
quality bonds.
10
<PAGE> 54
BY THE NUMBERS
YOUR FUND'S INVESTMENTS
March 31, 2000
THE FOLLOWING PAGES DETAIL THE SPECIFIC HOLDINGS OF YOUR FUND 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 10.1%
2,500 First USA Credit Card Master Trust #99-01,
Class A--USD................................... 6.221% 10/19/06 $ 2,500,500
2,500 MBNA Master Credit Card Trust #96-J,
Class A--USD................................... 6.150 02/15/06 2,504,163
2,500 PECO Energy Transport Trust, Ser A2--USD (c)... 5.630 03/01/05 2,420,113
1,000 PECO Energy Transport Trust, Ser A6--USD (c)... 6.050 03/01/09 927,435
------------
TOTAL ASSET BACKED SECURITIES........................................... 8,352,211
------------
CORPORATE BONDS 52.5%
AUTOMOBILE 2.4%
250 Aetna Industries, Inc.--USD.................... 11.875 10/01/06 245,000
125 Cambridge Industries, Inc., Ser B--USD (c)..... 10.250 07/15/07 28,750
1,125 Federal - Mogul Corp.--USD (c)................. 7.750 07/01/06 975,938
100 Oxford Automotive, Inc., Ser D--USD............ 10.125 06/15/07 93,500
855 Talon Automotive Group, Inc., Ser B--USD (c)... 9.625 05/01/08 393,300
275 Venture Holdings Trust--USD.................... 12.000 06/01/09 221,375
------------
1,957,863
------------
BANKING 3.9%
1,000 MBNA Capital I--USD (c)........................ 8.278 12/01/26 908,787
2,400 Sovereign Bancorp Inc.--USD (c)................ 8.000 03/15/03 2,271,660
------------
3,180,447
------------
BEVERAGE, FOOD & TOBACCO 4.8%
250 Chiquita Brands International, Inc.--USD....... 10.000 06/15/09 192,500
350 Fleming Cos., Inc. --USD....................... 10.500 12/01/04 316,750
250 Luiginos, Inc.--USD............................ 10.000 02/01/06 208,750
200 National Wine & Spirits, Inc.--USD............. 10.125 01/15/09 190,000
650 Pantry, Inc.--USD (c).......................... 10.250 10/15/07 578,500
2,500 Pepsi - Gemex SA, Ser B--USD (c)............... 9.750 03/30/04 2,500,000
------------
3,986,500
------------
</TABLE>
See Notes to Financial Statements
11
<PAGE> 55
YOUR FUND'S INVESTMENTS
March 31, 2000
<TABLE>
<CAPTION>
PAR AMOUNT
IN LOCAL U.S. $
CURRENCY MATURITY MARKET
(000) DESCRIPTION COUPON DATE VALUE
<C> <S> <C> <C> <C>
BROADCASTING, TELEVISION & MUSIC 2.1%
500 British Sky Broadcasting--USD (c).............. 6.875% 02/23/09 $ 453,750
1,250 Capstar Broadcasting Partners--USD (c) (d)..... 0/12.750 02/01/09 1,125,000
200 Muzak LLC--USD................................. 9.875 03/15/09 190,500
------------
1,769,250
------------
BUILDINGS & REAL ESTATE 3.7%
350 American Plumbing & Mechanical, Ser B--USD..... 11.625 10/15/08 316,750
500 AvalonBay Communities, Inc.--USD (c)........... 7.500 08/01/09 478,127
200 Building One Services Corp.--USD............... 10.500 05/01/09 180,000
750 Cemex International LLC--USD (c)............... 9.660 11/29/49 755,625
125 Del Webb Corp.--USD............................ 10.250 02/15/10 104,375
1,000 Owens Corning--USD (c)......................... 7.500 08/01/18 831,854
450 Standard Pacific Corp.--USD.................... 8.500 04/01/09 391,500
------------
3,058,231
------------
CABLE/MEDIA 3.7%
500 Century Communications Corp.--USD (c).......... 9.500 03/01/05 483,750
300 Charter Communication Holdings--USD............ 8.250 04/01/07 270,000
1,000 CSC Holdings, Inc.--USD (c).................... 10.500 05/15/16 1,115,000
300 Go Outdoor Systems Holdings--EUR............... 10.500 07/15/09 333,227
100 James Cable Partners L.P., Ser B--USD.......... 10.750 08/15/04 100,000
500 NTL Communications Corp.--USD (c).............. 11.500 10/01/08 515,000
250 NTL Inc., Ser A--USD (c) (d)................... 0/12.750 04/15/05 253,750
------------
3,070,727
------------
CHEMICALS, PLASTIC & RUBBER 0.8%
500 Coastal Corp.--USD (c)......................... 6.500 06/01/08 465,368
200 Lyondell Chemical Co.--USD..................... 9.625 05/01/07 191,000
------------
656,368
------------
CONTAINERS, PACKAGING, PAPER & GLASS 1.3%
325 Kappa Beheer BV--EUR........................... 10.625 07/15/09 326,764
200 Kappa Beheer BV--EUR (d)....................... 0/12.500 07/15/09 124,481
200 Repap New Brunswick--USD (c)................... 9.000 06/01/04 189,000
450 Sweetheart Cup Co., Inc.--USD.................. 10.500 09/01/03 437,625
------------
1,077,870
------------
</TABLE>
See Notes to Financial Statements
12
<PAGE> 56
YOUR FUND'S INVESTMENTS
March 31, 2000
<TABLE>
<CAPTION>
PAR AMOUNT
IN LOCAL U.S. $
CURRENCY MATURITY MARKET
(000) DESCRIPTION COUPON DATE VALUE
<C> <S> <C> <C> <C>
HEALTHCARE 1.3%
205 Columbia / HCA Healthcare Corp.--MTN--USD...... 6.630% 07/15/45 $ 194,750
625 Oxford Health Plans--USD....................... 11.000 05/15/05 621,875
200 Tenet Healthcare Corp., Ser B--USD............. 8.125 12/01/08 184,000
50 Triad Hospital Holdings, Inc.--USD............. 11.000 05/15/09 50,500
------------
1,051,125
------------
HOTEL & GAMING 2.0%
575 Booth Creek Ski Holdings, Ser B--USD (c)....... 12.500 03/15/07 416,875
150 Hollywood Casino Corp.--USD.................... 11.250 05/01/07 151,875
150 Isle Capri Casinos, Inc.--USD.................. 8.750 04/15/09 130,875
275 Majestic Star Casino LLC--USD.................. 10.875 07/01/06 259,188
750 Park Place Entertainment Corp.--USD (c)........ 7.875 12/15/05 693,750
------------
1,652,563
------------
MACHINERY 0.2%
200 Terex Corp., Ser D--USD........................ 8.875 04/01/08 178,000
------------
MINING/STEEL 0.4%
250 Renco Steel Holdings, Inc.--USD (c)............ 10.875 02/01/05 223,750
200 Republic Technology / RTI Capital,
144A--Private Placement--USD (a)............... 13.750 07/15/09 52,000
50 Republic Technology / RTI Capital--USD......... 13.750 07/15/09 13,000
------------
288,750
------------
OIL & GAS 2.5%
400 Frontier Oil Corp.--USD........................ 11.750 11/15/09 378,000
500 Giant Industries, Inc.--USD (c)................ 9.750 11/15/03 483,750
910 Hurricane Hydrocarbons Ltd., 144A--Private
Placement--USD (a)............................. 16.000 12/31/01 796,250
125 Port Arthur Finance Corp., 144A--Private
Placement--USD (a)............................. 12.500 01/15/09 117,813
250 R&B Falcon Corp.--USD.......................... 9.500 12/15/08 242,500
------------
2,018,313
------------
RETAIL 1.6%
250 Big 5 Corp., Ser B--USD (c).................... 10.875 11/15/07 236,250
400 Community Distributors, Ser B--USD (c)......... 10.250 10/15/04 322,000
400 Duane Reade, Inc.--USD (c)..................... 9.250 02/15/08 370,000
500 Saks Inc.--USD (c)............................. 7.375 02/15/19 420,000
------------
1,348,250
------------
</TABLE>
See Notes to Financial Statements
13
<PAGE> 57
YOUR FUND'S INVESTMENTS
March 31, 2000
<TABLE>
<CAPTION>
PAR AMOUNT
IN LOCAL U.S. $
CURRENCY MATURITY MARKET
(000) DESCRIPTION COUPON DATE VALUE
<C> <S> <C> <C> <C>
TELECOMMUNICATIONS 17.1%
200 Centennial Cellular Operating Co.--USD......... 10.750% 12/15/08 $ 199,000
1,000 CIA International Telecommunication--ARP (c)... 10.375 08/01/04 882,923
480 E. Spire Communications, Inc.--USD (c) (d)..... 0/13.000 11/01/05 288,000
200 Fairchild Semiconductor--USD................... 10.375 10/01/07 198,000
1,000 Global Telesystems Europe BV--EUR.............. 10.500 12/01/06 931,217
100 Globenet Communications LTD., 144A--Private
Placement--USD (a)............................. 13.000 07/15/07 98,500
235 Globo Communicacoes Participacoe, 144A--Private
Placement--USD (a) (c)......................... 10.625 12/05/08 204,450
500 Globo Communicacoes Participacoe--USD (c)...... 10.625 12/05/08 435,000
500 Hermes Europe Railtel BV--USD (c).............. 11.500 08/15/07 472,500
450 Intermedia Communications Inc., Ser B--USD
(d)............................................ 0/12.250 03/01/09 272,250
65 Intersil Corp, Ser UNIT--USD................... 13.250 08/15/09 74,425
500 KPNQWest BV--USD............................... 8.125 06/01/09 475,000
2,500 MCI Worldcom Inc.--USD (c)..................... 8.875 01/15/06 2,605,043
250 Millicom International--USD (c) (d)............ 0/13.500 06/01/06 211,875
1,500 Netia Holdings BV--USD......................... 10.250 11/01/07 1,335,000
630 Nextel Communications --USD.................... 9.375 11/15/09 573,300
1,000 Nextlink Communications, Inc., 144A--Private
Placement--USD (a)............................. 10.500 12/01/09 950,000
350 Philippine Long Distance Telephone, Ser
EMTN--USD (c).................................. 10.500 04/15/09 342,895
375 Pinnacle Holdings, Inc.--USD (c) (d)........... 0/10.000 03/15/08 242,813
110 Primus Telecommunications Group--USD........... 11.250 01/15/09 100,650
200 PSINet, Inc., Ser B--USD....................... 10.000 02/15/05 188,000
500 Satelites Mexicanos SA, Ser B--USD............. 10.125 11/01/04 422,500
750 SBA Communications Corp.--USD (c) (d).......... 0/12.000 03/01/08 491,250
250 Splitrock Services, Inc., Ser B--USD (c)....... 11.750 07/15/08 266,250
500 Sun Microsystems, Inc.--USD (c)................ 7.500 08/15/06 499,854
480 Telecorp PCS, Inc.--USD (d).................... 0/11.625 04/15/09 297,600
600 Triton PCS, Inc.--USD (c) (d).................. 0/11.000 05/01/08 408,000
250 Viatel, Inc.--USD (c) (d)...................... 0/12.500 04/15/08 143,125
500 Winstar Communications Inc.--USD (d)........... 0/14.000 10/15/05 513,750
------------
14,123,170
------------
TEXTILES 0.3%
110 Scovill Fasteners, Inc., Ser B--USD (c)........ 11.250 11/30/07 49,500
200 Sleepmaster LLC, Ser B--USD.................... 11.000 05/15/09 199,000
------------
248,500
------------
</TABLE>
See Notes to Financial Statements
14
<PAGE> 58
YOUR FUND'S INVESTMENTS
March 31, 2000
<TABLE>
<CAPTION>
PAR AMOUNT
IN LOCAL U.S. $
CURRENCY MATURITY MARKET
(000) DESCRIPTION COUPON DATE VALUE
<C> <S> <C> <C> <C>
TRANSPORTATION 0.3%
350 Greyhound Lines, Inc., Ser B--USD.............. 11.500% 04/15/07 $ 264,250
------------
UTILITIES 4.1%
1,000 Central Termica Guemes, SA, 144A--Private
Placement--USD (a) (c) (i)..................... 12.000 11/26/01 50,000
1,000 Edelnor, 144A--Private Placement--USD (a)
(c)............................................ 10.500 06/15/05 400,000
1,600 Edelnor, 144A--Private Placement--USD (a)
(c)............................................ 7.750 03/15/06 448,000
1,000 Korea Electric Power Corp.--USD (c)............ 7.000 02/01/27 915,000
375 Midamerican Energy Holdings--USD (c)........... 7.230 09/15/05 366,563
250 Western Resources, Inc.--USD................... 6.875 08/01/04 200,203
1,000 Southern Energy, Inc., 144A--Private
Placement--USD (a) (c)......................... 7.900 07/15/09 989,311
------------
3,369,077
------------
TOTAL CORPORATE BONDS 52.5%............................................. 43,299,254
------------
FOREIGN GOVERNMENT AND AGENCY SECURITIES 45.7%
ARGENTINA 0.5%
500 Republic of Argentina, Ser D--USD.............. * 10/15/02 395,000
------------
AUSTRALIA 1.5%
2,000 Australian Government--AUD (c)................. 6.750 11/15/06 1,234,026
------------
BRAZIL 2.2%
2,426 Republic of Brazil--USD (e).................... 8.000 04/15/14 1,816,903
------------
BULGARIA 1.5%
1,500 Bulgaria Disc, Ser A--USD (c) (e).............. 7.062 07/28/24 1,203,750
------------
CANADA 5.1%
1,250 Canadian Government, Ser A83--CAD.............. 7.500 03/01/01 872,316
5,000 Canadian Government--CAD....................... 5.500 06/01/09 3,334,480
------------
4,206,796
------------
COLUMBIA 0.4%
750 Republic of Columbia--DEM...................... 4.890 11/21/01 358,011
------------
FRANCE 3.5%
3,000 French Treasury Note BTAN--EUR (c)............. 5.500 10/12/01 2,918,612
------------
GERMANY 3.4%
3,000 Bundesschatzanweisungen, Ser 99--EUR (c)....... 3.500 09/14/01 2,839,614
------------
HUNGARY 2.0%
433,350 Hungary Government--HUF........................ 16.000 11/24/00 1,660,898
------------
</TABLE>
See Notes to Financial Statements
15
<PAGE> 59
YOUR FUND'S INVESTMENTS
March 31, 2000
<TABLE>
<CAPTION>
PAR AMOUNT
IN LOCAL U.S. $
CURRENCY MATURITY MARKET
(000) DESCRIPTION COUPON DATE VALUE
<C> <S> <C> <C> <C>
ITALY 4.4%
775 Republic of Italy BTPS--EUR.................... 9.500% 05/01/01 $ 781,856
3,000 Republic of Italy BTPS--EUR.................... 4.000 09/01/01 2,855,988
------------
3,637,844
------------
MEXICO 4.7%
1,000 United Mexican States, Ser XW--USD............. 10.375 02/17/09 1,076,500
1,500 United Mexican States, Ser D--USD (e).......... 6.903 12/31/19 1,471,875
1,500 United Mexican States, Ser B--USD (e).......... 6.250 12/31/19 1,276,800
------------
3,825,175
------------
MOROCCO 0.9%
857 Morocco Trust A Loan--USD (j).................. 6.844 01/01/09 773,846
------------
NEW ZEALAND 1.3%
2,000 New Zealand Government--NZD (c)................ 8.000 11/15/06 1,042,802
------------
PANAMA 1.7%
1,400 Republic of Panama, 144A--Private Placement--
USD (a) (c).................................... 7.875 02/13/02 1,361,500
------------
RUSSIA 4.5%
12,800 Russia Principal Loan-Vnesh--USD (f) (i)....... 6.906 12/15/20 3,680,000
216 Russia-IAN--USD (i)............................ 6.906 12/15/15 63,043
------------
3,743,043
------------
SPAIN 3.5%
3,000 Spanish Government--EUR (c).................... 4.250 07/30/02 2,848,232
------------
UNITED KINGDOM 2.7%
1,000 U.K. Treasury--GBP............................. 7.000 11/06/01 1,607,226
350 U.K. Treasury--GBP............................. 6.750 11/26/04 575,345
------------
2,182,571
------------
URUGUAY 1.0%
881 Republica Orient Uruguay--USD (c).............. 7.875 07/15/27 863,380
------------
VENEZUELA 0.9%
1,000 Republic of Venezuela--USD (c) (e)............. 6.750 03/31/20 710,000
------------
TOTAL FOREIGN GOVERNMENT AND AGENCY SECURITIES 45.7%.................... 37,622,003
------------
</TABLE>
See Notes to Financial Statements
16
<PAGE> 60
YOUR FUND'S INVESTMENTS
March 31, 2000
<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.) 20.5%
1,272 DLJ Mortgage Acceptance Corp. 1996-E,
144A--Private Placement--USD (a) (c)........... 6.906% 12/28/25 $ 1,147,784
2,000 Federal Home Loan Bank--Ser AH01............... 7.905 11/07/01 2,028,600
2,000 Federal Home Loan Mortgage Corporation......... 7.000 05/12/14 1,886,040
11,042 FNMA REMIC #97-20 IB (Interest Only) (c)....... 1.840 03/25/27 379,576
3,500 FNMA 15 YR (b)................................. 6.500 TBA 3,367,665
46 FNMA (c)....................................... 6.500 04/01/29 42,796
295 FNMA (c)....................................... 6.500 06/01/29 277,339
42 FNMA........................................... 6.500 06/01/29 39,854
661 FNMA (c)....................................... 6.500 06/01/29 620,493
569 FNMA (c)....................................... 6.500 07/01/29 533,444
388 FNMA (c)....................................... 6.500 07/01/29 364,600
27 FNMA........................................... 6.500 07/01/29 25,008
301 FNMA........................................... 6.500 08/01/29 282,682
31 FNMA........................................... 6.500 08/01/29 29,185
471 FNMA........................................... 6.500 08/01/29 441,593
36 FNMA........................................... 6.500 09/01/29 33,683
641 FNMA (c)....................................... 6.500 11/01/29 600,576
906 FNMA (c)....................................... 6.500 11/01/29 850,882
291 GNMA (c)....................................... 7.000 05/15/26 282,450
318 GNMA (c)....................................... 7.000 05/15/28 308,440
213 GNMA (c)....................................... 7.000 06/15/28 206,259
2,227 GNMA (c)....................................... 7.000 07/15/28 2,158,825
15,856 SBA Strip (Interest Only) (c).................. * 08/24/19 1,007,944
------------
TOTAL MORTGAGE BACKED SECURITIES (U.S.)................................. 16,915,718
------------
U.S. GOVERNMENT AND GOVERNMENT AGENCY
OBLIGATIONS 2.3%
2,000 U.S. Treasury Bonds (h)........................ 5.500 08/15/28 1,856,380
------------
</TABLE>
See Notes to Financial Statements
17
<PAGE> 61
YOUR FUND'S INVESTMENTS
March 31, 2000
<TABLE>
<CAPTION>
U.S. $
MARKET
DESCRIPTION SHARES VALUE
<C> <S> <C> <C> <C>
COMMON AND PREFERRED STOCK 4.2%
Avalon Bay Communities, Ser G--Preferred Shares--USD (c)................. 50,000 $ 1,081,250
Dobson Communications Corp.--Preferred Shares--USD (f)................... 220 236,500
Grupo Casa Autrey--ADR (Mexico)--USD (c)................................. 8,500 64,813
Intersil Holding Corp.--Warrants, 144A--Private Placement--USD (a)....... 100 89,000
McLeodUSA, Inc.--USD..................................................... 600 50,927
MEPC International Capital, LP--Preferred Shares--USD (c)................ 100,000 1,962,500
Thai Military Bank--THB.................................................. 15,000 4,168
------------
TOTAL COMMON AND PREFERRED STOCK......................................... 3,489,158
------------
TOTAL LONG-TERM INVESTMENTS 135.3%
(Cost $119,317,391)................................................................ 111,534,724
FOREIGN CURRENCY (VARIOUS DENOMINATIONS) 0.1%
(Cost $61,576)..................................................................... 61,554
LIABILITIES IN EXCESS OF OTHER ASSETS (35.4%)....................................... (29,185,903)
------------
NET ASSETS 100.0%................................................................... $ 82,410,375
============
</TABLE>
* Zero coupon bond.
ARP--Argentine Peso
AUD--Australian Dollar
CAD--Canadian Dollar
DEM--German Mark
EUR--Eurodollar
GBP--Great Britain Pound
HUF--Hungarian Forint
NZD--New Zealand Dollar
THB--Thai Baht
USD--United States Dollar
ADR--American Depositary Receipt
EMTN--Euro Medium Term Note
MTN--Medium Term note
(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.
(b) Securities purchased on a when-issued or delayed delivery basis.
(c) Assets segregated as collateral for when-issued or delayed delivery purchase
commitments, open forwards or borrowings of the Fund.
See Notes to Financial Statements
18
<PAGE> 62
YOUR FUND'S INVESTMENTS
March 31, 2000
(d) Security is a "step-up" bond where the coupon increases, or steps up, at a
predetermined date.
(e) 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.
(f) Payment-in-kind security.
(g) Security is accruing at less than the stated coupon.
(h) Security out as collateral for reverse repurchase agreement.
(i) Security is in default.
(j) Security is a bank loan participation.
PORTFOLIO COMPOSITION BY CREDIT QUALITY*
The following table summarizes the portfolio composition at March 31, 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...... 15.8%
AAA......................................................... 18.8%
AA.......................................................... 5.8%
A........................................................... 3.8%
BBB......................................................... 13.0%
BB.......................................................... 13.3%
B........................................................... 20.7%
CCC......................................................... 0.7%
CC.......................................................... 0.1%
C........................................................... 0.7%
Non-Rated................................................... 7.3%
-----
100.0%
=====
</TABLE>
* As a percentage of long-term investments.
See Notes to Financial Statements
19
<PAGE> 63
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
March 31, 2000
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $119,317,391)....................... $111,534,724
Cash........................................................ 11,529
Foreign Currency (Cost $61,576)............................. 61,554
Receivables:
Interest.................................................. 2,218,439
Investments Sold.......................................... 1,807,188
Forward Currency Contracts................................ 73,203
Fund Shares Sold.......................................... 21,301
Other....................................................... 3,502
------------
Total Assets............................................ 115,731,440
------------
LIABILITIES:
Payables:
Bank Borrowings........................................... 25,995,363
Investments Purchased..................................... 4,492,947
Reverse Repurchase Agreements............................. 1,832,816
Income Distributions...................................... 239,655
Interest Payable.......................................... 141,093
Fund Shares Repurchased................................... 137,115
Distributor and Affiliates................................ 109,469
Investment Advisory Fee................................... 47,843
Trustees' Deferred Compensation and Retirement Plans........ 179,289
Accrued Expenses............................................ 145,475
------------
Total Liabilities....................................... 33,321,065
------------
NET ASSETS.................................................. $ 82,410,375
============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $105,101,736
Accumulated Distribution in Excess of Net Investment
Income.................................................... (559,864)
Net Unrealized Depreciation................................. (7,808,973)
Accumulated Net Realized Loss............................... (14,322,524)
------------
NET ASSETS.................................................. $ 82,410,375
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $33,929,944 and 3,272,193 shares of
beneficial interest issued and outstanding)............. $ 10.37
Maximum sales charge (4.75%* of offering price)......... .52
------------
Maximum offering price to public........................ $ 10.89
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $45,066,353 and 4,339,448 shares of
beneficial interest issued and outstanding)............. $ 10.39
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $3,414,078 and 329,291 shares of
beneficial interest issued and outstanding)............. $ 10.37
============
</TABLE>
* On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
20
<PAGE> 64
Statement of Operations
For the Year Ended March 31, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest (Net of foreign withholding taxes of $22,097)...... $10,491,374
Dividends................................................... 359,721
-----------
Total Income............................................ 10,851,095
-----------
EXPENSES:
Investment Advisory Fee..................................... 974,546
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $93,123, $532,924 and $36,423,
respectively)............................................. 662,470
Shareholder Services........................................ 145,083
Custody..................................................... 79,483
Trustees' Fees and Related Expenses......................... 69,236
Legal....................................................... 22,875
Other....................................................... 164,121
-----------
Total Operating Expenses................................ 2,117,814
Less:
Investment Advisory Fee Reduction..................... 268,083
Credits Earned on Cash Balances....................... 6,778
-----------
Net Operating Expenses.................................. 1,842,953
Interest Expense........................................ 1,946,558
-----------
Net Expenses............................................ 3,789,511
-----------
NET INVESTMENT INCOME....................................... $ 7,061,584
===========
NET REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $(3,223,337)
Options................................................... 3,087
Futures................................................... (857,481)
Forwards.................................................. 92,250
Foreign Currency Transactions............................. (913,531)
-----------
Net Realized Loss........................................... (4,899,012)
-----------
Net Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (7,276,985)
-----------
End of the Period:
Investments............................................. (7,782,689)
Forwards................................................ (7,422)
Foreign Currency Translation............................ (18,862)
-----------
(7,808,973)
-----------
Net Unrealized Depreciation During the Period............... (531,988)
-----------
NET REALIZED AND UNREALIZED LOSS............................ $(5,431,000)
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 1,630,584
===========
</TABLE>
See Notes to Financial Statements
21
<PAGE> 65
Statement of Changes in Net Assets
For the Year Ended March 31, 2000, the Nine Months Ended March 31, 1999 and the
Year Ended June 30, 1998
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED YEAR ENDED
MARCH 31, 2000 MARCH 31, 1999 JUNE 30, 1998
-------------------------------------------------
<S> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................. $ 7,061,584 $ 6,557,498 $ 9,217,102
Net Realized Loss..................... (4,899,012) (6,755,235) (1,253,925)
Net Unrealized Depreciation During the
Period.............................. (531,988) (6,100,297) (3,763,808)
------------ ------------ ------------
Change in Net Assets from
Operations.......................... 1,630,584 (6,298,034) 4,199,369
------------ ------------ ------------
Distributions from Net Investment
Income*............................. (5,032,864) (5,622,679) (9,238,901)
Return of Capital Distribution*....... (2,704,412) (1,182,153) -0-
------------ ------------ ------------
Total Distributions................... (7,737,276) (6,804,832) (9,238,901)
------------ ------------ ------------
NET CHANGE IN NET ASSETS FROM
INVESTMENT ACTIVITIES............... (6,106,692) (13,102,866) (5,039,532)
------------ ------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold............. 11,907,164 20,972,354 37,212,204
Net Asset Value of Shares Issued
Through Dividend Reinvestment....... 4,073,954 3,077,004 4,088,237
Cost of Shares Repurchased............ (36,085,472) (27,689,372) (34,763,480)
------------ ------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS........................ (20,104,354) (3,640,014) 6,536,961
------------ ------------ ------------
TOTAL INCREASE/DECREASE IN NET
ASSETS.............................. (26,211,046) (16,742,880) 1,497,429
NET ASSETS:
Beginning of the Period............... 108,621,421 125,364,301 123,866,872
------------ ------------ ------------
End of the Period (Including
accumulated distributions in excess
of net investment income of
$559,864, $974,738 and $1,909,557,
respectively)....................... $ 82,410,375 $108,621,421 $125,364,301
============ ============ ============
* Distributions by Class
- --------------------------------------
Distributions from Net Investment
Income:
Class A Shares...................... $ (2,118,740) $ (2,213,332) $ (3,523,499)
Class B Shares...................... (2,725,948) (3,219,759) (5,451,394)
Class C Shares...................... (188,176) (189,588) (264,008)
------------ ------------ ------------
$ (5,032,864) $ (5,622,679) $ (9,238,901)
============ ============ ============
Return of Capital Distribution:
Class A Shares...................... $ (1,125,756) $ (465,347) $ -0-
Class B Shares...................... (1,480,317) (676,946) -0-
Class C Shares...................... (98,339) (39,860) -0-
------------ ------------ ------------
$ (2,704,412) $ (1,182,153) $ -0-
============ ============ ============
</TABLE>
See Notes to Financial Statements
22
<PAGE> 66
Statement of Cash Flows
For the Year Ended March 31, 2000
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Purchase of Investments..................................... $(159,955,838)
Proceeds from Sales of Investments.......................... 180,095,389
Net Investment Income....................................... 7,061,584
Adjustments to Reconcile Net Investment Income to Net Cash
Provided by Operating Activities:
Decrease in Interest Receivable........................... 154,205
Decrease in Short-Term Investments........................ 8,842,013
Increase in Foreign Currency.............................. (61,576)
Net Foreign Currency Gain/Loss............................ (989,290)
Net Futures Gain/Loss..................................... (777,480)
Amortization of Premium/Discount.......................... (540,968)
Increase in Other Assets.................................. (3,502)
Decrease in Advisory Fee Payable.......................... (15,397)
Decrease in Distributor & Affiliates Payable.............. (12,561)
Decrease in Accrued Expenses.............................. (129,019)
Increase in Trustees' Deferred Compensation and Retirement
Plans................................................... 51,149
-------------
Total Adjustments....................................... 6,517,574
-------------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 33,718,709
-------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Fund Shares Sold.............................. 11,999,577
Payments for Shares Redeemed................................ (36,203,100)
Distributions to Shareholders............................... (3,830,523)
Increase in Bank Borrowings................................. 6,469,766
Decrease in Reverse Repurchase Agreements................... (12,365,570)
Increase in Interest Payable................................ 141,093
-------------
NET CASH USED FOR FINANCING ACTIVITIES...................... (33,788,757)
-------------
NET DECREASE IN CASH........................................ (70,048)
Cash at Beginning of the Period............................. 81,577
-------------
CASH AT END OF THE PERIOD................................... $ 11,529
=============
Supplemental disclosure of cash flow information: Cash paid
during the period for interest............................ $ 1,992,221
=============
</TABLE>
See Notes to Financial Statements
23
<PAGE> 67
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
YEAR NINE MONTHS
ENDED ENDED YEAR ENDED JUNE 30,
CLASS A SHARES MARCH 31, MARCH 31, -------------------------------------
2000(A) 1999 1998 1997 1996 1995
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF THE PERIOD............ $11.018 $12.286 $12.778 $12.065 $11.704 $11.975
------- ------- ------- ------- ------- -------
Net Investment Income.... .843 .679 .973 1.019 1.013 .657
Net Realized and
Unrealized Gain/Loss... (.574) (1.236) (.489) .714 .446 .272
------- ------- ------- ------- ------- -------
Total from Investment
Operations............... .269 (.557) .484 1.733 1.459 .929
------- ------- ------- ------- ------- -------
Less:
Distributions from and in
Excess of Net
Investment Income...... .598 .587 .976 1.020 1.098 .793
Return of Capital
Distribution........... .320 .124 -0- -0- -0- .407
------- ------- ------- ------- ------- -------
Total Distributions........ .918 .711 .976 1.020 1.098 1.200
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF THE
PERIOD................... $10.369 $11.018 $12.286 $12.778 $12.065 $11.704
======= ======= ======= ======= ======= =======
Total Return* (b).......... 2.66% (4.47%)** 3.89% 14.92% 12.92% 8.46%
Net Assets at End of the
Period (In millions)..... $ 33.9 $ 41.8 $ 45.3 $ 43.8 $ 33.8 $ 29.6
Ratio of Expenses to
Average Net Assets....... 3.60% 3.32% 3.37% 3.80% 4.11% 4.36%
Ratio of Expenses,
excluding Interest
Expense, to Average Net
Assets*.................. 1.52% 1.53% 1.68% 1.81% 1.84% 1.98%
Ratio of Net Investment
Income to Average Net
Assets*.................. 8.00% 8.06% 7.72% 8.12% 8.34% 5.88%
Portfolio Turnover......... 122% 282%** 523% 474% 343% 253%
* 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................... 1.80% 1.82% 1.78% 1.86% 1.92% N/A
Ratio of Net Investment
Income to Average Net
Assets................... 7.71% 7.78% 7.63% 8.07% 8.26% N/A
</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
24
<PAGE> 68
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
YEAR NINE MONTHS
ENDED ENDED YEAR ENDED JUNE 30,
CLASS B SHARES MARCH 31, MARCH 31, -------------------------------------
2000(A) 1999 1998 1997 1996 1995
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF THE PERIOD............. $11.026 $12.286 $12.779 $12.069 $11.706 $11.968
------- ------- ------- ------- ------- -------
Net Investment Income..... .771 .622 .878 .920 .926 .585
Net Realized and
Unrealized Gain/Loss.... (.579) (1.243) (.491) .717 .443 .245
------- ------- ------- ------- ------- -------
Total from Investment
Operations................ .192 (.621) .387 1.637 1.369 .830
------- ------- ------- ------- ------- -------
Less:
Distributions from and in
Excess of Net Investment
Income.................. .536 .528 .880 .927 1.006 .722
Return of Capital
Distribution............ .297 .111 -0- -0- -0- .370
------- ------- ------- ------- ------- -------
Total Distributions......... .833 .639 .880 .927 1.006 1.092
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF THE
PERIOD.................... $10.385 $11.026 $12.286 $12.779 $12.069 $11.706
======= ======= ======= ======= ======= =======
Total Return* (b)........... 1.93% (4.99%)** 3.11% 13.98% 12.06% 7.62%
Net Assets at End of the
Period (In millions)...... $ 45.1 $ 62.8 $ 76.2 $ 76.2 $ 61.9 $ 52.6
Ratio of Expenses to Average
Net Assets................ 4.36% 4.09% 4.13% 4.55% 4.85% 5.06%
Ratio of Expenses, excluding
Interest Expense, to
Average Net Assets*....... 2.28% 2.29% 2.44% 2.57% 2.59% 2.68%
Ratio of Net Investment
Income to Average Net
Assets*................... 7.25% 7.30% 6.96% 7.33% 7.58% 5.30%
Portfolio Turnover.......... 122% 282%** 523% 474% 343% 253%
* 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........ 2.56% 2.58% 2.54% 2.61% 2.67% N/A
Ratio of Net Investment
Income to Average Net
Assets.................... 6.97% 7.02% 6.86% 7.28% 7.50% N/A
</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
25
<PAGE> 69
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
YEAR NINE MONTHS
ENDED ENDED YEAR ENDED JUNE 30,
CLASS C SHARES MARCH 31, MARCH 31, -------------------------------------
2000(A) 1999 1998 1997 1996 1995
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF THE PERIOD............. $11.013 $12.274 $12.768 $12.059 $11.699 $11.966
------- ------- ------- ------- ------- -------
Net Investment Income..... .760 .607 .876 .913 .944 .598
Net Realized and
Unrealized Gain/Loss.... (.572) (1.229) (.490) .723 .422 .227
------- ------- ------- ------- ------- -------
Total from Investment
Operations................ .188 (.622) .386 1.636 1.366 .825
------- ------- ------- ------- ------- -------
Less:
Distributions from and in
Excess of Net Investment
Income.................. .544 .528 .880 .927 1.006 .722
Return of Capital
Distribution............ .289 .111 -0- -0- -0- .370
------- ------- ------- ------- ------- -------
Total Distributions......... .833 .639 .880 .927 1.006 1.092
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF THE
PERIOD.................... $10.368 $11.013 $12.274 $12.768 $12.059 $11.699
======= ======= ======= ======= ======= =======
Total Return* (b)........... 1.93% (5.01%)** 3.03% 13.99% 12.07% 7.53%
Net Assets at End of the
Period (In millions)...... $ 3.4 $ 4.0 $ 3.9 $ 3.8 $ 3.1 $ 1.7
Ratio of Expense to Average
Net Assets................ 4.37% 4.05% 4.13% 4.54% 4.80% 5.07%
Ratio of Expenses, excluding
Interest Expense, to
Average Net Assets*....... 2.29% 2.28% 2.44% 2.56% 2.58% 2.69%
Ratio of Net Investment
Income to Average Net
Assets*................... 7.22% 7.29% 6.96% 7.31% 7.49% 5.92%
Portfolio Turnover.......... 122% 282%** 523% 474% 343% 253%
* 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........ 2.57% 2.57% 2.54% 2.61% 2.66% N/A
Ratio of Net Investment
Income to Average Net
Assets.................... 6.93% 7.01% 6.87% 7.27% 7.41% N/A
</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
26
<PAGE> 70
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000
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 generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
A. SECURITY VALUATION Investments are stated at value using market quotations,
prices provided by market makers or, if such valuations are not available,
estimates obtained from yield data relating to instruments or securities with
similar characteristics in accordance with procedures established in good faith
by the Board of Trustees. Foreign investments are stated at value using the last
available bid price or yield equivalents obtained from dealers in the
over-the-counter (OTC) or interbank market. Short-term securities with remaining
maturities of 60 days or less are valued at amortized cost 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
27
<PAGE> 71
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000
equal to the amount of the when-issued or delayed delivery purchase commitments
until payment is made.
C. INCOME AND EXPENSES Interest income is recorded on an accrual basis and
dividend income is recorded on the ex-dividend date. Original issue discount is
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. Although the
Fund's fiscal year end is March 31, the Fund's tax year end was changed from
June 30 to 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 $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, and
the difference in the Fund's tax year end.
At March 31, 2000, for federal income tax purposes, the cost of long-term
investments is $119,321,991; the aggregate gross unrealized appreciation is
$3,704,918 and the aggregate gross unrealized depreciation is $11,492,185,
resulting in net unrealized depreciation on long-term investments of $7,787,267.
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
28
<PAGE> 72
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000
losses are included as net realized gains or losses for financial reporting
purposes. Net realized gains, if any, are distributed annually.
For tax purposes, the determination of a return of capital distribution is
made at the end of the Fund's taxable year (December 31). For the taxable years
ended June 30, 1999 and December 31, 1999, permanent book and tax basis
differences relating to the recognition of net realized losses on foreign
currency transactions totaling $1,125,704 and $488,142 were reclassified from
accumulated net realized gain/loss to accumulated undistributed net investment
income.
G. EXPENSE REDUCTIONS During the year ended March 31, 2000, the Fund's custody
fee was reduced by $6,778 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 year ended March 31, 2000, the Adviser voluntarily waived
approximately $268,100 of its investment advisory fees. This waiver is voluntary
and can be discontinued at any time.
For the year ended March 31, 2000, the Fund recognized expenses of
approximately $6,500 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the year ended March 31, 2000, the Fund recognized expenses of
approximately $29,400 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 year ended March 31, 2000,
the Fund recognized expenses of approximately $49,900. Transfer agency fees are
determined through negotiations with the Fund's Board of Trustees and are based
on competitive market benchmarks.
29
<PAGE> 73
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
3. CAPITAL TRANSACTIONS
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>
30
<PAGE> 74
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000
At March 31, 1999, capital aggregated $49,062,509, $75,267,108 and
$4,763,038 for Classes A, B and C, respectively. For the nine months ended March
31, 1999, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A................................................. 797,826 $ 9,027,495
Class B................................................. 895,851 10,155,513
Class C................................................. 156,680 1,789,346
---------- ------------
Total Sales............................................... 1,850,357 $ 20,972,354
========== ============
Dividend Reinvestment:
Class A................................................. 112,529 $ 1,258,452
Class B................................................. 148,695 1,664,203
Class C................................................. 13,820 154,349
---------- ------------
Total Dividend Reinvestment............................... 275,044 $ 3,077,004
========== ============
Repurchases:
Class A................................................. (807,350) $ (9,050,583)
Class B................................................. (1,549,706) (17,323,867)
Class C................................................. (117,752) (1,314,922)
---------- ------------
Total Repurchases......................................... (2,474,808) $(27,689,372)
========== ============
</TABLE>
31
<PAGE> 75
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000
At June 30, 1998, capital aggregated $47,827,145, $80,771,259 and $4,134,265
for Classes A, B and C, respectively. For the year ended June 30, 1998,
transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A................................................. 1,118,648 $ 14,164,929
Class B................................................. 1,677,599 21,153,724
Class C................................................. 150,464 1,893,551
---------- ------------
Total Sales............................................... 2,946,711 $ 37,212,204
========== ============
Dividend Reinvestment:
Class A................................................. 131,101 $ 1,649,403
Class B................................................. 180,125 2,266,285
Class C................................................. 13,723 172,549
---------- ------------
Total Dividend Reinvestment............................... 324,949 $ 4,088,237
========== ============
Repurchases:
Class A................................................. (990,262) $(12,470,355)
Class B................................................. (1,620,464) (20,396,054)
Class C................................................. (150,449) (1,897,071)
---------- ------------
Total Repurchases......................................... (2,761,175) $(34,763,480)
========== ============
</TABLE>
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 year ended
March 31, 2000, 203,892 Class B shares converted to Class A shares 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 year ended March 31, 2000, no Class C shares
converted to Class A shares. The CDSC will be imposed on most redemptions made
within six years of
32
<PAGE> 76
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000
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
--------------------------
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 year ended March 31, 2000, Van Kampen, as Distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately
$8,200, and CDSC on redeemed shares of approximately $214,700. Sales charges do
not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $151,631,002 and $179,780,838,
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.
33
<PAGE> 77
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000
Summarized below are the specific types of derivative financial instruments
used by the Fund.
A. OPTION CONTRACTS An option contract gives the buyer the right, but not the
obligation to buy (call) or sell (put) an underlying item at a fixed exercise
price during a specified period. These contracts are generally used by the Fund
to manage the portfolio's effective maturity and duration.
Transactions in options for the year ended March 31, 2000 were as follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
<S> <C> <C>
Outstanding at March 31, 1999............................... 25 $ 44,331
Options terminated in closing transactions.................. (25) (44,331)
--- --------
Outstanding at March 31, 2000............................... -0- $ -0-
=== ========
</TABLE>
B. FUTURES CONTRACTS A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Fund generally invests in futures on U.S. Treasury Bonds and typically closes
the contract prior to the delivery date. These contracts are generally used to
manage the portfolio's effective maturity and duration.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, 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.
Transactions in futures contracts for the year ended March 31, 2000, were as
follows:
<TABLE>
<CAPTION>
CONTRACTS
<S> <C>
Outstanding at March 31, 1999............................... 150
Futures Opened.............................................. 886
Futures Closed.............................................. (1,036)
------
Outstanding at March 31, 2000............................... -0-
======
</TABLE>
C. FORWARD CURRENCY CONTRACTS These instruments are commitments to purchase or
sell a foreign currency at a future date at a negotiated forward rate. The gain
or loss arising from the difference between the original value of the contract
and the
34
<PAGE> 78
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000
closing value of such contract is included as a component of realized gain/loss
on forwards.
At March 31, 2000, the Fund has outstanding forward currency contracts as
follows:
<TABLE>
<CAPTION>
CURRENT UNREALIZED
FORWARD CURRENCY VALUE DEPRECIATION
<S> <C> <C>
SHORT CONTRACTS:
Great Britain Pound,
561,918 maturing 4/25/00................................. $894,746 $(7,422)
======== =======
</TABLE>
D. CLOSED BUT UNSETTLED FORWARD COMMITMENTS In certain situations, the Fund has
entered into offsetting transactions for outstanding forward commitments prior
to settlement of the obligation. In doing so, the Fund realizes a gain or loss
on the transactions at the time the forward commitment is closed. Risk may
result due to the potential inability of counterparties to meet the terms of
their contracts. At March 31, 2000, the Fund has a net realized gain on closed
but unsettled forward currency contracts of $80,625 scheduled to settle on May
31, 2000.
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 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
35
<PAGE> 79
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000
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.
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 year ended March 31, 2000, are payments retained by Van Kampen of
approximately $428,500.
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.
The Fund has entered into a $45,000,000 revolving credit agreement which
expires on May 31, 2000. Interest is charged under the agreement at a rate of
.425% above the federal funds rate. The interest rate in effect at March 31,
2000, was 6.7375%. An annual facility fee of .075% is charged on the maximum
facility of this line of credit.
36
<PAGE> 80
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000
The Fund has entered into reverse repurchase agreements with Warburg Dillon
Read LLC, under which the Fund sells securities and agrees to repurchase them on
April 1, 2000 at a mutually agreed upon price. For the year ended March 31,
2000, the average interest rate in effect for reverse repurchase agreements was
4.6300%.
The average daily balance of bank borrowings and reverse repurchase
agreements for the year ended March 31, 2000, was approximately $35,782,000 with
an average interest rate of 5.49%.
At March 31, 2000, these agreements represented 24.0% of the Fund's total
assets.
37
<PAGE> 81
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of Van Kampen Strategic Income Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen Strategic Income Fund
(the "Fund") at March 31, 2000, and the results of its operations, the changes
in its net assets and the financial highlights for the year then ended in
conformity with accounting principles generally accepted in the United States.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements in
accordance with auditing standards generally accepted in the United States,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of securities at March 31, 2000 by correspondence with the
custodian and brokers, provides a reasonable basis for the opinion expressed
above. The statement of changes in net assets and the financial highlights for
each of the periods ended on or prior to March 31, 1999 were audited by other
independent accountants whose report dated May 6, 1999 expressed an unqualified
opinion thereon.
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
May 5, 2000
38
<PAGE> 82
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
Small Cap Value
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
High Yield & Total Return
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
39
<PAGE> 83
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*(1)
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
PETER W. HEGEL*
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 ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
200 E. Randolph Drive
Chicago, Illinois 60601
(1) Appointed Executive Vice President and Chief Investment Officer effective
April 3, 2000.
* "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 August 31,
2000, the report must be accompanied by a quarterly performance update, if
applicable.
40
<PAGE> 84
RESULTS OF
SHAREHOLDER VOTES
A Joint Special Meeting of Shareholders of the Fund was held on December 15,
1999, where shareholders voted on the election of trustees and the selection of
independent public accountants.
1) With regard to the election of the following trustees by shareholders:
<TABLE>
<CAPTION>
# OF SHARES
-----------------------------
IN FAVOR WITHHELD
<S> <C> <C>
J. Miles Branagan...................................... 6,274,665 103,941
Jerry D. Choate........................................ 6,267,191 111,416
Linda Hutton Heagy..................................... 6,274,405 104,202
R. Craig Kennedy....................................... 6,274,665 103,941
Mitchell M. Merin...................................... 6,270,500 108,107
Jack E. Nelson......................................... 6,282,999 95,608
Richard F. Powers, III................................. 6,270,674 107,932
Phillip B. Rooney...................................... 6,274,665 103,941
Fernando Sisto......................................... 6,271,155 107,451
Wayne W. Whalen........................................ 6,274,665 103,941
Suzanne H. Woolsey..................................... 6,267,191 111,416
Paul G. Yovovich*...................................... 6,274,665 103,941
</TABLE>
* Effective April 14, 2000, Paul G. Yovovich resigned from the Board of
Trustees.
2) With regard to the ratification of KPMG LLP as independent public accountants
for the Fund, 6,202,246 shares voted for the proposal, 32,475 shares voted
against the proposal and 143,885 shares abstained.**
** KPMG LLP has ceased being the Fund's independent accountants 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.
41
