<PAGE>
Table of Contents
<TABLE>
<S> <C>
Letter to Shareholders....................................................... 1
Performance Results.......................................................... 3
Portfolio Highlights......................................................... 4
Performance in Perspective................................................... 5
Portfolio Management Review.................................................. 6
Portfolio of Investments..................................................... 9
Statement of Assets and Liabilities.......................................... 13
Statement of Operations...................................................... 14
Statement of Changes in Net Assets........................................... 15
Financial Highlights......................................................... 16
Notes to Financial Statements................................................ 19
Report of Independent Accountants............................................ 26
</TABLE>
CORP ANR 10/97
<PAGE>
Letter to Shareholders
[PHOTO OF DENNIS J. MCDONNELL AND DON G. POWELL APPEARS HERE]
September 26, 1997
Dear Shareholder,
As you know, Van Kampen American Capital was acquired by Morgan Stanley
Group Inc., paving the way for the development of a prominent global financial
services company. More recently, Morgan Stanley Group Inc. and Dean Witter,
Discover & Co. agreed to merge. The merger was completed on May 31, 1997,
creating the combined company of Morgan Stanley, Dean Witter, Discover & Co.
Additionally, we are very pleased to announce that Philip N. Duff, formerly the
chief financial officer of Morgan Stanley Group Inc., has joined Van Kampen
American Capital as president and chief executive officer. I will continue as
chairman of the firm. We are confident that the partnership of Van Kampen
American Capital and Morgan Stanley, Dean Witter, Discover & Co. will continue
to work to the benefit of our fund shareholders as we move into the next
century.
On August 4, 1997, the announcement of exchange privileges between Van
Kampen American Capital and Morgan Stanley retail funds opened the door to even
greater investment opportunities. We are particularly pleased to offer an
expanded menu of mutual funds covering virtually every market and continent. In
our view, the rapid appreciation of U.S. stock prices in recent years has
created a need for investors to examine their portfolios carefully to ensure
proper diversification among domestic and foreign investments. The Morgan
Stanley retail funds, with their emphasis on global markets, can be valuable
tools for accomplishing this diversification.
Economic Review
Growth, stability, and confidence continued to characterize the U.S.
economic environment during the reported period. After performing solidly during
the second half of 1996, the economy in the first quarter of 1997 grew at its
fastest pace since 1987. Meanwhile, consumer confidence soared to its highest
reading in 28 years, while unemployment fell to 4.9 percent in August, one of
the lowest levels since 1973.
Despite the robust pace of economic activity, there was little evidence of
troublesome inflation. In fact, wholesale prices fell during each of the first
seven months of 1997, the longest stretch of consecutive monthly declines in 45
years. At the consumer level, prices rose by a mere 2.2 percent during the 12
months through August.
Several factors contributed to maintaining a stable rate of inflation. A
strong rally in the U.S. dollar made imported goods less expensive. At the same
time, continued moderation in the cost of employee benefit packages offset mild
upward pressure on wages. Also, a sharp acceleration in productivity gains
allowed employers to absorb higher worker salaries without raising prices.
Finally, health-care costs were unchanged during July, the first time since 1975
that consumer medical prices did not rise.
In March, the inflationary implications of the nation's low unemployment
rate caused the Federal Reserve Board to raise its target for a key lending rate
by one-quarter of a percentage point, the first hike in short-term interest
rates in two years. Signs that economic growth slowed in the second quarter,
however, led Fed policymakers to leave rates unchanged at subsequent meetings.
1 Continued on page two
<PAGE>
Market Review
Bond yields remained in a relatively narrow range during the reporting
period. For several weeks during the spring, it appeared that economic growth
was too robust and that inflation could reemerge. The Federal Reserve's quarter
point increase in short-term interest rates, as well as worries about inflation,
pushed yields on long-term government bonds up to 7.17 percent in April. When
subsequent data showed the economy to be decelerating during the second quarter,
bond yields gradually fell back to 6.61 percent at the end of August, down about
one-half of a percentage point from one year earlier.
The decline in long-term interest rates helped generate solid returns in
the fixed-income market. The Merrill Lynch Domestic Master Bond Index gained
4.93 percent during the eight months through August, and 10.00 percent during
the 12-month reporting period. This is a market capitalization weighted index
including U.S. government, fixed-coupon domestic investment grade corporate
bonds, and mortgage pass-throughs. Reflecting the strong economy, corporate
bonds outperformed Treasury issues by more than 2 percent during the 12 months
ended in August. High-yield corporate bonds were the best-performing sector of
the fixed-income market, as the healthy economic environment increased investor
confidence in the creditworthiness of lower-rated debt. For example, the Merrill
Lynch High Yield Bond Index returned 14.84 percent over the 12-month reporting
period, compared to 13.14 percent for the Lehman Brothers Long-Term Treasury
Index.
Outlook
We expect the pace of economic activity for the remainder of 1997 to
accelerate modestly from the relatively pedestrian rate that prevailed during
the second quarter. While we do not believe that economic growth will be rapid
enough to reignite inflation, some warning signs are present, including a tight
labor market and high consumer confidence. Additionally, an unusually powerful
El Nino weather pattern developing in the Pacific Ocean has the potential to
drive commodity prices significantly higher in coming months. In this
environment, at least one additional round of monetary tightening by the Federal
Reserve remains a possibility. We anticipate that bond yields will remain within
a relatively narrow range for the remainder of the year.
We are fortunate to be experiencing a rare combination of sustained
economic growth, low inflation, and solid financial-market returns. By most
objective indicators, the U.S. economy is in its best shape in over a
generation. We urge our fund shareholders to use this opportunity to consider
how their investments are currently divided among the three major asset classes
of stocks, bonds, and cash. Uneven moves in the various markets can distort a
carefully planned investment program. We encourage you to review your portfolio
with an eye toward correcting imbalances in the way assets have grown to be
allocated.
A discussion with your portfolio management team in this report will
provide details of the key factors and strategies contributing to your Fund's
performance. Once again, we value your continued confidence in your investment
with Van Kampen American Capital.
Sincerely,
/s/ Don G. Powell /s/ Dennis J. McDonnell
Don G. Powell Dennis J. McDonnell
Chairman President
Van Kampen American Capital Van Kampen American Capital
Asset Management, Inc. Asset Management, Inc.
2
<PAGE>
Performance Results for the Period Ended August 31, 1997
Van Kampen American Capital Corporate Bond Fund
<TABLE>
<CAPTION>
A Shares B Shares C Shares
<S> <C> <C> <C>
Total Returns
One-year total return based on NAV/1/............................. 12.46% 12.19% 11.63%
One-year total return/2/.......................................... 7.15% 8.19% 10.63%
Five-year average annual total return/2/.......................... 6.29% N/A N/A
Ten-year average annual total return/2/........................... 8.01% N/A N/A
Life-of-Fund average annual total return/2/....................... 8.34% 6.25% 4.99%
Commencement date................................................. 09/23/71 09/28/92 08/30/93
Distribution Rate and Yield
Distribution Rate/3/.............................................. 6.64% 6.22% 6.22%
SEC Yield/4/...................................................... 5.84% 5.60% 5.58%
N/A = Not Applicable
</TABLE>
/1/Assumes reinvestment of all distributions for the period and does not include
payment of the maximum sales charge (4.75% for A shares) or contingent deferred
sales charge for early withdrawal (4% for B shares and 1% for C shares).
/2/Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (A shares) or contingent
deferred sales charge for early withdrawal (B and C shares).
/3/Distribution rate represents the monthly annualized distributions of the Fund
at the end of the period and not the earnings of the Fund.
/4/SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending August 31, 1997.
See the Prior Performance section of the current prospectus. Past performance
does not guarantee future results. Investment return and net asset value will
fluctuate with market conditions. Fund shares, when redeemed, may be worth more
or less than their original cost.
Market forecasts provided in this report may not necessarily come to pass.
3
<PAGE>
Portfolio Highlights
Van Kampen American Capital Corporate Bond Fund
Top Ten Holdings as a Percentage of Long-Term Investments
As of
August 31, 1997
News America Holdings, Inc............................. 4.68%
Republic of South Africa............................... 4.61%
United Mexican States (Mexico)......................... 3.85%
Ashland Oil, Inc....................................... 3.81%
PDV America, Inc....................................... 3.41%
Columbia Pictures Entertainment, Inc................... 3.30%
United Airlines, Inc................................... 3.19%
TCI Communications..................................... 2.93%
Phillips Petroleum Co.................................. 2.87%
Long Island Lighting Co................................ 2.80%
Credit Quality as a Percentage of Long-Term Investments
As of August 31, 1997 As of February 28, 1997
[ ] A...........25.1% [ ] AA............ 1.2%
[ ] BBB.........60.2% [ ] A.............25.5%
[ ] BB..........14.7% [ ] BBB...........54.6%
[ ] BB............15.7%
[ ] B............. 3.0%
Based upon the highest credit quality ratings as determined by Standard & Poor's
or Moody's.
Top Five Portfolio Sectors as a Percentage of Long-Term Investments
As of August 31, 1997 As of February 28, 1997
Consumer Services.....................22.8% Consumer Services....21.4%
Energy................................14.3% Energy...............14.8%
Finance............................... 9.7% Transportation.......10.3%
Transportation........................ 9.7% Utilities............ 9.9%
Raw Materials/Processing Industries... 9.2% Finance.............. 8.1%
Duration
As of August 31, 1997 As of February 28, 1997
Duration 6.2 years 5.9 years
4
<PAGE>
Putting Your Fund's Performance in Perspective
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment portfolio's performance at regular intervals.
A good starting point is a comparison of your investment holdings to an
applicable benchmark, such as a broad-based market index.
Such a comparison can:
. Illustrate the general market environment in which your investments are
being managed
. Reflect the impact of favorable market trends or difficult market
conditions
. Help you evaluate the extent to which your fund's management team has
responded to the opportunities and challenges presented to them over the
period measured
For these reasons, you may find it helpful to review the chart below, which
compares your Fund's performance to that of the Lehman Brothers Corporate Bond
Index and the Lipper Corporate BBB-Rated Index over time. These indices are
unmanaged statistical composites, and do not reflect any commissions or fees
which would be incurred by an investor purchasing the securities they represent.
Similarly, their performance does not reflect any sales charges or other costs
which would be applicable to an actively managed portfolio, such as that of the
Fund.
Growth of a Hypothetical $10,000 Investment
Van Kampen American Capital Corporate Bond Fund vs. Lehman Brothers
Corporate Bond Index and the Lipper Corporate BBB-Rated Index (August 31,
1987 through August 31, 1997)
Lehman Brother VKAC Corporate Lipper Corporate
Corporate
August 1987 $10,000.00 $ 9,519 $10,000
August 1988 $10,942.89 $10,506 $10,835
August 1989 $12,443.31 $11,241 $12,027
August 1990 $13,213.03 $11,572 $12,562
August 1991 $15,223.10 $13,147 $14,270
August 1992 $17,529.70 $15,169 $16,440
August 1993 $19,921.67 $17,213 $18,674
August 1994 $19,435.04 $16,603 $18,181
August 1995 $22,054.29 $18,712 $20,325
August 1996 $22,886.44 $19,219 $21,219
August 1997 $25,458.77 $21,614 $23,616
Fund's Total Return
1 Year Avg. Annual = 7.15%
5 Year Avg. Annual = 6.29%
10 Year Avg. Annual = 8.01%
Inception Avg. Annual = 8.34%
The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of other share classes of
the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions and includes payment of the maximum
sales charge (4.75% for A shares).
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.
5
<PAGE>
Portfolio Management Review
Van Kampen American Capital Corporate Bond Fund
We recently spoke with the management team of the Van Kampen American Capital
Corporate Bond Fund about the key events and economic forces that shaped the
markets during the past fiscal year. The team includes David R. Troth, portfolio
manager, and Peter W. Hegel, chief investment officer for fixed-income
investments. The following excerpts reflect their views on the Fund's
performance during the 12-month period ended August 31, 1997.
Q How would you characterize the market conditions in which the Fund
operated during the past fiscal year?
A Volatility was the watchword for the bond market during the 12-month period
ended August 31, 1997. The benchmark 10-year Treasury bond's yield, which
moves in the opposite direction of its price, dropped from 6.93 percent on
August 31, 1996 to 6.33 percent on August 31, 1997, and was marked by peaks and
valleys throughout the year. Bond prices fell in the early part of the period as
the economy continued to gain strength, fueling fears of an interest rate hike
by the Federal Reserve Board. When growth slowed to a moderate 2.1 percent rate
in the third quarter of 1996, bond prices resumed their rise.
A short-lived rally from year-end 1996 through February 1997 was stopped
following the release of strong economic numbers and the continued strength of
the stock market. Investor sentiment suggested that the Federal Reserve Board
would likely take action and increase the federal funds rate. In fact, the Fed
did initiate a rate hike in late March, raising short-term rates by a quarter of
a percentage point, the first such increase in nearly two years. However, the
economy began to show signs of weakening by the end of the second quarter, which
led to the general opinion that the Fed would wait to raise rates further. In
the wake of an uneventful Fed meeting in mid-August, the market rallied as the
10-year Treasury yield slipped from its high of 6.99 percent on September 5,
1996 to 6.01 percent on July 31, 1997, before backing up to near 6.30 percent at
the end of July.
Q How did you manage the Fund in light of these conditions?
A During the year, we focused on opportunities to support the Fund's monthly
dividend at $0.04, and were pleased to increase the dividend in October
1996 to $.0405. Over the course of the reporting period, we moved to increase
our overseas exposure to approximately 12 percent of the Fund's total assets.
Foreign investments are limited to "Yankee bonds," or foreign issuers who pay
interest and principal in U.S. dollars. Positions included Mexican state
obligations, Republic of Argentina, Republic of South Africa, and the principal
Czech Republic utility. Expanding the Fund's exposure to overseas markets not
only increases portfolio diversification but also contributes to the Fund's
yield potential. In the current environment, interest rates overseas tend to be
higher than those offered by domestic securities.
One area in which we changed sector weightings during the reporting period
was the utility sector. Generally, our feelings regarding the domestic utility
industry have shifted from a revolutionary perspective to an evolutionary one;
the advancement of offering choices to consumers is occurring, albeit at a very
slow pace. This sluggish expansion has taken its toll on an industry that has
6
<PAGE>
historically offered consistent prices and returns. We have adjusted accordingly
by investing in some of the higher-yielding securities available in the sector.
Changes to the domestic utility industry have also encouraged us to look
overseas for utility investments. For example, we invest in a Czech Republic
utility company that offers 80 percent of all of the electricity for that area.
We see the Czech Republic as behaving more like a western European country than
most other countries behind the former Iron Curtain, boasting advanced
technology skills and trading capacity, and strong financial institutions.
Additional areas in which we've invested during the period include IMC
Global, a chemical and fertilizer company, Harcourt Brace, publishing and
specialty retail, Brunswick, a recreational activities company, and Rubbermaid,
home products. We reduced the Fund's position in Union Oil, but strengthened our
energy position with holdings in Pride Petroleum, Barrett Resources, and Transco
Gas. For a listing of the top five sector holdings as of August 31, 1997, please
refer to page four.
Q What was the structure of the Fund's portfolio at the end of its fiscal
year?
A As of August 31, approximately 60 percent of the Fund's long-term
investments were BBB-rated, which is the lowest quality rating within the
investment-grade category. Approximately 15 percent of assets were rated BB, the
highest quality rating within the noninvestment-grade category. Below
investment-grade bonds tend to generate higher yields than investment-grade
bonds, and have performed better than high-quality securities when interest
rates rise. The additional income they generate compensates for some of the
decline in principal value due to rising interest rates. At the same time, when
economic growth accelerates, prospects for credit upgrades improve, which would
also help performance.
The Fund's weighting in high yield securities had been as high as 18
percent during the reporting period, although several of these securities were
liquidated (at favorable market prices) during the year. Additionally, some of
our overseas holdings were lower-rated, higher-yielding securities with
prospects for improving credit ratings. On the other end of the ratings
spectrum, the Fund also holds approximately 25 percent in securities rated A or
higher. For additional Fund portfolio highlights, please refer to page four.
Q How did the Fund perform during the reporting period?
A The Fund posted a total return of 12.46 percent/1/ (Class A shares at net
asset value) for the 12-month period ended August 31, 1997. For the same
period, the return average for all funds in the Lipper Corporate Debt BBB
category was 11.19 percent. By comparison, the Lehman Brothers Corporate Bond
Index and the Lehman Brothers Baa Corporate Bond Index produced total returns of
11.24 percent and 12.22 percent, respectively. These are broad-based indices
that reflect the performance of all publicly issued, fixed-rate, non-convertible
investment grade corporate debt. Please keep in mind that these indices are
unmanaged and do not reflect any commissions, fees, or sales charges that would
be paid by an investor purchasing the securities they represent. Please refer to
the chart on page three for additional Fund performance results.
At the end of the Fund's fiscal year, its duration stood at 6.2 years, in
line with the 6.1 year average duration of its benchmark, the Lehman Brothers
Baa Corporate Bond Index. Duration is a measure of a portfolio sensitivity to
changes in interest rates. The longer the duration, the greater the effect of
interest rate movements on net asset value. Funds with shorter durations
typically have performed better in rising rate environments, while funds with
longer durations have tended to do
7
<PAGE>
better when interest rates decline. This marks a slight lengthening of duration
from the August 1996 duration of 5.8 years. Acquisitions during the period
tended to focus on securities without call features, which generally had longer
durations than those of securities previously held in the portfolio.
Q What is your outlook for the market over the coming months?
A Going forward, we intend to continue diversifying the Fund's portfolio, as
well as managing the portfolio's income and maintaining the dividend. From
December 1996 to the end of the Fund's fiscal year, we increased the portfolio
from 68 securities to approximately 73 securities, and we are always searching
for new investments. In addition to expanding the size of the portfolio, we will
continue to diversify the Fund's holdings across sectors and by issuers. We also
will keep a watchful eye overseas for additional Yankee bonds, separating
headline news from identifiable economic trends in our selection process.
Our expectations for the next several months will be guided largely by the
health of the economy. Although many market pundits have shifted from a bearish
outlook this past spring to a bullish perspective in the absence of Fed action,
we believe that additional Fed increases by the end of the year are a strong
possibility. However, in today's environment of nominal inflation and moderate
economic growth, we plan to continue adjusting the Fund's duration slightly
longer as it tracks the benchmark index. Positive corporate earnings and
satisfactory cash flows into corporations are translating into, in many cases,
strong supply and improved ratings for corporate bonds. We believe the Fund is
well positioned for the coming months.
Peter W. Hegel David R. Troth
Peter W. Hegel David R. Troth
Chief Investment Officer Portfolio Manager
Fixed Income Investments
8 Please see footnotes on page three
<PAGE>
Portfolio of Investment
August 31, 1997
<TABLE>
<CAPTION>
=====================================================================================
Par
Amount Market
(000) Description Coupon Maturity Value
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Corporate Bonds 84.5%
Consumer Distribution 1.0%
$ 2,000 Nabisco, Inc............................... 7.550% 06/15/15 $ 2,045,000
-----------
Consumer Durables 0.9%
750 Brunswick Corp............................. 7.125 08/01/27 721,643
1,000 Chrysler Corp.............................. 7.450 03/01/27 1,015,210
-----------
1,736,853
-----------
Consumer Non-Durables 1.5%
2,000 Coca Cola Enterprises, Inc................. 8.500 02/01/12 2,293,200
750 Dimon, Inc................................. 8.875 06/01/06 794,325
-----------
3,087,525
-----------
Consumer Services 21.8%
1,250 Belo A H Corp.............................. 7.125 06/01/07 1,265,250
1,000 Circus Circus Enterprises, Inc............. 6.450 02/01/06 951,600
6,215 Columbia Pictures Entertainment, Inc....... 9.875 02/01/98 6,326,870
5,000 Cox Communications, Inc.................... 6.875 06/15/05 5,008,000
3,000 Cox Communications, Inc.................... 7.250 11/15/15 2,999,700
1,000 Harcourt General, Inc...................... 7.200 08/01/27 959,580
1,250 Harcourt General, Inc...................... 8.875 06/01/22 1,454,375
5,000 ITT Corp................................... 6.750 11/15/05 4,944,500
6,000 News America Holdings, Inc................. 8.875 04/26/23 6,669,600
2,000 News America Holdings, Inc................. 9.250 02/01/13 2,295,600
2,500 TCI Communications, Inc.................... 8.750 08/01/15 2,702,400
3,000 TCI Communications, Inc.................... 6.875 02/15/06 2,909,400
2,000 Tele Communications, Inc................... 9.250 01/15/23 2,134,800
3,000 Viacom, Inc................................ 7.750 06/01/05 3,024,900
-----------
43,646,575
-----------
Energy 13.7%
6,300 Ashland Oil, Inc........................... 8.800 11/15/12 7,297,290
750 Barrett Resources Corp..................... 7.550 02/01/07 759,375
1,605 Consumers Energy Co........................ 8.875 11/15/99 1,683,966
1,000 Lyondell Petrochemical Co.................. 6.500 02/15/06 962,310
6,300 PDV America, Inc........................... 7.875 08/01/03 6,547,590
</TABLE>
9 See Notes to Financial Statements
<PAGE>
Portfolio of Investments (Continued)
August 31, 1997
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Par
Amount Market
(000) Description Coupon Maturity Value
- ---------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Energy (Continued)
$ 5,000 Phillips Petroleum Co................... 8.860% 05/15/22 $ 5,507,000
4,000 Union Oil Co............................ 9.125 02/15/06 4,598,800
-----------
27,356,331
-----------
Finance 9.3%
3,000 Cez Finance BV.......................... 7.125 07/15/07 2,988,600
2,477 First PV Funding Corp................... 10.300 01/15/14 2,644,197
3,406 PNPP II Funding Corp.................... 8.510 11/30/06 3,591,014
3,000 Royal Bank Scotland Group............... 6.375 02/01/11 2,816,400
4,500 Ryder Systems, Inc...................... 9.250 05/15/01 4,913,100
1,500 United Illuminating Co.................. 10.240 01/02/20 1,617,600
-----------
18,570,911
-----------
Healthcare 3.7%
2,000 Aetna Services, Inc..................... 7.125 08/15/06 2,016,460
1,000 Allegiance Corp......................... 7.800 10/15/16 1,039,200
500 Manor Care, Inc......................... 7.500 06/15/06 515,750
3,500 Tenet Healthcare Corp................... 10.125 03/01/05 3,841,250
-----------
7,412,660
-----------
Oil & Gas 0.5%
1,000 Transcontinental Gas Pipeline Corp...... 7.250 12/01/26 980,000
-----------
Producer Manufacturing 2.3%
2,000 John Deere Capital Corp................. 9.625 11/01/98 2,089,200
2,500 Rubbermaid, Inc......................... 6.600 11/15/06 2,480,000
-----------
4,569,200
-----------
Raw Materials/Processing Industries 8.8%
1,000 Carter Holt Harvey Ltd.................. 8.375 04/15/15 1,090,700
4,000 Crown Cork & Seal, Inc.................. 8.000 04/15/23 4,103,200
4,000 Federal Paper Board, Inc................ 8.875 07/01/12 4,672,000
3,000 Georgia Pacific Corp.................... 9.500 02/15/18 3,150,900
4,000 IMC Global, Inc......................... 6.875 07/15/07 3,957,520
300 Owens Corning Fiberglass Corp........... 9.375 06/01/12 353,280
250 Pride Petroleum Services, Inc........... 9.375 05/01/07 264,475
-----------
17,592,075
-----------
</TABLE>
10 See Notes to Financial Statements
<PAGE>
Portfolio of Investments (Continued)
August 31, 1997
<TABLE>
<CAPTION>
=============================================================================================
Par
Amount Market
(000) Description Coupon Maturity Value
=============================================================================================
<C> <S> <C> <C> <C>
Technology 2.9%
$ 5,000 International Business Machines Corp..... 7.500% 06/15/13 $ 5,256,000
500 Raytheon Co.............................. 7.200 08/15/27 493,450
------------
5,749,450
------------
Transportation 9.3%
3,000 AMR Corp................................. 9.500 05/15/01 3,292,500
750 CSX Corp................................. 8.625 05/15/22 860,925
2,000 Delta Airlines, Inc...................... 9.750 05/15/21 2,466,000
1,500 Kansas City Southern Industries, Inc..... 7.875 07/01/02 1,566,900
4,000 Union Pacific Corp....................... 8.350 05/01/25 4,262,800
5,000 United Airlines, Inc..................... 10.020 03/22/14 6,121,000
------------
18,570,125
------------
Utilities 8.8%
1,000 360 Communications Co.................... 7.125 03/01/03 1,005,550
1,000 AES Corp................................. 10.250 07/15/06 1,090,000
1,000 Arizona Public Service Co................ 8.750 01/15/24 1,074,000
2,000 Arizona Public Service Co................ 9.500 04/15/21 2,215,000
2,300 Cleveland Electric Illuminating Co....... 10.000 06/01/20 2,448,350
1,000 Gulf States Utilities Co................. 8.940 01/01/22 1,074,900
1,000 Long Island Lighting Co.................. 9.000 11/01/22 1,120,700
4,000 Long Island Lighting Co.................. 9.750 05/01/21 4,253,200
2,500 Texas Utilities Electric Co.............. 8.875 02/01/22 2,771,250
500 UtiliCorp United, Inc.................... 6.700 10/15/06 501,550
------------
17,554,500
------------
Total Corporate Bonds 84.5%................................... 168,871,205
------------
Foreign Government Obligations 11.4%
4,000 Providence of Newfoundland (Canada)...... 9.000 10/15/21 4,754,800
650 Providence of Saskatchewan (Canada)...... 8.000 02/01/13 713,245
1,000 Republic of Argentina.................... 11.375 01/30/17 1,176,500
5,000 Republic of South Africa................. 8.375 10/17/06 5,243,750
3,500 Republic of South Africa................. 8.500 06/23/17 3,598,000
2,500 United Mexican States (Mexico)........... 9.875 01/15/07 2,665,625
4,000 United Mexican States (Mexico)........... 11.375 09/15/16 4,721,080
------------
Total Foreign Government Obligations.......................... $ 22,873,000
------------
</TABLE>
11 See Notes to Financial Statements
<PAGE>
Portfolio of Investments (Continued)
August 31, 1997
<TABLE>
==================================================================================================
<S> <C>
Total Long-Term Investments 95.9%
(Cost $179,312,891)............................................................... 191,744,205
------------
Short-Term Investments 2.8%
General Electric Capital Corp. Commercial Paper ($5,100,000 par, yielding 5.583%,
09/02/97 maturity)................................................................ 5,096,838
United States Treasury Bill ($500,000 par, yielding 5.340%, maturing 09/18/97).... 498,674
------------
Total Short-Term Investments
(Cost $5,595,512)................................................................. 5,595,512
------------
Total Investments 98.7%
(Cost $184,908,403)............................................................... 197,339,717
Other Assets in Excess of Liabilities 1.3%........................................ 2,691,449
------------
Net Assets 100.0%................................................................. $200,031,166
============
</TABLE>
12 See Notes to Financial Statements
<PAGE>
Statement of Assets and Liabilities
August 31, 1997
________________________________________________________________________________
<TABLE>
<CAPTION>
<S> <C>
Assets:
Total Investments (Cost $184,908,403)........................... $197,339,717
Cash............................................................ 928
Receivables:
Interest...................................................... 3,692,017
Fund Shares Sold.............................................. 304,731
Other........................................................... 2,726
------------
Total Assets............................................... 201,340,119
------------
Liabilities:
Payables:
Fund Shares Repurchased....................................... 538,356
Income Distributions.......................................... 428,891
Distributor and Affiliates.................................... 121,938
Investment Advisory Fee....................................... 83,224
Trustees Deferred Compensation and Retirement Plans............. 68,703
Accrued Expenses................................................ 67,841
------------
Total Liabilities............................................. 1,308,953
------------
Net Assets...................................................... $200,031,166
============
Net Assets Consist of:
Capital......................................................... $210,663,467
Net Unrealized Appreciation..................................... 12,431,314
Accumulated Undistributed Net Investment Income................. 377,622
Accumulated Net Realized Loss................................... (23,441,237)
------------
Net Assets...................................................... $200,031,166
============
Maximum Offering Price Per Share:
Class A Shares:
Net asset value and redemption price per share
(Based on net assets of $160,951,270 and 23,103,531
shares of beneficial interest issued and outstanding)......... $ 6.97
Maximum sales charge (4.75%* of offering price)............... .35
------------
Maximum offering price to public.............................. $ 7.32
============
Class B Shares:
Net asset value and offering price per share
(Based on net assets of $33,975,564 and 4,884,808
shares of beneficial interest issued and outstanding)......... $ 6.96
============
Class C Shares:
Net asset value and offering price per share
(Based on net assets of $5,104,332 and 733,842
shares of beneficial interest issued and outstanding)......... $ 6.96
============
*On sales of $100,000 or more, the sales charge will be reduced.
</TABLE>
13 See Notes to Financial Statements
<PAGE>
Statement of Operations
For the Year Ended August 31, 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Investment Income:
Interest......................................................... $ 16,264,752
Other............................................................ 122,853
------------
Total Income................................................... 16,387,605
------------
Expenses:
Investment Advisory Fee.......................................... 964,679
Distribution (12b-1) and Service Fees (Attributed to Classes A,
B and C of $357,509, $302,753 and $56,559, respectively)....... 716,821
Shareholder Services............................................. 458,869
Legal............................................................ 14,933
Custody.......................................................... 14,176
Trustees Fees and Expenses....................................... 11,907
Other............................................................ 335,602
------------
Total Expenses.............................................. 2,516,987
Less Expenses Reimbursed.................................... (6,500)
------------
Net Expenses................................................ 2,510,487
------------
Net Investment Income............................................ $ 13,877,118
============
Realized and Unrealized Gain/Loss:
Realized Gain/Loss:
Investments.................................................... $ (104,352)
Futures........................................................ (73,194)
------------
Net Realized Loss................................................ (177,546)
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period........................................ 3,261,825
End of the Period.............................................. 12,431,314
------------
Net Unrealized Appreciation During the Period.................... 9,169,489
------------
Net Realized and Unrealized Gain................................. $ 8,991,943
------------
Net Increase in Net Assets From Operations....................... $ 22,869,061
============
</TABLE>
14 See Notes to Financial Statements
<PAGE>
Statement of Changes in Net Assets
For the Years Ended August 31, 1997 and 1996
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
August 31, 1997 August 31, 1996
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income........................................................ $ 13,877,118 $ 13,391,386
Net Realized Gain/Loss....................................................... (177,546) 1,735,360
Net Unrealized Appreciation/Depreciation
During the Period............................................................ 9,169,489 (9,979,200)
------------ ------------
Change in Net Assets from Operations......................................... 22,869,061 5,147,546
------------ ------------
Distributions from Net Investment Income:
Class A Shares............................................................. (11,405,905) (11,608,221)
Class B Shares............................................................. (1,925,295) (1,533,048)
Class C Shares............................................................. (356,897) (341,585)
------------ ------------
Total Distributions........................................................ (13,688,097) (13,482,854)
------------ ------------
Net Change in Net Assets from Investment Activities.......................... 9,180,964 (8,335,308)
------------ ------------
From Capital Transactions:
Proceeds from Shares Sold.................................................... 36,820,373 44,740,308
Net Asset Value of Shares Issued
Through Dividend Reinvestment................................................ 9,046,389 8,899,577
Cost of Shares Repurchased................................................... (50,822,539) (41,799,106)
------------ ------------
Net Change in Net Assets from Capital Transactions........................... (4,955,777) 11,840,779
------------ ------------
Total Increase in Net Assets................................................. 4,225,187 3,505,471
Net Assets:
Beginning of the Period...................................................... 195,805,979 192,300,508
------------ ------------
End of the Period (Including accumulated undistributed
net investment income of $377,622 and $148,136,
respectively)................................................................ $200,031,166 $195,805,979
============ ===========
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated.
===================================================================================================================================
Year Ended August 31,
-------------------------------------------
Class A Shares 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period........................................... $6.650 $ 6.94 $ 6.62 $ 7.36 $ 6.98
------ ------ ------ ------ ------
Net Investment Income............................................................ .494 .479 .48 .49 .51
Net Realized and Unrealized Gain/Loss............................................ .309 (.289) .32 (.745) .3875
------ ------ ------ ------ ------
Total from Investment Operations................................................... .803 .190 .80 (.255) .8975
Less Distributions from Net Investment Income...................................... .486 .480 .48 .485 .5175
------ ------ ------ ------ ------
Net Asset Value, End of the Period................................................. $6.967 $6.650 $ 6.94 $ 6.62 $ 7.36
====== ====== ====== ====== ======
Total Return (a)................................................................... 12.46% 2.71% 12.71% (3.55%) 13.48%
Net Assets at End of the Period (In millions)...................................... $160.9 $162.9 $169.0 $160.0 $190.8
Ratio of Expenses to Average Net Assets (b)........................................ 1.13% 1.10% 1.13% 1.09% 1.05%
Ratio of Net Investment Income to Average Net
Assets (b)....................................................................... 7.16% 6.90% 7.22% 7.06% 7.24%
Portfolio Turnover................................................................. 18% 34% 25% 0% 19%
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) The impact on the Ratios of Expenses and Net Investment Income to Average
Net Assets due to VKAC's reimbursement of expenses was less than 0.01%.
16 See Notes to Financial Statements
<PAGE>
Financial Highlights (Continued)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated.
<TABLE>
==========================================================================================================================
September 28, 1992
Year Ended August 31, (Commencement
------------------------------------ of Distribution) to
Class B Shares 1997 1996 1995 1994 August 31, 1993
==========================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period................... $6.642 $ 6.94 $ 6.62 $ 7.36 $ 7.05
------ ------ ------ ------ --------
Net Investment Income..................................... .438 .424 .42 .44 .43
Net Realized and Unrealized Gain/Loss.................... .308 (.290) .33 (.755) .3465
------ ------ ------ ------ --------
Total from Investment Operations............................ .746 .134 .75 (.315) .7765
Less Distributions from Net Investment
Income.................................................... .433 .432 .43 .425 .4665
------ ------ ------ ------ --------
Net Asset Value, End of the Period.......................... $6.955 $6.642 $ 6.94 $ 6.62 $ 7.36
====== ====== ====== ====== ========
Total Return (a)............................................ 12.19% 1.85% 11.86% (4.38%) 11.54%*
Net Assets at End of the Period
(In millions)............................................. $ 34.0 $ 26.9 $ 19.2 $ 13.5 $ 8.4
Ratio of Expenses to Average
Net Assets (b)............................................ 1.91% 1.90% 1.94% 1.90% 1.96%
Ratio of Net Investment Income to Average
Net Assets (b)............................................ 6.37% 6.12% 6.40% 6.29% 6.21%
Portfolio Turnover.......................................... 18% 34% 25% 0% 19%
</TABLE>
*Non-Annualized
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) The impact on the Ratios of Expenses and Net Investment Income to Average
Net Assets due to VKAC's reimbursement of expenses was less than 0.01%.
17 See Notes to Financial Statements
<PAGE>
Financial Highlights (Continued)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Year Ended August 31,
----------------------------------
Class C Shares 1997 1996 1995 1994 (a)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period................ $6.639 $ 6.93 $ 6.62 $ 7.36
------ ------ ------ ------
Net Investment Income................................. .434 .426 .42 .44
Net Realized and Unrealized Gain/Loss................. .316 (.285) .32 (.755)
------ ------ ------ ------
Total from Investment Operations........................ .750 .141 .74 (.315)
Less Distributions from Net Investment Income........... .433 .432 .43 .425
------ ------ ------ ------
Net Asset Value, End of the Period...................... $6.956 $6.639 $ 6.93 $ 6.62
====== ====== ====== ======
Total Return (b)........................................ 11.63% 2.00% 11.70% (4.51%)
Net Assets at End of the Period (In millions)........... $ 5.1 $ 5.9 $ 4.1 $ 2.3
Ratio of Expenses to Average Net Assets (c)............. 1.92% 1.90% 1.93% 1.93%
Ratio of Net Investment Income to Average Net Assets (c) 6.38% 6.14% 6.40% 6.49%
Portfolio Turnover...................................... 18% 34% 25% 0%
</TABLE>
(a) This class of shares commenced distribution on August 30, 1993. Therefore,
no information is presented for the 1993 fiscal year.
(b) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(c) The impact on the Ratios of Expenses and Net Investment Income to Average
Net Assets due to VKAC's reimbursement of expenses was less than 0.01%.
18 See Notes to Financial Statements
<PAGE>
Notes to Financial Statements
August 31, 1997
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
Van Kampen American Capital Corporate Bond Fund (the "Fund") is organized as a
Delaware business trust, and is registered as a diversified open-end management
investment company under the Investment Company Act of 1940, as amended. The
Fund's investment objective is to provide current income with preservation of
capital through investing primarily in a diversified portfolio of corporate debt
securities. The Fund commenced investment operations on September 23, 1971. The
distribution of the Fund's Class B and Class C shares commenced on September 28,
1992 and August 30, 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--Fixed income investments are stated at value using market
quotations. Investments in securities listed on a securities exchange are valued
at their last sale price. Unlisted securities and listed securities for which
the last sales price is not available are valued at the mean of the bid and
asked prices. For those securities where quotations or prices are not available,
valuations are determined in accordance with procedures established in good
faith by the Board of Trustees. Short-term securities with remaining maturities
of 60 days or less are valued at amortized cost.
B. Security Transactions--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made. At August 31, 1997, there were no
when issued or delayed delivery purchase commitments.
The Fund invests in repurchase agreements, which are short-term investments
in which the Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. The Fund may
invest independently in repurchase agreements, or transfer uninvested cash
balances into a pooled cash account along with other investment companies
advised by Van Kampen American Capital Asset Management, Inc. (the "Adviser")
or its affiliates, the daily aggregate of which is invested in repurchase
agreements. Repurchase agreements
19
<PAGE>
Notes to Financial Statements (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
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. Investment Income--Interest income is recorded on an accrual basis and
dividend income is recorded on the ex-dividend date. Original issue discount is
amortized over the expected life of each applicable security. Premiums on debt
securities are not amortized.
D. Federal Income Taxes--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset these losses against any future realized capital
gains. At August 31, 1997, the Fund had an accumulated capital loss carryforward
for tax purposes of $23,353,863 which will expire between August 31, 1998 and
August 31, 2005. Of this amount, $7,599,874 will expire on August 31,1998. Net
realized loss differs for financial and tax reporting purposes primarily as a
result of gains or losses recognized for tax purposes on open futures positions.
At August 31, 1997, for federal income tax purposes the cost of long- and
short-term investments is $184,908,403; the aggregate gross unrealized
appreciation is $12,942,879 and the aggregate gross unrealized depreciation is
$511,565, resulting in net unrealized appreciation of $12,431,314.
E. Distribution of Income and Gains--The Fund declares and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed annually. Distributions from net realized gains for book purposes
may include short-term capital gains and gains on option and futures
transactions. All short-term capital gains and a portion of option and futures
gains are included in ordinary income for tax purposes. Permanent book and tax
basis differences relating to the recognition of certain expenses which are not
deductible for tax purposes totaling $40,465 have been reclassified from
accumulated undistributed net investment income to capital.
20
<PAGE>
Notes to Financial Statements (Continued)
August 31, 1997
- --------------------------------------------------------------------------------
2. Investment Advisory Agreement and Other Transactions with Affiliates
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
<TABLE>
<CAPTION>
Average Net Assets % Per Annum
- --------------------------------------------------
<S> <C>
First $150 million.................... .50 of 1%
Next $100 million..................... .45 of 1%
Next $100 million..................... .40 of 1%
Over $350 million..................... .35 of 1%
</TABLE>
For the year ended August 31, 1997, the Fund recognized expenses of
approximately $14,900 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 August 31, 1997, the Fund recognized expenses of
approximately $49,200 representing Van Kampen American Capital Distributors,
Inc.'s or its affiliates' (collectively "VKAC") cost of providing accounting
services to the Fund.
ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the year ended
August 31, 1997, the Fund recognized expenses of approximately $316,200,
representing ACCESS' cost of providing transfer agency and shareholder services
plus a profit.
Additionally, for the year ended August 31, 1997, the Fund paid VKAC
approximately $9,200 related to the direct cost of consolidating the VKAC open-
end fund complex. Payment was contingent upon the realization by the Fund of
cost efficiencies resulting from the consolidation.
Certain officers and trustees of the Fund are also officers and directors
of VKAC. The Fund does not compensate its officers or trustees who are officers
of VKAC.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of VKAC. Under the deferred compensation plan,
trustees may elect to defer all or a portion of their compensation to a later
date. Benefits under the retirement plan are payable for a ten-year period and
are based upon each trustee's years of service to the Fund. The maximum annual
benefit per trustee under the plan is equal to $2,500. During the year ended
August 31, 1997, VKAC reimbursed the Fund for expenses related to the retirement
plan.
21
<PAGE>
Notes to Financial Statements (Continued)
August 31, 1997
3. Capital Transactions
The Fund has outstanding three classes of shares of beneficial interest, Classes
A, B and C each with a par value of $.01 per share. There are an unlimited
number of shares of each class authorized.
At August 31, 1997, capital aggregated $171,751,125, $33,829,037 and
$5,083,305 for Classes A, B and C, respectively. For the year ended August 31,
1997, transactions were as follows:
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
- -------------------------------------------------------------------------------
Sales:
<S> <C> <C>
Class A 3,365,902 $ 23,137,035
Class B 1,831,776 12,527,159
Class C 168,402 1,156,179
--------- ------------
Total Sales 5,366,080 $ 36,820,373
========== ===========
Dividend Reinvestment:
Class A 1,113,282 $ 7,650,477
Class B 179,988 1,235,230
Class C 23,436 160,682
--------- ------------
Total Dividend Reinvestment 1,316,706 $ 9,046,389
========== ===========
Repurchases:
Class A (5,877,398) $(40,312,723)
Class B (1,182,021) (8,099,925)
Class C (352,188) (2,409,891)
--------- ------------
Total Repurchases (7,411,607) $(50,822,539)
========== ===========
</TABLE>
22
<PAGE>
Notes to Financial Statements (Continued)
August 31, 1997
- -------------------------------------------------------------------------------
At August 31, 1996, capital aggregated $181,308,895, $28,173,446 and
$6,177,368 for Classes A, B and C, respectively. For the year ended August 31,
1996, transactions were as follows:
<TABLE>
<CAPTION>
Shares Value
========================================================
Sales:
<S> <C> <C>
Class A.................... 3,701,661 $ 25,469,554
Class B.................... 2,251,770 15,599,691
Class C.................... 528,401 3,671,063
--------- ------------
Total Sales.................. 6,481,832 $ 44,740,308
========= ============
Dividend Reinvestment:
Class A.................... 1,123,125 $ 7,745,474
Class B.................... 140,880 973,474
Class C.................... 26,263 180,629
--------- ------------
Total Dividend Reinvestment.. 1,290,268 $ 8,899,577
========= ============
Repurchases:
Class A.................... (4,691,517) $(32,409,201)
Class B.................... (1,102,281) (7,655,822)
Class C.................... (252,515) (1,734,083)
--------- ------------
Total Repurchases............ (6,046,313) $(41,799,106)
========= ============
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). The CDSC will be imposed
on most redemptions made within five years of the purchase for Class B and one
year of the purchase for Class C as detailed in the following schedule. The
Class B and C shares bear the expense of their respective deferred sales
arrangements, including higher distribution and service fees and incremental
transfer agency costs.
<TABLE>
<CAPTION>
Contingent Deferred
Sales Charge
Year of Redemption Class B Class C
========================================================
<S> <C> <C>
First................................ 4.00% 1.00%
Second............................... 4.00% None
Third................................ 3.00% None
Fourth............................... 2.50% None
Fifth................................ 1.50% None
Sixth and Thereafter................. None None
</TABLE>
23
<PAGE>
Notes to Financial Statements (Continued)
August 31, 1997
===============================================================================
For the year ended August 31, 1997, VKAC, as Distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately
$24,100 and CDSC on redeemed shares of approximately $86,700. 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 $34,589,258 and $38,922,447 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 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 the unrealized appreciation/depreciation on securities.
Upon disposition, a realized gain or loss is recognized accordingly, except when
taking delivery of a security underlying a futures contract. In this instance
the recognition of gain or loss is postponed until the disposal of the security
underlying the futures contract.
During the period, the Fund invested in futures contracts, a type of
derivative. A futures contract is an agreement involving the delivery of a
particular asset on a specified future date at an agreed upon price. The Fund
generally invests in exchange traded futures contracts on U.S. Treasury Bonds
and typically closes the contract prior to the delivery date. These contracts
are generally used to manage the portfolio's effective maturity and duration.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, securities with a value equal to its obligation
under the futures contracts. During the period the futures contract is open,
payments are received from or made to the broker based upon changes in the value
of the contract (the variation margin).
Transactions in futures contracts, each with a par value of $100,000, for
the year ended August 31, 1997 were as follows:
<TABLE>
<CAPTION>
Contracts
=============================================================
<S> <C>
Outstanding at August 31, 1996................... 40
Futures Opened................................... 0
Futures Closed................................... (40)
---------
Outstanding at August 31, 1997................... 0
=========
</TABLE>
24
<PAGE>
Notes to Financial Statements (Continued)
August 31, 1997
===============================================================================
6. Distribution and Service Plans
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A average net assets and
1.00% each of Class B and Class C average net assets are accrued daily. Included
in these fees for the year ended August 31, 1997 are payments to VKAC of
approximately $298,900.
25
<PAGE>
Report of Independent Accountants
To the Shareholders and Board of Trustees of
Van Kampen American Capital Corporate Bond 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 American Capital
Corporate Bond Fund (the "Fund") at August 31, 1997, and the results of its
operations, the changes in its net assets and the financial highlights for each
of the periods presented, in conformity with generally accepted accounting
principles. 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 audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards 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 audits, which included
confirmation of securities at August 31, 1997 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Chicago, Illinois
October 10, 1997
26
<PAGE>
Funds Distribited by Van Kampen American Capital
GLOBAL AND
INTERNATIONAL
Global Equity Fund
Global Government Securities Fund
Global Managed Assets Fund
Short-Term Global Income Fund
Strategic Income Fund
EQUITY
Growth
Aggressive Growth Fund
Emerging Growth Fund
Enterprise Fund
Growth Fund
Pace Fund
Growth & Income
Comstock Fund
Equity Income Fund
Growth and Income Fund
Harbor Fund
Real Estate Securities Fund
Utility Fund
FIXED INCOME
Corporate Bond Fund
Government Securities Fund
High Income Corporate Bond Fund
High Yield Fund
Limited Maturity Government Fund
Prime Rate Income Trust
Reserve Fund
U.S. Government Fund
U.S. Government Trust for Income
TAX-FREE
California Insured Tax Free Fund
Florida Insured Tax Free Income Fund
High Yield Municipal Fund
Insured Tax Free Income Fund
Intermediate Term Municipal Income Fund
Municipal Income Fund
New Jersey Tax Free Income Fund
New York Tax Free Income Fund
Pennsylvania Tax Free Income Fund
Tax Free High Income Fund
Tax Free Money Fund
MORGAN STANLEY FUND, INC.
Aggressive Equity Fund
American Value Fund
Asian Growth Fund
Emerging Markets Fund
Global Equity Allocation Fund
Global Fixed Income Fund
High Yield Fund
International Magnum Fund
Latin American Fund
U.S. Real Estate Fund
Value Fund
Worldwide High Income Fund
Ask your investment representative for a prospectus containing more complete
information, including sales charges and expenses. Please read it carefully
before you invest or send money. Or call us weekdays from 7:00 a.m. to 7:00 p.m.
Central time at 1-800-341-2911 for Van Kampen American Capital funds or Morgan
Stanley retail funds.
27
<PAGE>
Results of Shareholder Votes
A Special Meeting of Shareholders of the Fund was held on May 28, 1997
where shareholders voted on a new investment advisory agreement, the election of
Trustees and the ratification of Price Waterhouse LLP as independent public
accountants. With regard to the approval of a new investment advisory agreement
between Van Kampen American Capital Asset Management, Inc. and the Fund,
16,975,841 shares voted for the proposal, 249,537 shares voted against and
729,784 shares abstained. With regard to the election of J. Miles Branagan as
elected trustee of the Fund, 17,591,375 shares voted in his favor and 363,787
shares withheld. With regard to the election of Richard M. DeMartini as elected
trustee of the Fund, 17,599,468 shares voted in his favor and 355,694 shares
withheld. With regard to the election of Linda Hutton Heagy as elected trustee
of the Fund, 17,588,638 shares voted in her favor and 366,524 shares withheld.
With regard to the election of R. Craig Kennedy as elected trustee of the Fund,
17,597,401 shares voted in his favor and 357,762 shares withheld. With regard to
the election of Jack E. Nelson as elected trustee of the Fund, 17,599,974 shares
voted in his favor and 355,289 shares withheld. With regard to the election of
Jerome L. Robinson as elected trustee of the Fund, 17,595,641 shares voted in
his favor and 359,521 shares withheld. With regard to the election of Philip B.
Rooney as elected trustee of the Fund, 17,599,321 shares voted in his favor and
355,842 shares withheld. With regard to the election of Fernando Sisto as
elected trustee of the Fund, 17,586,615 shares voted in his favor and 368,547
shares withheld. With regard to the election of Wayne W. Whalen as elected
trustee of the Fund, 17,591,842 shares voted in his favor and 363,321 shares
withheld. With regard to the ratification of Price Waterhouse LLP as independent
public accountants for the Fund, 17,173,516 shares voted for the proposal,
137,259 shares voted against and 644,387 shares abstained.
28
<PAGE>
Van Kampen American Capital Corporate Bond Fund
Board of Trustees
J. Miles Branagan
Richard M. De Martini*
Linda Hutton Heagy
R. Craig Kennedy
Jack E. Nelson
Jerome L. Robinson
Phillip B. Rooney
Fernando Sisto
Wayne W. Whalen* - Chairman
Officers
Dennis J. McDonnell*
President
Ronald A. Nyberg*
Vice President and Secretary
Edward C. Wood, III*
Vice President and Chief Financial Officer
Curtis W. Morell*
Vice President and Chief Accounting Officer
John L. Sullivan*
Treasurer
Tanya M. Loden*
Controller
Peter W. Hegel*
Alan T. Sachtleben*
Paul R. Wolkenberg*
Vice Presidents
Investment Adviser
Van Kampen American Capital
Asset Management, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Distributor
Van Kampen American Capital
Distributors, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Shareholder Servicing Agent
ACCESS Investor
Services, Inc.
P.O. Box 418256
Kansas City, Missouri 64141-9256
Custodian
State Street Bank
and Trust Company
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
Legal Counsel
Skadden, Arps, Slate,
Meagher & Flom (Illinois)
333 West Wacker Drive
Chicago, Illinois 60606
Independent Accountants
Price Waterhouse LLP
200 East Randolph
Chicago, Illinois 60601
* "Interested" persons of the Fund, as defined in the Investment Company Act
of 1940.
(C) Van Kampen American Capital Distributors, Inc., 1997 All rights reserved.
/sm/ denotes a service mark of Van Kampen American Capital Distributors, Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After December 31, 1997, the report must be accompanied by
a quarterly performance update, if applicable.
29
