<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 3
Performance in Perspective....................... 4
Glossary of Terms................................ 5
Portfolio Management Review...................... 7
Portfolio Highlights............................. 10
Portfolio of Investments......................... 11
Statement of Assets and Liabilities.............. 15
Statement of Operations.......................... 16
Statement of Changes in Net Assets............... 17
Financial Highlights............................. 18
Notes to Financial Statements.................... 21
Report of Independent Accountants................ 28
</TABLE>
CORP ANR 10/98
<PAGE> 2
LETTER TO SHAREHOLDERS
September 25, 1998
Dear Shareholder,
These continue to be dramatic and
highly unusual times for global
financial markets. Despite a severe
crisis of confidence in many emerging
economies, the United States has
escaped relatively unscathed from the [PHOTO]
turmoil. Volatility increased in the
U.S. equity market as the Asian
crisis spread to Russia and Latin
America, but fixed-income investors DENNIS J. MCDONNELL AND DON G. POWELL
have benefited from developments of
the past year.
We expect that volatility will
remain high until the situation overseas stabilizes. In this environment, it is
important to stay focused on long-term investment goals, and to view daily
fluctuations as relatively insignificant in the larger picture. As we detail
elsewhere in this letter, the U.S. economy is among the healthiest in the world,
our budget is in balance, and Federal Reserve policy makers have demonstrated an
ability to make prudent decisions with regard to monetary policy. These factors
bode well for investors during the months ahead.
ECONOMIC REVIEW
To the surprise of many observers, economic growth in the United States
seemed impervious to the recession in Asia for several months after the crisis
erupted last year. For all of 1997, the U.S. economy grew by a robust 3.8
percent, its fastest pace since 1988. When growth remained strong during the
first quarter of 1998, some economists speculated that perhaps drag from Asia
would miss the American economy altogether.
But, the "storm clouds massing over the western Pacific," which Federal
Reserve Chairman Alan Greenspan warned "were heading our way" in February,
finally arrived at the American shore this spring. Growth decelerated during the
second quarter, primarily as a result of weak demand overseas and the strong
U.S. dollar. However, a sharp decline in interest rates helped the housing
sector to grow at a record pace.
As the reporting period ended, there was tentative evidence that the global
financial crisis and the sudden drop in stock prices was taking its toll on
American shoppers. After hitting a 29-year high in June, consumer confidence
declined the following two months. Meanwhile, consumer spending fell in July for
the first time since 1996.
Continued on page 2
1
<PAGE> 3
MARKET OVERVIEW
The slowdown in world economic growth, coupled with a flight to quality amid
turbulence in Asia, Russia, and Latin America, unleashed a powerful rally in the
U.S. bond market. During the 12-month period ended in August, the yield on
long-term Treasuries declined from 6.60 percent to 5.23 percent, the lowest
level since 1968. The yield on 30-year fixed-rate mortgage rates fell to about
7.00 percent, near a five-year low.
Long-term Treasuries were the top-performing sector of the fixed-income
market, gaining about 20 percent during the reporting period, or roughly double
the return of corporate and municipal bonds. High yield bonds underperformed as
concern grew that global economic weakness could spread to the United States. In
a highly unusual development, U.S. stock and bond prices diverged sharply late
in the summer, with stocks falling despite a strong rally in the bond market.
OUTLOOK
We expect that domestic economic fundamentals will remain favorable for
fixed-income investments. The impact of slower economic growth abroad should
help to offset the inflationary implications of a relatively tight labor market
in the United States. While the possibility of a recession can no longer be
ruled out, we expect that the U.S. economy will grow at a moderate pace for the
foreseeable future.
We believe that the Federal Reserve stands ready to adjust interest rates as
needed, and that global overcapacity will continue to exert downward pressure on
commodity prices. Both factors are positive for bonds. We caution, however, that
yields have fallen considerably in recent months, and a mild backup in long-term
interest rates is possible. Also, a lower dollar or a worsening of economic
conditions overseas could lead to reduced foreign demand for U.S. financial
assets. Finally, credit concerns will increasingly come into play at this late
point in the business cycle.
Additional details about your Fund, including a question-and-answer section
with your portfolio management team, are provided in this report. As always, we
are pleased to have the opportunity to serve you and your family through our
diverse range of quality investments.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen Asset Management Inc.
[SIG]
Dennis J. McDonnell
President
Van Kampen Asset Management Inc.
2
<PAGE> 4
PERFORMANCE RESULTS FOR THE PERIOD ENDED AUGUST 31, 1998
VAN KAMPEN CORPORATE BOND FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
TOTAL RETURNS
<S> <C> <C> <C>
One-year total return based on NAV(1).... 7.89% 6.95% 6.95%
One-year total return(2)................. 2.73% 2.95% 5.95%
Five-year average annual total
return(2)................................ 5.22% 5.16% 5.37%
Ten-year average annual total
return(2)................................ 7.78% N/A N/A
Life-of-Fund average annual total
return(2)................................ 8.33% 6.49% 5.39%
Commencement date........................ 09/23/71 09/28/92 08/30/93
DISTRIBUTION RATE AND YIELD
Distribution rate(3)..................... 6.26% 5.82% 5.82%
SEC Yield(4)............................. 5.59% 5.14% 5.16%
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, 1998.
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> 5
PUTTING YOUR FUND'S PERFORMANCE IN PERSPECTIVE
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment portfolio's performance at regular intervals.
A good starting point is a comparison of your investment holdings to an
applicable benchmark, such as a broad-based market index. Such a comparison can:
- Illustrate the general market environment in which your investments are
being managed
- Reflect the impact of favorable market trends or difficult market
conditions
- Help you evaluate the extent to which your Fund's management team has
responded to the opportunities and challenges presented to them over the
period measured
For these reasons, you may find it helpful to review the chart below, which
compares your Fund's performance to that of the Lehman Brothers Corporate Bond
Index and the Lipper Corporate BBB-Rated Index over time. These indices are
statistical composites, and do not reflect any commissions or sales charges
which would be incurred by an investor purchasing the securities or investments
they represent.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen Corporate Bond Fund vs. the Lehman Brothers Corporate Bond Index
and the Lipper Corporate BBB-Rated Index (August 31, 1988 through August 31,
1998)
[GRAPH]
<TABLE>
<CAPTION>
August 31, Lehman VK Lipper
<S> <C> <C> <C>
1988 10000 9526 10000
1989 11370 10193 11100
1990 12073 10493 11594
1991 13910 11921 13170
1992 16018 13755 15173
1993 18203 15609 17234
1994 17759 15055 16779
1995 20152 16968 18758
1996 20912 17427 19583
1997 23263 19599 21795
1998 25469 21145 23523
- -----------------------------------
Fund's Total Return
1 Year Avg. Annual = 2.73%
5 Year Avg. Annual = 5.22%
10 Year Avg. Annual = 7.78%
- ------------------------------------
</TABLE>
The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of other share classes of
the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions and includes payment of the maximum
sales charge (4.75% for A shares).
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.
4
<PAGE> 6
GLOSSARY OF TERMS
BOND: A debt security issued by a government or corporation that generally pays
a bondholder a stated rate of interest and repays the principal at the maturity
date.
CALL FEATURE: Allows the issuer to buy back a bond on specific call dates before
maturity. Call dates and prices are set when the bond is issued. To compensate
the bondholder for loss of income and ownership, the initial call price is
usually higher than the face value of the bond. Bonds are usually called when
interest rates drop so significantly that the issuer can save money by issuing
new bonds at lower rates.
COUPON RATE: The stated rate of interest the bond pays until maturity, expressed
as a percentage of the face value.
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.
DURATION: A measure of the sensitivity of a bond's price to changes in interest
rates, expressed in years. Each year of duration represents an expected 1
percent change in the price of a bond for every 1 percent change in interest
rates. The longer a fund's duration, the greater the effect of interest rate
movements on net asset value. Typically, funds with shorter durations have
performed better in rising rate environments, while funds with longer durations
have performed better when rates decline.
EMERGING MARKETS: The financial markets of developing economies. Many Latin
American and Asian countries are considered emerging markets.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank system of the United States. Its policy-making
committee, called the Federal Open Market Committee, meets eight times a year to
establish monetary policy and monitor the economic pulse of the 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.
INVESTMENT-GRADE BONDS: Securities rated BBB and above by Standard & Poor's or
Baa and above by Moody's Investor Service. Bonds rated below BBB or Baa are
noninvestment grade.
YIELD: The annual rate of return on an investment, expressed as a percentage.
For bonds and notes, the yield is the annual interest divided by the market
price.
5
<PAGE> 7
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 difference between the yields of different bonds, due to their
different credit ratings or maturities. When yield spreads between bonds of
different credit quality are narrow, there is less incentive to own the
lower-quality bond. When yield spreads between bonds of different maturities are
narrow, there is less incentive to own the bond with the longer maturity. In
both cases, the investor is not being compensated for the additional risk.
6
<PAGE> 8
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN CORPORATE BOND FUND
We recently spoke with the management team of the Van Kampen Corporate Bond Fund
about the key events and economic forces that shaped the markets during the past
12 months. 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, 1998.
Q HOW WOULD YOU CHARACTERIZE THE MARKET CONDITIONS IN WHICH THE FUND
OPERATED DURING THE PAST 12 MONTHS?
A After 11 months of steady economic growth and fairly consistent stock
market appreciation, the market became spooked by a downward spiral in
global economies and tumbled in record numbers in the final weeks of
the reporting period. In the first six months of the Fund's reporting period,
problems overseas seemed to bounce off of our shores. The U.S. economy continued
to expand at a robust pace, with GDP growth measured at 5.4 percent in the first
quarter alone--a rate considered by many economists to be virtually
unsustainable without leading to inflation. Despite the generally solid pace of
economic activity, however, inflation remained benign. Falling commodity prices
and a strong dollar helped offset the inflationary implications of a tight labor
market and active consumer spending.
The Federal Reserve Board declined to alter short-term interest rates during
the Fund's reporting period. However, as the period drew to a close, the Fed
acknowledged that a tighter monetary policy might be necessary to curb rising
inflationary pressures in the future.
The domestic fixed-income market benefited from a global "flight to quality"
caused by turmoil in Asia and by the growing perception that the domestic
economy was slowing. After starting the calendar year at 5.74 percent, the yield
on the 10-year Treasury benchmark bond rose to over 5.81 percent during the
spring amid signs that some Asian economies were beginning to recover. When
weakness in the Japanese yen undercut that recovery, however, yields fell to
4.98 percent by the end of the reporting period. As they had in the final months
of 1997 following the emergence of Asia's currency crisis, corporate bonds
rapidly lost favor as the world's investors flocked to security.
Q HOW DID YOU MANAGE THE FUND IN LIGHT OF THESE CONDITIONS?
A During the past 12 months, our emphasis has been on increasing
diversification in the Fund's portfolio. In the last six months of the
reporting period, we added 13 new issues to the portfolio, bringing the
total number of securities held by the Fund to 86. In adding new bonds to the
portfolio, we focused on companies that are industry leaders with strong cash
flows in growth-oriented sectors. This included medical companies such as
Beckman Coulter and Baxter International, and oil and industrial companies.
7
<PAGE> 9
The majority of our new purchases, specifically among the investment-grade
securities, were non-callable securities. These securities, which tended to
dominate the field of new issuance during the period, tend to move closely with
Treasuries, whereas callable securities tend to lag the market in a falling
interest rate environment such as this one. Non-callable securities contributed
to the Fund's return, as Treasuries, which were boosted by high demand,
performed well during the period. The past 12 months were marked by a bountiful
supply of new issuance, as new corporate issuers stepped up to issue bonds
immediately following nearly every market rally during the period. This
abundance of supply forced yield spreads to widen between corporate bonds and
Treasury securities and lowered the potential return of new purchases.
Q WHAT WAS THE STRUCTURE OF THE FUND'S PORTFOLIO AT THE END OF THE REPORTING
PERIOD?
A During the 12-month reporting period, the portfolio's percentage of
non-investment grade bonds increased slightly as we sought opportunities
to enhance the Fund's yield. The mixture of credit quality represented in
the Fund's portfolio is designed to help balance its potential price volatility
in response to changing interest rates. During periods of rising interest rates,
bonds rated BBB and below tend to outperform because the additional yield they
generate may help to offset a decline in principal. During periods of falling
rates, bonds rated A or higher tend to perform better because they are more
interest-rate sensitive.
During the reporting period, the duration of the Fund remained stable. When
rates fall, as they did throughout most of the reporting period, the duration of
bonds tended to fall because many began to trade to their call dates rather than
maturity dates. We purchased long-duration bonds during the reporting period in
order to offset this decline in the duration of portfolio holdings. At the end
of the period, the Fund's duration was 6.4 years, which was identical to the
duration of its benchmark, the Lehman Brothers Corporate Bond Index. For a
listing of the top five sector holdings and additional Fund portfolio
highlights, please refer to page 10.
Q HOW DID THE FUND PERFORM DURING THE REPORTING PERIOD?
A The Fund posted a total return of 7.89 percent(1) (Class A shares at net
asset value) for the 12-month period ended August 31, 1998. For the same
period, the average return for all funds in the Lipper Corporate Debt BBB
category was 7.93 percent. By comparison, the Lehman Brothers Corporate Bond
Index and the Lehman Brothers Baa Corporate Bond Index produced total returns of
9.47 and 8.49 percent, respectively. These broad-based indices 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 3 for additional Fund performance results.
8
<PAGE> 10
Q WHAT IS YOUR OUTLOOK FOR THE MARKET OVER THE COMING MONTHS?
A Although it's impossible to foresee what twists and turns lie hidden in
the road ahead, we expect something of a return to normalcy once the
world's major markets gain steadier footing. Despite many of our global
neighbors' economic problems, our economic conditions have remained strong and
relatively untouched by inflation. At the same time, the Federal Reserve Board
seems poised to take action in the next few months, so we will keep our eyes and
ears tuned for any changes.
We have taken action to decrease the risk of bonds being called away from
the portfolio by scrutinizing the portfolio in search of issues that may have
served the Fund well in the past, but are no longer benefiting from call
protection. We believe the Fund's emphasis on high-quality investment-grade
bonds and its relatively short duration will help to limit potential price
volatility due to changing market conditions. Until we get a better sense of
what the future holds for this volatile market, we do not expect to make any
major changes to the portfolio. We will continue to support the Fund's objective
of current income and preservation of capital, and look to add value through our
investment strategies and bond selection.
[SIG]
David R. Troth
Portfolio Manager
[SIG.]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
Please see footnotes on page 3
9
<PAGE> 11
PORTFOLIO HIGHLIGHTS
VAN KAMPEN CORPORATE BOND FUND
TOP TEN HOLDINGS AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
AS OF
AUGUST 31, 1998
<S> <C>
Merrill Lynch & Co., Inc.... 4.20%
News America Holdings,
Inc....................... 4.16%
Cox Communications, Inc..... 3.53%
TCI Communications, Inc..... 3.53%
Republic of South Africa.... 3.28%
Ashland Oil, Inc............ 3.25%
United Airlines, Inc........ 2.80%
PDV America, Inc............ 2.76%
Tenet Healthcare Corp....... 2.64%
International Business
Machines Corp. ........... 2.41%
</TABLE>
CREDIT QUALITY AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
AS OF AUGUST 31, 1998 AS OF AUGUST 31, 1997
<S> <C> <C> <C>
AAA.............2.2% A....................25.1%
AA..............4.2% [PIE CHART] BBB..................60.2% [PIE CHART]
A..............21.8% BB...................14.7%
BBB............55.1%
BB.............16.5%
B...............0.2%
</TABLE>
Based upon the highest credit quality ratings as determined by Standard & Poor's
or Moody's.
TOP FIVE PORTFOLIO SECTORS AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
As of August 31, 1998 AS OF AUGUST 31, 1997
<S> <C> <C> <C>
Consumer Services..... 20.9% Consumer Services..... 22.8%
Energy................ 11.9% Energy................ 14.3%
Finance............... 11.2% Finance............... 9.7%
Raw Materials Transportation........ 9.7%
/Processing Raw Materials/Processing
Industries.......... 9.6% Industries.......... 9.2%
Utilities............. 8.8%
</TABLE>
DURATION
<TABLE>
<CAPTION>
AS OF AUGUST 31, 1998 AS OF AUGUST 31, 1997
<S> <C> <C>
Duration 6.4 years 6.2 years
</TABLE>
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS
August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BOND 85.0%
CONSUMER DISTRIBUTION 0.8%
$ 2,000 Nabisco, Inc.................................... 7.550% 06/15/15 $ 2,068,400
------------
CONSUMER DURABLES 0.8%
750 Brunswick Corp.................................. 7.125 08/01/27 794,393
1,000 Chrysler Corp................................... 7.450 03/01/27 1,078,410
------------
1,872,803
------------
CONSUMER NON-DURABLES 2.1%
2,000 Coca Cola Enterprises, Inc...................... 8.500 02/01/12 2,441,680
750 Dimon, Inc...................................... 8.875 06/01/06 705,000
2,000 Westpoint Stevens, Inc. 144A -- Private
Placement (a)................................... 7.875 06/15/05 1,970,000
------------
5,116,680
------------
CONSUMER SERVICES 19.9%
1,250 Belo A H Corp................................... 7.125 06/01/07 1,348,000
2,500 Clear Channel Communications, Inc............... 7.250 10/15/27 2,561,275
5,000 Cox Communications, Inc......................... 6.875 06/15/05 5,228,500
3,000 Cox Communications, Inc......................... 7.250 11/15/15 3,159,600
1,250 CSC Holdings, Inc............................... 7.875 12/15/07 1,275,000
2,500 CSC Holdings, Inc............................... 7.875 02/15/18 2,525,000
1,000 Harcourt General, Inc........................... 7.200 08/01/27 964,600
1,250 Harcourt General, Inc........................... 8.875 06/01/22 1,571,462
5,000 ITT Corp........................................ 6.750 11/15/05 4,833,750
6,000 News America Holdings, Inc...................... 8.875 04/26/23 7,432,680
2,000 News America Holdings, Inc...................... 9.250 02/01/13 2,440,400
375 Premier Parks, Inc.............................. * 04/01/08 228,750
250 Premier Parks, Inc.............................. 9.250 04/01/06 240,000
2,500 Royal Caribbean Cruises Ltd..................... 7.500 10/15/27 2,667,375
1,500 Stewart Enterprises, Inc........................ 6.400 05/01/03 1,524,600
3,000 TCI Communications, Inc......................... 6.875 02/15/06 3,109,710
2,500 TCI Communications, Inc......................... 8.750 08/01/15 2,937,075
2,000 TCI Communications, Inc......................... 9.250 01/15/23 2,330,800
3,000 Viacom, Inc..................................... 7.750 06/01/05 3,172,500
------------
49,551,077
------------
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ENERGY 11.3%
$ 6,300 Ashland Oil, Inc................................ 8.800% 11/15/12 $ 7,713,090
750 Barrett Resources Corp.......................... 7.550 02/01/07 765,000
1,000 Lyondell Petrochemical Co....................... 6.500 02/15/06 1,006,340
6,300 PDV America, Inc................................ 7.875 08/01/03 6,556,914
1,500 Petroliam Nasional Berhad 144A -- Private
Placement (a)................................... 7.625 10/15/26 845,700
5,000 Phillips Petroleum Co........................... 8.860 05/15/22 5,652,750
1,000 R & B Falcon Corp............................... 6.500 04/15/03 1,012,300
4,000 Union Oil Co.................................... 9.125 02/15/06 4,754,000
------------
28,306,094
------------
FINANCE 10.7%
3,000 Cez Finance B V................................. 7.125 07/15/07 2,785,080
3,500 Hutchison Whampoa Finance 144A -- Private
Placement (a)................................... 7.500 08/01/27 2,542,050
10,000 Merrill Lynch & Co., Inc........................ 6.000 07/15/05 9,976,800
3,171 PNPP II Funding Corp............................ 8.510 11/30/06 3,337,477
3,000 Royal Bank Scotland Group....................... 6.375 02/01/11 3,048,300
4,500 Ryder Systems, Inc.............................. 9.250 05/15/01 4,910,850
------------
26,600,557
------------
HEALTHCARE 6.2%
2,000 Aetna Services, Inc............................. 7.125 08/15/06 2,089,100
1,000 Allegiance Corp................................. 7.800 10/15/16 1,130,400
4,000 Baxter International, Inc....................... 6.625 02/15/28 3,994,640
1,500 Beckman Coulter, Inc............................ 7.450 03/04/08 1,539,450
500 Manor Care, Inc................................. 7.500 06/15/06 513,350
6,500 Tenet Healthcare Corp. 144A -- Private Placement
(a)............................................. 8.125 12/01/08 6,272,500
------------
15,539,440
------------
OIL & GAS 0.4%
1,000 Transcontinental Gas Pipeline Corp.............. 7.250 12/01/26 1,038,650
------------
PRODUCER MANUFACTURING 3.0%
5,000 Federal-Mogul Corp.............................. 7.875 07/01/10 4,837,500
2,500 Rubbermaid, Inc................................. 6.600 11/15/06 2,636,000
------------
7,473,500
------------
RAW MATERIALS/PROCESSING INDUSTRIES 9.1%
1,000 Carter Holt Harvey Ltd.......................... 8.375 04/15/15 1,120,600
4,000 Crown Cork & Seal, Inc.......................... 8.000 04/15/23 4,518,960
4,000 Federal Paper Board, Inc........................ 8.875 07/01/12 4,961,600
1,750 Idex Corp....................................... 6.875 02/15/08 1,774,973
4,000 IMC Global, Inc................................. 6.875 07/15/07 4,222,280
1,000 IMC Global, Inc................................. 7.300 01/15/28 1,002,500
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
RAW MATERIALS/PROCESSING INDUSTRIES (CONTINUED)
$ 3,000 Lafarge Corp.................................... 6.500% 07/15/08 $ 2,986,800
1,250 Owens Illinois, Inc............................. 7.150 05/15/05 1,276,625
250 Pride International, Inc........................ 9.375 05/01/07 232,500
750 Smithfield Foods, Inc........................... 7.625 02/15/08 727,500
------------
22,824,338
------------
TECHNOLOGY 4.5%
5,000 Computer Associates International, Inc. 144A --
Private Placement (a)........................... 6.375 04/15/05 4,954,200
5,000 International Business Machines Corp............ 7.500 06/15/13 5,715,500
500 Raytheon Co..................................... 7.200 08/15/27 551,510
------------
11,221,210
------------
TRANSPORTATION 7.8%
3,000 AMR Corp........................................ 9.500 05/15/01 3,285,690
750 CSX Corp........................................ 8.625 05/15/22 916,575
2,000 Delta Airlines, Inc............................. 9.750 05/15/21 2,656,200
1,500 Kansas City Southern Industries, Inc............ 7.875 07/01/02 1,596,855
4,000 Union Pacific Corp.............................. 8.350 05/01/25 4,466,200
5,000 United Airlines, Inc............................ 10.020 03/22/14 6,655,400
------------
19,576,920
------------
UTILITIES 8.4%
1,000 360 Communications Co........................... 7.125 03/01/03 1,045,770
1,000 AES Corp........................................ 10.250 07/15/06 1,030,000
1,000 Arizona Public Service Co....................... 8.750 01/15/24 1,110,600
2,000 Arizona Public Service Co....................... 9.500 04/15/21 2,246,620
1,000 Gulf States Utilities Co........................ 8.940 01/01/22 1,070,990
1,000 Long Island Lighting Co......................... 9.000 11/01/22 1,137,500
3,250 Niagara Mohawk Power Corp....................... 7.625 10/01/05 3,315,000
2,500 Texas Utilities Electric Co..................... 8.875 02/01/22 2,803,000
500 UtiliCorp United, Inc........................... 6.700 10/15/06 520,935
4,750 Worldcom, Inc................................... 6.950 08/15/28 4,697,750
2,000 Yorkshire Power Finance Ltd. 144A -- Private
Placement (a)................................... 6.496 02/25/08 1,969,160
------------
20,947,325
------------
TOTAL CORPORATE BOND 85.0%............................... 212,136,994
------------
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
GOVERNMENT OBLIGATIONS 10.1%
$ 4,000 Providence of Newfoundland (Canada)............. 9.000% 10/15/21 $ 5,292,400
650 Providence of Saskatchewan (Canada)............. 8.000 02/01/13 754,936
1,000 Republic of Argentina........................... 11.375 01/30/17 720,000
5,000 Republic of South Africa........................ 8.375 10/17/06 4,864,900
3,500 Republic of South Africa........................ 8.500 06/23/17 2,910,915
2,500 United Mexican States (Mexico).................. 9.875 01/15/07 2,125,000
4,000 United Mexican States (Mexico).................. 11.375 09/15/16 3,410,000
5,000 United States Treasury Notes.................... 5.750 10/31/02 5,132,400
------------
TOTAL GOVERNMENT OBLIGATIONS.............................. 25,210,551
------------
TOTAL LONG-TERM INVESTMENTS 95.1%
(Cost $224,004,748)....................................................... 237,347,545
REPURCHASE AGREEMENT 3.2%
BA Securities ($8,025,000 par collateralized by U.S. Government
obligations in a pooled cash account, dated 08/31/98, to be sold on
09/01/98 at $8,026,288)
(Cost $8,025,000)......................................................... 8,025,000
------------
TOTAL INVESTMENTS 98.3%
(Cost $232,029,748)....................................................... 245,372,545
OTHER ASSETS IN EXCESS OF LIABILITIES 1.7%................................. 4,218,013
------------
NET ASSETS 100.0%.......................................................... $249,590,558
-----------
</TABLE>
* Zero coupon bond
(a) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may be resold only in
transactions exempt from registration which are normally those transactions
with qualified institutional buyers.
See Notes to Financial Statements
14
<PAGE> 16
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $232,029,748)....................... $245,372,545
Cash........................................................ 2,516
Receivables:
Interest.................................................. 4,198,372
Fund Shares Sold.......................................... 2,727,906
Other....................................................... 49,478
------------
Total Assets.......................................... 252,350,817
------------
LIABILITIES:
Payables:
Fund Shares Repurchased................................... 1,792,179
Income Distributions...................................... 459,053
Distributor and Affiliates................................ 145,538
Investment Advisory Fee................................... 102,333
Accrued Expenses............................................ 135,782
Trustees' Deferred Compensation and Retirement Plans........ 125,374
------------
Total Liabilities..................................... 2,760,259
------------
NET ASSETS.................................................. $249,590,558
============
NET ASSETS CONSIST OF:
Capital..................................................... $252,387,962
Net Unrealized Appreciation................................. 13,342,797
Accumulated Undistributed Net Investment Income............. (386,213)
Accumulated Net Realized Loss............................... (15,753,988)
------------
NET ASSETS.................................................. $249,590,558
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $185,963,933 and 26,467,270 shares of
beneficial interest issued and outstanding)............. $ 7.03
Maximum sales charge (4.75%* of offering price)......... .35
------------
Maximum offering price to public........................ $ 7.38
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $53,809,578 and 7,674,616 shares of
beneficial interest issued and outstanding)............. $ 7.01
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $9,817,047 and 1,400,251 shares of
beneficial interest issued and outstanding)............. $ 7.01
============
*On sales of $100,000 or more, the sales charge will be
reduced.
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
STATEMENT OF OPERATIONS
For the Year Ended August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $16,782,210
Other....................................................... 88,000
-----------
Total Income............................................ 16,870,210
-----------
EXPENSES:
Investment Advisory Fee..................................... 1,090,017
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $401,436, $428,251 and $61,754,
respectively)............................................. 891,441
Shareholder Services........................................ 494,953
Custody..................................................... 19,659
Trustees' Fees and Expenses................................. 18,707
Legal....................................................... 7,478
Other....................................................... 292,131
-----------
Total Expenses.......................................... 2,814,386
-----------
NET INVESTMENT INCOME....................................... $14,055,824
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $ 897,823
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................. 12,431,314
End of the Period....................................... 13,342,797
-----------
Net Unrealized Appreciation During the Period............... 911,483
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 1,809,306
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $15,865,130
===========
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended August 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
August 31, 1998 August 31, 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................ $ 14,055,824 $ 13,877,118
Net Realized Gain/Loss............................... 897,823 (177,546)
Net Unrealized Appreciation During the Period........ 911,483 9,169,489
------------- -------------
Change in Net Assets from Operations................. 15,865,130 22,869,061
------------- -------------
Distributions from Net Investment Income*............ (14,433,446) (13,688,097)
Distributions in Excess of Net Investment Income*.... (430,640) -0-
------------- -------------
Total Distributions................................ (14,864,086) (13,688,097)
------------- -------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES......................................... 1,001,044 9,180,964
------------- -------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold............................ 92,822,340 36,820,373
Net Asset Value of Shares Issued Through Dividend
Reinvestment....................................... 10,139,695 9,046,389
Cost of Shares Repurchased........................... (54,403,687) (50,822,539)
------------- -------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS... 48,558,348 (4,955,777)
------------- -------------
TOTAL INCREASE IN NET ASSETS......................... 49,559,392 4,225,187
NET ASSETS:
Beginning of the Period.............................. 200,031,166 195,805,979
------------- -------------
End of the Period (Including accumulated
undistributed net investment income of $(386,213)
and $377,622, respectively)........................ $ 249,590,558 $ 200,031,166
============= =============
</TABLE>
<TABLE>
<CAPTION>
Year Ended Year Ended
*Distributions by Class: August 31, 1998 August 31, 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of
Net Investment Income:
Class A Shares..................................... $(11,934,964) $(11,405,905)
Class B Shares..................................... (2,562,029) (1,925,295)
Class C Shares..................................... (367,093) (356,897)
------------ ------------
$(14,864,086) $(13,688,097)
============ ============
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended August 31,
-------------------------------------------------
Class A Shares 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
Net Asset Value, Beginning of the
Period............................. $ 6.967 $ 6.650 $ 6.94 $ 6.62 $ 7.36
-------- -------- ------- ------- -------
Net Investment Income.............. .454 .494 .479 .48 .49
Net Realized and Unrealized
Gain/Loss........................ .085 .309 (.289) .32 (.745)
-------- -------- ------- ------- -------
Total from Investment Operations..... .539 .803 .190 .80 (.255)
Less Distributions from and in Excess
of Net Investment Income........... .480 .486 .480 .48 .485
-------- -------- ------- ------- -------
Net Asset Value, End of the Period... $ 7.026 $ 6.967 $ 6.650 $ 6.94 $ 6.62
======== ======== ======= ======= =======
Total Return (a)..................... 7.89% 12.46% 2.71% 12.71% (3.55%)
Net Assets at End of the Period (In
millions).......................... $ 186.0 $ 160.9 $ 162.9 $ 169.0 $ 160.0
Ratio of Expenses to Average Net
Assets (b)......................... 1.08% 1.13% 1.10% 1.13% 1.09%
Ratio of Net Investment Income to
Average Net Assets (b)............. 6.40% 7.16% 6.90% 7.22% 7.06%
Portfolio Turnover................... 17% 18% 34% 25% 0%
</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) For the years ended August 31, 1997 and 1996, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of expenses was less than 0.01%.
See Notes to Financial Statements
18
<PAGE> 20
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 B Shares 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
Net Asset Value, Beginning of the
Period............................. $ 6.955 $ 6.642 $ 6.94 $ 6.62 $ 7.36
-------- -------- ------- ------- -------
Net Investment Income.............. .412 .438 .424 .42 .44
Net Realized and Unrealized
Gain/Loss........................ .071 .308 (.290) .33 (.755)
-------- -------- ------- ------- -------
Total from Investment Operations..... .483 .746 .134 .75 (.315)
Less Distributions from and in Excess
of Net Investment Income........... .427 .433 .432 .43 .425
-------- -------- ------- ------- -------
Net Asset Value, End of the Period... $ 7.011 $ 6.955 $ 6.642 $ 6.94 $ 6.62
======== ======== ======= ======= =======
Total Return (a)..................... 6.95% 12.19% 1.85% 11.86% (4.38%)
Net Assets at End of the Period (In
millions).......................... $ 53.8 $ 34.0 $ 26.9 $ 19.2 $ 13.5
Ratio of Expenses to Average Net
Assets (b)......................... 1.85% 1.91% 1.90% 1.94% 1.90%
Ratio of Net Investment Income to
Average Net Assets (b)............. 5.59% 6.37% 6.12% 6.40% 6.29%
Portfolio Turnover................... 17% 18% 34% 25% 0%
</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) For the years ended August 31, 1997 and 1996, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of expenses was less than 0.01%.
See Notes to Financial Statements
19
<PAGE> 21
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 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
Net Asset Value, Beginning of the
Period............................. $ 6.956 $ 6.639 $ 6.93 $ 6.62 $ 7.36
-------- -------- ------- ------- -------
Net Investment Income.............. .419 .434 .426 .42 .44
Net Realized and Unrealized
Gain/Loss........................ .063 .316 (.285) .32 (.755)
-------- -------- ------- ------- -------
Total from Investment Operations..... .482 .750 .141 .74 (.315)
Less Distributions from and in Excess
of Net Investment Income........... .427 .433 .432 .43 .425
-------- -------- ------- ------- -------
Net Asset Value, End of the Period... $ 7.011 $ 6.956 $ 6.639 $ 6.93 $ 6.62
======== ======== ======= ======= =======
Total Return (a)..................... 6.95% 11.63% 2.00% 11.70% (4.51%)
Net Assets at End of the Period (In
millions).......................... $ 9.8 $ 5.1 $ 5.9 $ 4.1 $ 2.3
Ratio of Expenses to Average Net
Assets (b)......................... 1.85% 1.92% 1.90% 1.93% 1.93%
Ratio of Net Investment Income to
Average Net Assets (b)............. 5.55% 6.38% 6.14% 6.40% 6.49%
Portfolio Turnover................... 17% 18% 34% 25% 0%
</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) For the years ended August 31, 1997 and 1996, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of expenses was less than 0.01%.
See Notes to Financial Statements
20
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS
August 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen 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 or indications of value obtained from an independent pricing service.
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 as noted
above, 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, 1998, 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
21
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
repurchase agreements, or transfer uninvested cash balances into a pooled cash
account along with other investment companies advised by Van Kampen Asset
Management Inc. (the "Adviser") or its affiliates, the daily aggregate of which
is invested in repurchase agreements. Repurchase agreements are fully
collateralized by the underlying debt security. The Fund will make payment for
such securities only upon physical delivery or evidence of book entry transfer
to the account of the custodian bank. The seller is required to maintain the
value of the underlying security at not less than the repurchase proceeds due
the Fund.
C. INCOME AND EXPENSES--Interest income is recorded on an accrual basis and
dividend income is recorded on the ex-dividend date. Original issue discount is
amortized over the expected life of each applicable security. Premiums on debt
securities are not amortized. Expenses of the Fund are allocated on a pro rata
basis to each class of shares, except for distribution and service fees and
transfer agency costs which are unique to each class of shares.
D. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset these losses against any future realized capital
gains. At August 31, 1998, the Fund had an accumulated capital loss carryforward
for tax purposes of $15,753,988 which will expire between August 31, 1999 and
August 31, 2005. Of this amount, $13,885,229 will expire on August 31, 1999.
At August 31, 1998, for federal income tax purposes the cost of long- and
short-term investments is $232,029,748; the aggregate gross unrealized
appreciation is $17,392,412 and the aggregate gross unrealized depreciation is
$4,049,615, resulting in net unrealized appreciation of $13,342,797.
E. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily 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. Due
22
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
to the inherent differences in the recognition of income, expenses and realized
gains/losses under generally accepted accounting principles and federal income
tax purposes, permanent differences between book and tax basis reporting for the
1998 fiscal year have been identified and appropriately reclassified. Permanent
differences totaling $44,427 related to market discount recognized upon
disposition were reclassified from accumulated net realized gain/loss to
accumulated undistributed net investment income and $6,833,853 related to the
expiration of a portion of the capital loss carryforward, was reclassified from
accumulated net realized gain/loss to capital.
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, 1998, the Fund recognized expenses of
approximately $6,700 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, 1998, the Fund recognized expenses of
approximately $89,900 representing Van Kampen Funds Inc.'s or its affiliates'
(collectively "Van Kampen") cost of providing accounting 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 August 31,
1998, the Fund recognized expenses of approximately $344,000. Beginning in 1998,
the transfer agency fees are determined through negotiations with the Fund's
Board of Trustees and are based on competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the
23
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
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.
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, 1998, capital aggregated $190,399,189, $52,350,550 and
$9,638,223 for Classes A, B and C, respectively. For the year ended August 31,
1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................... 7,628,952 $ 54,313,505
Class B.................................... 4,450,037 31,604,203
Class C.................................... 971,515 6,904,632
---------- ------------
Total Sales.................................. 13,050,504 $ 92,822,340
========== ============
Dividend Reinvestment:
Class A.................................... 1,165,005 $ 8,276,050
Class B.................................... 236,853 1,679,288
Class C.................................... 26,012 184,357
---------- ------------
Total Dividend Reinvestment.................. 1,427,870 $ 10,139,695
========== ============
Repurchases:
Class A.................................... (5,430,218) $(38,590,584)
Class B.................................... (1,897,082) (13,463,546)
Class C.................................... (331,118) (2,349,557)
---------- ------------
Total Repurchases............................ (7,658,418) $(54,403,687)
========== ============
</TABLE>
24
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------
<S> <C> <C>
Sales:
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>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B shares will be
automatically convert to Class A shares after the eighth year following
purchase. 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.
<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>
25
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
For the year ended August 31, 1998, Van Kampen, as Distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately
$72,600 and CDSC on redeemed shares of approximately $154,400. Sales charges do
not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $80,797,372 and $37,017,083 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.
The Fund may invest 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).
26
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
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, 1998 are payments retained by Van
Kampen of approximately $362,136.
7. YEAR 2000 COMPLIANCE (UNAUDITED)
Van Kampen utilizes a number of computer programs across its entire operation
relying on both internal software systems as well as external software systems
provided by third parties. In 1996 Van Kampen initiated a CountDown 2000 Project
to review both the internal systems and external vendor connections. The goal of
this project is to position its business to continue unaffected as a result of
the century change. At this time, there can be no assurance that the steps taken
will be sufficient to avoid any adverse impact to the Fund but Van Kampen does
not anticipate that the move to Year 2000 will have a material impact on its
ability to continue to provide the Fund with service at current levels. In
addition, it is possible that the securities markets in which the Fund invests
may be detrimentally affected by computer failures throughout the financial
services industry beginning January 1, 2000. Improperly functioning trading
systems may result in settlement problems and liquidity issues.
27
<PAGE> 29
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Van Kampen 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 Corporate Bond Fund (the
"Fund") at August 31, 1998, 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, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
October 2, 1998
28
<PAGE> 30
VAN KAMPEN CORPORATE BOND FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
PAUL R. WOLKENBERG*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN
ASSET MANAGEMENT INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR
SERVICES INC.
P.O. Box 418256
Kansas City, Missouri 64141-9256
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Drive
Chicago, Illinois 60601
* "Interested" persons of the
Fund, as defined in the
Investment Company Act of 1940.
(C) Van Kampen Funds Inc., 1998.
All rights reserved.
(SM) denotes a service mark of Van
Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After December 31, 1998, the report must be accompanied by
a quarterly performance update, if applicable.
29
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> CORPORATE BOND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 232,029,748<F1>
<INVESTMENTS-AT-VALUE> 245,372,545<F1>
<RECEIVABLES> 6,926,278<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 51,994<F1>
<TOTAL-ASSETS> 252,350,817<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 2,760,259<F1>
<TOTAL-LIABILITIES> 2,760,259<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 190,399,189
<SHARES-COMMON-STOCK> 26,467,270
<SHARES-COMMON-PRIOR> 23,103,531
<ACCUMULATED-NII-CURRENT> (386,213)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (15,753,988)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 13,342,797<F1>
<NET-ASSETS> 185,963,933
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 16,782,210<F1>
<OTHER-INCOME> 88,000<F1>
<EXPENSES-NET> (2,814,386)<F1>
<NET-INVESTMENT-INCOME> 14,055,824<F1>
<REALIZED-GAINS-CURRENT> 897,823<F1>
<APPREC-INCREASE-CURRENT> 911,483<F1>
<NET-CHANGE-FROM-OPS> 15,865,130<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (11,934,964)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,628,952
<NUMBER-OF-SHARES-REDEEMED> (5,430,218)
<SHARES-REINVESTED> 1,165,005
<NET-CHANGE-IN-ASSETS> 25,012,663
<ACCUMULATED-NII-PRIOR> 377,622<F1>
<ACCUMULATED-GAINS-PRIOR> (23,441,237)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 1,090,017<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 2,814,386<F1>
<AVERAGE-NET-ASSETS> 176,808,330
<PER-SHARE-NAV-BEGIN> 6.967
<PER-SHARE-NII> 0.454
<PER-SHARE-GAIN-APPREC> 0.085
<PER-SHARE-DIVIDEND> (0.480)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 7.026
<EXPENSE-RATIO> 1.08
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> CORPORATE BOND CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 232,029,748<F1>
<INVESTMENTS-AT-VALUE> 245,372,545<F1>
<RECEIVABLES> 6,926,278<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 51,994<F1>
<TOTAL-ASSETS> 252,350,817<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 2,760,259<F1>
<TOTAL-LIABILITIES> 2,760,259<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 52,350,550
<SHARES-COMMON-STOCK> 7,674,616
<SHARES-COMMON-PRIOR> 4,884,808
<ACCUMULATED-NII-CURRENT> (386,213)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (15,753,988)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 13,342,797<F1>
<NET-ASSETS> 53,809,578
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 16,782,210<F1>
<OTHER-INCOME> 88,000<F1>
<EXPENSES-NET> (2,814,386)<F1>
<NET-INVESTMENT-INCOME> 14,055,824<F1>
<REALIZED-GAINS-CURRENT> 897,823<F1>
<APPREC-INCREASE-CURRENT> 911,483<F1>
<NET-CHANGE-FROM-OPS> 15,865,130<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (2,562,029)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,450,037
<NUMBER-OF-SHARES-REDEEMED> (1,897,082)
<SHARES-REINVESTED> 236,853
<NET-CHANGE-IN-ASSETS> 19,384,014
<ACCUMULATED-NII-PRIOR> 377,622<F1>
<ACCUMULATED-GAINS-PRIOR> (23,441,237)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 1,090,017<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 2,814,386<F1>
<AVERAGE-NET-ASSETS> 42,830,833
<PER-SHARE-NAV-BEGIN> 6.955
<PER-SHARE-NII> 0.412
<PER-SHARE-GAIN-APPREC> 0.071
<PER-SHARE-DIVIDEND> (0.427)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 7.011
<EXPENSE-RATIO> 1.85
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 13
<NAME> CORPORATE BOND CLASS C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 232,029,748<F1>
<INVESTMENTS-AT-VALUE> 245,372,545<F1>
<RECEIVABLES> 6,926,278<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 51,994<F1>
<TOTAL-ASSETS> 252,350,817<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 2,760,259<F1>
<TOTAL-LIABILITIES> 2,760,259<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9,638,223
<SHARES-COMMON-STOCK> 1,400,251
<SHARES-COMMON-PRIOR> 733,842
<ACCUMULATED-NII-CURRENT> (386,213)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (15,753,988)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 13,342,797<F1>
<NET-ASSETS> 9,817,047
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 16,782,210<F1>
<OTHER-INCOME> 88,000<F1>
<EXPENSES-NET> (2,814,386)<F1>
<NET-INVESTMENT-INCOME> 14,055,824<F1>
<REALIZED-GAINS-CURRENT> 897,823<F1>
<APPREC-INCREASE-CURRENT> 911,483<F1>
<NET-CHANGE-FROM-OPS> 15,865,130<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (367,093)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 971,515
<NUMBER-OF-SHARES-REDEEMED> (331,118)
<SHARES-REINVESTED> 26,012
<NET-CHANGE-IN-ASSETS> 4,712,715
<ACCUMULATED-NII-PRIOR> 377,622<F1>
<ACCUMULATED-GAINS-PRIOR> (23,441,237)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 1,090,017<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 2,814,386<F1>
<AVERAGE-NET-ASSETS> 6,176,263
<PER-SHARE-NAV-BEGIN> 6.956
<PER-SHARE-NII> 0.419
<PER-SHARE-GAIN-APPREC> 0.063
<PER-SHARE-DIVIDEND> (0.427)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 7.011
<EXPENSE-RATIO> 1.85
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the fund on a composite basis and not on a class basis
</FN>
</TABLE>
