<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 3
Glossary of Terms................................ 4
Portfolio Management Review...................... 5
Portfolio Highlights............................. 9
Portfolio of Investments......................... 10
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
</TABLE>
CORP SAR 4/99
<PAGE> 2
LETTER TO SHAREHOLDERS
March 19, 1999
Dear Shareholder,
The past decade has been a remarkable time for investors. Together we've
witnessed one of the greatest bull markets in investment history, unprecedented
growth in mutual fund investing, and a surge in personal retirement planning.
The coming millennium promises to hold even more opportunities.
To lead us into this new era of investing, Richard F. Powers III has joined
Van Kampen as Chairman and Chief Executive Officer. He comes to us from our
parent company, Morgan Stanley Dean Witter & Co., where he served as Executive
Vice President and Director of Marketing. He brings 27 years of experience in
the financial services industry, including an extensive background in product
management, strategic planning and brand development.
Although former Chairman Don G. Powell retired on January 1, he will remain
active in the industry and the community. Mr. Powell plans to continue his
service as a member of the board of directors of the Investment Company
Institute, the leading mutual fund industry association, and he will remain a
trustee of your fund.
ECONOMIC OVERVIEW
The U.S. economy continued to grow at a robust pace in 1998, despite
financial problems abroad. In the fourth quarter, the nation's gross domestic
product (GDP) rose at an astounding 6.1 percent annual rate, surprising most
economists, whose estimates had been much more conservative. Preliminary
indications suggest a strong first quarter of 1999 as well.
During the past six months, a series of interest rate cuts by the Federal
Reserve helped the U.S. economy avoid the economic slump plaguing many global
markets. In response to declining corporate profits and mounting international
concerns, the Fed lowered interest rates three times, with 0.25 percent cuts in
September, October, and November. These rate cuts, coupled with a wave of
corporate mergers and cost-cutting measures, lent the support needed to foster
continued growth. In addition, the outlook for troubled areas such as Asia and
Latin America improved significantly, and most experts agree that these
economies are on the slow road to recovery.
Despite the improvements abroad and record economic growth in the United
States, inflation remained at bay as commodity prices tumbled. This low
inflationary environment--only a 1.6 percent increase in the consumer price
index in 1998--contributed to the strong domestic economy and kept
inflation-adjusted interest rates attractive. A low level of unemployment,
vibrant consumer spending, and an active housing market also supported the
positive economic conditions.
Continued on page 2
1
<PAGE> 3
MARKET REVIEW
Most areas of the bond market were quite active during the past six months,
with U.S. Treasury bonds experiencing the greatest price appreciation. Intense
demand and decreasing supply pushed the 30-year Treasury bond to its lowest
yield ever in October 1998, at the height of a flight to quality that included
investors around the globe.
At the same time, investors shied away from lower-rated securities, causing
the prices of high-yield bonds to plummet. This lack of demand for lower-rated
bonds led to unusually high yields in the marketplace as investors required
significant premiums in exchange for purchasing these out-of-favor securities.
The difference in yields between U.S. Treasury bonds and high-yield bonds of
comparable maturity widened to as much as 7.79 percent in mid-October. The
high-yield market rebounded late in 1998 as investors saw that the economy was
performing well and that the global financial crisis was on its way to recovery.
Investment-grade corporate bond prices experienced similar, though less dramatic
movement during the period, and ended the six-month period at approximately the
same point at which they started.
OUTLOOK
Our outlook for the domestic economy remains positive, although growth may
lessen toward the second half of the year. We look for a slow but steady rise in
inflation throughout 1999 to more normal, but certainly not alarming levels.
Internationally, low interest rates and improving financial conditions should
continue to support the economic improvements we've witnessed in Asia and Latin
America.
We believe the domestic markets could still favor higher-quality securities
such as large-company stocks and investment-grade bonds in the near term. In
addition, we anticipate continued day-to-day volatility in the markets, although
we probably won't see sustained high or low periods during the next six months.
Additional details about your fund, including a question-and-answer section
with your portfolio management team, are provided in this report. As always, we
are pleased to have the opportunity to share with you the progress of your
investment.
Sincerely,
[SIG]
Richard F. Powers III
Chairman
Van Kampen Asset Management Inc.
[SIG]
Dennis J. McDonnell
President
Van Kampen Asset Management Inc.
2
<PAGE> 4
PERFORMANCE RESULTS FOR THE PERIOD ENDED FEBRUARY 28, 1999
VAN KAMPEN CORPORATE BOND FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS
Six-month total return based on NAV(1)... 1.14% 0.77% 0.77%
Six-month total return(2)................ (3.65%) (3.15%) (0.21%)
One-year total return(2)................. (1.46%) (1.39%) 1.51%
Five-year average annual total
return(2)................................ 5.64% 5.57% 5.81%
Ten-year average annual total
return(2)................................ 7.40% N/A N/A
Life-of-Fund average annual total
return(2).............................. 8.22% 6.09% 5.04%
Commencement date........................ 09/23/71 09/28/92 08/30/93
DISTRIBUTION RATE AND YIELD
Distribution rate(3)..................... 5.98% 5.52% 5.52%
SEC Yield(4)............................. 5.70% 5.23% 5.24%
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 February 28, 1999.
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.
Investing in high-yield, lower rated securities involves certain risks, which
may include the potential for greater sensitivity to general economic downturns
and greater market price volatility.
Market forecasts provided in this report may not necessarily come to pass.
3
<PAGE> 5
GLOSSARY OF TERMS
BASIS POINT: A measure used in quoting bond yields. One hundred basis points is
equal to 1 percent. For example, if a bond's yield changes from 7.00 to 6.65
percent, it is a 35 basis-point move.
CALL FEATURE: Allows the issuer to buy back a bond on specific dates at set
prices before maturity. These dates and prices are set when the bond is
issued. To compensate the bondholder for the potential loss of income and
ownership, a bond's 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.
CYCLICAL INDUSTRIES: Industries where earnings tend to rise quickly when the
economy strengthens and fall quickly when the economy weakens. Examples of
cyclical industries include housing, automobiles, and paper. Noncyclical
industries are typically less sensitive to changes in the economy. These
include utilities, grocery stores, and pharmaceutical companies.
DURATION: A measure of the sensitivity of a bond's price to changes in interest
rates, expressed in years. Each year of duration represents an expected 1
percent change in the price of a bond for every 1 percent change in interest
rates. The longer a bond's duration, the greater the effect of interest rate
movements on net asset value. Typically, funds with shorter durations
perform better in rising rate environments, while funds with longer
durations perform better when rates decline.
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.
FLIGHT TO QUALITY: The flow of funds toward safer investments in times of
marketplace uncertainty or fear.
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 Services. Bonds rated below BBB or Baa are
noninvestment grade.
YIELD: The annual rate of return on an investment, expressed as a percentage.
YIELD SPREAD: The additional yield investors can earn by either investing in
bonds with longer maturities or by investing in bonds with lower ratings.
The spread is the difference in yield between bonds with short versus long
maturities or the difference in yield between high-quality bonds and
lower-quality bonds.
4
<PAGE> 6
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
six 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 six-month
period ended February 28, 1999.
Q HOW WOULD YOU CHARACTERIZE THE MARKET CONDITIONS IN WHICH THE FUND
OPERATED DURING THE PAST SIX MONTHS?
A As economies in Asia, Russia, and Latin America struggled to recover from
weakness, investors continued to rush toward the relative safety of U.S.
Treasury securities. At year end, the yield for the benchmark 10-year
Treasury--which, like all bond yields, moves in the opposite direction of its
price--had fallen from 5.62 percent in September to a near-record low of 4.16
percent.
Against the din of global economic uncertainty and concerns about the pace
of the U.S. economy, the Federal Reserve Board provided the clearest voice and
direction for the fixed-income market during the reporting period. In the final
months of 1998, the Federal Reserve Board broke its nearly two-year hiatus to
usher in a series of three interest rate cuts. Although the first cut did little
to stabilize the markets, the cumulative effect of the Fed's actions soothed
investors' frayed nerves and settled the rocky 10-year Treasury.
This calm was somewhat short-lived, however. In the final week of February,
fixed-income investors anxiously turned their attention to the release of
year-end data indicating that the domestic economy showed no signs of slowing
down. In a message to Congress, Fed chairman Alan Greenspan alluded to the Fed's
willingness to increase rates if necessary--despite any significant indications
of inflation at this time. In response to his comments, the 10-year Treasury
yield bounced to 5.17 percent on the last day of the reporting period.
Q WHAT WAS THE EFFECT OF THIS ACTIVITY ON THE CORPORATE BOND MARKET?
A With the 10-year Treasury yield falling for much of the period, investors
demonstrated little appetite for corporate bonds, whose yields were not
attractive enough to offset investors' concerns about the risks involved.
As a result, there was very little new issuance released during the final months
of 1998. However, after several AA-rated issues were met with enthusiasm, new
supply began to catch up to earlier levels.
As was the case for much of 1998, the yield spread between corporate bonds
and Treasuries widened for most of the reporting period, indicating that
corporate bonds underperformed Treasuries during this time. Spreads hit their
widest point in October but responded positively to the Fed cuts. Although the
outlook for corporate bonds progressively improved in the months that followed,
the yield spread to comparable U.S. Treasuries at the end of February was
approximately 20 basis points wider than it had been in August.
5
<PAGE> 7
Q HOW DID YOU MANAGE THE FUND IN LIGHT OF THESE CONDITIONS?
A We continued to emphasize portfolio diversification with the objective of
maintaining a defensive portfolio profile, given the volatile nature of
the domestic market. As of February 28, 1999, approximately one-third of
the Fund's long-term investments were allocated to the noncyclical sectors of
consumer services (21.8 percent) and utilities (9.8 percent). We feel that the
securities we hold in these sectors have the potential to serve the portfolio
well throughout economic ups and downs. At the same time, we held negligible
positions in commodity issues, such as copper, steel, mining, and paper
companies, as they tend to react more sharply to changing economic conditions.
The majority of our holdings, specifically among investment-grade
securities, were noncallable securities. The yields of these securities, which
dominated the field of new issuance during the period, move closely with
Treasury yields, whereas callable securities tend to lag the market in a falling
rate environment such as this one. Noncallable securities contributed to the
Fund's return, as Treasuries performed well during the period as a result of
high demand.
Q CAN YOU TALK ABOUT SOME OF YOUR RECENT PURCHASES?
A Before adding securities to the portfolio, we considered how they might be
affected by a slowing economy. As a result, we were drawn to companies
like Tyco International Group, which manufactures and distributes fire
protection equipment, electronic security devices, and medical supplies. We also
added positions in Raytheon, a diversified technology company with operations in
aircraft, engineering, and consumer and defense electronics; CMS Energy, a
consumer power holding company; Comcast, an entertainment services and
telecommunications company; and Sprint, a telecommunications company whose
growth pattern has been independent of economic cycles. Other familiar names
appearing in the portfolio included Safeway grocery stores, the Washington Post
newspaper, and telecommunications giant MCI WorldCom. At the end of the
reporting period, the portfolio was comprised of 93 issues.
Q WHAT OTHER CHANGES OCCURRED WITHIN THE PORTFOLIO?
A During the period, some of the Fund's holdings were called or tendered for
very attractive prices relative to Treasury securities. We anticipate that
this trend may continue as companies take advantage of lower interest
rates to refinance and reduce their debts in this favorable rate environment.
Affected securities included Keyspan Lighting (formerly Long Island Lighting)
and PNPP II Funding Corp. In some cases, we were unable to reinvest these assets
into the marketplace as quickly as we would have liked. Furthermore, the
securities available in the market had much lower coupons than the bonds that
were called, putting pressure on the Fund's earnings. As a result, the Board of
Trustees approved a dividend decrease of $.0025 for Class A shares in November.
6
<PAGE> 8
Q WHAT WAS THE STRUCTURE OF THE FUND'S PORTFOLIO AT THE END OF THE REPORTING
PERIOD?
A The portfolio's credit quality allocation is little changed from the
beginning of the reporting period, with the exception of a slight decrease
in investment-grade bonds, or bonds rated BBB and above. Although we
maintained our focus on medium-quality securities, which are defined as A-rated
and BBB-rated securities, the portfolio reflected an increase in AA-rated bonds
at the end of the period. This was predominately the result of one of the
portfolio's largest securities, TCI Communications, Inc., being upgraded after
that company was acquired by AT&T.
At the end of the period, the Fund's duration was 6.3 years, which is
comparable to its August 31, 1998 duration of 6.4 years, as well as to the 6.2
year duration of its benchmark, the Lehman Brothers Corporate Bond Index. When
interest rates fall, as they did throughout most of the reporting period, the
duration of callable bonds tends to fall because many bonds begin to trade to
their call dates rather than maturity dates. We purchased long-duration
noncallable bonds in order to help offset this decline in the duration of
portfolio holdings. Currently, we intend to maintain the Fund's duration neutral
to its benchmark. For additional Fund portfolio highlights, please refer to page
9.
Q HOW DID THE FUND PERFORM DURING THE REPORTING PERIOD?
A For the six months ended February 28, 1999, the Fund generated a total
return of 1.14 percent(1) (Class A shares at net asset value). For the
same period, the average return for funds in the Lipper Corporate Debt BBB
category was 1.56 percent. By comparison, the Lehman Brothers Corporate Bond
Index and the Lehman Brothers Baa Corporate Bond Index produced total returns of
2.40 and 2.45 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 do not reflect any commissions or sales charges that would be paid by an
investor purchasing the securities they represent. Past performance does not
guarantee future results. Please refer to the chart on page 3 for additional
Fund performance results.
Q WHAT IS YOUR OUTLOOK FOR THE MARKET AND THE FUND OVER THE COMING MONTHS?
A Although investors have expected an economic slowdown in the United States
for some time, we do not see signs that this might materialize in the near
future. We also continue to see low inflation numbers, backed by
indications of a taut job market and high consumer confidence. With continuing
difficulties in many foreign economies, we cannot rule out the possibility that,
at some point, GDP growth could lag. At the same time, the fundamentals
currently underpinning the U.S. bond market are as healthy as at any time in
recent memory, and we expect the market to remain strong in the months ahead.
7
<PAGE> 9
We believe the Fund's emphasis on investment-grade bonds and its neutral
duration will help reduce potential price volatility due to changing market
conditions. Until we get a better sense of what the future holds for this
market, we do not expect to make any major changes to the portfolio. We will
continue to seek opportunities to help increase the Fund's yield without
incurring significant credit risk as we maintain our investment strategies and
bond selection process.
[SIG.]
David R. Troth
Portfolio Manager
[SIG.]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
Please see footnotes on page 3
8
<PAGE> 10
PORTFOLIO HIGHLIGHTS
VAN KAMPEN CORPORATE BOND FUND
TOP TEN HOLDINGS AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
AS OF
FEBRUARY 28, 1999
<S> <C>
Merrill Lynch & Co.,
Inc...................... 4.02%
News America Holdings,
Inc...................... 3.89%
TCI Communications, Inc.... 3.44%
Cox Communications, Inc.... 3.42%
Republic of South Africa... 3.08%
Ashland Oil, Inc........... 2.92%
United Mexican States
(Mexico)................. 2.65%
Tenet Healthcare Corp...... 2.59%
PDV America, Inc........... 2.41%
United Airlines, Inc....... 2.38%
</TABLE>
CREDIT QUALITY AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
As of February 28, 1999
AAA AA A BBB BB B
- --- -- - --- -- -
<S> <C> <C> <C> <C> <C>
2.1% 7.8% 23.4% 48.1% 18.4% 0.2%
</TABLE>
[PIE CHART]
<TABLE>
<CAPTION>
As of August 31, 1998
AAA AA A BBB BB B
- --- -- - --- -- -
<S> <C> <C> <C> <C> <C>
2.2% 4.2% 21.8% 55.1% 16.5% 0.2%
</TABLE>
[PIE CHART]
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 FEBRUARY 28, 1999 AS OF AUGUST 31, 1998
<S> <C> <C> <C>
Consumer Services..... 21.8% Consumer Services..... 20.9%
Energy................ 10.9% Energy................ 11.9%
Finance............... 10.7% Finance............... 11.2%
Utilities............. 9.8% Raw Materials/Processing
Raw Materials/Processing Industries........ 9.6%
Industries.......... 8.7% Utilities............. 8.8%
</TABLE>
DURATION
<TABLE>
<CAPTION>
AS OF FEBRUARY 28, 1999 AS OF AUGUST 31, 1998
<S> <C>
6.3 years 6.4 years
</TABLE>
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORPORATE BOND 83.7%
CONSUMER DISTRIBUTION 1.3%
$2,000 Nabisco, Inc. ......................... 7.550% 06/15/15 $ 1,955,794
1,500 Safeway, Inc. ......................... 6.050 11/15/03 1,495,863
------------
3,451,657
------------
CONSUMER DURABLES 0.7%
750 Brunswick Corp. ....................... 7.125 08/01/27 704,915
1,000 Chrysler Corp. ........................ 7.450 03/01/27 1,104,615
------------
1,809,530
------------
CONSUMER NON-DURABLES 2.0%
2,000 Coca Cola Enterprises, Inc. ........... 8.500 02/01/12 2,381,010
750 Dimon, Inc. ........................... 8.875 06/01/06 682,500
2,000 Westpoint Stevens, Inc., 144A --
Private Placement (a).................. 7.875 06/15/05 2,080,000
------------
5,143,510
------------
CONSUMER SERVICES 20.4%
1,250 A. H. Belo Corp. ...................... 7.125 06/01/07 1,276,971
2,500 Clear Channel Communications, Inc. .... 7.250 10/15/27 2,466,482
4,000 Comcast Cable Communications, Inc. .... 6.200 11/15/08 3,990,000
5,000 Cox Communications, Inc. .............. 6.875 06/15/05 5,211,825
3,000 Cox Communications, Inc. .............. 7.250 11/15/15 3,190,482
1,250 CSC Holdings, Inc. .................... 7.875 12/15/07 1,325,000
2,500 CSC Holdings, Inc. .................... 7.875 02/15/18 2,625,000
1,000 Harcourt General, Inc. ................ 7.200 08/01/27 954,831
1,250 Harcourt General, Inc. ................ 8.875 06/01/22 1,401,283
5,000 ITT Corp. ............................. 6.750 11/15/05 4,550,000
6,000 News America Holdings, Inc. ........... 8.875 04/26/23 7,144,542
2,000 News America Holdings, Inc. ........... 9.250 02/01/13 2,427,636
375 Premier Parks, Inc. (b)................ 0/10.000 04/01/08 260,625
250 Premier Parks, Inc. ................... 9.250 04/01/06 261,250
2,500 Royal Caribbean Cruises Ltd. .......... 7.500 10/15/27 2,375,788
1,500 Stewart Enterprises, Inc. ............. 6.400 05/01/03 1,484,093
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONSUMER SERVICES (CONTINUED)
$2,500 TCI Communications, Inc. .............. 8.750% 08/01/15 $ 3,059,137
3,000 TCI Communications, Inc. .............. 6.875 02/15/06 3,134,127
2,000 TCI Communications, Inc. .............. 9.250 01/15/23 2,267,580
3,000 Viacom, Inc. .......................... 7.750 06/01/05 3,210,000
1,000 Washington Post Co. ................... 5.500 02/15/09 970,420
------------
53,587,072
------------
ENERGY 10.2%
6,300 Ashland Oil, Inc. ..................... 8.800 11/15/12 7,184,614
750 Barrett Resources Corp. ............... 7.550 02/01/07 727,500
1,000 Equistar Chemicals LP.................. 6.500 02/15/06 930,421
6,300 PDV America, Inc. ..................... 7.875 08/01/03 5,913,331
1,500 Petroliam Nasional Berhad, 144A --
Private Placement (a).................. 7.625 10/15/26 1,201,151
5,000 Phillips Petroleum Co. ................ 8.860 05/15/22 5,384,245
1,000 R & B Falcon Corp. .................... 6.500 04/15/03 906,092
4,000 Union Oil Co. ......................... 9.125 02/15/06 4,455,756
------------
26,703,110
------------
FINANCE 10.0%
3,000 Cez Finance B V........................ 7.125 07/15/07 2,724,600
3,500 Hutchison Whampoa Finance,144A --
Private Placement (a).................. 7.500 08/01/27 2,841,258
10,000 Merrill Lynch & Co., Inc. ............. 6.000 07/15/05 9,880,190
3,040 PNPP II Funding Corp. ................. 8.510 11/30/06 3,221,888
3,000 Royal Bank Scotland Group.............. 6.375 02/01/11 2,927,580
4,500 Ryder Systems, Inc. ................... 9.250 05/15/01 4,802,909
------------
26,398,425
------------
HEALTHCARE 5.9%
2,000 Aetna Services, Inc. .................. 7.125 08/15/06 2,030,256
1,000 Allegiance Corp. ...................... 7.800 10/15/16 1,093,479
4,000 Baxter International, Inc. ............ 6.625 02/15/28 3,892,076
1,500 Beckman Coulter, Inc., 144A -- Private
Placement (a).......................... 7.450 03/04/08 1,511,250
500 Manor Care, Inc. ...................... 7.500 06/15/06 511,288
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HEALTHCARE (CONTINUED)
$6,500 Tenet Healthcare Corp., 144A -- Private
Placement (a)........................... 8.125% 12/01/08 $ 6,370,000
------------
15,408,349
------------
OIL & GAS 0.4%
1,000 Transcontinental Gas Pipeline Corp. .... 7.250 12/01/26 1,004,970
------------
PRODUCER MANUFACTURING 3.8%
5,000 Federal-Mogul Corp. .................... 7.875 07/01/10 4,987,500
2,500 Rubbermaid, Inc. ....................... 6.600 11/15/06 2,594,160
2,500 Tyco International Group, SA, 144A --
Private Placement (a)................... 6.125 11/01/08 2,457,635
------------
10,039,295
------------
RAW MATERIALS/PROCESSING INDUSTRIES 8.1%
1,000 Carter Holt Harvey Ltd. ................ 8.375 04/15/15 1,038,003
4,000 Crown Cork & Seal, Inc. ................ 8.000 04/15/23 4,015,488
4,000 Federal Paper Board, Inc. .............. 8.875 07/01/12 4,629,240
1,750 Idex Corp. ............................. 6.875 02/15/08 1,678,553
4,000 IMC Global, Inc. ....................... 6.875 07/15/07 3,891,424
1,000 IMC Global, Inc. ....................... 7.300 01/15/28 952,100
3,000 Lafarge Corp. .......................... 6.500 07/15/08 2,997,678
1,250 Owens Illinois, Inc. ................... 7.150 05/15/05 1,237,500
250 Pride International, Inc. .............. 9.375 05/01/07 232,500
750 Smithfield Foods, Inc. ................. 7.625 02/15/08 744,375
------------
21,416,861
------------
TECHNOLOGY 4.8%
5,000 Computer Associates International,
Inc., 144A -- Private Placement (a)..... 6.375 04/15/05 4,931,680
5,000 International Business Machines
Corp. .................................. 7.500 06/15/13 5,528,045
1,750 Raytheon Co. ........................... 6.150 11/01/08 1,728,711
500 Raytheon Co. ........................... 7.200 08/15/27 521,808
------------
12,710,244
------------
TRANSPORTATION 6.9%
3,000 AMR Corp. .............................. 9.500 05/15/01 3,171,729
750 CSX Corp. .............................. 8.625 05/15/22 885,955
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TRANSPORTATION (CONTINUED)
$2,000 Delta Airlines, Inc. .................. 9.750% 05/15/21 $ 2,432,482
1,500 Kansas City Southern Industries,
Inc. .................................. 7.875 07/01/02 1,565,599
4,000 Union Pacific Corp. ................... 8.350 05/01/25 4,249,756
5,000 United Airlines, Inc. ................. 10.020 03/22/14 5,857,500
------------
18,163,021
------------
UTILITIES 9.2%
1,000 360 Communications Co. ................ 7.120 03/01/03 1,039,883
1,000 AES Corp. ............................. 10.250 07/15/06 1,065,000
1,000 Arizona Public Service Co. ............ 8.750 01/15/24 1,078,804
2,000 Arizona Public Service Co. ............ 9.500 04/15/21 2,190,366
2,000 CMS Energy Corp., 144A -- Private
Placement (a) ......................... 6.750 01/15/04 1,970,000
1,000 CMS Energy Corp. ...................... 7.500 01/15/09 1,002,500
1,000 Gulf States Utilities Co. ............. 8.940 01/01/22 1,057,557
4,750 MCI Worldcom, Inc. .................... 6.950 08/15/28 4,894,899
3,250 Niagara Mohawk Power Corp. ............ 7.625 10/01/05 3,388,125
4,000 Sprint Capital Corp. .................. 6.125 11/15/08 3,944,988
500 UtiliCorp United, Inc. ................ 6.700 10/15/06 516,166
2,000 Yorkshire Power Finance Ltd., 144A --
Private Placement (a) ................. 6.496 02/25/08 1,968,668
------------
24,116,956
------------
TOTAL CORPORATE BOND 83.7% .................... 219,953,000
------------
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS (CONTINUED)
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
GOVERNMENT OBLIGATIONS 9.8%
$4,000 Providence of Newfoundland (Canada) ... 9.000% 10/15/21 $ 5,012,200
650 Providence of Saskatchewan (Canada) ... 8.000 02/01/13 755,222
1,000 Republic of Argentina ................. 11.375 01/30/17 910,000
5,000 Republic of South Africa .............. 8.375 10/17/06 4,912,500
3,500 Republic of South Africa .............. 8.500 06/23/17 2,650,637
2,500 United Mexican States (Mexico) ........ 9.875 01/15/07 2,431,250
4,000 United Mexican States (Mexico) ........ 11.375 09/15/16 4,080,000
5,000 United States Treasury Notes .......... 5.750 10/31/02 5,075,550
------------
TOTAL GOVERNMENT OBLIGATIONS ....................................... 25,827,359
------------
TOTAL LONG-TERM INVESTMENTS 93.5%
(Cost $238,105,180) .............................................. 245,780,359
REPURCHASE AGREEMENT 5.2%
BA Securities ($13,655,000 par collateralized by U.S. Government
obligations in a pooled cash account, dated 02/26/99 to be sold on
03/01/99 at $13,660,462)
(Cost $13,655,000)................................................ 13,655,000
------------
TOTAL INVESTMENTS 98.7%
(Cost $251,760,180)............................................... 259,435,359
OTHER ASSETS IN EXCESS OF LIABILITIES 1.3%......................... 3,444,931
------------
NET ASSETS 100.0%.................................................. $262,880,290
============
</TABLE>
(a) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may be resold only in
transactions exempt from registration which are normally those transactions
with qualified institutional buyers.
(b) Security is a "step-up" bond where the coupon increases or steps up at a
predetermined date.
See Notes to Financial Statements
14
<PAGE> 16
STATEMENT OF ASSETS AND LIABILITIES
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $251,760,180)....................... $259,435,359
Cash........................................................ 5,490
Receivables:
Interest.................................................. 4,386,843
Fund Shares Sold.......................................... 1,094,165
Other....................................................... 48,690
------------
Total Assets.......................................... 264,970,547
------------
LIABILITIES:
Payables:
Fund Shares Repurchased................................... 1,197,889
Income Distributions...................................... 439,427
Distributor and Affiliates................................ 135,279
Investment Advisory Fee................................... 96,903
Trustees' Deferred Compensation and Retirement Plans........ 129,047
Accrued Expenses............................................ 91,712
------------
Total Liabilities..................................... 2,090,257
------------
NET ASSETS.................................................. $262,880,290
-----------
NET ASSETS CONSIST OF:
Capital..................................................... $271,104,453
Net Unrealized Appreciation................................. 7,675,179
Accumulated Undistributed Net Investment Income............. (677,794)
Accumulated Net Realized Loss............................... (15,221,548)
------------
NET ASSETS.................................................. $262,880,290
-----------
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $187,957,628 and 27,294,817 shares of
beneficial interest issued and outstanding)............. $ 6.89
Maximum sales charge (4.75%* of offering price)......... .34
------------
Maximum offering price to public........................ $ 7.23
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $60,210,343 and 8,764,518 shares of
beneficial interest issued and outstanding)............. $ 6.87
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $14,712,319 and 2,141,812 shares of
beneficial interest issued and outstanding)............. $ 6.87
============
*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 Six Months Ended February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 9,287,373
Other....................................................... 5,636
-----------
Total Income............................................ 9,293,009
-----------
EXPENSES:
Investment Advisory Fee..................................... 615,937
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $207,015, $287,584 and $64,194,
respectively)............................................. 558,793
Shareholder Services........................................ 287,709
Custody..................................................... 11,955
Trustees' Fees and Expenses................................. 6,751
Legal....................................................... 5,215
Other....................................................... 125,929
-----------
Total Expenses.......................................... 1,612,289
-----------
NET INVESTMENT INCOME....................................... $ 7,680,720
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $ 532,440
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................. 13,342,797
End of the Period....................................... 7,675,179
-----------
Net Unrealized Depreciation During the Period............... (5,667,618)
-----------
NET REALIZED AND UNREALIZED LOSS............................ $(5,135,178)
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 2,545,542
===========
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended February 28, 1999 and
the Year Ended August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
February 28, 1999 August 31, 1998
- -------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income........................... $ 7,680,720 $ 14,055,824
Net Realized Gain............................... 532,440 897,823
Net Unrealized Appreciation/Depreciation During
the Period.................................... (5,667,618) 911,483
------------- -------------
Change in Net Assets from Operations............ 2,545,542 15,865,130
------------- -------------
Distributions from Net Investment Income*....... (7,680,720) (14,433,446)
Distributions in Excess of Net Investment
Income*....................................... (291,581) (430,640)
------------- -------------
Total Distributions........................... (7,972,301) (14,864,086)
------------- -------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES.................................... (5,426,759) 1,001,044
------------- -------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold....................... 48,041,193 92,822,340
Net Asset Value of Shares Issued Through
Dividend Reinvestment......................... 5,625,654 10,139,695
Cost of Shares Repurchased...................... (34,950,356) (54,403,687)
------------- -------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS.................................. 18,716,491 48,558,348
------------- -------------
TOTAL INCREASE IN NET ASSETS.................... 13,289,732 49,559,392
NET ASSETS:
Beginning of the Period......................... 249,590,558 200,031,166
------------- -------------
End of the Period (Including accumulated
undistributed net investment income of
$(677,794) and $(386,213), respectively)...... $ 262,880,290 $ 249,590,558
============= =============
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended
*Distributions by Class: February 28, 1999 August 31, 1998
- -------------------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of
Net Investment Income:
Class A Shares................................ $(5,997,706) $(11,934,964)
Class B Shares................................ (1,615,986) (2,562,029)
Class C Shares................................ (358,609) (367,093)
----------- ------------
$(7,972,301) $(14,864,086)
=========== ============
</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. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended August 31,
Six Months Ended ---------------------------------
Class A Shares February 28, 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................ $7.026 $6.967 $6.650 $ 6.94 $ 6.62
------ ------ ------ ------ ------
Net Investment Income............. .216 .454 .494 .479 .48
Net Realized and Unrealized
Gain/Loss....................... (.132) .085 .309 (.289) .32
------ ------ ------ ------ ------
Total from Investment Operations.... .084 .539 .803 .190 .80
Less Distributions from and in
Excess of Net Investment Income... .224 .480 .486 .480 .48
------ ------ ------ ------ ------
Net Asset Value, End of the
Period............................ $6.886 $7.026 $6.967 $6.650 $ 6.94
====== ====== ====== ====== ======
Total Return (a).................... 1.14%* 7.89% 12.46% 2.71% 12.71%
Net Assets at End of the Period (In
millions)......................... $188.0 $186.0 $160.9 $162.9 $169.0
Ratio of Expenses to Average Net
Assets (b)........................ 1.03% 1.08% 1.13% 1.10% 1.13%
Ratio of Net Investment Income to
Average Net Assets (b)............ 6.16% 6.40% 7.16% 6.90% 7.22%
Portfolio Turnover.................. 3%* 17% 18% 34% 25%
</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%.
* Non-Annualized
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. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended August 31,
Six Months Ended ---------------------------------
Class B Shares February 28, 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period.......................... $7.011 $6.955 $6.642 $ 6.94 $ 6.62
------ ------ ------ ------ ------
Net Investment Income........... .192 .412 .438 .424 .42
Net Realized and Unrealized
Gain/Loss..................... (.136) .071 .308 (.290) .33
------ ------ ------ ------ ------
Total from Investment
Operations...................... .056 .483 .746 .134 .75
Less Distributions from and in
Excess of Net Investment
Income.......................... .197 .427 .433 .432 .43
------ ------ ------ ------ ------
Net Asset Value, End of the
Period.......................... $6.870 $7.011 $6.955 $6.642 $ 6.94
====== ====== ====== ====== ======
Total Return (a).................. .77%* 6.95% 12.19% 1.85% 11.86%
Net Assets at End of the Period
(In millions)................... $ 60.2 $ 53.8 $ 34.0 $ 26.9 $ 19.2
Ratio of Expenses to Average Net
Assets (b)...................... 1.82% 1.85% 1.91% 1.90% 1.94%
Ratio of Net Investment Income to
Average Net Assets (b).......... 5.36% 5.59% 6.37% 6.12% 6.40%
Portfolio Turnover................ 3%* 17% 18% 34% 25%
</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%.
* Non-Annualized
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. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended August 31,
Six Months Ended ---------------------------------
Class C Shares February 28, 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period.......................... $7.011 $6.956 $6.639 $ 6.93 $ 6.62
------ ------ ------ ------ ------
Net Investment Income........... .198 .419 .434 .426 .42
Net Realized and Unrealized
Gain/Loss..................... (.143) .063 .316 (.285) .32
------ ------ ------ ------ ------
Total from Investment
Operations...................... .055 .482 .750 .141 .74
Less Distributions from and in
Excess of Net Investment
Income.......................... .197 .427 .433 .432 .43
------ ------ ------ ------ ------
Net Asset Value, End of the
Period.......................... $6.869 $7.011 $6.956 $6.639 $ 6.93
====== ====== ====== ====== ======
Total Return (a).................. .77%* 6.95% 11.63% 2.00% 11.70%
Net Assets at End of the Period
(In millions)................... $ 14.7 $ 9.8 $ 5.1 $ 5.9 $ 4.1
Ratio of Expenses to Average
Net Assets (b).................. 1.82% 1.85% 1.92% 1.90% 1.93%
Ratio of Net Investment Income to
Average
Net Assets (b).................. 5.33% 5.55% 6.38% 6.14% 6.40%
Portfolio Turnover................ 3%* 17% 18% 34% 25%
</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%.
* Non-Annualized
See Notes to Financial Statements
20
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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 February 28, 1999, there were no
when issued or delayed delivery purchase commitments.
21
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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 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. 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 February 28, 1999, for federal income tax purposes the cost of long- and
short-term investments is $251,760,180; the aggregate gross unrealized
appreciation is $11,641,313 and the aggregate gross unrealized depreciation is
$3,966,134, resulting in net unrealized appreciation of $7,675,179.
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
22
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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.
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 six months ended February 28, 1999, the Fund recognized expenses of
approximately $5,200 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the six months ended February 28, 1999, the Fund recognized expenses of
approximately $44,600 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 six months ended February
28, 1999, the Fund recognized expenses of approximately $190,600. Transfer
agency fees are determined through negotiations with the Fund's Board of
Trustees and are based on competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
23
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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 February 28, 1999, capital aggregated $196,201,443, $60,044,961 and
$14,858,049 for Classes A, B and C, respectively. For the six months ended
February 28, 1999, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................... 3,446,827 $ 24,353,480
Class B.................................... 2,421,186 17,075,395
Class C.................................... 938,869 6,612,318
---------- ------------
Total Sales.................................. 6,806,882 $ 48,041,193
========== ============
Dividend Reinvestment:
Class A.................................... 602,671 $ 4,265,487
Class B.................................... 159,584 1,126,583
Class C.................................... 33,103 233,584
---------- ------------
Total Dividend Reinvestment.................. 795,358 $ 5,625,654
========== ============
Repurchases:
Class A.................................... (3,221,951) $(22,816,713)
Class B.................................... (1,490,868) (10,507,567)
Class C.................................... (230,411) (1,626,076)
---------- ------------
Total Repurchases............................ (4,943,230) $(34,950,356)
========== ============
</TABLE>
24
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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>
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)
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
For the six months ended February 28, 1999, Van Kampen, as Distributor for
the Fund, received commissions on sales of the Fund's Class A shares of
approximately $30,900 and CDSC on redeemed shares of approximately $55,000.
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 $21,194,075 and $7,639,123 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. 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)
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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 six months ended February 28, 1999 are payments retained
by Van Kampen of approximately $279,000.
27
<PAGE> 29
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
PAUL G. YOVOVICH
OFFICERS
DENNIS J. MCDONNELL*
President
JOHN L. SULLIVAN*
Vice President, Treasurer and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
PAUL R. WOLKENBERG*
EDWARD C. WOOD, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN
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., 1999. All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After July 31, 1999, the report must be accompanied by a
quarterly performance update, if applicable.
28
<PAGE> 30
YEAR 2000 READINESS DISCLOSURE
Like other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by the Fund's investment adviser and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Fund's
investment adviser is taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to computer systems that it uses and
to obtain reasonable assurances that comparable steps are being taken by the
Fund's other major service providers. At this time, there can be no assurances
that these steps will be sufficient to avoid any adverse impact to the Fund. In
addition, the Year 2000 Problem may adversely affect the markets and the issuers
of securities in which the Fund may invest that, in turn, may adversely affect
the net asset value of the Fund. Improperly functioning trading systems may
result in settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Fund's investments may be adversely affected. The
statements above are subject to the Year 2000 Information and Readiness
Disclosure Act, which may limit the legal rights regarding the use of such
statements in the case of dispute.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> CORPORATE BOND CLASS A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> FEB-28-1999
<INVESTMENTS-AT-COST> 251,760,180<F1>
<INVESTMENTS-AT-VALUE> 259,435,359<F1>
<RECEIVABLES> 5,481,008<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 54,180<F1>
<TOTAL-ASSETS> 264,970,547<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 2,090,257<F1>
<TOTAL-LIABILITIES> 2,090,257<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 196,201,443
<SHARES-COMMON-STOCK> 27,294,817
<SHARES-COMMON-PRIOR> 26,467,270
<ACCUMULATED-NII-CURRENT> (677,794)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (15,221,548)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 7,675,179<F1>
<NET-ASSETS> 187,957,628
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 9,287,373<F1>
<OTHER-INCOME> 5,636<F1>
<EXPENSES-NET> (1,612,289)<F1>
<NET-INVESTMENT-INCOME> 7,680,720<F1>
<REALIZED-GAINS-CURRENT> 532,440<F1>
<APPREC-INCREASE-CURRENT> (5,667,618)<F1>
<NET-CHANGE-FROM-OPS> 2,545,542<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (5,997,706)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,446,827
<NUMBER-OF-SHARES-REDEEMED> (3,221,951)
<SHARES-REINVESTED> 602,671
<NET-CHANGE-IN-ASSETS> 1,993,695
<ACCUMULATED-NII-PRIOR> (386,213)<F1>
<ACCUMULATED-GAINS-PRIOR> (15,753,988)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 615,937<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 1,612,289<F1>
<AVERAGE-NET-ASSETS> 189,675,082
<PER-SHARE-NAV-BEGIN> 7.026
<PER-SHARE-NII> 0.216
<PER-SHARE-GAIN-APPREC> (0.132)
<PER-SHARE-DIVIDEND> (0.224)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 6.886
<EXPENSE-RATIO> 1.03
<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> 6-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> FEB-28-1999
<INVESTMENTS-AT-COST> 251,760,180<F1>
<INVESTMENTS-AT-VALUE> 259,439,359<F1>
<RECEIVABLES> 5,481,008<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 54,180<F1>
<TOTAL-ASSETS> 264,970,547<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 2,090,257<F1>
<TOTAL-LIABILITIES> 2,090,257<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 60,044,961
<SHARES-COMMON-STOCK> 8,764,518
<SHARES-COMMON-PRIOR> 7,674,616
<ACCUMULATED-NII-CURRENT> (677,794)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (15,221,548)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 7,675,179<F1>
<NET-ASSETS> 60,210,343
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 9,287,373<F1>
<OTHER-INCOME> 5,636<F1>
<EXPENSES-NET> (1,612,289)<F1>
<NET-INVESTMENT-INCOME> 7,680,720<F1>
<REALIZED-GAINS-CURRENT> 532,440<F1>
<APPREC-INCREASE-CURRENT> (5,667,618)<F1>
<NET-CHANGE-FROM-OPS> 2,545,542<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (1,615,986)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,421,186
<NUMBER-OF-SHARES-REDEEMED> (1,490,868)
<SHARES-REINVESTED> 159,584
<NET-CHANGE-IN-ASSETS> 6,400,765
<ACCUMULATED-NII-PRIOR> (386,213)<F1>
<ACCUMULATED-GAINS-PRIOR> (15,753,988)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 615,937<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 1,612,289<F1>
<AVERAGE-NET-ASSETS> 57,969,948
<PER-SHARE-NAV-BEGIN> 7.011
<PER-SHARE-NII> 0.192
<PER-SHARE-GAIN-APPREC> (0.136)
<PER-SHARE-DIVIDEND> (0.197)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 6.870
<EXPENSE-RATIO> 1.82
<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> 6-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> FEB-28-1999
<INVESTMENTS-AT-COST> 251,760,180<F1>
<INVESTMENTS-AT-VALUE> 259,435,359<F1>
<RECEIVABLES> 5,481,008<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 54,180<F1>
<TOTAL-ASSETS> 264,970,547<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 2,090,257<F1>
<TOTAL-LIABILITIES> 2,090,257<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14,858,049
<SHARES-COMMON-STOCK> 2,141,812
<SHARES-COMMON-PRIOR> 1,400,251
<ACCUMULATED-NII-CURRENT> (677,794)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (15,221,548)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 7,675,179<F1>
<NET-ASSETS> 14,712,319
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 9,287,373<F1>
<OTHER-INCOME> 5,636<F1>
<EXPENSES-NET> (1,612,289)<F1>
<NET-INVESTMENT-INCOME> 7,680,720<F1>
<REALIZED-GAINS-CURRENT> 532,440<F1>
<APPREC-INCREASE-CURRENT> (5,667,618)<F1>
<NET-CHANGE-FROM-OPS> 2,545,542<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (358,609)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 938,869
<NUMBER-OF-SHARES-REDEEMED> (230,411)
<SHARES-REINVESTED> 33,103
<NET-CHANGE-IN-ASSETS> 4,895,272
<ACCUMULATED-NII-PRIOR> (386,213)<F1>
<ACCUMULATED-GAINS-PRIOR> (15,753,988)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 615,937<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 1,612,289<F1>
<AVERAGE-NET-ASSETS> 12,939,427
<PER-SHARE-NAV-BEGIN> 7.011
<PER-SHARE-NII> 0.198
<PER-SHARE-GAIN-APPREC> (0.143)
<PER-SHARE-DIVIDEND> (0.197)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 6.869
<EXPENSE-RATIO> 1.82
<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>
