<PAGE> 1
<TABLE>
<S> <C>
Table of Contents
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 3
PORTFOLIO AT A GLANCE
CREDIT QUALITY 4
SIX MONTH DIVIDEND HISTORY 4
TOP FIVE INDUSTRIES 4
Q&A WITH YOUR PORTFOLIO MANAGERS 5
GLOSSARY OF TERMS 8
BY THE NUMBERS
YOUR FUND'S INVESTMENTS 9
FINANCIAL STATEMENTS 14
NOTES TO FINANCIAL STATEMENTS 20
VAN KAMPEN FUNDS
THE VAN KAMPEN FAMILY OF FUNDS 27
FUND OFFICERS AND IMPORTANT ADDRESSES 28
</TABLE>
One of the greatest shifts we've seen is the increasing importance of investing
for many Americans.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE> 2
OVERVIEW
LETTER TO SHAREHOLDERS
April 3, 2000
Dear Shareholder,
As we enter a new century--and millennium--it seems appropriate to take a look
back at the progress that's been made over the last 100 years and how the world
of investing has changed over the generations. Although rapid advances in
technology and science have dramatically altered the world that we live in
today, one of the greatest shifts we've seen is the increasing importance of
investing for many Americans.
Once considered primarily for the wealthy, investing in the stock market is now
available to most people. In fact, almost 79 million individuals--who represent
almost half of all U.S. households--own stocks either directly or through mutual
funds. This is even more impressive when considering that just 16 years earlier,
only 19 percent of households owned stocks. Another important shift has been the
need for retirement planning beyond a pension plan or Social Security. The
Investment Company Institute, the leading mutual fund industry association,
reports that 77 percent of all
mutual fund shareholders earmarked retirement as their primary
financial goal in 1998.
Through all the changes in the investment environment over the
past century, the general principles that have made
generations of investors successful remain the same. Some that have stood the
test of time include:
- - Investing for the long-term
- - Basing investment decisions on sound research
- - Building a diversified portfolio
- - Acting on the value of professional investment advice
While no one can predict the future, at Van Kampen we believe that these ideas
will remain important tenets for investors well into this century. As we
continue to focus on these principles, we hope that our decades of investment
experience can help bring you closer to your financial goals as we welcome the
new millennium.
Sincerely,
<TABLE>
<S> <C>
[SIG]
Richard F. Powers, III
Chairman
Van Kampen
Asset Management Inc.
</TABLE>
1
<PAGE> 3
ECONOMIC SNAPSHOT
ECONOMIC GROWTH REMAINED VIBRANT DURING THE REPORTING PERIOD DUE TO STRONG
CONSUMER AND GOVERNMENT SPENDING, AS WELL AS YEAR 2000-RELATED INVENTORY
BUILD-UP. GROSS DOMESTIC PRODUCT (GDP), THE PRIMARY MEASURE OF ECONOMIC GROWTH,
INCREASED AT AN ANNUALIZED RATE OF 6.9 PERCENT IN THE FOURTH QUARTER OF 1999,
ITS FASTEST GROWTH RATE SINCE 1996. WITH GDP MEASURING 4.1 PERCENT FOR 1999,
THIS WAS THE THIRD SUCCESSIVE YEAR IN WHICH GDP EXCEEDED 4 PERCENT.
STRONG GDP DATA, AMONG OTHER FACTORS, PROMPTED THE FEDERAL RESERVE BOARD TO TAKE
AN ACTIVE STANCE IN TEMPERING ECONOMIC GROWTH TO WARD OFF INFLATION. THE FED
INCREASED THE FEDERAL FUNDS RATE BY 0.25 PERCENT FOUR TIMES SINCE JUNE 1999, AND
AN ADDITIONAL INCREASE IS WIDELY ANTICIPATED IN LATE MARCH. [EDITOR'S NOTE: THE
FED RAISED THE FEDERAL FUNDS RATE BY 0.25 PERCENT ON MARCH 21.] DESPITE THE
SURGING ECONOMY, THE CONSUMER PRICE INDEX (CPI)--A MEASURE OF
INFLATION--REMAINED MODEST, RISING JUST 2.7 PERCENT DURING THE 12 MONTHS ENDED
FEBRUARY 29, 2000.
ALTHOUGH THE CPI POSTED FAVORABLE NUMBERS, INFLATIONARY PRESSURES CONTINUED TO
BUILD IN LABOR COSTS AND CONSUMER SPENDING RATES. THE JOB MARKET REMAINED TIGHT
AS UNEMPLOYMENT DROPPED TO A 30-YEAR LOW. AS A RESULT, THE EMPLOYMENT COST INDEX
HAS REFLECTED ESCALATING LABOR COSTS, AS EMPLOYERS HAVE INCREASED COMPENSATION
AND BENEFITS TO ATTRACT WORKERS.
RISING INTEREST RATES DID LITTLE TO CURB CONSUMER SPENDING. SHOPPERS SPENT
FREELY IN LATE 1999 AND INTO THE NEW YEAR, AND CONSUMER CONFIDENCE REMAINS VERY
HIGH DUE TO PLENTIFUL JOBS, ACCELERATING PERSONAL INCOME, AND LOW INFLATION.
INTEREST RATES AND INFLATION
(February 28, 1998 - February 29, 2000)
[LINE GRAPH]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Feb 98 5.50 1.40
5.50 1.40
5.50 1.40
May 98 5.50 1.70
5.50 1.70
5.50 1.70
Aug 98 5.50 1.60
5.25 1.50
5.00 1.50
Nov 98 4.75 1.50
4.75 1.60
4.75 1.70
Feb 99 4.75 1.60
4.75 1.70
4.75 2.30
May 99 4.75 2.10
5.00 2.00
5.00 2.10
Aug 99 5.25 2.30
5.25 2.60
5.25 2.60
Nov 99 5.50 2.60
5.50 2.70
5.50 2.70
Feb 00 5.75 3.20
</TABLE>
Interest rates are represented by the closing midline federal funds target rate
on the last
day of each month. Inflation is indicated by the annual percent change of the
Consumer Price Index for all urban consumers at the end of each month.
2
<PAGE> 4
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(as of February 29, 2000)
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SIX-MONTH TOTAL RETURN BASED ON
NAV(1) 1.65% 1.41% 1.41%
- -------------------------------------------------------------------------
Six-month total return(2) (3.24%) (2.54%) 0.42%
- -------------------------------------------------------------------------
One-year total return(2) (5.20%) (4.89%) (1.15%)
- -------------------------------------------------------------------------
Five-year average annual total
return(2) 5.58% 5.78% 5.82%
- -------------------------------------------------------------------------
Ten-year average annual total
return(2) 7.14% N/A N/A
- -------------------------------------------------------------------------
Life-of-Fund average annual total
return(2) 7.88% 5.16%(3) 4.06%
- -------------------------------------------------------------------------
Commencement date 09/23/71 09/28/92 08/30/93
- -------------------------------------------------------------------------
Distribution rate(4) 6.13% 5.64% 5.64%
- -------------------------------------------------------------------------
SEC Yield(5) 6.53% 6.11% 6.10%
- -------------------------------------------------------------------------
</TABLE>
N/A = Not Applicable
(1) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge (4.75% for A shares) or contingent
deferred sales charge ("CDSC"). On purchases of Class A shares of $1 million or
more, a CDSC of 1% may be imposed on certain redemptions made within one year of
purchase. Returns for Class B shares are calculated without the effect of the
maximum 4% CDSC, charged on certain redemptions made within one year of purchase
and declining thereafter to 0% after the fifth year. Returns for Class C shares
are calculated without the effect of the maximum 1% CDSC, charged on certain
redemptions made within one year of purchase. If the sales charge was included,
total returns would be lower.
(2) Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (4.75% for A shares) or
contingent deferred sales charge ("CDSC"). On purchases of Class A shares of $1
million or more, a CDSC of 1% may be imposed on certain redemptions made within
one year of purchase. Returns for Class B shares are calculated with the effect
of the maximum 4% CDSC, charged on certain redemptions made within one year of
purchase and declining thereafter to 0% after the fifth year. Returns for Class
C shares are calculated with the effect of the maximum 1% CDSC, charged on
certain redemptions made within one year of purchase.
(3) The total return reflects the conversion of Class B shares into Class A
shares six years after the end of the calendar month in which the shares were
purchased.
(4) Distribution rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.
(5) SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending February 29, 2000.
See the Comparative Performance section of the current prospectus. Past
performance is no guarantee of future results. Investment return and net asset
value will fluctuate with market conditions. Fund shares, when redeemed, may be
worth more or less than their original cost.
Investing in high-yield, lower rated securities involves certain risks, which
may include the potential for greater sensitivity to general economic downturns
and greater market price volatility.
Market forecasts provided in this report may not necessarily come to pass.
3
<PAGE> 5
PORTFOLIO AT A GLANCE
CREDIT QUALITY
(as a percentage of long-term investments)
As of February 29, 2000
[PIE CHART]
<TABLE>
<CAPTION>
AAA/AAA AA/AA A/A BBB/BAA BB/BA B/B NON-RATED
------- ----- --- ------- ----- --- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
As of February 29, 1.10 3.80 23.00 57.60 12.70 0.80 1.00
2000
</TABLE>
As of August 31, 1999
[PIE CHART]
<TABLE>
<CAPTION>
AAA/AAA AA/AA A/A BBB/BAA BB/BA B/B
------- ----- --- ------- ----- ---
<S> <C> <C> <C> <C> <C> <C>
As of August 31, 1999 5.20 4.30 24.90 50.10 14.30 0.40
<CAPTION>
NON-RATED
---------
<S> <C>
As of August 31, 1999 0.80
</TABLE>
Based upon the highest credit quality ratings as issued by Standard & Poor's or
Moody's, respectively.
SIX-MONTH DIVIDEND HISTORY
(for the six-months ending February 29, 2000)
[BAR GRAPH]
<TABLE>
<CAPTION>
DIVIDENDS
---------
<S> <C>
9/99 0.0345
10/99 0.0345
11/99 0.0345
12/99 0.0345
1/00 0.0345
2/00 0.0345
</TABLE>
The dividend history represents past performance of the Fund's Class A shares
and does not predict or guarantee the Fund's future distributions.
TOP FIVE INDUSTRIES
(as a percentage of long-term investments)
[BAR GRAPH]
<TABLE>
<CAPTION>
FEBRUARY 29, 2000 AUGUST 31, 1999
----------------- ---------------
<S> <C> <C>
Finance 18.1 15.4
Utilities 18.0 14.7
Consumer Services 17.9 17.1
Energy 11.2 10.7
Raw Materials/Processing Industries 10.1 8.7
</TABLE>
4
<PAGE> 6
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH REPRESENTATIVES OF THE ADVISER OF THE VAN KAMPEN
CORPORATE BOND FUND ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE
MARKETS DURING THE PAST SIX MONTHS. THE REPRESENTATIVES ARE LED BY KELLY
GILBERT, PORTFOLIO MANAGER, WHO HAS MANAGED THE FUND SINCE JUNE 1999 AND WORKED
IN THE INVESTMENT INDUSTRY SINCE 1993. SHE IS JOINED BY REID HILL, ASSISTANT
PORTFOLIO MANAGER, AND PETER W. HEGEL, CHIEF INVESTMENT OFFICER FOR FIXED-INCOME
INVESTMENTS. THE FOLLOWING DISCUSSION REFLECTS THEIR VIEWS ON THE FUND'S
PERFORMANCE DURING THE SIX-MONTH PERIOD ENDED FEBRUARY 29, 2000.
Q HOW WOULD YOU CHARACTERIZE THE
MARKET CONDITIONS IN WHICH THE FUND OPERATED DURING THE PAST SIX MONTHS?
A Despite a series of interest-rate
hikes by the Federal Reserve Board that began in June, yield spreads between
Treasuries and other types of bonds (such as corporate, high-yield, and
mortgage-backed securities) began to narrow in early September. This narrowing
trend continued until November, as investors became increasingly concerned about
the potential effects of year 2000 computer problems on new issuance and
liquidity. However, an additional Fed increase in November and a
lighter-than-expected new issuance calendar ushered in a relatively smooth
ending to a volatile and difficult year for the fixed-income market.
In the new year, predictions of an increase in new issuance and asset flows
failed to materialize. Corporate bonds that were issued were met by relatively
cool demand from risk-averse investors. In anticipation of additional Fed
activity in February, yield spreads once again began to widen between Treasuries
and corporate bonds, indicating that bonds underperformed during this time and
through the end of the period.
Q HOW DID YOU MANAGE THE FUND
IN LIGHT OF THESE CONDITIONS?
A We sought to maintain the
portfolio's diversification among sectors and securities, which helped to reduce
the Fund's risk in an uncertain environment. To accomplish this, we continued to
manage the Fund's holdings in four major areas: industrial (which includes
health-care, media and telecommunications, and consumer cyclical securities),
finance, utilities, and Yankee bonds, or dollar-denominated securities released
in the United States by foreign issuers.
Among these areas, we generally maintained the Fund's exposure to the
industrial sector, with a continued overweighting in cable and media
5
<PAGE> 7
services. This area outperformed during the period and contributed positively to
the Fund's return. At the same time, we sold several of the Fund's industrial
securities with low coupons or earnings disappointments, such as medical
companies Baxter and Beckman Coulter and defense company Raytheon.
We also looked for opportunities to increase the Fund's Yankee bond
exposure, which had previously been underweighted. As a result, we added two
Asian banks to the portfolio--Korea Development Bank and Bank of Tokyo
Mitsubishi--which performed favorably during the period. The portfolio also held
Abbey National, a U.K. bank, and Conseco, a U.S. insurance company, which
boosted the Fund's exposure to finance. Although this area enjoyed relatively
strong performance for the first half of the period, it lagged other sectors in
the new year.
Q WHAT WAS THE STRUCTURE OF THE
FUND'S PORTFOLIO AT THE END OF THE REPORTING PERIOD?
A The Fund's credit-quality allocation
continued to be weighted in medium-quality securities, which are defined as A
and BBB rated securities. At the end of the reporting period, approximately 28
percent of the Fund's long-term investments were allocated to securities rated A
and higher, and approximately 58 percent of long-term investments were invested
in BBB rated securities. The remaining 14 percent was allocated to securities
rated BB and lower.
Toward the end of 1999, we began to position the Fund defensively against
the uncertainty of the year 2000 transition. As a precautionary measure, we held
approximately 5 percent of the Fund's net assets in cash and cash equivalents.
In January, when it was apparent that the year 2000 problem was a nonevent, we
looked for opportunities to reinvest these assets in the market.
Finally, we continued to focus on managing the Fund's duration during the
period. Duration, which is expressed in years, is a measurement of a bond's
price sensitivity to changes in interest rates. For most of the period, the
Fund's duration was held equivalent to or slightly longer than that of its
benchmark, the Lehman Brothers BBB Corporate Bond Index. Because interest rates
rose during this time, the long duration was negative to the Fund's return. At
the end of the period, the Fund's duration was 5.95 years, which is equal to the
benchmark duration. For additional Fund portfolio highlights, please refer to
page 4.
Q HOW DID THE FUND PERFORM
DURING THE REPORTING PERIOD?
A Although the Fund's return was
supported by its favorable sector allocations, this benefit was overshadowed by
the slow recovery of the corporate bond market and by the Fund's duration. For
the six months ended February 29, 2000, the Fund generated a total return of
1.65 percent (Class A shares at net asset value). By comparison, the Lehman
Brothers Corporate Bond Index and the
6
<PAGE> 8
Lehman Brothers BBB Corporate Bond Index produced total returns of 1.72 percent
and 2.09 percent, respectively.* These broad-based indices reflect the
performance of all publicly issued, fixed-rate, non-convertible investment-grade
corporate debt, but do not reflect any commissions or fees that would be paid by
an investor purchasing the securities they represent. Such costs would lower
their performance. An investment cannot be made directly in an index. Of course,
past performance is no guarantee of future results. Please refer to the chart
and footnotes on page 3 for additional Fund performance results.
Q WHAT IS YOUR OUTLOOK FOR THE
MARKET AND THE FUND OVER THE COMING MONTHS?
A Because of general investor apathy
toward the corporate bond market, our outlook is cautionary. As we manage the
Fund going forward, we will continue to focus on fundamental, in-depth research
and assessment of corporate bonds. We will also continue to look beyond the
sector, credit rating, or structure of a bond to identify those issuers that we
believe will remain financially sound and perform well in a range of market
conditions to enhance shareholder value.
- ---------------
* Since Lipper Analytical Services has reclassified how it categorizes its
indices, we will no longer be using Lipper comparisons because we believe the
new system is less applicable. As a result, the Lipper Corporate Debt BBB
Index will not appear in this or future reports.
7
<PAGE> 9
GLOSSARY OF TERMS
A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.
COUPON RATE: The stated rate of interest the bond pays on an annual basis,
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.
DEFENSIVE INVESTMENT STRATEGY: A method of portfolio allocation and management
aimed at minimizing the risk of losing principal. Defensive investors place a
high percentage of their investable assets in bonds, cash equivalents, and
stocks that are less volatile than average.
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 (i.e., a 5-year duration means the bond will fall about 5 percent in value
if interest rates rise by 1 percent). The longer a bond's duration, the greater
the effect of interest-rate movements on its price. Typically, funds with
shorter durations perform better in rising rate environments, while funds with
longer durations perform better when rates decline.
YANKEE BONDS: U.S. dollar-denominated bonds issued in the United States by
foreign governments, banks, and corporations.
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.
8
<PAGE> 10
BY THE NUMBERS
YOUR FUND'S INVESTMENTS
February 29, 2000 (Unaudited)
THE FOLLOWING PAGES DETAIL THE SPECIFIC HOLDINGS OF YOUR FUND AT THE END OF THE
REPORTING PERIOD.
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
CORPORATE BONDS 94.4%
CONSUMER DISTRIBUTION 0.9%
$2,000 Nabisco, Inc. ........................... 7.550% 06/15/15 $ 1,913,026
------------
CONSUMER DURABLES 1.8%
750 Brunswick Corp. ......................... 7.125 08/01/27 652,140
1,000 Chrysler Corp. .......................... 7.450 03/01/27 968,346
2,500 Ford Motor Co. .......................... 7.450 07/16/31 2,376,275
------------
3,996,761
------------
CONSUMER NON-DURABLES 1.8%
2,500 Pepsi Bottling Group, Inc. .............. 7.000 03/01/29 2,240,880
2,000 Westpoint Stevens, Inc., 144A -- Private
Placement (a)............................ 7.875 06/15/05 1,750,000
------------
3,990,880
------------
CONSUMER SERVICES 17.6%
500 Bresnan Communications Group............. 8.000 02/01/09 506,250
500 Charter Communications Holdings, 144A --
Private Placement (a).................... 10.000 04/01/09 497,500
2,500 Clear Channel Communications, Inc. ...... 7.250 10/15/27 2,269,545
5,000 Cox Communications, Inc. ................ 6.875 06/15/05 4,806,790
1,250 CSC Holdings, Inc. ...................... 7.875 12/15/07 1,220,313
2,500 CSC Holdings, Inc. ...................... 7.875 02/15/18 2,384,375
1,250 Harcourt General, Inc. .................. 8.875 06/01/22 1,297,606
1,000 Harcourt General, Inc. .................. 7.200 08/01/27 871,533
5,000 ITT Corp. ............................... 6.750 11/15/05 4,425,000
2,000 Liberty Media Corp. ..................... 8.500 07/15/29 2,010,980
6,000 News America Holdings, Inc. ............. 8.875 04/26/23 6,285,738
250 Premier Parks, Inc. ..................... 9.250 04/01/06 236,250
200 Premier Parks, Inc. ..................... 9.750 06/15/07 193,000
375 Premier Parks, Inc. (b).................. 0/10.000 04/01/08 241,875
2,500 Royal Caribbean Cruises Ltd. ............ 7.500 10/15/27 2,292,727
1,500 Societe Generale Real Estate Co. LLC Ser
A, 144A -- Private Placement (a)......... 7.640 12/29/49 1,371,767
1,500 Stewart Enterprises, Inc. ............... 6.400 05/01/03 1,202,265
2,000 TCI Communications, Inc. ................ 9.250 01/15/23 2,142,720
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
YOUR FUND'S INVESTMENTS
February 29, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
CONSUMER SERVICES (CONTINUED)
$1,900 Time Warner Entertainment Co. ........... 8.375% 07/15/33 $ 1,950,492
3,000 Viacom, Inc. ............................ 7.750 06/01/05 3,015,000
------------
39,221,726
------------
ENERGY 11.0%
6,300 Ashland Oil, Inc. ....................... 8.800 11/15/12 6,639,261
750 Barrett Resources Corp. ................. 7.550 02/01/07 712,500
2,550 PDV America, Inc. ....................... 7.875 08/01/03 2,382,371
1,350 Petroleum Geo-Services ASA
(PGS)(Norway)............................ 7.125 03/30/28 1,174,858
1,500 Petroliam Nasional Berhad, 144A --
Private Placement (Malaysia) (a)......... 7.625 10/15/26 1,323,882
5,000 Phillips Petroleum Co. .................. 8.860 05/15/22 5,173,180
1,000 R & B Falcon Corp. ...................... 6.500 04/15/03 895,000
2,000 Southern Union Co. ...................... 8.250 11/15/29 2,011,266
4,000 Union Oil Co. ........................... 9.125 02/15/06 4,192,452
------------
24,504,770
------------
FINANCE 17.8%
2,750 Abbey National PLC (United Kingdom)...... 7.350 10/15/46 2,609,049
3,500 American Re Corp., Ser B................. 7.450 12/15/26 3,373,198
2,000 Avalonbay Communities.................... 7.500 08/01/09 1,891,540
1,000 Bank of Tokyo-Mitsubishi, Ltd. (Japan)... 8.400 04/15/10 1,009,190
3,000 Cez Finance B V (Netherlands)............ 7.125 07/15/07 2,805,000
2,000 Conseco, Inc. ........................... 8.500 10/15/02 2,000,756
1,500 Household Finance Corp. ................. 8.375 11/15/01 1,521,032
2,500 International Lease Finance Corp. ....... 8.375 12/15/04 2,567,247
1,875 Korea Development Bank (Korea)........... 6.500 11/15/02 1,808,925
4,000 Lehman Brothers Holdings, Inc. .......... 8.500 05/01/07 4,026,736
2,000 Nordbanken AB, 144A -- Private Placement
(Sweden) (a)............................. 7.250 11/12/09 1,941,100
2,829 PNPP II Funding Corp. ................... 8.510 11/30/06 2,860,338
4,500 Ryder Systems, Inc. ..................... 9.250 05/15/01 4,579,281
5,000 Suntrust Bank Atlanta.................... 7.250 09/15/06 4,833,775
1,890 Washington Mutual Capital I.............. 8.375 06/01/27 1,811,535
------------
39,638,702
------------
HEALTHCARE 1.4%
500 Manor Care, Inc. ........................ 7.500 06/15/06 448,348
3,000 Tenet Healthcare Corp., Ser B............ 8.125 12/01/08 2,775,000
------------
3,223,348
------------
HOTEL & LODGING 1.1%
2,500 Park Place Entertainment Corp. .......... 7.950 08/01/03 2,435,515
------------
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
YOUR FUND'S INVESTMENTS
February 29, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
OIL & GAS 0.4%
$1,000 Transcontinental Gas Pipeline Corp. ..... 7.250% 12/01/26 $ 901,977
------------
PRODUCER MANUFACTURING 1.7%
1,000 Cemex SA de C.V., 144A -- Private
Placement (Mexico) (a)................... 9.250 06/17/02 1,022,500
2,000 Rohm & Haas Co. ......................... 7.850 07/15/29 2,004,432
750 Waste Management, Inc. .................. 7.000 10/01/04 684,014
------------
3,710,946
------------
RAW MATERIALS/PROCESSING INDUSTRIES 9.9%
500 Atlantic Methanol Capital Co. Class A,
144A -- Private Placement (a)............ 10.875 12/15/04 495,000
1,000 Carter Holt Harvey Ltd. (New Zealand) ... 8.375 04/15/15 983,322
4,000 Crown Cork & Seal, Inc. ................. 8.000 04/15/23 3,683,484
4,000 Federal Paper Board, Inc. ............... 8.875 07/01/12 4,331,332
2,500 Georgia Pacific Corp. ................... 9.950 06/15/02 2,618,287
1,750 Idex Corp. .............................. 6.875 02/15/08 1,571,691
4,000 IMC Global, Inc. ........................ 6.875 07/15/07 3,693,784
1,000 IMC Global, Inc. ........................ 7.300 01/15/28 879,879
1,250 Owens Illinois, Inc. .................... 7.150 05/15/05 1,156,250
250 Pride International, Inc. ............... 9.375 05/01/07 242,500
450 Sequa Corp. ............................. 9.000 08/01/09 420,750
2,000 Tosco Corp. ............................. 8.250 05/15/03 2,022,646
------------
22,098,925
------------
RETAIL 1.3%
3,000 Fred Meyer, Inc. ........................ 7.375 03/01/05 2,932,425
------------
TECHNOLOGY 1.3%
3,000 Sun Microsystems, Inc. .................. 7.500 08/15/06 2,977,740
------------
TRANSPORTATION 8.6%
3,000 AMR Corp. ............................... 9.500 05/15/01 3,057,597
1,500 Canadian National Railway Co.
(Canada) ................................ 7.625 05/15/23 1,443,750
3,000 CSX Corp. ............................... 8.625 05/15/22 3,162,702
2,000 Delta Airlines, Inc. .................... 9.750 05/15/21 2,179,380
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
YOUR FUND'S INVESTMENTS
February 29, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
TRANSPORTATION (CONTINUED)
$4,000 Union Pacific Corp. ..................... 8.350% 05/01/25 $ 3,828,572
5,000 United Airlines, Inc., Ser. 91A2......... 10.020 03/22/14 5,404,475
------------
19,076,476
------------
UTILITIES 17.8%
1,000 360 Communications Co. .................. 7.125 03/01/03 993,225
1,000 AES Corp. ............................... 9.500 06/01/09 1,000,000
2,000 Arizona Public Service Co. .............. 9.500 04/15/21 2,084,462
1,000 Arizona Public Service Co. .............. 8.750 01/15/24 1,020,785
2,000 Cleveland Electric Illuminating Co. ..... 7.625 08/01/02 2,000,000
1,000 CMS Energy Corp. ........................ 7.500 01/15/09 918,750
2,000 CMS Energy Corp., Ser B.................. 6.750 01/15/04 1,855,000
2,500 Edison Mission Energy, 144A -- Private
Placement (a)............................ 7.730 06/15/09 2,468,162
2,000 El Paso Electric Co. .................... 8.250 02/01/03 2,017,500
1,000 Gulf States Utilities Co. ............... 8.940 01/01/22 1,007,030
2,500 Houston Lighting & Power Co. ............ 7.750 03/15/23 2,370,725
1,500 Israel Electric Corp., Ltd. (Israel) .... 8.250 10/15/09 1,488,821
2,750 MCI Worldcom, Inc. ...................... 6.950 08/15/28 2,472,552
1,250 Niagara Mohawk Power Corp. .............. 7.375 08/01/03 1,246,034
2,457 Niagara Mohawk Power Corp. .............. 7.625 10/01/05 2,445,031
5,000 Southern Energy, Inc., 144A -- Private
Placement (a)............................ 7.900 07/15/09 4,886,790
2,000 Sprint Capital Corp. .................... 6.125 11/15/08 1,798,994
750 Telefonica De Argentina SA, 144A --
Private Placement (Argentina) (a)........ 9.875 07/01/02 766,875
2,500 Texas Utilities Electric Co. ............ 8.250 04/01/04 2,543,720
500 UtiliCorp United, Inc. .................. 6.700 10/15/06 493,188
2,000 Western Resources, Inc. ................. 6.875 08/01/04 1,893,400
2,000 Yorkshire Power Finance Ltd., Ser B
(Cayman Islands)......................... 6.496 02/25/08 1,804,104
------------
39,575,148
------------
TOTAL CORPORATE BONDS 94.4%............................................. 210,198,365
------------
GOVERNMENT OBLIGATIONS 4.1%
2,000 Province of Saskatchewan (Canada)........ 8.000 07/15/04 2,032,000
2,500 Quebec Province (Canada)................. 8.800 04/15/03 2,584,200
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
YOUR FUND'S INVESTMENTS
February 29, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
GOVERNMENT OBLIGATIONS (CONTINUED)
$2,000 United Mexican States (Mexico)........... 10.375% 02/17/09 $ 2,157,500
2,500 United States Treasury Notes............. 5.875 11/15/04 2,427,550
------------
TOTAL GOVERNMENT OBLIGATIONS 4.1%....................................... 9,201,250
------------
TOTAL LONG-TERM INVESTMENTS 98.5%
(Cost $225,803,453).................................................... 219,399,615
REPURCHASE AGREEMENT 0.1%
BankAmerica Securities ($190,000 par collateralized by U.S. Government
obligations in a pooled cash account, dated 02/29/00 to be sold on
03/01/00 at $190,031)
(Cost $190,000).......................................................... 190,000
------------
TOTAL INVESTMENTS 98.6%
(Cost $225,993,453).................................................... 219,589,615
OTHER ASSETS IN EXCESS OF LIABILITIES 1.4%.............................. 3,181,699
------------
NET ASSETS 100.0%....................................................... $222,771,314
============
</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
13
<PAGE> 15
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
February 29, 2000 (Unaudited)
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $225,993,453)....................... $219,589,615
Receivables:
Interest.................................................. 4,440,043
Fund Shares Sold.......................................... 463,504
Other....................................................... 56,625
------------
Total Assets............................................ 224,549,787
------------
LIABILITIES:
Payables:
Custodian Bank............................................ 487,886
Income Distributions...................................... 414,540
Fund Shares Repurchased................................... 406,350
Distributor and Affiliates................................ 146,350
Investment Advisory Fee................................... 85,588
Trustees' Deferred Compensation and Retirement Plans........ 146,077
Accrued Expenses............................................ 91,682
------------
Total Liabilities....................................... 1,778,473
------------
NET ASSETS.................................................. $222,771,314
============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $234,752,528
Accumulated Distributions in Excess of Net Investment
Income.................................................... (213,927)
Accumulated Net Realized Loss............................... (5,363,449)
Net Unrealized Depreciation................................. (6,403,838)
------------
NET ASSETS.................................................. $222,771,314
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $159,053,876 and 24,726,788 shares of
beneficial interest issued and outstanding)............. $ 6.43
Maximum sales charge (4.75%* of offering price)......... .32
------------
Maximum offering price to public........................ $ 6.75
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $50,773,796 and 7,911,986 shares of
beneficial interest issued and outstanding)............. $ 6.42
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $12,943,642 and 2,017,266 shares of
beneficial interest issued and outstanding)............. $ 6.42
============
</TABLE>
* On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
14
<PAGE> 16
Statement of Operations
For the Six Months Ended February 29, 2000 (Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 8,944,810
Other....................................................... 81,714
-----------
Total Income............................................ 9,026,524
-----------
EXPENSES:
Investment Advisory Fee..................................... 559,723
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $200,380, $264,516 and $70,198,
respectively)............................................. 535,094
Shareholder Services........................................ 304,378
Custody..................................................... 35,132
Trustees' Fees and Related Expenses......................... 13,962
Legal....................................................... 7,525
Other....................................................... 128,767
-----------
Total Expenses.......................................... 1,584,581
-----------
NET INVESTMENT INCOME....................................... $ 7,441,943
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Loss........................................... $(3,455,003)
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (6,056,948)
End of the Period......................................... (6,403,838)
-----------
Net Unrealized Depreciation During the Period............... (346,890)
-----------
NET REALIZED AND UNREALIZED LOSS............................ $(3,801,893)
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 3,640,050
===========
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
Statement of Changes in Net Assets
For the Six Months Ended February 29, 2000 and the Year Ended August 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, 2000 AUGUST 31, 1999
------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................... $ 7,441,943 $ 15,746,682
Net Realized Gain/Loss.............................. (3,455,003) 325,887
Net Unrealized Depreciation During the Period....... (346,890) (19,399,745)
------------ ------------
Change in Net Assets from Operations................ 3,640,050 (3,327,176)
------------ ------------
Distributions from Net Investment Income*........... (7,159,207) (15,746,682)
Distributions in Excess of Net Investment Income*... -0- (288,603)
------------ ------------
Total Distributions................................. (7,159,207) (16,035,285)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES........................................ (3,519,157) (19,362,461)
------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold........................... 32,649,014 91,705,930
Net Asset Value of Shares Issued Through Dividend
Reinvestment...................................... 5,253,429 11,420,680
Cost of Shares Repurchased.......................... (52,847,812) (92,118,867)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.. (14,945,369) 11,007,743
------------ ------------
TOTAL DECREASE IN NET ASSETS........................ (18,464,526) (8,354,718)
NET ASSETS:
Beginning of the Period............................. 241,235,840 249,590,558
------------ ------------
End of the Period (Including accumulated
distributions in excess of net investment income
of $213,927 and $496,663, respectively)........... $222,771,314 $241,235,840
============ ============
* Distributions by Class
- ----------------------------------------------------
Distributions from and in Excess of Net Investment
Income:
Class A Shares.................................... $ (5,282,515) $(11,936,650)
Class B Shares.................................... (1,483,953) (3,314,387)
Class C Shares.................................... (392,739) (784,248)
------------ ------------
$ (7,159,207) $(16,035,285)
============ ============
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED. (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED AUGUST 31,
CLASS A SHARES FEBRUARY 29, ------------------------------------
2000 1999 1998 1997 1996
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD............................ $6.530 $7.026 $6.967 $6.650 $ 6.94
------ ------ ------ ------ ------
Net Investment Income............. .215 .433 .454 .494 .479
Net Realized and Unrealized
Gain/Loss....................... (.106) (.489) .085 .309 (.289)
------ ------ ------ ------ ------
Total from Investment Operations.... .109 (.056) .539 .803 .190
Less Distributions from and in
Excess of Net Investment Income... .207 .440 .480 .486 .480
------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE PERIOD.. $6.432 $6.530 $7.026 $6.967 $6.650
====== ====== ====== ====== ======
Total Return (a).................... 1.65%* (1.02%) 7.89% 12.46% 2.71%
Net Assets at End of the Period (In
millions)......................... $159.1 $172.9 $186.0 $160.9 $162.9
Ratio of Expenses to Average Net
Assets (b)........................ 1.14% 1.08% 1.08% 1.13% 1.10%
Ratio of Net Investment Income to
Average Net Assets (b)............ 6.62% 6.26% 6.40% 7.16% 6.90%
Portfolio Turnover.................. 37% 43% 17% 18% 34%
</TABLE>
* Non-Annualized
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge of 4.75% or contingent deferred
sales charge ("CDSC"). On purchases of $1 million or more, a CDSC of 1% may
be imposed on certain redemptions made within one year of purchase. If the
sales charges were included, total returns would be lower.
(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 certain expenses was less than 0.01%.
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>
SIX MONTHS
ENDED YEAR ENDED AUGUST 31,
CLASS B SHARES FEBRUARY 29, ------------------------------------
2000 1999 1998 1997 1996
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD............................ $6.514 $7.011 $6.955 $6.642 $ 6.94
------ ------ ------ ------ ------
Net Investment Income............. .189 .379 .412 .438 .424
Net Realized and Unrealized
Gain/Loss....................... (.105) (.490) .071 .308 (.290)
------ ------ ------ ------ ------
Total from Investment Operations.... .084 (.111) .483 .746 .134
Less Distributions from and in
Excess of Net Investment Income... .181 .386 .427 .433 .432
------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE PERIOD.. $6.417 $6.514 $7.011 $6.955 $6.642
====== ====== ====== ====== ======
Total Return (a).................... 1.41%* (1.78%) 6.95% 12.19% 1.85%
Net Assets at End of the Period (In
millions)......................... $ 50.8 $ 54.0 $ 53.8 $ 34.0 $ 26.9
Ratio of Expenses to Average Net
Assets (b)........................ 1.91% 1.86% 1.85% 1.91% 1.90%
Ratio of Net Investment Income to
Average Net Assets (b)............ 5.88% 5.47% 5.59% 6.37% 6.12%
Portfolio Turnover.................. 37%* 43% 17% 18% 34%
</TABLE>
* Non-Annualized
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum CDSC of 4%, charged on certain redemptions
made within one year of purchase and declining thereafter to 0% after the
fifth year. If the sales charge was included, total returns would be lower.
(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 certain expenses was less than 0.01%.
See Notes to Financial Statements
18
<PAGE> 20
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED. (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED AUGUST 31,
CLASS C SHARES FEBRUARY 29, ------------------------------------
2000 1999 1998 1997 1996
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD............................ $6.514 $7.011 $6.956 $6.639 $ 6.93
------ ------ ------ ------ ------
Net Investment Income............. .187 .388 .419 .434 .426
Net Realized and Unrealized
Gain/Loss....................... (.104) (.499) .063 .316 (.285)
------ ------ ------ ------ ------
Total from Investment Operations.... .083 (.111) .482 .750 .141
Less Distributions from and in
Excess of Net Investment Income... .181 .386 .427 .433 .432
------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE PERIOD.. $6.416 $6.514 $7.011 $6.956 $6.639
====== ====== ====== ====== ======
Total Return (a).................... 1.41%* (1.78%) 6.95% 11.63% 2.00%
Net Assets at End of the Period (In
millions)......................... $ 12.9 $ 14.3 $ 9.8 $ 5.1 $ 5.9
Ratio of Expenses to Average Net
Assets (b)........................ 1.90% 1.86% 1.85% 1.92% 1.90%
Ratio of Net Investment Income to
Average Net Assets (b)............ 5.81% 5.47% 5.55% 6.38% 6.14%
Portfolio Turnover.................. 37%* 43% 17% 18% 34%
</TABLE>
* Non-Annualized
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum CDSC of 1%, charged on certain redemptions
made within one year of purchase. If the sales charge was included, total
returns would be lower.
(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 certain expenses was less than 0.01%.
See Notes to Financial Statements
19
<PAGE> 21
NOTES TO
FINANCIAL STATEMENTS
February 29, 2000 (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
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 29, 2000, 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
20
<PAGE> 22
NOTES TO
FINANCIAL STATEMENTS
February 29, 2000 (Unaudited)
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 accreted over
the expected life of each applicable security. Premiums on debt securities are
not amortized. Income and expenses of the Fund are allocated on a pro rata basis
to each class of shares, except for distribution and service fees and transfer
agency costs which are unique to each class of shares.
D. FEDERAL INCOME TAXES It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
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, 1999, the Fund had an accumulated capital loss carryforward
for tax purposes of $1,868,760 which will expire between August 31, 2000 and
August 31, 2005. Of this amount, $1,821,919 will expire on August 31, 2000.
At February 29, 2000, for federal income tax purposes the cost of long- and
short-term investments is $225,993,453; the aggregate gross unrealized
appreciation is $2,077,900 and the aggregate gross unrealized depreciation is
$8,481,738, resulting in net unrealized depreciation on long- and short-term
investments of $6,403,838.
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.
21
<PAGE> 23
NOTES TO
FINANCIAL STATEMENTS
February 29, 2000 (Unaudited)
2. INVESTMENT ADVISORY AGREEMENT AND
OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
<TABLE>
<CAPTION>
AVERAGE 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 29, 2000, the Fund recognized expenses of
approximately $7,500 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the six months ended February 29, 2000, the Fund recognized expenses of
approximately $27,800 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
29, 2000, the Fund recognized expenses of approximately $219,600. 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.
22
<PAGE> 24
NOTES TO
FINANCIAL STATEMENTS
February 29, 2000 (Unaudited)
3. CAPITAL TRANSACTIONS
At February 29, 2000, capital aggregated $169,927,588, $51,529,249 and
$13,295,691 for Classes A, B and C, respectively. For the six months ended
February 29, 2000, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A................................................. 3,094,953 $ 20,124,068
Class B................................................. 1,478,341 9,571,427
Class C................................................. 453,758 2,953,519
---------- ------------
Total Sales............................................... 5,027,053 $ 32,649,014
========== ============
Dividend Reinvestment:
Class A................................................. 583,855 $ 3,908,198
Class B................................................. 164,308 1,072,213
Class C................................................. 40,637 273,018
---------- ------------
Total Dividend Reinvestment............................... 788,800 $ 5,253,429
========== ============
Repurchases:
Class A................................................. (5,435,985) $(35,356,817)
Class B................................................. (2,017,235) (13,110,828)
Class C................................................. (673,887) (4,380,167)
---------- ------------
Total Repurchases......................................... (8,127,107) $(52,847,812)
========== ============
</TABLE>
23
<PAGE> 25
NOTES TO
FINANCIAL STATEMENTS
February 29, 2000 (Unaudited)
At August 31, 1999, capital aggregated $181,252,139, $53,996,437 and
$14,449,321 for Classes A, B and C, respectively. For the year ended August 31,
1999, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A................................................ 7,268,437 $ 50,418,909
Class B................................................ 4,481,690 31,108,300
Class C................................................ 1,466,291 10,178,721
----------- ------------
Total Sales.............................................. 13,216,418 $ 91,705,930
=========== ============
Dividend Reinvestment:
Class A................................................ 1,243,608 $ 8,574,540
Class B................................................ 337,181 2,317,850
Class C................................................ 77,099 528,290
----------- ------------
Total Dividend Reinvestment.............................. 1,657,888 $ 11,420,680
=========== ============
Repurchases:
Class A................................................ (8,495,350) $(58,320,540)
Class B................................................ (4,206,917) (28,714,694)
Class C................................................ (746,885) (5,083,633)
----------- ------------
Total Repurchases........................................ (13,449,152) $(92,118,867)
=========== ============
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B shares purchased
on or after June 1, 1996, and any dividend reinvestment plan Class B shares
received on such shares, automatically convert to Class A shares eight years
after the end of the calendar month in which the shares are purchased. Class B
shares purchased before June 1, 1996, and any dividend reinvestment plan Class B
shares received on such shares, automatically convert to Class A shares six
years after the end of the calendar month in which the shares are purchased. For
the six months ended February 29, 2000 and the year ended August 31, 1999,
317,910 and 814,389 Class B shares automatically converted to Class A shares,
respectively, and are shown in the above tables as sales of Class A shares and
repurchases of Class B shares. Class C shares purchased before January 1, 1997,
and any dividend reinvestment plan C shares received thereon, automatically
convert to Class A shares ten years after the end of the calendar month in which
the shares are purchased. Class C shares purchased on or after January 1, 1997
do not possess a conversion feature. For the six months ended February 29, 2000
and the year ended August 31, 1999, no Class C shares converted to Class A
shares. The CDSC will be imposed on most redemptions made within five years of
the purchase for
24
<PAGE> 26
NOTES TO
FINANCIAL STATEMENTS
February 29, 2000 (Unaudited)
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>
For the six months ended February 29, 2000, Van Kampen, as Distributor for
the Fund, received commissions on sales of the Fund's Class A shares of
approximately $29,200 and CDSC on redeemed shares of approximately $108,300.
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 $83,638,399 and $96,703,208,
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.
25
<PAGE> 27
NOTES TO
FINANCIAL STATEMENTS
February 29, 2000 (Unaudited)
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, cash or liquid securities with a value equal to its
obligation under the futures contracts. During the period the futures contract
is open, payments are received from or made to the broker based upon changes in
the value of the contract (the variation margin).
There were no transactions in futures contracts during the six months ended
February 29, 2000.
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 29, 2000 are payments retained
by Van Kampen of approximately $208,700.
7. BORROWINGS
In accordance with its investment policies, the Fund may borrow from banks for
temporary purposes and is subject to certain other customary restrictions.
Effective November 30, 1999, the Fund, in conjunction with certain other funds
of Van Kampen, has entered in to a $650,000,000 committed line of credit
facility with a group of banks which expires on November 28, 2000, but is
renewable with the consent of the participating banks. Each fund is permitted to
utilize the facility in accordance with the restrictions of its prospectus. In
the event the demand for the credit facility meets or exceeds $650 million on a
complex-wide basis, each fund will be limited to its pro-rata percentage based
on the net assets of each participating fund. Interest on borrowings is charged
under the agreement at a rate of 0.50% above the federal funds rate per annum.
An annual commitment fee of 0.09% per annum is charged on the unused portion of
the credit facility, which each fund incurs based on its pro-rata percentage of
quarterly net assets. The Fund has not borrowed against the credit facility
during the period.
26
<PAGE> 28
VAN KAMPEN FUNDS
THE VAN KAMPEN
FAMILY OF FUNDS
Growth
Aggressive Growth*
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth
Mid Cap Growth
Pace
Small Cap Value
Technology
Growth and Income
Comstock
Equity Income
Growth and Income
Harbor
Real Estate Securities
Utility
Value
Global/International
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
Global Fixed Income*
Global Franchise
Global Government Securities*
Global Managed Assets*
International Magnum
Latin American
Strategic Income
Worldwide High Income
Income
Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
U.S. Government
U.S. Government Trust for Income
Capital Preservation
Reserve
Tax Free Money
Senior Loan
Prime Rate Income Trust
Senior Floating Rate
Tax Free
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal**
Insured Tax Free Income
Intermediate Term Municipal
Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
To find out more about any of these funds, ask your financial advisor for a
prospectus, which contains more complete information, including sales charges,
risks, and ongoing expenses. Please read it carefully before you invest or send
money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- - visit our Web site at
WWW.VANKAMPEN.COM--
to view a prospectus, select
Download Prospectus [COMPUTER ICON]
- - call us at 1-800-341-2911
weekdays from 7:00 a.m. to 7:00 p.m.
Central time. Telecommunications
Device for the Deaf users, call
1-800-421-2833.
[PHONE ICON]
- - e-mail us by visiting
WWW.VANKAMPEN.COM and
selecting Contact Us
[MAIL ICON]
* Closed to new investors
** Open to new investors for a limited time
27
<PAGE> 29
FUND OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN CORPORATE BOND FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
JERRY D. CHOATE
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
MITCHELL M. MERIN*
JACK E. NELSON
RICHARD F. POWERS, III*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY
PAUL G. YOVOVICH
OFFICERS
RICHARD F. POWERS, III*
President
STEPHEN L. BOYD*(1)
Executive Vice President and
Chief Investment Officer
A. THOMAS SMITH III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer and
Chief Financial Officer
PETER W. HEGEL*
MICHAEL H. SANTO*
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 218256
Kansas City, Missouri 64121-8256
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
200 E. Randolph Drive
Chicago, Illinois 60601
(1) Appointed Executive Vice President and Chief Investment Officer effective
April 3, 2000.
* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940.
(C) Van Kampen Funds Inc., 2000. All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information
on how to purchase shares, the sales charge, and other pertinent data. After
July 31, 2000, the report must be accompanied by a quarterly performance update,
if applicable.
28
<PAGE> 30
RESULTS OF
SHAREHOLDER VOTES
A Joint Special Meeting of the Shareholders of the Portfolio was held on
December 15, 1999, where shareholders voted on the election of trustees and
independent public accountants.
1) With regard to the election of the following trustees by shareholders:
<TABLE>
<CAPTION>
# OF SHARES
------------------------------
IN FAVOR WITHHELD
<S> <C> <C>
J. Miles Branagan..................................... 20,160,938 189,324
Jerry D. Choate....................................... 20,158,534 191,728
Linda Hutton Heagy.................................... 20,155,856 194,406
R. Craig Kennedy...................................... 20,164,766 185,496
Mitchell M. Merin..................................... 20,166,972 183,290
Jack E. Nelson........................................ 20,152,856 197,406
Richard F. Powers, III................................ 20,159,911 190,351
Phillip B. Rooney..................................... 20,161,585 188,677
Fernando Sisto........................................ 20,146,931 203,331
Wayne W. Whalen....................................... 20,158,310 191,952
Suzanne H. Woolsey ................................... 20,160,171 190,091
Paul G. Yovovich...................................... 20,168,987 181,275
</TABLE>
2) With regard to the ratification of PricewaterhouseCoopers LLP to act as
independent public accounts for the Portfolio, 20,005,672 shares were voted in
the affirmative and 90,491 shares were voted against the proposal and 254,099
shares abstained from voting.
