<PAGE> 1
<TABLE>
<S> <C>
Table of Contents
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 4
GROWTH OF A $10,000 INVESTMENT 6
PORTFOLIO AT A GLANCE
CREDIT QUALITY 7
TWELVE-MONTH DIVIDEND HISTORY 7
TOP FIVE SECTORS 7
Q&A WITH YOUR PORTFOLIO MANAGERS 8
GLOSSARY OF TERMS 11
BY THE NUMBERS
YOUR FUND'S INVESTMENTS 12
FINANCIAL STATEMENTS 17
NOTES TO FINANCIAL STATEMENTS 23
REPORT OF INDEPENDENT AUDITORS 30
VAN KAMPEN FUNDS
THE VAN KAMPEN FAMILY OF FUNDS 31
FUND OFFICERS AND IMPORTANT ADDRESSES 32
</TABLE>
It is times like these when money- management experience may make a difference.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE> 2
OVERVIEW
LETTER TO SHAREHOLDERS
September 20, 2000
Dear Shareholder,
Whether you have held your fund for years or just joined the Van Kampen family
of shareholders in the last few months, you are likely to have questions and
even some concerns about how recent market volatility has affected your
investment. I encourage you to review the following Q&A in which your portfolio
manager provides an update on how your fund is being managed in this
environment.
It is times like these when money-management experience may make a difference.
Toward that end, you should know that Van Kampen is one of the nation's oldest
investment-management firms, with a history of money management dating back to
1926. Our portfolio managers have invested in all types of market
conditions--during bull and bear markets, periods of inflation and rising
interest rates, and now a technology revolution. We have managed money long
enough to understand short-term market volatility and the
value of investing for the long term.
As we move through the second half of 2000, count on us to
continue to draw on the wisdom of our 74 years of experience.
Along those lines, Van Kampen's "Generations of Experience" is the theme of a
national advertising campaign that we recently kicked off. The message
emphasizes our depth of investment-management history, as well as our firm
belief that with the right investments, anyone can realize life's true wealth.
Sincerely,
[SIG R F POWERS, III]
Richard F. Powers, III
President and CEO
Van Kampen Investments
1
<PAGE> 3
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
ECONOMIC GROWTH REMAINED STRONG, UNDERPINNED BY LOW UNEMPLOYMENT AND RISING
PRODUCTIVITY, YET THERE WERE SIGNS THAT A HEALTHY SLOWDOWN HAD BEGUN. GROSS
DOMESTIC PRODUCT, THE PRIMARY MEASURE OF ECONOMIC GROWTH, INCREASED AT A 5.3
PERCENT ANNUALIZED RATE FOR THE SECOND QUARTER OF 2000. WHILE THIS FIGURE
REPRESENTS A MODEST INCREASE FROM THE PREVIOUS QUARTER, IT SUGGESTS THAT GROWTH
MIGHT BE SETTLING INTO A MORE MODERATE AND SUSTAINABLE PACE THAN ITS RAPID RATE
IN LATE 1999.
CONSUMER SPENDING AND EMPLOYMENT
TOWARD THE END OF THE REPORTING PERIOD, INFLATION FEARS BEGAN TO SUBSIDE DUE TO
A SLOWDOWN IN CONSUMER SPENDING AND A SLACKENING OF THE LABOR MARKET. RISING
INTEREST RATES FINALLY BEGAN TO TEMPER RETAIL SALES, WHICH IN AUGUST POSTED THE
WEAKEST MONTHLY GROWTH SINCE SPRING. ALTHOUGH THE TREND HAS BEEN DOWNWARD THIS
YEAR, CONSUMER SPENDING REMAINS SOUND.
THE JOBLESS RATE CONTINUED TO BE LOW BY HISTORICAL STANDARDS, BUT A RECENT
LEVELING-OFF OF PAYROLL FIGURES AND A SLIGHT RISE IN AUGUST UNEMPLOYMENT SUGGEST
THE LABOR MARKET IS EASING. WHILE EMPLOYER COSTS SUCH AS WAGES AND BENEFITS HAVE
BEEN ON THE RISE OVER THE PAST YEAR, THE LATEST SHIFT IN THE LABOR MARKET HAS
STARTED TO REVERSE THIS TREND--THE EMPLOYMENT COST INDEX SHOWED A MARKED
DECELERATION BETWEEN THE FIRST AND SECOND QUARTERS OF 2000.
INTEREST RATES AND INFLATION
THE FEDERAL RESERVE BOARD (THE FED) RAISED INTEREST RATES FOUR TIMES DURING THE
REPORTING PERIOD IN AN EFFORT TO WARD OFF INFLATION BY CURBING ECONOMIC GROWTH.
OVER THE SAME PERIOD, THE CONSUMER PRICE INDEX ROSE A MODERATE 3.2 PERCENT,
WHICH INDICATED THAT INFLATION GENERALLY REMAINED UNDER CONTROL.
GIVEN THE STRONG YET SUSTAINABLE PACE OF ECONOMIC GROWTH AND THE FAVORABLE
INFLATIONARY ENVIRONMENT, THE FED MAY HOLD INTEREST RATES STEADY IN THE SHORT
TERM, WHICH COULD HELP TO STABILIZE THE STOCK AND BOND MARKETS.
2
<PAGE> 4
U.S. GROSS DOMESTIC PRODUCT
SEASONALLY ADJUSTED ANNUALIZED RATES
(June 30, 1998--June 30, 2000)
[BAR GRAPH]
<TABLE>
<CAPTION>
U.S. GROSS DOMESTIC PRODUCT
---------------------------
<S> <C>
Jun 98 2.1
Sep 98 3.8
Dec 98 5.9
Mar 99 3.5
Jun 99 2.5
Sep 99 5.7
Dec 99 8.3
Mar 00 4.8
Jun 00 5.3
</TABLE>
Source: Bureau of Economic Analysis
INTEREST RATES AND INFLATION
(August 31, 1998--August 31, 2000)
[LINE GRAPH]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
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
6.00 3.70
6.00 3.00
May 00 6.50 3.10
6.50 3.70
6.50 3.60
Aug 00 6.50 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.
3
<PAGE> 5
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(as of August 31, 2000)
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
One-year total return based on
NAV(1) 5.01% 4.34% 4.34%
-------------------------------------------------------------------------
One-year total return(2) -0.04% 0.40% 3.36%
-------------------------------------------------------------------------
Five-year average annual total
return(2) 4.28% 4.27% 4.53%
-------------------------------------------------------------------------
Ten-year average annual total
return(2) 7.10% N/A N/A
-------------------------------------------------------------------------
Life-of-Fund average annual total
return(2) 7.86% 5.25%(3) 4.19%
-------------------------------------------------------------------------
Commencement date 09/23/71 09/28/92 08/30/93
-------------------------------------------------------------------------
Distribution rate(4) 6.13% 5.64% 5.64%
-------------------------------------------------------------------------
SEC Yield(5) 6.69% 6.24% 6.24%
-------------------------------------------------------------------------
</TABLE>
N/A = Not Applicable
(1) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge (4.75% for 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 the first and second 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 charges were included, total
returns would be lower.
(2) Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (4.75% for 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 the first and second 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. See Footnote 3 in the Notes to Financial Statements for
additional information.
(4) Distribution rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.
4
<PAGE> 6
(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 ended August 31, 2000.
An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. Please review the Risk/Return Summary
of the Prospectus for further details on investment risks. Fund shares, when
redeemed, may be worth more or less than their original cost. Past
performance is no guarantee of future results. Investment return and net
asset value will fluctuate with market conditions.
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.
5
<PAGE> 7
GROWTH OF A $10,000 INVESTMENT
(August 31, 1990--August 31, 2000)
[INVESTMENT PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
LEHMAN BROTHERS LIPPER CORPORATE BBB
CORPORATE BOND FUND CORPORATE BOND INDEX RATED INDEX
------------------- -------------------- --------------------
<S> <C> <C> <C>
8/90 9520 10000 10000
9535 10046 10032
9936 10444 10449
10274 10890 10789
10489 11107 10972
11038 11759 11606
12/91 11599 12379 12250
11574 12288 12128
12019 12822 12621
12595 13428 13245
12/92 12584 13454 13244
13188 14133 13938
13617 14606 14392
14185 15113 14908
12/93 14054 15091 14939
13694 14559 14443
13373 14330 14173
13432 14435 14273
12/94 13453 14499 14260
14134 15357 14938
15173 16499 15982
15571 16888 16369
12/95 16312 17722 17137
15786 17265 16787
15858 17342 16860
16120 17688 17231
12/96 16746 18304 17864
16625 18119 17744
17351 18867 18484
18088 19605 19202
12/97 18530 20177 19701
18875 20486 20046
19301 21015 20453
19508 21778 20707
12/98 19875 21910 20881
19590 21755 20837
19127 21414 20595
19176 21477 20590
12/99 19215 21485 20647
19436 21793 21032
19481 22061 21141
8/00 19940 22618 21619
</TABLE>
This chart compares your fund's performance to that of the Lehman Brothers
Corporate Bond Index and the Lipper Corporate BBB-Rated Index over time.
These indexes are unmanaged broad-based, statistical composites that do
not include any commissions or fees that would be paid by an investor
purchasing the securities they represent. Such costs would lower the
performance of these indexes. The historical performance of the indexes is
shown for illustrative purposes only; it is not meant to forecast, imply,
or guarantee the future performance of any investment vehicle. It is not
possible to invest directly in an index.
The above chart reflects the performance of Class A shares of the fund. The
performance of Class A shares will differ from that of other share classes of
the fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The fund's performance
assumes reinvestment of all distributions, and includes payment of the maximum
sales charge (4.75% for Class A shares).
While past performance is no guarantee of future results, the above information
provides a broader vantage point from which to evaluate the discussion of the
fund's performance found in the following pages.
6
<PAGE> 8
PORTFOLIO AT A GLANCE
CREDIT QUALITY
(as a percentage of long-term investments)
<TABLE>
<CAPTION>
As of August 31, 2000
<S> <C> <C>
- AAA/Aaa............ 3.5% [PIE CHART]
- AA/Aa.............. 5.2%
- A/A................ 21.4%
- BBB/Baa............ 60.1%
- BB/Ba.............. 9.6%
- B/B................ 0.2%
<CAPTION>
As of August 31, 1999
<S> <C> <C>
- AAA/Aaa............ 5.2% [PIE CHART]
- AA/Aa.............. 4.3%
- A/A................ 24.9%
- BBB/Baa............ 50.1%
- BB/Ba.............. 14.3%
- B/B................ 0.4%
- Non-Rated.......... 0.8%
</TABLE>
Based upon the highest credit quality ratings as issued by Standard & Poor's or
Moody's, respectively.
TWELVE-MONTH DIVIDEND HISTORY
(for the period ended August 31, 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
3/00 0.0345
4/00 0.0345
5/00 0.0345
6/00 0.0345
7/00 0.0345
8/00 0.0345
</TABLE>
The dividend history represents past performance of the fund's Class A shares
and is no guarantee of the fund's future dividends.
TOP FIVE SECTORS
(as a percentage of long-term investments)
[BAR GRAPH]
<TABLE>
<CAPTION>
AUGUST 31, 2000 AUGUST 31, 1999
--------------- ---------------
<S> <C> <C>
Finance 18.0 15.4
Consumer Services 16.1 17.1
Energy 11.6 10.7
Utilities 11.1 14.7
Raw Materials/Processing Industries 9.5 8.7
</TABLE>
7
<PAGE> 9
[PHOTO]
Q&A WITH YOUR PORTFOLIO MANAGERS
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 AND
INFLUENCED THE FUND'S RETURN DURING THE 12 MONTHS ENDED AUGUST 31, 2000. THE
TEAM IS LED BY KELLY GILBERT, SENIOR PORTFOLIO MANAGER, WHO HAS MANAGED THE FUND
SINCE JUNE 1999 AND HAS WORKED IN THE INVESTMENT INDUSTRY SINCE 1995. THE
FOLLOWING DISCUSSION REFLECTS HER VIEWS ON THE FUND'S PERFORMANCE.
Q WHAT WERE THE MARKET CONDITIONS IN WHICH THE FUND OPERATED, AND HOW DID THE
FUND PERFORM IN THAT ENVIRONMENT?
A Yield spreads between Treasuries
and other types of bonds (such as corporate, high-yield, and mortgage-backed
securities) narrowed during the first few months of the reporting period, which
had a positive effect on the corporate bond market. However, continued
interest-rate increases by the Federal Reserve Board--mixed with volatility and
weakness in the stock market, the potential effects of the year 2000 computer
problem (Y2K), and the slowing demand for corporate bonds--contributed to a
widening of yield spreads at year-end 1999.
The new year saw a spike in corporate bond issuance, but these new bonds
were met by relatively cool demand from risk-averse investors. In August, the
anticipated increase in new issuance in the telecommunications sector
contributed to the continued widening of yield spreads between Treasuries and
corporate bonds, indicating that corporate bonds underperformed during this
time.
For the 12-month period ended August 31, 2000, the fund returned 5.01
percent (Class A shares at net asset value; if the maximum sales charge of 4.75
percent were included, the return would have been lower). By comparison, the
Lehman Brothers Corporate Bond Index and the Lehman Brothers BBB Corporate Bond
Index produced total returns of 6.46 percent and 6.10 percent, respectively.
These broad-based, unmanaged indexes 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. It is not
possible to invest directly in an index. Of course, past performance is no
guarantee of future results. As a result of recent market activity, current
performance may vary from the figures cited above. Please refer to the chart and
footnotes on page 4 for additional fund performance results.
8
<PAGE> 10
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
concentrate the fund's holdings in industrials (which includes health-care,
media and telecommunications, and consumer cyclical securities), finance,
utilities, and Yankee bonds--which are U.S. dollar-denominated bonds issued in
the United States by foreign governments, banks, and corporations.
Among these areas, we generally maintained the fund's exposure to the
industrial sector, while significantly weighting our energy holdings. 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 that had
the potential for earnings disappointments, such as K-mart, Southern Energy,
Manor Care, Royal Caribbean, Owens Illinois, and Federal Mogul.
We also looked for opportunities to increase the fund's Yankee bond
exposure, which had previously been minimal. As a result, we added two Yankee
bank bonds to the portfolio--Malaysia and National Australia Bank--which
performed favorably during the period. For a portion of the reporting period,
the portfolio also held Abbey National, a U.K. bank, which boosted the fund's
exposure to the finance sector. While finance enjoyed relatively strong
performance in the first half of the period, the fund's exposure to Conseco, a
U.S. financial services company, hurt its performance in the second half.
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 30
percent of the fund's long-term investments were allocated to securities rated A
and higher, and approximately 60 percent of its long-term investments were BBB
rated securities. The remaining 10 percent was allocated to securities rated BB
and lower.
The first five months of the reporting period were very difficult for BBB
rated securities, and this challenged the fund's return. Throughout the
remainder of the reporting year, however, BBB rated securities intermittently
outperformed A rated securities.
We also continued to manage the fund's duration during the period. Duration,
which is expressed in years, is a measurement of a bond's sensitivity to changes
in interest rates. For most of the period, the fund's duration was 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
negatively effected the fund's return. At the end of the period, the fund's
duration was 5.72 years, which is slightly shorter than the benchmark duration
of 5.74 years.
9
<PAGE> 11
For additional fund portfolio highlights, please refer to page 7.
Q WHAT IS YOUR OUTLOOK FOR THE
MARKET AND THE FUND OVER THE COMING MONTHS?
A As we manage the fund going
forward, we'll continue to focus on bonds with higher credit-quality, as well as
in-depth research and assessment of corporate bonds. Based upon where corporate
bonds have traded historically, we believe the corporate bond market appears
attractively priced, and we will strive to look for securities that have the
potential to add relative value and perform well in a variety of market
conditions. Above all, we will continue to seek to achieve the fund's objective
of current income and preservation of capital.
10
<PAGE> 12
GLOSSARY OF TERMS
A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.
CLASS A SHARES: Mutual fund shares are generally divided into three groupings,
called Class A, Class B, and Class C shares, each with varying fees and sales
charges.
CREDIT RATING: An evaluation of a bond issuer's credit history and capability of
repaying debt obligations. Standard & Poor's Ratings Group and Moody's Investors
Service are two companies that assign credit ratings. Standard & Poor's ratings
range from a high of AAA to a low of D, while Moody's ratings range from a high
of Aaa to a low of C.
DURATION: A measure of the sensitivity of a bond's price to changes in interest
rates, expressed in years. Each year of duration represents an expected 1
percent change in the price of a bond for every 1 percent change in interest
rates (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.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank of the United States. Its policy-making
committee, called the Federal Open Market Committee, meets eight times a year to
establish monetary policy and monitor the economic pulse of the United States.
MORTGAGE-BACKED SECURITIES: Securities backed by pools of similar mortgages.
These securities are generally issued by agencies of the U.S. government, such
as Government National Mortgage Association (GNMA, or "Ginnie Mae") and Federal
Home Loan Mortgage Corporation (FHLMC, or "Freddie Mac").
VOLATILITY: A measure of the fluctuation in the market price of a security. A
security that is volatile has frequent and large swings in price.
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 credit 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.
11
<PAGE> 13
BY THE NUMBERS
YOUR FUND'S INVESTMENTS
August 31, 2000
THE FOLLOWING PAGES DETAIL YOUR FUND'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
CORPORATE BONDS 91.2%
CONSUMER DISTRIBUTION 0.8%
$2,000 Nabisco, Inc. ............................. 7.550% 06/15/15 $ 1,867,160
------------
CONSUMER DURABLES 2.4%
750 Brunswick Corp. ........................... 7.125 08/01/27 666,016
2,000 DaimlerChrysler NA Holding................. 7.750 05/27/03 2,024,682
2,000 DaimlerChrysler NA Holding................. 8.000 06/15/10 2,053,614
1,000 Ford Motor Co. ............................ 7.450 07/16/31 918,430
------------
5,662,742
------------
CONSUMER NON-DURABLES 1.4%
2,500 Pepsi Bottling Group, Inc. ................ 7.000 03/01/29 2,280,848
1,000 Westpoint Stevens, Inc., 144A-Private
Placement (a).............................. 7.875 06/15/05 900,000
------------
3,180,848
------------
CONSUMER SERVICES 15.8%
500 Charter Communications Holdings,
144A-Private Placement (a)................. 8.250 04/01/07 462,500
2,500 Clear Channel Communications, Inc. ........ 7.250 10/15/27 2,279,332
1,000 Comcast Cable Communications............... 8.125 05/01/04 1,022,539
3,000 Cox Communications, Inc. .................. 6.875 06/15/05 2,937,333
1,250 CSC Holdings, Inc. ........................ 7.875 12/15/07 1,225,000
2,500 CSC Holdings, Inc. ........................ 7.875 02/15/18 2,375,000
1,250 Harcourt General, Inc. .................... 8.875 06/01/22 1,272,067
1,000 Harcourt General, Inc. .................... 7.200 08/01/27 830,646
2,000 ITT Corp. ................................. 6.750 11/15/05 1,870,000
2,000 Liberty Media Corp. ....................... 8.500 07/15/29 1,944,348
1,250 Liberty Property LP........................ 8.500 08/01/10 1,258,113
6,000 News America Holdings, Inc. ............... 8.875 04/26/23 6,339,414
1,500 Societe Generale Real Estate Co. LLC Ser A,
144A-Private Placement (a)................. 7.640 12/29/49 1,398,063
1,500 Stewart Enterprises, Inc. ................. 6.400 05/01/13 992,580
2,000 TCI Communications, Inc. .................. 9.250 01/15/23 2,126,034
1,900 Time Warner Entertainment Co. ............. 8.375 07/15/33 1,970,653
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
YOUR FUND'S INVESTMENTS
August 31, 2000
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
CONSUMER SERVICES (CONTINUED)
$1,000 Time Warner, Inc. ......................... 7.975% 08/15/04 $ 1,026,257
3,000 Viacom, Inc. .............................. 7.750 06/01/05 3,062,436
500 Viacom, Inc. .............................. 7.875 07/30/30 505,643
2,000 Walt Disney Co. ........................... 7.300 02/08/05 2,026,934
------------
36,924,892
------------
ENERGY 11.4%
2,500 Ashland, Inc. ............................. 6.860 05/01/09 2,314,120
3,300 Ashland Oil, Inc. ......................... 8.800 11/15/12 3,451,120
750 Barrett Resources Corp. ................... 7.550 02/01/07 716,250
2,000 Conoco, Inc. .............................. 6.950 04/15/29 1,847,568
2,550 PDV America, Inc. ......................... 7.875 08/01/03 2,433,067
1,350 Petroleum Geo-Services ASA (Norway)........ 7.125 03/30/28 1,161,721
1,500 Petroliam Nasional Berhad, 144A-Private
Placement (Malaysia) (a)................... 7.625 10/15/26 1,352,888
5,000 Phillips Petroleum Co. .................... 8.860 05/15/22 5,108,350
1,000 R & B Falcon Corp. ........................ 6.500 04/15/03 955,000
2,000 Southern Union Co. ........................ 8.250 11/15/29 1,995,620
4,000 Union Oil Co. ............................. 9.125 02/15/06 4,257,324
1,000 Valero Energy Corp. ....................... 8.750 06/15/30 1,044,525
------------
26,637,553
------------
FINANCE 17.6%
2,750 Abbey National PLC (United Kingdom)........ 7.350 10/29/49 2,644,551
3,500 American Re Corp., Ser. B.................. 7.450 12/15/26 3,399,445
2,000 Avalonbay Communities...................... 7.500 08/01/09 1,942,776
500 Banco Santiago (Chile)..................... 7.000 07/18/07 455,468
500 Capital One Bank........................... 8.250 06/15/05 502,587
2,000 Conseco, Inc. ............................. 8.500 10/15/02 1,290,000
1,500 Ford Motor Credit Co. ..................... 7.375 10/28/09 1,475,730
2,000 General Motors Acceptance Corp. ........... 7.480 02/28/03 2,015,460
1,500 Household Finance Corp. ................... 8.375 11/15/01 1,520,249
2,500 International Lease Finance Corp. ......... 8.375 12/15/04 2,596,100
1,875 Korea Development Bank (Korea)............. 6.500 11/15/02 1,833,435
4,000 Lehman Brothers Holdings, Inc. ............ 8.500 05/01/07 4,160,664
1,000 National Australia Bank Ltd. (Australia)... 8.600 05/19/10 1,065,368
2,000 Nordbanken AB, 144A-Private Placement
(Sweden) (a)............................... 7.250 11/12/09 1,978,292
2,000 Paine Webber Group, Inc. .................. 6.375 05/15/04 1,940,794
1,000 PNC Funding Corp. ......................... 6.875 07/15/07 967,617
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
YOUR FUND'S INVESTMENTS
August 31, 2000
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
FINANCE (CONTINUED)
$2,739 PNPP II Funding Corp. ..................... 8.510% 11/30/06 $ 2,755,633
4,500 Ryder Systems, Inc. ....................... 9.250 05/15/01 4,529,308
2,500 Suntrust Bank Atlanta...................... 7.250 09/15/06 2,481,062
1,890 Washington Mutual Capital I................ 8.375 06/01/27 1,737,989
------------
41,292,528
------------
HEALTHCARE 0.4%
1,000 Columbia HCA Healthcare Corp. ............. 6.910 06/15/05 936,947
------------
HOTEL & LODGING 1.1%
2,500 Park Place Entertainment Corp. ............ 7.950 08/01/03 2,491,603
OIL & GAS 1.5%
2,500 Coastal Corp. ............................. 7.500 08/15/06 2,505,742
1,000 Transcontinental Gas Pipeline Corp. ....... 7.250 12/01/26 921,496
------------
3,427,238
------------
PRODUCER MANUFACTURING 4.3%
1,000 Cemex SA de C.V., 144A-Private Placement
(Mexico) (a)............................... 8.625 07/18/03 1,012,500
1,000 Dow Chemical Co. .......................... 7.375 11/01/29 980,377
2,500 Enron Corp. ............................... 7.125 05/15/07 2,476,073
1,000 Lockheed Martin Corp. ..................... 8.500 12/01/29 1,041,856
2,000 Rohm & Haas Co. ........................... 7.850 07/15/29 2,024,142
1,000 USX Corp. ................................. 6.650 02/01/06 962,829
1,750 Waste Management, Inc. .................... 7.000 10/01/04 1,661,847
------------
10,159,624
------------
RAW MATERIALS/PROCESSING INDUSTRIES 9.3%
2,000 Abitibi-Consolidated, Inc. (Canada)........ 8.300 08/01/05 2,033,938
1,000 Carter Holt Harvey Ltd. (New Zealand)...... 8.375 04/15/15 1,001,357
4,000 Crown Cork & Seal, Inc. ................... 8.000 04/15/23 3,228,172
4,000 Federal Paper Board, Inc. ................. 8.875 07/01/12 4,247,736
2,500 Georgia Pacific Corp. ..................... 9.950 06/15/02 2,591,610
1,750 Idex Corp. ................................ 6.875 02/15/08 1,612,194
4,000 IMC Global, Inc. .......................... 6.875 07/15/07 3,735,092
1,000 IMC Global, Inc. .......................... 7.300 01/15/28 866,126
450 Sequa Corp. ............................... 9.000 08/01/09 451,125
2,000 Tosco Corp. ............................... 8.250 05/15/03 2,048,292
------------
21,815,642
------------
RETAIL 1.3%
3,000 Fred Meyer, Inc. .......................... 7.375 03/01/05 2,953,455
------------
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
YOUR FUND'S INVESTMENTS
August 31, 2000
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
TELECOMMUNICATIONS 3.6%
$1,000 AT&T Canada, Inc. (Canada)................. 7.650% 09/15/06 $ 995,758
1,000 GTE Corp. ................................. 7.510 04/01/09 997,230
2,000 Qwest Capital Funding, Inc., 144A-Private
Placement (a).............................. 7.900 08/15/10 1,997,248
500 Shaw Communications, Inc. ................. 8.250 04/11/10 513,010
2,000 Sprint Corp. .............................. 8.125 07/15/02 2,041,836
2,000 Vodafone Airtouch PLC, 144A-Private
Placement (United Kingdom) (a)............. 7.750 02/15/10 2,010,912
------------
8,555,994
------------
TECHNOLOGY 1.3%
3,000 Sun Microsystems, Inc. .................... 7.500 08/15/06 3,029,295
------------
TRANSPORTATION 8.1%
3,000 AMR Corp. ................................. 9.500 05/15/01 3,020,190
1,500 Canadian National Railway Co. (Canada)..... 7.625 05/15/23 1,451,160
3,000 CSX Corp. ................................. 8.625 05/15/22 3,113,673
2,000 Delta Airlines, Inc. ...................... 9.750 05/15/21 2,124,918
4,000 Union Pacific Corp. ....................... 8.350 05/01/25 3,914,528
5,000 United Airlines, Inc., Ser. 91A2........... 10.020 03/22/14 5,473,875
------------
19,098,344
------------
UTILITIES 10.9%
1,000 360 Communications Co. .................... 7.125 03/01/03 1,000,669
1,000 AES Corp. ................................. 9.500 06/01/09 1,020,000
2,000 Arizona Public Service Co. ................ 9.500 04/15/21 2,087,440
1,000 Arizona Public Service Co. ................ 8.750 01/15/24 1,032,080
1,000 Calpine Corp. ............................. 8.625 08/15/10 1,010,000
2,000 Cleveland Electric Illuminating Co. ....... 7.625 08/01/02 2,008,306
2,000 CMS Energy Corp., Ser. B................... 6.750 01/15/04 1,875,000
1,000 Gulf States Utilities Co. ................. 8.940 01/01/22 1,004,297
1,500 Israel Electric Corp., Ltd. (Israel)....... 8.250 10/15/09 1,518,223
2,750 MCI Worldcom, Inc. ........................ 6.950 08/15/28 2,454,842
1,250 Niagara Mohawk Power Corp. ................ 7.375 08/01/03 1,254,519
2,457 Niagara Mohawk Power Corp. ................ 7.625 10/01/05 2,457,318
2,000 Southern Energy, Inc., 144A-Private
Placement (a).............................. 7.900 07/15/09 1,874,458
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
YOUR FUND'S INVESTMENTS
August 31, 2000
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
UTILITIES (CONTINUED)
$ 750 Telefonica De Argentina SA, 144A-Private
Placement (Argentina) (a)................. 9.875% 07/01/02 $ 771,563
500 UtiliCorp United, Inc. ................... 6.700 10/15/06 495,399
2,000 Western Resources, Inc. .................. 6.875 08/01/04 1,811,180
2,000 Yorkshire Power Finance Ltd., Ser. B
(Cayman Islands).......................... 6.496 02/25/08 1,801,304
------------
25,476,598
------------
TOTAL CORPORATE BONDS 91.2%.......................................... 213,510,463
------------
GOVERNMENT OBLIGATIONS 7.0%
1,000 Malaysia (Malaysia)....................... 8.750 06/01/09 1,062,026
2,000 Province of Saskatchewan (Canada)......... 8.000 07/15/04 2,073,400
2,500 Quebec Province (Canada).................. 8.800 04/15/03 2,601,425
500 United Mexican States (Mexico)............ 8.500 02/01/06 503,125
2,000 United Mexican States (Mexico)............ 10.375 02/17/09 2,187,500
1,000 United States Treasury Notes.............. 6.750 05/15/05 1,030,940
2,250 United States Treasury Notes.............. 6.625 05/15/07 2,327,355
3,250 United States Treasury Notes.............. 6.500 02/15/10 3,392,610
1,100 United States Treasury Notes.............. 6.250 05/15/30 1,190,407
------------
TOTAL GOVERNMENT OBLIGATIONS.......................................... 16,368,788
------------
TOTAL LONG-TERM INVESTMENTS 98.2%
(Cost $233,531,148)................................................. 229,879,251
REPURCHASE AGREEMENT 0.2%
BankAmerica Securities ($550,000 par collateralized by U.S. Government
obligations in a pooled cash account, dated 08/31/00 to be sold on
09/01/00 at $550,101) (Cost $550,000)................................. 550,000
------------
TOTAL INVESTMENTS 98.4%
(Cost $234,081,148)................................................. 230,429,251
OTHER ASSETS IN EXCESS OF LIABILITIES 1.6%............................ 3,789,427
------------
NET ASSETS 100.0%..................................................... $234,218,678
============
</TABLE>
(a) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933, as amended. These securities may be resold
only in transactions exempt from registration which are normally those
transactions with qualified institutional buyers.
See Notes to Financial Statements
16
<PAGE> 18
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
August 31, 2000
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $234,081,148)....................... $230,429,251
Receivables:
Interest.................................................. 4,473,421
Investments Sold.......................................... 2,133,023
Fund Shares Sold.......................................... 971,149
Other....................................................... 50,714
------------
Total Assets............................................ 238,057,558
------------
LIABILITIES:
Payables:
Investment Purchased...................................... 1,969,783
Fund Shares Repurchased................................... 988,036
Income Distributions...................................... 274,142
Distributor and Affiliates................................ 158,722
Investment Advisory Fee................................... 95,521
Custodian Bank............................................ 59,163
Trustees' Deferred Compensation and Retirement Plans........ 176,786
Accrued Expenses............................................ 116,727
------------
Total Liabilities....................................... 3,838,880
------------
NET ASSETS.................................................. $234,218,678
============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $244,527,062
Accumulated Undistributed Net Investment Income............. 341,101
Net Unrealized Depreciation................................. (3,651,897)
Accumulated Net Realized Loss............................... (6,997,588)
------------
NET ASSETS.................................................. $234,218,678
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $167,710,575 and 26,067,479 shares of
beneficial interest issued and outstanding)............. $ 6.43
Maximum sales charge (4.75%* of offering price)......... 0.32
------------
Maximum offering price to public........................ $ 6.75
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $54,482,988 and 8,488,480 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 $12,025,115 and 1,874,060 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
17
<PAGE> 19
Statement of Operations
For the Year Ended August 31, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $18,353,055
Other....................................................... 84,776
-----------
Total Income............................................ 18,437,831
-----------
EXPENSES:
Investment Advisory Fee..................................... 1,119,604
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $398,004, $536,089 and $132,535,
respectively)............................................. 1,066,628
Shareholder Services........................................ 608,408
Trustees' Fees and Related Expenses......................... 57,197
Custody..................................................... 30,793
Legal....................................................... 12,761
Other....................................................... 288,045
-----------
Total Expenses.......................................... 3,183,436
Less Credits Earned on Overnight Cash Balances.......... 2,928
-----------
Net Expenses............................................ 3,180,508
-----------
NET INVESTMENT INCOME....................................... $15,257,323
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Loss........................................... $(6,911,061)
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (6,056,948)
End of the Period......................................... (3,651,897)
-----------
Net Unrealized Appreciation During the Period............... 2,405,051
-----------
NET REALIZED AND UNREALIZED LOSS............................ $(4,506,010)
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $10,751,313
===========
</TABLE>
See Notes to Financial Statements
18
<PAGE> 20
Statement of Changes in Net Assets
For the Years Ended August 31, 2000 and 1999
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
AUGUST 31, 2000 AUGUST 31, 1999
----------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................. $ 15,257,323 $ 15,746,682
Net Realized Gain/Loss................................ (6,911,061) 325,887
Net Unrealized Appreciation/Depreciation During the
Period.............................................. 2,405,051 (19,399,745)
------------ ------------
Change in Net Assets from Operations.................. 10,751,313 (3,327,176)
------------ ------------
Distributions from Net Investment Income*............. (14,419,559) (15,746,682)
Distributions in Excess of Net Investment Income*..... -0- (288,603)
------------ ------------
Total Distributions from and in Excess of Net
Investment Income................................... (14,419,559) (16,035,285)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES... (3,668,246) (19,362,461)
------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold............................. 83,746,065 91,705,930
Net Asset Value of Shares Issued Through Dividend
Reinvestment........................................ 10,767,529 11,420,680
Cost of Shares Repurchased............................ (97,862,510) (92,118,867)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.... (3,348,916) 11,007,743
------------ ------------
TOTAL DECREASE IN NET ASSETS.......................... (7,017,162) (8,354,718)
NET ASSETS:
Beginning of the Period............................... 241,235,840 249,590,558
------------ ------------
End of the Period (Including accumulated undistributed
net investment income of $341,101 and $(496,663),
respectively)....................................... $234,218,678 $241,235,840
============ ============
* Distributions by Class
------------------------------------------------------
Distributions from and in Excess of
Net Investment Income:
Class A Shares...................................... $(10,641,125) $(11,936,650)
Class B Shares...................................... (3,030,816) (3,314,387)
Class C Shares...................................... (747,618) (784,248)
------------ ------------
$(14,419,559) $(16,035,285)
============ ============
</TABLE>
See Notes to Financial Statements
19
<PAGE> 21
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
CLASS A SHARES -----------------------------------------------
2000(A) 1999 1998 1997 1996
-----------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD............................... $ 6.53 $ 7.03 $ 6.97 $ 6.65 $ 6.94
------ ------ ------ ------ ------
Net Investment Income................ .43 .43 .45 .49 .48
Net Realized and Unrealized
Gain/Loss.......................... (.12) (.49) .09 .31 (.29)
------ ------ ------ ------ ------
Total from Investment Operations....... .31 (.06) .54 .80 .19
Less Distributions from and in Excess
of Net Investment Income............. .41 .44 .48 .48 .48
------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE PERIOD..... $ 6.43 $ 6.53 $ 7.03 $ 6.97 $ 6.65
====== ====== ====== ====== ======
Total Return (b)....................... 5.01% -1.02% 7.89% 12.46% 2.71%
Net Assets at End of the Period (In
millions)............................ $167.7 $172.9 $186.0 $160.9 $162.9
Ratio of Expenses to Average Net Assets
(c).................................. 1.15% 1.08% 1.08% 1.13% 1.10%
Ratio of Net Investment Income to
Average Net Assets (c)............... 6.80% 6.26% 6.40% 7.16% 6.90%
Portfolio Turnover..................... 94% 43% 17% 18% 34%
</TABLE>
(a) Based on average shares outstanding.
(b) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge of 4.75% or contingent deferred
sales charge ("CDSC"). On purchases of $1 million or more, a 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.
(c) 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
20
<PAGE> 22
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
CLASS B SHARES ----------------------------------------------
2000(A) 1999 1998 1997 1996
----------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD................................. $ 6.51 $ 7.01 $6.96 $ 6.64 $ 6.94
------ ------ ----- ------ ------
Net Investment Income.................. .39 .38 .41 .44 .42
Net Realized and Unrealized
Gain/Loss............................ (.12) (.49) .07 .31 (.29)
------ ------ ----- ------ ------
Total from Investment Operations......... .27 (.11) .48 .75 .13
Less Distributions from and in Excess of
Net Investment Income.................. .36 .39 .43 .43 .43
------ ------ ----- ------ ------
NET ASSET VALUE, END OF THE PERIOD....... $ 6.42 $ 6.51 $7.01 $ 6.96 $ 6.64
====== ====== ===== ====== ======
Total Return (b)......................... 4.34% -1.78% 6.95% 12.19% 1.85%
Net Assets at End of the Period (In
millions).............................. $ 54.5 $ 54.0 $53.8 $ 34.0 $ 26.9
Ratio of Expenses to Average Net Assets
(c).................................... 1.92% 1.86% 1.85% 1.91% 1.90%
Ratio of Net Investment Income to Average
Net Assets (c)......................... 6.03% 5.47% 5.59% 6.37% 6.12%
Portfolio Turnover....................... 94% 43% 17% 18% 34%
</TABLE>
(a) Based on average shares outstanding.
(b) 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 the first and second year of purchase and declining thereafter
to 0% after the fifth year. If the sales charge was included, total returns
would be lower.
(c) 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
21
<PAGE> 23
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
CLASS C SHARES ----------------------------------------------
2000(A) 1999 1998 1997 1996
----------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD................................. $ 6.51 $ 7.01 $6.96 $ 6.64 $ 6.93
------ ------ ----- ------ ------
Net Investment Income.................. .39 .39 .42 .43 .43
Net Realized and Unrealized
Gain/Loss............................ (.12) (.50) .06 .32 (.29)
------ ------ ----- ------ ------
Total from Investment Operations......... .27 (.11) .48 .75 .14
Less Distributions from and in Excess of
Net Investment Income.................. .36 .39 .43 .43 .43
------ ------ ----- ------ ------
NET ASSET VALUE, END OF THE PERIOD....... $ 6.42 $ 6.51 $7.01 $ 6.96 $ 6.64
====== ====== ===== ====== ======
Total Return (b)......................... 4.34% -1.78% 6.95% 11.63% 2.00%
Net Assets at End of the Period (In
millions).............................. $ 12.0 $ 14.3 $ 9.8 $ 5.1 $ 5.9
Ratio of Expenses to Average Net Assets
(c).................................... 1.92% 1.86% 1.85% 1.92% 1.90%
Ratio of Net Investment Income to Average
Net Assets (c)......................... 6.03% 5.47% 5.55% 6.38% 6.14%
Portfolio Turnover....................... 94% 43% 17% 18% 34%
</TABLE>
(a) Based on average shares outstanding.
(b) 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.
(c) 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
22
<PAGE> 24
NOTES TO
FINANCIAL STATEMENTS
August 31, 2000
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 accounting principles
generally accepted in the United States of America 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, which approximates
market value.
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 August 31, 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
23
<PAGE> 25
NOTES TO
FINANCIAL STATEMENTS
August 31, 2000
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, 2000, the Fund had an accumulated capital loss carryforward
for tax purposes of $1,242,978 which will expire between August 31, 2005 and
August 31, 2008. Net realized gains or losses may differ for financial reporting
and tax purposes primarily as a result of post October 31 losses which are not
realized for tax purposes until the first day of the following fiscal year and
the deferral of losses relating to wash sales transactions.
At August 31, 2000, for federal income tax purposes the cost of long- and
short-term investments is $234,112,034; the aggregate gross unrealized
appreciation is $2,844,289 and the aggregate gross unrealized depreciation is
$6,527,072, resulting in net unrealized depreciation on long- and short-term
investments of $3,682,783.
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
24
<PAGE> 26
NOTES TO
FINANCIAL STATEMENTS
August 31, 2000
short-term capital gains and a portion of option and futures gains are included
in ordinary income for tax purposes.
Due to the inherent differences in the recognition of income, expenses and
realized gains/losses under generally accepted accounting principles and federal
income tax purposes, permanent differences between book and tax basis reporting
for the 2000 fiscal year have been identified and appropriately reclassified.
Permanent differences totaling $1,821,919 related to the expiration of a portion
of the capital loss carryforward was reclassified from accumulated net realized
gain/loss to capital.
F. EXPENSE REDUCTIONS During the year ended August 31, 2000, the Fund's custody
fee was reduced by $2,928 as a result of credits earned on overnight cash
balances.
2. INVESTMENT ADVISORY AGREEMENT AND
OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
<S> <C>
First $150 million.......................................... .50 of 1%
Next $100 million........................................... .45 of 1%
Next $100 million........................................... .40 of 1%
Over $350 million........................................... .35 of 1%
</TABLE>
For the year ended August 31, 2000, the Fund recognized expenses of
approximately $12,800 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the year ended August 31, 2000, the Fund recognized expenses of
approximately $31,200 representing Van Kampen Funds Inc.'s or its affiliates'
(collectively "Van Kampen") cost of providing accounting services to the Fund.
Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as
the shareholder servicing agent for the Fund. For the year ended August 31,
2000, the Fund recognized expenses of approximately $419,300. 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.
25
<PAGE> 27
NOTES TO
FINANCIAL STATEMENTS
August 31, 2000
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
3. CAPITAL TRANSACTIONS
At August 31, 2000, capital aggregated $177,394,126, $54,843,532 and $12,289,404
for Classes A, B and C, respectively. For the year ended August 31, 2000,
transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A................................................ 8,448,583 $ 54,386,861
Class B................................................ 3,809,888 24,453,486
Class C................................................ 760,252 4,905,718
----------- ------------
Total Sales.............................................. 13,018,723 $ 83,746,065
=========== ============
Dividend Reinvestment:
Class A................................................ 1,243,796 $ 7,985,395
Class B................................................ 350,931 2,247,285
Class C................................................ 83,463 534,849
----------- ------------
Total Dividend Reinvestment.............................. 1,678,190 $ 10,767,529
=========== ============
Repurchases:
Class A................................................ (10,108,865) $(64,924,135)
Class B................................................ (3,958,909) (25,445,931)
Class C................................................ (1,166,411) (7,492,444)
----------- ------------
Total Repurchases........................................ (15,234,185) $(97,862,510)
=========== ============
</TABLE>
26
<PAGE> 28
NOTES TO
FINANCIAL STATEMENTS
August 31, 2000
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 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 years ended August 31, 2000 and 1999, 664,650
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 years ended August 31, 2000 and
1999, no Class C Shares converted to Class A Shares. Class B and C Shares are
offered without a front end sales charge, but are subject to a contingent
deferred sales charge (CDSC). The CDSC will be imposed on most redemptions made
within five years
27
<PAGE> 29
NOTES TO
FINANCIAL STATEMENTS
August 31, 2000
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
AS A PERCENTAGE OF
DOLLAR AMOUNT
SUBJECT TO 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 year ended August 31, 2000, Van Kampen, as Distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately
$49,300 and CDSC on redeemed shares of approximately $197,000. 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 $213,275,396 and $216,166,297,
respectively.
5. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940, as amended, and a service plan
(collectively the "Plans"). The Plans govern payments for the distribution of
the Fund's shares, ongoing shareholder services and maintenance of shareholder
accounts.
Annual fees under the Plans of up to .25% of Class A average net assets and
1.00% each of Class B and Class C average net assets are accrued daily. Included
in these fees for the year ended August 31, 2000 are payments retained by Van
Kampen of approximately $436,400.
6. 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
28
<PAGE> 30
NOTES TO
FINANCIAL STATEMENTS
August 31, 2000
Van Kampen, 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.
29
<PAGE> 31
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees of Van Kampen Corporate Bond Fund
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments of Van Kampen Corporate Bond Fund (the "Fund"), as
of August 31, 2000, and the related statement of operations, changes in net
assets and financial highlights for the year then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The statement of changes in net assets of the
Fund for the year ended August 31, 1999, and the financial highlights for each
of the four years in the period then ended were audited by other auditors whose
report dated October 6, 1999, expressed on unqualified opinion on those
statements.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosure in
the financial statements. Our procedures included confirmation of securities
owned as of August 31, 2000, by correspondence with the custodian brokers. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the 2000 financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of the Fund as of August 31, 2000, the results of its operations,
changes in net assets and financial highlights for the year then ended, in
conformity with accounting principles generally accepted in the United States.
[SIG ERNST & YOUNG LLP]
Chicago, Illinois
October 5, 2000
30
<PAGE> 32
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
Select Growth
Small Cap Value
Tax Managed Equity Growth
Technology
Growth and Income
Comstock
Equity Income
Growth and Income
Harbor
Real Estate Securities
Utility
Value
Global/International
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
International Magnum
Latin American
Strategic Income*
Tax Managed Global Franchise
Worldwide High Income
Income
Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
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
31
<PAGE> 33
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
OFFICERS
RICHARD F. POWERS, III*
President
STEPHEN L. BOYD*
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
RICHARD A. CICCARONE*
JOHN R. REYNOLDSON*
MICHAEL H. SANTO*
JOHN H. ZIMMERMANN, 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 AUDITORS(1)
ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, Illinois 60606
(1) Independent auditors for the Fund perform an annual audit of the Fund's
financial statements. The Board of Trustees has engaged Ernst & Young LLP
to be the Fund's independent auditors. PricewaterhouseCoopers LLP ceased
being the Fund's independent auditors effective May 18, 2000. The cessation
of the client-auditor relationship between the Fund and
PricewaterhouseCoopers was based solely on a possible future business
relationship by PricewaterhouseCoopers with an affiliate of the Fund's
investment Adviser.
* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
(C) Van Kampen Funds Inc., 2000. All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charges on
shares of the Fund, and other pertinent
data. After January 31, 2001, the report, if used with prospective investors,
must be accompanied by a quarterly performance update.
32
