<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders...................... 1
Performance Results......................... 3
Portfolio Highlights........................ 4
Performance in Perspective.................. 5
Portfolio Management Review................. 6
Portfolio of Investments.................... 9
Statement of Assets and Liabilities......... 15
Statement of Operations..................... 16
Statement of Changes in Net Assets.......... 17
Financial Highlights........................ 18
Notes to Financial Statements............... 21
Independent Accountants' Report............. 27
</TABLE>
HYI ANR 10/96
<PAGE>
LETTER TO SHAREHOLDERS
[PHOTOGRAPH OF DENNIS J. MCDONNELL
AND DON G. POWELL]
DENNIS J. MCDONNELL AND DON G. POWELL
September 26, 1996
Dear Shareholder,
As you may be aware, an agreement was reached in late June for VK/AC Holding
Inc., the parent company of Van Kampen American Capital, Inc., to be acquired
by Morgan Stanley Group Inc. While this announcement may appear commonplace in
an ever-changing financial industry, we believe it represents an exciting op-
portunity for shareholders of our investment products.
With Morgan Stanley's global leadership in investment banking and asset man-
agement and Van Kampen American Capital's reputation for competitive long-term
performance and superior investor services, together we will offer a broader
range of investment opportunities and expertise.
The new ownership will not affect our commitment to pursuing excellence in
all aspects of our business. We expect very little change in the way your mu-
tual fund account is maintained and serviced.
A proxy was mailed to you that explains the acquisition and asks for your
vote of approval. We value our relationship with you and look forward to com-
municating more details of this transaction, which is anticipated to close in
October.
ECONOMIC REVIEW
The economy demonstrated an acceleration in growth during the last half of
the 12-month reporting period. After a nominal 0.3 percent rise in the last
quarter of 1995, real GDP (the nation's gross domestic product, adjusted for
inflation) rose by 2.0 percent in this year's first quarter. And, as antici-
pated, the economy grew by a much stronger 4.7 percent in the second quarter,
partly reflecting a rebound from the effects of labor strikes earlier in the
year and extreme weather conditions across the country. Upward momentum has
been assisted by consumer spending, as indicated by a 3.0 percent rise in re-
tail sales in the first eight months of this calendar year (a 4.3 percent rise
during the Fund's fiscal year).
In the manufacturing sector, economic reports, such as the National Associa-
tion of Purchasing Managers Index, suggest a continued rebound in production
from last winter's lower levels. In June, this index reached an 18-month high.
Strong exports and a replenishing of inventories have helped support this mo-
mentum.
Surprisingly healthy economic activity led to concerns that inflation may
rise and the Federal Reserve Board might tighten monetary policy. Inflation
remains modest, however, with consumer prices rising at about a 3 percent an-
nual rate over the past year. Meanwhile, the closely watched "core" Consumer
Price Index, which excludes volatile food and energy components, has risen
year over year at rates between 2.7 and 3.0 percent per year. In general, re-
cent reports have suggested an upward creep in labor-related costs. The Pro-
ducer Price Index,
Continued on page two
1
<PAGE>
which measures prices paid by wholesalers to producers, has indicated low
wholesale prices in each of the past three months, from June through August.
OUTLOOK
We anticipate that reasonably strong economic growth will continue during the
balance of 1996, albeit at rates more moderate than the second quarter's swift
pace. While we expect rates of inflation to remain near current levels, the Fed
may lean toward greater restraint in its monetary policy in the coming months.
That suggests an upward bias for short-term interest rates and a continuation
of the current trading range for yields on long-term bonds.
Additional details about your Fund, including a question and answer section
with your portfolio management team, is provided in this report. We appreciate
your continued confidence in your investment with Van Kampen American Capital.
Sincerely,
/s/ Don G. Powell /s/ Dennis J. McDonnell
Don G. Powell Dennis J. McDonnell
Chairman President
Van Kampen American Capital Van Kampen American Capital
Asset Management, Inc. Asset Management, Inc.
2
<PAGE>
PERFORMANCE RESULTS FOR THE PERIOD ENDED AUGUST 31, 1996
VAN KAMPEN AMERICAN CAPITAL HIGH INCOME CORPORATE BOND FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS
One-year total return based on NAV/1/............... 12.66% 11.78% 11.66%
One-year total return/2/............................ 7.25% 7.78% 10.66%
Five-year average annual total return/2/............ 11.97% N/A N/A
Ten-year average annual total return/2/............. 7.33% N/A N/A
Life-of-Fund average annual total return/2/......... 9.12% 9.31% 7.49%
Commencement date................................... 10/02/78 07/02/92 07/06/93
DISTRIBUTION RATE AND YIELD
Distribution Rate/3/................................ 8.90% 8.56% 8.60%
SEC Yield/4/........................................ 9.13% 8.74% 8.78%
</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 for early withdrawal (4% for B shares and 1% for C
shares).
/2/Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (A shares) or
contingent deferred sales charge for early withdrawal (B and C shares).
/3/Distribution rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.
/4/SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending August 31, 1996.
See the Fund Performance section of the current prospectus. Past performance
does not guarantee future results. Investment return and net asset value will
fluctuate with market conditions. Fund shares, when redeemed, may be worth
more or less than their original cost.
3
<PAGE>
PORTFOLIO HIGHLIGHTS
VAN KAMPEN AMERICAN CAPITAL HIGH INCOME CORPORATE BOND FUND
TOP TEN ISSUERS AS OF AUGUST 31, 1996
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
LONG-TERM INVESTMENTS
<S> <C>
Unisys Corp. ....................................... 1.8%
Klabin Fabricadora Papel ........................... 1.7%
Maxus Energy Corp. ................................. 1.5%
Transportadora De Gas del Sur SA ................... 1.5%
Terex Corp. Units................................... 1.5%
PanAmSat Corp....................................... 1.5%
OrNda Healthcorp.................................... 1.4%
Mohegan Tribal Gaming .............................. 1.4%
Supermarkets General Holdings Corp. ................ 1.3%
Sweetheart Cup, Inc. ............................... 1.2%
</TABLE>
CREDIT QUALITY
[PIE CHART APPEARS HERE] [PIE CHART APPEARS HERE]
BBB.......... 1.6% BBB.......... 2.0%
BB........... 17.0% BB........... 19.4%
B............ 62.6% B............ 60.7%
CCC.......... 7.3% CCC.......... 8.9%
Non-Rated.... 11.5% Non-Rated.... 9.0%
Based on credit quality ratings issued by Standard & Poor's. For securities not
rated by Standard & Poor's, the Moody's rating is used.
TOP FIVE PORTFOLIO HOLDINGS BY SECTOR
<TABLE>
<CAPTION>
AS OF AUGUST 31, 1996
<S> <C>
Raw Materials/Processing Industries....... 17.5%
Consumer Services......................... 16.8%
Consumer Distribution..................... 12.1%
Energy.................................... 10.4%
Producer Manufacturing.................... 9.7%
AS OF FEBRUARY 29, 1996
Raw Materials/Processing Industries....... 17.9%
Consumer Services......................... 17.9%
Consumer Distribution..................... 12.6%
Energy.................................... 7.7%
Producer Manufacturing.................... 7.7%
</TABLE>
DURATION
AS OF AUGUST 31, 1996 AS OF FEBRUARY 29, 1996
Duration 4.0 years 4.6 years
4
<PAGE>
PUTTING YOUR FUND'S PERFORMANCE IN PERSPECTIVE
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment portfolio's performance at regular inter-
vals. A good starting point is a comparison of your investment holdings to an
applicable benchmark, such as a broad-based market index. Such a comparison
can:
. Reflect the impact of favorable market trends or difficult market condi-
tions
. Help you evaluate the extent to which your fund's management team has
responded to the opportunities and challenges presented to them over the
period measured
For these reasons, you may find it helpful to review the chart below, which
compares your fund's performance to that of the Salomon Brothers Long-Term
High-Yield Index, the First Boston High Yield Index, and the Lipper High Cur-
rent Yield Bond Index over time. These indices are unmanaged statistical com-
posites, and do not reflect any commissions or fees which would be incurred by
an investor purchasing the securities they represent. Similarly, their perfor-
mance does not reflect any sales charges or other costs which would be appli-
cable to an actively managed portfolio, such as that of the Fund.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen American Capital High Income Corporate Bond Fund vs. Salomon
Brothers Long-Term High-Yield Index, the First Boston High Yield Index, and
the Lipper High Current Yield Bond Index (August 1986 through August 1996)
[GRAPH APPEARS HERE]
Fund's Total Return
1 Year Avg. Annual = 7.25%
5 Year Avg. Annual = 11.97%
10 Year Avg. Annual = 7.33%
Inception Avg. Annual = 9.12%
VKAC High Income Lipper High First Boston Salomon Bros.
Corporate Bond Current Yield High Yield Long-Term High-
Fund Bond Index Index Yield Index*
---------------- ------------- ------------ ---------------
Aug 1986 $ 9,525 $10,000 $10,000 $10,000.00
Dec 1986 9,726 10,312 10,263 10,338.00
Dec 1987 10,038 10,511 10,933 10,811.48
Dec 1988 11,364 11,938 12,427 12,553.21
Dec 1989 9,995 11,607 12,475 12,415.12
Dec 1990 8,418 10,317 11,679 11,348.67
Dec 1991 11,893 14,466 16,788 16,420.38
Dec 1992 13,965 17,122 19,585 19,569.81
Dec 1993 16,636 20,520 23,288 23,473.99
Dec 1994 16,035 19,765 23,060 22,586.67
Dec 1995 18,830 23,201 27,067 29,213.60
Aug 1996 20,292 24,670 28,729 29,207.76
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 for the period ended August 31, 1996,
and includes payment of the maximum sales charge (4.75% for A shares). While
past performance is not indicative of future performance, the above information
provides a broader vantage point from which to evaluate the discussion of the
Fund's performance found in the following pages.
*The Salomon Brothers Long-Term High-Yield Index represents high yield corporate
bond performance and was initially selected as a benchmark for the Fund's
performance; however, based upon the Fund's asset composition, we believe the
First Boston High Yield Index provides a more accurate benchmark for the Fund.
Therefore, the Salomon Brothers Long-Term High-Yield Index will not be shown in
future reports.
5
<PAGE>
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN AMERICAN CAPITAL HIGH INCOME CORPORATE BOND FUND
We recently spoke with the management team of the Van Kampen American Capital
High Income Corporate Bond Fund about the key events and economic forces that
shaped the markets during the Fund's past fiscal year. The team includes Ellis
S. Bigelow, portfolio manager, and Robert C. Peck, Jr., executive vice presi-
dent for fixed-income investments. The following excerpts reflect their views
on the Fund's performance during the 12-month period ended August 31, 1996.
THE FOLLOWING KEY TERMS ARE LISTED IN THE ORDER IN WHICH YOU WILL FIND THEM IN
THIS REPORT.
YIELD SPREAD: To compensate investors for the added risk, low-quality fixed-
income securities typically offer investors higher yields than high-quality
fixed-income securities. The difference in yields is referred to as the yield
spread and is commonly expressed in basis points.
BASIS POINT: A measure used in quoting yields on bonds. One hundred basis
points is equal to one percent. For example, if a bond's yield changes from
7.00 to 6.65 percent, it would be considered a 35 basis point move.
Q HOW WOULD YOU CHARACTERIZE THE MARKET CONDITIONS IN WHICH THE FUND OPER-
ATED DURING THE 12 MONTHS ENDED AUGUST 31, 1996?
A Over the course of the fiscal year, the relative performance of high
yield securities was very good. The market's strong performance was
marked by a tightening of yield spreads between high yield securities and U.S.
Treasuries. Year to date (through August 1996), the yield on B-rated bonds has
declined by more than 150 basis points, while the yield on 10-year Treasury
notes has risen by more than 130 basis points. This reflects an appreciation
in high yield prices, driven by heavy investor demand for high yield bonds.
High yield security returns mainly depend upon an issuing company's finan-
cial fitness. As the economy weakened during the first six months of the re-
porting period, investors sought out high-quality bonds, because they feared
deterioration in the financial condition of more highly leveraged issuers. As
a result, from August 1995 through January 1996, high-quality bonds
outperformed high yield securities, as interest rates fell and the economy
weakened.
Interest rates reversed course in February 1996. A surge in February's em-
ployment report indicated a strengthening growth rate in the economy, which
ignited inflation fears. As a result, benchmark 10-year Treasury notes de-
clined in value by approximately 10 percent from January through August 1996.
In this environment, high yield bond funds outperformed high quality bond
funds. According to the Lipper High Current Yield category, high yield funds
generated an average total return of 11.23 percent (does not include payment
of sales charges) for the 12-month period ended August 31, 1996. This compares
exceptionally well to the average total return of the Lipper General U.S. Gov-
ernment Fund category of 2.59 percent for the same period ended August 31,
1996.
6
<PAGE>
Q WHAT SIGNIFICANT TECHNIQUES AND STRATEGIES WERE USED TO PURSUE THE FUND'S
INVESTMENT OBJECTIVES?
A We decreased the Fund's position in higher-rated high yield bonds, which
generally have performed in line with Treasury securities, and increased
the Fund's cash position over the course of the past fiscal year. The Fund's
exposure to bonds rated BB and higher dropped from 21.0 percent to 18.6 per-
cent. At the same time, the Fund's cash position increased from 5.0 percent to
8.6 percent. We will put this cash to work as appropriate opportunities arise.
When selecting high yield bonds, we look for securities with an attractive
yield spread versus Treasuries, as well as companies that are likely to sus-
tain positive cash flow. We believe these bonds are worth the additional
credit risk, because they are likely to provide the potential for relative
outperformance during either a rising or stable interest rate environment.
However, if there are any indications of an economic slowdown, we would con-
sider increasing the portfolio's quality by purchasing more higher-rated
bonds. For additional Fund portfolio highlights, please refer to page four.
Q WERE THERE ANY SECURITIES THAT PERFORMED PARTICULARLY WELL OVER THE PERI-
OD?
A One of the Fund's top-performing bonds, in terms of total return, was
Terex, a materials handling company. We purchased this issue at approxi-
mately $85, and it is now valued in the market at approximately $105. When we
originally purchased the Terex issue, the company was cyclically depressed and
struggling with some of its European operations. We believed its fundamentals
were strong and the company was a good credit risk. Since then, new management
at Terex has been successful in improving the business.
Acquisition activity contributed to positive performance of another Fund
holding. The Fund's investment in Bally's Grand appreciated in price after the
company agreed to be acquired by investment-grade Hilton hotels.
Q HOW HAS THE FUND PERFORMED DURING THE REPORTING PERIOD?
A The Fund's performance was strong. Class A shares (at net asset value)
achieved a one-year total return of 12.66 percent/1/ for the period ended
August 31, 1996. The Fund's monthly dividend remained steady at $0.049 per
Class A share during the fiscal year, and an additional distribution of $0.010
per Class A share was paid last December. Based on the maximum offering price
of $6.61 per share as of August 31, 1996, the Fund continues to provide a re-
spectable level of income with a distribution rate of 8.90 percent/3/.
The Fund's performance compared favorably to that of its peers. The Fund
ranked 30 out of 142 funds in the Lipper High Current Yield category, placing
it in the top quartile, as measured by Lipper Analytical Services, Inc., for
the one-year period ended August 31, 1996. And consistent with our goal of
providing shareholders with favorable long-term results, the Fund ranked 19
out of 63 funds for the five-year period, and 33 out of 41 funds for the ten-
year period ended August 31, 1996.* For the one-year period, the average total
return for all funds in the Lipper High Current Yield category was 11.23 per-
cent. The First Boston High Yield Index and the Salomon Brothers Long-Term
High Yield Index generated a one-year total return of 10.15 percent and 7.43
percent, respectively. These are broad-based indices that
7
<PAGE>
reflect the performance of the high yield corporate bond market. Keep in mind
that they are unmanaged and do not include any commissions or fees that would
be paid by an investor purchasing the securities they represent. Please refer
to the chart on page three for additional Fund performance results.
Q WHAT IS YOUR OUTLOOK FOR THE MONTHS AHEAD?
A We expect yield spreads between high yield securities and Treasuries to
remain at relatively tight levels, which is a favorable market environ-
ment for low-quality high yield securities. With respect to supply, we have
seen over $50 billion in new high yield securities brought to market so far in
1996. While new issue volume of this size would typically depress the price of
existing high yield securities, demand has been strong enough to support price
levels. Going forward, if insurance companies and pension funds continue to in-
crease their allocation to the high yield market, we expect future supply will
be met by strong demand. In fact, we believe this institutional demand should
continue to make high yield securities an attractive investment.
/s/ Robert C. Peck, Jr. /s/ Ellis S. Bigelow
Robert C. Peck, Jr. Ellis S. Bigelow
Executive Vice President Portfolio Manager
Fixed Income Investments
*Lipper Analytical Services, Inc. calculations are based upon changes in net
asset value with dividends reinvested. Lipper calculations do not include sales
charges and, if they had, results may have been less favorable.
Please see footnotes on page three
8
<PAGE>
PORTFOLIO OF INVESTMENTS
August 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE OBLIGATIONS 85.8%
CONSUMER DISTRIBUTION 10.9%
$ 4,000 Americold Corp..................... 12.875% 05/01/08 $ 4,100,000
3,800 Big 5 Holdings..................... 13.625 09/15/02 3,591,000
2,800 Big V Supermarkets Inc., Series B.. 11.000 02/15/04 2,611,000
4,810 Brylane Capital.................... 10.000 09/01/03 4,737,850
4,650 Cole National Group Inc............ 11.250 10/01/01 4,882,500
4,750 CompUSA Inc........................ 9.500 06/15/00 4,845,000
3,000 Dairy Mart Convenience Stores Inc.. 10.250 03/15/04 2,850,000
5,500 Finlay Enterprises Inc. (b)........ 0/12.000 05/01/05 4,455,000
4,900 Fresh Del Monte Produce............ 10.000 05/01/03 4,606,000
750 Guitar Center Management, 144A-
Private Placement (c).............. 11.000 07/01/06 759,375
1,000 Loehmann's Inc..................... 11.875 05/15/03 1,042,500
4,250 Mothers Work Inc................... 12.625 08/01/05 4,398,750
2,500 Pathmark Stores Inc. (b)........... 0/10.750 11/01/03 1,531,250
1,000 Pathmark Stores Inc................ 11.625 06/15/02 985,000
2,000 Pathmark Stores Inc................ 12.625 06/15/02 2,010,000
4,750 Petro PSC Properties............... 12.500 06/01/02 4,643,125
3,150 Phar-Mor Inc....................... 11.720 09/11/02 3,118,500
2,750 Specialty Retailers Inc............ 11.000 08/15/03 2,777,500
2,112 Thrifty Payless.................... 12.250 04/15/04 2,354,880
------------
60,299,230
------------
CONSUMER DURABLES 3.4%
2,500 Aetna Industries Inc., 144A-Private
Placement (c)...................... 11.875 10/01/06 2,487,500
3,000 Aftermarket Tech Corp.............. 12.000 08/01/04 3,232,500
3,250 MDC Holdings Inc................... 11.125 12/15/03 3,185,000
6,000 Marvel Holdings.................... * 04/15/98 4,635,000
1,995 Oriole Homes Corp.................. 12.500 01/15/03 1,895,250
4,000 Venture Holdings Inc............... 9.750 04/01/04 3,510,000
------------
18,945,250
------------
CONSUMER NON-DURABLES 6.2%
2,250 Collins & Aikman................... 11.500 04/15/06 2,300,625
4,400 Consoltex Group Inc................ 11.000 10/01/03 4,213,000
4,770 Dan River Inc...................... 10.125 12/15/03 4,507,650
3,125 Dr. Pepper Bottling Holdings (b)... 0/11.625 02/15/03 2,718,750
3,600 Fieldcrest Cannon Inc.............. 11.250 06/15/04 3,672,000
2,000 Foodbrands America................. 10.750 05/15/06 2,040,000
4,000 Health O Meter Inc. (Including
4,000 common stock warrants)....... 13.000 08/15/02 4,320,000
4,750 Revlon Worldwide, Series B......... * 03/15/98 4,031,563
5,277 Synthetic Industries Inc........... 12.750 12/01/02 5,672,775
</TABLE>
See Notes to Financial Statements
9
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CONSUMER NON-DURABLES (CONTINUED)
$ 1,000 Twin Laboratories Inc., 144A-
Private Placement (c).............. 10.250% 05/15/06 $ 990,000
------------
34,466,363
------------
CONSUMER SERVICES 15.1%
1,500 Act III Theatres Inc............... 11.875 02/01/03 1,631,250
3,250 Alliance Gaming Corp............... 12.875 06/30/03 3,217,500
4,750 Australis Media Ltd. (b)........... 0/14.000 05/15/03 2,660,000
4,565 Bally Grand Inc.................... 10.375 12/15/03 4,975,850
2,750 Busse Broadcasting Group........... 11.625 10/15/00 2,791,250
2,184 Carrols Corp....................... 11.500 08/15/03 2,254,980
2,250 Casino Magic Fin 1st Mtg........... 11.500 10/15/01 2,092,500
1,750 Chancellor Broadcast............... 9.375 10/01/04 1,701,875
2,000 Comcast UK Cable (b)............... 0/11.200 11/15/07 1,250,000
3,600 Continental Cablevision Inc........ 11.000 06/01/07 4,032,000
4,500 Diamond Cable Co. (b).............. 0/11.750 12/15/05 2,767,500
3,000 Echostar Corp. (b)................. 0/13.125 03/15/04 1,830,000
3,000 Flagstar Corp...................... 10.750 09/15/01 2,640,000
3,250 Fundy Cable Ltd.................... 11.000 11/15/05 3,331,250
2,250 Galaxy Telecom LP.................. 12.375 10/01/05 2,340,000
4,350 Granite Broadcasting Corp.......... 12.750 09/01/02 4,785,000
5,000 Helicon Group (Variable Rate
Coupon)............................ 9.000 11/01/03 5,012,500
1,500 Hollinger International............ 9.250 02/01/06 1,421,250
5,250 Majestic Star Casino, 144A-Private
Placement (c)...................... 12.750 05/15/03 5,637,188
5,500 Mohegan Tribal Gaming.............. 13.500 11/15/02 6,847,500
3,100 Resorts International Hotel
Finance............................ 11.000 09/15/03 3,239,500
4,500 SC International................... 13.000 10/01/05 4,916,250
2,000 SFX Broadcast...................... 10.750 05/15/06 2,025,000
2,500 Showboat Marina 1st Mtg............ 13.500 03/15/03 2,687,500
3,500 Stratosphere 1st Mtg............... 14.250 05/15/02 2,957,500
2,500 Trump AC Association 1st Mtg....... 11.250 05/01/06 2,387,500
5,000 UIH Australia/Pacific, 144A-Private
Placement (c)...................... 14.000 05/15/06 2,475,000
------------
83,907,643
------------
ENERGY 9.4%
2,000 Benton Oil & Gas, 144A-Private
Placement (c)...................... 11.625 05/01/03 2,140,000
4,500 Bridas Corp........................ 12.500 11/15/99 4,680,000
5,250 Clark (R&M) Holdings Inc........... * 02/15/00 3,655,313
3,250 Cliffs Drilling, 144A-Private
Placement (c)...................... 10.250 05/15/03 3,282,500
2,500 Coda Energy Inc.................... 10.500 04/01/06 2,528,125
3,057 Forest Oil Corp.................... 11.250 09/01/03 3,209,850
</TABLE>
See Notes to Financial Statements
10
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ENERGY (CONTINUED)
$ 3,450 Gerrity Oil & Gas Corp............... 11.750% 07/15/04 $ 3,648,375
2,250 Giant Industries Inc................. 9.750 11/15/03 2,266,875
3,500 Global Marine Inc.................... 12.750 12/15/99 3,780,000
4,995 HS Resources Inc..................... 9.875 12/01/03 4,820,175
7,230 Maxus Energy Corp.................... 11.500 11/15/15 7,483,050
2,600 Petroleum Heat & Power Inc........... 12.250 02/01/05 2,860,000
3,500 Transportadora De Gas del Sur SA..... 10.250 04/25/01 3,543,750
4,000 Transportadora De Gas del Sur SA..... 7.750 12/23/98 3,895,000
------------
51,793,013
------------
FINANCE 2.5%
3,000 American Life Holding Co............. 11.250 09/15/04 3,360,000
4,750 Americo Life Inc..................... 9.250 06/01/05 4,512,500
1,250 GPA Group PLC, Pass Thru Cert.-D..... 10.875 03/15/19 1,315,625
2,000 Reliance Group Holdings.............. 9.750 11/15/03 2,005,000
2,750 Trizec Finance....................... 10.875 10/15/05 2,842,813
------------
14,035,938
------------
HEALTH CARE 4.0%
4,000 Magellan Health Services, Series A... 11.250 04/15/04 4,270,000
2,380 Maxxim Medical, 144A-Private
Placement (c)........................ 10.500 08/01/06 2,409,750
2,000 Merit Behavioral Care................ 11.500 11/15/05 2,100,000
6,650 OrNda Healthcorp..................... 12.250 05/15/02 7,132,125
2,000 Quorum Health Group.................. 11.875 12/15/02 2,202,500
3,800 Tenet Healthcare..................... 10.125 03/01/05 4,075,500
------------
22,189,875
------------
PRODUCER MANUFACTURING 8.7%
4,250 Exide Electronics Group.............. 11.500 03/15/06 4,271,250
3,348 Fairchild Corp....................... 13.000 03/01/07 3,348,000
55 Fairchild Corp....................... 13.125 03/15/06 55,000
4,500 Figgie International Inc............. 9.875 10/01/99 4,606,875
4,950 GS Technologies Operations Inc....... 12.000 09/01/04 5,098,500
1,950 ICF Kaiser International............. 13.000 12/31/03 1,842,750
1,750 Interlake Corp....................... 12.000 11/15/01 1,855,000
3,250 Interlake Corp....................... 12.125 03/01/02 3,282,500
3,500 Iochpe-Maxion Med Term Note Euro..... 12.375 11/08/02 3,307,500
4,962 Robertson Ceco Corp., 144A-Private
Placement (c)(e)..................... 12.000 11/30/99 4,862,824
1,450 Spreckles Industries Inc............. 11.500 09/01/00 1,518,875
3,500 Tarkett International................ 9.000 03/01/02 3,526,250
7,000 Terex Corp. Units, 144A-Private
Placement (Variable Rate Coupon) (c). 13.250 05/15/02 7,385,000
3,284 Thermadyne Holdings Corp............. 10.250 05/01/02 3,366,100
------------
48,326,424
------------
</TABLE>
See Notes to Financial Statements
11
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
RAW MATERIALS/PROCESSING
INDUSTRIES 15.8%
$ 4,250 Associated Materials Inc........... 11.500% 08/15/03 $ 3,825,000
2,728 Carbide/Graphite Group Inc......... 11.500 09/01/03 2,953,060
1,500 Grupo Industrial Durango........... 12.625 08/01/03 1,590,000
4,850 IMC Fertilizer Group............... 9.450 12/15/11 5,134,938
5,500 Indah Kiat International Finance... 11.875 06/15/02 5,733,750
4,000 INDSPEC Chemical Corp. (b)......... 0/11.500 12/01/03 3,500,000
2,500 International Cabletel Inc. (b).... 0/12.750 04/15/05 1,643,750
3,250 International Cabletel Inc......... * 02/01/06 1,901,250
3,500 Klabin Fabricadora Papel, 144A-
Private Placement (c).............. 11.000 08/12/04 3,508,750
4,665 Klabin Fabricadora Papel SA........ 12.125 12/28/02 4,822,444
5,750 Mail-Well Envelope Corp............ 10.500 02/15/04 5,548,750
5,750 NL Industries Inc. (b)............. 0/13.000 10/15/05 4,600,000
3,350 Pioneer Americas................... 13.375 04/01/05 3,551,000
3,250 Plastic Specialty and Technology
Corp............................... 11.250 12/01/03 3,241,875
2,500 Printpack Inc., 144A-Private
Placement (c)...................... 10.625 08/15/06 2,525,000
1,900 Republic Engineered Steel, 1st
Mtg................................ 9.875 12/15/01 1,776,500
3,600 SD Warren Co....................... 12.000 12/15/04 3,807,000
1,450 Silgan Corp........................ 11.750 06/15/02 1,508,000
1,621 Silgan Holdings Inc................ 13.250 12/15/02 1,623,026
4,000 Stone Container Corp............... 12.625 07/15/98 4,240,000
6,000 Sweetheart Cup Inc................. 10.500 09/01/03 6,060,000
1,000 Texas Petrochemical Corp., 144A-
Private Placement (c).............. 11.125 07/01/06 1,041,250
4,500 Tjiwi Kimia........................ 13.250 08/01/01 4,972,500
2,000 US Can Co.......................... 13.500 01/15/02 2,147,500
5,500 United Stationers.................. 12.750 05/01/05 5,967,500
------------
87,222,843
------------
TECHNOLOGY 2.6%
1,000 Clark-Schwebel Inc., 144A-Private
Placement (c)...................... 10.500 04/15/06 1,020,000
1,375 Computervision..................... 11.375 08/15/99 1,416,250
3,500 Dictaphone Corp.................... 11.750 08/01/05 3,045,000
8,424 Unisys Corp........................ 15.000 07/01/97 8,866,260
------------
14,347,510
------------
TRANSPORTATION 3.4%
2,250 International Shipholding Corp..... 9.000 07/01/03 2,143,125
2,500 Sea Containers Ltd................. 12.500 12/01/04 2,725,000
2,750 Sea Containers Ltd................. 12.500 12/01/04 2,983,750
4,500 Stena AB........................... 10.500 12/15/05 4,522,500
</TABLE>
See Notes to Financial Statements
12
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TRANSPORTATION (CONTINUED)
$ 4,500 Trism Inc.......................... 10.750% 12/15/00 $ 4,207,500
2,250 Valujet Inc., 144A-Private
Placement (c)...................... 10.250 04/15/01 1,980,000
------------
18,561,875
------------
UTILITIES 3.8%
3,250 AES Corp........................... 10.250 07/15/06 3,306,875
3,000 Arch Communication Group........... 0/10.875 03/15/08 1,590,000
3,000 Bell Cablemedia.................... * 09/15/05 1,980,000
1,250 Fonorola Inc....................... 12.500 08/15/02 1,346,875
568 GST Telecom, 144A-Private Placement
(b)(c)............................. 0/13.875 12/15/05 443,040
4,544 GST USA Inc. (b)................... 0/13.875 12/15/05 2,391,280
2,500 Intermedia Communication of
Florida............................ 12.500 05/15/06 1,493,750
500 Pricellular Wire (b)............... 0/14.000 11/15/01 460,000
5,250 Pricellular Wireless (b)........... 0/12.250 10/01/03 4,147,500
750 USA Mobile Communication........... 9.500 02/01/04 682,500
2,750 USA Mobile Communication........... 14.000 11/01/04 3,038,750
------------
20,880,570
------------
TOTAL CORPORATE OBLIGATIONS............................ 474,976,534
------------
FOREIGN GOVERNMENT OBLIGATIONS 0.9%
5,000 United Mexican States Debt......... 11.500 05/15/26 4,842,000
------------
CONVERTIBLE DEBT 0.5%
3,060 Kelley Oil & Gas Partners.......... 7.875 12/15/99 2,738,700
------------
EQUITIES 3.0%
American Telecasting (1,750 Common Stock Warrants) (d)......... 40,250
Capital Gaming (3,125 Common Stock Warrants) (d)............... 31
Exide Electronics Group (4,250 Common Stock Warrants), 144A-
Private Placement (c)......................................... 85,000
F F Hldgs Co. (40,000 Common Shares), 144A-Private Placement
(c)(d)........................................................ 400
Finlay Enterprises Inc. (6,333 Common Shares) (d).............. 80,746
ICF Kaiser (9,360 Common Stock Warrants) (d)................... 0
PanAmSat Corp. (6,298 Preferred Shares) (d)(e)................. 7,305,680
Supermarkets General Holdings Corp. (241,101 Preferred Shares)
(d)(e)........................................................ 6,268,626
Time Warner S-K (2,811 Preferred Shares) (c)................... 2,849,932
Total Renal Care Holdings (6,000 Common Shares) (d)............ 246,750
Triangle Wire & Cable Inc. (84,445 Common Shares), 144A-Private
Placement (c)(d).............................................. 84,445
Wright Med Tech Inc. (4,118 Common Stock Warrants), 144A-
Private Placement (c)(d)...................................... 53,527
------------
TOTAL EQUITIES.................................................. 17,015,387
------------
TOTAL LONG-TERM INVESTMENTS 90.3%
(Cost $488,110,572) (a)........................................ 499,572,621
------------
</TABLE>
See Notes to Financial Statements
13
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Market Value
- --------------------------------------------------------------------------------
<S> <C>
SHORT-TERM INVESTMENTS AT AMORTIZED COST 8.8%
Repurchase Agreement (Bank of America Securities, $33,985,000
par, collateralized by U.S. Government obligations in a
pooled cash account, dated 08/30/96, to be sold on 09/03/96
at $34,004,447)................................................. 33,985,000
Federal National Mortgage Association Discount Note
($15,000,000 par, yielding 5.40%, maturing 10/17/96)............ 14,895,033
------------
TOTAL SHORT-TERM INVESTMENTS AT AMORTIZED COST................... $ 48,880,033
OTHER ASSETS IN EXCESS OF LIABILITIES 0.9%....................... 4,960,859
------------
NET ASSETS 100%.................................................. $553,413,513
------------
</TABLE>
*Zero coupon bond
(a) At August 31, 1996, for federal income tax purposes, cost is $488,190,412,
the aggregate gross unrealized appreciation is $20,808,146 and the
aggregate gross unrealized depreciation is $9,425,937, resulting in net
unrealized appreciation of $11,382,209.
(b) Security is a "Step-up" bond where the coupon increases or steps up at a
predetermined date.
(c) 144A securities are those which are exempt from registration under Rule
144A of the Securities Act of 1933. These securities may be resold in
transactions exempt from registration which are normally transactions with
qualified institutional buyers.
(d) Non-Income producing security.
(e) Payment-in-kind security.
See Notes to Financial Statements
14
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at Market Value (Cost $488,110,572) (Note 1)....... $499,572,621
Short-Term Investments (Note 1)................................. 48,880,033
Cash............................................................ 689
Receivables:
Interest....................................................... 13,349,246
Securities Sold................................................ 2,416,076
Fund Shares Sold............................................... 887,462
Other........................................................... 133,235
-------------
Total Assets................................................... 565,239,362
-------------
LIABILITIES:
Payables:
Securities Purchased........................................... 8,633,691
Income Distributions........................................... 1,847,840
Fund Shares Repurchased........................................ 628,768
Distributor and Affiliates (Notes 2 and 5)..................... 269,235
Investment Advisory Fee (Note 2)............................... 251,575
Accrued Expenses................................................ 108,843
Deferred Compensation and Retirement Plans (Note 2)............. 85,897
-------------
Total Liabilities.............................................. 11,825,849
-------------
NET ASSETS...................................................... $ 553,413,513
-------------
NET ASSETS CONSIST OF:
Capital (Note 3)................................................ $ 808,060,633
Net Unrealized Appreciation on Securities....................... 11,462,049
Accumulated Undistributed Net Investment Income................. 2,475,568
Accumulated Net Realized Loss on Securities..................... (268,584,737)
-------------
NET ASSETS...................................................... $ 553,413,513
-------------
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on net
assets of $421,371,886 and 66,908,746 shares of beneficial
interest issued and outstanding) (Note 3)...................... $ 6.30
Maximum sales charge (4.75%* of offering price)................ .31
-------------
Maximum offering price to public............................... $ 6.61
-------------
Class B Shares:
Net asset value and offering price per share (Based on net
assets of $114,571,903 and 18,157,996 shares of beneficial
interest issued and outstanding) (Note 3)...................... $ 6.31
-------------
Class C Shares:
Net asset value and offering price per share (Based on net
assets of $17,469,724 and 2,780,202 shares of beneficial
interest issued and outstanding) (Note 3)...................... $ 6.28
-------------
</TABLE>
*On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
15
<PAGE>
STATEMENT OF OPERATIONS
For the Year Ended August 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest........................................................... $56,215,256
Dividends.......................................................... 1,029,122
-----------
Total Income...................................................... 57,244,378
-----------
EXPENSES:
Investment Advisory Fee (Note 2)................................... 2,929,197
Distribution (12b-1) and Service Fees (Allocated to Classes A, B
and C of $928,325, $1,031,693 and $162,249, respectively) (Note
5)................................................................ 2,122,267
Shareholder Services (Note 2)...................................... 1,197,009
Trustees Fees and Expenses (Note 2)................................ 40,003
Legal (Note 2)..................................................... 15,306
Other ............................................................. 426,124
-----------
Total Expenses.................................................... 6,729,906
Less Expenses Reimbursed.......................................... 11,200
-----------
Net Expenses...................................................... 6,718,706
-----------
NET INVESTMENT INCOME.............................................. $50,525,672
-----------
REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:
Net Realized Gain on Investments................................... $ 7,729,045
-----------
Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period........................................... 7,249,609
End of the Period:
Investments....................................................... 11,462,049
-----------
Net Unrealized Appreciation on Securities During the Period........ 4,212,440
-----------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES..................... $11,941,485
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS......................... $62,467,157
-----------
</TABLE>
See Notes to Financial Statements
16
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended August 31, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
August 31, 1996 August 31, 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income........................ $ 50,525,672 $ 43,337,244
Net Realized Gain/Loss on Securities......... 7,729,045 (23,341,168)
Net Unrealized Appreciation on Securities
During the Period........................... 4,212,440 28,730,355
------------ ------------
Change in Net Assets from Operations......... 62,467,157 48,726,431
------------ ------------
Distributions from Net Investment Income:
Class A Shares.............................. (39,328,721) (36,718,606)
Class B Shares.............................. (9,074,232) (6,737,098)
Class C Shares.............................. (1,424,255) (1,165,362)
------------ ------------
Total Distributions.......................... (49,827,208) (44,621,066)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES................................... 12,639,949 4,105,365
------------ ------------
FROM CAPITAL TRANSACTIONS (NOTE 3):
Proceeds from Shares Sold.................... 144,420,520 142,322,467
Net Asset Value of Shares Issued Through
Dividend Reinvestment........................ 29,841,087 26,023,183
Cost of Shares Repurchased................... (150,954,434) (103,342,339)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS................................. 23,307,173 65,003,311
------------ ------------
TOTAL INCREASE IN NET ASSETS................. 35,947,122 69,108,676
NET ASSETS:
Beginning of the Period...................... 517,466,391 448,357,715
------------ ------------
End of the Period (Including undistributed
net investment income of $2,475,568 and
$871,166, respectively)..................... $553,413,513 $517,466,391
------------ ------------
</TABLE>
See Notes to Financial Statements
17
<PAGE>
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 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period... $6.15 $6.12 $6.61 $6.40 $5.71
------ ------ ------ ------ ------
Net Investment Income..................... .607 .55 .63 .64 .725
Net Realized and Unrealized Gain/Loss on
Securities............................... .139 .0515 (.47) .27 .6775
------ ------ ------ ------ ------
Total from Investment Operations........... .746 .6015 .16 .91 1.4025
Less Distributions from Net Investment
Income..................................... .598 .5715 .65 .70 .7125
------ ------ ------ ------ ------
Net Asset Value, End of the Period......... $6.298 $6.15 $6.12 $6.61 $6.40
------ ------ ------ ------ ------
Total Return (a)........................... 12.66% 10.48% 2.34% 15.20% 25.82%
Net Assets at End of the Period (In
millions).................................. $421.4 $411.9 $364.2 $452.4 $435.1
Ratio of Expenses to Average Net Assets
(b)........................................ 1.08% 1.12% 1.10% 1.09% 1.05%
Ratio of Net Investment Income to Average
Net Assets (b)............................. 9.65% 9.23% 9.03% 10.10% 11.77%
Portfolio Turnover......................... 76% 49% 66% 75% 73%
</TABLE>
(a) Total return is based upon net asset value which does not include payment
of the maximum sales charge or contingent deferred sales charge.
(b) The impact on the Ratios of Expenses and Net Investment Income to Average
Net Assets due to VKAC reimbursement of expenses was less than 0.01%.
See Notes to Financial Statements
18
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
July 2, 1992
Year Ended August 31, (Commencement
-------------------------- of Distribution) to
Class B Shares 1996 1995 1994 1993 August 31, 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period..................... $6.16 $6.14 $6.63 $6.41 $6.33
------ ----- ----- ------ ------
Net Investment Income......... .559 .51 .58 .58 .09
Net Realized and Unrealized
Gain/Loss on Securities...... .141 .0335 (.468) .292 .097
------ ----- ----- ------ ------
Total from Investment
Operations..................... .700 .5435 .112 .872 .187
Less Distributions from Net
Investment Income.............. .550 .5235 .602 .652 .107
------ ----- ----- ------ ------
Net Asset Value, End of the
Period......................... $6.310 $6.16 $6.14 $6.63 $6.41
------ ----- ----- ------ ------
Total Return (a)............... 11.78% 9.41% 1.59% 14.49% 2.97%*
Net Assets at End of the Period
(In millions).................. $114.6 $89.9 $71.0 $37.7 $3.1
Ratio of Expenses to Average
Net Assets (b)................. 1.87% 1.93% 1.90% 1.90% 2.08%
Ratio of Net Investment Income
to Average Net
Assets (b).................... 8.86% 8.42% 8.25% 9.10% 10.30%
Portfolio Turnover............. 76% 49% 66% 75% 73%
</TABLE>
*Non-Annualized
(a) Total return is based upon net asset value which does not include payment
of the maximum sales charge or contingent deferred sales charge.
(b) The impact on the Ratios of Expenses and Net Investment Income to Average
Net Assets due to VKAC reimbursement of expenses was less than 0.01%.
See Notes to Financial Statements
19
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended August July 6, 1993
31, (Commencement
------------------ of Distribution) to
Class C Shares 1996 1995 1994 August 31, 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period................................ $6.14 $6.11 $6.61 $6.63
------ ----- ----- -----
Net Investment Income................ .557 .51 .53 .06
Net Realized and Unrealized Gain/Loss
on Securities....................... .137 .0435 (.428) .0195
------ ----- ----- -----
Total from Investment Operations...... .694 .5535 .102 .0795
Less Distributions from Net Investment
Income................................ .550 .5235 .602 .0995
------ ----- ----- -----
Net Asset Value, End of the Period.... $6.284 $6.14 $6.11 $6.61
------ ----- ----- -----
Total Return (a)...................... 11.66% 9.63% 1.43% 1.20%*
Net Assets at End of the Period
(In millions)........................ $17.5 $15.7 $13.2 $1.0
Ratio of Expenses to Average Net Asset
(b).................................. 1.87% 1.93% 1.91% 2.34%
Ratio of Net Investment Income to
Average Net Asset (b)................ 8.86% 8.42% 8.25% 8.05%
Portfolio Turnover.................... 76% 49% 66% 75%
</TABLE>
*Non-Annualized
(a) Total return is based upon net asset value which does not include payment
of the maximum sales charge or contingent deferred sales charge.
(b) The impact on the Ratios of Expenses and Net Investment Income to Average
Net Assets due to VKAC reimbursement of expenses was less than 0.01%.
See Notes to Financial Statements
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS
August 31, 1996
- -------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital High Income Corporate Bond Fund (the "Fund"), a
Delaware business trust, 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 maximum current income through in-
vestment in high yielding, high risk fixed-income securities. The Fund com-
menced investment operations on October 2, 1978. The Fund commenced
distribution of its Class B and Class C shares on July 2, 1992 and July 6,
1993, respectively.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The prep-
aration of financial statements in conformity with generally accepted account-
ing principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of con-
tingent 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 mar-
ket quotations. Investments in securities listed on a securities exchange are
valued at the sale price as of the close of such securities exchange. Unlisted
securities and listed securities for which the last sales price is not avail-
able are valued at the last reported bid price. For those securities where
quotations or prices are not available, valuations are determined in accor-
dance 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.
Fund investments include lower-rated debt securities which may be more sus-
ceptible to adverse economic conditions than other investment grade holdings.
These securities are often subordinated to the prior claims of other senior
lenders and uncertainties exist as to an issuer's ability to meet principal
and interest payments. At the end of the period, debt securities rated below
investment grade and comparable unrated securities represented approximately
98% of the investment portfolio.
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 de-
livery" basis, with settlement to occur at a later date. The value of the se-
curity so purchased is subject to market fluctuations during this period. The
Fund will maintain, in a segregated account with its custodian, assets having
an aggregate value at least equal to the amount of the when issued or delayed
delivery purchase
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1996
- -------------------------------------------------------------------------------
commitments until payment is made. At August 31, 1996, there were no when is-
sued 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. 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 re-
quired to maintain the value of the underlying security at not less than the
repurchase proceeds due the Fund.
C. INVESTMENT INCOME-Interest income is recorded on an accrual basis and divi-
dend income is recorded on the ex-dividend date. Original issue discounts on
debt securities purchased are amortized over the life of the respective secu-
rity. Premiums on debt securities are not amortized. Market discounts are rec-
ognized at the time of sale as realized gains for book purposes and ordinary
income for tax purposes.
D. FEDERAL INCOME TAXES-It is the Fund's policy to comply with the require-
ments of the Internal Revenue Code applicable to regulated investment compa-
nies 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 such losses against any future realized capi-
tal gains. At August 31, 1996, the Fund had an accumulated capital loss
carryforward for tax purposes of $268,504,899 which will expire between 1997
and 2004. Of this amount, $44,028,489 will expire in 1997. Net realized gains
or losses may differ for financial and tax reporting purposes primarily as a
result of the deferral of losses for tax purposes resulting from wash sales.
E. DISTRIBUTION OF INCOME AND GAINS-The Fund declares and pays monthly divi-
dends from net investment income. Permanent book and tax basis differences re-
lated to the recognition of realized gains and losses totaling $905,938 were
reclassified from accumulated gain/loss on securities to accumulated undis-
tributed 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, which
are included in ordinary income for tax purposes.
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1996
- --------------------------------------------------------------------------------
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, Van Kampen Ameri-
can Capital Asset Management, Inc. (the "Adviser") will provide investment ad-
vice 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.................................................. .625 of 1%
Next $150 million................................................... .550 of 1%
Over $300 million................................................... .500 of 1%
</TABLE>
Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom,
counsel to the Fund, of which a trustee of the Fund is an affiliated person.
For the year ended August 31, 1996, the Fund recognized expenses of approxi-
mately $135,400 representing Van Kampen American Capital Distributors, Inc.'s
or its affiliates' (collectively "VKAC") cost of providing accounting services
to the Fund.
ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser,
serves as the shareholder servicing agent of the Fund. For the year ended Au-
gust 31, 1996, the Fund recognized expenses of approximately $964,800, repre-
senting ACCESS' cost of providing transfer agency and shareholder services plus
a profit.
Additionally, for the year ended August 31, 1996, the Fund paid VKAC approxi-
mately $68,800 related to the direct cost of consolidating the VKAC open-end
fund complex. Payment was contingent upon the realization by the Fund of cost
efficiencies resulting from the consolidation.
Certain officers and trustees of the Fund are also officers and directors of
VKAC. The Fund does not compensate its officers or trustees who are officers of
VKAC.
The Fund has implemented deferred compensation and retirement plans for its
trustees. Under the deferred compensation plan, trustees may elect to defer all
or a portion of their compensation to a later date. The retirement plan covers
those trustees who are not officers of VKAC.
At August 31, 1996, VKAC owned 79 and 76 shares of Classes B and C, respec-
tively.
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1996
- --------------------------------------------------------------------------------
3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of common shares, Classes A, B and C,
each with a par value of $.01 per share. There are an unlimited number of
shares of each class authorized. At August 31, 1996, capital aggregated
$677,198,548, $112,766,529 and $18,095,556 for Class A, B and C shares, respec-
tively. For the year ended August 31, 1996, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A........................................... 13,745,144 $ 86,510,165
Class B........................................... 8,018,551 50,487,330
Class C........................................... 1,183,788 7,423,025
----------- -------------
Total Sales........................................ 22,947,483 $ 144,420,520
----------- -------------
Dividend Reinvestment:
Class A........................................... 3,888,598 $ 24,355,156
Class B........................................... 739,318 4,641,173
Class C........................................... 135,209 844,758
----------- -------------
Total Dividend Reinvestment........................ 4,763,125 $ 29,841,087
----------- -------------
Repurchases:
Class A........................................... (17,717,034) $(111,452,236)
Class B........................................... (5,181,274) (32,639,566)
Class C........................................... (1,095,335) (6,862,632)
----------- -------------
Total Repurchases.................................. (23,993,643) $(150,954,434)
----------- -------------
</TABLE>
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1996
- --------------------------------------------------------------------------------
At August 31, 1995, capital aggregated $677,785,463, $90,277,592 and
$16,690,405 for Class A, B and C shares, respectively. For the year ended Au-
gust 31, 1995, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A......................................... 16,572,778 $ 98,814,673
Class B......................................... 6,107,591 36,865,960
Class C......................................... 1,098,850 6,641,834
----------- ---------------
Total Sales...................................... 23,779,219 $ 142,322,467
----------- ---------------
Dividend Reinvestment:
Class A......................................... 3,668,661 $ 22,048,994
Class B......................................... 542,047 3,266,577
Class C......................................... 117,949 707,612
----------- ---------------
Total Dividend Reinvestment...................... 4,328,657 $ 26,023,183
----------- ---------------
Repurchases:
Class A......................................... (12,716,368) $ (76,453,840)
Class B......................................... (3,633,222) (21,944,541)
Class C......................................... (823,734) (4,943,958)
----------- ---------------
Total Repurchases................................ (17,173,324) $ (103,342,339)
----------- ---------------
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). The CDSC will be imposed
on most redemptions made within five years of the purchase for Class B and one
year of the purchase for Class C as detailed in the following schedule. The
Class B and C shares bear the expense of their respective deferred sales ar-
rangements, including higher distribution and service fees and incremental
transfer agency costs.
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1996
- --------------------------------------------------------------------------------
<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 year ended August 31, 1996, VKAC, as Distributor for the Fund, re-
ceived commissions on sales of the Fund's Class A shares of approximately
$96,400 and CDSC on redeemed shares of approximately $297,800. Sales charges do
not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of invest-
ments, excluding short-term investments, were $378,533,184 and $375,311,523,
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 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 shares and 1.00% each
for Class B and Class C shares are accrued daily. Included in these fees for
the year ended August 31, 1996, are payments to VKAC of approximately $945,600.
26
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Shareholders and Board of Trustees of
Van Kampen American Capital High Income Corporate Bond Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all mate-
rial respects, the financial position of Van Kampen American Capital High In-
come Corporate Bond Fund (the "Fund") at August 31, 1996, the results of its
operations, the changes in its net assets and the financial highlights for each
of the periods presented, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter re-
ferred to as "financial statements") are the responsibility of the Fund's man-
agement; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which re-
quire that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and dis-
closures in the financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall finan-
cial statement presentation. We believe that our audits, which included confir-
mation of securities at August 31, 1996 by correspondence with the custodian
and brokers and the application of alternative procedures where confirmations
from brokers were not received, provide a reasonable basis for the opinion ex-
pressed above.
PRICE WATERHOUSE LLP
Houston, Texas
October 16, 1996
27
<PAGE>
FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL
GLOBAL AND INTERNATIONAL
Global Equity Fund
Global Government Securities Fund
Global Managed Assets Fund
Short-Term Global Income Fund
Strategic Income Fund
EQUITY
Growth
Aggressive Growth Fund
Emerging Growth Fund
Enterprise Fund
Pace Fund
Growth & Income
Balanced Fund
Comstock Fund
Equity Income Fund
Growth and Income Fund
Harbor Fund
Real Estate Securities Fund
Utility Fund
FIXED INCOME
Corporate Bond Fund
Government Securities Fund
High Income Corporate Bond Fund
High Yield Fund
Limited Maturity Government Fund
Prime Rate Income Trust
Reserve Fund
U.S. Government Fund
U.S. Government Trust for Income
TAX-FREE
California Insured Tax Free Fund
Florida Insured Tax Free Income Fund
High Yield Municipal Fund
Insured Tax Free Income Fund
Intermediate Term Municipal Income Fund
Municipal Income Fund
New Jersey Tax Free Income Fund
New York Tax Free Income Fund
Pennsylvania Tax Free Income Fund
Tax Free High Income Fund
Tax Free Money Fund
THE GOVETT FUNDS
Emerging Markets Fund
Global Income Fund
International Equity Fund
Latin America Fund
Pacific Strategy Fund
Smaller Companies Fund
Ask your investment representative for a prospectus containing more complete
information, including sales charges and expenses. Please read it carefully
before you invest or send money. Or call us direct at 1-800-341-2911 weekdays
from 7:00 a.m. to 7:00 p.m. Central time.
28
<PAGE>
VAN KAMPEN AMERICAN CAPITAL HIGH INCOME CORPORATE BOND FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
LINDA HUTTON HEAGY
ROGER HILSMAN
R. CRAIG KENNEDY
DENNIS J. MCDONNELL*
DONALD C. MILLER - Co-Chairman
JACK E. NELSON
JEROME L. ROBINSON
FERNANDO SISTO - Co-Chairman
WAYNE W. WHALEN*
WILLIAM S. WOODSIDE
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
WILLIAM N. BROWN*
PETER W. HEGEL*
ROBERT C. PECK, JR.*
ALAN T. SACHTLEBEN*
PAUL R. WOLKENBERG*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN AMERICAN CAPITAL
ASSET MANAGEMENT, INC.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
DISTRIBUTOR
VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
SHAREHOLDER SERVICING AGENT
ACCESS INVESTOR
SERVICES, INC.
P.O. Box 418256
Kansas City, Missouri 64141-9256
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
PRICE WATERHOUSE LLP
1201 Louisiana
Houston, TX 77002
*"Interested" persons of the Fund,
as defined in the
Investment Company Act of 1940.
(C)Van Kampen American Capital Dis-
tributors, Inc., 1996
All rights reserved.
SMdenotes a service mark of
Van Kampen American Capital Dis-
tributors, 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.
29
