<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders...................... 1
Performance Results......................... 3
Portfolio Highlights........................ 4
Portfolio Management Review................. 5
Portfolio of Investments.................... 7
Statement of Assets and Liabilities......... 13
Statement of Operations..................... 14
Statement of Changes in Net Assets.......... 15
Financial Highlights........................ 16
Notes to Financial Statements............... 19
</TABLE>
HYI SAR 4/97
<PAGE>
LETTER TO SHAREHOLDERS
[PHOTO OF DENNIS J. McDONNELL AND DON G. POWELL]
March 27, 1997
Dear Shareholder,
As mentioned in your previous report, VK/AC Holding, Inc., the parent com-
pany of Van Kampen American Capital, Inc., was acquired by Morgan Stanley
Group Inc., a world leader in asset management and investment banking. The
transaction was completed in October, and we look forward to exploring the op-
portunities it creates for investors. As part of the acquisition, Van Kampen
American Capital became the distributor of Morgan Stanley retail funds on Jan-
uary 2, 1997.
More recently, on February 5, 1997, it was announced that Morgan Stanley
Group Inc. and Dean Witter, Discover & Co. agreed to merge. A proxy will be
mailed to you at the end of April that explains the transaction and asks for
your vote of approval. The combined company will be a preeminent global finan-
cial services firm, with leading market positions in securities, asset manage-
ment and credit services. As the financial industry continues to witness
unprecedented consolidations and new partnerships, we believe those firms that
want to offer investors the greatest opportunities and services in the next
century must be market leaders in all facets of their business.
ECONOMIC REVIEW
During the six-month reporting period, inflation remained low and the pace
of economic growth moderated. Early in 1996, various indicators pointed to an
overly robust rate of economic activity. Despite seeming evidence of infla-
tion, the Federal Reserve Board held short-term interest rates steady, and
events over the reporting period proved the wisdom of this stable monetary
policy. Economic growth slowed, commodity prices receded, and inflation re-
mained benign. Wholesale prices fell by 0.3 percent and 0.4 percent during
January and February 1997, respectively, and the producer price index, which
excludes food and energy sectors, rose only 0.5 percent over the 12 months
ended in February.
Other indicators signaled generally moderate economic growth as well. Hous-
ing starts and existing home sales fell slightly over the reporting period,
while industrial production and consumer confidence rose sharply. Unemployment
remained low at 5.3 percent, leading to the reemergence of mild upward pres-
sure on wages. Inflationary implications of higher labor costs were offset by
reports that the nation's businesses operated at only 83.3 percent of capacity
in February--well below the level usually associated with production bottle-
necks and price hikes.
Continued on page two
1
<PAGE>
MARKET REVIEW
Fixed-income markets benefited from receding inflationary expectations over
the past six months. At the height of investor concerns about inflation in Ju-
ly, the yield on the Treasury's benchmark 30-year bond reached 7.2 percent, up
from just 5.95 percent at the beginning of the year. Then, as the economy
slowed and the Federal Reserve held short-term rates steady, long-term yields
gradually fell to 6.64 percent by year-end. Renewed signs of economic vitality
pushed the yield on 30-year Treasury bonds back to 6.80 percent by the end of
the period.
Compared to 1995, when most sectors of the taxable fixed-income market gener-
ated double-digit gains, 1996 was a year of lackluster performance. The Lehman
Brothers Aggregate Bond Index returned 4.16 percent for the 12-month period
ended December 31, 1996, with short- and intermediate-term bonds outperforming
long-term issues. Lower-rated corporate bonds also outperformed other fixed-in-
come investments, as investors felt comfortable enough to stretch for yield
given the overall strength of the economy. For the year, 30-year Treasury bonds
lost approximately one percent on a total-return basis. Treasury-bond losses
might have been larger, but heavy foreign buying, especially among Japanese in-
vestors, helped control losses.
OUTLOOK
We expect that renewed momentum in the U.S. economy will lead to a series of
modest interest-rate hikes by the Federal Reserve. While we do not believe that
the threat of inflation is a serious concern, some warning signs are present,
including strong job growth, high consumer confidence, and a mild upturn in em-
ployment costs. In this environment, a moderate rise in interest rates is like-
ly.
In addition to the possibility of higher domestic rates, the risk of external
shocks to the fixed-income market is growing. Monetary policy has been unusu-
ally accommodative in many foreign countries. If these economies catch fire in
1997, the resulting demand for capital could divert buying power from the U.S.
credit market. Since foreign investors have become the marginal buyers of Amer-
ican bonds, we believe that increased competition for the global fixed-income
dollar could also exert mild downward pressure on bond prices over the year.
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 FEBRUARY 28, 1997
VAN KAMPEN AMERICAN CAPITAL HIGH INCOME CORPORATE BOND FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS
Six-month total return based on NAV/1/.............. 8.27% 7.86% 7.89%
Six-month total return/2/........................... 3.13% 3.86% 6.89%
One-year total return/2/............................ 7.64% 8.12% 11.00%
Five-year average annual total return/2/............ 10.59% N/A N/A
Ten-year average annual total return/2/............. 7.36% N/A N/A
Life-of-Fund average annual total return/2/......... 9.34% 10.08% 8.69%
Commencement date................................... 10/02/78 07/02/92 07/06/93
DISTRIBUTION RATE AND YIELD
Distribution Rate/3/................................ 8.81% 8.49% 8.53%
SEC Yield/4/........................................ 8.38% 8.02% 8.06%
</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 February 28, 1997.
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.
Market forecasts provided in this report may not necessarily come to pass.
3
<PAGE>
PORTFOLIO HIGHLIGHTS
VAN KAMPEN AMERICAN CAPITAL HIGH INCOME CORPORATE BOND FUND
TOP TEN ISSUERS AS OF FEBRUARY 28, 1997
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
LONG-TERM INVESTMENTS
<S> <C>
Interlake Corp. ..................................................... 1.5%
Unisys Corp. ........................................................ 1.4%
PanAmSat LP Corp. ................................................... 1.3%
United Mexican States ............................................... 1.3%
Terex Corp. ......................................................... 1.3%
Alliance Gaming Group ............................................... 1.3%
Maxus Energy Corp. .................................................. 1.2%
Mohegan Tribal Gaming Authority of Connecticut ...................... 1.2%
Sweetheart Cup, Inc. ................................................ 1.2%
NL Industries, Inc. ................................................. 1.1%
</TABLE>
CREDIT QUALITY AS A PERCENTAGE OF LONG-TERM INVESTMENTS
[PIE CHART APPEARS HERE] [PIE CHART APPEARS HERE]
As of February 28, 1997 As of August 31, 1996
BBB.............. 1.3% BBB.............. 1.6%
BB............... 16.6% BB............... 17.0%
B................ 67.1% B................ 62.6%
CCC.............. 6.2% CCC.............. 7.3%
D................ 0.3% Non-Rated........ 11.5%
Non-Rated........ 8.5%
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 SECTORS AS A PERCENTAGE OF LONG-TERM INVESTMENTS
AS OF FEBRUARY 28, 1997 AS OF AUGUST 31, 1996
Consumer Services....... 20.6% Consumer Services....... 17.9%
Raw Materials/Processing Raw Materials/Processing
Industries............ 17.6% Industries............ 17.9%
Producer Manufacturing.. 10.6% Consumer Distribution... 12.6%
Energy.................. 10.2% Energy.................. 7.7%
Consumer Distribution... 7.8% Producer Manufacturing.. 7.7%
DURATION
AS OF FEBRUARY 28, 1997 AS OF AUGUST 31, 1996
Duration 4.3 years 4.0 years
4
<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 first half of the Fund's fiscal year. The team
includes Ellis S. Bigelow, portfolio manager, and Peter W. Hegel, chief
investment officer for fixed-income investments. The following excerpts
reflect their views on the Fund's performance during the six-month period
ended February 28, 1997.
Q WHAT WERE SOME OF THE KEY FORCES AT WORK IN THE MARKET OVER THE PAST SIX
MONTHS?
A High yield debt outperformed all other sectors of the fixed-income market
except emerging-market debt during the last six months. Fundamental fac-
tors underlying this outperformance included a persistently healthy economy, a
strong equity market, high merger and acquisition activity, and low default
rates within the high yield sector. Through 1996, the default rate was around
1.4 percent, compared with the 1995 level of 3.2 percent.
The economy has been strong enough to maintain corporate earnings, enabling
companies to more readily meet their debt payment obligations and aggressively
pursue their business objectives. As a result, investors were more comfortable
taking on the increased credit risk of the high yield, noninvestment-grade
category as they were rewarded by high yields.
Cash inflows into high yield mutual funds have been large, reflecting strong
demand. This demand contributed to a narrowing of the yield premium that high
yield corporate bonds typically carry over comparable Treasury securities, es-
pecially in the B-rated sector. Investors were willing to accept lower premi-
ums as compensation for the sector's higher risk in a benign economic
environment.
Rates appear to have remained relatively stable over the reporting period as
a whole. In reality, however, rates showed rather significant volatility,
marked by yield swings of more than a full percentage point.
Q HOW DID YOU RESPOND TO THESE MARKET CONDITIONS?
A We have shifted more heavily into the B-rated tier of the market, where
we have been able to capture attractive yields without significantly ex-
tending our credit exposure. In fact, B-rated securities now represent approx-
imately 67.1 percent of the Fund's long-term investments, up from 62.6 percent
at the start of the reporting period. Much of this increase has been achieved
at the expense of our cash and short-term positions (currently 2.3 percent of
net assets, down from 8.8 percent) and our allocation to non-rated securities
(8.5 percent of long-term investments versus 11.5 percent).
One of the interesting characteristics of this market has been the record-
high level of new bond issuance (more than $77 billion was recorded in 1996),
as well as the fact that the supply is now dominated by securities which are
available only to qualified institutional
5
<PAGE>
buyers, such as insurance companies, banks, and, of course, mutual funds. Our
shareholders have access to a much larger universe of new investment options
than if they sought out individual high yield corporate issues on their own.
High yield issuance carries a relatively short duration. Duration, which is
expressed in years, is a measurement of a portfolio's price sensitivity to
changes in interest rates. The longer the Fund's duration, the greater the ef-
fect of interest rate movements on net asset value (NAV). Typically, funds
with shorter durations have performed better in rising rate environments,
while funds with longer durations have performed better when rates are declin-
ing. Currently, most new high yield debt carries five years of call protec-
tion, making effective bond life somewhat shorter. The Fund's duration as of
February 28, 1997 is 4.3 years, which is a slight increase over the duration
of 4.0 years at the beginning of the reporting period. For additional Fund
portfolio highlights, please refer to page four.
Q HOW DID THE FUND PERFORM DURING THE REPORTING PERIOD?
A For the six-month period, the Fund achieved a total return of 8.27 per-
cent/1/ (Class A shares at NAV). By comparison, the six-month total re-
turn for the First Boston High Yield Index was 8.99 percent, reflecting the
performance of the high yield corporate debt market. Keep in mind that this is
a broad-based, unmanaged index that does not reflect any commissions or fees
that would be paid by an investor purchasing the securities it represents.
Three of the Fund's top ten holdings are new, representing issues from
Interlake Corporation (producer manufacturing), Alliance Gaming Group (con-
sumer services), and NL Industries, Inc. (raw materials). Please refer to the
chart on page three for additional Fund performance results.
Q WHAT IS YOUR OUTLOOK FOR THE MARKET IN UPCOMING MONTHS?
A While the market's prospects aren't as strong as they were in 1996, they
still look quite favorable. The economy appears to be holding its own,
growing at a slow- but-steady pace, and inflation remains subdued. Although
there is a chance that stronger-than-expected growth could spur the Federal
Reserve Board to further hike interest rates, the high yield sector of the
market should stay resilient. We believe that it would take a strong
recessionary environment to trigger a significant downturn in the high yield
market, which does not appear imminent.
In the short term, our position in B-rated securities should continue to be
rewarding, but we are prepared to adjust our position in favor of higher-grade
securities if changing market conditions warrant such a move. We believe the
Fund offers our shareholders an effective option for a portion of their fixed-
income portfolio.
/s/ Peter W. Hegel /s/ Ellis S. Bigelow
Peter W. Hegel Ellis S. Bigelow
Chief Investment Officer Portfolio Manager
Fixed Income Investments
Please see footnotes on page three
6
<PAGE>
PORTFOLIO OF INVESTMENTS
February 28, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE OBLIGATIONS 90.3%
CONSUMER DISTRIBUTION 7.5%
$ 3,800 Big 5 Holdings, Inc.................. 13.625% 09/15/02 $ 4,028,000
2,800 Big V Supermarkets, Inc., Series B... 11.000 02/15/04 2,723,000
4,810 Brylane Capital Corp................. 10.000 09/01/03 5,038,475
4,750 Cole National Group, Inc............. 11.250 10/01/01 5,225,000
5,500 Finlay Enterprises, Inc. (b)......... 0/12.000 05/01/05 5,087,500
6,150 Fresh Del Monte Produce.............. 10.000 05/01/03 6,073,125
750 Guitar Center Management Co., Inc.... 11.000 07/01/06 821,250
2,000 Loehmann's, Inc...................... 11.875 05/15/03 2,170,000
2,200 Pantry, Inc.......................... 12.000 11/15/00 2,244,000
2,500 Pathmark Stores, Inc................. 11.625 06/15/02 2,603,125
2,000 Pathmark Stores, Inc................. 12.625 06/15/02 2,070,000
3,000 Scholastic Brands, Inc., 144A Private
Placement (c)........................ 11.000 01/15/07 3,168,750
3,500 Shoppers Food Warehouse Corp., 144A
Private Placement (Var Rate Cpn) (c). 10.000 02/06/00 3,508,750
2,750 Specialty Retailers, Inc............. 11.000 08/15/03 2,928,750
------------
47,689,725
------------
CONSUMER DURABLES 3.8%
4,500 Aetna Industries, Inc................ 11.875 10/01/06 4,882,500
2,250 Aftermarket Technology Corp., Series
B.................................... 12.000 08/01/04 2,520,000
5,000 Consorcio Group Dina SA.............. * 11/15/02 4,287,500
1,000 LDM Technologies, Inc., 144A Private
Placement (c)........................ 10.750 01/15/07 1,052,500
3,250 MDC Holdings, Inc.................... 11.125 12/15/03 3,420,625
2,070 Oriole Homes Corp.................... 12.500 01/15/03 2,085,525
6,124 Venture Holdings, Inc................ 9.750 04/01/04 5,848,420
------------
24,097,070
------------
CONSUMER NON-DURABLES 6.9%
2,250 Americredit Corp., 144A Private
Placement (c)........................ 9.250 02/01/04 2,244,375
1,000 CFP Holdings, Inc., 144A Private
Placement (c)........................ 11.625 01/15/04 1,055,000
4,400 Consoltex Group, Inc................. 11.000 10/01/03 4,532,000
4,500 Curtice Burns Foods, Inc............. 12.250 02/01/05 4,871,250
4,770 Dan River, Inc....................... 10.125 12/15/03 4,972,725
3,125 Dr. Pepper Bottling Co. (b).......... 0/11.625 02/15/03 3,015,625
2,000 Food Brands America, Inc............. 10.750 05/15/06 2,120,000
3,750 Genesco, Inc......................... 10.375 02/01/03 3,843,750
4 Health O Meter, Inc.................. 13.000 08/15/02 4,500,000
5,500 Renaissance Cosmetics, Inc., 144A
Private Placement (c)................ 11.750 02/15/04 5,685,625
5,277 Synthetic Industries, Inc............ 12.750 12/01/02 5,844,278
1,000 Twin Laboratories, Inc............... 10.250 05/15/06 1,047,500
------------
43,732,128
------------
</TABLE>
See Notes to Financial Statements
7
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
February 28, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CONSUMER SERVICES 19.8%
$ 1,500 Act III Theaters, Inc................ 11.875% 02/01/03 $ 1,627,500
7,000 Alliance Gaming Group................ 12.875 06/30/03 7,700,000
5 Australis Media, Ltd. (b)............ 0/15.750 05/15/03 2,909,375
2,750 Busse Broadcasting Corp.............. 11.625 10/15/00 2,832,500
2,500 Capstar Broadcasting Partners, 144A
Private Placement (b) (c)............ 0/12.750 02/01/09 1,450,000
2,184 Carrols Corp......................... 11.500 08/15/03 2,320,500
4,610 Casino America, Inc.................. 12.500 08/01/03 4,748,300
5,500 Casino Magic Louisiana Corp., 144A
Private Placement (c)................ 13.000 08/15/03 5,472,500
3,600 Continental Cablevision, Inc......... 11.000 06/01/07 4,072,500
4,500 Diamond Cable Co. (b)................ 0/13.250 09/30/04 3,678,750
1,000 Diamond Cable Co., 144A Private
Placement (c)........................ * 02/15/07 598,750
3,000 Echostar Communications Corp. (b).... 0/12.875 06/01/04 2,580,000
3,000 FrontierVision Operating Partnship
L.P.................................. 11.000 10/15/06 3,135,000
1,850 Fundy Cable Ltd...................... 11.000 11/15/05 1,979,500
6,350 Galaxy Telecom L.P................... 12.375 10/01/05 6,810,375
4,350 Granite Broadcasting Corp............ 12.750 09/01/02 4,714,312
3,000 Grupo Televisa....................... 13.250 05/15/08 2,066,250
5,000 Helicon Group L.P.................... 11.000 11/01/03 5,200,000
1,500 Hollinger International.............. 9.250 02/01/06 1,522,500
750 International Cabletel, Inc. (b)..... 0/12.750 04/15/05 552,188
3,000 Katz Media Corp., 144A Private
Placement (c)........................ 10.500 01/15/07 3,135,000
3,000 Louisiana Casino Cruises, Inc., 1st
Mtg.................................. 11.500 12/01/98 3,060,000
5,250 Majestic Star Casino L.L.C........... 12.750 05/15/03 5,735,625
5,500 Mohegan Tribal Gaming Authority of
Connecticut.......................... 13.500 11/15/02 7,315,000
4,000 Multicanal Participacoes, Series B... 12.625 06/18/04 4,460,000
1,000 Multicanal SA, 144A Private Placement
(c).................................. 10.500 02/01/07 1,027,500
1,250 Premier Parks, Inc................... 9.750 01/15/07 1,315,625
5,600 Resorts International Hotel
Financing, Inc....................... 11.000 09/15/03 6,090,000
2,000 SFX Broadcasting, Inc................ 10.750 05/15/06 2,160,000
2,500 Showboat Marina Casino, 1st Mtg...... 13.500 03/15/03 2,875,000
4,500 South Carolina International
Services, Inc........................ 13.000 10/01/05 5,085,000
2,000 Stratosphere Corp.................... 14.250 05/15/02 1,700,000
1,250 Stuart Entertainment, Inc., 144A
Private Placement (c)................ 12.500 11/15/04 1,265,625
4,000 Telewest PLC (b)..................... 0/11.000 10/01/07 2,770,000
4,000 Transportadora De Gas Delaware Sur... 7.750 12/23/98 4,036,000
1,750 TV Azteca SA de C V, 144A Private
Placement (c)........................ 10.500 02/15/07 1,776,250
5,000 UIH Australia/Pacific, Inc., Series B
(b).................................. 0/14.000 05/15/06 2,675,000
3,515 Young Broadcasting, Inc.............. 10.125 02/15/05 3,664,388
------------
126,116,813
------------
</TABLE>
See Notes to Financial Statements
8
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
February 28, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ENERGY 9.3%
$ 2,000 Benton Oil & Gas Co.................... 11.625% 05/01/03 $ 2,215,000
4,500 Bridas Corp............................ 12.500 11/15/99 4,882,500
5,250 Clark R & M Holdings, Inc.............. * 02/15/00 3,871,875
3,338 Cliffs Drilling Co., Series B.......... 10.250 05/15/03 3,596,695
5,750 Deeptech International................. 12.000 12/15/00 6,210,000
3,382 Forest Oil Corp........................ 11.250 09/01/03 3,661,015
3,450 Gerrity Oil & Gas Corp................. 11.750 07/15/04 3,777,750
2,373 Giant Industries, Inc.................. 9.750 11/15/03 2,473,853
3,500 Global Marine, Inc..................... 12.750 12/15/99 3,723,125
5,015 HS Resources, Inc...................... 9.875 12/01/03 5,290,825
5,500 KCS Energy, Inc........................ 11.000 01/15/03 6,063,750
7,230 Maxus Energy Corp...................... 11.500 11/15/15 7,573,425
2,600 Petroleum Heat & Power, Inc............ 12.250 02/01/05 2,886,000
2,500 Veritas DGC, Inc....................... 9.750 10/15/03 2,625,000
------------
58,850,813
------------
FINANCE 1.8%
4,750 Americo Life, Inc...................... 9.250 06/01/05 4,750,000
2,600 Integon Capital, 144A Private Placement
(c).................................... 10.750 02/15/27 2,671,500
3,800 Trizec Finance......................... 10.875 10/15/05 4,199,000
------------
11,620,500
------------
HEALTHCARE 2.5%
4,000 Magellan Health Services, Inc.......... 11.250 04/15/04 4,430,000
2,380 Maxxim Medical, Inc.................... 10.500 08/01/06 2,481,150
2,235 Merit Behavioral Care Corp............. 11.500 11/15/05 2,458,500
2,000 Quorum Health Group, Inc............... 11.875 12/15/02 2,187,500
3,800 Tenet Healthcare Corp.................. 10.125 03/01/05 4,189,500
------------
15,746,650
------------
PRODUCER MANUFACTURING 10.2%
6,000 Exide Electronics Group, Inc........... 11.500 03/15/06 6,450,000
3,348 Fairchild Corp......................... 13.000 03/01/07 3,440,070
4,500 Figgie International, Inc.............. 9.875 10/01/99 4,680,000
5,250 Foamex L.P./Foamex Capital Corp........ 11.875 10/01/04 5,670,000
4,950 GS Technologies Operating, Inc......... 12.000 09/01/04 5,240,812
5,000 IMO Industries, Inc.................... 11.750 05/01/06 4,950,000
1,750 Interlake Corp......................... 12.000 11/15/01 1,914,063
7,000 Interlake Corp......................... 12.125 03/01/02 7,315,000
3,500 International Knife & Saw, Inc., 144A
Private Placement (c).................. 11.375 11/15/06 3,683,750
1,250 Pen Tab Industries, Inc., 144A Private
Placement (c).......................... 10.875 02/01/07 1,300,000
3,500 Tarkett International GMBH............. 9.000 03/01/02 3,570,000
7,000 Terex Corp., Series B.................. 13.250 05/15/02 7,770,000
</TABLE>
See Notes to Financial Statements
9
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
February 28, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PRODUCER MANUFACTURING (CONTINUED)
$ 3,284 Thermadyne Holdings Corp............ 10.250% 05/01/02 $ 3,366,100
1,500 United States Can Corp., 144A
Private Placement (c)............... 10.125 10/15/06 1,597,500
3,750 Wilcox & Gibbs, Inc., 144A Private
Placement (c)....................... 12.250 12/15/03 3,937,500
------------
64,884,795
------------
RAW MATERIALS/PROCESSING
INDUSTRIES 16.9%
1,750 Acindar Industria Argentina de
Acero............................... 11.250 02/15/04 1,815,625
2,000 APP Finance II Mauritius Ltd., 144A
Private Placement (c)............... * 12/29/49 2,005,000
2,500 APP International Finance Co........ 11.750 10/01/05 2,737,500
4,250 Associated Materials, Inc........... 11.500 08/15/03 4,489,063
2,728 Carbide/Graphite Group, Inc......... 11.500 09/01/03 3,000,800
1,000 Collins & Aikman Floorcover, 144A
Private Placement (c)............... 10.000 01/15/07 1,030,000
2,250 FSW International Finance Co., 144A
Private Placement (c)............... 12.500 11/01/06 2,390,625
5,000 Gaylord Container Corp.............. * 05/15/05 5,543,750
3,250 Grupo Industrial Durango SA de CV... 12.625 08/01/03 3,656,250
5,061 Gulf States Steel, 1st Mtg.......... 13.500 04/15/03 4,871,212
5,500 Indah Kiat International Finance Co. 11.875 06/15/02 6,187,500
4,000 INDSPEC Chemical Corp., Series B (b) 0/11.500 12/01/03 3,695,000
1,500 International Cabletel, Inc. (b).... 0/11.500 02/01/06 1,005,000
3,500 Klabin Fabricadora Papel............ 11.000 12/08/04 3,618,125
5,750 Mail-Well Envelope Corp............. 10.500 02/15/04 5,951,250
5,250 National Energy Group, Inc., 144A
Private Placement (c)............... 10.750 11/01/06 5,538,750
7,750 NL Industries, Inc. (b)............. 0/13.000 10/15/05 7,033,125
4,600 Pioneer Americas Acquisition Corp... 13.375 04/01/05 5,405,000
3,250 Plastic Specialties & Technologies,
Inc................................. 11.250 12/01/03 3,542,500
4,500 Printpack, Inc...................... 10.625 08/15/06 4,770,000
3,250 Radnor Holdings Corp., 144A Private
Placement (c)....................... 10.000 12/01/03 3,363,750
1,650 S.D. Warren Co...................... 12.000 12/15/04 1,815,000
4,000 Stone Container Corp................ 12.625 07/15/98 4,240,000
7,000 Sweetheart Cup, Inc................. 10.500 09/01/03 7,210,000
4,500 Tjiwi Kimia International Finance... 13.250 08/01/01 5,107,500
5,550 United Stationers Supply Co......... 12.750 05/01/05 6,271,500
986 Waban, Inc.......................... 11.000 05/15/04 1,106,785
------------
107,400,610
------------
TECHNOLOGY 2.6%
3,191 ComputerVision...................... 11.375 08/15/99 3,298,696
3,500 Dictaphone Corp..................... 11.750 08/01/05 3,080,000
1,250 Iron Mountain, Inc.................. 10.125 10/01/06 1,340,625
8,424 Unisys Corp......................... 15.000 07/01/97 8,634,600
------------
16,353,921
------------
</TABLE>
See Notes to Financial Statements
10
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
February 28, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TRANSPORTATION 3.8%
$ 2,250 International Shipholding Corp....... 9.000% 07/01/03 $ 2,306,250
4,250 Moran Transport Co................... 11.750 07/15/04 4,696,250
2,500 Sea Containers Ltd................... 12.500 12/01/04 2,793,750
2,750 Sea Containers Ltd................... 12.500 12/01/04 3,059,375
4,500 Stena AB............................. 10.500 12/15/05 4,972,500
4,500 Trism, Inc........................... 10.750 12/15/00 4,173,750
2,250 ValuJet, Inc......................... 10.250 04/15/01 2,047,500
------------
24,049,375
------------
UTILITIES 5.2%
3,250 AES Corp............................. 10.250 07/15/06 3,550,624
3,000 Arch Communications Group, Inc. (b).. 0/10.875 03/15/08 1,522,500
3,000 Bell Cablemedia PLC (b).............. 0/11.875 09/15/05 2,437,500
2,750 CCPR Services, Inc., 144A Private
Placement (c)........................ 10.000 02/01/07 2,750,000
3,000 Fonorola, Inc........................ 12.500 08/15/02 3,360,000
568 GST Telecommunciations, Inc., 144A
Private Placement (b) (c)............ 0/13.875 12/15/05 429,578
4,544 GST USA, Inc. (b).................... 0/13.875 12/15/05 2,942,240
2,500 Intermedia Communications of Florida,
Inc. (b)............................. 0/12.500 05/15/06 1,700,000
3,500 Millicom International Cellular SA
(b).................................. 0/13.500 06/01/06 2,336,250
3 Optel, Inc., 144A Private Placement
(c).................................. 13.000 02/15/05 3,000,000
500 Pricellular Wireless Corp............ 14.000 11/15/01 505,000
5,750 Pricellular Wireless Corp. (b)....... 0/12.250 10/01/03 5,203,750
3,500 USA Mobile Communications, Inc....... 14.000 11/01/04 3,780,000
------------
33,517,442
------------
TOTAL CORPORATE OBLIGATIONS............................. 574,059,842
------------
FOREIGN GOVERNMENT OBLIGATIONS 2.1%
3,000 Republic of Argentina Global Bond.... 11.000 10/09/06 3,210,000
3,000 Republic of Venezuela Note........... 6.750 03/31/20 2,310,000
5,000 United Mexican States Debt........... 11.500 05/15/26 5,580,000
2,000 United Mexican States Debt........... 11.500 05/15/26 2,232,000
------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS.................... 13,332,000
------------
CONVERTIBLE DEBT 0.5%
3,590 Kelley Oil & Gas Partners Ltd........ 7.875 12/15/99 3,374,600
------------
</TABLE>
See Notes to Financial Statements
11
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
February 28, 1997 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Market Value
- --------------------------------------------------------------------------------
<S> <C>
EQUITIES 3.3%
American Telecasting, Inc. (1,750 Common Stock Warrants) (d)...... $ 17,500
Capital Gaming International, Inc. (3,125 Common Stock Warrants)
(d)............................................................... 31
Dairy Mart Convience Stores (14,998 Common Stock Warrants) (d).... 37,495
Exide Electronics Group, Inc. (4,250 Common Stock Warrants) (d)... 178,500
FF Holdings Corp. (40,000 Common Shares) (d)...................... 400
Finlay Enterprises, Inc. (6,333 Common Shares) (d)................ 90,245
Kelley Oil & Gas Corp. (50,000 Preferred Shares).................. 1,250,000
Nextlink Communications, Inc. (30,000 Preferred Shares) (d) (e)... 1,500,000
PanAmSat LP Corp. (6,708 Preferred Shares) (e).................... 8,150,220
Supermarkets General Holdings Corp. (241,101 Preferred Shares) (d)
(e)............................................................... 6,027,525
Terex Corp. (28,000 Common Stock Rights) (d)...................... 70,000
Time Warner, Inc. (2,956 Preferred Shares)........................ 3,282,132
Total Renal Care Holdings, Inc. (6,000 Common Shares) (d)......... 209,250
Triangle Wire & Cable, Inc. (84,445 Common Shares) (d)............ 84,445
Wright Medical Technolgy, Inc. (4,118 Common Stock Warrants) (d).. 53,530
------------
TOTAL EQUITIES................................................... 20,951,273
------------
TOTAL LONG-TERM INVESTMENTS 96.2%
(Cost $582,075,056) (a).......................................... 611,717,715
SHORT-TERM INVESTMENTS 2.2%
(Cost $14,308,602) (a)........................................... 14,308,723
OTHER ASSETS IN EXCESS OF LIABILITIES 1.6%........................ 10,051,176
------------
NET ASSETS 100.0%................................................. $636,077,614
============
</TABLE>
*Zero coupon bond
(a) At February 28, 1997, for federal income tax purposes, cost for long and
short-term investments is $596,463,498; the aggregate gross unrealized
appreciation is $35,489,149 and the aggregate gross unrealized
depreciation is $5,926,209, resulting in net unrealized appreciation of
$29,562,940.
(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
12
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
February 28, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Long-Term Investments, at Market Value (Cost $582,075,056) (Note
1).............................................................. $611,717,715
Short-Term Investments (Cost $14,308,602) (Note 1).............. 14,308,723
Cash............................................................ 3,653
Receivables:
Interest....................................................... 14,747,745
Fund Shares Sold............................................... 2,095,387
Other........................................................... 27,895
-------------
Total Assets................................................... 642,901,118
-------------
LIABILITIES:
Payables:
Income Distributions........................................... 2,208,266
Securities Purchased........................................... 2,200,857
Fund Shares Repurchased........................................ 1,681,997
Distributor and Affiliates (Notes 2 and 5)..................... 279,198
Investment Advisory Fee (Note 2)............................... 261,241
Deferred Compensation and Retirement Plans (Note 2)............. 99,231
Accrued Expenses................................................ 92,714
-------------
Total Liabilities.............................................. 6,823,504
-------------
NET ASSETS...................................................... $ 636,077,614
=============
NET ASSETS CONSIST OF:
Capital (Note 3)................................................ $ 873,264,636
Net Unrealized Appreciation on Securities....................... 29,642,780
Accumulated Distributions in Excess of Net Investment Income
(Note 1)........................................................ (127,106)
Accumulated Net Realized Loss on Securities..................... (266,702,696)
-------------
NET ASSETS...................................................... $ 636,077,614
=============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on net
assets of $460,878,554 and 70,997,440 shares of beneficial
interest issued and outstanding)............................. $ 6.49
Maximum sales charge (4.75%* of offering price).............. .32
-------------
Maximum offering price to public............................. $ 6.81
=============
Class B Shares:
Net asset value and offering price per share (Based on net
assets of $152,925,650 and 23,518,158 shares of beneficial
interest issued and outstanding)............................. $ 6.50
=============
Class C Shares:
Net asset value and offering price per share (Based on net
assets of $22,273,410 and 3,440,195 shares of beneficial
interest issued and outstanding)............................. $ 6.47
=============
</TABLE>
*On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
13
<PAGE>
STATEMENT OF OPERATIONS
For the Six Months Ended February 28, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest........................................................... $29,350,367
Dividends.......................................................... 638,804
-----------
Total Income...................................................... 29,989,171
-----------
EXPENSES:
Investment Advisory Fee (Note 2)................................... 1,580,456
Distribution (12b-1) and Service Fees (Attributed to Classes A, B
and C of $453,131, $649,176 and $95,851, respectively) (Note 5)... 1,198,158
Shareholder Services (Note 2)...................................... 637,833
Legal (Note 2)..................................................... 30,671
Trustees Fees and Expenses (Note 2)................................ 8,855
Other ............................................................. 332,471
-----------
Total Expenses.................................................... 3,788,444
Less Expenses Reimbursed (Note 2)................................. 6,300
-----------
Net Expenses...................................................... 3,782,144
-----------
NET INVESTMENT INCOME.............................................. $26,207,027
===========
REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:
Net Realized Gain on Investments................................... $ 1,882,041
-----------
Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period........................................... 11,462,049
End of the Period:
Investments...................................................... 29,642,780
-----------
Net Unrealized Appreciation on Securities During the Period........ 18,180,731
-----------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES..................... $20,062,772
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS......................... $46,269,799
===========
</TABLE>
See Notes to Financial Statements
14
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended February 28, 1997 and the Year Ended August 31, 1996
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
February 28, 1997 August 31, 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income...................... $ 26,207,027 $ 50,525,672
Net Realized Gain on Securities............ 1,882,041 7,729,045
Net Unrealized Appreciation on Securities
During the Period......................... 18,180,731 4,212,440
------------ ------------
Change in Net Assets from Operations....... 46,269,799 62,467,157
------------ ------------
Distributions from Net Investment Income... (28,682,595) (49,827,208)
Distributions in Excess of Net Investment
Income (Note 1)........................... (127,106) -0-
------------ ------------
Total Distributions from and in Excess of
Net Investment Income*.................... (28,809,701) (49,827,208)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES................................ 17,460,098 12,639,949
------------ ------------
FROM CAPITAL TRANSACTIONS (NOTE 3):
Proceeds from Shares Sold.................. 113,024,014 144,420,520
Net Asset Value of Shares Issued Through
Dividend Reinvestment..................... 16,997,818 29,841,087
Cost of Shares Repurchased................. (64,817,829) (150,954,434)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS.............................. 65,204,003 23,307,173
------------ ------------
TOTAL INCREASE IN NET ASSETS............... 82,664,101 35,947,122
NET ASSETS:
Beginning of the Period.................... 553,413,513 517,466,391
------------ ------------
End of the Period (Including accumulated
undistributed net investment income of
$(127,106) and $2,475,568, respectively).. $636,077,614 $553,413,513
============ ============
<CAPTION>
Six Months Ended Year Ended
*Distribution by Class February 28, 1997 August 31, 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of Net
Investment Income:
Class A Shares............................ $(21,740,647) $(39,328,721)
Class B Shares............................ (6,159,016) (9,074,232)
Class C Shares............................ (910,038) (1,424,255)
------------ ------------
$(28,809,701) $(49,827,208)
============ ============
</TABLE>
See Notes to Financial Statements
15
<PAGE>
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year Ended August 31,
February 28, -----------------------------------
Class A Shares 1997 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period.................. $6.298 $6.15 $6.12 $6.61 $6.40 $5.71
------ ------ ------ ------ ------ ------
Net Investment Income....... .293 .607 .55 .63 .64 .725
Net Realized and Unrealized
Gain/Loss on Securities.... .222 .139 .0515 (.47) .27 .6775
------ ------ ------ ------ ------ ------
Total from Investment
Operations.................. .515 .746 .6015 .16 .91 1.4025
Less Distributions from Net
Investment Income........... .321 .598 .5715 .65 .70 .7125
------ ------ ------ ------ ------ ------
Net Asset Value, End of the
Period...................... $6.492 $6.298 $6.15 $6.12 $6.61 $6.40
====== ====== ====== ====== ====== ======
Total Return (a)............. 8.27%* 12.66% 10.48% 2.34% 15.20% 25.82%
Net Assets at End of the
Period (In millions)........ $460.9 $421.4 $411.9 $364.2 $452.4 $435.1
Ratio of Expenses to Average
Net Assets (b).............. 1.09% 1.08% 1.12% 1.10% 1.09% 1.05%
Ratio of Net Investment
Income to Average Net Assets
(b)......................... 9.14% 9.65% 9.23% 9.03% 10.10% 11.77%
Portfolio Turnover........... 28%* 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 certain expenses was less than
0.01%.
See Notes to Financial Statements
16
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months July 2, 1992
Ended Year Ended August 31, (Commencement
February 28, -------------------------- of Distribution) to
Class B Shares 1997 1996 1995 1994 1993 August 31, 1992
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the Period. $6.310 $6.16 $6.14 $6.63 $6.41 $6.33
------ ------ ----- ----- ------ ------
Net Investment Income.. .269 .559 .51 .58 .58 .09
Net Realized and
Unrealized Gain/Loss
on Securities......... .221 .141 .0335 (.468) .292 .097
------ ------ ----- ----- ------ ------
Total from Investment
Operations............. .490 .700 .5435 .112 .872 .187
Less Distributions from
Net Investment Income.. .297 .550 .5235 .602 .652 .107
------ ------ ----- ----- ------ ------
Net Asset Value, End of
the Period............. $6.503 $6.310 $6.16 $6.14 $6.63 $6.41
====== ====== ===== ===== ====== ======
Total Return (a)........ 7.86%* 11.78% 9.41% 1.59% 14.49% 2.97%*
Net Assets at End of the
Period (In millions)... $152.9 $114.6 $89.9 $71.0 $37.7 $3.1
Ratio of Expenses to
Average Net Assets (b). 1.87% 1.87% 1.93% 1.90% 1.90% 2.08%
Ratio of Net Investment
Income to Average Net
Assets (b)............. 8.33% 8.86% 8.42% 8.25% 9.10% 10.30%
Portfolio Turnover...... 28%* 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 certain expenses was less than
0.01%.
See Notes to Financial Statements
17
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated. (Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Six Months July 6, 1993
Ended Year Ended August 31, (Commencement
February 28, --------------------- of Distribution) to
Class C Shares 1997 1996 1995 1994 August 31, 1993
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the Period $6.284 $6.14 $6.11 $6.61 $6.63
------ ------ ----- ----- -----
Net Investment Income.. .269 .557 .51 .53 .06
Net Realized and
Unrealized Gain/Loss
on Securities......... .218 .137 .0435 (.428) .0195
------ ------ ----- ----- -----
Total from Investment
Operations............. .487 .694 .5535 .102 .0795
Less Distributions from
Net Investment Income.. .297 .550 .5235 .602 .0995
------ ------ ----- ----- -----
Net Asset Value, End of
the Period............. $6.474 $6.284 $6.14 $6.11 $6.61
====== ====== ===== ===== =====
Total Return (a)........ 7.89%* 11.66% 9.63% 1.43% 1.20%*
Net Assets at End of the
Period (In millions)... $22.3 $17.5 $15.7 $13.2 $1.0
Ratio of Expenses to
Average Net Asset (b).. 1.87% 1.87% 1.93% 1.91% 2.34%
Ratio of Net Investment
Income to Average Net
Asset (b).............. 8.34% 8.86% 8.42% 8.25% 8.05%
Portfolio Turnover...... 28%* 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 certain expenses was less than
0.01%.
See Notes to Financial Statements
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
February 28, 1997 (Unaudited)
- -------------------------------------------------------------------------------
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
99% 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
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
February 28, 1997 (Unaudited)
- -------------------------------------------------------------------------------
commitments until payment is made. At February 28, 1997, there were no when
issued or delayed delivery purchase commitments.
The Fund invests in repurchase agreements, which are short-term investments
in which the Fund acquires ownership of a debt security and the seller agrees
to repurchase the security at a future time and specified price. The Fund may
invest independently in repurchase agreements, or transfer uninvested cash
balances into a pooled cash account along with other investment companies ad-
vised by Van Kampen American Capital Asset Management, Inc. (the "Adviser") or
its affiliates, the daily aggregate of which is invested in repurchase agree-
ments. 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. 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 expires between August 31,
1997 and August 31, 2004. Of this amount, $44,028,489 will expire in 1997. Net
realized gains or losses may differ for financial reporting and tax 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.
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.
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
February 28, 1997 (Unaudited)
- -------------------------------------------------------------------------------
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
- --------------------------------------------------------------------------------
<S> <C>
First $150 million.................................................. .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 (Il-
linois), counsel to the Fund, of which a trustee of the Fund is an affiliated
person.
For the six months ended February 28, 1997, the Fund recognized expenses of
approximately $45,600 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 six months
ended February 28, 1997, the Fund recognized expenses of approximately
$504,600, representing ACCESS' cost of providing transfer agency and share-
holder services plus a profit.
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.
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
February 28, 1997 (Unaudited)
- --------------------------------------------------------------------------------
3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of shares of beneficial interest, Clas-
ses A, B and C, each with a par value of $.01 per share. There are an unlimited
number of shares of each class authorized. At February 28, 1997, capital aggre-
gated $703,565,548, $147,361,307 and $22,337,781 for Class A, B and C shares,
respectively. For the six months ended February 28, 1997, transactions were as
follows:
<TABLE>
<CAPTION>
SHARES VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A............................................ 9,958,369 $ 64,133,952
Class B............................................ 6,534,900 42,186,861
Class C............................................ 1,041,925 6,703,201
----------- ------------
Total Sales......................................... 17,535,194 $113,024,014
=========== ============
Dividend Reinvestment:
Class A............................................ 2,083,915 $ 13,394,022
Class B............................................ 478,044 3,077,967
Class C............................................ 81,993 525,829
----------- ------------
Total Dividend Reinvestment......................... 2,643,952 $ 16,997,818
=========== ============
Repurchases:
Class A............................................ (7,953,590) $(51,160,974)
Class B............................................ (1,652,782) (10,670,050)
Class C............................................ (463,925) (2,986,805)
----------- ------------
Total Repurchases................................... (10,070,297) $(64,817,829)
=========== ============
</TABLE>
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
February 28, 1997 (Unaudited)
- -------------------------------------------------------------------------------
At August 31, 1996, capital aggregated $677,198,548, $112,766,529 and
$18,095,556 for Class A, B and C shares, respectively. For the year ended Au-
gust 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>
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.
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
February 28, 1997 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED SALES
CHARGE
YEAR OF REDEMPTION CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C>
First........................................................... 4.00% 1.00%
Second.......................................................... 4.00% None
Third........................................................... 3.00% None
Fourth.......................................................... 2.50% None
Fifth........................................................... 1.50% None
Sixth and Thereafter............................................ None None
</TABLE>
For the six months ended February 28, 1997, VKAC, as Distributor for the
Fund, received commissions on sales of the Fund's Class A shares of approxi-
mately $66,900 and CDSC on redeemed shares of approximately $149,170. 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 and U.S. Government Securities, were
$241,276,047 and $152,383,689, 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 (col-
lectively the "Plans"). The Plans govern payments for the distribution of the
Fund's shares, ongoing shareholder services and maintenance of shareholder ac-
counts.
Annual fees under the Plans of up to .25% of Class A net assets and 1.00%
each for Class B and Class C net assets are accrued daily. Included in these
fees for the six months ended February 28, 1997, are payments to VKAC of ap-
proximately $586,300.
24
<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
Growth Fund
Pace Fund
Growth & Income
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
MORGAN STANLEY FUND, INC.
Aggressive Equity Fund
American Value Fund
Asian Growth Fund
Emerging Markets Fund
Global Equity Allocation Fund
Global Fixed Income Fund
High Yield Fund
International Magnum Fund
Latin American Fund
Worldwide High Income 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 weekdays from 7:00 a.m. to 7:00
p.m. Central time at 1-800-341-2911 for Van Kampen American Capital funds, or
1-800-282-4404 for Morgan Stanley retail funds.
25
<PAGE>
RESULTS OF SHAREHOLDER VOTES
A Special Meeting of Shareholders of the Fund was held on October 25, 1996
where shareholders voted on a new investment advisory agreement, changes to
investment policies and the ratification of Price Waterhouse LLP as indepen-
dent public accountants. With regard to the approval of a new investment advi-
sory agreement between Van Kampen American Capital Asset Management, Inc. and
the Fund, 56,523,388 shares voted for the proposal, 959,069 shares voted
against and 4,069,070 shares abstained. With regard to the approval of certain
changes to the Fund's fundamental investment policies with respect to invest-
ment companies, 47,302,536 shares voted for the proposal, 1,448,773 shares
voted against and 4,326,061 shares abstained. With regard to the ratification
of Price Waterhouse LLP as independent public accountants for the Fund,
57,068,831 shares voted for the proposal, 546,953 shares voted against and
3,935,743 shares abstained.
26
<PAGE>
VAN KAMPEN AMERICAN CAPITAL HIGH INCOME CORPORATE BOND FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
DENNIS J. McDONNELL*
JACK E. NELSON
JEROME L. ROBINSON
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
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 (Illinois)
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 Distributors, Inc., 1997
All rights reserved.
(SM)denotes a service mark of Van Kampen American Capital Distributors, Inc.
This report is submitted for the general information of the shareholders of
the Fund. It is not authorized for distribution to prospective investors un-
less it has been preceded or is accompanied by an effective prospectus of the
Fund which contains additional information on how to purchase shares, the
sales charge, and other pertinent data. After June 30, 1997, the report must
be accompanied by a quarterly performance update, if applicable.
27
<PAGE>
VAN KAMPEN AMERICAN CAPITAL HIGH INCOME CORPORATE BOND FUND
THIS PAGE INTENTIONALLY LEFT BLANK
28
