<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 3
Performance in Perspective....................... 4
Glossary of Terms................................ 5
Portfolio Management Review...................... 7
Portfolio Highlights............................. 10
Portfolio of Investments......................... 11
Statement of Assets and Liabilities.............. 19
Statement of Operations.......................... 20
Statement of Changes in Net Assets............... 21
Financial Highlights............................. 22
Notes to Financial Statements.................... 25
Report of Independent Accountants................ 33
</TABLE>
HYI ANR 10/98
<PAGE> 2
LETTER TO SHAREHOLDERS
September 25, 1998
Dear Shareholder,
These continue to be dramatic and
highly unusual times for global
financial markets. Despite a severe
crisis of confidence in many emerging
economies, the United States has
escaped relatively unscathed from the [PHOTO]
turmoil. Although volatility
increased in the U.S. equity market
as the Asian crisis spread to Russia
and Latin America, fixed-income DENNIS J. MCDONNELL AND DON G. POWELL
investors have benefited from
developments of the past year.
We expect that volatility will remain high until the situation overseas
stabilizes. In this environment, it is important to stay focused on long-term
investment goals, and to view daily fluctuations as relatively insignificant in
the larger picture. As we detail elsewhere in this letter, the U.S. economy is
among the healthiest in the world, our budget is in balance, and Federal Reserve
policy makers have demonstrated an ability to make prudent decisions with regard
to monetary policy. These factors bode well for investors during the months
ahead.
ECONOMIC REVIEW
To the surprise of many observers, economic growth in the United States
seemed impervious to the recession in Asia for several months after the crisis
erupted last year. For all of 1997, the U.S. economy grew by a robust 3.8
percent, its fastest pace since 1988. When growth remained strong during the
first quarter of 1998, some economists speculated that perhaps drag from Asia
would miss the American economy altogether.
But, the "storm clouds massing over the western Pacific," which Federal
Reserve Chairman Alan Greenspan warned "were heading our way" in February,
finally arrived at the American shore this spring. Growth decelerated during the
second quarter, primarily as a result of weak demand overseas and the strong
U.S. dollar. However, a sharp decline in interest rates helped the housing
sector to grow at a record pace.
As the reporting period ended, there was tentative evidence that the global
financial crisis and the sudden drop in stock prices were taking a toll on
American shoppers. After hitting a 29-year high in June, consumer confidence
declined the following two months. Meanwhile, consumer spending fell in July for
the first time since 1996.
MARKET REVIEW
The slowdown in world economic growth, coupled with a flight to quality amid
turbulence in Asia, Russia, and Latin America, unleashed a powerful rally in the
U.S. bond market. During the 12-month period ended in August, the yield on
long-term Treasuries declined from 6.60 percent to 5.23 percent, the lowest
level since 1968. The yield on 30-year fixed-rate mortgage rates fell to about
7.00 percent, near a five-year low.
Continued on page two
1
<PAGE> 3
Long-term Treasuries were the top-performing sector of the fixed-income
market, gaining about 20 percent during the reporting period, or roughly double
the return of corporate and municipal bonds. High yield bonds underperformed as
concern grew that global economic weakness could spread to the United States. In
a highly unusual development, U.S. stock and bond prices diverged sharply late
in the summer, with stocks falling despite a strong rally in the bond market.
OUTLOOK
We expect that domestic economic fundamentals will remain favorable for
fixed-income investments. The impact of slower economic growth abroad should
help to offset the inflationary implications of a relatively tight labor market
in the United States. While the possibility of a recession can no longer be
ruled out, we expect that the U.S. economy will grow at a moderate pace for the
foreseeable future.
We believe that the Federal Reserve stands ready to adjust interest rates as
needed, and that global overcapacity will continue to exert downward pressure on
commodity prices. Both factors are positive for bonds. We caution, however, that
yields have fallen considerably in recent months, and a mild backup in long-term
interest rates is possible. Also, a lower dollar or a worsening of economic
conditions overseas could lead to reduced foreign demand for U.S. financial
assets. Finally, credit concerns will increasingly come into play at this late
point in the business cycle.
Additional details about your Fund, including a question-and-answer section
with your portfolio management team, are provided in this report. As always, we
are pleased to have the opportunity to serve you and your family through our
diverse range of quality investments.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen Asset Management Inc.
[SIG]
Dennis J. McDonnell
President
Van Kampen Asset Management Inc.
2
<PAGE> 4
PERFORMANCE RESULTS FOR THE PERIOD ENDED AUGUST 31, 1998
VAN KAMPEN HIGH INCOME CORPORATE BOND FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
TOTAL RETURNS
<S> <C> <C> <C>
One-year total return based on NAV(1)..... 1.66% 0.77% 0.93%
One-year total return(2).................. (3.22%) (2.93%) 0.01%
Five-year average annual total
return(2)................................. 7.13% 7.09% 7.33%
Ten-year average annual total return(2)... 7.20% N/A N/A
Life-of-Fund average annual total
return(2)................................. 9.00% 8.73% 7.34%
Commencement date......................... 10/02/78 07/02/92 07/06/93
DISTRIBUTION RATE AND YIELD
Distribution rate(3)...................... 9.43% 9.11% 9.14%
SEC Yield(4).............................. 8.15% 7.68% 7.72%
N/A = Not Applicable
</TABLE>
(1) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge (4.75% for A shares) or contingent
deferred sales charge for early withdrawal (4% for B shares and 1% for C
shares).
(2) Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (A shares) or contingent
deferred sales charge for early withdrawal (B and C shares).
(3) Distribution rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.
(4) SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending August 31, 1998.
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> 5
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 intervals.
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:
- Illustrate the general market environment in which your investments are
being managed
- Reflect the impact of favorable market trends or difficult market
conditions
- 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 Credit Suisse First Boston High
Yield Index and the Lipper High Current Yield Bond Index over time. These
indices are statistical composites, and do not reflect any commissions or sales
charges which would be incurred by an investor purchasing the securities or
investments they represent.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen High Income Corporate Bond Fund vs. the Credit Suisse First
Boston High Yield Index and the Lipper High Current Yield Bond Index
(August 31, 1988 through August 31, 1998)
[GRAPH]
<TABLE>
<CAPTION>
VKAC Credit Suisse Lipper High
Value at High Income Corporate First Boston Current Yield
August 31, Bond Fund High Yield Index Bond Index
<S> <C> <C> <C>
1998 $ 20,039 $ 24,926 $ 27,863
</TABLE>
- ----------------------------
Fund's Total Return
1 Year Avg. Annual =3.22%
5 Year Avg. Annual =7.13%
10 Year Avg. Annual =7.20%
Inception Avg. Annual =9.00%
- ----------------------------
INVESTMENT PERFORMANCE CHART
The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of other share classes of
the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions and includes payment of the maximum
sales charge (4.75% for 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.
4
<PAGE> 6
GLOSSARY OF TERMS
BOND: A debt security issued by a government or corporation that generally pays
a bondholder a stated rate of interest and repays the principal at the
maturity date.
CALL FEATURE: Allows the issuer to buy back a bond on specific call dates before
maturity. Call dates and prices are set when the bond is issued. To
compensate the bondholder for loss of income and ownership, the initial call
price is usually higher than the face value of the bond. Bonds are usually
called when interest rates drop so significantly that the issuer can save
money by issuing new bonds at lower rates.
COUPON RATE: The stated rate of interest the bond pays until maturity, expressed
as a percentage of the face value.
CREDIT RATING: An evaluation of an issuer's credit history and capability of
repaying obligations. Standard & Poor's and Moody's Investors Service are
two companies that assign bond ratings. Standard & Poor's ratings range from
a high of AAA to a low of D, while Moody's ratings range from a high of Aaa
to a low of C.
DURATION: A measure of the sensitivity of a bond's price to changes in interest
rates, expressed in years. Each year of duration represents an expected 1
percent change in the price of a bond for every 1 percent change in interest
rates. The longer a fund's duration, the greater the effect of interest rate
movements on net asset value. Typically, funds with shorter durations have
performed better in rising rate environments, while funds with longer
durations have performed better when rates decline.
EMERGING MARKETS: The financial markets of developing economies. Many Latin
American and Asian countries are considered emerging markets.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank system of the United States. Its
policy-making committee, called the Federal Open Market Committee, meets
eight times a year to establish monetary policy and monitor the economic
pulse of the United States.
INFLATION: A persistent and measurable rise in the general level of prices.
Inflation is widely measured by the Consumer Price Index, an economic
indicator that measures the change in the cost of purchased goods and
services.
5
<PAGE> 7
INVESTMENT-GRADE BONDS: Securities rated BBB and above by Standard & Poor's or
Baa and above by Moody's Investor Service. Bonds rated below BBB or Baa are
noninvestment grade.
YIELD: The annual rate of return on an investment, expressed as a percentage.
For bonds and notes, the yield is the annual interest divided by the market
price.
YIELD CURVE: A result of viewing the yields of U.S. Treasury securities maturing
in 1, 5, 10, and 30 years. When grouped together and graphed, a pattern of
increasing yield is often reflected as the time to maturity extends. This
pattern creates an upward sloping "curve." A "flat" yield curve represents
little difference between short- and long-term interest rates.
YIELD SPREAD: The difference between the yields of different bonds, due to their
different credit ratings or maturities. When yield spreads between bonds of
different credit quality are narrow, there is less incentive to own the
lower-quality bond. When yield spreads between bonds of different maturities
are narrow, there is less incentive to own the bond with the longer
maturity. In both cases, the investor is not being compensated for the
additional risk.
6
<PAGE> 8
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN HIGH INCOME CORPORATE BOND FUND
We recently spoke with the management team of the Van Kampen High Income
Corporate Bond Fund about the key events and economic forces that shaped the
markets during the past 12 months. 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 12-month period ended August 31, 1998.
Q HOW WOULD YOU CHARACTERIZE THE MARKET CONDITIONS IN WHICH THE FUND
OPERATED DURING THE REPORTING PERIOD?
A
After 11 months of steady economic growth and fairly consistent stock
market appreciation, the market became spooked by a downward spiral in
global economies and tumbled in record numbers in the final weeks of the
reporting period. In the first six months of the Fund's reporting period,
problems overseas seemed to bounce off of our shores. The U.S. economy continued
to expand at a robust pace, with GDP growth measured at 5.4 percent in the first
quarter alone--a rate considered by many economists to be virtually
unsustainable without leading to inflation. Despite the generally solid pace of
economic activity, however, inflation remained benign. Falling commodity prices
and a strong dollar helped offset the inflationary implications of a tight labor
market and active consumer spending.
The Federal Reserve Board declined to alter short-term interest rates during
the Fund's reporting period. However, as the period drew to a close, the Fed
acknowledged that a tighter monetary policy might be necessary to curb rising
inflationary pressures in the future.
The higher grade fixed-income market benefited from a global "flight to
quality" caused by turmoil in Asia and by the growing perception that the
domestic economy was slowing. After starting the calendar year at 5.74 percent,
the yield on the 10-year Treasury benchmark bond rose to over 5.81 percent
during the spring amid signs that some Asian economies were beginning to
recover. When weakness in the Japanese yen undercut that recovery, however,
yields fell to 4.98 percent by the end of the reporting period.
Q HOW DID THE HIGH YIELD MARKET FARE DURING THE PERIOD?
A As they had in the final months of 1997 following the emergence of Asia's
currency crisis, high-yield bonds rapidly lost favor with investors, who
turned to more conservative investments. The decline in investor
confidence in this sector coincided with a slight increase in defaults, although
the default rate remained well below historical averages. Problems in the sector
were multiplied by significant underperformance in the area of emerging markets
debt, whose dramatically widening yield spreads created ripple effects
throughout the high yield universe.
7
<PAGE> 9
As the Treasury declined in response to high demand for Treasuries in the
wake of instability in Asia, we witnessed a flood of new issuance in the high
yield market. By the end of the period, the level of newly issued high yield
bonds was on track to break last year's record high. Although cash flows into
high yield investments continued to move at a record pace, the large initial
supply met with decreasing demand. As a result, the yield spread between high
yield bonds and Treasuries widened during the period, indicating that high yield
investments underperformed Treasuries.
Q HOW DID YOU MANAGE THE FUND IN LIGHT OF THESE CONDITIONS?
A We largely maintained the Fund's credit quality profile and our focus on
B-rated bonds, which provide a yield advantage over higher-quality
investments and which comprised the majority of new issues purchased
during the period. We made relatively few changes in the portfolio's sector
exposure, as our tendency during this period of volatility was to remain
cautious until the dust settled. Once again, media and cable companies dominated
new issuance during the period; accordingly, the consumer services sector,
including several broadcasting companies, made up one of the largest sector
positions in the portfolio. Another significant sector position, utilities,
consisted primarily of telecommunications companies and also benefited from
increased investor interest in the new generation of communications created by
the computer age. The Fund's portfolio was slightly overweight in gaming
companies, which performed fairly well even though most sectors were rocked by
the volatility at the end of the period.
The Fund's duration was lengthened during the period from 3.6 years to 4.2
years on August 31, 1998; this occurred as a result of redeploying assets into
new issues, most of which have longer maturities and lower coupon rates than the
issues previously held in the portfolio. In doing this, we also maintained a low
cash position in the portfolio despite the influx of new assets into the Fund
during the past year. By the end of the period, the portfolio was comprised of
194 issues, representing an increase from 174 one year ago. For additional Fund
portfolio highlights, please refer to page 10.
Q HOW DID THE FUND PERFORM DURING THE REPORTING PERIOD?
A The Fund posted a total return of 1.66 percent(1) (Class A shares at net
asset value) for the 12-month period ended August 31, 1998. By comparison,
the Credit Suisse First Boston High Yield Index returned 1.46 percent for
the same period. The First Boston High Yield Index is a broad-based index that
reflects the general performance of a wide range of selected bonds within the
public high yield debt market. It does not reflect any commissions that would be
paid by an investor purchasing the securities it represents. Please refer to the
chart on page 3 for additional Fund performance results.
8
<PAGE> 10
Q WHAT IS YOUR OUTLOOK FOR THE MARKET OVER THE COMING MONTHS?
A As we peer from underneath our umbrellas at the circling dark clouds, we
might envision two scenarios: in one, the market crumbles under the domino
effect of a worldwide currency collapse--which is something akin to cats
and dogs literally falling from the sky. In our second scenario, we pull on our
galoshes and muddle through the bad weather until we find brighter skies.
Needless to say, we're favoring the more realistic second scenario. Our focus is
on preserving total return, avoiding excess portfolio volatility that may be
harmful rather than helpful, and selecting credits that we feel are most likely
to succeed in this volatile environment. It's a good time to remember that the
world generally moves in cycles, and that widening spreads in high yield
investments have generally been followed by shrinking spreads. As a result,
we'll cautiously seek opportunity in investments whose spreads have widened past
a reasonable point.
[SIG.]
Ellis S. Bigelow
Portfolio Manager
[SIG.]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
Please see footnotes on page three
9
<PAGE> 11
PORTFOLIO HIGHLIGHTS
VAN KAMPEN HIGH INCOME CORPORATE BOND FUND
TOP TEN ISSUERS AS OF AUGUST 31, 1998
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
LONG-TERM INVESTMENTS
<S> <C>
Metronet Communications Corp. ................ 1.8%
E Spire Communications, Inc. ................. 1.5%
Price Communications Wireless ................ 1.4%
Primus Telecommunications Group,
Inc. ....................................... 1.3%
Majestic Star Casino L.L.C. .................. 1.3%
Printpack, Inc. .............................. 1.3%
Northland Cable Television, Inc. ............. 1.2%
Booth Creek Ski Holdings, Inc. ............... 1.2%
Carpenter W R North America, Inc. ............ 1.2%
Consoltex Group, Inc. (Canada) ............... 1.2%
</TABLE>
CREDIT QUALITY AS A PERCENTAGE OF CORPORATE OBLIGATIONS
<TABLE>
<CAPTION>
AS OF AUGUST 31, 1998 AS OF AUGUST 31, 1997
<S> <C> <S> <C>
BBB ............. 0.5% BBB ............. 1.8%
BB .............. 10.8% BB .............. 16.8%
B ............... 77.3% [PIE CHART] B ............... 67.2% [PIE CHART]
CCC ............. 4.9% CCC ............. 5.3%
Non-Rated ....... 7.4% Non-Rated ....... 8.9%
</TABLE>
Based upon the highest credit quality ratings as determined by Standard & Poor's
or Moody's.
TOP FIVE PORTFOLIO SECTORS AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
As of August 31, 1998 AS OF AUGUST 31, 1997
<S> <C> <C> <C>
Consumer Services........... 22.1% Raw Materials/Processing
Utilities................... 20.1% Industries............... 19.1%
Raw Materials/Processing Consumer Services.......... 18.6%
Industries................ 15.4% Producer Manufacturing..... 9.1%
Producer Manufacturing...... 8.7% Energy..................... 8.7%
Consumer Distribution....... 6.6% Utilities.................. 8.3%
</TABLE>
DURATION
<TABLE>
<CAPTION>
AS OF AUGUST 31, 1998 AS OF AUGUST 31, 1997
<S> <C> <C>
Duration 4.2 years 3.6 years
</TABLE>
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS
August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORPORATE OBLIGATIONS 92.4%
CONSUMER DISTRIBUTION 6.2%
$ 4,250 Big 5 Corp..................................... 10.875% 11/15/07 $ 4,271,250
9,000 CHS Electronics, Inc. ......................... 9.875 04/15/05 8,100,000
2,000 Community Distributors, Inc.................... 10.250 10/15/04 1,960,000
12,700 Del Monte Foods Co., 144A -- Private
Placement (a) (b).............................. 0/12.500 12/15/07 8,128,000
4,000 Duane Reade, Inc............................... 9.250 02/15/08 3,880,000
3,200 Iron Age Corp., 144A -- Private Placement
(b)............................................ 9.875 05/01/08 2,960,000
7,000 Musicland Group, Inc........................... 9.875 03/15/08 6,720,000
3,492 Pantry, Inc.................................... 12.500 11/15/00 3,675,330
4,750 Pantry, Inc.................................... 10.250 10/15/07 4,655,000
3,735 Pathmark Stores, Inc........................... 12.625 06/15/02 3,492,224
6,000 Pathmark Stores, Inc. (a)...................... 0/10.750 11/01/03 4,110,000
------------
51,951,804
------------
CONSUMER DURABLES 5.1%
8,900 Aetna Industries, Inc.......................... 11.875 10/01/06 9,256,000
7,000 Derby Cycle Corp., 144A -- Private Placement
(b)............................................ 10.000 05/15/08 6,090,000
8,000 MCII Holdings USA, Inc. (Mexico) (a)........... 0/12.000 11/15/02 7,120,000
2,500 Sealy Mattress Co., Ser B (a).................. 0/10.875 12/15/07 1,562,500
7,500 Talon Automotive Group, Inc., 144A -- Private
Placement (b).................................. 9.625 05/01/08 7,125,000
2,565 Venture Holdings, Inc. ........................ 9.750 04/01/04 2,411,100
3,575 Venture Holdings, Inc. ........................ 9.500 07/01/05 3,396,250
6,000 Webb (Del E.) Corp............................. 9.375 05/01/09 5,625,000
------------
42,585,850
------------
CONSUMER NON-DURABLES 3.5%
6,000 Cluett American Corp., 144A -- Private
Placement (b).................................. 10.125 05/15/08 5,460,000
8,900 Consoltex Group, Inc. (Canada)................. 11.000 10/01/03 9,278,250
4,500 Curtice Burns Foods, Inc....................... 12.250 02/01/05 5,040,000
3,000 Decora Industries, Inc., 144A -- Private
Placement (b).................................. 11.000 05/01/05 2,820,000
1,800 French Fragrances, Inc......................... 10.375 05/15/07 1,854,000
5,000 French Fragrances, Inc., Ser D................. 10.375 05/15/07 5,150,000
------------
29,602,250
------------
CONSUMER SERVICES 20.6%
4,000 Argosy Gaming Co. ............................. 13.250 06/01/04 4,280,000
9,750 Booth Creek Ski Holdings, Inc., Ser B.......... 12.500 03/15/07 9,798,750
10,020 Capstar Broadcasting Partners (a).............. 0/12.750 02/01/09 7,565,100
4,610 Casino America, Inc. .......................... 12.500 08/01/03 4,840,500
6,900 Casino Magic Louisiana Corp., Ser B............ 13.000 08/15/03 7,624,500
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONSUMER SERVICES (CONTINUED)
$ 5,500 Citadel Broadcasting Co., Ser B................ 10.250% 07/01/07 $ 5,885,000
7,500 Diamond Cable Co. (United Kingdom) (a)......... 0/13.250 09/30/04 7,200,000
5,980 Echostar Communications Corp. (a).............. 0/12.875 06/01/04 5,681,000
5,250 FrontierVision Holding L.P. (a)................ 0/11.875 09/15/07 4,200,000
4,500 Globo Communicacoes Participation, 144A --
Private Placement (Brazil) (b)................. 10.625 12/05/08 2,835,000
3,500 Gray Communications Systems, Inc. ............. 10.625 10/01/06 3,710,000
2,000 Grupo Televisa Corp. (Mexico).................. 11.875 05/15/06 1,785,000
6,500 Grupo Televisa Corp. (Mexico).................. * 05/15/08 4,387,500
5,796 Helicon Group L.P. (Variable Rate Coupon)...... 11.000 11/01/03 6,129,270
6,600 Hollywood Casino, Inc.......................... 12.750 11/01/03 7,095,000
3,500 Hollywood Theaters, Inc........................ 10.625 08/01/07 3,325,000
6,750 Horseshoe Gaming L.L.C., Ser B................. 9.375 06/15/07 6,918,750
7,000 IHF Holdings, Inc., Ser B (a).................. 0/15.000 11/15/04 3,500,000
2,500 Interep National Radio Sales, Inc.,
144A -- Private Placement (b).................. 10.000 07/01/08 2,400,000
1,750 International Cabletel, Inc. (a)............... 0/12.750 04/15/05 1,487,500
5,500 International Cabletel, Inc. (a)............... 0/11.500 02/01/06 4,180,000
3,000 Louisiana Casino Cruises, Inc.................. 11.500 12/01/98 3,007,500
4,500 Louisiana Petite Academy, Inc., 144A -- Private
Placement (b).................................. 10.000 05/15/08 4,320,000
9,750 Majestic Star Casino L.L.C. ................... 12.750 05/15/03 10,383,750
7,500 Multicanal Participacoes, Ser B (Brazil)....... 12.625 06/18/04 5,400,000
9,300 Northland Cable Television, Inc................ 10.250 11/15/07 9,811,500
3,000 Park N View, Inc., 144A -- Private Placement
(b)............................................ 13.000 05/15/08 2,430,000
7,400 Premier Parks, Inc. (a)........................ 0/10.000 04/01/08 4,514,000
7,000 Radio Unica Corp., 144A -- Private Placement
(a) (b)........................................ 0/11.750 08/01/06 4,060,000
1,960 SFX Broadcasting, Inc.......................... 10.750 05/15/06 2,121,700
6,000 Silver Cinemas International, Inc.,
144A -- Private Placement (b).................. 10.500 04/15/05 5,700,000
7,000 Splitrock Services, Inc., 144A -- Private
Placement (b).................................. 11.750 07/15/08 6,615,000
4,000 Telewest PLC (United Kingdom) (a).............. 0/11.000 10/01/07 3,120,000
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONSUMER SERVICES (CONTINUED)
$ 5,000 UIH Australia/Pacific, Inc., Ser B (a)......... 0/14.000% 05/15/06 $ 2,150,000
8,500 United International Holdings, Inc. (a)........ 0/10.750 02/15/08 4,080,000
------------
172,541,320
------------
ENERGY 4.2%
4,000 Chiles Offshore L.L.C. Corp., 144A -- Private
Placement (b).................................. 10.000 05/01/08 3,400,000
8,500 Hurricane Hydrocarbons Ltd., 144A -- Private
Placement (Canada) (b)......................... 11.750 11/01/04 4,335,000
5,750 Hydrochem Industrial Services, Inc., Ser B..... 10.375 08/01/07 5,491,250
5,500 KCS Energy, Inc................................ 11.000 01/15/03 5,582,500
5,236 Kelley Oil & Gas Partners Ltd.................. 7.875 12/15/99 5,026,560
1,800 Moll Industries, Inc., 144A -- Private
Placement (b).................................. 10.500 07/01/08 1,674,000
4,600 Pacalta Resources Ltd., Ser B (Canada)......... 10.750 06/15/04 4,278,000
2,750 Panaco, Inc. .................................. 10.625 10/01/04 2,337,500
2,766 Petroleum Heat & Power, Inc.................... 12.250 02/01/05 2,821,320
------------
34,946,130
------------
FINANCE 2.6%
4,750 Americo Life, Inc., 144A -- Private Placement
(b)............................................ 9.250 06/01/05 4,892,500
8,750 Americredit Corp. ............................. 9.250 02/01/04 8,443,750
6,000 Chatwins Group, Inc. (Variable Rate Coupon).... 13.000 05/01/03 6,390,000
2,250 Superior National Capital Trust 1.............. 10.750 12/01/17 2,160,000
------------
21,886,250
------------
HEALTHCARE 2.3%
4,000 Alliance Imaging, Inc.......................... 9.625 12/15/05 3,880,000
9,000 Mariner Post Acute Network, Inc. (a)........... 0/10.500 11/01/07 5,130,000
2,380 Maxxim Medical, Inc., 144A -- Private Placement
(b)............................................ 10.500 08/01/06 2,510,900
3,000 Mediq, Inc., 144A -- Private Placement (b)..... 11.000 06/01/08 2,880,000
4,950 Oxford Health Plans, Inc., 144A -- Private
Placement (b).................................. 11.000 05/15/05 4,009,500
1,150 Vencor, Inc.................................... 9.875 05/01/05 828,000
------------
19,238,400
------------
PRODUCER MANUFACTURING 7.9%
3,000 American Architectural Products Corp........... 11.750 12/01/07 2,850,000
4,000 Anthony Crane, 144A -- Private Placement (b)... 10.375 08/01/08 3,720,000
9,750 Carpenter W R North America, Inc............... 10.625 06/15/07 9,701,250
3,500 Communications Instrument, Inc................. 10.000 09/15/04 3,307,500
1,800 Compass Aerospace Corp., 144A -- Private
Placement (b).................................. 10.125 04/15/05 1,746,000
4,500 Eagle-Picher Industries, Inc................... 9.375 03/01/08 4,230,000
4,000 Grove Worldwide L.L.C., 144A -- Private
Placement (b).................................. 9.250 05/01/08 3,640,000
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRODUCER MANUFACTURING (CONTINUED)
$ 4,950 GS Technologies Operating, Inc................. 12.000% 09/01/04 $ 4,937,625
8,000 IMO Industries, Inc. .......................... 11.750 05/01/06 8,880,000
1,750 Interlake Corp................................. 12.000 11/15/01 1,872,500
7,000 Interlake Corp................................. 12.125 03/01/02 7,210,000
3,500 International Knife & Saw, Inc.,
144A -- Private Placement (b).................. 11.375 11/15/06 3,535,000
2,000 Numatics, Inc.................................. 9.625 04/01/08 1,870,000
3,500 Outboard Marine Corp., 144A -- Private
Placement (b).................................. 10.750 06/01/08 3,377,500
6,750 Waxman Industries, Inc., Ser B (a)............. 0/12.750 06/01/04 5,670,000
------------
66,547,375
------------
RAW MATERIALS/PROCESSING INDUSTRIES 11.5%
2,175 Acetex Corp. (Canada).......................... 9.750 10/01/03 2,131,500
5,000 AEP Industries, Inc............................ 9.875 11/15/07 4,800,000
6,000 Anchor Lamina, Inc. (Canada)................... 9.875 02/01/08 5,250,000
4,540 Aracruz Celulose S.A., 144A -- Private
Placement (Brazil) (b)......................... 10.375 01/31/02 4,040,600
1,500 Brand Scaffold Services Holding, Inc., 144A --
Private Placement (b).......................... 10.250 02/15/08 1,365,000
4,500 Doe Run Resources Corp., 144A -- Private
Placement (b).................................. 11.250 03/15/05 3,870,000
2,750 Galey & Lord, Inc.............................. 9.125 03/01/08 2,337,500
5,850 Insilco Corp. ................................. 10.250 08/15/07 5,850,000
4,125 Kevco, Inc. ................................... 10.875 12/01/07 3,960,000
6,000 Outsourcing Services Group, 144A -- Private
Placement (b).................................. 10.875 03/01/06 5,940,000
5,054 Pioneer Americas Acquisition Corp.............. 9.250 06/15/07 4,295,900
10,025 Printpack, Inc................................. 10.625 08/15/06 10,325,750
3,250 Radnor Holdings, Inc., Ser B................... 10.000 12/01/03 3,266,250
5,000 Renco Steel Holdings, Inc. .................... 10.875 02/01/05 4,750,000
9,000 Satelites Mexicanos S.A., 144A -- Private
Placement (Mexico) (b)......................... 10.125 11/01/04 7,290,000
5,250 Scovill Fasteners, Inc......................... 11.250 11/30/07 4,882,500
3,500 Tekni-Plex, Inc................................ 9.250 03/01/08 3,342,500
6,000 Universal Compression Holdings, Inc., 144A --
Private Placement (a) (b)...................... 0/9.875 02/15/08 3,510,000
1,000 Universal Compression Holdings, Inc.,
144A -- Private Placement (a) (b).............. 0/11.375 02/15/09 565,000
9,000 Viacap S.A., 144A -- Private Placement
(Mexico) (b)................................... 11.375 05/15/07 6,210,000
4,550 WHX Corp. ..................................... 10.500 04/15/05 4,140,500
6,250 Young America Corp., 144A -- Private Placement
(b)............................................ 11.625 02/15/06 4,531,250
------------
96,654,250
------------
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TECHNOLOGY 3.6%
$ 5,500 Advanced Micro Devices, Inc.................... 11.000% 08/01/03 $ 5,390,000
6,000 DecisionOne Holdings Corp. .................... 9.750 08/01/07 4,950,000
3,000 DecisionOne Holdings Corp. (a)................. 0/11.500 08/01/08 1,560,000
8,050 Dictaphone Corp. .............................. 11.750 08/01/05 7,889,000
3,250 Esprit Telecom Group PLC (United Kingdom)...... 11.500 12/15/07 3,185,000
7,290 Intermedia Communications, Inc................. 8.600 06/01/08 6,907,275
------------
29,881,275
------------
TRANSPORTATION 6.0%
3,500 Alpha Shipping PLC, Ser A, 144A -- Private
Placement Ser A (United Kingdom) (b)........... 9.500 02/15/08 2,922,500
4,000 American Commercial Lines L.L.C.,
144A -- Private Placement (b).................. 10.250 06/30/08 3,880,000
7,500 Atlas Air, Inc................................. 10.750 08/01/05 7,387,500
1,800 Atlas Air, Inc., 144A -- Private Placement
(b)............................................ 9.250 04/15/08 1,683,000
2,700 Cenargo International Ltd., 144A -- Private
Placement (b).................................. 9.750 06/15/08 2,308,500
7,250 Greyhound Lines, Inc........................... 11.500 04/15/07 7,793,750
4,250 Moran Transport Co............................. 11.750 07/15/04 4,600,625
5,950 MRS Logistica S.A., Ser B, 144A -- Private
Placement (Brazil) (b)......................... 10.625 08/15/05 3,986,500
6,250 Pegasus Shipping Hellas Ltd., Ser A............ 11.875 11/15/04 6,156,250
2,750 Sea Containers Ltd., Ser B (Bermuda)........... 12.500 12/01/04 2,976,875
4,500 Stena AB (Sweden).............................. 10.500 12/15/05 4,747,500
1,800 Trans World Airlines, Inc. .................... 11.500 12/15/04 1,836,000
------------
50,279,000
------------
UTILITIES 18.9%
5,500 American Cellular Corp., 144A -- Private
Placement (b).................................. 10.500 05/15/08 5,060,000
6,250 Cathay International Ltd., 144A -- Private
Placement (Japan) (b).......................... 13.000 04/15/08 3,593,750
6,750 Clearnet Communications, Inc. (Canada) (a)..... 0/14.750 12/15/05 5,366,250
5,500 Compania De Transporte Energia, 144A -- Private
Placement (Argentina) (b)...................... 9.250 04/01/08 4,180,000
7,700 Crown Castle International Corp. (a)........... 0/10.625 11/15/07 4,774,000
7,000 Crown Century Petroleum, Inc................... 10.875 02/01/05 7,105,000
6,000 CTI Holdings, 144A -- Private Placement (a)
(b)............................................ 0/11.500 04/15/08 2,580,000
5,500 E Spire Communications, Inc (a)................ 0/12.750 04/01/06 3,795,000
4,500 E Spire Communications, Inc. (a)............... 0/13.000 11/01/05 3,318,750
4,300 E Spire Communications, Inc.................... 13.750 07/15/07 4,611,750
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UTILITIES (CONTINUED)
$ 1,750 Esprit Telecom Group PLC, 144A -- Private
Placement (United Kingdom) (b)................. 10.875% 06/15/08 $ 1,662,500
568 GST Telecommunications, Inc., 144A -- Private
Placement (Canada) (a) (b)..................... 0/13.875 12/15/05 465,760
2,950 ICG Holdings, Inc. (a)......................... 0/13.500 09/15/05 2,360,000
7,000 KMC Telecommunications Holdings, Inc. (a)...... 0/12.500 02/15/08 3,780,000
4,000 Level 3 Communications, Inc.................... 9.125 05/01/08 3,560,000
1,500 McLeodusa, Inc. (a)............................ 0/10.500 03/01/07 1,050,000
9,250 Metronet Communications Corp. (Canada)......... 12.000 08/15/07 10,313,750
1,500 Metronet Communications Corp. (Canada) (a)..... 0/10.750 11/01/07 885,000
5,000 Metronet Communications Corp., 144A -- Private
Placement (Canada) (a) (b)..................... 0/9.950 06/15/08 2,650,000
9,510 Microcell Telecommunications, Ser B (a)........ 0/14.000 06/01/06 6,680,775
9,000 Millicom International Cellular S.A.
(Luxembourg) (a)............................... 0/13.500 06/01/06 6,165,000
3,600 MJD Communications, Inc., 144A -- Private
Placement (b).................................. 9.500 05/01/08 3,600,000
9,250 Netia Holdings, Inc., Ser B
(Netherlands) (a).............................. 0/11.250 11/01/07 5,365,000
4,500 NTL, Inc., 144A -- Private Placement (a) (b)... 0/9.750 04/01/08 2,475,000
3,000 Optel, Inc., 144A -- Private Placement (b)..... 11.500 07/01/08 2,940,000
3,275 Optel, Inc., Ser B, 144A -- Private Placement
(b)............................................ 13.000 02/15/05 3,340,500
4,500 Pegasus Communications Corp. .................. 9.625 10/15/05 4,410,000
7,700 Pinnacle Holdings, Inc. (a).................... 0/10.000 03/15/08 4,119,500
2,250 Price Communication Cellular................... 11.250 08/15/08 2,030,625
4,450 Price Communications Wireless.................. 11.750 07/15/07 4,717,000
6,500 Price Communications Wireless, 144A -- Private
Placement (b).................................. 9.125 12/15/06 6,061,250
6,400 Primus Telecommunications Group, Inc. ......... 11.750 08/01/04 6,240,000
4,500 Primus Telecommunications Group, Inc. ......... 9.875 05/15/08 4,162,500
2,800 Psinet, Inc.................................... 10.000 02/15/05 2,660,000
6,300 Rural Cellular, 144A -- Private Placement
(b)............................................ 9.625 05/15/08 5,859,000
4,250 SBA Communications Corp., 144A -- Private
Placement (a) (b).............................. 0/12.000 03/01/08 2,167,500
6,000 Spectrasite Holdings, Inc., 144A -- Private
Placement (a) (b).............................. 0/12.000 07/15/08 3,180,000
4,100 Startec Global Communications, 144A -- Private
Placement (b).................................. 12.000 05/15/08 3,690,000
1,500 Transtel, 144A -- Private Placement (Columbia)
(b)............................................ 12.500 11/01/07 975,000
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UTILITIES (CONTINUED)
$ 4,700 Triton Communications, L.L.C.., 144A -- Private
Placement (a) (b).............................. 0/11.000% 05/01/08 $ 2,303,000
3,900 Verio, Inc., 144A -- Private Placement (b)..... 10.375 04/01/05 3,822,000
------------
158,075,160
------------
TOTAL CORPORATE OBLIGATIONS 92.4%............................... 774,189,064
------------
FOREIGN GOVERNMENT OBLIGATIONS 0.8%
2,000 Republic of Argentina (Argentina).............. 11.375 01/30/17 1,440,000
1,150 Republic of Korea (Korea)...................... 8.750 04/15/03 930,120
2,000 Republic of Korea (Korea)...................... 8.875 04/15/08 1,390,000
4,000 United Mexican States Debt (Mexico)............ 11.500 05/15/26 3,385,200
------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS............................. 7,145,320
------------
EQUITIES 0.9%
American Telecasting, Inc. (1,750 Common Stock Warrants)
(c)........................................................................ 17,500
Dairy Mart Convenience Stores (14,998 Common Stock
Warrants) (c).............................................................. 7,499
Day International Group, Inc. (1,545 Preferred Shares,
12.25% coupon, $1,000 par per share) (c) (d)............................... 1,471,613
Kelley Oil & Gas Corp. (50,000 Preferred Shares, 2.625%
coupon, $25 par) (c)....................................................... 943,750
KMC Telecommunications Holdings, Inc., 144A -- Private
Placement (7,000 Common Stock Warrants) (b) (c).......................... 7
Metronet Communications Corp., 144A -- Private Placement
(9,250 Common Stock Warrants) (Canada) (b) (c)........................... 305,250
Optel Inc. (3,275 Common Shares)........................................... 6,550
Primus Telecommunications Group (2,000 Common Stock
Warrants) (c).............................................................. 20
Signature Brands, Inc. (4,000 Common Stock Warrants)
(c)........................................................................ 87,600
Terex Corp. (28,000 Common Stock Rights) (c)............................... 504,000
Total Renal Care Holdings, Inc. (6,000 Common Shares)
(c)........................................................................ 190,000
UIH Australia Pacific, Inc. (5,000 Common Stock Warrants)
(c)........................................................................ 50
Urohealth Systems, Inc., 144A -- Private Placement (4,750
Common Stock Warrants) (b) (c)........................................... 48
Wright Medical Technology, Inc. (4,118 Common Stock
Warrants) (c).............................................................. 27,588
Supermarkets General Holdings Corp. (151,101 Preferred
Shares, 3.52% coupon, $25 par per share) (c) (d)......................... 3,626,424
------------
TOTAL EQUITIES............................................................... 7,187,899
------------
TOTAL LONG-TERM INVESTMENTS 94.1%
(Cost $852,024,038)........................................................ 788,522,283
------------
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Market Value
- -------------------------------------------------------------------------------------------
<S> <C>
SHORT-TERM INVESTMENTS 4.5%
REPURCHASE AGREEMENTS 3.5%
BA Securities ($8,085,000 par collateralized by U.S.
Government Obligations in a pooled cash account dated
08/31/98, to be sold on 09/01/98 at $8,086,298)............................ $ 8,085,000
DLJ Mortgage Acceptance Corp. ($11,138,000 par
collateralized by U.S. Government Obligations in a pooled
cash account dated 08/31/98, to be sold on 09/01/98 at
$11,139,785)............................................................... 11,138,000
State Street Bank and Trust ($10,387,000 par
collateralized by U.S. Government Obligations in a pooled
cash account dated 08/31/98, to be sold on 09/01/98 at
$10,388,673)............................................................... 10,387,000
------------
TOTAL REPURCHASE AGREEMENTS.................................................. 29,610,000
------------
U.S. GOVERNMENT AGENCY OBLIGATION 1.0%
Federal Home Loan Mortgage Discount Note ($8,675,000 par,
yielding 5.70%, 09/01/98 maturity)........................................ 8,673,626
------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $38,283,626)........................................................ 38,283,626
------------
TOTAL INVESTMENTS 98.6%
(Cost $890,307,664)....................................................... 826,805,909
OTHER ASSETS IN EXCESS OF LIABILITIES 1.4%................................. 11,332,193
------------
NET ASSETS 100.0%........................................................... $838,138,102
============
</TABLE>
* Zero coupon bond
(a) Security is a "step-up" bond where the coupon increases or steps up at a
predetermined date.
(b) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may only be resold in
transactions exempt from registration which are normally transactions with
qualified institutional buyers.
(c) Non-income producing security.
(d) Payment-in-kind security.
See Notes to Financial Statements
18
<PAGE> 20
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $890,307,664)....................... $ 826,805,909
Cash........................................................ 4,767
Receivables:
Interest.................................................. 17,728,622
Fund Shares Sold.......................................... 2,933,761
Investments Sold.......................................... 347,383
Other....................................................... 53,497
--------------
Total Assets.......................................... 847,873,939
--------------
LIABILITIES:
Payables:
Fund Shares Repurchased................................... 4,810,241
Income Distributions...................................... 3,516,042
Distributor and Affiliates................................ 568,231
Investment Advisory Fee................................... 406,442
Accrued Expenses............................................ 271,300
Trustees' Deferred Compensation and Retirement Plans........ 163,581
--------------
Total Liabilities..................................... 9,735,837
--------------
NET ASSETS.................................................. $ 838,138,102
------------
NET ASSETS CONSIST OF:
Capital..................................................... $1,085,069,365
Accumulated Undistributed Net Investment Income............. 4,912,228
Net Unrealized Depreciation................................. (63,501,755)
Accumulated Net Realized Loss............................... (188,341,736)
--------------
NET ASSETS.................................................. $ 838,138,102
------------
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $499,303,437 and 82,387,098 shares of
beneficial interest issued and outstanding)............. $ 6.06
Maximum sales charge (4.75%* of offering price)......... .30
--------------
Maximum offering price to public........................ $ 6.36
------------
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $283,067,814 and 46,672,795 shares of
beneficial interest issued and outstanding)............. $ 6.06
------------
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $55,766,851 and 9,240,372 shares of
beneficial interest issued and outstanding)............. $ 6.04
------------
*On sales of $100,000 or more, the sales charge will be
reduced.
</TABLE>
See Notes to Financial Statements
19
<PAGE> 21
STATEMENT OF OPERATIONS
For the Year Ended August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 81,538,500
Dividends................................................... 1,491,187
Other....................................................... 1,578,163
------------
Total Income............................................ 84,607,850
------------
EXPENSES:
Investment Advisory Fee..................................... 4,358,630
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B, and C of $1,198,786, $2,504,486 and $447,637,
respectively)............................................. 4,150,909
Shareholder Services........................................ 1,376,301
Trustees' Fees and Expenses................................. 30,581
Legal....................................................... 25,793
Custody..................................................... 7,123
Other....................................................... 597,047
------------
Net Expenses............................................ 10,546,384
------------
NET INVESTMENT INCOME....................................... $ 74,061,466
============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................. $ 18,277,629
Futures................................................. (8,506)
------------
Net Realized Gain........................................... 18,269,123
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 26,232,513
End of the Period:
Investments............................................. (63,501,755)
------------
Net Unrealized Depreciation During the Period............... (89,734,268)
------------
NET REALIZED AND UNREALIZED LOSS............................ $(71,465,145)
============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 2,596,321
============
</TABLE>
See Notes to Financial Statements
20
<PAGE> 22
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended August 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
August 31, 1998 August 31, 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income...................................... $ 74,061,466 $ 57,118,179
Net Realized Gain.......................................... 18,269,123 10,679,453
Net Unrealized Appreciation/Depreciation During the
Period................................................... (89,734,268) 14,770,464
------------ ------------
Change in Net Assets from Operations....................... 2,596,321 82,568,096
------------ ------------
Distributions from Net Investment Income:
Class A Shares........................................... (49,213,216) (43,009,717)
Class B Shares........................................... (21,538,906) (13,729,638)
Class C Shares........................................... (3,848,005) (1,962,490)
------------ ------------
Total Distributions...................................... (74,600,127) (58,701,845)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES........ (72,003,806) 23,866,251
------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold.................................. 398,226,626 290,139,308
Net Asset Value of Shares Issued Through Dividend
Reinvestment............................................. 41,295,995 33,996,355
Cost of Shares Repurchased................................. (226,785,118) (204,011,022)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS......... 212,737,503 120,124,641
------------ ------------
TOTAL INCREASE IN NET ASSETS............................... 140,733,697 143,990,892
NET ASSETS:
Beginning of the Period.................................... 697,404,405 553,413,513
------------ ------------
End of the Period (Including accumulated undistributed net
investment income of $4,912,228 and $2,861,864,
respectively)............................................ $838,138,102 $697,404,405
============ ============
</TABLE>
See Notes to Financial Statements
21
<PAGE> 23
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended August 31,
------------------------------------------
Class A Shares 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.... $6.548 $6.298 $ 6.15 $ 6.12 $ 6.61
------ ------ ------ ------ ------
Net Investment Income..................... .614 .604 .607 .55 .63
Net Realized and Unrealized Gain/Loss..... (.479) .267 .139 .0515 (.47)
------ ------ ------ ------ ------
Total from Investment Operations............ .135 .871 .746 .6015 .16
Less Distributions from Net Investment
Income.................................... .623 .621 .598 .5715 .65
------ ------ ------ ------ ------
Net Asset Value, End of the Period.......... $6.060 $6.548 $6.298 $ 6.15 $ 6.12
====== ====== ====== ====== ======
Total Return (a)............................ 1.66% 14.44% 12.66% 10.48% 2.34%
Net Assets at End of the Period (In
millions)................................. $499.3 $468.6 $421.4 $411.9 $364.2
Ratio of Expenses to Average Net Assets
(b)....................................... 1.00% 1.08% 1.08% 1.12% 1.10%
Ratio of Net Investment Income to Average
Net Assets (b)............................ 9.33% 9.37% 9.65% 9.23% 9.03%
Portfolio Turnover.......................... 90% 75% 76% 49% 66%
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) For the years ended August 31, 1997 and 1996, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen
reimbursement of certain expenses was less than 0.01%.
See Notes to Financial Statements
22
<PAGE> 24
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 31,
-----------------------------------------
Class B Shares 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.... $6.558 $6.310 $ 6.16 $ 6.14 $6.63
------ ------ ------ ------ -----
Net Investment Income..................... .571 .559 .559 .51 .58
Net Realized and Unrealized Gain/Loss..... (.490) .262 .141 .0335 (.468)
------ ------ ------ ------ -----
Total from Investment Operations............ .081 .821 .700 .5435 .112
Less Distributions from Net Investment
Income.................................... .575 .573 .550 .5235 .602
------ ------ ------ ------ -----
Net Asset Value, End of the Period.......... $6.064 $6.558 $6.310 $ 6.16 $6.14
====== ====== ====== ====== =====
Total Return (a)............................ 0.77% 13.58% 11.78% 9.41% 1.59%
Net Assets at End of the Period (In
millions)................................. $283.1 $198.0 $114.6 $ 89.9 $71.0
Ratio of Expenses to Average Net Assets
(b)....................................... 1.79% 1.86% 1.87% 1.93% 1.90%
Ratio of Net Investment Income to Average
Net Assets (b)............................ 8.52% 8.60% 8.86% 8.42% 8.25%
Portfolio Turnover.......................... 90% 75% 76% 49% 66%
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) For the years ended August 31, 1997 and 1996, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen
reimbursement of certain expenses was less than 0.01%.
See Notes to Financial Statements
23
<PAGE> 25
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 31,
------------------------------------------
Class C Shares 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.... $6.528 $6.284 $ 6.14 $ 6.11 $ 6.61
------ ------ ------ ------ ------
Net Investment Income..................... .570 .561 .557 .51 .53
Net Realized and Unrealized Gain/Loss..... (.488) .256 .137 .0435 (.428)
------ ------ ------ ------ ------
Total from Investment Operations............ .082 .817 .694 .5535 .102
Less Distributions from Net Investment
Income.................................... .575 .573 .550 .5235 .602
------ ------ ------ ------ ------
Net Asset Value, End of the Period.......... $6.035 $6.528 $6.284 $ 6.14 $ 6.11
====== ====== ====== ====== ======
Total Return (a)............................ 0.93% 13.64% 11.66% 9.63% 1.43%
Net Assets at End of the Period (In
millions)................................. $ 55.8 $ 30.8 $ 17.5 $ 15.7 $ 13.2
Ratio of Expenses to Average Net Assets
(b)....................................... 1.79% 1.86% 1.87% 1.93% 1.91%
Ratio of Net Investment Income to Average
Net Assets (b)............................ 8.49% 8.57% 8.86% 8.42% 8.25%
Portfolio Turnover.......................... 90% 75% 76% 49% 66%
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) For the years ended August 31, 1997 and 1996, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen
reimbursement of certain expenses was less than 0.01%.
See Notes to Financial Statements
24
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS
August 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen 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 investment in high
yielding, high risk fixed-income securities. The Fund commenced 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
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION--Fixed income investments and preferred stock are stated
at value using market quotations or indications of value obtained from an
independent pricing service. Investments in securities listed on a securities
exchange are valued at the sale price as of the close of such securities
exchange. Unlisted securities and listed securities for which the last sales
price is not available are valued at the mean of the bid and asked prices. For
those securities where quotations or prices are not available as noted above,
valuations are determined in accordance with procedures established in good
faith by the Board of Trustees. Short-term securities with remaining maturities
of 60 days or less are valued at amortized cost.
Fund investments include lower-rated debt securities which may be more
susceptible 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. At August 31, 1998, approximately 18% of the Fund's
long-term investments were in non-U.S. issuers, of which the largest geographic
exposure was Canada with 6%.
25
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made. At August 31, 1998, there were no
when issued or delayed delivery purchase commitments.
The Fund may invest in repurchase agreements, which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen Asset Management Inc. (the "Adviser") or its
affiliates (collectively, "Van Kampen"), the daily aggregate of which is
invested in repurchase agreements. Repurchase agreements are fully
collateralized by the underlying debt security. The Fund will make payment for
such securities only upon physical delivery or evidence of book entry transfer
to the account of the custodian bank. The seller is required to maintain the
value of the underlying security at not less than the repurchase proceeds due
the Fund.
C. INCOME AND EXPENSES--Interest income is recorded on an accrual basis and
dividend income is recorded on the ex-dividend date. Original issue discounts on
debt securities purchased are amortized over the life of the respective
security. Premiums on debt securities are not amortized. Expenses of the Fund
are allocated on a pro rata basis to each class of shares, except for
distribution and service fees and transfer agency costs which are unique to each
class of shares.
D. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At August 31, 1998, the Fund had an accumulated capital loss carryforward
for tax purposes of $188,101,877 which
26
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
expires between August 31, 1999 and August 31, 2004. Of this amount,
$125,160,730 will expire in 1999. Net realized gains or losses may differ for
financial reporting and tax purposes primarily as a result of market discount
from bonds sold, paydown on securities and the deferral of losses for tax
purposes resulting from wash sales.
At August 31, 1998, for federal income tax purposes, cost of long- and
short-term investments is $890,547,523, the aggregate gross unrealized
appreciation is $10,033,087 and the aggregate gross unrealized depreciation is
$73,774,701, resulting in net unrealized depreciation of $63,741,614.
E. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed annually. Distributions from net realized gains for book purposes
may include short-term capital gains, which are included in ordinary income for
tax purposes.
Due to inherent differences in the recognition of income, expenses and
realized gains/losses under generally accepted accounting principles and federal
income tax purposes, permanent differences between financial and tax basis
reporting for the 1998 fiscal year have been identified and appropriately
reclassified. Permanent book and tax basis differences relating to the
expiration of a portion of the capital loss carryforward totaling $20,559,160
were reclassified from accumulated net realized gain/loss to capital. Permanent
book and tax basis differences relating to the recognition of net realized gains
on paydowns of mortgage pool obligations totaling $230,445 and recognition of
market discount on bonds totaling $2,358,580 were reclassified from accumulated
net realized gain/loss to accumulated undistributed net investment income.
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>
For the year ended August 31, 1998, the Fund recognized expenses of
approximately $25,800 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
27
<PAGE> 29
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
For the year ended August 31, 1998, the Fund recognized expenses of
approximately $202,000 representing Van Kampen's cost of providing accounting
services to the Fund.
Van Kampen Investor Services Inc. ("VKIS"), an affiliate of the Adviser,
serves as the shareholder servicing agent of the Fund. For the year ended August
31, 1998, the Fund recognized expenses of approximately $1,022,500. Beginning in
1998, the transfer agency fees are determined through negotiations with the
Fund's Board of Trustees and are based on competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
28
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of shares of beneficial interest, Classes
A, B and C, each with a par value of $.01 per share. There are an unlimited
number of shares of each class authorized.
At August 31, 1998, capital aggregated $743,728,332, $283,660,303 and
$57,680,730 for Class A, B and C shares, respectively. For the year ended August
31, 1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------------
<S> <C> <C>
Sales
Class A.................................. 28,314,218 $ 187,996,517
Class B.................................. 25,445,038 169,122,792
Class C.................................. 6,221,313 41,107,317
----------- -------------
Total Sales................................ 59,980,569 $ 398,226,626
=========== =============
Dividend Reinvestment:
Class A.................................. 4,382,061 $ 28,862,654
Class B.................................. 1,568,905 10,333,349
Class C.................................. 320,344 2,099,992
----------- -------------
Total Dividend Reinvestment................ 6,271,310 $ 41,295,995
=========== =============
Repurchases:
Class A.................................. (21,870,630) $(144,129,518)
Class B.................................. (10,532,646) (69,416,384)
Class C.................................. (2,018,608) (13,239,216)
----------- -------------
Total Repurchases.......................... (34,421,884) $(226,785,118)
=========== =============
</TABLE>
29
<PAGE> 31
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
At August 31, 1997, capital aggregated $683,246,374, $180,564,075 and
$29,080,573 for Class A, B and C shares, respectively. For the year ended August
31, 1997, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................. 25,421,874 $ 163,679,383
Class B.................................. 16,738,565 108,268,484
Class C.................................. 2,815,626 18,191,441
----------- -------------
Total Sales................................ 44,976,065 $ 290,139,308
----------- -------------
Dividend Reinvestment:
Class A.................................. 4,028,534 $ 25,967,824
Class B.................................. 1,069,455 6,908,909
Class C.................................. 174,005 1,119,622
----------- -------------
Total Dividend Reinvestment................ 5,271,994 $ 33,996,355
----------- -------------
Repurchases:
Class A.................................. (24,797,705) $(159,884,130)
Class B.................................. (5,774,518) (37,359,396)
Class C.................................. (1,052,510) (6,767,496)
----------- -------------
Total Repurchases.......................... (31,624,733) $(204,011,022)
----------- -------------
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B shares will
automatically convert to Class A shares after the eighth year following
purchase. The CDSC will be imposed on most redemptions made within five years of
the purchase for Class B and one year of the purchase for Class C as detailed in
the following schedule.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
YEAR OF REDEMPTION CLASS B CLASS C
- ----------------------------------------------------------------------------
<S> <C> <C>
First............................................ 4.00% 1.00%
Second........................................... 4.00% None
Third............................................ 3.00% None
Fourth........................................... 2.50% None
Fifth............................................ 1.50% None
Sixth and Thereafter............................. None None
</TABLE>
30
<PAGE> 32
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
For the year ended August 31, 1998, Van Kampen, as Distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately
$384,014 and CDSC on redeemed shares of approximately $723,583. Sales charges do
not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $897,982,138 and $684,571,221,
respectively.
5. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio or generate potential gain. All of the Fund's portfolio holdings,
including derivative instruments, are marked to market each day with the change
in value reflected in the unrealized appreciation/depreciation. Upon
disposition, a realized gain or loss is recognized accordingly, except when
taking delivery of a security underlying a futures contract. In this instance,
the recognition of gain or loss is postponed until the disposal of the security
underlying the futures contract.
During the period, the Fund invested in futures contracts, a type of
derivative. A futures contract is an agreement involving the delivery of a
particular asset on a specified future date at an agreed upon price. The Fund
generally invests in futures on U.S. Treasury Notes. These contracts are
generally used to manage the portfolio's effective maturity and duration.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, securities with a value equal to its obligation
under the futures contracts. During the period the futures contract is open,
payments are received from or made to the broker based upon changes in the value
of the contract (the variation margin).
31
<PAGE> 33
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
Transactions in futures contracts for the year ended August 31, 1998, were
as follows:
<TABLE>
<CAPTION>
CONTRACTS
- ----------------------------------------------------------------------
<S> <C>
Outstanding at August 31, 1997.............................. 0
Futures Opened.............................................. 40
Futures Closed.............................................. (40)
---
Outstanding at August 31, 1998.............................. 0
===
</TABLE>
6. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A average net assets and
1.00% each for Class B and Class C average net assets are accrued daily.
Included in these fees for the year ended August 31, 1998, are payments retained
by Van Kampen of approximately $2,100,700.
7. YEAR 2000 COMPLIANCE (UNAUDITED)
Van Kampen utilizes a number of computer programs across its entire operation
relying on both internal software systems as well as external software systems
provided by third parties. In 1996 Van Kampen initiated a CountDown 2000 Project
to review both the internal systems and external vendor connections. The goal of
this project is to position its business to continue unaffected as a result of
the century change. At this time, there can be no assurance that the steps taken
will be sufficient to avoid any adverse impact to the Fund, but Van Kampen does
not anticipate that the move to Year 2000 will have a material impact on its
ability to continue to provide the Fund with service at current levels. In
addition, it is possible that the securities markets in which the Fund invests
may be detrimentally affected by computer failures throughout the financial
services industry beginning January 1, 2000. Improperly functioning trading
systems may result in settlement problems and liquidity issues.
32
<PAGE> 34
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Van Kampen 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
material respects, the financial position of Van Kampen High Income Corporate
Bond Fund (the "Fund") at August 31, 1998, and 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 referred to as
"financial statements") are the responsibility of the Fund's management; 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 require 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 disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at August
31, 1998 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
October 2, 1998
33
<PAGE> 35
VAN KAMPEN FUNDS
EQUITY FUNDS
Domestic
Aggressive Equity
Aggressive Growth
American Value
Comstock
Emerging Growth
Enterprise
Equity Growth
Equity Income
Growth
Growth and Income
Harbor
Pace
Real Estate Securities
U.S. Real Estate
Utility
Value
International/Global
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
Global Franchise
Global Managed Assets
International Magnum
Latin American
FIXED-INCOME FUNDS
Income
Corporate Bond
Global Fixed Income
Global Government Securities
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
Short-Term Global Income
Strategic Income
U.S. Government
U.S. Government Trust for Income
Worldwide High Income
Tax Exempt Income
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal
Insured Tax Free Income
Intermediate Term Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
Capital Preservation
Reserve
Tax Free Money
Senior Loan
Prime Rate Income Trust
Senior Floating Rate
To find out more about any of these funds, ask your financial adviser for a
prospectus, which contains more complete information, including sales charges,
risks, and expenses. Please read it carefully before you invest or send money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- - visit our web site at
WWW.VANKAMPEN.COM -- to view a prospectus, select Download Prospectus
- - call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time
(Telecommunications Device for the Deaf users, call 1-800-421-2833)
- - e-mail us by visiting
WWW.VANKAMPEN.COM and selecting Contact Us
34
<PAGE> 36
VAN KAMPEN HIGH INCOME CORPORATE BOND FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
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*
PAUL R. WOLKENBERG*
Vice Presidents
TAX NOTICE TO CORPORATE SHAREHOLDERS
For the fiscal year ended August 31, 1998, 1.97% of the dividends taxable as
ordinary income qualified for the 70% dividends received deduction for
corporations.
For the calendar year ended December 31, 1997, 2.61% of the dividends taxable as
ordinary income qualified for the 70% dividends received deduction for
corporations.
INVESTMENT ADVISER
VAN KAMPEN
ASSET MANAGEMENT INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR
SERVICES INC.
P.O. Box 418256
Kansas City, Missouri 64141-9256
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
200 E. Randolph Drive
Chicago, IL 60601
* "Interested" persons of the Fund, as defined in the Investment Company Act of
1940.
(C) Van Kampen Funds Inc., 1998.
All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After December 31, 1998, the report, if used with
prospective investors, must be accompanied by a quarterly performance update.
35
<PAGE> 37
VAN KAMPEN HIGH INCOME CORPORATE BOND FUND
THIS PAGE INTENTIONALLY LEFT BLANK
36
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> HIGH INC. CORP END
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 890,307,664<F1>
<INVESTMENTS-AT-VALUE> 826,805,909<F1>
<RECEIVABLES> 21,009,766<F1>
<ASSETS-OTHER> 53,497<F1>
<OTHER-ITEMS-ASSETS> 4,767<F1>
<TOTAL-ASSETS> 847,873,939<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 9,735,837<F1>
<TOTAL-LIABILITIES> 9,735,837<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 743,728,332
<SHARES-COMMON-STOCK> 82,387,098
<SHARES-COMMON-PRIOR> 71,561,449
<ACCUMULATED-NII-CURRENT> 4,912,228<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (188,341,736)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (63,501,755)<F1>
<NET-ASSETS> 499,303,437
<DIVIDEND-INCOME> 1,491,187<F1>
<INTEREST-INCOME> 81,538,500<F1>
<OTHER-INCOME> 1,578,163<F1>
<EXPENSES-NET> (10,546,384)<F1>
<NET-INVESTMENT-INCOME> 74,061,466<F1>
<REALIZED-GAINS-CURRENT> 18,269,123<F1>
<APPREC-INCREASE-CURRENT> (89,734,268)<F1>
<NET-CHANGE-FROM-OPS> 2,596,321<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (49,213,216)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 28,314,218
<NUMBER-OF-SHARES-REDEEMED> (21,870,630)
<SHARES-REINVESTED> 4,382,061
<NET-CHANGE-IN-ASSETS> 30,696,819
<ACCUMULATED-NII-PRIOR> 2,861,864<F1>
<ACCUMULATED-GAINS-PRIOR> (224,580,994)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 4,358,630<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 10,546,384<F1>
<AVERAGE-NET-ASSETS> 524,672,723
<PER-SHARE-NAV-BEGIN> 6.548
<PER-SHARE-NII> 0.614
<PER-SHARE-GAIN-APPREC> (0.479)
<PER-SHARE-DIVIDEND> (0.623)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 6.060
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item related to the Fund on a composite
basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> HIGH INC. CORP END
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 890,307,664<F1>
<INVESTMENTS-AT-VALUE> 826,805,909<F1>
<RECEIVABLES> 21,009,766<F1>
<ASSETS-OTHER> 53,497<F1>
<OTHER-ITEMS-ASSETS> 4,767<F1>
<TOTAL-ASSETS> 847,873,939<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 9,735,837<F1>
<TOTAL-LIABILITIES> 9,735,837<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 283,660,303
<SHARES-COMMON-STOCK> 46,672,795
<SHARES-COMMON-PRIOR> 30,191,498
<ACCUMULATED-NII-CURRENT> 4,912,228<F1>
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<ACCUMULATED-NET-GAINS> (188,341,736)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
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<NET-ASSETS> 283,067,814
<DIVIDEND-INCOME> 1,491,187<F1>
<INTEREST-INCOME> 81,538,500<F1>
<OTHER-INCOME> 1,578,163<F1>
<EXPENSES-NET> (10,546,384)<F1>
<NET-INVESTMENT-INCOME> 74,061,466<F1>
<REALIZED-GAINS-CURRENT> 18,269,123<F1>
<APPREC-INCREASE-CURRENT> (89,734,268)<F1>
<NET-CHANGE-FROM-OPS> 2,596,321<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (21,538,906)
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<NUMBER-OF-SHARES-SOLD> 25,445,038
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<SHARES-REINVESTED> 1,568,905
<NET-CHANGE-IN-ASSETS> 85,066,530
<ACCUMULATED-NII-PRIOR> 2,861,864<F1>
<ACCUMULATED-GAINS-PRIOR> (224,580,994)<F1>
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<EXPENSE-RATIO> 1.79
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item related to the Fund on a composite
basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 13
<NAME> HIGH INC. CORP END
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> AUG-31-1998
<INVESTMENTS-AT-COST> 890,307,664<F1>
<INVESTMENTS-AT-VALUE> 826,805,909<F1>
<RECEIVABLES> 21,009,766<F1>
<ASSETS-OTHER> 53,497<F1>
<OTHER-ITEMS-ASSETS> 4,767<F1>
<TOTAL-ASSETS> 847,873,939<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
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<OTHER-ITEMS-LIABILITIES> 9,735,837<F1>
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<ACCUMULATED-NET-GAINS> (188,341,736)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (63,501,755)<F1>
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<DIVIDEND-INCOME> 1,491,187<F1>
<INTEREST-INCOME> 81,538,500<F1>
<OTHER-INCOME> 1,578,163<F1>
<EXPENSES-NET> (10,546,384)<F1>
<NET-INVESTMENT-INCOME> 74,061,466<F1>
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<APPREC-INCREASE-CURRENT> (89,734,268)<F1>
<NET-CHANGE-FROM-OPS> 2,596,321<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (3,848,005)
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<DISTRIBUTIONS-OTHER> 0
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<SHARES-REINVESTED> 320,344
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<ACCUMULATED-GAINS-PRIOR> (224,580,994)<F1>
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<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item related to the Fund on a composite
basis and not on a class basis
</FN>
</TABLE>
