<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 3
Glossary of Terms................................ 4
Portfolio Management Review...................... 5
Portfolio Highlights............................. 8
Portfolio of Investments......................... 9
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
</TABLE>
HYI SAR 4/99
<PAGE> 2
LETTER TO SHAREHOLDERS
March 19, 1999
Dear Shareholder,
The past decade has been a remarkable time for investors. Together we've
witnessed one of the greatest bull markets in investment history, unprecedented
growth in mutual fund investing, and a surge in personal retirement planning.
The coming millennium promises to hold even more opportunities.
To lead us into this new era of investing, Richard F. Powers III has joined
Van Kampen as Chairman and Chief Executive Officer. He comes to us from our
parent company, Morgan Stanley Dean Witter & Co., where he served as Executive
Vice President and Director of Marketing. He brings 27 years of experience in
the financial services industry, including an extensive background in product
management, strategic planning and brand development.
Although former Chairman Don G. Powell retired on January 1, he will remain
active in the industry and the community. Mr. Powell plans to continue his
service as a member of the board of directors of the Investment Company
Institute, the leading mutual fund industry association, and he will remain a
trustee of your fund.
ECONOMIC OVERVIEW
The U.S. economy continued to grow at a robust pace in 1998, despite
financial problems abroad. In the fourth quarter, the nation's gross domestic
product (GDP) rose at an astounding 6.1 percent annual rate, surprising most
economists, whose estimates had been much more conservative. Preliminary
indications suggest a strong first quarter of 1999 as well.
During the past six months, a series of interest rate cuts by the Federal
Reserve helped the U.S. economy avoid the economic slump plaguing many global
markets. In response to declining corporate profits and mounting international
concerns, the Fed lowered interest rates three times, with 0.25 percent cuts in
September, October, and November. These rate cuts, coupled with a wave of
corporate mergers and cost-cutting measures, lent the support needed to foster
continued growth. In addition, the outlook for troubled areas such as Asia and
Latin America improved significantly, and most experts agree that these
economies are on the slow road to recovery.
Despite the improvements abroad and record economic growth in the United
States, inflation remained at bay as commodity prices tumbled. This low
inflationary environment--only a 1.6 percent increase in the consumer price
index in 1998--contributed to the strong domestic economy and kept
inflation-adjusted interest rates attractive. A low level of unemployment,
vibrant consumer spending, and an active housing market also supported the
positive economic conditions.
Continued on page 2
1
<PAGE> 3
MARKET REVIEW
Most areas of the bond market were quite active during the past six months,
with U.S. Treasury bonds experiencing the greatest price appreciation. Intense
demand and decreasing supply pushed the 30-year Treasury bond to its lowest
yield ever in October 1998, at the height of a flight to quality that included
investors around the globe.
At the same time, investors shied away from lower-rated securities, causing
the prices of high-yield bonds to plummet. This lack of demand for lower-rated
bonds led to unusually high yields in the marketplace as investors required
significant premiums in exchange for purchasing these out-of-favor securities.
The difference in yields between U.S. Treasury bonds and high-yield bonds of
comparable maturity widened to as much as 7.79 percent in mid-October. The
high-yield market rebounded late in 1998 as investors saw that the economy was
performing well and that the global financial crisis was on its way to recovery.
Investment-grade corporate bond prices experienced similar, though less dramatic
movement during the period, and ended the six-month period at approximately the
same point at which they started.
OUTLOOK
Our outlook for the domestic economy remains positive, although growth may
lessen toward the second half of the year. We look for a slow but steady rise in
inflation throughout 1999 to more normal, but certainly not alarming levels.
Internationally, low interest rates and improving financial conditions should
continue to support the economic improvements we've witnessed in Asia and Latin
America.
We believe the domestic markets could still favor higher-quality securities
such as large-company stocks and investment-grade bonds in the near term. In
addition, we anticipate continued day-to-day volatility in the markets, although
we probably won't see sustained high or low periods during the next six months.
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 share with you the progress of your
investment.
Sincerely,
[SIG]
Richard F. Powers III
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 FEBRUARY 28, 1999
VAN KAMPEN 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).. 3.11% 2.87% 2.54%
Six-month total return(2)............... (1.75%) (1.04%) 1.57%
One-year average annual total
return(2)............................... (6.58%) (6.24%) (3.61%)
Five-year average annual total
return(2)............................... 6.41% 6.41% 6.57%
Ten-year average annual total
return(2)............................... 7.28% N/A N/A
Life-of-Fund average annual total
return(2)............................... 8.94% 8.52% 7.16%
Commencement date....................... 10/02/78 07/02/92 07/06/93
DISTRIBUTION RATE AND YIELD
Distribution rate(3).................... 9.91% 9.57% 9.63%
SEC Yield(4)............................ 10.39% 10.12% 10.21%
</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, 1999.
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.
Investing in high yield, lower-rated securities involves certain risks, which
may include the potential for greater sensitivity to general economic downturns
and greater market price volatility.
Foreign investments may magnify volatility due to changes in foreign exchange
rates, the political and economic uncertainties in foreign countries, and the
potential lack of liquidity, government supervision, and regulation.
Market forecasts provided in this report may not necessarily come to pass.
3
<PAGE> 5
GLOSSARY OF TERMS
BASIS POINT: A measure used in quoting bond yields. One hundred basis points is
equal to 1 percent. For example, if a bond's yield changes from 7.00 to 6.65
percent, it is a 35 basis-point move.
CALL FEATURE: Allows the issuer to buy back a bond on specific dates at set
prices before maturity. These dates and prices are set when the bond is
issued. To compensate the bondholder for the potential loss of income and
ownership, a bond's 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.
CYCLICAL INDUSTRIES: Industries where earnings tend to rise quickly when the
economy strengthens and fall quickly when the economy weakens. Examples of
cyclical industries include housing, automobiles, and paper. Noncyclical
industries are typically less sensitive to changes in the economy. These
include utilities, grocery stores, and pharmaceutical companies.
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 bond's duration, the greater the effect of interest rate
movements on net asset value. Typically, funds with shorter durations
perform better in rising rate environments, while funds with longer
durations perform better when rates decline.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank 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.
FLIGHT TO QUALITY: The flow of funds toward safer investments in times of
marketplace uncertainty or fear.
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.
INVESTMENT-GRADE BONDS: Securities rated BBB and above by Standard & Poor's or
Baa and above by Moody's Investor Services. Bonds rated below BBB or Baa are
noninvestment grade.
YIELD: The annual rate of return on an investment, expressed as a percentage.
YIELD SPREAD: The additional yield investors can earn by either investing in
bonds with longer maturities or by investing in bonds with lower ratings.
The spread is the difference in yield between bonds with short versus long
maturities or the difference in yield between high-quality bonds and
lower-quality bonds.
4
<PAGE> 6
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 six 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 six-month period ended February 28, 1999.
Q HOW WOULD YOU CHARACTERIZE THE MARKET CONDITIONS IN WHICH THE FUND
OPERATED DURING THE PAST SIX MONTHS?
A As economies in Asia, Russia, and Latin America struggled to recover from
weakness, investors continued to rush toward the relative safety of U.S.
Treasury securities. At year end, the yield for the benchmark 10-year
Treasury--which, like all bond yields, moves in the opposite direction of its
price--had fallen from 5.62 percent in September to a near-record low of 4.16
percent.
Against the din of global economic uncertainty and concerns about the pace
of the U.S. economy, the Federal Reserve Board provided the clearest voice and
direction for the fixed-income market during the reporting period. In the final
months of 1998, the Federal Reserve Board broke its nearly two-year hiatus to
usher in a series of three interest rate cuts. Although the first cut did little
to stabilize the markets, the cumulative effect of the Fed's actions soothed
investors' frayed nerves and settled the rocky 10-year Treasury.
This calm was somewhat short-lived, however. In the final week of February,
fixed-income investors anxiously turned their attention to the release of
year-end data indicating that the domestic economy showed no signs of slowing
down. In a message to Congress, Fed chairman Alan Greenspan alluded to the Fed's
willingness to increase rates if necessary--despite any significant indications
of inflation at this time. In response to his comments, the 10-year Treasury
yield bounced to 5.17 percent on the last day of the reporting period.
Q WHAT WAS THE EFFECT OF THIS ACTIVITY ON THE HIGH-YIELD MARKET?
A With the 10-year Treasury yield falling for much of the period, investors
demonstrated little appetite for high-yield securities, whose yields were
not attractive enough to offset investors' concerns about the risk
involved. As a result, there was very little new issuance during the final
months of 1998. However, in the first quarter of 1999, new supply slowly began
to catch up to earlier levels and was met with sufficient demand.
As was the case for much of 1998, the yield spread between high-yield
securities and Treasuries widened for most of the reporting period, indicating
that high-yield securities underperformed Treasuries during this time. Spreads
hit their widest point in October, but responded positively to the Fed cuts. As
the outlook for the high-yield market
5
<PAGE> 7
progressively improved in the months that followed, the yield spread at the end
of February was only six basis points wider to comparable U.S. Treasuries than
it had been in August.
Q HOW DID YOU MANAGE THE FUND IN LIGHT OF THESE CONDITIONS?
A We maintained the Fund's credit quality profile with a continued focus on
B-rated bonds, which comprised the majority of new issues purchased during
the period. We also maintained a low cash position in the portfolio
despite the influx of new assets into the Fund during the reporting period.
The portfolio's sector exposure was largely unchanged from six months ago,
driven by our desire to maintain the portfolio's defensive profile through
investments in noncyclical industries. In addition, media and cable companies
once again dominated new issuance, as has been the case for the past few years.
Correspondingly, the Fund's weighting in the consumer services sector, which
included several broadcasting companies, made up one of the largest sector
positions in the portfolio. This sector also includes gaming companies, which
continued to perform very well even during periods of volatility. For additional
fund portfolio highlights, please refer to page 8.
Q HOW DID THE FUND PERFORM DURING THE REPORTING PERIOD?
A The Fund posted a total return of 3.11 percent(1) (Class A shares at net
asset value) for the six-month period ended February 28, 1999. By
comparison, the Credit Suisse First Boston High Yield Index returned 3.48
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 or
sales charges that would be paid by an investor purchasing the securities it
represents. Past performance does not guarantee future results. Please refer to
the chart on page 3 for additional Fund performance results.
Q WHAT IS YOUR OUTLOOK FOR THE MARKET OVER THE COMING MONTHS?
A Although investors have expected an economic slowdown in the United States
for some time, we do not see signs that this might materialize in the near
future. We also continue to see low inflation numbers, backed by
indications of a taut job market and high consumer confidence. With continuing
difficulties in many foreign economies, we cannot rule out the possibility that,
at some point, GDP growth could lag. At the same time, the fundamentals
currently underpinning the U.S. bond market are as healthy as at any time in
recent memory, and we expect the market to remain strong in the months ahead.
Although the high-yield market has traditionally been boosted by positive
first-quarter fundamentals--such as strong issuance, increased demand for higher
risk investments, and elevated asset flows--it remains to be seen if the
mediocre start to 1999 will set the
6
<PAGE> 8
tone for the market through the remainder of the year. We are prepared to take
advantage of opportunities as they occur, but will also look for ways to help
protect the portfolio against rough spots in the market by holding some
securities with defensive properties.
[SIG.]
Ellis S. Bigelow
Portfolio Manager
[SIG.]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
Please see footnotes on page 3
7
<PAGE> 9
PORTFOLIO HIGHLIGHTS
VAN KAMPEN HIGH INCOME CORPORATE BOND FUND
TOP TEN ISSUERS AS OF FEBRUARY 28, 1999
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
LONG-TERM INVESTMENTS
<S> <C>
Atlas Air, Inc. ............... 1.9%
Metronet Communications
Corp. ....................... 1.8%
Price Communications
Wireless .................... 1.6%
Hollywood Casino, Inc. ........ 1.3%
Argosy Gaming Co. ............. 1.3%
Diamond Cable Co. (United
Kingdom) .................... 1.3%
Majestic Star Casino L.L.C. ... 1.2%
Rural Cellular Corp. .......... 1.2%
E Spire Communications, Inc. .. 1.2%
Americredit Corp. ............. 1.2%
</TABLE>
CREDIT QUALITY AS A PERCENTAGE OF CORPORATE OBLIGATIONS
Pie Chart
<TABLE>
<CAPTION>
A BBB BB B CCC CC
- - --- -- - --- --
<S> <C> <C> <C> <C> <C>
0.5% 0.8% 9.3% 75.0% 7.0% 0.2%
NH
--
7.20
</TABLE>
Pie Chart
<TABLE>
<S> <C> <C> <C> <C>
BBB BB B CCC Non-Rated
0.5% 10.8% 77.3% 4.0% 7.4%
</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 FEBRUARY 28, 1999
<S> <C>
Utilities................. 24.6%
Consumer Services......... 24.1%
Consumer Distribution..... 10.1%
Raw Materials/Processing
Industries.............. 8.3%
Producer Manufacturing.... 7.0%
</TABLE>
<TABLE>
<CAPTION>
AS OF AUGUST 31, 1998
<S> <C>
Consumer Services......... 22.1%
Utilities................. 20.1%
Raw Materials/Processing
Industries.............. 15.4%
Producer Manufacturing.... 8.7%
Consumer Distribution..... 6.6%
</TABLE>
DURATION
<TABLE>
<CAPTION>
AS OF FEBRUARY 28, 1999 AS OF AUGUST 31, 1998
<S> <C>
3.9 years 4.2 years
</TABLE>
8
<PAGE> 10
PORTFOLIO OF INVESTMENTS
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE DEBT OBLIGATIONS 90.5%
CONSUMER DISTRIBUTION 8.9%
$ 6,500 Agrilink Foods, Inc., 144A -
Private Placement (b)................ 11.875% 11/01/08 $ 6,979,375
4,250 Big 5 Corp........................... 10.875 11/15/07 4,313,750
9,000 CHS Electronics, Inc................. 9.875 04/15/05 8,190,000
3,200 Community Distributors, Inc.......... 10.250 10/15/04 2,944,000
12,700 Del Monte Foods Co., Ser B, 144A -
Private Placement (a) (b)............ 0/12.500 12/15/07 9,207,500
2,750 Disco SA (Argentina)................. 9.125 05/15/03 2,378,750
2,750 Disco SA (Argentina)................. 9.875 05/15/08 2,275,625
4,000 Duane Reade, Inc..................... 9.250 02/15/08 4,160,000
2,500 Group Maintenance America Corp., 144A
-Private Placement (b)............... 9.750 01/15/09 2,562,500
2,000 Gruma SA (Mexico).................... 7.625 10/15/07 1,745,000
3,200 Iron Age Corp........................ 9.875 05/01/08 2,496,000
4,000 King Pharmaceuticals, Inc., 144A -
Private Placement (b)................ 10.750 02/15/09 4,000,000
4,000 Luiginos, Inc., 144A - Private
Placement (b)........................ 10.000 02/01/06 4,010,000
9,000 Musicland Group, Inc................. 9.875 03/15/08 9,270,000
7,250 Pantry, Inc.......................... 10.250 10/15/07 7,576,250
3,735 Pathmark Stores, Inc................. 12.625 06/15/02 3,697,650
6,000 Pathmark Stores, Inc. (a)............ 0/10.750 11/01/03 5,190,000
1,750 Phar Mor, Inc........................ 11.720 09/11/02 1,798,125
-----------
82,794,525
-----------
CONSUMER DURABLES 4.9%
8,900 Aetna Industries, Inc................ 11.875 10/01/06 9,389,500
1,500 Hayes Wheels International, Inc., Ser
B.................................... 9.125 07/15/07 1,586,250
8,500 MCII Holdings USA, Inc.
(Mexico) (a)......................... 0/12.000 11/15/02 7,225,000
6,000 Oxford Automotive, Inc., Ser C, 144A
-Private Placement (b)............... 10.125 06/15/07 6,240,000
6,430 Talon Automotive Group, Inc., Ser
B.................................... 9.625 05/01/08 5,787,000
6,168 Venture Holdings, Inc................ 9.750 04/01/04 6,168,000
2,995 Venture Holdings, Inc................ 9.500 07/01/05 3,009,975
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS (CONTINUED)
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CONSUMER DURABLES (CONTINUED)
$ 2,700 Webb (Del E.) Corp................... 9.375% 05/01/09 $ 2,578,500
3,600 Webb (Del E.) Corp................... 10.250 02/15/10 3,582,000
-----------
45,566,225
-----------
CONSUMER NON-DURABLES 3.9%
6,000 Cluett American Corp., Ser B......... 10.125 05/15/08 5,715,000
3,500 CMI Industries, Inc.................. 9.500 10/01/03 3,465,000
8,900 Consoltex Group, Inc. (Canada)....... 11.000 10/01/03 9,078,000
3,000 Decora Industries, Inc............... 11.000 05/01/05 2,895,000
4,250 Delta Mills Insurance, Ser B......... 9.625 09/01/07 4,303,125
1,800 French Fragrances, Inc., Ser B....... 10.375 05/15/07 1,809,000
5,000 French Fragrances, Inc., Ser D....... 10.375 05/15/07 5,025,000
4,750 Globe Manufacturing Corp., 144A -
Private Placement (b)................ 10.000 08/01/08 3,990,000
-----------
36,280,125
-----------
CONSUMER SERVICES 22.3%
7,200 Amazon.Com, Inc. (a)................. 0/10.000 05/01/08 4,644,000
3,343 American Media Operations, Inc....... 11.625 11/15/04 3,585,367
10,050 Americredit Corp..................... 9.250 02/01/04 9,949,500
1,425 Argosy Gaming Co..................... 12.000 06/01/01 1,453,500
8,300 Argosy Gaming Co..................... 13.250 06/01/04 9,358,250
9,750 Booth Creek Ski Holdings, Inc. Ser
B.................................... 12.500 03/15/07 9,360,000
10,020 Capstar Broadcasting Partners (a).... 0/12.750 02/01/09 8,517,000
4,610 Casino America, Inc.................. 12.500 08/01/03 5,180,487
6,900 Casino Magic Louisiana Corp., Ser
B.................................... 13.000 08/15/03 7,952,250
5,500 Citadel Broadcasting Co., Ser B...... 10.250 07/01/07 6,063,750
2,500 Citadel Broadcasting Co., 144A -
Private Placement (b)................ 9.250 11/15/08 2,662,500
9,015 Diamond Cable Co. (United
Kingdom) (a)......................... 0/13.250 09/30/04 9,195,300
1,750 Diamond Cable Co. (United
Kingdom) (a)......................... 0/11.750 12/15/05 1,540,000
2,250 FrontierVision Holdings L.P. (a)..... 0/11.875 09/15/07 1,957,500
7,375 FrontierVision Holdings L.P., 144A -
Private Placement (a) (b)............ 0/11.875 09/15/07 6,416,250
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CONSUMER SERVICES (CONTINUED)
$ 4,000 Globo Communicacoes Participation,
144A - Private Placement
(Brazil) (b)......................... 10.625% 12/05/08 $ 2,220,000
3,500 Gray Communications Systems, Inc..... 10.625 10/01/06 3,718,750
6,500 Grupo Televisa Corp. (Mexico)........ * 05/15/08 5,005,000
2,000 Grupo Televisa Corp., Ser B
(Mexico)............................. 11.875 05/15/06 1,990,000
5,796 Helicon Group L.P.................... 11.000 11/01/03 6,107,535
10,100 Hollywood Casino, Inc................ 12.750 11/01/03 10,908,000
4,000 Hollywood Park, Inc., Ser B.......... 9.500 08/01/07 4,040,000
3,500 Hollywood Theaters, Inc. (c)......... 10.625 08/01/07 1,470,000
6,750 Horseshoe Gaming LLC, Ser B.......... 12.750 09/30/00 7,155,000
7,000 IHF Holdings, Inc., Ser B (a)........ 0/15.000 11/15/04 980,000
5,500 International Cabletel, Inc. (a)..... 0/11.500 02/01/06 4,757,500
4,500 Louisiana Petite Academy, Inc., Ser
B.................................... 10.000 05/15/08 4,398,750
9,750 Majestic Star Casino LLC............. 12.750 05/15/03 10,651,875
2,000 Marcus Cable Co. L.P. (a)............ 0/13.500 08/01/04 2,050,000
4,780 Marcus Cable Co. L.P. (a)............ 0/14.250 12/15/05 4,780,000
7,500 Multicanal Participacoes, Ser B
(Brazil)............................. 12.625 06/18/04 5,625,000
6,050 Northland Cable Television, Inc...... 10.250 11/15/07 6,413,000
3,000 Park N View, Inc., Ser B............. 13.000 05/15/08 2,280,000
7,400 Premier Parks, Inc. (a).............. 0/10.000 04/01/08 5,143,000
7,000 Radio Unica Corp. (a)................ 0/11.750 08/01/06 3,850,000
1,960 SFX Broadcasting, Inc................ 10.750 05/15/06 2,165,800
1,350 Sinclairbroadcast Group, Inc......... 8.750 12/15/07 1,368,563
7,000 Splitrock Services, Inc., Ser B...... 11.750 07/15/08 6,405,000
4,000 Telewest PLC (United Kingdom) (a).... 0/11.000 10/01/07 3,500,000
5,000 UIH Australia/Pacific, Inc., Ser
B (a)................................ 0/14.000 05/15/06 2,950,000
8,500 United International Holdings,
Inc. (a)............................. 0/10.750 02/15/08 5,652,500
6,250 Young America Corp., Ser B........... 11.625 02/15/06 3,062,500
-----------
206,483,427
-----------
ENERGY 3.5%
1,000 Canadian Forest Oil Ltd.............. 8.750 09/15/07 890,000
3,000 Gulf Canada Resources Ltd............ 9.000 08/15/99 3,045,000
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ENERGY (CONTINUED)
$ 8,500 Hurricane Hydrocarbons Ltd., 144A -
Private Placements (Canada) (b)...... 11.750% 11/01/04 $ 4,165,000
5,750 Hydrochem Industrial Services, Inc.,
Ser B................................ 10.375 08/01/07 5,060,000
5,500 KCS Energy, Inc. .................... 11.000 01/15/03 3,960,000
5,236 Kelley Oil & Gas Partners Ltd........ 7.875 12/15/99 2,618,000
2,300 Pacalta Resources Ltd., Ser B
(Canada)............................. 10.750 06/15/04 1,966,500
1,606 Petroleum Heat & Power, Inc. ........ 12.250 02/01/05 1,557,820
5,000 Pride Petroleum Services, Inc. ...... 9.375 05/01/07 4,650,000
6,000 Universal Compression, Inc. (a)...... 0/9.875 02/15/08 3,720,000
1,000 Universal Compression, Inc. (a)...... 0/11.375 02/15/09 590,000
-----------
32,222,320
-----------
FINANCE 1.6%
4,750 Americo Life, Inc. .................. 9.250 06/01/05 4,868,750
6,000 Chatwins Group, Inc.................. 13.000 05/01/03 6,030,000
3,000 Contifinancial Corp. ................ 7.500 03/15/02 1,950,000
2,250 Superior National Capital Trust 1.... 10.750 12/01/17 2,261,250
-----------
15,110,000
-----------
HEALTHCARE 2.8%
4,000 Alliance Imaging, Inc. .............. 9.625 12/15/05 3,920,000
3,900 Boivail Corp., 144A - Private
Placement............................ 10.875 11/15/05 3,978,000
9,000 Mariner Post Acute Network, Inc.
(a).................................. 0/10.500 11/01/07 2,700,000
2,380 Maxxim Medical, Inc., 144A -
Private Placement (b)................ 10.500 08/01/06 2,546,600
3,000 Mediq, Inc. ......................... 11.000 06/01/08 2,730,000
1,490 Owens & Minor, Inc................... 10.875 06/01/06 1,635,275
8,265 Oxford Health Plans, Inc., 144A -
Private Placement (b)................ 11.000 05/15/05 8,306,325
1,150 Vencor Operating, Inc. .............. 9.875 05/01/05 511,750
-----------
26,327,950
-----------
PRODUCER MANUFACTURING 6.3%
9,750 Carpenter W R North America, Inc. ... 10.625 06/15/07 9,798,750
3,500 Communications Instrument, Inc. ..... 10.000 09/15/04 3,386,250
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PRODUCER MANUFACTURING (CONTINUED)
$ 3,355 Compass Aerospace Corp., 144A -
Private Placement (b)................ 10.125% 04/15/05 $ 3,204,025
4,500 Eagle-Picher Industries, Inc. ....... 9.375 03/01/08 4,365,000
5,500 Filtronic PLC, 144A - Private
Placement (b)........................ 10.000 12/01/05 5,692,500
4,950 GS Technologies Operating, Inc. ..... 12.000 09/01/04 3,217,500
8,000 IMO Industries, Inc. ................ 11.750 05/01/06 8,200,000
2,500 Integrated Electric Services, Inc.,
144A - Private Placement (b)......... 9.375 02/01/09 2,562,500
1,750 Interlake Corp. ..................... 12.000 11/15/01 1,872,500
7,050 Interlake Corp. ..................... 12.125 03/01/02 7,155,750
2,000 Numatics, Inc. ...................... 9.625 04/01/08 1,850,000
3,000 Terex Corp. ......................... 8.875 04/01/08 3,015,000
6,750 Waxman Industries, Inc., Ser B (a)... 0/12.750 06/01/04 3,780,000
-----------
58,099,775
-----------
RAW MATERIALS/PROCESSING
INDUSTRIES 7.7%
2,175 Acetex Corp. (Canada)................ 9.750 10/01/03 2,175,000
7,250 AEP Industries, Inc. ................ 9.875 11/15/07 7,304,375
6,000 Anchor Lamina, Inc. (Canada)......... 9.875 02/01/08 5,670,000
4,540 Aracruz Celulose SA, 144A - Private
Placement (Brazil) (b)............... 10.375 01/31/02 3,949,800
4,500 Doe Run Resources Corp., Ser B....... 11.250 03/15/05 3,915,000
1,000 Galey & Lord, Inc. .................. 9.125 03/01/08 755,000
6,000 Outsourcing Services Group, 144A -
Private Placement (b)................ 10.875 03/01/06 5,820,000
5,054 Pioneer Americas Acquisition
Corp. ............................... 9.250 06/15/07 3,815,770
10,025 Printpack, Inc. ..................... 10.625 08/15/06 9,523,750
3,250 Radnor Holdings, Inc., Ser B......... 10.000 12/01/03 3,363,750
5,000 Renco Steel Holdings, Inc. .......... 10.875 02/01/05 4,300,000
5,250 Scovill Fasteners, Inc. ............. 11.250 11/30/07 3,990,000
4,000 Tekni-Plex, Inc., Ser B.............. 11.250 04/01/07 4,420,000
2,750 Viacap SA (Mexico)................... 10.250 05/15/02 2,571,250
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS (CONTINUED)
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
RAW MATERIALS/PROCESSING INDUSTRIES
(CONTINUED)
$ 6,250 Viacap SA (Mexico)................... 11.375% 05/15/07 $ 5,593,750
4,550 WHX Corp............................. 10.500 04/15/05 4,322,500
-----------
71,489,945
-----------
TECHNOLOGY 1.4%
5,500 Advanced Micro Devices, Inc.......... 11.000 08/01/03 5,843,750
6,000 DecisionOne Holdings Corp............ 9.750 08/01/07 1,080,000
3,000 DecisionOne Holdings Corp. (a)....... 0/11.500 08/01/08 120,000
8,050 Dictaphone Corp...................... 11.750 08/01/05 5,876,500
-----------
12,920,250
-----------
TRANSPORTATION 5.1%
4,000 American Commercial Lines LLC........ 10.250 06/30/08 4,140,000
7,500 Atlas Air, Inc....................... 10.750 08/01/05 7,912,500
1,800 Atlas Air, Inc....................... 9.250 04/15/08 1,813,500
6,750 Atlas Air, Inc., 144A - Private
Placement (b)........................ 9.375 11/15/06 6,885,000
2,700 Cenargo International PLC............ 9.750 06/15/08 2,470,500
7,250 Greyhound Lines, Inc................. 11.500 04/15/07 8,337,500
5,950 MRS Logistica SA, Ser B, 144A -
Private Placement (Brazil) (b)....... 10.625 08/15/05 2,499,000
6,250 Pegasus Shipping Hellas Ltd., Ser
A.................................... 11.875 11/15/04 4,500,000
2,750 Sea Containers Ltd., Ser B
(Bermuda)............................ 12.500 12/01/04 3,018,125
4,500 Stena AB (Sweden).................... 10.500 12/15/05 4,590,000
1,800 Transport World Airlines, Inc........ 11.500 12/15/04 1,395,000
-----------
47,561,125
-----------
UTILITIES 22.1%
5,500 American Cellular Corp., 144A -
Private Placement (b)................ 10.500 05/15/08 5,733,750
6,250 Cathay International Ltd., 144A -
Private Placement (Japan) (b)........ 13.000 04/15/08 1,718,750
3,500 Centennial Cellular Operating Co.,
144A - Private Placement (b)......... 10.750 12/15/08 3,753,750
6,000 Clearnet Communications, Inc.
(Canada) (a)......................... 0/14.750 12/15/05 5,400,000
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
PORTFOLIO OF INVESTMENTS (CONTINUED)
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
UTILITIES (CONTINUED)
$ 6,000 Compania De Transporte Energia, 144A
-Private Placement (Argentina) (b)... 9.250% 04/01/08 $ 5,130,000
4,950 Crown Castle International
Corp. (a)............................ 0/10.625 11/15/07 3,588,750
6,000 CTI Holdings SA (a).................. 0/11.500 04/15/08 2,730,000
6,500 E Spire Communications, Inc. (a)..... 0/12.750 04/01/06 3,997,500
9,500 E Spire Communications, Inc. (a)..... 0/13.000 11/01/05 6,222,500
568 GST Telecommunications, Inc., 144A -
Private Placement (Canada) (a) (b)... 0/13.875 12/15/05 408,960
2,550 ICG Holdings, Inc. (a)............... 0/13.500 09/15/05 2,205,750
9,100 Intermedia Communications of
Florida, Inc. (a) (b)................ 0/12.500 05/15/06 7,325,500
7,000 IXC Communications, Inc.............. 9.000 04/15/08 7,385,000
7,000 KMC Telecommunications Holdings,
Inc. (a)............................. 0/12.500 02/15/08 3,710,000
4,000 Level 3 Communications, Inc.......... 9.125 05/01/08 3,900,000
2,000 Level 3 Communications, Inc., 144A -
Private Placement (b)................ * 12/01/08 1,150,000
5,750 McLeodusa, Inc. (a).................. 0/10.500 03/01/07 4,542,500
2,300 Metromedia Fiber Network, Inc., 144A
- Private Placement (b).............. 10.000 11/15/08 2,409,250
9,250 Metronet Communications Corp.
(Canada)............................. 12.000 08/15/07 10,545,000
1,500 Metronet Communications Corp.
(Canada) (a)......................... 0/10.750 11/01/07 1,102,500
5,000 Metronet Communications Corp.
(Canada) (a)......................... 0/9.950 06/15/08 3,425,000
9,510 Microcell Telecommunications, Ser
B (a)................................ 0/14.000 06/01/06 7,608,000
9,000 Millicom International Cellular SA
(Luxemburg) (a)...................... 0/13.500 06/01/06 6,615,000
9,250 Netia Holdings, Inc., Ser B
(Netherlands) (a).................... 0/11.250 11/01/07 5,920,000
3,750 Nextel Communications, Inc. ......... 9.750 08/15/04 3,796,875
3,750 Nextel Communications, Inc. (a)...... 0/10.650 09/15/07 2,568,750
1,000 Nextel Communications, Inc., 144A -
Private Placement (b)................ 12.000 11/01/08 1,120,000
4,500 NTL, Inc. (a)........................ 0/9.750 04/01/08 3,105,000
1,150 Optel, Inc........................... 11.500 07/01/08 1,115,500
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
PORTFOLIO OF INVESTMENTS (CONTINUED)
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
UTILITIES (CONTINUED)
$ 5,125 Optel, Inc., Ser B, 144A -
Private Placement (b)................ 13.000% 02/15/05 $ 5,150,625
10,450 Pinnacle Holdings, Inc. (a).......... 0/10.000 03/15/08 6,531,250
4,387 Price Communication Cellular......... 11.250 08/15/08 4,167,650
4,450 Price Communications Wireless........ 11.750 07/15/07 4,917,250
4,500 Price Communications Wireless, 144A -
Private Placement (b)................ 9.125 12/15/06 4,747,500
6,400 Primus Telecommunications Group,
Inc. ................................ 11.750 08/01/04 6,560,000
1,750 Primus Telecommunications Group,
Inc., 144A - Private Placement (b)... 11.250 01/15/09 1,776,250
7,550 Psinet, Inc., 144A - Private
Placement (b)........................ 11.500 11/01/08 8,456,000
3,750 Rural Cellular Corp.................. 9.625 05/15/08 3,923,438
9,000 Satelites Mexicanos SA (Mexico)...... 10.125 11/01/04 7,155,000
10,250 SBA Communications Corp. (a)......... 0/12.000 03/01/08 6,406,250
5,000 Sprint Spectrum (a).................. 0/12.500 08/15/06 4,562,500
8,100 Startec Global Communications........ 12.000 05/15/08 7,290,000
1,500 Transtel, 144A - Private Placement
(Columbia) (b)....................... 12.500 11/01/07 630,000
7,700 Triton Communications, LLC (a)....... 0/11.000 05/01/08 4,292,750
6,740 Verio, Inc........................... 10.375 04/01/05 6,992,750
2,300 Verio, Inc., 144A - Private
Placement (b)........................ 11.250 12/01/08 2,495,500
-----------
204,288,298
-----------
TOTAL CORPORATE DEBT OBLIGATIONS 90.5%..................... 839,143,965
-----------
FOREIGN GOVERNMENT OBLIGATIONS 0.7%
2,000 Republic of Argentina (Argentina).... 11.375 01/30/17 1,820,000
4,000 United Mexican States Debt
(Mexico)............................. 11.500 05/15/26 4,205,000
-----------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS....................... 6,025,000
-----------
</TABLE>
<TABLE>
<S> <C>
EQUITIES 1.5%
American Telecasting, Inc. (1,750 Common Stock Warrants)
(c)....................................................... 1,750
Dairy Mart Convenience Stores (14,998 Common Stock
Warrants) (c)............................................. 5,249
Day International Group, Inc. (1,640 Preferred Shares,
12.25% coupon, $1,000 par per share) (c) (d).............. 1,517,000
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
PORTFOLIO OF INVESTMENTS (CONTINUED)
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Market Value
- --------------------------------------------------------------------------
<S> <C>
EQUITIES (CONTINUED)
Kelley Oil & Gas Corp. (50,000 Preferred Shares, 2.625%
coupon, $25 par per share) (c)............................ $ 187,500
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).......... 323,750
NTL, Inc., 144A - Private Placement (6,889 Common Stock
Warrants) (b) (c)......................................... 86,112
Optel Inc. (3,275 Common Shares).......................... 11,462
Park N View, Inc., 144A - Private Placement (3,000 Common
Stock Warrants) (b) (c)................................... 108,000
Petroleum Heat & Power, Inc. (9,331 Junior Convertible
Preferred Shares, convertible into 1,219 Star Gas Common
Units or 9,331 Petroleum Heat & Power Class A Common
Shares) (c)............................................... 9,798
Primus Telecommunications Group (2,000 Common Stock
Warrants) (c)............................................. 30,000
Rural Cellular Corp. (6,663 Preferred Shares, 11.375%
coupon, $1,000 par per share) (c) (d)..................... 6,563,055
Signature Brands, Inc. (4,000 Common Stock
Warrants) (c)............................................. 87,600
Splitrock Services, Inc., 144A - Private Placement (7,000
Common Stock Warrants) (b) (c)............................ 1,050
Startec Global Communications (8,100 Common Stock
Warrants) (c)............................................. 2,025
Supermarkets General Holdings Corp. (151,101 Preferred
Shares, 3.52% coupon, $25 par per share) (c) (d).......... 4,079,727
Terex Corp. (28,000 Common Stock Rights) (c).............. 504,000
Total Renal Care Holdings, Inc. (6,000 Common
Shares) (c)............................................... 88,750
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)............................................. 412
------------
TOTAL EQUITIES 1.5%........................................ 13,607,345
------------
TOTAL LONG-TERM INVESTMENTS 92.7%
(Cost $925,096,847)....................................... 858,776,310
------------
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
PORTFOLIO OF INVESTMENTS (CONTINUED)
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Market Value
- --------------------------------------------------------------------------
<S> <C>
SHORT-TERM INVESTMENTS 5.6%
REPURCHASE AGREEMENT 2.5%
Warburg Dillon Read ($22,781,000 par collateralized by
U.S. Government obligations in a pooled cash account,
dated 02/26/99, to be sold on 03/01/99 at $22,789,998).... $ 22,781,000
U.S. GOVERNMENT AGENCY OBLIGATION 3.1%
Federal Home Loan Bank Discount Note ($28,724,000 par,
yielding 4.68%, 03/01/99 maturity)........................ 28,712,798
------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $51,493,798)........................................ 51,493,798
------------
TOTAL INVESTMENTS 98.3%
(Cost $976,590,645)....................................... 910,270,108
OTHER ASSETS IN EXCESS OF LIABILITIES 1.7%................. 16,038,285
------------
NET ASSETS 100.0%.......................................... $926,308,393
============
</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
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $976,590,645)....................... $ 910,270,108
Cash........................................................ 13,201
Receivables:
Interest.................................................. 19,632,975
Investments Sold.......................................... 10,220,206
Fund Shares Sold.......................................... 4,830,344
Other....................................................... 48,890
--------------
Total Assets.......................................... 945,015,724
--------------
LIABILITIES:
Payables:
Investments Purchased..................................... 10,053,654
Income Distributions...................................... 3,942,690
Fund Shares Repurchased................................... 3,381,495
Distributor and Affiliates................................ 620,061
Investment Advisory Fee................................... 375,788
Trustees' Deferred Compensation and Retirement Plans........ 170,148
Accrued Expenses............................................ 163,495
--------------
Total Liabilities..................................... 18,707,331
--------------
NET ASSETS.................................................. $ 926,308,393
==============
NET ASSETS CONSIST OF:
Capital..................................................... $1,193,984,105
Accumulated Undistributed Net Investment Income............. 1,025,183
Net Unrealized Depreciation................................. (66,320,537)
Accumulated Net Realized Loss............................... (202,380,358)
--------------
NET ASSETS.................................................. $ 926,308,393
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $539,712,572 and 91,320,756 shares of
beneficial interest issued and outstanding)............. $ 5.91
Maximum sales charge (4.75%* of offering price)......... .29
--------------
Maximum offering price to public........................ $ 6.20
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $319,511,059 and 54,007,560 shares of
beneficial interest issued and outstanding)............. $ 5.92
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $67,084,762 and 11,400,294 shares of
beneficial interest issued and outstanding)............. $ 5.88
==============
*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 Six Months Ended February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 49,171,151
Dividends................................................... 472,659
Other....................................................... 870,899
------------
Total Income............................................ 50,514,709
------------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B, and C of $572,650, $1,485,714 and $291,208,
respectively)............................................. 2,349,572
Investment Advisory Fee..................................... 2,306,846
Shareholder Services........................................ 883,048
Custody..................................................... 24,470
Legal....................................................... 14,860
Trustees' Fees and Expenses................................. 10,343
Other....................................................... 247,417
------------
Net Expenses............................................ 5,836,556
------------
NET INVESTMENT INCOME....................................... $ 44,678,153
============
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Loss........................................... $(14,038,622)
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (63,501,755)
End of the Period:
Investments............................................. (66,320,537)
------------
Net Unrealized Depreciation During the Period............... (2,818,782)
------------
NET REALIZED AND UNREALIZED LOSS............................ $(16,857,404)
============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 27,820,749
============
</TABLE>
See Notes to Financial Statements
20
<PAGE> 22
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended February 28, 1999 and
the Year Ended August 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
February 28, 1999 August 31, 1998
- --------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................ $ 44,678,153 $ 74,061,466
Net Realized Gain/Loss........................... (14,038,622) 18,269,123
Net Unrealized Depreciation During the Period.... (2,818,782) (89,734,268)
------------- ------------
Change in Net Assets from Operations............. 27,820,749 2,596,321
------------- ------------
Distributions from Net Investment Income:
Class A Shares................................. (29,140,305) (49,213,216)
Class B Shares................................. (15,551,339) (21,538,906)
Class C Shares................................. (3,066,465) (3,848,005)
------------- ------------
Total Distributions............................ (47,758,109) (74,600,127)
------------- ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES..................................... (19,937,360) (72,003,806)
------------- ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold........................ 202,119,370 398,226,626
Net Asset Value of Shares Issued Through Dividend
Reinvestment................................... 25,138,350 41,295,995
Cost of Shares Repurchased....................... (119,150,069) (226,785,118)
------------- ------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS................................... 108,107,651 212,737,503
------------- ------------
TOTAL INCREASE IN NET ASSETS..................... 88,170,291 140,733,697
NET ASSETS:
Beginning of the Period.......................... 838,138,102 697,404,405
------------- ------------
End of the Period (Including accumulated
undistributed net investment income of
$1,025,183 and $4,912,228, respectively)....... $ 926,308,393 $838,138,102
============= ============
</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. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year Ended August 31,
Ended ---------------------------------
Class A Shares February 28, 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................. $6.060 $6.548 $6.298 $ 6.15 $ 6.12
------ ------ ------ ------ ------
Net Investment Income................ .308 .614 .604 .607 .55
Net Realized and Unrealized
Gain/Loss.......................... (.126) (.479) .267 .139 .0515
------ ------ ------ ------ ------
Total from Investment Operations..... .182 .135 .871 .746 .6015
Less Distributions from Net
Investment Income.................. .332 .623 .621 .598 .5715
------ ------ ------ ------ ------
Net Asset Value, End of the Period... $5.910 $6.060 $6.548 $6.298 $ 6.15
====== ====== ====== ====== ======
Total Return (a)..................... 3.11%* 1.66% 14.44% 12.66% 10.48%
Net Assets at End of the Period (In
millions).......................... $539.7 $499.3 $468.6 $421.4 $411.9
Ratio of Expenses to Average Net
Assets (b)......................... 1.03% 1.00% 1.08% 1.08% 1.12%
Ratio of Net Investment Income to
Average Net Assets (b)............. 10.58% 9.33% 9.37% 9.65% 9.23%
Portfolio Turnover................... 23%* 90% 75% 76% 49%
</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%.
* Non-annualized
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. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year Ended August 31,
Ended ---------------------------------
Class B Shares February 28, 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................. $6.064 $6.558 $6.310 $ 6.16 $6.14
------ ------ ------ ------- -----
Net Investment Income.............. .289 .571 .559 .559 .51
Net Realized and Unrealized
Gain/Loss........................ (.129) (.490) .262 .141 .0335
------ ------ ------ ------- -----
Total from Investment Operations..... .160 .081 .821 .700 .5435
Less Distributions from Net
Investment Income.................. .308 .575 .573 .550 .5235
------ ------ ------ ------- -----
Net Asset Value, End of the Period... $5.916 $6.064 $6.558 $ 6.310 $6.16
====== ====== ====== ======= =====
Total Return (a)..................... 2.87%* 0.77% 13.58% 11.78% 9.41%
Net Assets at End of the Period (In
millions).......................... $319.5 $283.1 $198.0 $114.6 $89.9
Ratio of Expenses to Average Net
Assets (b)......................... 1.80% 1.79% 1.86% 1.87% 1.93%
Ratio of Net Investment Income to
Average Net Assets (b)............. 9.79% 8.52% 8.60% 8.86% 8.42%
Portfolio Turnover................... 23%* 90% 75% 76% 49%
</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%.
* Non-annualized
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. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year Ended August 31,
Ended --------------------------------
Class C Shares February 28, 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period........................... $ 6.035 $6.528 $6.284 $ 6.14 $6.11
------- ------ ------ ------ -----
Net Investment Income............ .288 .570 .561 .557 .51
Net Realized and Unrealized
Gain/Loss...................... (.131) (.488) .256 .137 .0435
------- ------ ------ ------ -----
Total from Investment Operations... .157 .082 .817 .694 .5535
Less Distributions from Net
Investment Income................ .308 .575 .573 .550 .5235
------- ------ ------ ------ -----
Net Asset Value, End of the
Period........................... $ 5.884 $6.035 $6.528 $6.284 $6.14
======= ====== ====== ====== =====
Total Return (a)................... 2.54%* 0.93% 13.64% 11.66% 9.63%
Net Assets at End of the Period (In
millions)........................ $ 67.1 $ 55.8 $ 30.8 $ 17.5 $15.7
Ratio of Expenses to Average Net
Assets (b)....................... 1.79% 1.79% 1.86% 1.87% 1.93%
Ratio of Net Investment Income to
Average Net Assets (b)........... 9.77% 8.49% 8.57% 8.86% 8.42%
Portfolio Turnover................. 23%* 90% 75% 76% 49%
</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%.
* Non-annualized
See Notes to Financial Statements
24
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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 February 28, 1999, approximately 19% of the
Fund's long-term investments were in non-U.S. issuers, of which the largest
geographic exposure was Canada with 5%.
25
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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 February 28, 1999, 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. 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
26
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
had an accumulated capital loss carryforward for tax purposes of $188,101,877
which 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 February 28, 1999, for federal income tax purposes, cost of long- and
short-term investments is $976,830,505, the aggregate gross unrealized
appreciation is $21,911,468 and the aggregate gross unrealized depreciation is
$88,471,865, resulting in net unrealized depreciation on long- and short-term
investments of $66,560,397.
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.
Permanent book and tax basis differences relating to the recognition of
market discount on bonds disposed of in the prior period totaling $807,089 and a
resulting adjustment to the amount of capital loss carryforward which expired
was reclassified in the current period from accumulated undistributed net
investment income to capital.
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 six months ended February 28, 1999, the Fund recognized expenses of
approximately $14,900 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the six months ended February 28, 1999, the Fund recognized expenses of
approximately $105,100 representing Van Kampen's cost of providing accounting
services to the Fund.
27
<PAGE> 29
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Van Kampen Investor Services Inc. ("VKIS"), an affiliate of the Adviser,
serves as the shareholder servicing agent of the Fund. For the six months ended
February 28, 1999, the Fund recognized expenses of approximately $706,800.
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)
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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 February 28, 1999, capital aggregated $796,139,252, $327,343,107 and
$70,501,746 for Class A, B and C shares, respectively. For the six months ended
February 28, 1999, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................. 17,073,134 $ 100,463,530
Class B.................................. 13,444,814 79,690,432
Class C.................................. 3,714,295 21,965,408
----------- -------------
Total Sales................................ 34,232,243 $ 202,119,370
=========== =============
Dividend Reinvestment:
Class A.................................. 2,727,997 $ 16,203,140
Class B.................................. 1,250,890 7,434,960
Class C.................................. 253,829 1,500,250
----------- -------------
Total Dividend Reinvestment................ 4,232,716 $ 25,138,350
=========== =============
Repurchases:
Class A.................................. (10,867,473) $ (64,736,775)
Class B.................................. (7,360,939) (43,715,384)
Class C.................................. (1,808,202) (10,697,910)
----------- -------------
Total Repurchases.......................... (20,036,614) $(119,150,069)
=========== =============
</TABLE>
29
<PAGE> 31
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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>
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)
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
For the six months ended February 28, 1999, Van Kampen, as Distributor for
the Fund, received commissions on sales of the Fund's Class A shares of
approximately $120,700 and CDSC on redeemed shares of approximately $326,200.
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 $259,762,341 and $184,686,887,
respectively.
5. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio or generate potential gain. All of the Fund's portfolio holdings,
including derivative instruments, are marked to market each day with the change
in value reflected in the unrealized appreciation/depreciation. Upon
disposition, a realized gain or loss is recognized accordingly, except when
taking delivery of a security underlying a futures contract. In this instance,
the recognition of gain or loss is postponed until the disposal of the security
underlying the futures contract.
The Fund may invest in futures contracts, a type of derivative. A futures
contract is an agreement involving the delivery of a particular asset on a
specified future date at an agreed upon price. The Fund generally invests in
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)
February 28, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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 six months ended February 28, 1999, are payments
retained by Van Kampen of approximately $1,329,300.
32
<PAGE> 34
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
Utility
Value
Global/International
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 advisor 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
33
<PAGE> 35
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
PAUL G. YOVOVICH
OFFICERS
DENNIS J. MCDONNELL*
President
JOHN L. SULLIVAN*
Vice President, Treasurer and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
PAUL R. WOLKENBERG*
EDWARD C. WOOD, III*
Vice Presidents
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., 1999.
All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After July 31, 1999, the report, if used with prospective
investors, must be accompanied by a quarterly performance update.
34
<PAGE> 36
YEAR 2000 READINESS DISCLOSURE
Like other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by the Fund's investment adviser and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Fund's
investment adviser is taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to computer systems that it uses and
to obtain reasonable assurances that comparable steps are being taken by the
Fund's other major service providers. At this time, there can be no assurances
that these steps will be sufficient to avoid any adverse impact to the Fund. In
addition, the Year 2000 Problem may adversely affect the markets and the issuers
of securities in which the Fund may invest that, in turn, may adversely affect
the net asset value of the Fund. Improperly functioning trading systems may
result in settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Fund's investments may be adversely affected. The
statements above are subject to the Year 2000 Information and Readiness
Disclosure Act, which may limit the legal rights regarding the use of such
statements in the case of dispute.
35
<PAGE> 37
VAN KAMPEN FUNDS
YOUR NOTES:
36
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> HIGH INC CORP BND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> FEB-28-1999
<INVESTMENTS-AT-COST> 976,590,645<F1>
<INVESTMENTS-AT-VALUE> 910,270,108<F1>
<RECEIVABLES> 34,683,525<F1>
<ASSETS-OTHER> 48,890<F1>
<OTHER-ITEMS-ASSETS> 13,201<F1>
<TOTAL-ASSETS> 945,015,724<F1>
<PAYABLE-FOR-SECURITIES> 10,053,654<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 8,653,677<F1>
<TOTAL-LIABILITIES> 18,707,331<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 796,139,252
<SHARES-COMMON-STOCK> 91,320,756
<SHARES-COMMON-PRIOR> 82,387,098
<ACCUMULATED-NII-CURRENT> 1,025,183<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (202,380,358)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (66,320,537)<F1>
<NET-ASSETS> 539,712,572
<DIVIDEND-INCOME> 472,659<F1>
<INTEREST-INCOME> 49,171,151<F1>
<OTHER-INCOME> 870,899<F1>
<EXPENSES-NET> (5,836,556)<F1>
<NET-INVESTMENT-INCOME> 44,678,153<F1>
<REALIZED-GAINS-CURRENT> (14,038,622)<F1>
<APPREC-INCREASE-CURRENT> (2,818,782)<F1>
<NET-CHANGE-FROM-OPS> 27,820,749<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (29,140,305)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 17,073,134
<NUMBER-OF-SHARES-REDEEMED> (10,867,473)
<SHARES-REINVESTED> 2,727,997
<NET-CHANGE-IN-ASSETS> 40,409,135
<ACCUMULATED-NII-PRIOR> 4,912,228<F1>
<ACCUMULATED-GAINS-PRIOR> (188,341,736)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 2,306,846<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 5,836,556<F1>
<AVERAGE-NET-ASSETS> 520,193,493
<PER-SHARE-NAV-BEGIN> 6.060
<PER-SHARE-NII> 0.308
<PER-SHARE-GAIN-APPREC> (0.126)
<PER-SHARE-DIVIDEND> (0.332)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 5.910
<EXPENSE-RATIO> 1.03
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates 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 BND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> FEB-28-1999
<INVESTMENTS-AT-COST> 976,590,645<F1>
<INVESTMENTS-AT-VALUE> 910,270,108<F1>
<RECEIVABLES> 34,683,525<F1>
<ASSETS-OTHER> 48,890<F1>
<OTHER-ITEMS-ASSETS> 13,201<F1>
<TOTAL-ASSETS> 945,015,724<F1>
<PAYABLE-FOR-SECURITIES> 10,053,654<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 8,653,677<F1>
<TOTAL-LIABILITIES> 18,707,331<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 327,343,107
<SHARES-COMMON-STOCK> 54,007,560
<SHARES-COMMON-PRIOR> 46,672,795
<ACCUMULATED-NII-CURRENT> 1,025,183<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (202,380,358)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (66,320,537)<F1>
<NET-ASSETS> 319,511,059
<DIVIDEND-INCOME> 472,659<F1>
<INTEREST-INCOME> 49,171,151<F1>
<OTHER-INCOME> 870,899<F1>
<EXPENSES-NET> (5,836,556)<F1>
<NET-INVESTMENT-INCOME> 44,678,153<F1>
<REALIZED-GAINS-CURRENT> (14,038,622)<F1>
<APPREC-INCREASE-CURRENT> (2,818,782)<F1>
<NET-CHANGE-FROM-OPS> 27,820,749<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (15,551,339)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 13,444,814
<NUMBER-OF-SHARES-REDEEMED> (7,360,939)
<SHARES-REINVESTED> 1,250,890
<NET-CHANGE-IN-ASSETS> 36,443,245
<ACCUMULATED-NII-PRIOR> 4,912,228<F1>
<ACCUMULATED-GAINS-PRIOR> (188,341,736)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 2,306,846<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 5,836,556<F1>
<AVERAGE-NET-ASSETS> 299,606,276
<PER-SHARE-NAV-BEGIN> 6.064
<PER-SHARE-NII> 0.289
<PER-SHARE-GAIN-APPREC> (0.129)
<PER-SHARE-DIVIDEND> (0.308)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 5.916
<EXPENSE-RATIO> 1.80
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates 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 BND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> FEB-28-1999
<INVESTMENTS-AT-COST> 976,590,645<F1>
<INVESTMENTS-AT-VALUE> 910,270,108<F1>
<RECEIVABLES> 34,683,525<F1>
<ASSETS-OTHER> 48,890<F1>
<OTHER-ITEMS-ASSETS> 13,201<F1>
<TOTAL-ASSETS> 945,015,724<F1>
<PAYABLE-FOR-SECURITIES> 10,053,654<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 8,653,677<F1>
<TOTAL-LIABILITIES> 18,707,331<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 70,501,746
<SHARES-COMMON-STOCK> 11,400,294
<SHARES-COMMON-PRIOR> 9,240,372
<ACCUMULATED-NII-CURRENT> 1,025,183<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (202,380,358)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (66,320,537)<F1>
<NET-ASSETS> 67,084,762
<DIVIDEND-INCOME> 472,659<F1>
<INTEREST-INCOME> 49,171,151<F1>
<OTHER-INCOME> 870,899<F1>
<EXPENSES-NET> (5,836,556)<F1>
<NET-INVESTMENT-INCOME> 44,678,153<F1>
<REALIZED-GAINS-CURRENT> (14,038,622)<F1>
<APPREC-INCREASE-CURRENT> (2,818,782)<F1>
<NET-CHANGE-FROM-OPS> 27,820,749<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (3,066,465)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,714,295
<NUMBER-OF-SHARES-REDEEMED> (1,808,202)
<SHARES-REINVESTED> 253,829
<NET-CHANGE-IN-ASSETS> 11,317,911
<ACCUMULATED-NII-PRIOR> 4,912,228<F1>
<ACCUMULATED-GAINS-PRIOR> (188,341,736)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 2,306,846<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 5,836,556<F1>
<AVERAGE-NET-ASSETS> 58,723,970
<PER-SHARE-NAV-BEGIN> 6.035
<PER-SHARE-NII> 0.288
<PER-SHARE-GAIN-APPREC> (0.131)
<PER-SHARE-DIVIDEND> (0.308)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 5.884
<EXPENSE-RATIO> 1.79
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
