<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Economic Snapshot................................ 2
Performance Results.............................. 3
Performance in Perspective....................... 4
Portfolio Management Review...................... 5
Glossary of Terms................................ 8
Portfolio Highlights............................. 9
Portfolio of Investments......................... 10
Statement of Assets and Liabilities.............. 21
Statement of Operations.......................... 22
Statement of Changes in Net Assets............... 23
Financial Highlights............................. 24
Notes to Financial Statements.................... 27
Report of Independent Accountants................ 35
</TABLE>
NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE.
<PAGE> 2
LETTER TO SHAREHOLDERS
September 20, 1999
Dear Shareholder,
With the volatility that we've experienced recently in many financial
markets, some investors have sold securities because of uncertainty about where
the markets were going, only to be left rethinking whether they made the right
decision. We've witnessed this kind of market activity numerous times over the
past several years, sparked by concerns such as the impact of the Asian economic
crisis, high stock valuations, or, most recently, the stability of many
high-flying technology companies. While these fears eventually subsided,
investors who may have sold during this period were unable to reap the benefits
of the subsequent rally. That's partly because most of the recent big gains
happened in relatively short periods of time. This kind of volatility--and the
danger of making short-term decisions--highlights the importance of investing
for the long term, in accordance with your individual financial objectives.
Although the worst of the Asian crisis appears to be behind us, new concerns
are always emerging. In the coming months, we'll likely hear more about how the
year 2000 computer problem may affect the markets or that we're overdue for a
correction. While the markets could undoubtedly suffer as a result of these or
any number of other events, we encourage you to focus on your long-term
investment goals. Although nothing is certain, history has shown us that over
time, the markets tend to recover--and most investors want to be positioned to
take advantage of any recovery.
If you have concerns about market volatility or questions about how your
portfolio is structured to respond to these events, we encourage you to contact
your financial advisor. Your advisor can talk with you about sustaining a
long-term investment plan through a variety of market conditions. We hope that
Van Kampen Funds will play an important role as you and your advisor build a
portfolio designed to help you weather what the markets have in store.
Sincerely,
[SIG]
Richard F. Powers III
Chairman
Van Kampen Asset Management Inc.
[SIG]
Dennis J. McDonnell
President
Van Kampen Asset Management Inc.
1
<PAGE> 3
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
Americans continued their spending spree over the past 12 months, keeping
the economy growing at a healthy pace. Although the economic environment
remained positive, we experienced a slowdown over the last several months from
the rapid growth early in the reporting period. The nation's gross domestic
product (GDP) peaked at 6.0 percent in the fourth quarter of 1998, then fell to
more sustainable levels in the first and second quarters of 1999.
EMPLOYMENT SITUATION
The strong job market helped encourage continued economic growth by making
consumers confident enough to spend at a brisk pace. During the reporting
period, the unemployment rate reached its lowest level in almost 30 years, and
wages and the number of jobs created continued to climb. However, some
economists expressed concerns about the job market in recent months, with wages
still increasing but productivity remaining stagnant. This has pushed the cost
of labor higher, as evidenced by the Employment Cost Index, which jumped sharply
in the second quarter of 1999.
INFLATION AND INTEREST RATES
In addition to strong growth levels, inflation remained tame throughout most
of the reporting period, although a sharp increase in oil prices contributed to
a spike in April's consumer price index (CPI) report. The Federal Reserve
remained active in guarding against inflation and tempering the economy during
this environment. The Fed lowered interest rates 0.25 percent three times in the
fall of 1998 in response to economic pressures, but, during the summer of 1999,
reversed two of those decreases to keep the economy from overheating.
INTEREST RATES AND INFLATION
August 31, 1997, through August 31, 1999
[LINE GRAPH]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Aug 1997 5.5000 2.2000
6.2500 2.2000
5.7500 2.1000
Nov 1997 5.6875 1.8000
6.5000 1.7000
5.5625 1.6000
Feb 1998 5.6250 1.4000
6.1250 1.4000
5.6250 1.4000
May 1998 5.6875 1.7000
6.0000 1.7000
5.5625 1.7000
Aug 1998 5.9375 1.6000
5.7500 1.5000
5.2500 1.5000
Nov 1998 4.8750 1.5000
4.0000 1.6000
4.8125 1.7000
Feb 1999 4.8750 1.6000
5.1250 1.7000
4.9375 2.3000
May 1999 4.5000 2.1000
4.0000 2.0000
4.7500 2.1000
Aug 1999 5.4375 2.3000
</TABLE>
Interest rates are represented by the closing midline federal funds rate
on the last day of each month. Inflation is indicated by the annual
percent change of the Consumer Price Index for all urban consumers at
the end of each month.
2
<PAGE> 4
PERFORMANCE RESULTS FOR THE PERIOD ENDED AUGUST 31, 1999
VAN KAMPEN HIGH INCOME CORPORATE BOND FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS
One-year total return based on NAV(1).... 4.41% 3.57% 3.42%
One-year total return(2)................. (0.51%) (0.18%) 2.48%
Five-year average annual total
return(2)................................ 7.55% 7.50% 7.74%
Ten-year average annual total
return(2)................................ 7.57% N/A N/A
Life-of-Fund average annual total
return(2)................................ 8.78% 8.16% 6.70%
Commencement date........................ 10/02/78 07/02/92 07/06/93
DISTRIBUTION RATE AND YIELD
Distribution rate(3)..................... 10.31% 9.97% 10.02%
SEC Yield(4)............................. 10.54% 10.25% 10.32%
</TABLE>
N/A = Not Applicable
(1)Assumes reinvestment of all distributions for the period and does not include
payment of the maximum sales charge (4.75% for A shares) or contingent deferred
sales charge for early withdrawal (4% for B shares and 1% for C shares).
(2)Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (A shares) or contingent
deferred sales charge for early withdrawal (B and C shares).
(3)Distribution rate represents the monthly annualized distributions of the Fund
at the end of the period and not the earnings of the Fund.
(4)SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending August 31, 1999.
See the Comparative 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
PUTTING YOUR FUND'S PERFORMANCE IN PERSPECTIVE
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment performance at regular intervals. A
comparison of your Fund's performance to an applicable benchmark can:
- Illustrate the market environment in which your Fund is being managed
- Reflect the impact of favorable market trends or difficult market
conditions
- Help you evaluate how your Fund's management team has responded to
opportunities and challenges
The following graph compares your Fund's performance to that of the Credit
Suisse First Boston High Yield Index and the Lipper High Yield Bond Fund Index
over time.
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 Yield Bond Fund Index (August
31, 1989 through August 31, 1999)
[INVESTMENT PERFORMANCE GRAPH]
- ------------------------------
Fund's Total Return
1 Year Total Return - 0.51%
5 Year Avg. Annual - 7.55%
10 Year Avg. Annual - 7.57%
- ------------------------------
<TABLE>
<CAPTION>
VAN KAMPEN HIGH INCOME CREDIT SUISSE FIRST BOSTON LIPPER HIGH YIELD BOND FUND
CORPORATE BOND FUND HIGH YIELD INDEX INDEX
---------------------- -------------------------- ---------------------------
<S> <C> <C> <C>
Aug 1989 9522.00 10000.00 10000.00
9145.00 9773.00 9817.00
8570.00 9527.70 9484.00
8478.00 9546.75 9416.00
8410.00 9503.79 9314.00
8040.00 9169.26 9035.00
7779.00 8999.63 8799.00
7898.00 9258.82 8900.00
7980.00 9297.70 8907.00
8129.00 9491.10 9110.00
8292.00 9790.07 9300.00
8485.00 10106.30 9500.00
Aug 1990 8010.00 9639.37 9084.00
7486.00 8904.85 8591.00
7055.00 8680.45 8225.00
7087.00 8854.93 8250.00
7083.00 8897.43 8279.00
7179.00 9141.22 8398.00
7692.00 9929.20 9071.00
8017.00 10544.80 9579.00
8223.00 10982.40 9981.00
8385.00 11037.30 10044.00
8659.00 11326.50 10286.00
8936.00 11709.30 10626.00
Aug 1991 9248.00 11922.50 10834.00
9418.00 12193.10 11033.00
9787.00 12596.70 11424.00
9911.00 12697.50 11521.00
10007.00 12790.10 11608.00
10459.00 13310.70 12121.00
10643.00 13634.20 12432.00
10914.00 13837.30 12659.00
11014.00 13849.80 12749.00
11202.00 14038.10 12933.00
11287.00 14177.10 13068.00
11479.00 14395.40 13289.00
Aug 1992 11636.00 14594.10 13452.00
11704.00 14688.90 13585.00
11406.00 14536.20 13349.00
11550.00 14754.20 13565.00
11751.00 14920.90 13740.00
12062.00 15328.30 14135.00
12222.00 15631.80 14402.00
12519.00 15961.60 14694.00
12643.00 16052.60 14805.00
12886.00 16287.00 15041.00
13210.00 16581.80 15399.00
13317.00 16754.20 15544.00
Aug 1993 13405.00 16896.60 15652.00
13372.00 16992.90 15686.00
13625.00 17303.90 16073.00
13777.00 17521.90 16204.00
13998.00 17742.70 16466.00
14322.00 18058.50 16861.00
14309.00 18085.60 16852.00
13918.00 17553.90 16291.00
13675.00 17318.70 16055.00
13692.00 17417.40 16101.00
13796.00 17300.70 16074.00
13724.00 17382.00 16042.00
Aug 1994 13718.00 17507.20 16057.00
13645.00 17577.80 16069.00
13617.00 17589.50 16069.00
13498.00 17385.50 15821.00
13492.00 17569.70 15861.00
13648.00 17754.20 16003.00
14016.00 18191.00 16485.00
14127.00 18396.50 16635.00
14453.00 18804.90 17053.00
14782.00 19335.20 17440.00
14800.00 19462.80 17511.00
15036.00 19764.50 17871.00
Aug 1995 15156.00 19819.90 17910.00
15375.00 20047.80 18116.00
15522.00 20270.30 18251.00
15620.00 20365.60 18343.00
15844.00 20624.20 18618.00
16198.00 21016.10 18982.00
16350.00 21127.50 19174.00
16347.00 21070.40 19093.00
16553.00 21184.20 19248.00
16708.00 21355.80 19397.00
16785.00 21402.80 19409.00
16889.00 21595.40 19498.00
Aug 1996 17075.00 21830.80 19813.00
17478.00 22206.30 20329.00
17588.00 22392.80 20426.00
17808.00 22742.20 20778.00
18008.00 23185.60 21034.00
18204.00 23354.90 21242.00
18487.00 23794.00 21599.00
18259.00 23527.50 21131.00
18374.00 23736.80 21311.00
18808.00 24214.00 21875.00
19099.00 24543.30 22250.00
19481.00 25063.60 22843.00
Aug 1997 19540.00 25198.90 22896.00
19988.00 25697.90 23450.00
19777.00 25695.30 23358.00
20050.00 25877.70 23528.00
20212.00 26113.20 23805.00
20644.00 26557.20 24267.00
20892.00 26764.30 24496.00
21206.00 26898.10 24851.00
21395.00 27099.90 24929.00
21459.00 27181.20 24901.00
21395.00 27238.20 24945.00
21588.00 27428.90 25115.00
Aug 1998 19865.00 25566.50 23201.00
19640.00 25563.90 23062.00
19214.00 25055.20 22539.00
20419.00 26325.50 23862.00
20305.00 26265.00 23788.00
20548.00 26209.80 24218.00
20483.00 26154.80 24121.00
20869.00 26392.80 24546.00
21292.00 26976.00 25181.00
20873.00 26684.70 24703.00
20807.00 26698.00 24703.00
20918.00 26711.40 24714.00
Aug 1999 20742.00 26474.70 24463.00
</TABLE>
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
PORTFOLIO MANAGEMENT REVIEW
HIGH INCOME CORPORATE BOND FUND ANNUAL REPORT
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 Fund's fiscal year. The team includes Robert J. Hickey,
portfolio manager, Peter E. Ehret, portfolio comanager, and Peter W. Hegel,
chief investment officer for fixed-income investments. Mr. Hickey assumed
management responsibilities for the Fund on June 1, 1999. The following excerpts
reflect their views on the Fund's performance during the 12-month reporting
period ended August 31, 1999.
Q HOW WOULD YOU CHARACTERIZE THE MARKET CONDITIONS IN WHICH THE FUND
OPERATED DURING THE PAST 12 MONTHS?
A The last quarter of 1998 was marked by a series of interest-rate cuts by
the Federal Reserve Board, implemented to restore order to a volatile
market. This intervention paved the way for recovery in the first quarter
of 1999, as investors gained confidence in the strength of the economy and
inflation remained modest. Consequently, yield spreads narrowed between
Treasuries and other types of bonds (such as corporate, high-yield, and
mortgage-backed securities).
However, the good news for the fixed-income market was quelled in the
second quarter, as investors became distracted by expectations of rising
inflation and warnings of additional action from the Fed. This development
prompted yield spreads to widen once again, although not to the record-high
levels seen last fall. The market breathed a sigh of relief at the end of the
second quarter, as the Fed announced a 0.25 percent rate hike while reassuring
fixed-income investors that additional action seemed unnecessary at that time.
By the beginning of August, however, rumblings of another rate hike were
once again triggered by indications of a further increase in inflation and a
strengthening economy. At the end of the month, the Fed boosted rates a second
time to 5.25 percent. Bond prices grew erratic at the possibility of a third
increase by the end of the year, and dropped for the final four days of the
reporting period.
Q WHAT WAS THE EFFECT OF THIS ACTIVITY ON THE HIGH-YIELD MARKET?
A Initially, the high-yield market participated in the cautious recovery of
the fixed-income market from last fall's lows. However, investor concerns
about the direction of interest rates and the level of high-yield defaults
lingered through the reporting period. Although the default rate crept higher
during the period, we believe it represented a reversion to historical norms
from the unusually low default levels of the past few years. We believe the
attractive yields of high-yield bonds compensate investors for their increased
credit and default risk.
Thanks to the positive economic environment and relatively low interest
rates, high-yield issuance bounced back from last fall's depressed levels,
giving us a greater range of
5
<PAGE> 7
bonds to consider for investment. We anticipate that this trend will gain energy
in September, with a record-high level of issuance expected as issuers scramble
to bring new bonds to the market before year 2000.
Q HOW DID YOU MANAGE THE FUND IN LIGHT OF THESE CONDITIONS?
A We continued to implement our investment strategy of fundamental credit
analysis--which, given the volatility experienced in the market during
this period of time, proved to be successful. In support of this strategy,
we maintained the Fund's credit quality profile with a focus on B-rated bonds,
which provided a yield advantage over higher-quality investments. We also
maintained a low cash position in the portfolio despite the flow of assets in
and out of the Fund during the reporting period. From its August-end level, the
Fund's duration was elevated just slightly to 4.58 years, reflecting the longer
average maturities and coupons of the issues held in the portfolio during the
period. Each of these actions contributed to the Fund's return.
Among the Fund's sector allocation, our investments in the
telecommunications sector benefited the portfolio, thanks to that sector's high
profile and selective new issuance. We also returned our attention to cyclical
issues, adding defensive investments like forest products to the portfolio.
However, the Fund's return was hurt by its holdings in the health-care and
energy sectors--two of the weakest industries of 1999. The Fund's position in
textiles also undermined the Fund's return, as this sector came under extreme
pressure during the summer months. For additional Fund portfolio highlights,
please refer to page 9.
Q HOW DID THE FUND PERFORM DURING THE REPORTING PERIOD?
A The Fund posted a total return of 4.41 percent (Class A shares at net
asset value) for the 12-month period ended August 31, 1999. By comparison,
the Credit Suisse First Boston High Yield Index returned 3.55 percent for
the same period. The Credit Suisse First Boston High Yield Index is a
broad-based, unmanaged index that reflects the general performance of a wide
range of selected bonds within the public high-yield debt market. Of course,
past performance is no guarantee of comparable future results. Please refer to
the chart and footnotes on page three for additional Fund performance results.
Q WHAT IS YOUR OUTLOOK FOR THE MARKET OVER THE COMING MONTHS?
A Generally, the picture for the high-yield bond market has improved from
six months ago, and certainly from 12 months ago. The story for the
remainder of the year will hinge on the market's preparation for year
2000, and how the market reacts to issuers rushing to bring new bonds to the
market as investors catch up from a relatively sluggish summer. We'll continue
to monitor the level of supply for opportunities to alter the structure of the
portfolio.
6
<PAGE> 8
As we manage the Fund going forward, our focus on fundamental, in-depth
research and assessment of high-yield bonds will remain unchanged. We will look
beyond the sector and credit rating of a bond to identify those issuers that we
believe will remain financially sound and perform well in a range of market
conditions. We'll also search for value in out-of-favor areas of the market in
our quest for opportunities to diversify the portfolio and contribute to the
Fund's performance.
[SIG]
Robert J. Hickey
Portfolio Manager
[SIG]
Peter E. Ehret
Portfolio Comanager
[SIG]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
7
<PAGE> 9
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 maturity
date.
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.
CREDIT SPREAD: Also called quality spread, the difference in yield between
higher-quality issues (such as Treasury securities) and lower-quality
issues. Normally, lower-quality issues provide higher yields to compensate
investors for the additional credit risk.
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.
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.
8
<PAGE> 10
PORTFOLIO HIGHLIGHTS
VAN KAMPEN HIGH INCOME CORPORATE BOND FUND
CREDIT QUALITY* AS OF AUGUST 31, 1999
[PIE CHART]
<TABLE>
<CAPTION>
BBB/Baa BB/Ba B/B CCC/Caa CC/Ca C/C Non-Rated
------- ----- --- ------- ----- --- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
As of August 31, 1999 2.1% 9.4 75.9% 6.0% 0.1% 0.3% 6.2%
</TABLE>
AS OF AUGUST 31, 1998
[PIE CHART]
<TABLE>
<CAPTION>
BBB/Baa BB/Ba B/B CCC/Caa Non-Rated
------- ----- --- ------- ---------
<S> <C> <C> <C> <C> <C>
As of August 31, 1999 0.5% 10.8% 77.3% 4.0% 7.4%
</TABLE>
Based upon the highest credit quality ratings as issued by Standard & Poor's or
Moody's, respectively.
DISTRIBUTION HISTORY FOR THE PERIOD ENDED AUGUST 31, 1999
[BAR GRAPH]
<TABLE>
<CAPTION>
DIVIDENDS CAPITAL GAINS
--------- -------------
<S> <C> <C>
Sep 1998 0.0512
Oct 1998 0.0512
Nov 1998 0.0512
Dec 1998 0.0512 0.0251
Jan 1999 0.0512
Feb 1999 0.0512
Mar 1999 0.0512
Apr 1999 0.0512
May 1999 0.0512
Jun 1999 0.0512
Jul 1999 0.0512
Aug 1999 0.0512
</TABLE>
The distribution history represents past performance of the Fund's Class A
shares and does not predict the Fund's future distributions.
TOP FIVE PORTFOLIO INDUSTRIES*
[BAR GRAPH]
<TABLE>
<CAPTION>
AUGUST 31, 1999 AUGUST 31, 1998
--------------- ---------------
<S> <C> <C>
Utilities 23.20% 20.10%
Consumer Services 23.20% 22.10%
Raw Materials/Processing Industries 10.20% 15.40%
Consumer Distribution 9.90% 6.60%
Producer Manufacturing 5.90% 8.70%
</TABLE>
*As a Percentage of Long-Term Investments
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS
August 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORPORATE DEBT OBLIGATIONS 93.4%
CONSUMER DISTRIBUTION 9.5%
$7,500 Agrilink Foods Inc., 144A -
Private Placement (b)................ 11.875% 11/01/08 $ 7,162,500
4,250 Big 5 Corp., Ser B................... 10.875 11/15/07 4,271,250
3,000 Building One Services Corp. ......... 10.500 05/01/09 2,835,000
2,585 Chiquita Brands International,
Inc. ................................ 10.000 06/15/09 2,572,075
9,000 CHS Electronics, Inc. ............... 9.875 04/15/05 3,825,000
3,200 Community Distributors, Inc. ........ 10.250 10/15/04 2,832,000
9,255 Del Monte Foods Co., Ser B (a)....... 0/12.500 12/15/07 6,941,250
3,750 Disco SA (Argentina)................. 9.125 05/15/03 3,328,125
2,750 Disco SA (Argentina)................. 9.875 05/15/08 2,358,125
4,000 Duane Reade, Inc. ................... 9.250 02/15/08 4,020,000
3,700 Express Scripts, Inc., 144A - Private
Placement (b)........................ 9.625 06/15/09 3,746,250
2,000 Gruma SA (Mexico).................... 7.625 10/15/07 1,745,000
1,200 Jitney Jungle Stores America,
Inc. ................................ 12.000 03/01/06 966,000
5,500 King Pharmaceuticals, Inc. .......... 10.750 02/15/09 5,623,750
4,000 Luiginos, Inc., 144A - Private
Placement (b)........................ 10.000 02/01/06 3,800,000
8,255 Musicland Group, Inc. ............... 9.875 03/15/08 7,800,975
7,250 Pantry, Inc. ........................ 10.250 10/15/07 7,250,000
3,735 Pathmark Stores, Inc. ............... 12.625 06/15/02 3,781,688
6,000 Pathmark Stores, Inc. (a)............ 0/10.750 11/01/03 5,865,000
945 Phar Mor, Inc. ...................... 11.720 09/11/02 959,175
1,750 Stater Brothers Holdings, Inc.,
144A - Private Placement (b)......... 10.750 08/15/06 1,798,125
------------
83,481,288
------------
CONSUMER DURABLES 4.2%
8,900 Aetna Industries, Inc. .............. 11.875 10/01/06 9,122,500
1,000 Cambridge Industries, Inc., Ser B.... 10.250 07/15/07 705,000
6,000 Oxford Automotive, Inc., Ser D,
144A - Private Placement (b)......... 10.125 06/15/07 5,730,000
4,000 Sleepmaster LLC, 144A - Private
Placement (b)........................ 11.000 05/15/09 4,000,000
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONSUMER DURABLES (CONTINUED)
$6,430 Talon Automotive Group, Inc., Ser
B.................................... 9.625% 05/01/08 $ 5,176,150
4,500 Venture Holdings, Inc. .............. 9.500 07/01/05 4,230,000
2,000 Venture Holdings, Inc., 144A -
Private Placement (b)................ 12.000 06/01/09 1,980,000
6,300 Webb (Del E.) Corp. ................. 10.250 02/15/10 5,985,000
------------
36,928,650
------------
CONSUMER NON-DURABLES 5.7%
6,000 Cluett American Corp., Ser B......... 10.125 05/15/08 4,170,000
3,500 CMI Industries, Inc. ................ 9.500 10/01/03 3,281,250
8,900 Consoltex Group, Inc. (Canada)....... 11.000 10/01/03 9,033,500
3,000 Decora Industries, Inc. ............. 11.000 05/01/05 2,805,000
4,250 Delta Mills Insurance, Ser B......... 9.625 09/01/07 3,591,250
1,800 French Fragrances, Inc., Ser B....... 10.375 05/15/07 1,755,000
5,000 French Fragrances, Inc., Ser D....... 10.375 05/15/07 4,875,000
4,750 Globe Manufacturing Corp. ........... 10.000 08/01/08 3,206,250
6,000 Outsourcing Services Group, Inc., Ser
B.................................... 10.875 03/01/06 5,760,000
1,500 Simmons Co., 144A - Private Placement
(b).................................. 10.250 03/15/09 1,488,750
4,500 St John Knits International, Inc.,
144A - Private Placement (b)......... 12.500 07/01/09 4,365,000
1,750 United Industries Corp.,
144A - Private Placement (b)......... 9.875 04/01/09 1,548,750
3,950 Vlassic Foods International, Inc.,
144A - Private Placement (b)......... 10.250 07/01/09 3,693,250
------------
49,573,000
------------
CONSUMER SERVICES 22.2%
5,200 Amazon.com, Inc. (a)................. 0/10.000 05/01/08 3,458,000
3,000 American Plumbing & Mechanical,
144A - Private Placement (b)......... 11.625 10/15/08 2,865,000
8,050 Americredit Corp. ................... 9.250 02/01/04 8,090,250
3,000 Americredit Corp., 144A - Private
Placement (b)........................ 9.875 04/15/06 3,045,000
2,410 Argosy Gaming Co., 144A - Private
Placement (b)........................ 10.750 06/01/09 2,494,350
9,750 Booth Creek Ski Holdings, Inc., Ser
B.................................... 12.500 03/15/07 8,165,625
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONSUMER SERVICES (CONTINUED)
$2,400 Bresnan Communications Group, 144A -
Private Placement (b)................ 8.000% 02/01/09 $ 2,388,000
2,500 Cadmus Communications Corp.,
144A - Private Placement (b)......... 9.750 06/01/09 2,509,375
10,020 Capstar Broadcasting Partners (a).... 0/12.750 02/01/09 8,567,100
6,900 Casino Magic Louisiana Corp., Ser
B.................................... 13.000 08/15/03 7,831,500
6,250 Cathay International Ltd., 144A -
Private Placement (Japan) (b)........ 13.500 04/15/08 2,343,750
8,085 Charter Communications Holdings LLC,
144A - Private Placement (b)......... 8.250 04/01/07 7,660,537
2,500 Citadel Broadcasting Co. ............ 9.250 11/15/08 2,506,250
5,500 Citadel Broadcasting Co., Ser B...... 10.250 07/01/07 5,775,000
1,375 Classic Cable, Inc., 144A - Private
Placement (b)........................ 9.375 08/01/09 1,354,375
4,250 Coaxial Commerce Central Ohio,
Inc. ................................ 10.000 08/15/06 4,313,750
1,750 Diamond Cable Co. (United Kingdom)
(a).................................. 0/11.750 12/15/05 1,561,875
2,250 Frontiervision Holdings L.P. (a)..... 0/11.875 09/15/07 1,912,500
2,875 Frontiervision Holdings L.P., Ser B
(a).................................. 0/11.875 09/15/07 2,443,750
4,000 Globo Communicacoes Participation,
144A - Private Placement (Brazil)
(b).................................. 10.625 12/05/08 2,890,000
3,500 Gray Communications Systems, Inc. ... 10.625 10/01/06 3,644,375
6,500 Grupo Televisa Corp. (Mexico)........ * 05/15/08 5,411,250
2,000 Grupo Televisa Corp., Ser B
(Mexico)............................. 11.875 05/15/06 2,060,000
5,796 Helicon Group L.P. .................. 11.000 11/01/03 6,085,800
4,000 Hollywood Casino Corp.,
144A - Private Placement (b)......... 11.250 05/01/07 4,060,000
1,770 Hollywood Casino Shreveport,
144A - Private Placement (b)......... 13.000 08/01/06 1,814,250
4,000 Hollywood Park, Inc., Ser B.......... 9.500 08/01/07 3,960,000
2,000 Horseshoe Gaming LLC,
144A - Private Placement (b)......... 8.625 05/15/09 1,930,000
7,000 IHF Holdings, Inc., Ser B (a)........ 0/15.000 11/15/04 945,000
5,500 International Cabletel, Inc. (a)..... 0/11.500 02/01/06 4,785,000
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONSUMER SERVICES (CONTINUED)
$4,500 Isle of Capri Casinos, Inc.,
144A - Private Placement (b)......... 8.750% 04/15/09 $ 4,230,000
875 James Cable Partners L.P. ........... 10.750 08/15/04 894,688
4,500 Louisiana Petite Academy, Inc., Ser
B.................................... 10.000 05/15/08 4,038,750
5,000 Majestic Star Casino LLC, 144A -
Private Placement (b)................ 10.875 07/01/06 4,900,000
7,500 Multicanal Participacoes, Ser B
(Brazil)............................. 12.625 06/18/04 7,200,000
4,500 Muzak LLC, 144A - Private Placement
(b).................................. 9.875 03/15/09 4,455,000
6,050 Northland Cable Television, Inc. .... 10.250 11/15/07 6,155,875
3,000 Park N View, Inc., Ser B............. 13.000 05/15/08 915,000
3,950 Port Arthur Finance Corp., Ser A,
144A - Private Placement (b)......... 12.500 01/15/09 3,969,750
7,400 Premier Parks, Inc. (a).............. 0/10.000 04/01/08 4,921,000
7,000 Radio Unica Corp. (a)................ 0/11.750 08/01/06 4,270,000
1,960 SFX Broadcasting, Inc. .............. 10.750 05/15/06 2,107,000
1,350 Sinclair Broadcast Group, Inc. ...... 8.750 12/15/07 1,284,187
7,000 Splitrock Services, Inc., Ser B...... 11.750 07/15/08 6,335,000
3,150 Station Casinos, Inc., 144A - Private
Placement (b)........................ 8.875 12/01/08 3,071,250
4,190 Telewest Communications PLC
(United Kingdom) (a)................. 0/11.000 10/01/07 3,697,675
2,000 Telewest Communications PLC, 144A -
Private Placement (United Kingdom)
(a) (b).............................. 0/9.250 04/15/09 1,205,000
5,000 UIH Australia/Pacific, Inc., Ser B
(a).................................. 0/14.000 05/15/06 3,775,000
11,250 United International Holdings, Inc.
(a).................................. 0/10.750 02/15/08 6,496,875
6,250 Young America Corp., Ser B........... 11.625 02/15/06 4,125,000
------------
194,918,712
------------
ENERGY 2.5%
1,000 Canadian Forest Oil Ltd. ............ 8.750 09/15/07 955,000
8,500 Hurricane Hydrocarbons Ltd., 144A -
Private Placements (Canada) (b)
(f).................................. 11.750 11/01/04 1,912,500
5,750 Hydrochem Industrial Services, Inc.,
Ser B................................ 10.375 08/01/07 5,175,000
5,500 KCS Energy, Inc. (f)................. 11.000 01/15/03 4,152,500
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ENERGY (CONTINUED)
$5,000 Pride Petroleum Services, Inc. ...... 9.375% 05/01/07 $ 5,025,000
6,000 Universal Compression, Inc. (a)...... 0/9.875 02/15/08 3,720,000
1,000 Universal Compression, Inc. (a)...... 0/11.375 02/15/09 600,000
------------
21,540,000
------------
FINANCE 1.7%
4,750 Americo Life, Inc., 144A - Private
Placement (b)........................ 9.250 06/01/05 4,773,750
4,000 Avis Rent A Car, Inc., 144A - Private
Placement (b)........................ 11.000 05/01/09 4,130,000
3,000 Chatwins Group, Inc. ................ 13.000 05/01/03 2,790,000
3,000 Contifinancial Corp. ................ 7.500 03/15/02 1,185,000
2,250 Superior National Capital Trust 1.... 10.750 12/01/17 2,148,750
------------
15,027,500
------------
HEALTHCARE 3.4%
4,000 Alliance Imaging, Inc. .............. 9.625 12/15/05 3,800,000
3,900 Biovail Corporation International.... 10.875 11/15/05 4,056,000
2,250 DJ Orthopedics LLC, 144A - Private
Placement (b)........................ 12.625 06/15/09 2,148,750
2,250 Lifepoint Hospitals Holdings, Inc.,
144A - Private Placement (b)......... 10.750 05/15/09 2,261,250
2,655 Maxxim Medical, Inc., 144A - Private
Placement (b)........................ 10.500 08/01/06 2,827,575
3,000 Mediq, Inc. ......................... 11.000 06/01/08 2,355,000
1,490 Owens & Minor, Inc. ................. 10.875 06/01/06 1,557,050
8,265 Oxford Health Plans, Inc.,
144A - Private Placement (b)......... 11.000 05/15/05 8,223,675
3,000 Triad Hospitals Holdings, Inc.,
144A - Private Placement (b)......... 11.000 05/15/09 3,000,000
------------
30,229,300
------------
PRODUCER MANUFACTURING 5.5%
9,750 Carpenter W R North America, Inc. ... 10.625 06/15/07 8,482,500
500 Cemex International Capital, Inc. ... 9.660 11/29/49 465,000
3,355 Compass Aerospace Corp.,
144A - Private Placement (b)......... 10.125 04/15/05 3,002,725
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRODUCER MANUFACTURING (CONTINUED)
$4,500 Eagle Picher Industries, Inc. ....... 9.375% 03/01/08 $ 4,286,250
5,500 Filtronic PLC, 144A - Private
Placement (b)........................ 10.000 12/01/05 5,307,500
5,255 GS Technologies Operating, Inc. ..... 12.000 09/01/04 4,138,313
8,000 IMO Industries, Inc. ................ 11.750 05/01/06 8,160,000
1,750 Juno Lighting, Inc., 144A - Private
Placement (b)........................ 11.875 07/01/09 1,732,500
2,000 Numatics, Inc. ...................... 9.625 04/01/08 1,740,000
3,000 Terex Corp. ......................... 8.875 04/01/08 2,857,500
4,500 Terex Corp., Ser D................... 8.875 04/01/08 4,286,250
6,750 Waxman Industries, Inc., Ser B (a)... 0/12.750 06/01/04 3,408,750
------------
47,867,288
------------
RAW MATERIALS/PROCESSING INDUSTRIES 9.8%
2,175 Acetex Corp. (Canada)................ 9.750 10/01/03 1,968,375
4,500 AEP Industries, Inc. ................ 9.875 11/15/07 4,387,500
4,200 Anchor Lamina, Inc. (Canada)......... 9.875 02/01/08 3,685,500
4,540 Aracruz Celulose SA, 144A - Private
Placement (Brazil) (b)............... 10.375 01/31/02 4,517,300
4,500 Doe Run Resources Corp., Ser B....... 11.250 03/15/05 4,207,500
1,500 Doman Industries Ltd., 144A - Private
Placement (b)........................ 12.000 07/01/04 1,500,000
1,000 Galey & Lord, Inc. .................. 9.125 03/01/08 500,000
1.7 units Intersil Corp., 144A - Private
Placement (b) (e).................... 13.250 08/15/09 1,751,000
2,500 Kappa Beheer Bv, 144A - Private
Placement (b)........................ 10.625 07/15/09 2,559,375
5,000 Lyondell Chemical Co. ............... 10.875 05/01/09 5,087,500
3,600 Pacifica Papers, Inc., 144A - Private
Placement (b)........................ 10.000 03/15/09 3,654,000
5,750 Packaging Corp. of America, 144A -
Private Placement (b)................ 9.625 04/01/09 5,821,875
5,054 Pioneer Americas Acquisition
Corp. ............................... 9.250 06/15/07 3,664,150
10,025 Printpack, Inc. ..................... 10.625 08/15/06 9,373,375
3,250 Radnor Holdings, Inc., Ser B......... 10.000 12/01/03 3,298,750
5,000 Renco Steel Holdings, Inc. .......... 10.875 02/01/05 4,275,000
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RAW MATERIALS/PROCESSING INDUSTRIES (CONTINUED)
2.8 units
Republic Technologies International,
144A - Private Placement (b) (e)..... 13.750% 07/15/09 2,782,500
$2,250 Scovill Fasteners, Inc. ............. 11.250 11/30/07 1,293,750
6,010 Tekni-Plex, Inc., Ser B.............. 11.250 04/01/07 6,400,650
2,025 TeleCorp PCS, Inc., 144A - Private
Placement (a) (b).................... 0/11.625 04/15/09 1,189,687
4,000 Tritel PCS, Inc., 144A - Private
Placement (a) (b).................... 0/12.750 05/15/09 2,300,000
2,750 Vicap SA (Mexico).................... 10.250 05/15/02 2,433,750
6,250 Vicap SA (Mexico).................... 11.375 05/15/07 5,281,250
4,550 WHX Corp. ........................... 10.500 04/15/05 4,368,000
------------
86,300,787
------------
TECHNOLOGY 3.5%
5,500 Advanced Micro Devices, Inc. ........ 11.000 08/01/03 5,142,500
6,600 Century Communications Corp. ........ * 01/15/08 2,829,750
2,000 Crown Castle International Corp.,
144A - Private Placement (b)......... 9.500 08/01/11 1,955,000
6,000 DecisionOne Holdings Corp. (f)....... 9.750 08/01/07 270,000
3
units DecisionOne Holdings Corp. (a) (e)... 0/11.500 08/01/08 22,500
3,660 Dictaphone Corp. .................... 11.750 08/01/05 2,653,500
7,500 Fairchild Semiconductor Corp.,
144A - Private Placement (b)......... 10.375 10/01/07 7,387,500
7,550 PSINet, Inc. ........................ 11.500 11/01/08 7,682,125
2,375 PSINet, Inc., 144A - Private
Placement (b)........................ 11.000 08/01/09 2,386,875
------------
30,329,750
------------
TRANSPORTATION 4.8%
4,000 American Commercial Lines LLC........ 10.250 06/30/08 3,950,000
7,500 Atlas Air, Inc. ..................... 10.750 08/01/05 7,687,500
6,750 Atlas Air, Inc. ..................... 9.375 11/15/06 6,547,500
1,800 Atlas Air, Inc. ..................... 9.250 04/15/08 1,705,500
2,700 Cenargo International PLC............ 9.750 06/15/08 2,308,500
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TRANSPORTATION (CONTINUED)
$7,250 Greyhound Lines, Inc. ............... 11.500% 04/15/07 8,192,500
$5,950 MRS Logistica SA, Ser B,
144A - Private Placement (Brazil)
(b).................................. 10.625 08/15/05 3,778,250
6,250 Pegasus Shipping Hellas Ltd., Ser
A.................................... 11.875 11/15/04 2,281,250
4,500 Stena AB (Sweden).................... 10.500 12/15/05 4,500,000
1,800 Transport World Airlines, Inc., 144A
-Private Placement (b)............... 11.500 12/15/04 1,539,000
------------
42,490,000
------------
UTILITIES 20.6%
5,500 American Cellular Corp. ............. 10.500 05/15/08 5,678,750
6,250 Centennial Cellular Operating Co. ... 10.750 12/15/08 6,500,000
9,750 Clearnet Communications, Inc.
(Canada) (a)......................... 0/14.750 12/15/05 9,067,500
6,000 Compania De Transporte Energia, 144A
-Private Placement (Argentina) (b)... 9.250 04/01/08 4,980,000
3,950 Crown Castle International Corp.
(a).................................. 0/10.625 11/15/07 2,784,750
7,000 CTI Holdings SA (a).................. 0/11.500 04/15/08 3,360,000
11,160 E Spire Communications, Inc. (a)..... 0/13.000 11/01/05 6,779,700
3,180 E Spire Communications, Inc. (a)..... 0/12.750 04/01/06 1,788,750
1,175 Globe Telecom, Inc., 144A - Private
Placement (b)........................ 13.000 08/01/09 1,179,406
4,300 Globenet Communications Group Ltd.,
144A - Private Placement (b)......... 13.000 07/15/07 4,192,500
2,570 GST Network Funding, Inc., 144A -
Private Placement (a) (b)............ 0/10.500 05/01/08 1,464,900
568 GST Telecommunciations, Inc., 144A -
Private Placement (Canada) (a) (b)... 0/13.875 12/15/05 721,360
2,550 ICG Holdings, Inc. (a)............... 0/13.500 09/15/05 2,269,500
2,500 ICG Holdings, Inc. (a)............... 0/12.500 05/01/06 1,975,000
9,100 Intermedia Communications of Florida,
Inc. (a)............................. 0/12.500 05/15/06 7,507,500
8,250 IXC Communications, Inc. ............ 9.000 04/15/08 8,115,938
7,000 KMC Telecommunications Holdings, Inc.
(a).................................. 0/12.500 02/15/08 3,815,000
4,000 Level 3 Communications, Inc. ........ 9.125 05/01/08 3,740,000
2,000 Level 3 Communications, Inc. (a)..... 0/10.500 12/01/08 1,140,000
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UTILITIES (CONTINUED)
$5,750 McLeodusa, Inc. (a).................. 0/10.500% 03/01/07 4,312,500
2,300 Metromedia Fiber Network, Inc. ...... 10.000 11/15/08 2,277,000
1,500 Metronet Communications Corp.
(Canada) (a)......................... 0/10.750 11/01/07 1,207,500
1,250 Metronet Communications Corp.
(Canada) (a)......................... 0/9.950 06/15/08 956,250
9,510 Microcell Telecommunications, Ser B
(a).................................. 0/14.000 06/01/06 7,869,525
9,000 Millicom International Cellular SA
(Luxemburg) (a)...................... 0/13.500 06/01/06 6,322,500
10,250 Netia Holdings, Inc., Ser B
(Netherlands) (a).................... 0/11.250 11/01/07 6,560,000
3,750 Nextel Communications, Inc. (a)...... 0/10.650 09/15/07 2,756,250
1,000 Nextel Communications, Inc. ......... 12.000 11/01/08 1,115,000
4,500 NTL, Inc. (a)........................ 0/9.750 04/01/08 2,947,500
5,125 Optel, Inc., Ser B, 144A - Private
Placement (b)........................ 13.000 02/15/05 3,613,125
10,450 Pinnacle Holdings, Inc. (a).......... 0/10.000 03/15/08 6,008,750
4,450 Price Communications Wireless........ 11.750 07/15/07 4,872,750
4,500 Price Communications Wireless, Ser
B.................................... 9.125 12/15/06 4,590,000
6,400 Primus Telecommunications Group...... 11.750 08/01/04 6,272,000
1,750 Primus Telecommunications Group...... 11.250 01/15/09 1,671,250
3,750 Rural Cellular Corp. ................ 9.625 05/15/08 3,825,000
2,250 Satelites Mexicanos SA (Mexico)...... 10.125 11/01/04 1,777,500
10,250 SBA Communications Corp. (a)......... 0/12.000 03/01/08 5,893,750
8,100 Startec Global Communications........ 12.000 05/15/08 6,925,500
1,000 Telecom Argentina, Ser J, 144A -
Private Placement (Argentina) (b).... 9.750 07/12/01 1,007,500
1,500 Transtel, 144A - Private Placement
(Columbia) (a) (b)................... 14.500 11/01/07 750,000
5,675 Triton Communications LLC (a)........ 0/11.000 05/01/08 3,887,375
</TABLE>
See Notes to Financial Statements
18
<PAGE> 20
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UTILITIES (CONTINUED)
$3,500 United Pan-Europe Communications NV
144A - Private Placement
(Netherlands) (b).................... 10.875% 08/01/09 3,521,875
6,740 Verio, Inc. ......................... 10.375 04/01/05 6,706,300
4,300 Verio, Inc. ......................... 11.250 12/01/08 4,375,250
2,000 Worldwide Fiber, Inc., 144A - Private
Placement (b)........................ 12.000 08/01/09 2,000,000
------------
181,082,504
------------
TOTAL CORPORATE DEBT OBLIGATIONS 93.4%...................... 819,768,779
------------
FOREIGN GOVERNMENT OBLIGATIONS 0.7%
2,000 Republic of Argentina (Argentina).... 11.375 01/30/17 1,747,500
4,000 United Mexican States Debt
(Mexico)............................. 11.500 05/15/26 4,342,500
------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS......................... 6,090,000
------------
EQUITIES 2.0%
American Telecasting, Inc. (1,750 Common Stock Warrants) (c)........ 1,750
Contour Energy Co. (75,000 Common Shares) (c)....................... 152,344
Crown Castle International Corp. (20,637 Preferred Shares, 12.75%
coupon, $1,000 par per share) (c) (d)............................... 2,115,292
Dairy Mart Convenience Stores (14,998 Common Stock Warrants) (c).... 5,399
Day International Group, Inc. (1,741 Preferred Shares, 12.25%
coupon, $1,000 par per share) (c) (d)............................... 1,410,210
KMC Telecommunications Holdings, Inc., 144A - Private Placement
(7,000 Common Stock Warrants) (b) (c)............................... 70,000
Metronet Communications Corp., 144A - Private Placement (9,250
Common Stock Warrants) (Canada) (b) (c)............................. 740,000
NTL, Inc., 144A - Private Placement (6,889 Common Stock Warrants)
(b) (c)............................................................. 89,557
Optel, Inc. (3,275 Common Shares) (c)............................... 6,550
Park N View, Inc., 144A - Private Placement (3,000 Common Stock
Warrants) (b) (c)................................................... 750
Price Communications Corp. (221,141 Common Shares) (c).............. 4,547,212
Primus Telecommunications Group (2,000 Common Stock Warrants) (c)... 41,000
Rural Cellular Corp. (7,046 Preferred Shares, 11.375% coupon, $1,000
par per share) (c) (d).............................................. 7,116,460
Signature Brands, Inc. (4,000 Common Stock Warrants) (c)............ 86,000
</TABLE>
See Notes to Financial Statements
19
<PAGE> 21
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Market Value
- --------------------------------------------------------------------------------------
<S> <C>
EQUITIES (CONTINUED)
Splitrock Services, Inc., 144A - Private Placement
(7,000 Common Stock Warrants) (b) (c)............................... 420,000
Star Gas Partners, L.P. (1,219 Units of Limited Partnership
Interests).......................................................... 19,809
Startec Global Communications (8,100 Common Stock Warrants) (c)..... 8,100
Terex Corp. (28,000 Common Stock Rights) (c)........................ 504,000
Total Renal Care Holdings, Inc. (10,000 Common Shares) (c).......... 80,625
UIH Australia Pacific, Inc. (5,000 Common Stock Warrants) (c)....... 15,000
Urohealth Sysytems, Inc., 144A - Private Placement (4,750 Common
Stock Warrants) (b) (c)............................................. 47
Wright Medical Technolgy, Inc. (4,118 Common Stock Warrants) (c).... 412
------------
TOTAL EQUITIES 2.0%.................................................. 17,430,517
------------
TOTAL LONG-TERM INVESTMENTS 96.1%
(Cost $934,678,073)................................................. 843,289,296
------------
SHORT-TERM INVESTMENTS 2.2%
REPURCHASE AGREEMENT 1.4%
BankAmerica Securities ($12,029,000 par collateralized by U.S.
Government obligations in a pooled cash account, dated 08/31/99, to
be sold on 09/01/99 at $12,030,824)................................. 12,029,000
U.S. GOVERNMENT AGENCY OBLIGATION 0.8%
Federal Home Loan Bank Consolidated Discount Note ($7,551,000 par,
yielding 5.40%, 09/01/99 maturity).................................. 7,549,868
------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $19,578,868).................................................. 19,578,868
------------
TOTAL INVESTMENTS 98.3%
(Cost $954,256,941)................................................. 862,868,164
OTHER ASSETS IN EXCESS OF LIABILITIES 1.7%........................... 15,012,278
------------
NET ASSETS 100.0%.................................................... $877,880,442
============
</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.
(e) One unit represents one million par of senior notes and one warrant.
(f) Non-income producing as this bond is currently in default.
See Notes to Financial Statements
20
<PAGE> 22
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $954,256,941)....................... $ 862,868,164
Cash........................................................ 3,656
Receivables:
Interest.................................................. 20,136,344
Fund Shares Sold.......................................... 1,792,775
Other....................................................... 88,435
--------------
Total Assets.......................................... 884,889,374
--------------
LIABILITIES:
Payables:
Income Distributions...................................... 3,596,194
Fund Shares Repurchased................................... 1,953,435
Distributor and Affiliates................................ 628,665
Investment Advisory Fee................................... 396,504
Accrued Expenses............................................ 244,848
Trustees' Deferred Compensation and Retirement Plans........ 189,286
--------------
Total Liabilities..................................... 7,008,932
--------------
NET ASSETS.................................................. $ 877,880,442
==============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $1,055,778,413
Accumulated Undistributed Net Investment Income............. 944,173
Net Unrealized Depreciation................................. (91,388,777)
Accumulated Net Realized Loss............................... (87,453,367)
--------------
NET ASSETS.................................................. $ 877,880,442
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $492,378,343 and 86,742,193 shares of
beneficial interest issued and outstanding)........... $ 5.68
Maximum sales charge (4.75%* of offering price)......... .28
--------------
Maximum offering price to public........................ $ 5.96
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $318,228,218 and 55,993,172 shares of
beneficial interest issued and outstanding)........... $ 5.68
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $67,273,881 and 11,903,905 shares of
beneficial interest issued and outstanding)........... $ 5.65
==============
</TABLE>
*On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
21
<PAGE> 23
STATEMENT OF OPERATIONS
For the Year Ended August 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $100,657,191
Dividends................................................... 1,012,021
Other....................................................... 3,123,947
------------
Total Income............................................ 104,793,159
------------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B, and C of $1,210,079, $3,128,896 and $640,673,
respectively)............................................. 4,979,648
Investment Advisory Fee..................................... 4,751,418
Shareholder Services........................................ 1,711,046
Custody..................................................... 102,732
Trustees' Fees and Related Expenses......................... 46,153
Legal....................................................... 38,780
Other....................................................... 522,300
------------
Total Expenses.............................................. 12,152,077
Less Credits Earned on Overnight Cash Balances.............. 45,952
------------
Net Expenses............................................ 12,106,125
------------
NET INVESTMENT INCOME....................................... $ 92,687,034
============
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Loss........................................... $(26,018,022)
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (63,501,755)
End of the Period......................................... (91,388,777)
------------
Net Unrealized Depreciation During the Period............... (27,887,022)
------------
NET REALIZED AND UNREALIZED LOSS............................ $(53,905,044)
============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 38,781,990
============
</TABLE>
See Notes to Financial Statements
22
<PAGE> 24
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended August 31, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
August 31, 1999 August 31, 1998
- -------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................ $ 92,687,034 $ 74,061,466
Net Realized Gain/Loss........................... (26,018,022) 18,269,123
Net Unrealized Depreciation During the Period.... (27,887,022) (89,734,268)
------------- ------------
Change in Net Assets from Operations............. 38,781,990 2,596,321
------------- ------------
Distributions from Net Investment Income:
Class A Shares................................. (56,432,461) (49,213,216)
Class B Shares................................. (31,245,715) (21,538,906)
Class C Shares................................. (6,424,163) (3,848,005)
------------- ------------
Total Distributions............................ (94,102,339) (74,600,127)
------------- ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES..................................... (55,320,349) (72,003,806)
------------- ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold........................ 377,609,982 398,226,626
Net Asset Value of Shares Issued Through Dividend
Reinvestment................................... 50,110,723 41,295,995
Cost of Shares Repurchased....................... (332,658,016) (226,785,118)
------------- ------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS................................... 95,062,689 212,737,503
------------- ------------
TOTAL INCREASE IN NET ASSETS..................... 39,742,340 140,733,697
NET ASSETS:
Beginning of the Period.......................... 838,138,102 697,404,405
------------- ------------
End of the Period (Including accumulated
undistributed net investment income of $944,173
and $4,912,228, respectively) ................. $ 877,880,442 $838,138,102
============= ============
</TABLE>
See Notes to Financial Statements
23
<PAGE> 25
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 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............. .626 .614 .604 .607 .55
Net Realized and Unrealized
Gain/Loss....................... (.370) (.479) .267 .139 .0515
------ ------ ------ ------ ------
Total from Investment
Operations...................... .256 .135 .871 .746 .6015
Less Distributions from Net
Investment Income............... .640 .623 .621 .598 .5715
------ ------ ------ ------ ------
Net Asset Value, End of the
Period.......................... $5.676 $6.060 $6.548 $6.298 $ 6.15
====== ====== ====== ====== ======
Total Return (a).................. 4.41% 1.66% 14.44% 12.66% 10.48%
Net Assets at End of the Period
(In millions)................... $492.4 $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).......... 10.65% 9.33% 9.37% 9.65% 9.23%
Portfolio Turnover................ 51% 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's
reimbursement of certain expenses was less than 0.01%.
See Notes to Financial Statements
24
<PAGE> 26
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 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........... .584 .571 .559 .559 .51
Net Realized and Unrealized
Gain/Loss..................... (.373) (.490) .262 .141 .0335
------ ------ ------ ------ ------
Total from Investment
Operations...................... .211 .081 .821 .700 .5435
Less Distributions from Net
Investment Income............... .592 .575 .573 .550 .5235
------ ------ ------ ------ ------
Net Asset Value, End of the
Period.......................... $5.683 $6.064 $6.558 $6.310 $ 6.16
====== ====== ====== ====== ======
Total Return (a).................. 3.57% 0.77% 13.58% 11.78% 9.41%
Net Assets at End of the Period
(In millions)................... $318.2 $283.1 $198.0 $114.6 $ 89.9
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).......... 9.88% 8.52% 8.60% 8.86% 8.42%
Portfolio Turnover................ 51% 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's
reimbursement of certain expenses was less than 0.01%.
See Notes to Financial Statements
25
<PAGE> 27
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 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........... .582 .570 .561 .557 .51
Net Realized and Unrealized
Gain/Loss..................... (.374) (.488) .256 .137 .0435
------ ------ ------ ------ ------
Total from Investment
Operations...................... .208 .082 .817 .694 .5535
Less Distributions from Net
Investment Income............... .592 .575 .573 .550 .5235
------ ------ ------ ------ ------
Net Asset Value, End of the
Period.......................... $5.651 $6.035 $6.528 $6.284 $ 6.14
====== ====== ====== ====== ======
Total Return (a).................. 3.42% 0.93% 13.64% 11.66% 9.63%
Net Assets at End of the Period
(In millions)................... $ 67.3 $ 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).......... 9.87% 8.49% 8.57% 8.86% 8.42%
Portfolio Turnover................ 51% 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's
reimbursement of certain expenses was less than 0.01%.
See Notes to Financial Statements
26
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS
August 31, 1999
- --------------------------------------------------------------------------------
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 98%
of the investment portfolio. At August 31, 1999, approximately 15% of the Fund's
long-term investments were in non-U.S. issuers, of which the largest geographic
exposure was Canada with 3%.
27
<PAGE> 29
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1999
- --------------------------------------------------------------------------------
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, 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. Income and expenses of the Fund
are allocated on a pro rata basis to each class of shares, except for
distribution and service fees and transfer agency costs which are unique to each
class of shares.
D. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset such losses against any future realized capital
gains. At August 31, 1999, the Fund
28
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1999
- --------------------------------------------------------------------------------
had an accumulated capital loss carryforward for tax purposes of $68,001,037
which expires between August 31, 2000 and August 31, 2007. Of this amount,
$45,375,504 will expire in 2000. Net realized gains or losses may differ for
financial reporting and tax purposes primarily as a result of market discount
from bonds sold, post October 31 losses which are not realized for tax purposes
until the first day of the following fiscal year and the deferral of losses
relating to wash sales transactions.
At August 31, 1999, for federal income tax purposes, cost of long- and
short-term investments is $954,541,201, the aggregate gross unrealized
appreciation is $13,096,054 and the aggregate gross unrealized depreciation is
$104,769,091, resulting in net unrealized depreciation on long- and short-term
investments of $91,673,037.
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 gain/losses under generally accepted accounting principles and federal
income tax purposes, permanent differences between financial and tax basis
reporting for the 1999 fiscal year have been identified and appropriately
reclassified. 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. Permanent book and tax basis
differences relating to the expiration of a portion of the capital loss
carryforward totaling $125,160,730 were reclassified from accumulated net
realized gain/loss to capital. Permanent book and tax basis differences relating
to the recognition of market discount on bonds totaling $184,649 were
reclassified from accumulated net realized gain/loss to accumulated
undistributed net investment income. Additionally, permanent differences of
$1,930,310 related to consent fee income was reclassified from accumulated
undistributed net investment income to accumulated net realized gain/loss.
29
<PAGE> 31
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1999
- --------------------------------------------------------------------------------
F. EXPENSE REDUCTIONS--During the year ended August 31, 1999, the Fund's custody
fee was reduced by $45,952 as a result of credits earned on overnight cash
balances.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
<TABLE>
<CAPTION>
AVERAGE 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, 1999, the Fund recognized expenses of
approximately $38,800 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the year ended August 31, 1999, the Fund recognized expenses of
approximately $216,800 representing Van Kampen's cost of providing accounting
services to the Fund.
Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as
the shareholder servicing agent of the Fund. For the year ended August 31, 1999,
the Fund recognized expenses of approximately $1,278,700. 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.
30
<PAGE> 32
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1999
- --------------------------------------------------------------------------------
3. CAPITAL TRANSACTIONS
At August 31, 1999, capital aggregated $698,093,022, $293,770,644 and
$63,914,747 for Class A, B and C shares, respectively. For the year ended August
31, 1999, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................... 32,072,403 $ 188,609,487
Class B.................................... 25,472,343 150,618,753
Class C.................................... 6,517,433 38,381,742
----------- -------------
Total Sales.................................. 64,062,179 $ 377,609,982
=========== =============
Dividend Reinvestment:
Class A.................................... 5,422,970 $ 31,977,983
Class B.................................... 2,538,917 14,977,036
Class C.................................... 538,024 3,155,704
----------- -------------
Total Dividend Reinvestment.................. 8,499,911 $ 50,110,723
=========== =============
Repurchases:
Class A.................................... (33,140,278) $(196,504,687)
Class B.................................... (18,690,883) (110,387,970)
Class C.................................... (4,391,924) (25,765,359)
----------- -------------
Total Repurchases............................ (56,223,085) $(332,658,016)
=========== =============
</TABLE>
31
<PAGE> 33
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1999
- --------------------------------------------------------------------------------
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 purchased
on or after June 1, 1996 will automatically convert to Class A shares after the
eighth year following purchase. Class B shares purchased before June 1, 1996
automatically convert to Class A shares after the sixth year following purchase.
For the year ended August 31, 1999, 11,279,092 Class B shares automatically
converted to Class A shares. The CDSC will be imposed on
32
<PAGE> 34
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1999
- --------------------------------------------------------------------------------
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>
For the year ended August 31, 1999, Van Kampen, as Distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately
$218,800 and CDSC on redeemed shares of approximately $773,300. 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 $510,175,034 and $426,498,986,
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.
33
<PAGE> 35
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1999
- --------------------------------------------------------------------------------
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, cash or liquid 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).
There were no transactions in futures contracts for the year ended August
31, 1999.
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, 1999, are payments retained
by Van Kampen of approximately $2,742,700.
34
<PAGE> 36
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, 1999, 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, 1999 by correspondence with the custodian, provide a reasonable basis for
the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
October 6, 1999
35
<PAGE> 37
VAN KAMPEN HIGH INCOME CORPORATE BOND FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
JERRY D. CHOATE
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY, PH.D.
PAUL G. YOVOVICH
OFFICERS
RICHARD F. POWERS, III*
President
DENNIS J. MCDONNELL*
Executive Vice President
and Chief Investment Officer
A. THOMAS SMITH III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer and
Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
STEPHEN L. BOYD*
PETER W. HEGEL*
MICHAEL H. SANTO*
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 218256
Kansas City, Missouri 64121-8256
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
200 E. Randolph Drive
Chicago, IL 60601
TAX NOTICE TO CORPORATE SHAREHOLDERS
For the fiscal year ended August 31, 1999, 1.17% of the dividends taxable as
ordinary income qualified for the 70% dividends received deduction for
corporations.
* "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 January 31, 2000, the report, if used with
prospective investors, must be accompanied by a monthly performance update.
36
<PAGE> 38
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.
<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-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> AUG-31-1999
<INVESTMENTS-AT-COST> 954,256,941<F1>
<INVESTMENTS-AT-VALUE> 862,868,164<F1>
<RECEIVABLES> 21,929,119<F1>
<ASSETS-OTHER> 88,435<F1>
<OTHER-ITEMS-ASSETS> 3,656<F1>
<TOTAL-ASSETS> 884,889,374<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 7,008,932<F1>
<TOTAL-LIABILITIES> 7,008,932<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 698,093,022
<SHARES-COMMON-STOCK> 86,742,193
<SHARES-COMMON-PRIOR> 82,387,098
<ACCUMULATED-NII-CURRENT> 944,173<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (87,453,367)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (91,388,777)<F1>
<NET-ASSETS> 492,378,343
<DIVIDEND-INCOME> 1,012,021<F1>
<INTEREST-INCOME> 100,657,191<F1>
<OTHER-INCOME> 3,123,947<F1>
<EXPENSES-NET> (12,106,125)<F1>
<NET-INVESTMENT-INCOME> 92,687,034<F1>
<REALIZED-GAINS-CURRENT> (26,018,022)<F1>
<APPREC-INCREASE-CURRENT> (27,887,022)<F1>
<NET-CHANGE-FROM-OPS> 38,781,990<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (56,432,461)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 32,072,403
<NUMBER-OF-SHARES-REDEEMED> (33,140,278)
<SHARES-REINVESTED> 5,422,970
<NET-CHANGE-IN-ASSETS> (6,925,094)
<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> 4,751,418<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 12,152,077<F1>
<AVERAGE-NET-ASSETS> 520,891,939
<PER-SHARE-NAV-BEGIN> 6.060
<PER-SHARE-NII> 0.626
<PER-SHARE-GAIN-APPREC> (0.370)
<PER-SHARE-DIVIDEND> (0.640)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 5.676
<EXPENSE-RATIO> 1.03
<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
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1999
<PERIOD-END> AUG-31-1999
<INVESTMENTS-AT-COST> 954,256,941<F1>
<INVESTMENTS-AT-VALUE> 862,868,164<F1>
<RECEIVABLES> 21,929,119<F1>
<ASSETS-OTHER> 88,435<F1>
<OTHER-ITEMS-ASSETS> 3,656<F1>
<TOTAL-ASSETS> 884,889,374<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 7,008,932<F1>
<TOTAL-LIABILITIES> 7,008,932<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 293,770,644
<SHARES-COMMON-STOCK> 55,993,172
<SHARES-COMMON-PRIOR> 46,672,795
<ACCUMULATED-NII-CURRENT> 944,173<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (87,453,367)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (91,388,777)<F1>
<NET-ASSETS> 318,228,218
<DIVIDEND-INCOME> 1,012,021<F1>
<INTEREST-INCOME> 100,657,191<F1>
<OTHER-INCOME> 3,123,947<F1>
<EXPENSES-NET> (12,106,125)<F1>
<NET-INVESTMENT-INCOME> 92,687,034<F1>
<REALIZED-GAINS-CURRENT> (26,018,022)<F1>
<APPREC-INCREASE-CURRENT> (27,887,022)<F1>
<NET-CHANGE-FROM-OPS> 38,781,990<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (31,245,715)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 25,472,343
<NUMBER-OF-SHARES-REDEEMED> (18,690,883)
<SHARES-REINVESTED> 2,538,917
<NET-CHANGE-IN-ASSETS> 35,160,404
<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> 4,751,418<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 12,152,077<F1>
<AVERAGE-NET-ASSETS> 312,836,558
<PER-SHARE-NAV-BEGIN> 6.064
<PER-SHARE-NII> 0.584
<PER-SHARE-GAIN-APPREC> (0.373)
<PER-SHARE-DIVIDEND> (0.592)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 5.683
<EXPENSE-RATIO> 1.79
<FN>
<F1>This term 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
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> AUG-31-1999
<INVESTMENTS-AT-COST> 954,256,941<F1>
<INVESTMENTS-AT-VALUE> 862,868,164<F1>
<RECEIVABLES> 21,929,119<F1>
<ASSETS-OTHER> 88,435<F1>
<OTHER-ITEMS-ASSETS> 3,656<F1>
<TOTAL-ASSETS> 884,889,374<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 7,008,932<F1>
<TOTAL-LIABILITIES> 7,008,932<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 63,914,747
<SHARES-COMMON-STOCK> 11,903,905
<SHARES-COMMON-PRIOR> 9,240,372
<ACCUMULATED-NII-CURRENT> 944,173<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (87,453,367)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (91,388,777)<F1>
<NET-ASSETS> 67,273,881
<DIVIDEND-INCOME> 1,012,021<F1>
<INTEREST-INCOME> 100,657,191<F1>
<OTHER-INCOME> 3,123,947<F1>
<EXPENSES-NET> (12,106,125)<F1>
<NET-INVESTMENT-INCOME> 92,687,034<F1>
<REALIZED-GAINS-CURRENT> (26,018,022)<F1>
<APPREC-INCREASE-CURRENT> (27,887,022)<F1>
<NET-CHANGE-FROM-OPS> 38,781,990<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (6,424,163)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,517,433
<NUMBER-OF-SHARES-REDEEMED> (4,391,924)
<SHARES-REINVESTED> 538,024
<NET-CHANGE-IN-ASSETS> 11,507,030
<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> 4,751,418<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 12,152,077<F1>
<AVERAGE-NET-ASSETS> 64,056,062
<PER-SHARE-NAV-BEGIN> 6.035
<PER-SHARE-NII> 0.582
<PER-SHARE-GAIN-APPREC> (0.374)
<PER-SHARE-DIVIDEND> (0.592)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 5.651
<EXPENSE-RATIO> 1.79
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
