<PAGE> 1
<TABLE>
<S> <C>
Table of Contents
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 3
PORTFOLIO AT A GLANCE
CREDIT QUALITY 4
SIX-MONTH DISTRIBUTION HISTORY 4
TOP FIVE INDUSTRIES 4
Q&A WITH YOUR PORTFOLIO MANAGERS 5
GLOSSARY OF TERMS 8
BY THE NUMBERS
YOUR FUND'S INVESTMENTS 9
FINANCIAL STATEMENTS 18
NOTES TO FINANCIAL STATEMENTS 24
VAN KAMPEN FUNDS
THE VAN KAMPEN FAMILY OF FUNDS 31
FUND OFFICERS AND IMPORTANT ADDRESSES 32
</TABLE>
One of the greatest shifts we've seen is the increasing importance of investing
for many Americans.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE> 2
OVERVIEW
LETTER TO SHAREHOLDERS
April 3, 2000
Dear Shareholder,
As we enter a new century--and millennium--it seems appropriate to take a look
back at the progress that's been made over the last 100 years and how the world
of investing has changed over the generations. Although rapid advances in
technology and science have dramatically altered the world that we live in
today, one of the greatest shifts we've seen is the increasing importance of
investing for many Americans.
Once considered primarily for the wealthy, investing in the stock market is now
available to most people. In fact, almost 79 million individuals--who represent
almost half of all U.S. households--own stocks either directly or through mutual
funds. This is even more impressive when considering that just 16 years earlier,
only 19 percent of households owned stocks. Another important shift has been the
need for retirement planning beyond a pension plan or Social Security. The
Investment Company Institute, the leading mutual fund industry association,
reports that 77 percent of all
mutual fund shareholders earmarked retirement as their primary
financial goal in 1998.
Through all the changes in the investment environment over the
past century, the general principles that have made
generations of investors successful remain the same. Some that have stood the
test of time include:
- - Investing for the long-term
- - Basing investment decisions on sound research
- - Building a diversified portfolio
- - Acting on the value of professional investment advice
While no one can predict the future, at Van Kampen we believe that these ideas
will remain important tenets for investors well into this century. As we
continue to focus on these principles, we hope that our decades of investment
experience can help bring you closer to your financial goals as we welcome the
new millennium.
Sincerely,
<TABLE>
<S> <C>
[SIG]
Richard F. Powers, III
Chairman
Van Kampen
Asset Management Inc.
</TABLE>
1
<PAGE> 3
ECONOMIC SNAPSHOT
ECONOMIC GROWTH REMAINED VIBRANT DURING THE REPORTING PERIOD DUE TO STRONG
CONSUMER AND GOVERNMENT SPENDING, AS WELL AS YEAR 2000-RELATED INVENTORY
BUILD-UP. GROSS DOMESTIC PRODUCT (GDP), THE PRIMARY MEASURE OF ECONOMIC GROWTH,
INCREASED AT AN ANNUALIZED RATE OF 6.9 PERCENT IN THE FOURTH QUARTER OF 1999,
ITS FASTEST GROWTH RATE SINCE 1996. WITH GDP MEASURING 4.1 PERCENT FOR 1999,
THIS WAS THE THIRD SUCCESSIVE YEAR IN WHICH GDP EXCEEDED 4 PERCENT.
STRONG GDP DATA, AMONG OTHER FACTORS, PROMPTED THE FEDERAL RESERVE BOARD TO TAKE
AN ACTIVE STANCE IN TEMPERING ECONOMIC GROWTH TO WARD OFF INFLATION. THE FED
INCREASED THE FEDERAL FUNDS RATE BY 0.25 PERCENT FOUR TIMES SINCE JUNE 1999, AND
AN ADDITIONAL INCREASE IS WIDELY ANTICIPATED IN LATE MARCH. [EDITOR'S NOTE: THE
FED RAISED THE FEDERAL FUNDS RATE BY 0.25 PERCENT ON MARCH 21.] DESPITE THE
SURGING ECONOMY, THE CONSUMER PRICE INDEX (CPI)--A MEASURE OF
INFLATION--REMAINED MODEST, RISING JUST 2.7 PERCENT DURING THE 12 MONTHS ENDED
FEBRUARY 29, 2000.
ALTHOUGH THE CPI POSTED FAVORABLE NUMBERS, INFLATIONARY PRESSURES CONTINUED TO
BUILD IN LABOR COSTS AND CONSUMER SPENDING RATES. THE JOB MARKET REMAINED TIGHT
AS UNEMPLOYMENT DROPPED TO A 30-YEAR LOW. AS A RESULT, THE EMPLOYMENT COST INDEX
HAS REFLECTED ESCALATING LABOR COSTS, AS EMPLOYERS HAVE INCREASED COMPENSATION
AND BENEFITS TO ATTRACT WORKERS.
RISING INTEREST RATES DID LITTLE TO CURB CONSUMER SPENDING. SHOPPERS SPENT
FREELY IN LATE 1999 AND INTO THE NEW YEAR, AND CONSUMER CONFIDENCE REMAINS VERY
HIGH DUE TO PLENTIFUL JOBS, ACCELERATING PERSONAL INCOME, AND LOW INFLATION.
INTEREST RATES AND INFLATION
(February 28, 1998 - February 29, 2000)
[LINE GRAPH]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Feb 98 5.50 1.40
5.50 1.40
5.50 1.40
May 98 5.50 1.70
5.50 1.70
5.50 1.70
Aug 98 5.50 1.60
5.25 1.50
5.00 1.50
Nov 98 4.75 1.50
4.75 1.60
4.75 1.70
Feb 99 4.75 1.60
4.75 1.70
4.75 2.30
May 99 4.75 2.10
5.00 2.00
5.00 2.10
Aug 99 5.25 2.30
5.25 2.60
5.25 2.60
Nov 99 5.50 2.60
5.50 2.70
5.50 2.70
Feb 00 5.75 3.20
</TABLE>
Interest rates are represented by the closing midline federal funds target 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 SUMMARY
RETURN HIGHLIGHTS
(as of February 29, 2000)
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SIX-MONTH TOTAL RETURN BASED ON
NAV(1) 2.81% 2.56% 2.39%
- -------------------------------------------------------------------------
Six-month total return(2) (2.02%) (1.34%) 1.42%
- -------------------------------------------------------------------------
One-year average annual total
return(2) (0.76%) (0.49%) 3.26%
- -------------------------------------------------------------------------
Five-year average annual total
return(2) 7.69% 7.91% 7.88%
- -------------------------------------------------------------------------
Ten-year average annual total
return(2) 10.07% N/A N/A
- -------------------------------------------------------------------------
Life-of-Fund average annual total
return(2) 8.65% 7.99%(3) 6.56%
- -------------------------------------------------------------------------
Commencement date 10/02/78 07/02/92 07/06/93
- -------------------------------------------------------------------------
Distribution rate(4) 10.02% 9.75% 9.82%
- -------------------------------------------------------------------------
SEC Yield(5) 9.64% 9.37% 9.44%
- -------------------------------------------------------------------------
</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 Class A shares) or
contingent deferred sales charge ("CDSC") for Class B and C shares. On purchases
of Class A shares of $1 million or more, a CDSC of 1% may be imposed on certain
redemptions made within one year of purchase. Returns for Class B shares are
calculated without the effect of the maximum 4% CDSC, charged on certain
redemptions made within one year of purchase and declining thereafter to 0%
after the fifth year. Returns for Class C shares are calculated without the
effect of the maximum 1% CDSC, charged on certain redemptions made within one
year of purchase. If the sales charges were included, total returns would be
lower.
(2) Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (4.75% for Class A
shares) or contingent deferred sales charge ("CDSC") for Class B and C shares.
On purchases of Class A shares of $1 million or more, a CDSC of 1% may be
imposed on certain redemptions made within one year of purchase. Returns for
Class B shares are calculated with the effect of the maximum 4% CDSC, charged on
certain redemptions made within one year of purchase and declining thereafter to
0% after the fifth year. Returns for Class C shares are calculated with the
effect of the maximum 1% CDSC, charged on certain redemptions made within one
year of purchase.
(3) The total return reflects the conversion of Class B shares into Class A
shares six years after the end of the calendar month in which the shares were
purchased.
(4) Distribution rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.
(5) SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending February 29, 2000.
See the Comparative Performance section of the current prospectus. Past
performance is no guarantee of 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
PORTFOLIO AT A GLANCE
CREDIT QUALITY
(as a percentage of long-term investments)
As of February 29, 2000
[PIE CHART]
<TABLE>
<CAPTION>
BBB/BAA BB/BA B/B CCC/CAA CC/CA C/C
------- ----- --- ------- ----- ---
<S> <C> <C> <C> <C> <C> <C>
As of February 29, 2000 0.70 4.40 84.20 4.20 0.90 0.70
<CAPTION>
NON-RATED
---------
<S> <C>
As of February 29, 2000 4.90
</TABLE>
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 2.10 9.40 75.90 6.00 0.1 0.3 6.20
<CAPTION>
<S> <C>
As of August 31, 1999
</TABLE>
Based upon the highest credit quality ratings as issued by Standard & Poor's or
Moody's, respectively.
SIX-MONTH DISTRIBUTION HISTORY
(for the six-months ending February 29, 2000)
[BAR GRAPH]
<TABLE>
<CAPTION>
DIVIDENDS
---------
<S> <C>
9/99 0.0512
10/99 0.0512
11/99 0.0512
12/99 0.0512
1/00 0.0512
2/00 0.0485
</TABLE>
The distribution history represents past performance of the Fund's Class A
shares and does not predict or guarantee the Fund's future distributions.
TOP FIVE INDUSTRIES
(as a percentage of long-term investments)
[BAR GRAPH]
<TABLE>
<CAPTION>
FEBRUARY 29, 2000 AUGUST 31, 1999
----------------- ---------------
<S> <C> <C>
Utilities 24.4 23.2
Consumer Services 22.6 23.2
Raw Materials/Processing Industries 9.9 10.2
Consumer Distribution 7.6 9.9
Producer Manufacturing 6 5.9
</TABLE>
4
<PAGE> 6
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH REPRESENTATIVES OF THE ADVISER OF THE VAN KAMPEN HIGH
INCOME CORPORATE BOND FUND ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED
THE MARKETS DURING THE PAST SIX MONTHS. THE REPRESENTATIVES ARE LED BY ROBERT J.
HICKEY, PORTFOLIO MANAGER, WHO HAS MANAGED THE FUND SINCE JUNE 1999 AND WORKED
IN THE INVESTMENT INDUSTRY SINCE 1988. HE IS JOINED BY PETER E. EHRET,
CO-PORTFOLIO MANAGER, AND PETER W. HEGEL, CHIEF INVESTMENT OFFICER FOR
FIXED-INCOME INVESTMENTS. THE FOLLOWING DISCUSSION REFLECTS THEIR VIEWS ON THE
FUND'S PERFORMANCE DURING THE SIX-MONTH PERIOD ENDED FEBRUARY 29, 2000.
Q HOW WOULD YOU CHARACTERIZE THE
MARKET CONDITIONS IN WHICH THE FUND OPERATED DURING THE PAST SIX MONTHS?
A Despite a series of interest-rate
hikes by the Federal Reserve Board that began in June, yield spreads between
Treasuries and other types of bonds (such as corporate, high-yield, and
mortgage-backed securities) began to narrow in early September. This narrowing
trend continued until November, as investors became increasingly concerned about
the potential effects of year 2000 computer problems on new bond issuance and
liquidity. However, an additional Fed rate increase in November and a lighter-
than-expected new issuance calendar ushered in a relatively smooth ending to a
volatile and difficult year for the fixed-income market.
In the new year, predictions of an increase in new issuance and asset flows
into the high-yield market failed to materialize. High-yield, high-risk bonds
that came to market were met by sufficient demand, but many more potential deals
were thwarted by risk-averse investors. In anticipation of additional Fed
activity in February, yield spreads once again began to widen between Treasuries
and high-yield, high-risk bonds, indicating that bonds underperformed during
this time and through the end of the period.
Q WHAT WAS THE EFFECT OF THESE
CONDITIONS ON THE HIGH-YIELD MARKET?
A Because this market is typically less
sensitive to interest-rate changes than other areas of the fixed-income market,
high-yield, high-risk securities outperformed Treasuries and other bonds in this
rising-rate environment. However, performance for the high-yield market failed
to meet expectations.
An increase in defaults for high-yield, high-risk securities also
overshadowed the market and contributed to dwindling flows into the
5
<PAGE> 7
asset class. Defaults, while higher than the previous year, actually peaked in
mid-1999 and fell for the duration of the reporting period. We believe that last
year's high default rate represented a reversion to the historical average from
the unusually low rate of the past few years. In our opinion, the current
spreads of high-yield bonds more than compensate investors for current credit
and default risk. In addition, because defaults were concentrated in certain
sectors, we believe this spike in defaults is not a precursor to a sustained
higher default rate.
Q HOW DID YOU MANAGE THE FUND
IN LIGHT OF THESE CONDITIONS?
A We continued to implement an
investment strategy focused on fundamental credit analysis--which, given the
market volatility during this period of time, served the Fund well.
Another successful element of our investment strategy during the reporting
period was to maintain a low cash position in the portfolio despite the flow of
assets in and out of the Fund. We temporarily allocated approximately five
percent of the Fund's assets to cash around the turn of the year as a
precautionary measure against fears of year 2000 computer problems. However, the
Fund held this allocation for a shorter period of time than many of its peers,
which enabled the Fund to participate more actively in the new-issue market.
Finally, the Fund's return was boosted by a very small but high-performing
percentage of equity positions in the portfolio. We acquired these
positions--which constituted less than three percent of the Fund's assets as of
the end of the reporting period--by purchasing new bond issues with attached
equity warrants for the Fund, predominately in the telecommunications sector.
Q WHAT SECTORS DID YOU FAVOR--OR
AVOID--DURING THIS TIME?
A Our continued heavy weighting of
the Fund's assets in the telecommunications sector benefited the portfolio,
thanks to that sector's continued positive fundamentals. Standouts within this
sector were cellular and mobile companies like Triton PCS and Airgate PCS. The
Fund's holdings in competitive local exchange carriers, or CLECs, were also
successful but trailed the performance of cellular companies.
We underweighted the health-care and basic industrials sectors, which were
two of the weaker market sectors during the period. We acquired three new
health-care issues in late 1999 but maintained a relatively low weighting in
this area compared to other high-yield funds. Because this battered sector
continued to suffer from changes in Medicare reimbursement, the Fund's lower
weighting enabled it to outperform its index. For additional portfolio
highlights, please refer to page 4.
6
<PAGE> 8
Q HOW DID THE FUND PERFORM
DURING THE REPORTING PERIOD?
A For the six-month period ended
February 29, 2000, the Fund posted a total return of 2.81 percent (Class A
shares at net asset value). By comparison, the Credit Suisse First Boston High
Yield Index returned 1.52 percent for the same period. This broad-based,
unmanaged index reflects the general performance of a wide range of selected
bonds within the public high-yield debt market, but does not reflect any
commissions or fees that would be paid by an investor purchasing the securities
it represents. Such costs would lower its performance. An investment cannot be
made directly in an index. Of course, past performance is no guarantee of future
results. Please refer to the chart and footnotes on page 3 for additional Fund
performance results.
Q WHAT IS YOUR OUTLOOK FOR THE
MARKET AND THE FUND OVER THE COMING MONTHS?
A We anticipate the continued
combination of a strong economy and rising interest rates to prevail in the
first half of the year. Against this backdrop, we expect that the high-yield
market should again outperform other fixed-income investments. Within the
high-yield market, we believe the telecommunications industry will continue to
shine, with returns generally exceeding those of other sectors.
Because we believe credit quality will continue to improve from its mid-
1999 low point, we plan to maintain our efforts to diversify the Fund's high-
yield, high-risk allocation. Overall, we will continue to apply our research-
intensive selection process and evaluate bonds on a case-by-case basis to find
those that we believe can add the most value to the portfolio.
7
<PAGE> 9
GLOSSARY OF TERMS
A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.
BOND: A debt security issued by a government or corporation that pays a
bondholder a stated rate of interest and repays the principal at the 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.
DEFENSIVE INVESTMENT STRATEGY: A method of portfolio allocation and management
aimed at minimizing the risk of losing principal. Defensive investors place a
high percentage of their investable assets in bonds, cash equivalents, and
stocks that are less volatile than average.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank 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.
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
BY THE NUMBERS
YOUR FUND'S INVESTMENTS
February 29, 2000 (Unaudited)
THE FOLLOWING PAGES DETAIL THE SPECIFIC HOLDINGS OF YOUR FUND AT THE END OF THE
REPORTING PERIOD.
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
CORPORATE BONDS 92.9%
CONSUMER DISTRIBUTION 7.3%
$ 5,700 Agrilink Foods, Inc...................... 11.875% 11/01/08 $ 5,557,500
4,250 Big 5 Corp., Ser B....................... 10.875 11/15/07 4,143,750
3,000 Building One Services Corp............... 10.500 05/01/09 2,775,000
5,915 Chiquita Brands International, Inc....... 10.000 06/15/09 4,909,450
9,000 CHS Electronics, Inc..................... 9.875 04/15/05 675,000
3,200 Community Distributors, Inc.............. 10.250 10/15/04 2,608,000
6,500 Disco SA (Argentina)..................... 9.125 05/15/03 5,996,250
4,000 Duane Reade, Inc......................... 9.250 02/15/08 3,800,000
3,000 Fleming Cos., Inc........................ 10.500 12/01/04 2,805,000
2,000 Gruma SA (Mexico)........................ 7.625 10/15/07 1,762,500
1,200 Jitney Jungle Stores America, Inc. (f)... 12.000 03/01/06 240,000
5,500 King Pharmaceuticals, Inc................ 10.750 02/15/09 5,768,125
4,000 Luiginos, Inc............................ 10.000 02/01/06 3,380,000
1,350 Musicland Group, Inc..................... 9.000 06/15/03 1,194,750
8,255 Musicland Group, Inc..................... 9.875 03/15/08 7,058,025
7,250 Pantry, Inc.............................. 10.250 10/15/07 6,941,875
2,640 Pathmark Stores, Inc..................... 11.625 06/15/02 712,800
1,095 Pathmark Stores, Inc..................... 12.625 06/15/02 295,650
6,000 Pathmark Stores, Inc. (a)................ 0/10.750 11/01/03 600,000
945 Phar Mor, Inc............................ 11.720 09/11/02 859,950
------------
62,083,625
------------
CONSUMER DURABLES 3.3%
9,710 Aetna Industries, Inc.................... 11.875 10/01/06 9,515,800
1,725 Cambridge Industries, Inc. Ser B......... 10.250 07/15/07 431,250
6,000 Oxford Automotive, Inc., Ser D........... 10.125 06/15/07 5,700,000
4,000 Sleepmaster LLC.......................... 11.000 05/15/09 4,030,000
6,430 Talon Automotive Group, Inc., Ser B...... 9.625 05/01/08 3,247,150
6,300 Webb (Del E.) Corp....................... 10.250 02/15/10 5,386,500
------------
28,310,700
------------
CONSUMER NON-DURABLES 5.2%
3,860 Anvil Knitwear, Inc...................... 10.875 03/15/07 3,232,750
6,000 Cluett American Corp., Ser B............. 10.125 05/15/08 4,260,000
3,500 CMI Industries, Inc...................... 9.500 10/01/03 3,106,250
8,900 Consoltex Group, Inc. (Canada)........... 11.000 10/01/03 8,544,000
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
YOUR FUND'S INVESTMENTS
February 29, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
CONSUMER NON-DURABLES (CONTINUED)
$ 3,000 Decora Industries, Inc................... 11.000% 05/01/05 $ 1,740,000
4,625 Del Monte Corp........................... 12.250 04/15/07 5,156,875
4,250 Delta Mills Insurance, Ser B............. 9.625 09/01/07 3,081,250
1,300 French Fragrances, Inc., Ser B........... 10.375 05/15/07 1,261,000
5,000 French Fragrances, Inc., Ser D........... 10.375 05/15/07 4,850,000
4,750 Globe Manufacturing Corp................. 10.000 08/01/08 2,137,500
6,000 Outsourcing Services Group, Inc., Ser
B........................................ 10.875 03/01/06 5,130,000
1,750 United Industries Corp., Ser B........... 9.875 04/01/09 1,417,500
------------
43,917,125
------------
CONSUMER SERVICES 21.7%
6,510 Agrosy Gaming Co......................... 10.750 06/01/09 6,737,850
4,975 Amazon.com, Inc. (a)..................... 0/10.000 05/01/08 3,034,750
3,000 American Plumbing & Mechanical........... 11.625 10/15/08 2,745,000
5,130 Americredit Corp......................... 9.250 02/01/04 5,104,350
4,000 Avis Rental A Car, Inc................... 11.000 05/01/09 4,090,000
9,750 Booth Creek Ski Holdings, Inc., Ser B.... 12.500 03/15/07 6,873,750
2,400 Bresnan Communications Group............. 8.000 02/01/09 2,430,000
2,500 Cadmus Communications Corp............... 9.750 06/01/09 2,431,250
10,020 Capstar Broadcasting Partners (a)........ 0/12.750 02/01/09 9,043,050
6,900 Casino Magic Louisiana Corp., Ser B...... 13.000 08/15/03 7,624,500
6,250 Cathay International Ltd., 144A--Private
Placement (Japan) (b).................... 13.000 04/15/08 3,250,000
9,085 Charter Communication Holdings........... 8.250 04/01/07 8,358,200
4,500 Charter Communications Holdings, 144A--
Private Placement (a) (b)................ 0/11.750 01/15/10 2,576,250
1,750 Charter Communications Holdings, 144A--
Private Placement (b).................... 10.000 04/01/09 1,741,250
2,500 Citadel Broadcasting Co.................. 9.250 11/15/08 2,412,500
5,500 Citadel Broadcasting Co., Ser B.......... 10.250 07/01/07 5,623,750
1,375 Classic Cable, Inc....................... 9.375 08/01/09 1,295,937
1,025 Classic Cable, Inc., 144A--Private
Placement (b)............................ 10.500 03/01/10 1,033,969
4,600 Coaxial Commerce Central Ohio, Inc....... 10.000 08/15/06 4,416,000
1,750 Diamond Cable Co. (United Kingdom) (a)... 0/11.750 12/15/05 1,671,250
2,250 Frontiervision Holdings L.P. (a)......... 0/11.875 09/15/07 1,991,250
2,875 Frontiervision Holdings L.P., Ser B
(a)...................................... 0/11.875 09/15/07 2,544,375
1,975 Globix Corp., 144A-- Private Placement
(b)...................................... 12.500 02/01/10 1,982,406
4,000 Globo Communicacoes Participation,
144A--Private Placement (Brazil) (b)..... 10.625 12/05/08 3,485,000
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
YOUR FUND'S INVESTMENTS
February 29, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
CONSUMER SERVICES (CONTINUED)
$ 3,500 Gray Communications Systems, Inc......... 10.625% 10/01/06 $ 3,539,375
2,000 Grupo Televisa Corp., Ser B (Mexico)..... 11.875 05/15/06 2,205,000
4,000 Hollywood Casino Corp.................... 11.250 05/01/07 4,170,000
1,770 Hollywood Casino Shreveport, 144A--
Private Placement (b).................... 13.000 08/01/06 1,885,050
1,575 Hollywood Park, Inc., Ser B.............. 9.250 02/15/07 1,535,625
5,300 Horseshoe Gaming LLC..................... 8.625 05/15/09 4,902,500
5,500 International Cabletel, Inc. (a)......... 0/11.500 02/01/06 5,170,000
1,750 Intrawest Corp., 144A--Private Placement
(Canada) (b)............................. 10.500 02/01/10 1,732,500
4,500 Isle Capri Casinos, Inc.................. 8.750 04/15/09 4,005,000
3,150 James Cable Partners L.P. ............... 10.750 08/15/04 3,157,875
4,500 Louisiana Petite Academy, Inc., Ser B.... 10.000 05/15/08 2,992,500
765 Majestic Star Casino LLC, Ser B.......... 10.875 07/01/06 728,663
7,500 Multicanal Participacoes, Ser B
(Brazil)................................. 12.625 06/18/04 7,200,000
4,500 Muzak LLC................................ 9.875 03/15/09 4,320,000
5,700 Northland Cable Television, Inc.......... 10.250 11/15/07 5,628,750
3,000 Park N View, Inc., Ser B................. 13.000 05/15/08 2,115,000
3,950 Port Arthur Finance Corp., Ser A, 144A--
Private Placement (b).................... 12.500 01/15/09 3,693,250
7,400 Premier Parks, Inc. (a).................. 0/10.000 04/01/08 4,773,000
7,000 Radio Unica Corp. (a).................... 0/11.750 08/01/06 4,445,000
1,350 Sinclair Broadcast Group, Inc............ 8.750 12/15/07 1,208,250
7,000 Splitrock Services, Inc., Ser B.......... 11.750 07/15/08 7,455,000
4,190 Telewest Communications PLC (United
Kingdom) (a)............................. 0/11.000 10/01/07 3,959,550
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 4,675,000
5,255 United International Holdings, Inc.
(a)...................................... 0/10.750 02/15/08 3,731,050
6,250 Young America Corp., Ser B............... 11.625 02/15/06 4,593,750
------------
184,273,325
------------
ENERGY 4.6%
4,875 Cheasapeake Energy Corp.................. 9.625 05/01/05 4,655,625
5,200 Frontier Oil Corp........................ 11.750 11/15/09 4,680,000
5,935 Houston Exploration Co................... 8.625 01/01/08 5,564,062
7,725 Hurricane Hydrocarbons Ltd., 144A--
Private Placements (Canada) (b) (f)...... 11.750 11/01/04 5,059,875
6,250 Hydrochem Industrial Services, Inc., Ser
B........................................ 10.375 08/01/07 5,156,250
6,300 KCS Energy, Inc. (f)..................... 11.000 01/15/03 5,197,500
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
YOUR FUND'S INVESTMENTS
February 29, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
ENERGY (CONTINUED)
$ 5,000 Pride Petroleum Services, Inc............ 9.375% 05/01/07 $ 4,850,000
6,000 Universal Compression, Inc. (a).......... 0/9.875 02/15/08 3,510,000
1,000 Universal Compression, Inc. (a).......... 0/11.375 02/15/09 505,000
------------
39,178,312
------------
FINANCE 1.6%
4,750 Americo Life, Inc. (b)................... 9.250 06/01/05 4,726,250
3,000 Chatwins Group, Inc...................... 13.000 05/01/03 2,955,000
3,000 Contifinancial Corp...................... 7.500 03/15/02 315,000
2,000 DLJ Secured Loan Trust Class A, 144A--
Private Placement (b).................... 10.125 07/07/07 2,000,000
3,000 Madison River Capital/Madison River
Financial Series, 144A--Private Placement
(b)...................................... 13.250 03/01/10 2,955,000
2,250 Superior National Capital Trust 1........ 9.280 12/01/17 1,136,250
------------
14,087,500
------------
HEALTHCARE 2.6%
3,900 Biovail Corporation International........ 10.875 11/15/05 4,387,500
2,425 Iasis Healthcare Corp., 144A Private
Placement (b)............................ 13.000 10/15/09 2,455,313
3,000 Mediq, Inc............................... 11.000 06/01/08 510,000
1,490 Owens & Minor, Inc....................... 10.875 06/01/06 1,530,975
8,265 Oxford Health Plans, Inc................. 11.000 05/15/05 8,223,675
2,250 Tenet Healthcare Corp.................... 8.125 12/01/08 2,081,250
2,500 Triad Hospitals Holdings, Inc............ 11.000 05/15/09 2,568,750
------------
21,757,463
------------
PRODUCER MANUFACTURING 5.8%
9,750 Carpenter W R North America, Inc......... 10.625 06/15/07 4,436,250
500 Cemex International Capital, Inc......... 9.660 11/29/49 507,500
3,355 Compass Aerospace Corp................... 10.125 04/15/05 1,459,425
4,500 Eagle Picher Industries, Inc............. 9.375 03/01/08 3,870,000
5,500 Filtronic PLC (United Kingdom)........... 10.000 12/01/05 5,335,000
1,400 Georgia Gulf Corp., 144A--Private
Placement (b)............................ 10.375 11/01/07 1,445,500
5,255 GS Technologies Operating, Inc........... 12.000 09/01/04 2,995,350
8,000 IMO Industries, Inc...................... 11.750 05/01/06 8,040,000
2,000 Numatics, Inc............................ 9.625 04/01/08 1,630,000
4,500 St John Knits International Inc.......... 12.500 07/01/09 4,207,500
3,000 Terex Corp............................... 8.875 04/01/08 2,700,000
4,500 Terex Corp., Ser D....................... 8.875 04/01/08 4,162,500
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
YOUR FUND'S INVESTMENTS
February 29, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
PRODUCER MANUFACTURING (CONTINUED)
$ 5,970 Venture Holdings, Inc.................... 12.000% 06/01/09 $ 5,134,200
6,750 Waxman Industries, Inc., Ser B (a)....... 0/12.750 06/01/04 3,071,250
------------
48,994,475
------------
RAW MATERIALS/PROCESSING INDUSTRIES 9.5%
2,175 Acetex Corp. (Canada).................... 9.750 10/01/03 2,066,250
4,500 AEP Industries, Inc...................... 9.875 11/15/07 4,005,000
4,200 Anchor Lamina, Inc. (Canada)............. 9.875 02/01/08 3,108,000
4,540 Aracruz Celulose SA, 144A--Private
Placement (Brazil) (b)................... 10.375 01/31/02 4,608,100
4,500 Doe Run Resources Corp., Ser B........... 11.250 03/15/05 3,960,000
2,760 Doman Inds Limited....................... 12.000 07/01/04 2,898,000
1.7 Units Intersil Corp. (e)....................... 13.250 08/15/09 1,912,500
6,500 Kappa Beheer BV (Netherlands)............ 10.625 07/15/09 6,640,595
5,000 Lyondell Chemical Co., Ser B............. 9.875 05/01/07 4,800,000
2,000 Pacifica Papers, Inc..................... 10.000 03/15/09 2,000,000
5,054 Pioneer Americas Acquisition Corp., Ser
B........................................ 9.250 06/15/07 4,346,440
6,500 Printpack, Inc., Ser B................... 10.625 08/15/06 6,435,000
3,250 Radnor Holdings, Inc., Ser B............. 10.000 12/01/03 3,006,250
5,000 Renco Steel Holdings, Inc................ 10.875 02/01/05 4,650,000
3,950 Repap New Brunswick, Inc. (Canada)....... 9.000 06/01/04 3,811,750
6 units Republic Technologies International,
144A--Private Placement (b) (e).......... 13.750 07/15/09 2,147,750
2,250 Scovill Fasteners, Inc................... 11.250 11/30/07 990,000
6,255 Tekni-Plex, Inc., Ser B.................. 11.250 04/01/07 6,536,475
3,975 TeleCorp PCS, Inc. (a)................... 0/11.625 04/15/09 2,613,563
2,750 Vicap SA (Mexico)........................ 10.250 05/15/02 2,701,875
3,100 Vicap SA (Mexico)........................ 11.375 05/15/07 3,007,000
4,625 WHX Corp................................. 10.500 04/15/05 4,509,375
------------
80,753,923
------------
TECHNOLOGY 3.6%
3,360 Advanced Micro Devices, Inc.............. 11.000 08/01/03 3,376,800
3 units DecisionOne Holdings Corp. (a) (e)....... 0/11.500 08/01/08 600
6,000 DecisionOne Holdings Corp. (f)........... 9.750 08/01/07 30,000
3,660 Dictaphone Corp.......................... 11.750 08/01/05 3,056,100
7,500 Fairchild Semiconductor Corp............. 10.375 10/01/07 7,537,500
2,000 Intermedia Communications, Inc. (a)...... 0/11.250 07/15/07 1,600,000
2,745 PSINet, Inc.............................. 10.000 02/15/05 2,635,200
1,750 PSINet, Inc.............................. 10.500 12/01/06 1,670,649
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
YOUR FUND'S INVESTMENTS
February 29, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
TECHNOLOGY (CONTINUED)
$ 8,705 PSINet, Inc.............................. 11.500% 11/01/08 $ 8,792,050
2,175 Williams Communications Corp............. 10.700 10/01/07 2,262,000
------------
30,960,899
------------
TRANSPORTATION 4.2%
4,000 American Commercial Lines LLC............ 10.250 06/30/08 3,520,000
7,500 Atlas Air, Inc........................... 10.750 08/01/05 7,556,250
4,750 Atlas Air, Inc........................... 9.375 11/15/06 4,476,875
675 Atlas Air, Inc........................... 9.250 04/15/08 626,906
2,700 Cenargo International PLC (United
Kingdom)................................. 9.750 06/15/08 2,362,500
7,650 Greyhound Lines, Inc..................... 11.500 04/15/07 7,420,500
2,770 MRS Logistica SA, Ser B, 144A--Private
Placement (Brazil) (b)................... 10.625 08/15/05 2,402,975
6,250 Pegasus Shipping Hellas Ltd., Ser A
(Bermuda) (f)............................ 11.875 11/15/04 2,343,750
4,500 Stena AB (Sweden)........................ 10.500 12/15/05 4,162,500
1,800 Transport World Airlines, Inc............ 11.500 12/15/04 1,116,000
------------
35,988,256
------------
UTILITIES 23.5%
900 Airgate PCS, Inc. (a).................... 0/13.500 10/01/09 522,000
5.2 Units Airgate PCS, Inc. (a)(e)................. 0/13.500 10/01/09 3,811,000
4,400 Alamosa PCS Holdings, Inc. (a)........... 0/12.875 02/15/10 2,343,000
6,250 Centennial Cellular Operating Co......... 10.750 12/15/08 6,437,500
9,750 Clearnet Communications, Inc. (Canada)
(a)...................................... 0/14.750 12/15/05 9,847,500
6,000 Compania De Transporte Energia, 144A--
Private Placement (Argentina) (b)........ 9.250 04/01/08 5,317,500
3,950 Crown Castle International Corp. (a)..... 0/10.625 11/15/07 2,903,250
2,000 Crown Castle International Corp.......... 9.500 08/01/11 1,970,000
5,500 CTI Holdings SA (a)...................... 0/11.500 04/15/08 3,602,500
8,040 E Spire Communications, Inc. (a)......... 0/13.000 11/01/05 5,869,200
4,000 Global Crossing Holdings Ltd., 144A--
Private Placement (Bermuda).............. 9.125 11/15/06 3,890,000
1,950 Global Telesystems Europe, 144A--Private
Placement................................ 11.000 12/01/09 1,823,973
4,300 Globenet Communications Group Ltd.,
144A--Private Placement (Bermuda) (b).... 13.000 07/15/07 4,063,500
4,670 GST Network Funding, Inc. (a)............ 0/10.500 05/01/08 2,335,000
568 GST Telecommunications, Inc., 144A--
Private Placement (Canada) (a)(b)........ 0/13.875 12/15/05 386,240
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
YOUR FUND'S INVESTMENTS
February 29, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
UTILITIES (CONTINUED)
$ 8,545 GT Group Telecom, Inc., 144A--Private
Placement (Canada) (a)(b)................ 0/13.250% 02/01/10 $ 5,105,637
6,550 ICG Holdings, Inc. (a)................... 0/13.500 09/15/05 6,222,500
2,500 ICG Holdings, Inc. (a)................... 0/12.500 05/01/06 2,100,000
6,515 Intermedia Communications of Florida,
Inc. (a)................................. 0/12.500 05/15/06 6,172,962
3,400 Jazztel PLC (United Kingdom)............. 13.250 12/15/09 3,426,157
8,300 KMC Telecommunications Holdings, Inc.
(a)...................................... 0/12.500 02/15/08 4,855,500
4,900 Level 3 Communications, Inc., 144A--
Private Placement (a)(b)................. 0/12.875 03/15/10 2,646,000
3,750 Metromedia Fiber Network, Inc............ 10.000 12/15/09 3,712,500
10,210 Microcell Telecommunications, Ser B
(a)...................................... 0/14.000 06/01/06 9,240,050
9,000 Millicom International Cellular SA
(Luxemburg) (a).......................... 0/13.500 06/01/06 7,875,000
8,750 Netia Holdings, Inc., Ser B (Netherlands)
(a)...................................... 0/11.250 11/01/07 6,168,750
3,750 Nextel Communications, Inc. (a).......... 0/10.650 09/15/07 2,864,063
1,000 Nextel Communications, Inc............... 12.000 11/01/08 1,110,000
3,270 Nextel Communications, Inc............... 9.375 11/15/09 3,180,075
3,950 Nextlink Communications Inc., 144A--
Private Placement (a)(b)................. 0/12.125 12/01/09 2,271,250
5,800 Nextlink Communications, Inc., 144A--
Private Placement (b).................... 10.500 12/01/09 5,771,000
4,500 NTL, Inc. (a)............................ 0/9.750 04/01/08 2,992,500
1,175 Philippine Long Distance Telephone
(Philippines)............................ 10.500 04/15/09 1,183,813
10,574 Pinnacle Holdings, Inc. (a).............. 0/10.000 03/15/08 7,111,015
4,450 Price Communications Wireless............ 11.750 07/15/07 4,872,750
6,400 Primus Telecommunications Group.......... 11.750 08/01/04 6,368,000
830 Primus Telecommunications Group.......... 11.250 01/15/09 782,275
3,750 Rural Cellular Corp...................... 9.625 05/15/08 3,675,000
2,250 Satelites Mexicanos SA (Mexico).......... 10.125 11/01/04 1,845,000
10,250 SBA Communications Corp. (a)............. 0/12.000 03/01/08 7,251,875
8,100 Startec Global Communications............ 12.000 05/15/08 6,682,500
7,700 Triton Communications LLC (a)............ 0/11.000 05/01/08 5,515,125
1,350 United Pan-Europe Communication NV,
144A -- Private Placement (Netherlands)
(a)(b)................................... 0/13.750 02/01/10 715,500
1,060 United Pan-Europe Communication NV Ser B,
144A--Private Placement (Netherlands)
(b)...................................... 11.250 02/01/10 1,075,900
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
YOUR FUND'S INVESTMENTS
February 29, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
UTILITIES (CONTINUED)
$ 3,500 United Pan-Europe Communications NV
(Netherlands)............................ 10.875% 08/01/09 $ 3,447,500
6,345 United Pan-Europe Communications NV
(Netherlands) (a)........................ 0/12.50 08/01/09 3,410,437
1,460 Verio, Inc............................... 13.500 06/15/04 1,602,350
4,015 Verio, Inc............................... 10.375 04/01/05 3,974,850
5,800 Worldwide Fiber, Inc..................... 12.000 08/01/09 6,075,500
------------
199,675,497
------------
TOTAL CORPORATE BONDS 92.9%.................................. 789,981,100
------------
FOREIGN GOVERNMENT OBLIGATIONS 0.9%
2,000 Republic of Argentina (Argentina)........ 11.375 01/30/17 1,975,000
1,500 Republic of Colombia (Columbia).......... 9.750 04/23/09 1,395,000
1,500 Russian Federation Bond, 144A--
Private Placement (Russia) (b)........... 11.000 07/24/18 969,375
125 United Mexican States Debt (Mexico)...... 9.875 02/01/10 132,344
1,250 United Mexican States Debt (Mexico)...... 6.250 12/31/19 1,017,187
2,000 United Mexican States Debt (Mexico)...... 11.500 05/15/26 2,497,500
------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS.......................... 7,986,406
------------
</TABLE>
<TABLE>
<S> <C>
EQUITIES 2.3%
American Telecasting, Inc. (1,750 Common Stock Warrants)
(c)....................................................... 1,750
Anvil Holdings, Inc. Senior Preferred Ser B (c) (d)......... 979,519
Contour Energy Co. (75,000 Common Shares) (c)............... 57,000
Crown Castle International Corp. (20,637 Preferred Shares,
12.75% coupon, $1,000 par per share) (c) (d)................ 2,229,561
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)................ 1,395,916
HF Holdings, Inc. (36,820 Common Stock Warrants), (c)....... 40,502
Intersil Holding Corp., 144A--Private Placement (1,700
Common Stock Warrants), (b) (c)............................. 1,360,000
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)............ 772,375
NTL, Inc. (6,889 Common Stock Warrants) (c)................. 830,435
Optel, Inc. (3,275 Common Shares) (c)....................... 6,550
Park N View, Inc. (3,000 Common Stock Warrants), 144A
Private Placement (b) (c)................................. 750
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
YOUR FUND'S INVESTMENTS
February 29, 2000 (Unaudited)
<TABLE>
<CAPTION>
MARKET
DESCRIPTION VALUE
<S> <C>
EQUITIES (CONTINUED)
Price Communications Corp. (221,141 Common Shares) (c)...... $ 1,315,847
Primus Telecommunications Group (2,000 Common Stock
Warrants) (c)............................................. 106,000
Rural Cellular Corp. (7,046 Preferred Shares, 11.375%
coupon, $1,000 par per share) (c) (d)..................... 7,396,168
Signature Brands, Inc. (4,000 Common Stock Warrants) (c).... 86,000
Splitrock Services, Inc. (36,848 Common Shares) (c)......... 1,722,644
Star Gas Partners, L.P. (1,219 Units of Limited Partnership
Interests)................................................ 17,523
Startec Global Communications (8,100 Common Stock Warrants)
(c)....................................................... 149,850
Terex Corp. (28,000 Common Stock Rights) (c)................ 504,000
Total Renal Care Holdings, Inc. (10,000 Common Shares)
(c)......................................................... 30,000
UIH Australia Pacific, Inc. (5,000 Common Stock Warrants)
(c)......................................................... 152,500
Wright Medical Technology, Inc. (4,118 Common Stock
Warrants) (c)............................................... 41,176
------------
TOTAL EQUITIES 2.3%........................................ 19,271,465
------------
TOTAL LONG-TERM INVESTMENTS 96.1%
(Cost $924,112,275)....................................... 817,238,971
REPURCHASE AGREEMENTS 1.7%
BA Securities ($14,540,000 par collateralized by U.S.
Government Obligations in a pooled cash account, dated
02/29/00, to be sold on 03/01/00 at $14,542,359)
(Cost $14,540,000)........................................ 14,540,000
------------
TOTAL INVESTMENTS 97.8%
(Cost $938,652,275)....................................... 831,778,971
FOREIGN CURRENCY 0.0%
(Cost $237,762)........................................... 232,943
OTHER ASSETS IN EXCESS OF LIABILITIES 2.2%................. 18,662,661
------------
NET ASSETS 100.0%.......................................... $850,674,575
============
</TABLE>
(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 the 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
17
<PAGE> 19
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
February 29, 2000 (Unaudited)
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $938,652,275)....................... $ 831,778,971
Cash........................................................ 6,409,509
Foreign Currency (Cost $237,762)............................ 232,943
Receivables:
Interest.................................................. 20,007,471
Investments Sold.......................................... 2,059,778
Fund Shares Sold.......................................... 1,731,777
Dividends................................................. 70,229
Other....................................................... 79,677
--------------
Total Assets............................................ 862,370,355
--------------
LIABILITIES:
Payables:
Fund Shares Repurchased................................... 4,276,794
Income Distributions...................................... 3,369,206
Investments Purchased..................................... 2,733,278
Distributor and Affiliates................................ 493,897
Investment Advisory Fee................................... 359,739
Accrued Expenses............................................ 265,884
Trustees' Deferred Compensation and Retirement Plans........ 196,982
--------------
Total Liabilities....................................... 11,695,780
--------------
NET ASSETS.................................................. $ 850,674,575
==============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $1,051,455,580
Accumulated Distributions in Excess of Net Investment
Income.................................................... (1,075,865)
Accumulated Net Realized Loss............................... (92,816,549)
Net Unrealized Depreciation................................. (106,888,591)
--------------
NET ASSETS.................................................. $ 850,674,575
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $494,999,374 and 89,581,572 shares of
beneficial interest issued and outstanding)............. $ 5.53
Maximum sales charge (4.75%* of offering price)......... .28
--------------
Maximum offering price to public........................ $ 5.81
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $292,577,061 and 52,857,347 shares of
beneficial interest issued and outstanding)............. $ 5.54
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $63,098,140 and 11,466,925 shares of
beneficial interest issued and outstanding)............. $ 5.50
==============
</TABLE>
* On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
18
<PAGE> 20
Statement of Operations
For the Six Months Ended February 29, 2000 (Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 47,584,082
Dividends................................................... 600,526
Other....................................................... 1,257,587
-------------
Total Income............................................ 49,442,195
-------------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B, and C of $590,634, $1,521,763 and $320,578,
respectively)............................................. 2,432,975
Investment Advisory Fee..................................... 2,282,823
Shareholder Services........................................ 765,909
Custody..................................................... 86,619
Legal....................................................... 31,000
Trustees' Fees and Related Expenses......................... 21,834
Other....................................................... 228,462
-------------
Total Expenses.......................................... 5,849,622
Less Credits Earned on Overnight Cash Balances.......... 6,254
-------------
Net Expenses............................................ 5,843,368
-------------
NET INVESTMENT INCOME....................................... $ 43,598,827
=============
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Loss........................................... $ (5,363,182)
-------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (91,388,777)
End of the Period:
Investments............................................. (106,873,304)
Foreign Currency Translation............................ (15,287)
-------------
(106,888,591)
-------------
Net Unrealized Depreciation During the Period............... (15,499,814)
-------------
NET REALIZED AND UNREALIZED LOSS............................ $ (20,862,996)
=============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 22,735,831
=============
</TABLE>
See Notes to Financial Statements
19
<PAGE> 21
Statement of Changes in Net Assets
For the Six Months Ended February 29, 2000 and the Year Ended August 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, 2000 AUGUST 31, 1999
------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................... $ 43,598,827 $ 92,687,034
Net Realized Loss................................... (5,363,182) (26,018,022)
Net Unrealized Depreciation During the Period....... (15,499,814) (27,887,022)
------------- -------------
Change in Net Assets from Operations................ 22,735,831 38,781,990
------------- -------------
Distributors from Net Investment Income............. (44,543,000) (94,102,339)
Distributions in Excess of Net Investment Income.... (1,075,865) (-0-)
------------- -------------
Distributions from and in Excess of Net Investment
Income*........................................... (45,618,865) (94,102,339)
------------- -------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES........................................ (22,883,034) (55,320,349)
------------- -------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold........................... 134,512,146 377,609,982
Net Asset Value of Shares Issued Through Dividend
Reinvestment...................................... 25,531,978 50,110,723
Cost of Shares Repurchased.......................... (164,366,957) (332,658,016)
------------- -------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.. (4,322,833) 95,062,689
------------- -------------
TOTAL DECREASE/INCREASE IN NET ASSETS............... (27,205,867) 39,742,340
NET ASSETS:
Beginning of the Period............................. 877,880,442 838,138,102
------------- -------------
End of the Period (Including accumulated
undistributed net investment income of
$(1,075,865) and $944,173, respectively).......... $ 850,674,575 $ 877,880,442
============= =============
* Distributions by Class:
- ----------------------------------------------------
Distributions from and in Excess of Net Investment
Income:
Class A Shares.................................... $ (27,004,372) $ (56,432,461)
Class B Shares.................................... (15,362,072) (31,245,715)
Class C Shares.................................... (3,252,421) (6,424,163)
------------- -------------
$ (45,618,865) $ (94,102,339)
============= =============
</TABLE>
See Notes to Financial Statements
20
<PAGE> 22
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED. (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED AUGUST 31,
CLASS A SHARES FEBRUARY 29, ------------------------------------
2000 1999 1998 1997 1996
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD............................ $5.676 $6.060 $6.548 $6.298 $ 6.15
------ ------ ------ ------ ------
Net Investment Income............. .290 .626 .614 .604 .607
Net Realized and Unrealized
Gain/Loss....................... (.135) (.370) (.479) .267 .139
------ ------ ------ ------ ------
Total from Investment Operations.... .155 .256 .135 .871 .746
Less Distributions from and in
excess of Net Investment Income... .305 .640 .623 .621 .598
------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE PERIOD.. $5.526 $5.676 $6.060 $6.548 $6.298
====== ====== ====== ====== ======
Total Return (a).................... 2.81%* 4.41% 1.66% 14.44% 12.66%
Net Assets at End of the Period (In
millions)......................... $495.0 $492.4 $499.3 $468.6 $421.4
Ratio of Expenses to Average Net
Assets (b)........................ 1.04% 1.03% 1.00% 1.08% 1.08%
Ratio of Net Investment Income to
Average Net Assets (b)............ 10.43% 10.65% 9.33% 9.37% 9.65%
Portfolio Turnover.................. 28%* 51% 90% 75% 76%
</TABLE>
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge of 4.75% or contingent deferred
sales charge ("CDSC"). On purchases of $1 million or more, a contingent
deferred sales charge of 1% may be imposed on certain redemptions made
within one year of purchase. If the sales charges were included, total
returns would be lower.
(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%.
* Non-annualized
See Notes to Financial Statements
21
<PAGE> 23
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED. (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED AUGUST 31,
CLASS B SHARES FEBRUARY 29, ------------------------------------
2000 1999 1998 1997 1996
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD............................ $5.683 $6.064 $6.558 $6.310 $ 6.16
------ ------ ------ ------ ------
Net Investment Income............. .269 .584 .571 .559 .559
Net Realized and Unrealized
Gain/Loss....................... (.136) (.373) (.490) .262 .141
------ ------ ------ ------ ------
Total from Investment Operations.... .133 .211 .081 .821 .700
Less Distributions from and in
excess of Net Investment Income... .281 .592 .575 .573 .550
------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE PERIOD.. $5.535 $5.683 $6.064 $6.558 $6.310
====== ====== ====== ====== ======
Total Return (a).................... 2.56%* 3.57% 0.77% 13.58% 11.78%
Net Assets at End of the Period (In
millions)......................... $292.6 $318.2 $283.1 $198.0 $114.6
Ratio of Expenses to Average Net
Assets (b)........................ 1.79% 1.79% 1.79% 1.86% 1.87%
Ratio of Net Investment Income to
Average Net Assets (b)............ 9.68% 9.88% 8.52% 8.60% 8.86%
Portfolio Turnover.................. 28%* 51% 90% 75% 76%
</TABLE>
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum contingent deferred sales charge of 4%,
charged on certain redemptions made within one year of purchase and
declining thereafter to 0% after the fifth year. If the sales charge was
included, total returns would be lower.
(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%.
* Non-annualized
See Notes to Financial Statements
22
<PAGE> 24
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED. (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED AUGUST 31,
CLASS C SHARES FEBRUARY 29, ------------------------------------
2000 1999 1998 1997 1996
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD............................ $5.651 $6.035 $6.528 $6.284 $ 6.14
------ ------ ------ ------ ------
Net Investment Income............. .268 .582 .570 .561 .557
Net Realized and Unrealized
Gain/Loss....................... (.135) (.374) (.488) .256 .137
------ ------ ------ ------ ------
Total from Investment Operations.... .133 .208 .082 .817 .694
Less Distributions from and in
excess of Net Investment Income... .281 .592 .575 .573 .550
------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE PERIOD.. $5.503 $5.651 $6.035 $6.528 $6.284
====== ====== ====== ====== ======
Total Return (a).................... 2.39%* 3.42% 0.93% 13.64% 11.66%
Net Assets at End of the Period (In
millions)......................... $ 63.1 $ 67.3 $ 55.8 $ 30.8 $ 17.5
Ratio of Expenses to Average Net
Assets (b)........................ 1.79% 1.79% 1.79% 1.86% 1.87%
Ratio of Net Investment Income to
Average Net Assets (b)............ 9.68% 9.87% 8.49% 8.57% 8.86%
Portfolio Turnover.................. 28%* 51% 90% 75% 76%
</TABLE>
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum contingent deferred sales charge of 1%,
charged on certain redemptions made within one year of purchase. If the
sales charge was included, total returns would be lower.
(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%.
* Non-annualized
See Notes to Financial Statements
23
<PAGE> 25
NOTES TO
FINANCIAL STATEMENTS
February 29, 2000 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen High Income Corporate Bond Fund (the "Fund"), a Delaware business
trust, is registered as a diversified open-end management investment company
under the Investment Company Act of 1940, as amended. The Fund's investment
objective is to provide maximum current income through investment in high
yielding, high risk fixed-income securities. The Fund commenced investment
operations on October 2, 1978. The Fund commenced distribution of its Class B
and Class C shares on July 2, 1992 and July 6, 1993, respectively.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION Fixed income investments and preferred stock are stated at
value using market quotations or indications of value obtained from an
independent pricing service. Investments in securities listed on a securities
exchange are valued at the sale price as of the close of such securities
exchange. Unlisted securities and listed securities for which the last sales
price is not available are valued at the mean of the bid and asked prices. For
those securities where quotations or prices are not available as noted above,
valuations are determined in accordance with procedures established in good
faith by the Board of Trustees. Short-term securities with remaining maturities
of 60 days or less are valued at amortized cost.
Fund investments include lower-rated debt securities which may be more
susceptible to adverse economic conditions than other investment grade holdings.
These securities are often subordinated to the prior claims of other senior
lenders and uncertainties exist as to an issuer's ability to meet principal and
interest payments. At the end of the period, debt securities rated below
investment grade and comparable unrated securities represented approximately 99%
of the investment portfolio. At February 29, 2000, approximately 12% of the
Fund's long-term investments were in non-U.S. issuers, of which the largest
geographic exposure was Canada with 3%.
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,
24
<PAGE> 26
NOTES TO
FINANCIAL STATEMENTS
February 29, 2000 (Unaudited)
with settlement to occur at a later date. The value of the security so purchased
is subject to market fluctuations during this period. The Fund will maintain, in
a segregated account with its custodian, assets having an aggregate value at
least equal to the amount of the when-issued or delayed delivery purchase
commitments until payment is made. At February 29, 2000, 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 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.
25
<PAGE> 27
NOTES TO
FINANCIAL STATEMENTS
February 29, 2000 (Unaudited)
At February 29, 2000, for federal income tax purposes, cost of long- and
short-term investments is $938,983,207, the aggregate gross unrealized
appreciation is $16,639,165 and the aggregate gross unrealized depreciation is
$123,843,401, resulting in net unrealized depreciation on long- and short-term
investments of $107,204,236.
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 certain expenses under
generally accepted accounting principals and federal income tax purposes, the
amount of distributed net investment income may differ for a particular period.
These differences are temporary in nature, but may result in book basis
distribution in excess of net investment income for certain periods.
F. EXPENSE REDUCTIONS During the six months ended February 29, 2000, the Fund's
custody fee was reduced by $6,254 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 six months ended February 29, 2000, the Fund recognized expenses of
approximately $31,000 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the six months ended February 29, 2000, the Fund recognized expenses of
approximately $39,600 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 six months ended February
29,
26
<PAGE> 28
NOTES TO
FINANCIAL STATEMENTS
February 29, 2000 (Unaudited)
2000, the Fund recognized expenses of approximately $583,100. 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.
3. CAPITAL TRANSACTIONS
At February 29, 2000, capital aggregated $713,736,396, $276,246,348 and
$61,472,836 for Class A, B and C shares, respectively. For the six months ended
February 29, 2000, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A............................................... 14,159,194 $ 78,891,478
Class B............................................... 7,651,423 42,725,122
Class C............................................... 2,324,552 12,895,546
----------- -------------
Total Sales............................................. 24,135,169 $ 134,512,146
=========== =============
Dividend Reinvestment:
Class A............................................... 2,986,959 $ 16,242,463
Class B............................................... 1,367,006 7,617,116
Class C............................................... 301,661 1,672,399
----------- -------------
Total Dividend Reinvestment............................. 4,655,626 $ 25,531,978
=========== =============
Repurchases:
Class A............................................... (14,306,774) $ (79,490,567)
Class B............................................... (12,154,254) (67,866,534)
Class C............................................... (3,063,193) (17,009,856)
----------- -------------
Total Repurchases....................................... (29,524,221) $(164,366,957)
=========== =============
</TABLE>
27
<PAGE> 29
NOTES TO
FINANCIAL STATEMENTS
February 29, 2000 (Unaudited)
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>
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, and any dividend reinvestment plan Class B shares
received thereon, automatically convert to Class A shares eight years after the
end of the calendar month in which the shares were purchased. Class B shares
purchased before June 1, 1996, and any dividend reinvestment plan Class B shares
received thereon, automatically convert to Class A shares six years after the
end of the calendar month in which the shares were purchased. For the six months
ended February 29, 2000 and the year ended August 31, 1999, 1,923,472 and
11,279,092 Class B shares converted to Class A shares, respectively and are
shown in the above tables as sales of Class A shares and repurchases of Class B
shares. Class C shares purchased before January 1, 1997, and any dividend
reinvestment plan Class C shares received thereon, automatically convert to
Class A shares ten years after the end of the calendar month in which such
shares were purchased. Class C shares purchased on or after January 1, 1997 do
not possess a conversion feature. For the six months ended February 29, 2000 and
the year ended August 31, 1999, no Class C shares converted to Class A shares.
The CDSC will be imposed on most
28
<PAGE> 30
NOTES TO
FINANCIAL STATEMENTS
February 29, 2000 (Unaudited)
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 six months ended February 29, 2000, Van Kampen, as Distributor for
the Fund, received commissions on sales of the Fund's Class A shares of
approximately $74,900 and CDSC on redeemed shares of approximately $557,900.
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 $232,103,559 and $255,737,032,
respectively.
5. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio or generate potential gain. All of the Fund's portfolio holdings,
including derivative instruments, are marked to market each day with the change
in value reflected in the unrealized appreciation/depreciation. Upon
disposition, a realized gain or loss is recognized accordingly, except when
taking delivery of a security underlying a futures contract. In this instance,
the recognition of gain or loss is postponed until the disposal of the security
underlying the futures contract.
The Fund may invest in futures contracts, a type of derivative. A futures
contract is an agreement involving the delivery of a particular asset on a
specified future date at an agreed upon price. The Fund generally invests in
futures on U.S. Treasury Notes. These contracts are generally used to manage the
portfolio's effective maturity and duration.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, cash or liquid securities with a value equal to its
29
<PAGE> 31
NOTES TO
FINANCIAL STATEMENTS
February 29, 2000 (Unaudited)
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 six months ended
February 29, 2000.
6. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A average net assets and
1.00% each for Class B and Class C average net assets are accrued daily.
Included in these fees for the six months ended February 29, 2000, are payments
retained by Van Kampen of approximately $1,297,600.
7. BORROWINGS
In accordance with its investment policies, the Fund may borrow from banks for
temporary purposes and is subject to certain other customary restrictions.
Effective November 30, 1999, the Fund, in conjunction with certain other funds
of Van Kampen, has entered in to a $650,000,000 committed line of credit
facility with a group of banks which expires on November 28, 2000, but is
renewable with the consent of the participating banks. Each fund is permitted to
utilize the facility in accordance with the restrictions of its prospectus. In
the event the demand for the credit facility meets or exceeds $650 million on a
complex-wide basis, each fund will be limited to its pro-rata percentage based
on the net assets of each participating fund. Interest on borrowings is charged
under the agreement at a rate of 0.50% above the federal funds rate per annum.
An annual commitment fee of 0.09% per annum is charged on the unused portion of
the credit facility, which each fund incurs based on its pro-rate percentage of
quarterly net assets. The Fund has not borrowed against the credit facility
during the period.
30
<PAGE> 32
VAN KAMPEN FUNDS
THE VAN KAMPEN
FAMILY OF FUNDS
Growth
Aggressive Growth*
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth
Mid Cap Growth
Pace
Small Cap Value
Technology
Growth and Income
Comstock
Equity Income
Growth and Income
Harbor
Real Estate Securities
Utility
Value
Global/International
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
Global Fixed Income*
Global Franchise
Global Government Securities*
Global Managed Assets*
International Magnum
Latin American
Strategic Income
Worldwide High Income
Income
Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
U.S. Government
U.S. Government Trust for Income
Capital Preservation
Reserve
Tax Free Money
Senior Loan
Prime Rate Income Trust
Senior Floating Rate
Tax Free
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal**
Insured Tax Free Income
Intermediate Term Municipal
Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
To find out more about any of these funds, ask your financial advisor for a
prospectus, which contains more complete information, including sales charges,
risks, and ongoing expenses. Please read it carefully before you invest or send
money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- - visit our Web site at
WWW.VANKAMPEN.COM--
to view a prospectus, select
Download Prospectus [COMPUTER ICON]
- - call us at 1-800-341-2911
weekdays from 7:00 a.m. to 7:00 p.m.
Central time. Telecommunications
Device for the Deaf users, call
1-800-421-2833.
[PHONE ICON]
- - e-mail us by visiting
WWW.VANKAMPEN.COM and
selecting Contact Us
[MAIL ICON]
* Closed to new investors
** Open to new investors for a limited time
31
<PAGE> 33
FUND OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN HIGH INCOME CORPORATE
BOND FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
JERRY D. CHOATE
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
MITCHELL M. MERIN*
JACK E. NELSON
RICHARD F. POWERS, III*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY
PAUL G. YOVOVICH
OFFICERS
RICHARD F. POWERS, III*
President
STEPHEN L. BOYD*(1)
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
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, Illinois 60181-5555
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 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, Illinois 60601
(1) Appointed Executive Vice President and Chief Investment Officer effective
April 3, 2000.
* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940.
(C) Van Kampen Funds Inc., 2000. All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information
on how to purchase shares, the sales charge, and other pertinent data. After
July 31, 2000, the report must be accompanied by a quarterly performance update,
if applicable.
32
<PAGE> 34
RESULTS OF
SHAREHOLDER VOTES
A Joint Special Meeting of Shareholders of the Fund was held on December 15,
1999, where shareholders voted on the election of trustees and independent
public accountants.
1) With regard to the election of the following trustees by shareholders:
<TABLE>
<CAPTION>
# OF SHARES
------------------------------
IN FAVOR WITHHELD
<S> <C> <C>
J. Miles Branagan..................................... 89,267,195 864,269
Jerry D. Choate....................................... 89,254,486 876,978
Linda Hutton Heagy.................................... 89,267,439 864,025
R. Craig Kennedy...................................... 89,295,788 835,676
Mitchell M. Merin..................................... 89,287,049 844,415
Jack E. Nelson........................................ 89,233,587 897,877
Richard F. Powers, III................................ 89,287,426 844,038
Phillip B. Rooney..................................... 89,274,413 857,051
Fernando Sisto........................................ 89,202,180 929,284
Wayne W. Whalen....................................... 89,296,675 834,789
Suzanne H. Woolsey.................................... 89,238,587 892,877
Paul G. Yovovich...................................... 89,286,612 844,852
</TABLE>
2) With regard to the ratification of PricewaterhouseCoopers LLP to act as
independent public accountants for the fund, 88,700,793 shares voted in favor of
the proposal, 200,435 shares voted against, 1,230,236 shares abstained.
