Table of Contents
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 4
PORTFOLIO AT A GLANCE
CREDIT QUALITY 6
SIX-MONTH DIVIDEND HISTORY 6
TOP FIVE INDUSTRIES 6
Q&A WITH YOUR PORTFOLIO MANAGERS 7
GLOSSARY OF TERMS 10
BY THE NUMBERS
YOUR FUND'S INVESTMENTS 11
FINANCIAL STATEMENTS 22
NOTES TO FINANCIAL STATEMENTS 28
BOARD OF TRUSTEES AND IMPORTANT ADDRESSES 37
Promising
economic
signs have
appeared on
the horizon.
This report must be preceded or accompanied by a prospectus for the fund being
offered.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
OVERVIEW
LETTER TO SHAREHOLDERS
March 20, 2002
Dear Shareholder,
In recent months, promising economic signs have appeared on the horizon. While
it may be too soon to declare an end to the recession, it's never too soon to
discuss diversification and long-term investment strategies.
Over the years, we've used our generations of experience to help investors like
you pursue their financial goals. Whether you're planning for your future, or
for your family's, we encourage you to consider including a variety of stock and
fixed-income funds in your portfolio. We believe an appropriately diversified
portfolio, one which includes a balanced mix of investments, may help smooth out
the effects of the market's fluctuations--and, as such, may help improve your
portfolio's long-term performance.
While no portfolio is immune to volatility, your advisor can help
you structure a portfolio designed to address your long-term financial goals. Be
sure to discuss your situation with your advisor before
investing.
Thank you for your continued trust in Van Kampen. We
appreciate the opportunity to help you and your loved ones
enjoy life's true wealth--family, friends and life's daily
pleasures.
Sincerely,
[SIG]
Richard F. Powers, III
President and CEO
Van Kampen Asset Management Inc.
1
ECONOMIC SNAPSHOT
THE ECONOMY AND INTEREST RATES
IN FEBRUARY 2002, SIGNS OF IMPROVING ECONOMIC CONDITIONS WERE EVIDENT AS REPORTS
OF A GROWING ECONOMY AND IMPROVING RETAIL SALES SURFACED. HOWEVER, MANY BUSINESS
LEADERS, AS WELL AS WALL STREET FORECASTERS, REMAINED SKEPTICAL THAT AN ECONOMIC
RECOVERY WAS UNDERWAY.
THE DEBATE WAS SEEMINGLY PUT TO REST AT MONTH'S END AS FEDERAL RESERVE BOARD
CHAIRMAN ALAN GREENSPAN DELIVERED AN UPBEAT ASSESSMENT OF FUTURE ECONOMIC
PROSPECTS TO CONGRESS. DURING HIS PRESENTATION, GREENSPAN INFORMED MEMBERS OF
THE SENATE THAT THE U.S RECESSION HAD COME TO AN END--AND THAT THE FED'S
RATE-CUTTING CAMPAIGN HAD ALSO RUN ITS COURSE. THE 11 RATE REDUCTIONS MADE
DURING 2001 HAD BROUGHT THE FEDERAL FUNDS RATE TO 1.75 PERCENT, A 40-YEAR LOW.
IN THE DAYS FOLLOWING GREENSPAN'S COMMENTS, THE GOVERNMENT RELEASED STATISTICAL
DATA WHICH SEEMED TO SUPPORT THE CHAIRMAN'S CLAIMS. U.S. ECONOMIC GROWTH IN THE
FOURTH QUARTER OF 2001 WAS MUCH STRONGER THAN ANTICIPATED, WHILE FEBRUARY 2002
BROUGHT SIGNS OF MARKED IMPROVEMENT FOR A BELEAGUERED MANUFACTURING SECTOR.
2
U.S. GROSS DOMESTIC PRODUCT
SEASONALLY ADJUSTED ANNUALIZED RATES
(December 31, 1999--December 31, 2001)
[BAR GRAPH]
U.S. GROSS DOMESTIC PRODUCT
---------------------------
Dec 99 8.30
Mar 00 4.80
Jun 00 5.70
Sep 00 1.30
Dec 00 1.90
Mar 01 1.30
Jun 01 0.30
Sep 01 -1.30
Dec 01 1.40
Source: Bureau of Economic Analysis
INTEREST RATES AND INFLATION
(February 28, 2000--February 28, 2002)
[LINE GRAPH]
INTEREST RATES INFLATION
-------------- ---------
Feb 00 5.75 3.20
6.00 3.80
6.00 3.10
May 00 6.50 3.20
6.50 3.70
6.50 3.70
Aug 00 6.50 3.40
6.50 3.50
6.50 3.40
Nov 00 6.50 3.40
6.50 3.40
5.50 3.70
Feb 01 5.50 3.50
5.00 2.90
4.50 3.30
May 01 4.00 3.60
3.75 3.20
3.75 2.70
Aug 01 3.50 2.70
3.00 2.60
2.50 2.10
Nov 01 2.00 1.90
1.75 1.60
1.75 1.10
Feb 02 1.75 1.10
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 percentage
change of the Consumer Price Index for all urban consumers at the end of each
month.
Source: Bloomberg
3
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(as of February 28, 2002)
A SHARES B SHARES C SHARES
---------------------------------------------------------------------------
Six-month total return based on
NAV(1) -7.61% -7.96% -7.80%
---------------------------------------------------------------------------
Six-month total return(2) -11.98% -11.43% -8.67%
---------------------------------------------------------------------------
One-year average annual total
return(2) -17.32% -16.92% -14.53%
---------------------------------------------------------------------------
Five-year average annual total
return(2) -1.52% -1.53% -1.35%
---------------------------------------------------------------------------
Ten-year average annual total
return(2) 4.86% N/A N/A
---------------------------------------------------------------------------
Life-of-Fund average annual total
return(2) 7.10% 4.43%(3) 2.77%
---------------------------------------------------------------------------
Commencement date 10/02/78 07/02/92 07/06/93
---------------------------------------------------------------------------
Distribution rate(4) 11.94% 11.67% 11.77%
---------------------------------------------------------------------------
SEC Yield(5) 11.93% 11.68% 11.79%
---------------------------------------------------------------------------
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 Class 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 the first and second year of
purchase and declining 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. These returns include combined
Rule 12b-1 fees and service fees of up to .25% for Class A Shares and 1% for
Class B and Class C Shares and do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or redemption of Fund shares.
4
(2) Assumes reinvestment of all distributions for the period and includes
payment of the maximum sales charge (4.75% for Class A Shares) or CDSC for
Class B and Class C Shares and combined Rule 12b-1 fees and service fees. 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 the first and second year of
purchase and declining 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. The combined Rule
12b-1 fees and service fees for Class A Shares is up to .25% and for Class B
and Class C Shares is 1%. These returns do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption
of Fund shares.
(3) 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. See
Footnote 3 in the Notes to Financial Statements for additional information.
(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 ended February 28, 2002.
See the Comparative Performance section of the current prospectus. An
investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. Please review the Risk/Return Summary
of the Prospectus for further details on investment risks. Past performance
is no guarantee of future results. Investment returns and principal value
will fluctuate and fund shares, when redeemed, may be worth more or less
than their original cost. As a result of recent market activity, current
performance may vary from the figures shown. For more up-to-date
information, please visit vankampen.com or speak with your financial
advisor.
Market forecasts provided in this report may not necessarily come to pass.
5
PORTFOLIO AT A GLANCE
CREDIT QUALITY
(as a percentage of corporate debt obligations)
As of February 28, 2002
- A/A................ 0.5% [PIE CHART]
- BBB/Baa............ 10.3%
- BB/Ba.............. 24.6%
- B/B................ 49.1%
- CCC/Caa............ 7.7%
- CC/Ca.............. 2.4%
- Non-Rated.......... 5.4%
As of August 31, 2001
- BBB/Baa............ 6.2% [PIE CHART]
- BB/Ba.............. 19.4%
- B/B................ 65.1%
- CCC/Caa............ 5.8%
- CC/Ca.............. 1.0%
- C/C................ 0.3%
- Non-Rated.......... 2.2%
Based upon the credit quality ratings as issued by Standard & Poor's Credit
Market Services/Moody's Investor Services, respectively. Subject to change
daily.
SIX-MONTH DIVIDEND HISTORY
(for the six months ending February 28, 2002)
[BAR GRAPH]
9/01 0.0427
---- ------
10/01 0.0427
11/01 0.0427
12/01 0.0393
1/02 0.0393
2/02 0.0383
The dividend history represents dividends that were paid on the fund's Class A
shares and is no guarantee of the fund's future dividends.
TOP FIVE INDUSTRIES
(as a percentage of long-term investments)
[BAR GRAPH]
FEBRUARY 28, 2002 AUGUST 31, 2001
----------------- ---------------
Wireless Communications 15.00 17.70
Cable 10.40 8.40
Forest Products 8.70 8.40
Energy 8.30 6.80
Gaming & Leisure 7.00 6.60
Subject to change daily. All information is provided for informational
purposes only and should not be deemed as a recommendation to buy the
securities in the industries shown above. Morgan Stanley Dean Witter & Co.
and others affiliated with it may hold positions in or may seek to perform
investment- banking services for the companies listed.
6
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH THE PORTFOLIO MANAGEMENT TEAM FOR THE VAN KAMPEN HIGH
INCOME CORPORATE BOND FUND ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED
THE MARKETS AND INFLUENCED THE FUND'S RETURN DURING THE SIX-MONTH PERIOD ENDED
FEBRUARY 28, 2002. THE FUND IS MANAGED BY THE ADVISER'S TAXABLE FIXED INCOME
TEAM. MEMBERS OF THE TEAM(1) INCLUDE STEPHEN ESSER, MANAGING DIRECTOR, GORDON
LOERY, EXECUTIVE DIRECTOR, AND DEANNA LOUGHNANE, EXECUTIVE DIRECTOR. THE
FOLLOWING DISCUSSION REFLECTS THEIR VIEWS ON THE FUND'S PERFORMANCE.
(1) Team members may change at any time without notice.
Q HOW WOULD YOU CHARACTERIZE
THE MARKET ENVIRONMENT DURING THE LAST SIX MONTHS?
A The past six months have been
very volatile for the entire market. The economy was already struggling as we
entered the reporting period, but the events of September 11 accelerated its
decline. In the weeks that followed, business and consumer activity came to a
virtual standstill, unemployment rose and gross domestic product declined.
During the reporting period, the Federal Reserve Board continued its efforts to
help boost the economy through ongoing reductions in short-term interest rates.
By the end of 2001, the Fed had cut the federal funds rate on 11 separate
occasions during the year, bringing it to a 40-year low of just 1.75 percent.
The high-yield market suffered along with the rest of the market during much
of the past six months. September was a particularly difficult month, with
returns on high-yield bonds down roughly six percent. We believe this was due in
most part to the effects of the terrorist attacks and a market perception at the
time that the economy was going to get much worse. The airline, hotel, gaming,
insurance, financial and retail sectors were especially hard hit in September.
The fixed-line and wireless telecommunications sectors were also poor
performers, as was cable, though to a lesser degree.
In October, however, the market began to show some signs of improvement as
consumer confidence appeared to be growing and the equity market gained. The
high-yield market made a dramatic comeback, recouping almost all of the losses
incurred in September. Telecommunications was one of the few sectors that did
not experience a rally in October. We believe this was mainly due to a general
market perception that this sector entailed very high risk.
High-yield bonds continued to rally in November, took a pause in December,
and moved forward again
7
in early January. Fund inflows were strong in early January as well; the second
week of the month alone saw $1.2 billion flow into high-yield funds -- one of
the largest weekly flows in the history of the market. By February, however, the
market had turned again and flows into high-yield had stopped.
The ramifications of the Enron scandal rippled through much of the market,
but did not seem to have an appreciable effect on high-yield bonds. We believe
this is because investors have generally demanded greater and more detailed
information on the companies that issue high-yield debt because of the higher
perceived risk their securities can entail. For higher-rated companies, on the
other hand, investors typically don't demand as much information because the
perceived investment risk is lower. In our opinion, this "transparency" in the
high-yield market has helped buffer it from the fallout.
Q HOW WAS THE FUND
POSITIONED AND HOW DID IT PERFORM GIVEN THE CHALLENGING MARKET CONDITIONS?
A The fund was overweighted in
both the fixed-line and wireless telecommunications sectors, which were the
biggest drag on performance during the last six months. We have maintained the
fund's weightings here because we believe these sectors continue to be
undervalued. However, if we see improvement, which may occur later in the year,
it's likely we'll reduce the fund's holdings in both sectors. The fund had only
a slight overweight in cable, and so was not as negatively affected by poor
performance in that sector.
On a more positive note, forest products did well and the fund's overweight
in that sector helped boost performance. In addition, underweights in both
metals and utilities helped temper the effects of those sectors' weakness.
We continued to avoid too much exposure to consumer-related sectors such as
retail and consumer products. Consumer spending did not decline to the extent
the overall economy did, and so we anticipate it could lag the overall economy
through a recovery.
During the reporting period, we continued to maintain a high level of
diversification in the fund, with holdings in over 200 individual securities.
The fund's overall average credit quality of a B+ rating has remained basically
unchanged from six months ago. We have kept the credit quality equal to or
slightly above that of the high-yield market as a whole, and may consider
increasing it slightly later in the year.
The fund continued to provide shareholders with what we believe is an
attractive level of income, as its monthly dividend of $0.0383 per share
translates to a distribution rate of 11.94 percent based on the fund's maximum
offering price as of February 28, 2002. For the six-month period ended February
28, 2002, the fund generated a total return of -7.61 percent.
Performance information for the fund reflects Class A shares at net asset
value including combined Rule 12b-1 fees and
8
service fees of up to 0.25 percent and excluding a maximum sales charge of 4.75
percent; if the maximum sales charge were included, the return would be lower.
The return above does not reflect the deduction of taxes that a shareholder
would pay on fund distributions or the redemption of fund shares. Of course,
past performance is no guarantee of future results. Performance of other share
classes will vary. Investment return and principal value will fluctuate and fund
shares, when redeemed, may be worth more or less than their original cost. As a
result of recent market activity, current performance may vary from the figures
shown. For more up-to-date information, please visit vankampen.com or speak with
your financial advisor.
By comparison, the Chase Global High Yield Index posted a total return of
-0.82 percent and the Lipper High Yield Bond Fund Index posted a total return of
-3.68 percent, for the same period. The Chase Global High Yield Index is a
broad-based, unmanaged index which reflects the general performance of the
global high-yield corporate debt market. The Lipper High Yield Bond Fund Index
is an index of funds with similar investment objectives. These index returns do
not include any sales charges or fees that would be paid by an investor
purchasing the securities they represent. Such costs would lower performance. It
is not possible to invest directly in an index. For additional performance
results, please refer to the chart and footnotes on page 4.
Q WHAT IS YOUR OUTLOOK FOR THE
MARKET IN THE MONTHS AHEAD?
A We believe the economy will
continue to improve this year, with growth by year-end of perhaps two to three
percent. Given that estimate, we expect the default rate for high-yield may
begin to decline, perhaps in the second quarter, and continue to drop as the
year progresses. We believe that the tragic events of September postponed any
improvement there to date, but it's quite possible we could end this year with a
default rate of seven to seven and one-half percent. By 2003, we are hopeful
that rate will approach the more historical long-term average of approximately
four percent. In all, a healthier economy and improved default scenario should
lead to better performance ahead for the high-yield market.
ANNUAL HOUSEHOLDING NOTICE
To reduce fund expenses, the fund attempts to eliminate duplicate mailings to
the same address. The fund delivers a single copy of certain shareholder
documents to investors who share an address, even if the accounts are registered
under different names. The fund's prospectuses and shareholder reports will be
delivered to you in this manner indefinitely unless you instruct us otherwise.
You can request multiple copies of these documents by either calling (800)
341-2911 or writing to Van Kampen Investor Services at 1 Parkview Plaza, P.O.
Box 5555, Oakbrook Terrace, IL 60181. Once Investor Services has received your
instructions, we will begin sending individual copies for each account within 30
days.
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.
CREDIT RATING: An evaluation of a bond issuer's credit history and capability of
repaying debt obligations. Standard & Poor's Ratings Group and Moody's Investors
Service are two companies that assign credit 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.
DEFAULT: The failure to make required debt payments on time.
DIVERSIFICATION: A method of portfolio allocation and management aimed at
balancing investment risk and return; a balanced portfolio may combine stocks,
bonds, and cash equivalents.
FEDERAL FUNDS RATE: The interest rate charged by one financial institution
lending federal funds to another. The Federal Reserve Board adjusts the federal
funds rate to affect the direction of interest rates.
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 at least eight times
a year to establish monetary policy and monitor the economic pulse of the United
States.
GROSS DOMESTIC PRODUCT (GDP): The total market value of all finished goods and
services produced in a country in a given year.
YIELD: The annual rate of return on an investment, expressed as a percentage.
10
BY THE NUMBERS
YOUR FUND'S INVESTMENTS
February 28, 2002 (Unaudited)
THE FOLLOWING PAGES DETAIL YOUR FUND'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
CORPORATE BONDS 87.4%
AEROSPACE 0.9%
$2,050 Atlas Air, Inc. ........................ 9.375% 11/15/06 $ 1,629,750
3,750 Atlas Air, Inc. ........................ 10.750 08/01/05 3,206,250
300 Jet Equipment Trust, Ser 95-D, 144A--
Private Placement (a)................... 11.440 11/01/14 258,564
200 Jet Equipment Trust, Ser C1, 144A--
Private Placement (a)................... 11.790 12/15/13 86,000
------------
5,180,564
------------
BROADCASTING 2.3%
5,405 Interep National Radio Sales............ 10.000 07/01/08 3,729,450
1,995 Nextmedia Operating, Inc., 144A--
Private Placement (a)................... 10.750 07/01/11 2,134,650
1,050 Radio One, Inc. ........................ 8.875 07/01/11 1,110,375
7,075 Radio Unica Corp. (b)................... 0/11.750 08/01/06 2,936,125
3,440 TV Azteca SA, Ser B (Mexico)............ 10.500 02/15/07 3,495,900
------------
13,406,500
------------
CABLE 10.0%
3,000 Adelphia Communications Corp. .......... 7.750 01/15/09 2,805,000
2,285 Adelphia Communications Corp. .......... 10.875 10/01/10 2,433,525
1,850 Adelphia Communications Corp., Ser B.... 9.875 03/01/07 1,868,500
7,450 British Sky Broadcasting Group PLC
(United Kingdom)........................ 8.200 07/15/09 7,681,740
9,470 Callahan Nordrhein Westfallen
(Germany)............................... 14.000 07/15/10 2,793,650
1,200 Charter Communications Holdings......... 10.250 01/15/10 1,176,000
4,225 Charter Communications Holdings LLC
(b)..................................... 0/11.750 01/15/10 2,894,125
4,180 Charter Communications Holdings LLC..... 8.250 04/01/07 3,824,700
1,750 Diamond Cable Co. (United Kingdom)...... 11.750 12/15/05 595,000
275 Echostar DBS Corp. ..................... 9.250 02/01/06 281,875
5,015 Echostar DBS Corp., 144A--Private
Placement (a)........................... 9.125 01/15/09 5,109,031
2,250 Frontiervision Holdings L.P. ........... 11.875 09/15/07 2,424,375
2,875 Frontiervision Holdings L.P., Ser B..... 11.875 09/15/07 3,097,812
5,500 International Cabletel, Inc., Ser B..... 11.500 02/01/06 2,007,500
3,923 James Cable Partners L.P., Ser B........ 10.750 08/15/04 2,451,875
3,425 Multicanal Participacoes, Ser B
(Brazil)................................ 12.625 06/18/04 2,303,312
See Notes to Financial Statements
11
YOUR FUND'S INVESTMENTS
February 28, 2002 (Unaudited)
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
CABLE (CONTINUED)
$5,160 NTL, Inc. (b)........................... 0/9.750% 04/01/08 $ 1,651,200
4,710 Ono Finance PLC (United Kingdom)........ 13.000 05/01/09 2,566,950
810 Pegasus Communications Corp. ........... 9.750 12/01/06 595,350
1,085 Pegasus Communications Corp., Ser B..... 12.500 08/01/07 927,675
6,250 Satelites Mexicanos SA (Mexico)......... 10.125 11/01/04 3,609,375
2,700 Telewest Communications PLC (United
Kingdom) (b)............................ 0/9.250 04/15/09 1,032,750
785 Telewest Communications PLC (United
Kingdom) (b)............................ 0/11.375 02/01/10 278,675
6,665 Telewest Communications PLC (United
Kingdom)................................ 11.000 10/01/07 3,699,075
4,500 UIH Australia/Pacific, Inc., Ser B
(c)..................................... 14.000 05/15/06 270,000
4,260 United Pan-Europe Communication, Ser B
(Netherlands) (b) (c)................... 0/12.500 08/01/09 447,300
4,415 United Pan-Europe Communication, Ser B
(Netherlands) (c)....................... 10.875 11/01/07 596,025
------------
59,422,395
------------
CHEMICALS 3.8%
2,220 Acetex Corp. (Canada)................... 10.875 08/01/09 2,275,500
3,110 Equistar Chemicals LP................... 10.125 09/01/08 3,125,550
1,935 Huntsman ICI Chemicals LLC.............. 10.125 07/01/09 1,712,475
2,800 Huntsman ICI Chemicals LLC (Euro)....... 10.125 07/01/09 1,944,217
1,169 IMC Global, Inc. ....................... 7.625 11/01/05 1,120,136
1,505 ISP Chemco, Inc., 144A-- Private
Placement (a)........................... 10.250 07/01/11 1,580,250
3,680 ISP Holdings, Inc., 144A--Private
Placement (a)........................... 10.625 12/15/09 3,781,200
2,800 Messer Griesham (Germany) (Euro)........ 10.375 06/01/11 2,589,860
1,425 Om Group, Inc., 144A--Private Placement
(a)..................................... 9.250 12/15/11 1,478,437
5,054 Pioneer Americas Acquisition Corp., Ser
B (c)................................... 9.250 06/15/07 1,187,690
2,020 Terra Industries, Inc., Ser B........... 10.500 06/15/05 1,666,500
------------
22,461,815
------------
CONSUMER PRODUCTS 1.2%
1,750 Delta Mills, Inc., Ser B................ 9.625 09/01/07 883,750
5,940 Elizabeth Arden, Inc. .................. 11.750 02/01/11 5,375,700
4,000 Sleepmaster LLC (c) (d)................. 11.000 05/15/09 660,000
------------
6,919,450
------------
See Notes to Financial Statements
12
YOUR FUND'S INVESTMENTS
February 28, 2002 (Unaudited)
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
DIVERSIFIED MEDIA 3.7%
$1,510 Belo Corp. ............................. 8.000% 11/01/08 $ 1,566,210
3,530 Hollinger Participation Trust, 144A--
Private Placement (a)................... 12.125 11/15/10 3,194,469
5,520 MDC Corporation, Inc. (Canada).......... 10.500 12/01/06 4,278,000
5,415 Muzak LLC............................... 9.875 03/15/09 4,683,975
3,950 Primedia, Inc. ......................... 8.875 05/15/11 3,466,125
3,475 Quebecor Media, Inc. (Canada)........... 11.125 07/15/11 3,753,000
1,350 Quebecor Media, Inc. (Canada)........... 13.750 07/15/11 864,000
------------
21,805,779
------------
ENERGY 8.0%
3,560 BRL Universal Equipment................. 8.875 02/15/08 3,649,000
6,775 Chesapeake Energy Corp. ................ 8.125 04/01/11 6,673,375
4,385 Frontier Oil Corp. ..................... 11.750 11/15/09 4,680,987
4,200 Grey Wolf, Inc. ........................ 8.875 07/01/07 4,221,000
2,445 Hanover Equipment Trust, 144A--Private
Placement (a)........................... 8.500 09/01/08 2,481,675
1,475 Hanover Equipment Trust, 144A--Private
Placement (a)........................... 8.750 09/01/11 1,489,750
5,975 Houston Exploration Co. ................ 8.625 01/01/08 6,004,875
4,450 Husky Oil Ltd. (Canada)................. 8.900 08/15/28 4,669,429
2,160 Pogo Producing Co. ..................... 8.250 04/15/11 2,251,800
4,035 Port Arthur Finance Corp., Ser A........ 12.500 01/15/09 4,327,537
2,115 Stone Energy Corp., 144A--Private
Placement (a)........................... 8.250 12/15/11 2,146,725
5,765 Vintage Petroleum, Inc. ................ 7.875 05/15/11 5,044,375
------------
47,640,528
------------
FINANCIAL 1.6%
3,395 Americo Life, Inc. ..................... 9.250 06/01/05 3,403,488
3,345 Anthem Insurance Cos., Inc., 144A--
Private Placement (a)................... 9.125 04/01/10 3,669,605
2,060 CIT Group, Inc. ........................ 5.625 05/17/04 1,979,804
350 CIT Group, Inc. ........................ 6.500 02/07/06 342,180
------------
9,395,077
------------
FOOD & DRUG 0.8%
207 California Farm Lease Trust, 144A--
Private Placement (a)................... 8.500 07/15/17 217,309
1,200 Jitney-Jungle Stores America, Inc. (c)
(d)..................................... 12.000 03/01/06 120
4,915 Pantry, Inc. ........................... 10.250 10/15/07 4,570,950
------------
4,788,379
------------
See Notes to Financial Statements
13
YOUR FUND'S INVESTMENTS
February 28, 2002 (Unaudited)
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
FOOD & TOBACCO 1.8%
$2,000 Gruma SA (Mexico)....................... 7.625% 10/15/07 $ 1,915,000
2,800 Michael Foods, Inc., Ser B.............. 11.750 04/01/11 3,066,000
3,990 Smithfield Foods, Inc. ................. 7.625 02/15/08 4,009,950
1,725 Smithfield Foods, Inc., Ser B........... 8.000 10/15/09 1,785,375
------------
10,776,325
------------
FOREST PRODUCTS 8.4%
3,000 AEP Industries, Inc. ................... 9.875 11/15/07 3,060,000
1,995 Kappa Beheer BV (Netherlands)........... 10.625 07/15/09 2,204,475
1,555 Kappa Beheer BV (Netherlands) (Euro).... 10.625 07/15/09 1,444,428
675 Longview Fibre Co., 144A--Private
Placement (a)........................... 10.000 01/15/09 698,625
1,180 Louisiana Pacific Corp. ................ 8.875 08/15/10 1,176,062
4,200 Louisiana Pacific Corp. ................ 10.875 11/15/08 4,242,000
1,400 Norske Skog, 144A--Private Placement
(Canada) (a)............................ 8.625 06/15/11 1,435,000
6,775 Owens-Illinois, Inc. ................... 7.500 05/15/10 6,199,125
5,025 Pacifica Papers, Inc. (Canada).......... 10.000 03/15/09 5,401,875
6,500 Printpack, Inc., Ser B.................. 10.625 08/15/06 6,857,500
3,250 Radnor Holdings Corp., Ser B (Canada)... 10.000 12/01/03 2,453,750
2,235 Repap New Brunswick, Inc. (Canada)...... 9.000 06/01/04 2,366,306
2,350 Riverwood International Corp. .......... 10.875 04/01/08 2,449,875
4,025 Tekni-Plex, Inc., Ser B................. 12.750 06/15/10 4,145,750
2,750 Vicap SA (Mexico)....................... 10.250 05/15/02 2,743,125
3,100 Vicap SA (Mexico)....................... 11.375 05/15/07 2,844,250
------------
49,722,146
------------
GAMING & LEISURE 6.8%
2,815 Argosy Gaming Co. ...................... 10.750 06/01/09 3,135,206
1,430 Autotote Corp., Ser B................... 12.500 08/15/10 1,565,850
2,650 Harrahs Operating Co., Inc. ............ 7.875 12/15/05 2,789,125
1,910 Harrahs Operating Co., Inc. ............ 8.000 02/01/11 2,036,327
1,290 Hilton Hotels Corp. .................... 7.950 04/15/07 1,306,223
4,825 HMH Properties Inc., Ser B.............. 7.875 08/01/08 4,704,375
5,365 Horseshoe Gaming LLC.................... 8.625 05/15/09 5,613,131
4,050 International Game Technology........... 8.375 05/15/09 4,409,438
1,660 Park Place Entertainment Corp. ......... 7.875 12/15/05 1,693,200
1,480 Park Place Entertainment Corp. ......... 8.875 09/15/08 1,554,000
5,000 Premier Parks, Inc. (b)................. 0/10.000 04/01/08 4,675,000
3,675 Station Casinos, Inc. .................. 8.875 12/01/08 3,776,063
2,800 Station Casinos, Inc. .................. 9.875 07/01/10 3,010,000
------------
40,267,938
------------
See Notes to Financial Statements
14
YOUR FUND'S INVESTMENTS
February 28, 2002 (Unaudited)
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
HEALTHCARE 2.8%
$1,900 AdvancePCS.............................. 8.500% 04/01/08 $ 2,004,500
1,735 Amerisourcebergen Corp. ................ 8.125 09/01/08 1,830,425
750 Columbia HCA............................ 6.910 06/15/05 776,610
1,100 Fresenius Medical Care Trust II......... 7.875 02/01/08 1,100,000
5,085 Fresenius Medical Care Trust IV......... 7.875 06/15/11 5,085,000
3,840 HCA--The Healthcare Co. ................ 8.750 09/01/10 4,320,000
1,135 Omnicare Inc., Ser B.................... 8.125 03/15/11 1,203,100
------------
16,319,635
------------
HOUSING 3.9%
1,430 Centex Corp. ........................... 7.500 01/15/12 1,467,692
2,845 Centex Corp. ........................... 7.875 02/01/11 2,990,288
3,100 Istar Financial, Inc. .................. 8.750 08/15/08 3,121,536
1,630 Nortek, Inc. ........................... 8.875 08/01/08 1,672,788
2,800 Nortek, Inc. ........................... 9.875 06/15/11 2,870,000
4,855 Toll Corp. ............................. 8.250 02/01/11 4,952,100
5,600 Webb (Del E.) Corp. .................... 10.250 02/15/10 6,195,000
------------
23,269,404
------------
INFORMATION TECHNOLOGY 1.6%
9,000 CHS Electronics, Inc. (c) (d)........... 9.875 04/15/05 180,000
7,500 Fairchild Semiconductor Corp. .......... 10.375 10/01/07 7,987,500
470 Flextronics International Ltd.
(Singapore)............................. 8.750 10/15/07 481,750
625 Flextronics International Ltd.
(Singapore)............................. 9.875 07/01/10 671,875
------------
9,321,125
------------
MANUFACTURING 1.9%
2,100 American Plumbing & Mechanical.......... 11.625 10/15/08 1,984,500
2,100 Anchor Lamina, Inc. (Canada)............ 9.875 02/01/08 559,125
1,650 Case Corp., Ser B....................... 6.250 12/01/03 1,486,010
1,850 Case Credit Corp. ...................... 6.125 02/15/03 1,668,313
3,500 CMI Industries, Inc. (c) (d)............ 9.500 10/01/03 927,500
4,500 Eagle-Picher Industries, Inc. .......... 9.375 03/01/08 2,947,500
1,580 Numatics, Inc., Ser B................... 9.625 04/01/08 829,500
1,417 Reunion Industries, Inc. (c)............ 13.000 05/01/03 800,605
------------
11,203,053
------------
MEDIA-NONCABLE 0.2%
1,500 Corus Entertainment Inc., 144A--Private
Placement (Canada) (a).................. 8.750 03/01/12 1,487,790
------------
METALS 1.2%
9,380 Doe Run Resources Corp., Ser B.......... 11.250 03/15/05 1,922,900
6,655 GS Technologies Operating, Inc. (c)
(d)..................................... 12.000 09/01/04 698,775
See Notes to Financial Statements
15
YOUR FUND'S INVESTMENTS
February 28, 2002 (Unaudited)
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
METALS (CONTINUED)
$2,450 GS Technologies Operating, Inc. (c)
(d)..................................... 12.250% 10/01/05 $ 85,750
700 Kaiser Aluminum & Chemical Corp. (c)
(d)..................................... 9.875 02/15/49 525,000
2,855 Murrin Murrin Holdings Property Ltd
(Australia)............................. 9.375 08/31/07 870,775
5,000 Renco Steel Holdings, Inc., Ser B....... 10.875 02/01/05 625,000
7,525 Republic Technologies International LLC
(c) (d)................................. 13.750 07/15/09 526,750
1,700 Ucar Finance Inc., 144A--Private
Placement (a)........................... 10.250 02/15/12 1,755,250
------------
7,010,200
------------
RETAIL 1.1%
2,585 Autonation, Inc. ....................... 9.000 08/01/08 2,723,944
3,725 Big 5 Corp., Ser B...................... 10.875 11/15/07 3,701,719
------------
6,425,663
------------
SERVICES 3.3%
6,020 Allied Waste North America, Inc. ....... 10.000 08/01/09 6,155,450
1,900 Avis Group Holdings, Inc. .............. 11.000 05/01/09 2,061,500
1,500 Building One Services Corp. ............ 10.500 05/01/09 682,500
6,250 Hydrochem Industrial Services, Inc., Ser
B....................................... 10.375 08/01/07 4,531,250
6,000 Outsourcing Services Group, Inc., Ser
B....................................... 10.875 03/01/06 4,230,000
1,850 United Rentals North America, Inc. ..... 10.750 04/15/08 2,025,750
------------
19,686,450
------------
TELECOMMUNICATIONS 5.1%
2,660 360networks, Inc. (Canada) (c) (d)...... 13.000 05/01/08 266
2,800 360networks, Inc. (Canada) (Euro) (c)
(d)..................................... 13.000 05/01/08 24,250
2,085 Asia Global Crossing (Bermuda).......... 13.375 10/15/10 469,125
6,650 E.Spire Communications, Inc. (c) (d).... 13.000 11/01/05 698,250
4,210 Exodus Communications, Inc. (c) (d)..... 11.250 07/01/08 894,625
3,430 Exodus Communications, Inc. (c) (d)..... 11.625 07/15/10 728,875
2,750 Exodus Communications, Inc. (Euro) (c)
(d)..................................... 11.375 07/15/08 500,562
192 Focal Communications Corp., Ser B....... 11.875 01/15/10 64,320
3,500 Global Crossing Holdings Ltd. (Bermuda)
(c) (d)................................. 8.700 08/01/07 140,000
9,335 Global Crossing Holdings Ltd. (Bermuda)
(c) (d)................................. 9.125 11/15/06 233,375
1,950 Global Telesystems (Netherlands) (Euro)
(c)..................................... 11.000 12/01/09 67,557
3,305 Globix Corp. (c)........................ 12.500 02/01/10 495,750
5,305 GST Network Funding, Inc. (c) (d)....... 10.500 05/01/08 1,034,475
568 GST Telecommunications, Inc., 144A--
Private Placement (a) (c) (d)........... 13.875 12/15/05 8,520
See Notes to Financial Statements
16
YOUR FUND'S INVESTMENTS
February 28, 2002 (Unaudited)
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
TELECOMMUNICATIONS (CONTINUED)
$12,590 GT Group Telecom, Inc. (Canada) (b)..... 0/13.250% 02/01/10 $ 881,300
600 Hermes Europe Railtel BV (Netherlands)
(c) (d)................................. 11.500 08/15/07 57,000
2,500 ICG Holdings, Inc. (c) (d).............. 12.500 05/01/06 175,000
11,075 ICG Holdings, Inc. (c) (d).............. 13.500 09/15/05 775,250
155 Intermedia Communications, Inc. ........ 8.600 06/01/08 143,375
4,440 Intermedia Communications, Inc., Ser B
(b)..................................... 0/11.250 07/15/07 4,262,400
3,400 Jazztel PLC (United Kingdom) (Euro)..... 13.250 12/15/09 707,272
3,450 Jazztel PLC (United Kingdom) (Euro)..... 14.000 07/15/10 717,628
8,300 KMC Telecommunications Holdings, Inc.
(b)..................................... 0/12.500 02/15/08 207,500
4,525 Madison River Capital/Madison River
Financial............................... 13.250 03/01/10 3,552,125
7,070 McLeodUSA, Inc. (c) (d)................. 11.375 01/01/09 1,767,500
4,335 Metromedia Fiber Network, Inc. ......... 10.000 12/15/09 1,062,075
1,925 MGC Communications, Inc., Ser B......... 13.000 10/01/04 625,625
2,030 Netia Holdings BV (Netherlands) (Euro)
(c)..................................... 13.750 06/15/10 316,627
1,525 Netia Holdings BV, Ser B (Netherlands)
(c)..................................... 10.250 11/01/07 221,125
6,965 Netia Holdings BV, Ser B (Netherlands)
(c)..................................... 11.250 11/01/07 975,100
1,165 Nextlink Communications, Inc. (b) (c)... 0/9.450 04/15/08 116,500
2,265 Nextlink Communications, Inc. (b) (c)... 0/12.125 12/01/09 184,031
4,510 Nextlink Communications, Inc. (c)....... 10.500 12/01/09 541,200
3,000 Park N View, Inc., Ser B (c) (d)........ 13.000 05/15/08 30,000
3,500 PF Net Communications, Inc. ............ 13.750 05/15/10 367,500
1,175 Philippine Long Distance Telephone
(Philippines)........................... 10.500 04/15/09 1,085,149
4,450 Price Communications Wireless........... 11.750 07/15/07 4,683,625
11,565 PSINet, Inc. (c) (d).................... 10.500 12/01/06 1,098,675
1,750 PSINet, Inc. (Euro) (c) (d)............. 10.500 12/01/06 117,492
425 Viatel, Inc. (b) (c) (d)................ 0/12.500 04/15/08 1,594
7,790 Viatel, Inc. (c) (d).................... 11.500 03/15/09 29,213
5,800 Worldwide Fiber, Inc. (Canada) (c)
(d)..................................... 12.000 08/01/09 29,000
------------
30,090,831
------------
TRANSPORTATION 2.8%
9,885 Aetna Industries, Inc. (c).............. 11.875 10/01/06 1,581,600
117 Aran Shipping & Trading, SA (c)......... 8.300 01/31/04 0
1,580 Arvinmeritor, Inc. ..................... 8.750 03/01/12 1,629,024
885 Collins & Aikman Products Co. .......... 11.500 04/15/06 769,950
2,645 Collins & Aikman Products Co., 144A--
Private Placement (a)................... 10.750 12/31/11 2,545,813
4,675 Dana Corp. ............................. 9.000 08/15/11 4,287,335
1,700 Dana Corp. (Euro)....................... 9.000 08/15/11 1,368,988
See Notes to Financial Statements
17
YOUR FUND'S INVESTMENTS
February 28, 2002 (Unaudited)
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
TRANSPORTATION (CONTINUED)
$1,345 Hayes Lemmerz International, Inc. (c)
(d)..................................... 9.125% 07/15/07 $ 80,700
4,500 Stena AB (Sweden)....................... 10.500 12/15/05 4,522,500
------------
16,785,910
------------
UTILITY 2.2%
1,805 Calpine Corp. .......................... 8.500 02/15/11 1,301,681
3,500 Calpine Corp. .......................... 8.625 08/15/10 2,478,291
3,595 Mirant Americas Generation, Inc. ....... 8.300 05/01/11 3,061,276
2,605 PG & E National Energy Group, Inc. ..... 10.375 05/16/11 2,661,794
2,880 Williams Cos., Inc. .................... 7.500 01/15/31 2,466,210
1,480 Williams Cos., Inc. .................... 7.750 06/15/31 1,304,922
------------
13,274,174
------------
WIRELESS COMMUNICATIONS 12.0%
7,025 Airgate PCS, Inc. (b)................... 0/13.500 10/01/09 3,828,625
1,645 Alamosa Delaware, Inc. ................. 12.500 02/01/11 1,192,625
14,255 Alamosa PCS Holdings, Inc. (b).......... 0/12.875 02/15/10 5,488,175
2,525 American Cellular Corp. ................ 9.500 10/15/09 2,057,875
3,980 American Tower Corp. ................... 9.375 02/01/09 2,646,700
300 AMSC Acquisition, Inc. (c) (d).......... 12.250 04/01/08 114,000
5,085 Centennial Cellular Operating Co. ...... 10.750 12/15/08 2,593,350
3,100 Crown Castle International Corp. (b).... 0/10.625 11/15/07 2,371,500
700 Crown Castle International Corp. ....... 10.750 08/01/11 553,000
5,925 CTI Holdings SA (Argentina) (b)......... 0/11.500 04/15/08 503,625
3,610 Dobson Communications Corp. ............ 10.875 07/01/10 3,339,250
9,675 IPCS, Inc. (b).......................... 0/14.000 07/15/10 4,402,125
6,650 Microcell Telecommunications, Ser B
(Canada)................................ 14.000 06/01/06 4,555,250
8,775 Millicom International Cellular SA
(Luxembourg)............................ 13.500 06/01/06 5,221,125
2,375 Nextel Communications, Inc. (b)......... 0/9.950 02/15/08 1,312,188
9,070 Nextel Communications, Inc. ............ 9.375 11/15/09 5,804,800
1,000 Nextel Communications, Inc. ............ 12.000 11/01/08 692,500
1,750 PTC International Finance (Luxembourg)
(Euro).................................. 10.875 05/01/08 1,564,259
2,205 Rural Cellular Corp. ................... 9.625 05/15/08 1,775,025
4,850 SBA Communications Corp. (b)............ 0/12.000 03/01/08 2,303,750
7,000 SBA Communications Corp. ............... 10.250 02/01/09 3,990,000
6,650 Spectrasite Holdings, Inc. (b).......... 0/11.250 04/15/09 1,562,750
5,585 Telecorp PCS, Inc. (b).................. 0/11.625 04/15/09 4,942,725
2,250 Telecorp PCS, Inc. ..................... 10.625 07/15/10 2,553,750
See Notes to Financial Statements
18
YOUR FUND'S INVESTMENTS
February 28, 2002 (Unaudited)
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
WIRELESS COMMUNICATIONS (CONTINUED)
$3,335 Tritel PCS, Inc. ....................... 10.375% 01/15/11 $ 3,776,888
4,040 US Unwired, Inc. (b).................... 0/13.375 11/01/09 2,222,000
------------
71,367,860
------------
TOTAL CORPORATE BONDS 87.4%............................................ 518,028,991
------------
DOMESTIC CONVERTIBLE CORPORATE OBLIGATIONS 1.4%
INFORMATION TECHNOLOGY 0.7%
9,535 Solectron Corp., LYON................... * 11/20/20 4,374,181
------------
MANUFACTURING 0.7%
8,320 Corning, Inc. .......................... * 11/08/15 4,139,200
------------
TOTAL DOMESTIC CONVERTIBLE CORPORATE OBLIGATIONS........................ 8,513,381
------------
FOREIGN GOVERNMENT OBLIGATIONS 3.2%
8,620 Federal Republic of Brazil (Brazil)..... 8.000 04/15/14 7,066,681
800 Federal Republic of Brazil (Brazil)..... 11.000 01/11/12 739,600
2,908 Republic of Colombia (Columbia)......... 9.750 04/09/11 2,915,337
1,500 Republic of Columbia (Columbia)......... 9.750 04/23/09 1,548,750
6,090 United Mexican States (Mexico).......... 8.375 01/14/11 6,549,795
------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS.................................... 18,820,163
------------
EQUITIES 4.6%
Airgate PCS, Inc. (4,906 Common Shares) (e)................... 45,037
AT & T Canada, Inc., Class B (31,718 ADR Common Shares )
(Canada) (e).................................................. 780,263
Broadwing Communications, Inc. (7,730 Preferred Shares, 12.50%
coupon, $1,000 par per share)................................. 3,884,325
Contour Energy Co. (75,000 Common Shares) (e)................. 42,000
Crown Castle International Corp. (6,464 Preferred Shares,
12.75% coupon, $1,000 par per share) (e) (f).................. 2,924,960
DecisionOne Corp. (14,162 Common Stock Warrants Class B)
(e)........................................................... 0
DecisionOne Corp. (14,661 Common Shares) (e).................. 0
DecisionOne Corp. (8,219 Common Stock Warrants Class A) (e)... 0
DecisionOne Corp. (8,400 Common Stock Warrants Class C) (e)... 0
Dobson Communications Corp. (32,661 Preferred Shares, 13.00%
coupon, $1,000 par per share) (f)............................. 2,784,360
Focal Communications Corp. (43,971 Common Shares) (e)......... 9,674
See Notes to Financial Statements
19
YOUR FUND'S INVESTMENTS
February 28, 2002 (Unaudited)
MARKET
DESCRIPTION VALUE
EQUITIES (CONTINUED)
Globalstar Telecommunications, 144A--Private Placement (285
Common Stock Warrants) (a) (e)................................ $ 3
GT Group Telecom, Inc., 144A--Private Placement (12,590 Common
Stock Warrants) (a) (e)....................................... 56,655
HF Holdings, Inc. (36,820 Common Stock Warrants) (e).......... 368
Intermedia Communications, Inc. (3,075 Preferred Shares, Ser
B, 13.50% coupon, $1,000 par per share)....................... 2,959,687
Intersil Holding Corp., Class A (31,481 Common Shares) (e).... 873,283
IPCS, Inc., 144A--Private Placement (9,675 Common Stock
Warrants) (a) (e)............................................. 417,234
Jazztel PLC (3,450 Common Stock Warrants) (United Kingdom)
(e)........................................................... 299
KMC Telecommunications Holdings, Inc., 144A--Private Placement
(9,555 Common Stock Warrants) (a) (e)......................... 478
McLeodUSA, Inc. (59,106 Common Shares) (d) (e)................ 10,639
Mediq, Inc. (5,526 Common Shares)............................. 30,008
Motient Corp., 144A--Private Placement (3,000 Common Stock
Warrants) (a) (e)............................................. 405
Nextel Communications, Inc. (5,657 Preferred Shares, Ser D,
13.00% coupon, $1,000 par per share) (e) (f).................. 2,050,662
Nextlink Communications, Inc. (2,491 Preferred Shares, Ser B,
13.50% coupon, $1,000 par per share) (e) (f).................. 25
NTL, Inc., 144A--Private Placement (6,889 Common Stock
Warrants) (a) (e)............................................. 1,206
Occidente Y Caribe Celular SA, 144A--Private Placement (20,850
Common Stock Warrants) (a) (e)................................ 209
Ono Finance PLC, 144A--Private Placement (4,710 Common Stock
Warrants) (United Kingdom) (a) (e)............................ 23,550
OpTel, Inc. (3,275 Common Shares) (e)......................... 33
Park N View, Inc., 144A--Private Placement (3,000 Common Stock
Warrants) (a) (d) (e)......................................... 30
Pathmark Stores, Inc. (71,889 Common Stock Warrants) (e)...... 603,149
Paxon Communication Corp. (33,265 Preferred Shares, 13.25%
coupon, $1,000 par per share) (f)............................. 2,802,576
PF Net Communications, Inc., 144A--Private Placement (3,500
Common Stock Warrants) (a) (e)................................ 35
Price Communications Corp. (55,114 Commons Shares) (e)........ 1,008,586
Primus Telecommunications Group (2,000 Common Stock Warrants)
(e)........................................................... 2,250
Republic Technologies International, Inc., 144A--Private
Placement (7,525 Common Stock Warrants) (a) (d) (e)........... 75
Rural Cellular Corp. (10,889 Preferred Shares, 11.375% coupon,
$1,000 par per share) (f)..................................... 5,471,723
See Notes to Financial Statements
20
YOUR FUND'S INVESTMENTS
February 28, 2002 (Unaudited)
MARKET
DESCRIPTION VALUE
EQUITIES (CONTINUED)
Song Networks Holding AB (5,195 ADR Common Shares) (Sweden)
(e)........................................................... $ 1,662
Star Gas Partners, L.P. (1,219 Units of Limited Partnership
Interests).................................................... 22,612
Startec Global Communications, 144A--Private Placement (8,100
Common Stock Warrants) (a) (e)................................ 81
Terex Corp. (28,000 Common Stock Rights) (e).................. 570,220
UIH Austrailia/Pacific, Inc. (5,000 Common Stock Warrants)
(e)........................................................... 50
VS Holdings, Inc. (568,178 Common Shares) (e)................. 106,079
------------
TOTAL EQUITIES $4.7%.................................................... 27,484,491
------------
TOTAL LONG-TERM INVESTMENTS 96.6%
(Cost $842,786,336)................................................... 572,847,026
REPURCHASE AGREEMENT 1.4%
BankAmerica Securities ($8,384,000 par collateralized by U.S.
Government obligations in a pooled cash account, dated 02/28/02, to
be sold on 03/01/02 at $8,384,433) (Cost $8,384,000)................ 8,384,000
------------
TOTAL INVESTMENTS 98.0%
(Cost $851,170,336)................................................... 581,231,026
FOREIGN CURRENCY 0.0%
(Cost $157,469)....................................................... 151,604
OTHER ASSETS IN EXCESS OF LIABILITIES 2.0%............................. 11,121,149
------------
NET ASSETS 100.0%...................................................... $592,503,779
============
* Zero coupon bond
(a) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933, as amended. These securities may only be
resold in transactions exempt from registration which are normally those
transactions with qualified institutional buyers.
(b) Security is a "step-up" bond where the coupon increases or steps up at a
predetermined date.
(c) Non-income producing as security is in default.
(d) This borrower has filed for protection in federal bankruptcy court.
(e) Non-income producing security.
(f) Payment-in-kind security.
ADR--American Depositary Receipt
See Notes to Financial Statements
21
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
February 28, 2002 (Unaudited)
ASSETS:
Total Investments (Cost $851,170,336)....................... $ 581,231,026
Foreign Currency (Cost $157,469)............................ 151,604
Receivables:
Interest.................................................. 14,716,499
Investments Sold.......................................... 4,957,469
Fund Shares Sold.......................................... 2,752,400
Other....................................................... 162,776
--------------
Total Assets............................................ 603,971,774
--------------
LIABILITIES:
Payables:
Investments Purchased..................................... 4,895,084
Fund Shares Repurchased................................... 2,838,970
Income Distributions...................................... 2,239,813
Distributor and Affiliates................................ 422,857
Custodian Bank............................................ 292,116
Investment Advisory Fee................................... 254,614
Accrued Expenses............................................ 284,395
Trustees' Deferred Compensation and Retirement Plans........ 217,838
Forward Foreign Currency Contract........................... 22,308
--------------
Total Liabilities....................................... 11,467,995
--------------
NET ASSETS.................................................. $ 592,503,779
==============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $1,043,022,576
Accumulated Undistributed Net Investment Income............. (13,634,212)
Accumulated Net Realized Loss............................... (166,912,836)
Net Unrealized Depreciation................................. (269,971,749)
--------------
NET ASSETS.................................................. $ 592,503,779
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $336,400,018 and 91,714,206 shares of
beneficial interest issued and outstanding)............. $ 3.67
Maximum sales charge (4.75%* of offering price)......... .18
--------------
Maximum offering price to public........................ $ 3.85
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $209,884,033 and 57,036,478 shares of
beneficial interest issued and outstanding)............. $ 3.68
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $46,219,728 and 12,674,132 shares of
beneficial interest issued and outstanding)............. $ 3.65
==============
* On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
22
Statement of Operations
For the Six Months Ended February 28, 2002 (Unaudited)
INVESTMENT INCOME:
Interest.................................................... $ 36,263,628
Dividends................................................... 1,954,575
Other....................................................... 71,039
-------------
Total Income............................................ 38,289,242
-------------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $431,117, $1,125,020 and $249,406,
respectively)............................................. 1,805,543
Investment Advisory Fee..................................... 1,718,415
Shareholder Services........................................ 657,943
Custody..................................................... 51,556
Legal....................................................... 15,794
Trustees' Fees and Related Expenses......................... 14,259
Other....................................................... 237,487
-------------
Total Expenses.......................................... 4,500,997
Less Credits Earned on Cash Balances.................... 15,399
-------------
Net Expenses............................................ 4,485,598
-------------
NET INVESTMENT INCOME....................................... $ 33,803,644
=============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ (25,389,146)
Foreign Currency Transactions............................. 689,907
-------------
Net Realized Loss........................................... (24,699,239)
-------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (208,501,761)
-------------
End of the Period:
Investments............................................. (269,939,310)
Forward Foreign Currency Contract....................... (22,308)
Foreign Currency Translation............................ (10,131)
-------------
(269,971,749)
-------------
Net Unrealized Depreciation During the Period............... (61,469,988)
-------------
NET REALIZED AND UNREALIZED LOSS............................ $ (86,169,227)
=============
NET DECREASE IN NET ASSETS FROM OPERATIONS.................. $ (52,365,583)
=============
See Notes to Financial Statements
23
Statements of Changes in Net Assets
(Unaudited)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2002 AUGUST 31, 2001
------------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................... $ 33,803,644 $ 76,409,177
Net Realized Loss................................... (24,699,239) (76,486,992)
Net Unrealized Depreciation During the Period....... (61,469,988) (75,914,495)
------------- -------------
Change in Net Assets from Operations................ (52,365,583) (75,992,310)
------------- -------------
Distributions from Net Investment Income:
Class A Shares.................................... (22,591,592) (48,820,753)
Class B Shares.................................... (13,178,576) (27,920,646)
Class C Shares.................................... (2,943,784) (6,374,410)
------------- -------------
(38,713,952) (83,115,809)
------------- -------------
Return of Capital Distribution:
Class A Shares.................................... -0- (689,811)
Class B Shares.................................... -0- (397,113)
Class C Shares.................................... -0- (91,210)
------------- -------------
-0- (1,178,134)
------------- -------------
Total Distributions................................. (38,713,952) (84,293,943)
------------- -------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES........................................ (91,079,535) (160,286,253)
------------- -------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold........................... 107,096,421 340,214,717
Net Asset Value of Shares Issued Through Dividend
Reinvestment...................................... 23,624,197 48,871,390
Cost of Shares Repurchased.......................... (149,861,572) (319,107,793)
------------- -------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.. (19,140,954) 69,978,314
------------- -------------
TOTAL DECREASE IN NET ASSETS........................ (110,220,489) (90,307,939)
NET ASSETS:
Beginning of the Period............................. 702,724,268 793,032,207
------------- -------------
End of the Period (Including accumulated
undistributed net investment income of
($13,634,212) and ($7,555,855), respectively)..... $ 592,503,779 $ 702,724,268
============= =============
See Notes to Financial Statements
24
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
SIX MONTHS
ENDED YEAR ENDED AUGUST 31,
CLASS A SHARES FEBRUARY 28, ------------------------------------------
2002 (A) 2001 2000 1999 1998 1997
---------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
THE PERIOD.................. $ 4.23 $ 5.24 $ 5.68 $ 6.06 $ 6.55 $ 6.30
------ ------ ------ ------ ------ ------
Net Investment Income....... .21 .51 .59 .63 .61 .60
Net Realized and Unrealized
Gain/Loss................. (.53) (.96) (.43) (.37) (.48) .27
------ ------ ------ ------ ------ ------
Total from Investment
Operations.................. (.32) (.45) .16 .26 .13 .87
------ ------ ------ ------ ------ ------
Less:
Distributions from Net
Investment Income......... .24 .55 .60 .64 .62 .62
Return of Capital
Distributions............. -0- .01 -0- -0- -0- -0-
------ ------ ------ ------ ------ ------
Total Distributions........... .24 .56 .60 .64 .62 .62
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE
PERIOD...................... $ 3.67 $ 4.23 $ 5.24 $ 5.68 $ 6.06 $ 6.55
====== ====== ====== ====== ====== ======
Total Return (b).............. -7.61%* -9.04% 3.09% 4.41% 1.66% 14.44%
Net Assets at End of the
Period (In millions)........ $336.4 $394.4 $465.0 $492.4 $499.3 $468.6
Ratio of Expenses to Average
Net Assets (c).............. 1.08% 1.05% 1.03% 1.03% 1.00% 1.08%
Ratio of Net Investment Income
to Average Net Assets (c)... 10.97% 10.93% 10.90% 10.65% 9.33% 9.37%
Portfolio Turnover............ 42%* 80% 68% 51% 90% 75%
* Non-annualized
(a) As required, effective September 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment Companies
and began amortizing premium on fixed income securities. The effect of these
changes for the period ended February 28, 2002 was a decrease in the ratio
of net investment income to average net assets from 11.06% to 10.97%. Net
investment income per share and net realized gains and losses per share were
unaffected by the adjustments. Per share, ratios and supplemental data for
periods prior to February 28, 2002 have not been restated to reflect this
change in presentation.
(b) 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 CDSC 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. These returns
include combined Rule 12b-1 fees and service fees of up to .25% and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares.
(c) For the year ended August 31, 1997, 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 .01%.
See Notes to Financial Statements
25
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
SIX MONTHS
ENDED YEAR ENDED AUGUST 31,
CLASS B SHARES FEBRUARY 28, ------------------------------------------
2002 (A) 2001 2000 1999 1998 1997
---------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
THE PERIOD.................. $ 4.24 $ 5.25 $ 5.68 $ 6.06 $ 6.56 $ 6.31
------ ------ ------ ------ ------ ------
Net Investment Income....... .20 .48 .55 .58 .57 .56
Net Realized and Unrealized
Gain/Loss................. (.53) (.97) (.43) (.37) (.49) .26
------ ------ ------ ------ ------ ------
Total from Investment
Operations.................. (.33) (.49) .12 .21 .08 .82
------ ------ ------ ------ ------ ------
Less:
Distributions from Net
Investment Income......... .23 .51 .55 .59 .58 .57
Return of Capital
Distributions............. -0- .01 -0- -0- -0- -0-
------ ------ ------ ------ ------ ------
Total Distributions........... .23 .52 .55 .59 .58 .57
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE
PERIOD...................... $ 3.68 $ 4.24 $ 5.25 $ 5.68 $ 6.06 $ 6.56
====== ====== ====== ====== ====== ======
Total Return (b).............. -7.96%* -9.80% 2.43% 3.57% .77% 13.58%
Net Assets at End of the
Period (In millions)........ $209.9 $249.6 $268.7 $318.2 $283.1 $198.0
Ratio of Expenses to Average
Net Assets (c).............. 1.85% 1.83% 1.78% 1.79% 1.79% 1.86%
Ratio of Net Investment Income
to Average Net Assets (c)... 10.22% 10.13% 10.15% 9.88% 8.52% 8.60%
Portfolio Turnover............ 42%* 80% 68% 51% 90% 75%
* Non-annualized
(a) As required, effective September 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment Companies
and began amortizing premium on fixed income securities. The effect of these
changes for the period ended February 28, 2002 was a decrease in the ratio
of net investment income to average net assets from 10.31% to 10.22%. Net
investment income per share and net realized gains and losses per share were
unaffected by the adjustments. Per share, ratios and supplemental data for
periods prior to February 28, 2002 have not been restated to reflect this
change in presentation.
(b) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum CDSC of 4% charged on certain redemptions
made within the first and second year of purchase and declining to 0% after
the fifth year. If the sales charge was included, total returns would be
lower. These returns include combined Rule 12b-1 fees and service fees of up
to 1% and do not reflect the deduction of taxes that a shareholder would pay
on Fund distributions or redemption of Fund shares.
(c) For the year ended August 31, 1997, 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 .01%.
See Notes to Financial Statements
26
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
SIX MONTHS
ENDED YEAR ENDED AUGUST 31,
CLASS C SHARES FEBRUARY 28, ---------------------------------------------
2002 (A) 2001 2000 1999 1998 1997
-------------------------------------------------------------
NET ASSET VALUE, BEGINNING
OF THE PERIOD............ $ 4.20 $ 5.22 $ 5.65 $6.04 $6.53 $ 6.28
------ ------- ------ ----- ----- ------
Net Investment Income.... .19 .48 .55 .58 .57 .56
Net Realized and
Unrealized Gain/Loss... (.51) (.98) (.43) (.38) (.49) .26
------ ------- ------ ----- ----- ------
Total from Investment
Operations............... (.32) (.50) .12 .20 .08 .82
------ ------- ------ ----- ----- ------
Less:
Distributions from Net
Investment Income...... .23 .51 .55 .59 .57 .57
Return of Capital
Distributions.......... -0- .01 -0- -0- -0- -0-
------ ------- ------ ----- ----- ------
Total Distributions........ .23 .52 .55 .59 .57 .57
------ ------- ------ ----- ----- ------
NET ASSET VALUE, END OF THE
PERIOD................... $ 3.65 $ 4.20 $ 5.22 $5.65 $6.04 $ 6.53
====== ======= ====== ===== ===== ======
Total Return (b)........... -7.80%* -10.06% 2.45% 3.42% .93% 13.64%
Net Assets at End of the
Period (In millions)..... $ 46.2 $ 58.7 $ 59.4 $67.3 $55.8 $ 30.8
Ratio of Expenses to
Average Net Assets (c)... 1.85% 1.82% 1.78% 1.79% 1.79% 1.86%
Ratio of Net Investment
Income to Average Net
Assets (c)............... 10.21% 10.12% 10.15% 9.87% 8.49% 8.57%
Portfolio Turnover......... 42%* 80% 68% 51% 90% 75%
* Non-annualized
(a) As required, effective September 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment Companies
and began amortizing premium on fixed income securities. The effect of these
changes for the period ended February 28, 2002 was a decrease in the ratio
of net investment income to average net assets from 10.30% to 10.21%. Net
investment income per share and net realized gains and losses per share were
unaffected by the adjustments. Per share, ratios and supplemental data for
periods prior to February 28, 2002 have not been restated to reflect this
change in presentation.
(b) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum CDSC of 1% charged on certain redemptions
made within one year of purchase. If the sales charge was included, total
returns would be lower. These returns include combined Rule 12b-1 fees and
service fees of up to 1% and do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund
shares.
(c) For the year ended August 31, 1997, 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 .01%.
See Notes to Financial Statements
27
NOTES TO
FINANCIAL STATEMENTS
February 28, 2002 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen High Income Corporate Bond Fund (the "Fund") is organized as a
Delaware business trust, and is registered as a diversified, open-end management
investment company under the Investment Company Act of 1940 (the "1940 Act"), as
amended. The Fund's primary investment objective is to seek to maximize current
income. Capital appreciation is a secondary objective which is sought only when
consistent with the Fund's primary investment objective. The Fund commenced
investment operations on October 2, 1978. The distribution of the Fund's Class B
and Class C shares commenced 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 accounting principles
generally accepted in the United States of America 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 their sale price as of the close of such securities
exchange. Listed and unlisted securities for which the last sale 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, 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, which approximates market value.
B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when-issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when-issued or delayed delivery
purchase commitments until payment is made. At February 28, 2002, there were no
when-issued or delayed delivery purchase commitments.
28
NOTES TO
FINANCIAL STATEMENTS
February 28, 2002 (Unaudited)
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, 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 are accreted and premiums are amortized over the expected life of
each applicable security. 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.
As required, effective September 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premium on fixed income securities. Prior to September 1, 2001,
the Fund did not amortize premiums on fixed income securities. The cumulative
effect of this accounting change had no impact on total net assets of the Fund,
but resulted in a $1,168,049 reduction in cost of securities and a corresponding
$1,168,049 decrease in net unrealized depreciation based on securities held by
the Fund on September 1, 2001.
The effect of this change for the six months ended February 28, 2002, was to
decrease net investment income by $287,040; increase net unrealized depreciation
by $169,094, and decrease net realized loss by $456,134. The statement of
changes in net assets and financial highlights for prior periods have not been
restated to reflect this change in presentation.
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
29
NOTES TO
FINANCIAL STATEMENTS
February 28, 2002 (Unaudited)
August 31, 2001, the Fund had an accumulated capital loss carryforward for tax
purposes of $70,647,293 which expires between August 31, 2003 and August 31,
2009. Net realized gains or losses may differ for financial reporting and tax
purposes primarily as a result of the deferral of losses relating to wash sales
transactions.
At February 28, 2002, for federal income tax purposes, cost of long- and
short-term investments is $856,005,589, the aggregate gross unrealized
appreciation is $18,177,275 and the aggregate gross unrealized depreciation is
$292,951,838, resulting in net unrealized depreciation on long- and short-term
investments of $274,774,563.
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.
For tax purposes, the determination of a return of capital distribution is
made at the end of the Fund's fiscal year. Therefore, while it is likely that a
portion of the Fund's distribution will ultimately be characterized as a return
of capital for tax purposes, no such designation has been made for the six
months ended February 28, 2002.
F. EXPENSE REDUCTIONS During the six months ended February 28, 2002, the Fund's
custody fee was reduced by $15,399 as a result of credits earned on cash
balances.
G. FOREIGN CURRENCY TRANSLATION Asset and liabilities denominated in foreign
currencies are translated into U.S. dollars at the mean of the quoted bid and
ask prices of such currencies against the U.S. dollar. Purchases and sales of
portfolio securities are translated at the rate of exchange prevailing when such
securities were acquired or sold. Income and expenses are translated at rates
prevailing when accrued.
30
NOTES TO
FINANCIAL STATEMENTS
February 28, 2002 (Unaudited)
2. INVESTMENT ADVISORY AGREEMENT AND
OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
AVERAGE DAILY NET ASSETS % PER ANNUM
First $150 million.......................................... .625%
Next $150 million........................................... .550%
Over $300 million........................................... .500%
For the six months ended February 28, 2002, the Fund recognized expenses of
approximately $15,800 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.
Under an Accounting Services Agreement, the Adviser provides accounting
services to the Fund. The Adviser allocates the cost of such services to each
fund. For the six months ended February 28, 2002, the Fund recognized expenses
of approximately $25,400 representing Van Kampen Investments Inc.'s or its
affiliates' (collectively "Van Kampen") cost of providing accounting services to
the Fund which are reported as part of "Other" expenses in the Statement of
Operations.
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
28, 2002, the Fund recognized expenses of approximately $542,200. 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.
Amounts deferred are retained by the Fund and to the extent permitted by the
1940 Act, as amended, may be invested in the common shares of those funds
selected by the trustees. Investments in such funds of $122,793 are included in
"Other" assets on the Statement of Assets and Liabilities at February 28, 2002.
Appreciation/depreciation and distributions received from these investments are
recorded with an offsetting increase/decrease in the deferred compensation
obligation and do not affect the net asset value of the Fund. Benefits under the
retirement plan are payable upon retirement for a ten-year period and are based
upon each trustee's
31
NOTES TO
FINANCIAL STATEMENTS
February 28, 2002 (Unaudited)
years of service to the Fund. The maximum annual benefit per trustee under the
plan is $2,500.
3. CAPITAL TRANSACTIONS
At February 28, 2002, capital aggregated $696,430,197, $281,693,318 and
$64,899,061 for Classes A, B and C, respectively. For the six months ended
February 28, 2002, transactions were as follows:
SHARES VALUE
Sales:
Class A............................................... 17,221,489 $ 67,537,737
Class B............................................... 7,257,958 28,579,829
Class C............................................... 2,799,003 10,978,855
----------- -------------
Total Sales............................................. 27,278,450 $ 107,096,421
=========== =============
Dividend Reinvestment:
Class A............................................... 3,791,794 $ 14,714,909
Class B............................................... 1,873,378 7,287,343
Class C............................................... 420,216 1,621,945
----------- -------------
Total Dividend Reinvestment............................. 6,085,388 $ 23,624,197
=========== =============
Repurchases:
Class A............................................... (22,611,480) $ (88,763,454)
Class B............................................... (10,990,309) (43,313,008)
Class C............................................... (4,511,937) (17,785,110)
----------- -------------
Total Repurchases....................................... (38,113,726) $(149,861,572)
=========== =============
32
NOTES TO
FINANCIAL STATEMENTS
February 28, 2002 (Unaudited)
At August 31, 2001, capital aggregated $702,941,005, $289,139,154, and
$70,083,371 for Classes A, B and C, respectively. For the year ended August 31,
2001, transactions were as follows:
SHARES VALUE
Sales:
Class A............................................... 39,566,053 $ 183,387,498
Class B............................................... 25,823,429 121,621,870
Class C............................................... 7,516,010 35,205,349
----------- -------------
Total Sales............................................. 72,905,492 $ 340,214,717
=========== =============
Dividend Reinvestment:
Class A............................................... 6,736,427 $ 30,752,478
Class B............................................... 3,217,974 14,676,957
Class C............................................... 761,816 3,441,955
----------- -------------
Total Dividend Reinvestment............................. 10,716,217 $ 48,871,390
=========== =============
Repurchases:
Class A............................................... (41,661,180) $(193,713,914)
Class B............................................... (21,292,875) (99,170,760)
Class C............................................... (5,683,215) (26,223,119)
----------- -------------
Total Repurchases....................................... (68,637,270) $(319,107,793)
=========== =============
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 28, 2002 and the
year ended August 31, 2001, 988,331 and 1,820,303 Class B Shares automatically
converted to Class A Shares, respectively and are shown in the above table 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 on such shares, 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 28, 2002 and the year ended August
31, 2001, no Class C Shares converted to Class A Shares. Class B and C Shares
are offered without a front end sales charge, but are subject to a contingent
deferred sales charge (CDSC). The
33
NOTES TO
FINANCIAL STATEMENTS
February 28, 2002 (Unaudited)
CDSC will be imposed on most redemptions made within five years of the purchase
for Class B Shares and one year of the purchase for Class C Shares as detailed
in the following schedule.
CONTINGENT DEFERRED
SALES CHARGE
AS A PERCENTAGE
OF DOLLAR AMOUNT
SUBJECT TO CHARGE
--------------------------
YEAR OF REDEMPTION CLASS B CLASS 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
For the six months ended February 28, 2002, Van Kampen, as Distributor for
the Fund, received net commissions on sales of the Fund's Class A Shares of
approximately $53,300 and CDSC on redeemed shares of Classes B and C of
approximately $269,600. Sales charges do not represent expenses of the Fund.
On October 27, 2000, the Fund acquired all of the assets and liabilities of
the Van Kampen High Yield and Total Return Fund (the "VKHYTR Fund") through a
tax free reorganization approved by VKHYTR Fund shareholders on October 11,
2000. The Fund issued 1,164,310, 3,514,197 and 907,160 shares of Classes A, B
and C valued at $5,670,192, $17,149,280, and $4,399,728, respectively, in
exchange for VKHYTR Fund's net assets. The shares of VKHYTR Fund were converted
into Fund shares at a ratio of .5025 to 1, .5045 to 1 and .5013 to 1, for
Classes A, B and C, respectively. Included in these net assets was a capital
loss carryforward of $2,747,360 and deferred wash sale losses of $49,802 which
is included in accumulated net realized gain/loss. Net unrealized depreciation
of VKHYTR Fund as of October 27, 2000 was $5,150,365. Shares issued in
connection with this reorganization are included in proceeds from shares sold
for the year ended August 31, 2001. Combined net assets on the day of
reorganization were $721,982,089.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $255,643,496 and $257,175,750,
respectively.
34
NOTES TO
FINANCIAL STATEMENTS
February 28, 2002 (Unaudited)
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, manage the Fund's effective yield, foreign currency exposure,
maturity and duration or generate potential gain. All of the Fund's holdings,
including derivative instruments, are marked to market each day with the change
in value reflected in unrealized appreciation/depreciation. Upon disposition, a
realized gain or loss is recognized accordingly, except when taking delivery of
a security underlying a forward commitment. In this instance, the recognition of
gain or loss is postponed until the disposal of the security underlying the
forward commitment.
Purchasing securities on a forward commitment involves a risk that the
market value at the time of delivery may be lower than the agreed upon purchase
price resulting in an unrealized loss. Selling securities on a forward
commitment involves different risks and can result in losses more significant
than those arising from the purchase of such securities. Risks may arise as a
result of the potential inability of the counterparties to meet the terms of
their contracts.
A forward foreign currency contract is a commitment to purchase or sell a
foreign currency at a future date at a negotiated forward rate. Upon the
settlement of the contract, a realized gain or loss is recognized and is
included as a component of realized gain/loss on forwards. Risks may arise as a
result of the potential inability of the counterparties to meet the terms of
their contracts.
The following forward currency contract was outstanding as of February 28,
2002:
UNREALIZED
CURRENT APPRECIATION/
VALUE DEPRECIATION
Short Contract:
Euro Currency,
$11,550,800 expiring 04/30/02........................ $11,573,108 $(22,308)
6. DISTRIBUTION AND SERVICE PLANS
With respect to its Class A Shares, Class B Shares and Class C Shares, the Fund
and its shareholders have adopted a distribution plan pursuant to Rule 12b-1
under the 1940 Act, as amended, and a service plan (collectively the "Plans").
The Plans govern payments for the distribution of the Fund's Class A shares,
Class B Shares and Class C Shares; the provision of ongoing shareholder services
with respect to such classes of shares; and maintenance of shareholder accounts
with respect to
35
NOTES TO
FINANCIAL STATEMENTS
February 28, 2002 (Unaudited)
such classes of shares. Annual fees under the Plans of up to .25% of Class A
average daily net assets and 1.00% each for Class B and Class C average daily
net assets are accrued daily. Included in these fees for the six months ended
February 28, 2002 are payments retained by Van Kampen of approximately $955,700
and payments made to Morgan Stanley DW Inc., an affiliate of the Adviser, of
approximately $54,900.
36
BOARD OF TRUSTEES 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*
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY
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 02110
LEGAL COUNSEL
SKADDEN, ARPS, SLATE
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, Illinois 60606
* "Interested persons" of the Fund, as defined in the Investment Company Act
of 1940, as amended.
37
Van Kampen
Privacy Notice
The Van Kampen companies and investment products* respect your right to privacy.
We also know that you expect us to conduct and process your business in an
accurate and efficient manner. To do so, we must collect and maintain certain
nonpublic personal information about you. This is information we collect from
you on applications or other forms, and from the transactions you make with us,
our affiliates, or third parties. We may also collect information you provide
when using our web site, and text files (a.k.a. "cookies") may be placed on your
computer to help us to recognize you and to facilitate transactions you
initiate. We do not disclose any nonpublic personal information about you or any
of our former customers to anyone, except as permitted by law. For instance, so
that we may continue to offer you Van Kampen investment products and services
that meet your investing needs, and to effect transactions that you request or
authorize, we may disclose the information we collect to companies that perform
services on our behalf, such as printers and mailers that assist us in the
distribution of investor materials. These companies will use this information
only for the services for which we hired them, and are not permitted to use or
share this information for any other purpose. To protect your nonpublic personal
information internally, we permit access to it only by authorized employees, and
maintain physical, electronic and procedural safeguards to guard your nonpublic
personal information.
* Includes Van Kampen Investments Inc., Van Kampen Investment Advisory Corp.,
Van Kampen Asset Management Inc., Van Kampen Advisors Inc., Van Kampen
Management Inc., Van Kampen Funds Inc., Van Kampen Investor Services Inc., Van
Kampen Trust Company, Van Kampen System Inc. and Van Kampen Exchange Corp., as
well as the many Van Kampen mutual funds and Van Kampen unit investment
trusts.
Van Kampen Funds Inc.
1 Parkview Plaza, P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
vankampen.com
[VAN KAMPEN INVESTMENTS LOGO]
Copyright (C)2002 Van Kampen Funds Inc. All rights reserved.
28, 128, 228 Member NASD/SIPC.
HYI SAR 4/02 5534D02-AP-4/02