UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-02851
Van Kampen High Income Corporate Bond Fund
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(Exact name of registrant as specified in charter)
1221 Avenue of the Americas, New York, New York 10020
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(Address of principal executive offices) (Zip code)
Ronald Robison
1221 Avenue of the Americas, New York, New York 10020
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(Name and address of agent for service)
Registrant's telephone number, including area code: 212-762-4000
Date of fiscal year end: 8/31
Date of reporting period: 8/31/03
Item 1. Report to Shareholders
Welcome, Shareholder
In this report, you'll learn about how your investment in Van Kampen High
Income Corporate Bond Fund performed during the annual period. The
portfolio management team will provide an overview of the market
conditions and discuss some of the factors that affected investment
performance during the reporting period. In addition, this report
includes the fund's financial statements and a list of fund investments
as of August 31, 2003.
This material must be preceded or accompanied by a prospectus for the
fund being offered.
Market forecasts provided in this report may not necessarily come to
pass. There is no assurance that the fund will achieve its investment
objective. The fund is subject to market risk, which is the possibility
that the market values of securities owned by the fund will decline and,
therefore, the value of the fund shares may be less than what you paid
for them. Accordingly, you can lose money investing in this fund. Please
see the prospectus for more complete information on investment risks.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
PERFORMANCE SUMMARY
PERFORMANCE OF A $10,000 INVESTMENT
This chart compares your fund's performance to that of the Chase Global High
Yield Index from 12/31/93 (its inception date) through 8/31/03 and the Lipper
High Yield Bond Fund Index from 8/31/93 through 8/31/03. Class A shares,
adjusted for sales charges.
(LINE GRAPH)
VAN KAMPEN HIGH INCOME CHASE GLOBAL HIGH YIELD LIPPER HIGH YIELD BOND
CORPORATE BOND INDEX FUND INDEX
---------------------- ----------------------- ----------------------
8/93 10000.00 n/a 10000.00
9975.00 n/a 10022.20
12/93 10442.00 10000.00 10520.60
10383.00 9820.00 10408.80
10291.00 9805.00 10269.70
10179.00 9858.00 10266.90
12/94 10065.00 9843.00 10133.60
10539.00 10428.00 10628.00
11040.00 11046.00 11187.80
11470.00 11397.00 11574.20
12/95 11819.00 11764.00 11895.00
12195.00 12019.00 12198.70
12521.00 12238.00 12400.90
13039.00 12798.00 12988.50
12/96 13433.00 13294.00 13438.90
13621.00 13408.00 13501.10
14248.00 14028.00 14215.80
14910.00 14696.00 14982.50
12/97 15078.00 14941.00 15209.30
15819.00 15444.00 15877.80
15960.00 15576.00 15937.60
14651.00 14673.00 14734.70
12/98 15147.00 15086.00 15198.20
15567.00 15376.00 15682.90
15521.00 15542.00 15785.20
15422.00 15280.00 15508.10
12/99 15738.00 15596.00 15925.20
15673.00 15333.00 15683.10
15810.00 15409.00 15620.60
15703.00 15460.00 15498.90
12/00 14445.00 14688.00 14378.70
14913.00 15449.00 14870.90
14348.00 15318.00 14397.80
13489.00 14638.00 13519.20
12/01 14062.00 15493.00 14229.10
13690.00 15839.00 14288.60
12730.00 15449.00 13488.40
12060.00 14980.00 13086.20
12/02 12738.00 15824.00 13886.60
13486.00 16869.00 14743.00
14601.00 18475.00 16072.50
8/03 13885.00 18538.00 16162.70
Source: Confluence Technologies, Inc. and Lipper Inc.
A SHARES B SHARES C SHARES
since 10/2/78 since 7/2/92 since 7/6/93
---------------------------------------------------------------------------------------------
AVERAGE ANNUAL W/O SALES W/SALES W/O SALES W/SALES W/O SALES W/SALES
TOTAL RETURNS CHARGES CHARGES CHARGES CHARGES CHARGES CHARGES
Since Inception 7.22% 7.01% 4.60% 4.60% 3.10% 3.10%
10-year 3.84 3.34 3.33 3.33 3.02 3.02
5-year -0.33 -1.29 -1.04 -1.21 -1.12 -1.12
1-year 19.26 13.49 18.27 14.27 18.14 17.14
---------------------------------------------------------------------------------------------
30-Day SEC Yield 7.00% 6.55% 6.64%
Past performance is no guarantee of future results. Investment return and
principal value will fluctuate, and fund shares, when redeemed, may be worth
more or less than their original cost. The returns shown in this report do not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares.
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. Average annual total return with sales
charges includes payment of the maximum sales charge of 4.75 percent for Class A
shares, a contingent deferred sales charge of 4.00 percent for Class B shares
(in years one and two and declining to zero after year five), a contingent
deferred sales charge of 1.00 percent for Class C shares in year one and
combined Rule 12b-1 fees and service fees of up to 0.25 percent for Class A
shares and 1.00 percent for Class B and C shares. Certain non-recurring payments
were made to Class C shares, resulting in an increase to the one-year total
return of 0.01%. The since inception and 10-year returns for Class B shares
reflect the conversion of Class B shares into Class A shares six years after
purchase. See footnote 3 in the Notes to Financial Statements for additional
information. Figures shown above assume reinvestment of all dividends and
capital gains. SEC yield is a calculation for determining the amount of
portfolio income, excluding non-income items as prescribed by the SEC. Yields
are subject to change. Distribution rate represents the monthly annualized
distributions of the fund at the end of the period and not the earnings of the
fund.
Chase Global High Yield Index is a broad-based index that reflects the general
performance of the global high-yield corporate debt market. Lipper High Yield
Bond Fund Index is an index of funds with similar return objectives as this
fund. Indexes are unmanaged and do not include any sales charges or fees. Such
costs would lower performance. It is not possible to invest directly in an
index.
1
Fund Report
FOR THE 12-MONTH PERIOD ENDED AUGUST 31, 2003
Van Kampen High Income Corporate Bond Fund is managed by the adviser's
Taxable Fixed Income team. Members of the team include Gordon Loery,
Executive Director; Joshua Givelber, Vice President; and Chad Liu, Vice
President.(1) The following discussion reflects their views on the fund's
performance.
Q. BEFORE YOU DISCUSS HOW THE FUND PERFORMED, PLEASE DESCRIBE THE
OVERALL MARKET ENVIRONMENT.
A. Market returns during the period were dominated by the high-yield rally
that lasted from mid-October 2002 through the end of June 2003. The rally
was triggered by a combination of improving fundamentals, declining
default rates and record inflows into the high-yield market. By the end
of June, those three quarters represented the second-greatest nine-month
gain in the market's history. The rallying market drew record fund
inflows, which in turn propelled prices still higher.
The strongest returns during the course of the period were earned by
sectors and securities that were most heavily out of favor during the
preceding years. Wireless communications, utilities, telecommunications
and cable all soared after performing dismally earlier in 2002. These
sectors benefited from a combination of improved financial results
(albeit based on greatly reduced expectations) and low valuations. In a
similar vein, performance patterns across credit tiers differed
dramatically as the lowest-rated credits rose far higher than their
higher-quality peers.
While technical factors remained a potent force throughout the 12-month
period, they were especially influential in the closing months. An easing
of fund inflows in July coincided with a surge in issuance to produce a
temporary setback in the market's upward march that lasted through the
first two weeks of August, when that pattern reversed.
Q. HOW DID THE FUND PERFORM DURING THE REPORTING PERIOD?
A. The fund underperformed its benchmark indexes.
-- The fund returned 19.26 percent for the 12 months that ended August
31, 2003. Performance figures are for Class A shares, and assume the
reinvestment of all distributions but do not reflect the deduction
of any applicable sales charges. If sales charges were included,
performance would be lower. Past performance is no guarantee of
future results.
(1)Team members may change at any time without notice.
2
-- The fund's benchmarks, the Chase Global High Yield Index and the
Lipper High Yield Bond Fund Index, returned 22.31 percent and 21.79
percent, respectively.
-- The fund's monthly dividend of $0.0222 translated to a distribution
rate of 7.40 percent based on the fund's maximum offering price on
August 31, 2003 (Class A shares adjusted for sales charges).
See Performance Summary for additional information and index definitions.
Q. WHAT FACTORS HINDERED PERFORMANCE?
A. While the fund participated in the market's strong rally, our concerns
over the quality of the securities available for purchase led us to
assume a somewhat conservative stance in certain key exposures. This
caused the fund to lag the market during the period.
-- The declining economy led to a large amount of downgrades in recent
years, raising the portion of the market carrying a CCC rating.
While we maintained exposure to this segment of the market, our
analysis indicated that the majority of the companies carrying that
rating were too speculative for the portfolio. As a result, we kept
the fund's holdings of the lowest-tier credits relatively low.
-- While the market rally appeared to reward entire credit tiers and
sectors, we remained focused on bottom-up security analysis. As a
result, the fund was underweighted relative to the benchmarks in
sectors where our analysts were unwilling to recommend companies
with unpromising fundamental prospects. In the case of utilities and
TOP 5 INDUSTRIES AS OF 8/31/03 RATING ALLOCATION AS OF 8/31/03
Energy 8.6% AA/Aa 0.1%
Chemicals 8.1 BBB/Baa 5.4
Utility 7.2 BB/Ba 34.1
Forest Products 6.6 B/B 49.8
Cable 5.8 CCC/Acc 6.3
CC/Ca 0.8
C/C 0.6
Non-Rated 2.9
Subject to change daily. Industry percentages are as of long-term investments.
Rating Allocation percentages are as of corporate-debt obligations. Provided for
informational purposes only and should not be deemed as a recommendation to buy
securities in the industries shown above. Morgan Stanley is a full-service
securities firm engaged in securities trading and brokerage activities,
investment banking, research and analysis, financing and financial advisory
services. Rating allocations based upon ratings as issued by Standard and Poor's
and Moody's, respectively.
3
telecommunications, this caused us to de-emphasize two of the
market-leading sectors.
Q. WHAT HELPED PERFORMANCE DURING THE REPORTING PERIOD?
A. The fund benefited from strong security selection in the
wireless-communications, diversified-communications, broadcasting and chemical
sectors.
-- The wireless-communications sector entered the period with generally
low valuations for most of its component companies given the
sector's poor performance for most of 2002. Our analysts identified
several companies, such as American Cellular, SBA Communications and
Dobson Communications that appeared to be undervalued relative to
their prospects. These companies all gained strongly during the
period on the basis of improving financial results.
-- The diversified-media sector also enjoyed strong performance after
languishing for much of 2002. Our company picks included Vivendi,
which posted good financial results and attracted further attention
by announcing their intention to sell assets and reduce debt. R.H.
Donnelly continued to post solid results from their publishing
business.
-- Broadcasting companies enjoyed renewed investor interest based on
their low valuations and improving outlook. Paxson Communications
was one such company that produced strong results for the portfolio,
as it benefited from the proposed relaxation of media ownership
rules, which would make it much easier for the company to realize
its asset value.
-- Chemicals companies enjoyed a strong rebound when investor
expectations turned to an improving economy. Huntsman International
did particularly well as they appear to be well positioned to take
advantage of an increase in chemical prices and an upturn in
industrial production.
Q. PLEASE WALK US THROUGH HOW YOU POSITIONED THE FUND, HIGHLIGHTING
KEY THEMES.
A. One of our primary strategies in managing the fund was to adjust its
credit exposure to take advantage of shifting market conditions. The fund
entered the period with a small position in BBB rated bonds. These
securities tend to be more highly correlated with Treasury bonds than
lower-rated debt. When these bonds rallied with Treasuries, we sold them
in order to reinvest the proceeds into securities with better
total-return prospects. We followed a similar pattern with lower-rated
bonds, which we purchased early in the period when they were
4
undervalued. We later sold them into the rallying market and reinvested
the cash elsewhere.
While the near-record level of issuance in the market has ensured a
steady stream of purchasing opportunities, we have remained highly
selective. We increased the fund's holdings of telecommunications and
utilities companies as our analysts became more comfortable with key
firms in those sectors, though the portfolio remains underweighted
relative to the benchmarks in these areas. We also added to the fund's
holdings of companies in cyclical sectors such as manufacturing,
chemicals and diversified media that we believe would benefit from
sustained strength in the economy.
Q. NOW THAT YOU'VE PROVIDED AN OVERVIEW OF THE FUND, DO YOU HAVE ANY
CLOSING THOUGHTS?
A. We believe that the market retains attractive characteristics even after
its strong appreciation. Default rates have continued to trend lower,
even as the economy appears to be finding its footing. Corporate profits
have also continued to improve. Taken together, these factors would seem
to indicate a generally supportive environment for high-yield
investments. These positive forces are balanced against valuations, which
are no longer as low as they were at the beginning of the period. These
countervailing influences would appear to indicate that returns in
high-yield securities going forward are likely to be driven by income
more than broad movements in bond prices.
5
ANNUAL HOUSEHOLDING NOTICE
To reduce 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 prospectus and shareholder
reports (including annual privacy notices) 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.
PROXY VOTING POLICIES AND PROCEDURES
A description of the fund's policies and procedures with respect to the
voting of proxies relating to the fund's portfolio securities is
available without charge, upon request, by calling 1-800-847-2424. This
information is also available on the Securities and Exchange Commission's
website at http://www.sec.gov.
6
BY THE NUMBERS
YOUR FUND'S INVESTMENTS
August 31, 2003
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 85.3%
AEROSPACE 0.3%
$4,309 Air Canada (Canada) (a) (b)........ 10.250% 03/15/11 $ 2,132,955
------------
BROADCASTING 2.6%
3,410 Interep National Radio Sales, Inc.,
Ser B.............................. 10.000 07/01/08 2,983,750
3,796 Nextmedia Operating, Inc........... 10.750 07/01/11 4,223,050
3,535 Salem Communications Corp.......... 7.750 12/15/10 3,526,162
5,059 TV Azteca SA, Ser B (Mexico)....... 10.500 02/15/07 5,261,360
------------
15,994,322
------------
CABLE 5.4%
1,200 Avalon Cable LLC (c)............... 0/11.750 12/01/08 1,186,500
1,100 Charter Communications Holdings LLC
(c)................................ 0/11.750 01/15/10 698,500
5,485 Charter Communications Holdings
LLC................................ 8.250 04/01/07 4,442,850
1,145 Charter Communications Holdings
LLC................................ 10.750 10/01/09 921,725
650 CSC Holdings, Inc. ................ 7.250 07/15/08 653,250
2,435 CSC Holdings, Inc. ................ 8.125 07/15/09 2,526,312
1,620 CSC Holdings, Inc. ................ 9.875 02/15/13 1,701,000
830 CSC Holdings, Inc. ................ 10.500 05/15/16 908,850
5,885 DirecTV Holdings/Finance LLC,
144A--Private Placement (d)........ 8.375 03/15/13 6,458,787
5,098 Echostar DBS Corp. ................ 9.125 01/15/09 5,671,525
3,425 Multicanal Participacoes, Ser B
(Brazil) (a)....................... 12.625 06/18/04 1,215,875
1,450 NTL, Inc. (e)...................... 19.000 01/01/10 1,428,250
865 Pegasus Communications Corp., Ser
B.................................. 9.750 12/01/06 704,975
1,085 Pegasus Communications Corp., Ser
B.................................. 12.500 08/01/07 895,125
245 Pegasus Satellite Communications
(c)................................ 0/13.500 03/01/07 159,250
1,570 Renaissance Media Group (c)........ 10.000 04/15/08 1,577,850
5,895 Satelites Mexicanos SA (Mexico)
(a)................................ 10.125 11/01/04 2,829,600
------------
33,980,224
------------
See Notes to Financial Statements 7
YOUR FUND'S INVESTMENTS
August 31, 2003
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
CHEMICALS 7.5%
$1,540 Acetex Corp. (Canada).............. 10.875% 08/01/09 $ 1,686,300
2,412 Avecia Group PLC (United Kingdom).. 11.000 07/01/09 2,062,260
3,343 Equistar Chemicals LP.............. 10.125 09/01/08 3,359,715
2,045 Equistar Chemicals LP, 144A--
Private Placement (d).............. 10.625 05/01/11 2,045,000
1,564 FMC Corp. ......................... 10.250 11/01/09 1,775,140
1,475 Huntsman Advanced Materials LLC,
144A--Private Placement (d)........ 11.000 07/15/10 1,563,500
2,699 Huntsman ICI Chemicals LLC......... 10.125 07/01/09 2,564,050
2,800 Huntsman International LLC
(Euro)............................. 10.125 07/01/09 2,739,581
570 Huntsman International LLC, 144A--
Private Placement (d).............. 9.875 03/01/09 589,950
1,280 ISP Chemco, Inc., Ser B............ 10.250 07/01/11 1,417,600
4,645 ISP Holdings, Inc., Ser B.......... 10.625 12/15/09 4,865,637
2,131 Lyondell Chemical Co. ............. 9.500 12/15/08 2,067,070
2,215 Lyondell Chemical Co., Ser B....... 9.875 05/01/07 2,203,925
2,917 Messer Griesham (Euro) (Germany)... 10.375 06/01/11 3,623,690
3,680 Millennium America, Inc. .......... 7.000 11/15/06 3,624,800
775 Millennium America, Inc. .......... 9.250 06/15/08 806,000
1,105 PCI Chemicals Canada, Inc.
(Canada)........................... 10.000 12/31/08 950,056
350 Pioneer Cos., Inc. (Variable Rate
Coupon)............................ 5.355 12/31/06 299,102
3,705 Rhodia SA, 144A--Private Placement
(France) (d)....................... 8.875 06/01/11 3,742,050
2,410 Rockwood Specialties Group, Inc.,
144A--Private Placement (d)........ 10.625 05/15/11 2,524,475
2,465 Westlake Chemical Corp., 144A--
Private Placement (d).............. 8.750 07/15/11 2,526,625
------------
47,036,526
------------
CONSUMER PRODUCTS 1.8%
2,230 Elizabeth Arden, Inc. ............. 11.750 02/01/11 2,486,450
1,555 Oxford Industries, Inc., 144A--
Private Placement (d).............. 8.875 06/01/11 1,624,975
3,560 Safilo Capital International SA,
144A--Private Placement (Euro)
(Luxembourg) (d) (f)............... 9.625 05/15/13 3,698,435
4,000 Sleepmaster LLC (a) (b)............ 11.000 05/15/09 1,105,000
2,370 Tempur Pedic, Inc., 144A--Private
Placement (d)...................... 10.250 08/15/10 2,429,250
------------
11,344,110
------------
8 See Notes to Financial Statements
YOUR FUND'S INVESTMENTS
August 31, 2003
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
DIVERSIFIED MEDIA 5.1%
$3,520 Advanstar Communications, Inc.,
144A--Private Placement (Variable
Rate Coupon) (d)................... 8.630% 08/15/08 $ 3,511,200
3,250 Alliance Atlantis Communications,
Inc. (Canada)...................... 13.000 12/15/09 3,652,187
730 Dex Media West/Finance, 144A--
Private Placement (d).............. 9.875 08/15/13 817,600
4,314 Hollinger Participation Trust,
144A--Private Placement (d) (e).... 12.125 11/15/10 4,702,220
825 Houghton Mifflin Co., 144A--
Private Placement (d).............. 9.875 02/01/13 903,375
3,392 Muzak LLC.......................... 9.875 03/15/09 3,260,560
2,395 Muzak LLC, 144A--Private Placement
(d)................................ 10.000 02/15/09 2,538,700
1,475 PEI Holdings, Inc., 144A--Private
Placement (d)...................... 11.000 03/15/10 1,628,031
4,109 Primedia, Inc. .................... 8.875 05/15/11 4,324,722
1,915 RH Donnelley Finance Corp. I,
144A--Private Placement (d)........ 10.875 12/15/12 2,240,550
1,160 Vivendi Universal SA, 144A--Private
Placement (France) (d)............. 6.250 07/15/08 1,165,800
2,570 Vivendi Universal SA, 144A--Private
Placement (France) (d)............. 9.250 04/15/10 2,884,825
------------
31,629,770
------------
ENERGY 8.0%
3,876 BRL Universal Equipment............ 8.875 02/15/08 4,127,940
3,630 Chesapeake Energy Corp. ........... 8.125 04/01/11 3,811,500
1,635 Citgo Petroleum Corp., 144A--
Private Placement (d).............. 11.375 02/01/11 1,831,200
1,005 El Paso Energy Partners LP, 144A--
Private Placement (d).............. 8.500 06/01/10 1,070,325
4,215 El Paso Production Holding Co.,
144A--Private Placement (d)........ 7.750 06/01/13 4,109,625
4,385 Frontier Oil Corp. ................ 11.750 11/15/09 4,845,425
1,428 Grey Wolf, Inc. ................... 8.875 07/01/07 1,467,270
2,879 GulfTerra Energy Partner LP, Ser
B.................................. 10.625 12/01/12 3,328,844
2,004 Hanover Equipment Trust............ 8.750 09/01/11 2,004,000
3,065 Hilcorp Energy/Finance, 144A--
Private Placement (d).............. 10.500 09/01/10 3,160,781
2,370 Husky Oil Ltd. (Variable Rate
Coupon) (Canada)................... 8.900 08/15/28 2,725,500
1,994 Magnum Hunter Resources, Inc. ..... 9.600 03/15/12 2,123,610
See Notes to Financial Statements 9
YOUR FUND'S INVESTMENTS
August 31, 2003
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
ENERGY (CONTINUED)
$ 650 MSW Energy Holdings/Finance,
144A--Private Placement (d)........ 8.500% 09/01/10 $ 666,250
3,100 Pemex Project Funding Master
Trust.............................. 8.625 02/01/22 3,293,750
2,669 Port Arthur Finance Corp., Ser A... 12.500 01/15/09 3,122,291
1,954 Tesoro Petroleum Corp. ............ 9.625 04/01/12 1,954,000
1,810 Tesoro Petroleum Corp., Ser B...... 9.000 07/01/08 1,782,850
1,225 Transcontinental Gas Pipe Line
Corp., Ser B....................... 8.875 07/15/12 1,326,062
3,372 Vintage Petroleum, Inc. ........... 7.875 05/15/11 3,422,580
------------
50,173,803
------------
FINANCIAL 0.6%
3,555 Istar Financial, Inc. ............. 8.750 08/15/08 3,922,231
------------
FOOD & DRUG 1.2%
3,200 California Farm Lease Trust, 144A--
Private Placement (d).............. 8.500 07/15/17 3,488,646
4,045 Delhaize America, Inc. ............ 8.125 04/15/11 4,237,137
1,200 Jitney-Jungle Stores America, Inc.
(a) (b) (g)........................ 12.000 03/01/06 0
------------
7,725,783
------------
FOOD & TOBACCO 2.6%
2,000 Merisant Co., 144A--Private
Placement (d)...................... 9.500 07/15/13 2,110,000
2,969 Michael Foods, Inc., Ser B......... 11.750 04/01/11 3,429,195
1,440 National Beef Packing Co., 144A--
Private Placement (d).............. 10.500 08/01/11 1,512,000
3,390 Pilgrim's Pride Corp. ............. 9.625 09/15/11 3,610,350
4,750 Smithfield Foods, Inc. ............ 7.625 02/15/08 4,821,250
600 Smithfield Foods, Inc. ............ 8.000 10/15/09 633,000
------------
16,115,795
------------
FOREST PRODUCTS 6.1%
3,050 Abitibi-Consolidated, Inc.
(Canada)........................... 6.000 06/20/13 2,760,909
5,025 Georgia-Pacific Corp., 144A--
Private Placement (d).............. 8.875 02/01/10 5,313,937
2,615 Graphic Packaging International,
Inc., 144A--Private Placement
(d)................................ 9.500 08/15/13 2,758,825
4,180 JSG Funding PLC (Euro) (United
Kingdom)........................... 10.125 10/01/12 4,916,955
1,785 Norampac, Inc., 144A--Private
Placement (Canada) (d)............. 6.750 06/01/13 1,771,612
1,000 Owens Brockway Glass Containers.... 8.750 11/15/12 1,055,000
245 Owens Brockway Glass Containers,
144A--Private Placement (d)........ 7.750 05/15/11 246,225
4,390 Owens-Illinois, Inc. .............. 7.500 05/15/10 4,192,450
10 See Notes to Financial Statements
YOUR FUND'S INVESTMENTS
August 31, 2003
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
FOREST PRODUCTS (CONTINUED)
$4,101 Pacifica Papers, Inc. (Canada)..... 10.000% 03/15/09 $ 4,306,050
395 Pliant Corp. ...................... 13.000 06/01/10 345,625
2,419 Pliant Corp. ...................... 13.000 06/01/10 2,116,625
4,073 Tekni-Plex, Inc., Ser B............ 12.750 06/15/10 3,950,810
4,800 Tembec Industries, Inc. (Canada)... 7.750 03/15/12 4,560,000
------------
38,295,023
------------
GAMING & LEISURE 5.2%
3,200 Harrahs Operating Co., Inc. ....... 7.875 12/15/05 3,464,000
241 Hilton Hotels Corp. ............... 7.950 04/15/07 256,364
2,325 Hilton Hotels Corp. ............... 7.625 12/01/12 2,464,500
776 HMH Properties, Inc. .............. 7.875 08/01/05 795,400
2,325 HMH Properties, Inc., Ser B........ 7.875 08/01/08 2,348,250
3,967 Horseshoe Gaming LLC............... 8.625 05/15/09 4,195,102
1,850 LodgeNet Entertainment Corp. ...... 9.500 06/15/13 1,919,375
1,660 Park Place Entertainment Corp. .... 7.875 12/15/05 1,751,300
2,888 Park Place Entertainment Corp. .... 8.875 09/15/08 3,184,020
884 Starwood Hotels & Resorts
Worldwide, Inc. ................... 7.375 05/01/07 930,410
2,576 Starwood Hotels & Resorts
Worldwide, Inc. ................... 7.875 05/01/12 2,704,800
3,600 Station Casinos, Inc. ............. 8.875 12/01/08 3,771,000
1,800 Station Casinos, Inc. ............. 9.875 07/01/10 1,989,000
2,280 Venetian Casino Resort LLC......... 11.000 06/15/10 2,604,900
------------
32,378,421
------------
HEALTHCARE 4.7%
1,108 AmerisourceBergen Corp. ........... 8.125 09/01/08 1,177,250
3,775 AmerisourceBergen Corp. ........... 7.250 11/15/12 3,831,625
1,290 Apogent Technologies, Inc., 144A--
Private Placement (d).............. 6.500 05/15/13 1,277,100
1,640 Fisher Scientific International,
Inc. .............................. 7.125 12/15/05 1,697,400
1,735 Fisher Scientific International,
Inc., 144A--Private Placement
(d)................................ 8.125 05/01/12 1,804,400
4,790 Fresenius Medical Care Capital
Trust IV........................... 7.875 06/15/11 5,005,550
1,889 HCA, Inc. ......................... 8.750 09/01/10 2,101,356
1,800 HCA, Inc. ......................... 6.950 05/01/12 1,822,504
1,255 HCA, Inc. ......................... 6.300 10/01/12 1,218,293
475 HCA, Inc. ......................... 7.190 11/15/15 471,321
350 Manor Care, Inc. .................. 7.500 06/15/06 374,500
1,008 Manor Care, Inc. .................. 8.000 03/01/08 1,093,680
1,015 Manor Care, Inc., 144A--Private
Placement (d)...................... 6.250 05/01/13 984,550
1,325 Medco Health Solutions, Inc. ...... 7.250 08/15/13 1,373,796
1,240 Omnicare, Inc., Ser B.............. 8.125 03/15/11 1,320,600
See Notes to Financial Statements 11
YOUR FUND'S INVESTMENTS
August 31, 2003
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
HEALTHCARE (CONTINUED)
$1,960 Tenet Healthcare Corp. ............ 6.500% 06/01/12 $ 1,813,000
1,780 Tenet Healthcare Corp. ............ 7.375 02/01/13 1,757,750
------------
29,124,675
------------
HOUSING 5.1%
3,622 CB Richard Ellis Service, Inc. .... 11.250 06/15/11 3,839,320
1,400 CBRE Escrow, Inc., 144A--Private
Placement (d)...................... 9.750 05/15/10 1,484,000
2,785 Jacuzzi Brands, Inc., 144A--
Private Placement (d).............. 9.625 07/01/10 2,910,325
2,765 KB Home............................ 7.750 02/01/10 2,834,125
4,555 LNR Property Corp., 144A--Private
Placement (d)...................... 7.625 07/15/13 4,623,325
961 Louisiana Pacific Corp. ........... 8.875 08/15/10 1,107,553
1,278 Louisiana Pacific Corp. ........... 10.875 11/15/08 1,472,895
1,360 Meritage Corp. .................... 9.750 06/01/11 1,456,900
735 Nortek Holdings, Inc. ............. 9.250 03/15/07 751,538
3,898 Schuler Homes, Inc. ............... 9.375 07/15/09 4,209,840
1,186 Tech Olympic USA, Inc. ............ 9.000 07/01/10 1,203,790
1,600 Tech Olympic USA, Inc. ............ 9.000 07/01/10 1,624,000
1,006 Tech Olympic USA, Inc. ............ 10.375 07/01/12 1,021,090
805 Tech Olympic USA, Inc., 144A--
Private Placement (d).............. 10.375 07/01/12 817,075
2,623 Toll Corp.......................... 8.250 02/01/11 2,793,495
------------
32,149,271
------------
INFORMATION TECHNOLOGY 2.6%
4,150 Avaya, Inc. ....................... 11.125 04/01/09 4,668,750
9,000 CHS Electronics, Inc. (a) (b)
(g)................................ 9.875 04/15/05 78,750
2,785 Iron Mountain, Inc. ............... 8.625 04/01/13 2,910,325
2,340 Iron Mountain, Inc. ............... 7.750 01/15/15 2,398,500
1,400 Iron Mountain, Inc. ............... 6.625 01/01/16 1,319,500
925 Xerox Capital Europe PLC (United
Kingdom)........................... 5.875 05/15/04 930,781
3,875 Xerox Corp. ....................... 7.125 06/15/10 3,778,125
------------
16,084,731
------------
MANUFACTURING 4.2%
590 ABB International Finance Ltd. .... 6.750 06/03/04 580,892
1,695 ABB International Finance Ltd.
(Euro) (Guernsey).................. 9.500 01/15/08 2,044,050
1,490 Brand Services, Inc. .............. 12.000 10/15/12 1,678,113
990 Flowserve Corp. ................... 12.250 08/15/10 1,138,500
1,377 Johnsondiversey, Inc. (Euro)
(Luxembourg)....................... 9.625 05/15/12 1,619,772
3,021 Johnsondiversey, Inc., Ser B....... 9.625 05/15/12 3,209,813
2,615 Manitowoc, Inc. ................... 10.500 08/01/12 2,889,575
12 See Notes to Financial Statements
YOUR FUND'S INVESTMENTS
August 31, 2003
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
MANUFACTURING (CONTINUED)
$1,959 NMHG Holdings Co. ................. 10.000% 05/15/09 $ 2,105,925
4,980 Outsourcing Services Group,
Inc. .............................. 10.875 03/01/06 2,521,125
1,417 Reunion Industries, Inc. (a)....... 13.000 05/01/03 680,160
4,814 Trimas Corp. ...................... 9.875 06/15/12 4,741,790
2,734 Tyco International Group SA
(Luxembourg)....................... 6.750 02/15/11 2,795,515
------------
26,005,230
------------
METALS 1.8%
5,729 Doe Run Resources Corp. (e) (g)
(h)................................ 11.750 11/01/08 2,005,112
6,655 GS Technologies Operating, Inc. (a)
(b) (g)............................ 12.000 09/01/04 666
2,450 GS Technologies Operating, Inc. (a)
(b) (g)............................ 12.250 10/01/05 0
2,819 Oregon Steel Mills, Inc. .......... 10.000 07/15/09 2,255,200
1,416 Republic Engineered Products....... 10.000 08/16/09 361,200
3,422 Ucar Finance, Inc. ................ 10.250 02/15/12 3,563,158
3,000 United States Steel Corp. ......... 9.750 05/15/10 3,060,000
------------
11,245,336
------------
RETAIL 2.5%
3,002 Big 5 Corp., Ser B................. 10.875 11/15/07 3,167,110
965 Gap, Inc. ......................... 6.900 09/15/07 1,021,694
1,657 Gap, Inc. ......................... 10.550 12/15/08 1,982,186
4,920 Payless Shoesource, Inc., 144A--
Private Placement (d).............. 8.250 08/01/13 4,858,500
525 Penney, JC Co., Inc. .............. 7.600 04/01/07 549,938
1,620 Penney, JC Co., Inc. .............. 8.000 03/01/10 1,688,850
1,791 Penney, JC Co., Inc. .............. 9.000 08/01/12 1,934,280
489 Penney, JC Co., Inc. .............. 6.875 10/15/15 443,768
------------
15,646,326
------------
SERVICES 1.8%
1,750 Allied Waste North America,
Inc. .............................. 7.875 04/15/13 1,793,750
4,700 Allied Waste North America,
Inc. .............................. 10.000 08/01/09 5,111,250
1,500 Encompass Services Corp. (a) (b)
(g)................................ 10.500 05/01/09 0
6,250 Hydrochem Industrial Services,
Inc., Ser B........................ 10.375 08/01/07 4,406,250
------------
11,311,250
------------
TELECOMMUNICATIONS 3.0%
2,660 360networks, Inc. (Canada) (a) (b)
(g)................................ 13.000 05/01/08 0
2,800 360networks, Inc. (Euro) (Canada)
(a) (b) (g)........................ 13.000 05/01/08 0
See Notes to Financial Statements 13
YOUR FUND'S INVESTMENTS
August 31, 2003
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
TELECOMMUNICATIONS (CONTINUED)
$4,035 Cincinnati Bell, Inc., 144A--
Private Placement (d).............. 7.250% 07/15/13 $ 3,974,475
4,210 Exodus Communications, Inc. (a) (b)
(g)................................ 11.250 07/01/08 252,600
330 Exodus Communications, Inc. (a) (b)
(g)................................ 11.625 07/15/10 19,800
2,750 Exodus Communications, Inc. (Euro)
(a) (b) (g)........................ 11.375 07/15/08 181,393
884 Globix Corp., 144A--Private
Placement (d) (e).................. 11.000 05/01/08 689,584
5,305 GST Network Funding, Inc. (a) (b)
(g)................................ 10.500 05/01/08 531
3,775 Knology, Inc., 144A--Private
Placement (d) (e).................. 12.000 11/30/09 3,303,306
3,000 Park N View, Inc., Ser B (a) (b)
(g)................................ 13.000 05/15/08 0
2,434 Primus Telecom Group............... 9.875 05/15/08 2,312,300
230 Primus Telecom Group............... 11.250 01/15/09 226,550
5,645 US West Communications, Inc. ...... 5.625 11/15/08 5,362,750
2,725 US West Communications, Inc. ...... 6.625 09/15/05 2,752,250
5,800 Worldwide Fiber, Inc. (Canada) (a)
(b)................................ 12.000 08/01/09 580
------------
19,076,119
------------
TRANSPORTATION 4.2%
9,885 Aetna Industries, Inc. (a) (b)
(g)................................ 11.875 10/01/06 49,425
2,815 Amsted Industries, Inc., 144A--
Private Placement (d).............. 10.250 10/15/11 2,899,450
117 Aran Shipping & Trading, SA (a)
(g)................................ 8.300 01/31/04 0
1,578 ArvinMeritor, Inc. ................ 8.750 03/01/12 1,641,120
3,260 Autonation, Inc. .................. 9.000 08/01/08 3,610,450
1,773 Collins & Aikman Products Co. ..... 10.750 12/31/11 1,569,105
3,010 Intermet Corp. .................... 9.750 06/15/09 2,874,550
3,170 Laidlaw International, Inc., 144A--
Private Placement (d).............. 10.750 06/15/11 3,344,350
3,969 Lear Corp., Ser B.................. 8.110 05/15/09 4,455,203
2,785 Sonic Automotive, Inc., 144A--
Private Placement (d).............. 8.625 08/15/13 2,826,775
2,625 TRW Automotive, Inc., 144A--
Private Placement (d).............. 9.375 02/15/13 2,926,875
------------
26,197,303
------------
UTILITY 6.1%
508 AES Corp. ......................... 9.375 09/15/10 490,220
360 AES Corp. ......................... 8.875 02/15/11 336,600
2,925 AES Corp., 144A--Private Placement
(d)................................ 9.000 05/15/15 2,983,500
14 See Notes to Financial Statements
YOUR FUND'S INVESTMENTS
August 31, 2003
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
UTILITY (CONTINUED)
$1,280 Allegheny Energy, Inc. ............ 7.750% 08/01/05 $ 1,286,400
2,550 Calpine Corp. ..................... 8.625 08/15/10 1,874,250
1,605 Calpine Corp., 144A--Private
Placement (d)...................... 8.500 07/15/10 1,516,725
775 CMS Energy Corp. .................. 7.500 01/15/09 744,969
2,780 CMS Energy Corp. .................. 8.500 04/15/11 2,734,825
4,232 Dynegy Holdings, Inc. ............. 6.875 04/01/11 3,279,800
1,730 Dynegy Holdings, Inc., 144A--
Private Placement (d).............. 9.875 07/15/10 1,764,600
925 IPALCO Enterprises, Inc. .......... 8.625 11/14/11 975,875
3,220 Monongahela Power Co. ............. 5.000 10/01/06 3,183,775
2,590 Nevada Power Co., 144A--Private
Placement (d)...................... 9.000 08/15/13 2,713,025
695 Northwest Pipeline Corp. .......... 8.125 03/01/10 726,275
1,625 PG & E Corp., 144A--Private
Placement (d)...................... 6.875 07/15/08 1,657,500
700 PSEG Energy Holdings, Inc. ........ 7.750 04/16/07 683,132
1,949 PSEG Energy Holdings, Inc. ........ 8.625 02/15/08 1,951,124
1,690 Southern California Edison Co.,
144A--Private Placement (d)........ 8.000 02/15/07 1,859,000
1,345 Southern Natural Gas Co. .......... 8.875 03/15/10 1,425,700
2,025 Williams Cos., Inc. ............... 6.750 01/15/06 1,994,625
4,100 Williams Cos., Inc. ............... 7.875 09/01/21 3,792,500
------------
37,974,420
------------
WIRELESS COMMUNICATIONS 2.9%
315 American Tower Corp. .............. 9.375 02/01/09 320,513
3,110 Dobson Communications Corp. ....... 10.875 07/01/10 3,389,900
1,900 Nextel Communications, Inc. (c).... 9.950 02/15/08 1,999,750
1,000 Nextel Communications, Inc. ....... 12.000 11/01/08 1,065,000
3,915 Nextel Communications, Inc. ....... 9.375 11/15/09 4,247,775
2,825 Nextel Partners, Inc. ............. 11.000 03/15/10 3,051,000
3,487 SBA Communications Corp. (c)....... 12.000 03/01/08 3,643,915
718 SBA Communications Corp. .......... 10.250 02/01/09 651,585
------------
18,369,438
------------
TOTAL CORPORATE BONDS 85.3%........................................ 533,913,062
------------
CONVERTIBLE CORPORATE OBLIGATION 0.8%
WIRELESS COMMUNICATIONS 0.8%
5,500 American Tower Corp. .............. 6.250 10/15/09 5,252,500
------------
See Notes to Financial Statements 15
YOUR FUND'S INVESTMENTS
August 31, 2003
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
FOREIGN GOVERNMENT OBLIGATIONS 0.5%
$1,563 Republic of Colombia (Columbia).... 9.750% 04/09/11 $ 1,761,940
1,190 Republic of Colombia (Columbia).... 10.750 01/15/13 1,341,725
------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS................................ 3,103,665
------------
ASSET BACKED SECURITIES 3.5%
20,342 Targeted Return Index Securities
Trust, 144A--Private Placement
(Variable Rate Coupon) (d)......... 8.681 05/15/13 21,641,356
------------
EQUITIES 3.0%
DecisionOne Corp. (14,661 Common Shares) (g) (i)............................. 0
DecisionOne Corp. (8,219 Common Stock Warrants Class A) (g) (i).............. 0
DecisionOne Corp. (14,162 Common Stock Warrants Class B) (g) (i)............. 0
DecisionOne Corp. (8,400 Common Stock Warrants Class C) (g) (i).............. 0
Dobson Communications Corp., Class A (347,823 Common Shares) (i)............. 3,199,972
Dobson Communications Corp. (37,120 Preferred Shares) (e).................... 3,739,840
Dobson Communications Corp., 144A--Private Placement (5,404 Convertible
Preferred Shares) (d)...................................................... 1,113,224
Doe Run Resources Corp. (21 Common Stock Warrants) (g) (i)................... 0
Globix Corp. (75,803 Common Shares) (e) (i).................................. 234,989
HF Holdings, Inc. (36,820 Common Stock Warrants) (g) (i)..................... 0
ICG Communications, Inc. (33,916 Common Shares) (i).......................... 301,852
ICG Communications, Inc. (5,878 Common Stock Warrants) (g) (i)............... 0
Intersil Holding Corp., Class A (31,481 Common Shares) (i)................... 917,042
Jazztel, PLC, 144A--Private Placement (3,450 Common Stock Warrants) (United
Kingdom) (d) (g) (i)....................................................... 0
McLeodUSA, Inc. (25,943 Preferred Shares, Ser A) (i)......................... 146,837
McLeodUSA, Inc. (57,567 Common Stock Warrants Class A) (i)................... 21,300
McLeodUSA, Inc., Class A (3,462 Common Shares) (i)........................... 3,947
Mediq, Inc. (5,526 Common Shares) (g) (i).................................... 30,006
Microcell Telecommunications (16,250 Common Stock Warrants) (Canada) (i)..... 13,728
Microcell Telecommunications, Class A (220 Common Shares) (Canada) (i)....... 2,212
Microcell Telecommunications, Class B (26,249 Common Shares) (Canada) (i).... 260,614
Microcell Telecommunications (26,407 Convertible Preferred Shares)
(Canada)................................................................... 276,960
Microcell Telecommunications (9,750 Common Stock Warrants) (Canada) (i)...... 5,562
Motient Corp. (32,388 Common Shares) (i)..................................... 197,567
XO Communications, Inc. (14,229 Common Stock Warrants Ser A) (g) (i)......... 0
XO Communications, Inc. (10,672 Common Stock Warrants Ser B) (g) (i)......... 0
XO Communications, Inc. (10,672 Common Stock Warrants Ser C) (g) (i)......... 0
XO Communications, Inc. (7,114 Common Shares) (i)............................ 43,893
Occidente Y Caribe Celular SA (20,850 Common Stock Warrants) (g) (i)......... 0
OpTel, Inc. (3,275 Common Shares) (g) (i).................................... 0
16 See Notes to Financial Statements
YOUR FUND'S INVESTMENTS
August 31, 2003
MARKET
DESCRIPTION VALUE
EQUITIES (CONTINUED)
Park N View, Inc., 144A--Private Placement (3,000 Common Stock Warrants) (d)
(i)........................................................................ $ 0
Paxon Communications Corp. (42,600 Preferred Shares) (e)..................... 3,802,050
Pioneer Cos., Inc. (71,438 Common Shares) (i)................................ 267,892
Primus Telecommunications Group (2,000 Common Stock Warrants) (g) (i)........ 20
Republic Technologies International, Inc., 144A--Private Placement (7,525
Common Stock Warrants) (d) (i)............................................. 75
Startec Global Communications, 144A--Private Placement (8,100 Common Stock
Warrants) (d) (g) (i)...................................................... 0
TNP Enterprises, Inc. (60,450 Preferred Shares, Ser D) (e)................... 4,065,262
UIH Australia/Pacific, Inc. (5,000 Common Stock Warrants) (i)................ 50
Viatel Holding Ltd. (32,111 Common Shares) (Bermuda) (i)..................... 28,900
VS Holdings, Inc. (568,177 Common Shares) (g) (i)............................ 106,079
------------
TOTAL EQUITIES 3.0%......................................................... 18,779,873
------------
TOTAL LONG-TERM INVESTMENTS 93.1%
(Cost $666,567,854)........................................................ 582,690,456
REPURCHASE AGREEMENT 5.0%
Banc of America Securities LLC ($31,043,000 par collateralized by U.S.
Government obligations in a pooled cash account, dated 08/29/03, to be sold
on 09/02/03 at $31,046,415) (Cost $31,043,000)............................. 31,043,000
------------
TOTAL INVESTMENTS 98.1%
(Cost $697,610,854)........................................................ 613,733,456
OTHER ASSETS IN EXCESS OF LIABILITIES 1.9%.................................. 12,026,977
------------
NET ASSETS 100.0%........................................................... $625,760,433
============
(a) Non-income producing as security is in default.
(b) This borrower has filed for protection in federal bankruptcy court.
(c) Security is a "step-up" bond where the coupon increases or steps up at a
predetermined date.
(d) 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.
(e) Payment-in-kind security.
(f) Securities purchased on a when-issued or delayed delivery basis.
See Notes to Financial Statements 17
YOUR FUND'S INVESTMENTS
August 31, 2003
(g) Market value is determined in accordance with procedures established in good
faith by the Board of Trustees.
(h) These securities are restricted and may be resold only in transactions
exempt from registration which are normally those transactions with
qualified institutional buyers.
(i) Non-income producing security.
18 See Notes to Financial Statements
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
August 31, 2003
ASSETS:
Total Investments (Cost $697,610,854)....................... $ 613,733,456
Cash........................................................ 9,056,673
Receivables:
Interest.................................................. 12,306,185
Fund Shares Sold.......................................... 7,247,671
Investments Sold.......................................... 6,326,368
Forward Foreign Currency Contracts.......................... 528,257
Other....................................................... 153,524
--------------
Total Assets............................................ 649,352,134
--------------
LIABILITIES:
Payables:
Investments Purchased..................................... 19,502,194
Fund Shares Repurchased................................... 1,821,680
Income Distributions...................................... 1,044,390
Distributor and Affiliates................................ 446,981
Investment Advisory Fee................................... 266,022
Accrued Expenses............................................ 294,281
Trustees' Deferred Compensation and Retirement Plans........ 216,153
--------------
Total Liabilities....................................... 23,591,701
--------------
NET ASSETS.................................................. $ 625,760,433
==============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $1,084,171,301
Accumulated Undistributed Net Investment Income............. (8,122,163)
Net Unrealized Depreciation................................. (83,359,848)
Accumulated Net Realized Loss............................... (366,928,857)
--------------
NET ASSETS.................................................. $ 625,760,433
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $408,728,906 and 119,115,456 shares of
beneficial interest issued and outstanding)............. $ 3.43
Maximum sales charge (4.75%* of offering price)......... .17
--------------
Maximum offering price to public........................ $ 3.60
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $175,572,253 and 50,968,475 shares of
beneficial interest issued and outstanding)............. $ 3.44
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $41,459,274 and 12,157,898 shares of
beneficial interest issued and outstanding)............. $ 3.41
==============
* On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements 19
Statement of Operations
For the Year Ended August 31, 2003
INVESTMENT INCOME:
Interest.................................................... $ 51,178,883
Dividends................................................... 2,188,441
Other....................................................... 439,694
-------------
Total Income............................................ 53,807,018
-------------
EXPENSES:
Investment Advisory Fee..................................... 3,091,033
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $859,698, $1,715,038 and $379,164,
respectively)............................................. 2,953,900
Shareholder Services........................................ 1,341,875
Custody..................................................... 81,862
Trustees' Fees and Related Expenses......................... 28,817
Legal....................................................... 21,832
Other....................................................... 439,536
-------------
Total Expenses.......................................... 7,958,855
Less Credits Earned on Cash Balances.................... 20,040
-------------
Net Expenses............................................ 7,938,815
-------------
NET INVESTMENT INCOME....................................... $ 45,868,203
=============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $(157,274,421)
Forward Foreign Currency Contracts........................ (1,403,869)
Foreign Currency Transactions............................. (94,828)
-------------
Net Realized Loss........................................... (158,773,118)
-------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (297,691,151)
-------------
End of the Period:
Investments............................................. (83,877,398)
Forward Foreign Currency Contracts...................... 528,257
Foreign Currency Translation............................ (10,707)
-------------
(83,359,848)
-------------
Net Unrealized Appreciation During the Period............... 214,331,303
-------------
NET REALIZED AND UNREALIZED GAIN............................ $ 55,558,185
=============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 101,426,388
=============
20 See Notes to Financial Statements
Statements of Changes in Net Assets
YEAR ENDED YEAR ENDED
AUGUST 31, 2003 AUGUST 31, 2002
----------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income..................................... $ 45,868,203 $ 61,348,079
Net Realized Loss......................................... (158,773,118) (75,202,141)
Net Unrealized Appreciation/Depreciation During the
Period.................................................. 214,331,303 (89,189,391)
------------- -------------
Change in Net Assets from Operations...................... 101,426,388 (103,043,453)
------------- -------------
Distributions from Net Investment Income:
Class A Shares.......................................... (24,666,719) (39,465,139)
Class B Shares.......................................... (11,156,188) (22,497,111)
Class C Shares.......................................... (2,557,102) (5,037,475)
------------- -------------
(38,380,009) (66,999,725)
------------- -------------
Return of Capital Distribution:
Class A Shares.......................................... (7,393,542) (3,148,224)
Class B Shares.......................................... (3,119,852) (1,750,514)
Class C Shares.......................................... (735,655) (390,906)
------------- -------------
(11,249,049) (5,289,644)
------------- -------------
Total Distributions....................................... (49,629,058) (72,289,369)
------------- -------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES....... 51,797,330 (175,332,822)
------------- -------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................. 407,546,505 230,137,084
Net Asset Value of Shares Issued Through Dividend
Reinvestment............................................ 33,579,035 44,727,982
Cost of Shares Repurchased................................ (381,177,393) (288,241,556)
------------- -------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS........ 59,948,147 (13,376,490)
------------- -------------
TOTAL INCREASE/DECREASE IN NET ASSETS..................... 111,745,477 (188,709,312)
NET ASSETS:
Beginning of the Period................................... 514,014,956 702,724,268
------------- -------------
End of the Period (Including accumulated undistributed net
investment income of ($8,122,163) and ($15,440,098),
respectively)........................................... $ 625,760,433 $ 514,014,956
============= =============
See Notes to Financial Statements 21
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
YEAR ENDED AUGUST 31,
CLASS A SHARES ------------------------------------------------
2003 2002 (a) 2001 2000 1999
------------------------------------------------
NET ASSET VALUE, BEGINNING OF THE
PERIOD................................. $ 3.15 $ 4.23 $ 5.24 $ 5.68 $ 6.06
------ ------- ------ ------ ------
Net Investment Income.................. .29 .39 .51 .59 .63
Net Realized and Unrealized
Gain/Loss............................ .29 (1.01) (.96) (.43) (.37)
------ ------- ------ ------ ------
Total from Investment Operations......... .58 (.62) (.45) .16 .26
------ ------- ------ ------ ------
Less:
Distributions from Net Investment
Income............................... .24 .43 .55 .60 .64
Return of Capital Distributions........ .06 .03 .01 -0- -0-
------ ------- ------ ------ ------
Total Distributions...................... .30 .46 .56 .60 .64
------ ------- ------ ------ ------
NET ASSET VALUE, END OF THE PERIOD....... $ 3.43 $ 3.15 $ 4.23 $ 5.24 $ 5.68
====== ======= ====== ====== ======
Total Return (b)......................... 19.26% -15.75% -9.04% 3.09% 4.41%
Net Assets at End of the Period (In
millions).............................. $408.7 $ 308.5 $394.4 $465.0 $492.4
Ratio of Expenses to Average Net
Assets................................. 1.12% 1.08% 1.05% 1.03% 1.03%
Ratio of Net Investment Income to Average
Net Assets............................. 8.36% 10.39% 10.93% 10.90% 10.65%
Portfolio Turnover....................... 95% 83% 80% 68% 51%
(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 and presenting
paydown gains and losses on mortgage- and asset-backed securities as
interest income. The effect of these changes for the period ended August 31,
2002 was to decrease the ratio of net investment income to average net
assets from 10.49% to 10.39%. 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 August 31, 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 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.
22 See Notes to Financial Statements
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
YEAR ENDED AUGUST 31,
CLASS B SHARES -----------------------------------------------
2003 2002 (a) 2001 2000 1999
-----------------------------------------------
NET ASSET VALUE, BEGINNING OF THE
PERIOD................................. $ 3.16 $ 4.24 $ 5.25 $ 5.68 $ 6.06
------ ------- ------ ------ ------
Net Investment Income.................. .25 .35 .48 .55 .58
Net Realized and Unrealized
Gain/Loss............................ .30 (1.01) (.97) (.43) (.37)
------ ------- ------ ------ ------
Total from Investment Operations......... .55 (.66) (.49) .12 .21
------ ------- ------ ------ ------
Less:
Distributions from Net Investment
Income............................... .21 .39 .51 .55 .59
Return of Capital Distributions........ .06 .03 .01 -0- -0-
------ ------- ------ ------ ------
Total Distributions...................... .27 .42 .52 .55 .59
------ ------- ------ ------ ------
NET ASSET VALUE, END OF THE PERIOD....... $ 3.44 $ 3.16 $ 4.24 $ 5.25 $ 5.68
====== ======= ====== ====== ======
Total Return (b)......................... 18.27% -16.12% -9.80% 2.43% 3.57%
Net Assets at End of the Period (In
millions).............................. $175.6 $ 168.8 $249.6 $268.7 $318.2
Ratio of Expenses to Average Net
Assets................................. 1.89% 1.84% 1.83% 1.78% 1.79%
Ratio of Net Investment Income to Average
Net Assets............................. 7.68% 9.67% 10.13% 10.15% 9.88%
Portfolio Turnover....................... 95% 83% 80% 68% 51%
(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 and presenting
paydown gains and losses on mortgage- and asset-backed securities as
interest income. The effect of these changes for the period ended August 31,
2002 was to decrease the ratio of net investment income to average net
assets from 9.77% to 9.67%. 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 August 31, 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 the redemption of Fund shares.
See Notes to Financial Statements 23
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
YEAR ENDED AUGUST 31,
CLASS C SHARES ------------------------------------------------
2003 2002 (a) 2001 2000 1999
------------------------------------------------
NET ASSET VALUE, BEGINNING OF THE
PERIOD................................. $ 3.13 $ 4.20 $ 5.22 $ 5.65 $6.04
------ ------- ------- ------ -----
Net Investment Income.................. .25 .35 .48 .55 .58
Net Realized and Unrealized
Gain/Loss............................ .30 (1.00) (.98) (.43) (.38)
------ ------- ------- ------ -----
Total from Investment Operations......... .55 (.65) (.50) .12 .20
------ ------- ------- ------ -----
Less:
Distributions from Net Investment
Income............................... .21 .39 .51 .55 .59
Return of Capital Distributions........ .06 .03 .01 -0- -0-
------ ------- ------- ------ -----
Total Distributions...................... .27 .42 .52 .55 .59
------ ------- ------- ------ -----
NET ASSET VALUE, END OF THE PERIOD....... $ 3.41 $ 3.13 $ 4.20 $ 5.22 $5.65
====== ======= ======= ====== =====
Total Return (b)......................... 18.14%(c) -16.04% -10.06% 2.45% 3.42%
Net Assets at End of the Period (In
millions).............................. $ 41.5 $ 36.7 $ 58.7 $ 59.4 $67.3
Ratio of Expenses to Average Net
Assets................................. 1.86% 1.84% 1.82% 1.78% 1.79%
Ratio of Net Investment Income to Average
Net Assets............................. 7.68%(c) 9.68% 10.12% 10.15% 9.87%
Portfolio Turnover....................... 95% 83% 80% 68% 51%
(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 and presenting
paydown gains and losses on mortgage- and asset-backed securities as
interest income. The effect of these changes for the period ended August 31,
2002 was to decrease the ratio of net investment income to average net
assets from 9.78% to 9.68%. 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 August 31, 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) Certain non-recurring payments were made to Class C Shares, resulting in an
increase to the Total Return and Ratio of Net Investment Income to Average
Net Assets of .01%.
24 See Notes to Financial Statements
NOTES TO
FINANCIAL STATEMENTS
August 31, 2003
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. Equity securities traded on NASDAQ are valued at the NASDAQ Official
Closing Price. 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. Forward foreign
currency contracts are valued using quoted foreign exchange rates.
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
segregate assets with the custodian having an aggregate value at least equal to
the amount of the when-issued or delayed delivery purchase commitments until
payment is made. At August 31, 2003, the Fund had $527,374 of when-issued and
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 the daily aggregate of which is invested in repurchase agreements.
25
NOTES TO
FINANCIAL STATEMENTS
August 31, 2003
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.
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, 2003, the Fund had an accumulated capital loss carryforward
for tax purposes of $261,908,595 which expires between August 31, 2004 and
August 31, 2011. Of this amount, $9,539,272 will expire on August 31, 2004.
At August 31, 2003, the cost and related gross unrealized appreciation and
depreciation are as follows:
Cost of investments for tax purposes........................ $ 699,353,372
=============
Gross tax unrealized appreciation........................... $ 34,376,437
Gross tax unrealized depreciation........................... (119,996,353)
-------------
Net tax unrealized depreciation on investments.............. $ (85,619,916)
=============
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.
26
NOTES TO
FINANCIAL STATEMENTS
August 31, 2003
The tax character of distributions paid during the years ended August 31,
2003 and 2002 was as follows:
2003 2002
Distributions paid from:
Ordinary income........................................... $39,193,541 $67,777,960
Long-term capital gain.................................... -0- -0-
Return of capital......................................... 11,249,049 5,289,644
----------- -----------
$50,442,590 $73,067,604
=========== ===========
Due to inherent differences in the recognition of income, expenses, and
realized gains/losses under accounting principles generally accepted in the
United States of America and federal income tax purposes, permanent differences
between book and tax basis reporting have been identified and appropriately
reclassified on the Statement of Assets and Liabilities. A permanent book and
tax difference relating to return of capital distributions totaling $11,249,049
has been reclassified from accumulated undistributed net investment income to
capital and the portion of capital loss carryforward expiring in the current
year totaling $8,026,371 has been reclassified from accumulated net realized
loss to capital. Permanent book and tax differences related to the recognition
of net realized losses on foreign currency transactions totaling $1,498,697 and
book to tax amortization differences totaling $1,441,074 have been reclassified
from accumulated net realized loss to accumulated undistributed net investment
income. In addition, permanent book and tax differences of $112,690 relating to
consent fee income, $5,112 relating to the Fund's investment in other regulated
investment companies, $5,519 relating to paydowns on mortgage-backed securities,
and $10,577 relating to the sale of partnership interest have been reclassified
from accumulated undistributed net investment income to accumulated net realized
loss.
Net realized gains or losses may differ for financial reporting and tax
purposes primarily as a result of post October losses which are not realized for
tax purposes until the first day of the following fiscal year, gains or losses
recognized for tax purposes on open forward transactions on August 31, 2003 and
the deferral of losses relating to wash sales transactions.
F. EXPENSE REDUCTIONS During the year ended August 31, 2003, the Fund's custody
fee was reduced by $20,040 as a result of credits earned on cash balances.
G. FOREIGN CURRENCY TRANSLATION Asset and liabilities denominated in foreign
currencies and commitments under forward foreign currency contracts 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. Realized gain and loss on foreign currency
transactions on the Statement of Operations includes the net realized amount
from the sale of foreign currency and the amount realized between trade date and
settlement date on securities transactions. Income and expenses are translated
at rates prevailing when accrued.
27
NOTES TO
FINANCIAL STATEMENTS
August 31, 2003
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 year ended August 31, 2003, the Fund recognized expenses of
approximately $21,800 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 year ended August 31, 2003, the Fund recognized expenses of
approximately $47,100 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. (VKIS), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the year ended
August 31, 2003, the Fund recognized expenses of approximately $1,140,500
representing transfer agency fees paid to VKIS. Transfer agency fees are
determined through negotiations with the Fund's Board of Trustees.
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 $117,466 are included in
"Other" assets on the Statement of Assets and Liabilities at August 31, 2003.
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 years of service to the Fund. The maximum annual benefit per
trustee under the plan is $2,500.
28
NOTES TO
FINANCIAL STATEMENTS
August 31, 2003
3. CAPITAL TRANSACTIONS
At August 31, 2003, capital aggregated $768,068,266, $254,534,815 and
$61,568,220 for Classes A, B and C, respectively. For the year ended August 31,
2003, transactions were as follows:
SHARES VALUE
Sales:
Class A.................................................. 108,069,332 $ 354,101,454
Class B.................................................. 11,775,025 38,249,429
Class C.................................................. 4,650,091 15,195,622
------------ -------------
Total Sales................................................ 124,494,448 $ 407,546,505
============ =============
Dividend Reinvestment:
Class A.................................................. 6,823,287 $ 22,296,985
Class B.................................................. 2,819,580 9,226,196
Class C.................................................. 633,008 2,055,854
------------ -------------
Total Dividend Reinvestment................................ 10,275,875 $ 33,579,035
============ =============
Repurchases:
Class A.................................................. (93,634,941) $(310,107,293)
Class B.................................................. (16,965,322) (55,230,999)
Class C.................................................. (4,850,611) (15,839,101)
------------ -------------
Total Repurchases.......................................... (115,450,874) $(381,177,393)
============ =============
29
NOTES TO
FINANCIAL STATEMENTS
August 31, 2003
At August 31, 2002, capital aggregated $714,367,276, $267,698,375, and
$61,432,923 for Classes A, B and C, respectively. For the year ended August 31,
2002, transactions were as follows:
SHARES VALUE
Sales:
Class A................................................... 43,036,471 $ 156,947,668
Class B................................................... 14,393,907 54,065,376
Class C................................................... 5,086,893 19,124,040
----------- -------------
Total Sales................................................. 62,517,271 $ 230,137,084
=========== =============
Dividend Reinvestment:
Class A................................................... 7,663,334 $ 28,081,716
Class B................................................... 3,700,189 13,621,096
Class C................................................... 827,467 3,025,170
----------- -------------
Total Dividend Reinvestment................................. 12,190,990 $ 44,727,982
=========== =============
Repurchases:
Class A................................................... (46,154,430) $(170,429,188)
Class B................................................... (23,650,355) (87,390,797)
Class C................................................... (8,155,800) (30,421,571)
----------- -------------
Total Repurchases........................................... (77,960,585) $(288,241,556)
=========== =============
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 years ended August 31, 2003 and 2002,
1,038,020 and 2,088,300 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 years
ended August 31, 2003 and 2002, 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 CDSC will be imposed
on most redemptions made within five
30
NOTES TO
FINANCIAL STATEMENTS
August 31, 2003
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 year ended August 31, 2003, Van Kampen, as Distributor for the Fund,
received net commissions on sales of the Fund's Class A Shares of approximately
$142,200 and CDSC on redeemed shares of approximately $396,900. 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 $564,958,073 and $506,381,784,
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, 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.
31
NOTES TO
FINANCIAL STATEMENTS
August 31, 2003
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 forward foreign currency
contracts. Risks may arise as a result of the potential inability of the
counterparties to meet the terms of their contracts.
The following forward foreign currency contracts were outstanding as of
August 31, 2003:
UNREALIZED
CURRENT APPRECIATION/
VALUE DEPRECIATION
LONG CONTRACTS:
Euro Currency,
870,000 expiring 10/24/03............................... $ 954,889 $(30,821)
1,035,000 expiring 10/24/03............................. 1,135,989 (37,856)
----------- --------
2,090,878 (68,677)
----------- --------
SHORT CONTRACTS:
Euro Currency,
9,075,000 expiring 10/24/03............................. $ 9,960,485 $294,265
8,075,000 expiring 10/24/03............................. 8,862,911 269,915
1,375,000 expiring 10/24/03............................. 1,509,164 32,754
----------- --------
20,332,560 596,934
----------- --------
$22,423,438 $528,257
=========== ========
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 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. The amount of distribution expenses incurred by Van Kampen and
not yet reimbursed ("unreimbursed receivable") was approximately $5,475,100 and
$1,800 for Class B and Class C Shares, respectively. These amounts may be
recovered from future payments under the distribution plan or CDSC. To the
extent the unreimbursed receivable has been fully recovered, any excess 12b-1
fees will be refunded to the Fund on a quarterly basis.
Included in the fees for the year ended August 31, 2003, are payments
retained by Van Kampen of approximately $1,400,000 and payments made to Morgan
Stanley DW Inc., an affiliate of the Adviser, of approximately $119,500.
32
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees of
Van Kampen High Income Corporate Bond Fund
We have audited the accompanying statement of assets and liabilities of Van
Kampen High Income Corporate Bond Fund (the "Fund"), including the portfolio of
investments, as of August 31, 2003, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
four years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights of the Fund for the year ended
August 31, 1999 were audited by other auditors whose report dated October 6,
1999 expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of August 31, 2003, by correspondence with
the custodian and brokers or by other appropriate auditing procedures where
replies from brokers were not received. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
Van Kampen High Income Corporate Bond Fund at August 31, 2003, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and the financial highlights for each
of the four years in the period then ended in conformity with accounting
principles generally accepted in the United States.
-s- Ernst & Young LLP
Chicago, Illinois
October 8, 2003
33
VAN KAMPEN INVESTMENTS
THE VAN KAMPEN
FAMILY OF FUNDS
Global/International
Asian Equity**
Emerging Markets
European Value Equity
Global Equity Allocation
Global Franchise
Global Value Equity
International Advantage
International Magnum
Latin American**
Worldwide High Income
Growth
Aggressive Growth
American Value
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth
Mid Cap Growth
Pace
Select Growth
Small Cap Growth
Small Cap Value
Technology
Growth and Income
Comstock
Equity and Income
Growth and Income
Harbor
Real Estate Securities
Utility
Value
Value Opportunities
Income
Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
Limited Maturity Government
U.S. Government
Tax Free
California Insured Tax Free
High Yield Municipal*
Insured Tax Free Income
Intermediate Term Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Strategic Municipal Income
Capital Preservation
Reserve
Tax Free Money
Senior Loan
Senior Loan Fund
For more complete information, including risk considerations, fees, sales
charges and ongoing expenses, please contact your financial advisor for a
prospectus. 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
VANKAMPEN.COM--
to view a prospectus, select
Download Fund Info (COMPUTER ICON)
- call us at (800) 847-2424
Telecommunications Device
for the Deaf (TDD) users,
call (800) 421-2833. (PHONE ICON)
- e-mail us by visiting
VANKAMPEN.COM and
selecting Contact Us
(MAIL ICON)
* Open to new investors for a limited time
** Closed to new investors.
34
BOARD OF TRUSTEES AND IMPORTANT ADDRESSES
VAN KAMPEN HIGH INCOME CORPORATE BOND FUND
BOARD OF TRUSTEES
DAVID C. ARCH
J. MILES BRANAGAN
JERRY D. CHOATE
ROD DAMMEYER
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
HOWARD J KERR
MITCHELL M. MERIN*
JACK E. NELSON
RICHARD F. POWERS, III*
HUGO F. SONNENSCHEIN
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 947
Jersey City, New Jersey 07303-0947
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
For federal income tax purposes, the following information is furnished with
respect to the distributions paid by the Fund during its taxable year ended
August 31, 2003. For the fiscal year ended August 31, 2003, 6% of the
dividends taxable as ordinary income qualified for the 70% dividends received
deduction for corporations. In January, the Fund provides tax information to
shareholders for the preceding calendar year.
* "Interested persons" of the Fund, as defined in the Investment Company Act
of 1940, as amended.
35
TRUSTEES AND OFFICERS
The business and affairs of the Fund are managed under the direction of the
Fund's Board of Trustees and the Fund's officers appointed by the Board of
Trustees. The tables below list the trustees and executive officers of the Fund
and their principal occupations during the last five years, other directorships
held by trustees and their affiliations, if any, with Van Kampen Investments
Inc. ("Van Kampen Investments"), Van Kampen Investment Advisory Corp. ("Advisory
Corp."), Van Kampen Asset Management Inc. ("Asset Management"), Van Kampen Funds
Inc. (the "Distributor"), Van Kampen Advisors Inc., Van Kampen Exchange Corp.
and Van Kampen Investor Services Inc. ("Investor Services"). Advisory Corp. and
Asset Management sometimes are referred to herein collectively as the
"Advisers." The term "Fund Complex" includes each of the investment companies
advised by the Advisers or their affiliates as of the date of this Statement of
Additional Information. Trustees serve until reaching their retirement age or
until their successors are duly elected and qualified. Officers are annually
elected by the trustees.
INDEPENDENT TRUSTEES
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
David C. Arch (58) Trustee Trustee Chairman and Chief 90 Trustee/Director/Managing
Blistex Inc. since 2003 Executive Officer of General Partner of funds
1800 Swift Drive Blistex Inc., a consumer in the Fund Complex.
Oak Brook, IL 60523 health care products
manufacturer. Former
Director of the World
Presidents
Organization-Chicago
Chapter. Director of the
Heartland Alliance, a
nonprofit organization
serving human needs based
in Chicago.
J. Miles Branagan (71) Trustee Trustee Private investor. 88 Trustee/Director/Managing
1632 Morning Mountain Road since 1991 Co-founder, and prior to General Partner of funds
Raleigh, NC 27614 August 1996, Chairman, in the Fund Complex.
Chief Executive Officer
and President, MDT
Corporation (now known as
Getinge/Castle, Inc., a
subsidiary of Getinge
Industrier AB), a company
which develops,
manufactures, markets and
services medical and
scientific equipment.
36
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Jerry D. Choate (65) Trustee Trustee Prior to January 1999, 88 Trustee/Director/Managing
33971 Selva Road since 1999 Chairman and Chief General Partner of funds
Suite 130 Executive Officer of the in the Fund Complex.
Dana Point, CA 92629 Allstate Corporation Director of Amgen Inc., a
("Allstate") and Allstate biotechnological company,
Insurance Company. Prior and Director of Valero
to January 1995, Energy Corporation, an
President and Chief independent refining
Executive Officer of company.
Allstate. Prior to August
1994, various management
positions at Allstate.
Rod Dammeyer (62) Trustee Trustee President of CAC, llc., a 90 Trustee/Director/Managing
CAC, llc. since 2003 private company offering General Partner of funds
4350 LaJolla Village Drive capital investment and in the Fund Complex.
Suite 980 management advisory Director of TeleTech
San Diego, CA 92122-6223 services. Prior to July Holdings Inc.,
2000, Managing Partner of Stericycle, Inc.,
Equity Group Corporate TheraSense, Inc., GATX
Investment (EGI), a Corporation, Arris Group,
company that makes Inc. and Trustee of the
private investments in University of Chicago
other companies. Hospitals and Health
Systems. Prior to May
2002, Director of
Peregrine Systems Inc.
Prior to February 2001,
Vice Chairman and
Director of Anixter
International, Inc. and
IMC Global Inc. Prior to
July 2000, Director of
Allied Riser
Communications Corp.,
Matria Healthcare Inc.,
Transmedia Networks,
Inc., CNA Surety, Corp.
and Grupo Azcarero Mexico
(GAM). Prior to April
1999, Director of Metal
Management, Inc.
37
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Linda Hutton Heagy (55) Trustee Trustee Managing Partner of 88 Trustee/Director/Managing
Heidrick & Struggles since 1995 Heidrick & Struggles, an General Partner of funds
233 South Wacker Drive executive search firm. in the Fund Complex.
Suite 7000 Trustee on the University
Chicago, IL 60606 of Chicago Hospitals
Board, Vice Chair of the
Board of the YMCA of
Metropolitan Chicago and
a member of the Women's
Board of the University
of Chicago. Prior to
1997, Partner of Ray &
Berndtson, Inc., an
executive recruiting
firm. Prior to 1996,
Trustee of The
International House
Board, a fellowship and
housing organization for
international graduate
students. Prior to 1995,
Executive Vice President
of ABN AMRO, N.A., a bank
holding company. Prior to
1992, Executive Vice
President of La Salle
National Bank.
R. Craig Kennedy (51) Trustee Trustee Director and President of 88 Trustee/Director/Managing
11 DuPont Circle, N.W. since 1995 the German Marshall Fund General Partner of funds
Washington, D.C. 20016 of the United States, an in the Fund Complex.
independent U.S.
foundation created to
deepen understanding,
promote collaboration and
stimulate exchanges of
practical experience
between Americans and
Europeans. Formerly,
advisor to the Dennis
Trading Group Inc., a
managed futures and
option company that
invests money for
individuals and
institutions. Prior to
1992, President and Chief
Executive Officer,
Director and member of
the Investment Committee
of the Joyce Foundation,
a private foundation.
Howard J Kerr (67) Trustee Trustee Prior to 1998, President 90 Trustee/Director/Managing
736 North Western Avenue since 2003 and Chief Executive General Partner of funds
P.O. Box 317 Officer of Pocklington in the Fund Complex.
Lake Forest, IL 60045 Corporation, Inc., an Director of the Lake
investment holding Forest Bank & Trust.
company. Director of the
Marrow Foundation
38
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Jack E. Nelson (67) Trustee Trustee President of Nelson 88 Trustee/Director/Managing
423 Country Club Drive since 1995 Investment Planning General Partner of funds
Winter Park, FL 32789 Services, Inc., a in the Fund Complex.
financial planning
company and registered
investment adviser in the
State of Florida.
President of Nelson Ivest
Brokerage Services Inc.,
a member of the NASD,
Securities Investors
Protection Corp. and the
Municipal Securities
Rulemaking Board.
President of Nelson Sales
and Services Corporation,
a marketing and services
company to support
affiliated companies.
Hugo F. Sonnenschein (62) Trustee Trustee President Emeritus and 90 Trustee/Director/Managing
1126 E. 59th Street since 2003 Honorary Trustee of the General Partner of funds
Chicago, IL 60637 University of Chicago and in the Fund Complex.
the Adam Smith Director of Winston
Distinguished Service Laboratories, Inc.
Professor in the
Department of Economics
at the University of
Chicago. Prior to July
2000, President of the
University of Chicago.
Trustee of the University
of Rochester and a member
of its investment
committee. Member of the
National Academy of
Sciences, the American
Philosophical Society and
a fellow of the American
Academy of Arts and
Sciences.
Suzanne H. Woolsey (61) Trustee Trustee Chief Communications 88 Trustee/Director/Managing
2101 Constitution Ave., N.W. since 1999 Officer of the National General Partner of funds
Room 285 Academy of in the Fund Complex.
Washington, D.C. 20418 Sciences/National Director of Neurogen
Research Council, an Corporation, a
independent, federally pharmaceutical company,
chartered policy since January 1998.
institution, since 2001
and previously Chief
Operating Officer from
1993 to 2001. Director of
the Institute for Defense
Analyses, a federally
funded research and
development center,
Director of the German
Marshall Fund of the
United States, and
Trustee of Colorado
College. Prior to 1993,
Executive Director of the
Commission on Behavioral
and Social Sciences and
Education at the National
Academy of
Sciences/National
Research Council. From
1980 through 1989,
Partner of Coopers &
Lybrand.
39
INTERESTED TRUSTEES*
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INTERESTED TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Mitchell M. Merin* (50) Trustee, Trustee President and Chief 88 Trustee/Director/Managing
1221 Avenue of the Americas President since 1999 Executive Officer of General Partner of funds
New York, NY 10020 and Chief funds in the Fund in the Fund Complex.
Executive Complex. Chairman,
Officer President, Chief
Executive Officer and
Director of the Advisers
and VK Advisors Inc.
since December 2002.
Chairman, President and
Chief Executive Officer
of Van Kampen Investments
since December 2002.
Director of Van Kampen
Investments since
December 1999. Chairman
and Director of Van
Kampen Funds Inc. since
December 2002. President,
Director and Chief
Operating Officer of
Morgan Stanley Investment
Management since December
1998. President and
Director since April 1997
and Chief Executive
Officer since June 1998
of Morgan Stanley
Investment Advisors Inc.
and Morgan Stanley
Services Company Inc.
Chairman, Chief Executive
Officer and Director of
Morgan Stanley
Distributors Inc. since
June 1998. Chairman since
June 1998, and Director
since January 1998 of
Morgan Stanley Trust.
Director of various
Morgan Stanley
subsidiaries. President
of the Morgan Stanley
Funds since May 1999.
Previously Chief
Executive Officer of Van
Kampen Funds Inc. from
December 2002 to July
2003, Chief Strategic
Officer of Morgan Stanley
Investment Advisors Inc.
and Morgan Stanley
Services Company Inc. and
Executive Vice President
of Morgan Stanley
Distributors Inc. from
April 1997 to June 1998.
Chief Executive Officer
from September 2002 to
April 2003 and Vice
President from May 1997
to April 1999 of the
Morgan Stanley Funds.
40
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INTERESTED TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Richard F. Powers, III* (57) Trustee Trustee Advisory Director of 90 Trustee/Director/Managing
1 Parkview Plaza since 1999 Morgan Stanley. Prior to General Partner of funds
P.O. Box 5555 December 2002, Chairman, in the Fund Complex.
Oakbrook Terrace, IL 60181 Director, President,
Chief Executive Officer
and Managing Director of
Van Kampen Investments
and its investment
advisory, distribution
and other subsidiaries.
Prior to December 2002,
President and Chief
Executive Officer of
funds in the Fund
Complex. Prior to May
1998, Executive Vice
President and Director of
Marketing at Morgan
Stanley and Director of
Dean Witter, Discover &
Co. and Dean Witter
Realty. Prior to 1996,
Director of Dean Witter
Reynolds Inc.
Wayne W. Whalen* (64) Trustee Trustee Partner in the law firm 90 Trustee/Director/Managing
333 West Wacker Drive since 1995 of Skadden, Arps, Slate, General Partner of funds
Chicago, IL 60606 Meagher & Flom in the Fund Complex.
(Illinois), legal counsel
to funds in the Fund
Complex.
* Such trustee is an "interested person" (within the meaning of Section
2(a)(19) of the 1940 Act). Mr. Whalen is an interested person of certain
funds in the Fund Complex by reason of his firm currently acting as legal
counsel to such funds in the Fund Complex. Messrs. Merin and Powers are
interested persons of funds in the Fund Complex and the Advisers by reason
of their current or former positions with Morgan Stanley or its affiliates.
41
OFFICERS
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS
Stephen L. Boyd (62) Vice President Officer Managing Director of Global Research Investment Management.
2800 Post Oak Blvd. since 1998 Vice President of funds in the Fund Complex. Prior to
45th Floor December 2002, Chief Investment Officer of Van Kampen
Houston, TX 77056 Investments and President and Chief Operations Officer of
the Advisers and Van Kampen Advisors Inc. Prior to May 2002,
Executive Vice President and Chief Investment Officer of
funds in the Fund Complex. Prior to May 2001, Managing
Director and Chief Investment Officer of Van Kampen
Investments, and Managing Director and President of the
Advisers and Van Kampen Advisors Inc. Prior to December
2000, Executive Vice President and Chief Investment Officer
of Van Kampen Investments, and President and Chief Operating
Officer of the Advisers. Prior to April 2000, Executive Vice
President and Chief Investment Officer for Equity
Investments of the Advisers. Prior to October 1998, Vice
President and Senior Portfolio Manager with AIM Capital
Management, Inc. Prior to February 1998, Senior Vice
President and Portfolio Manager of Van Kampen American
Capital Asset Management, Inc., Van Kampen American Capital
Investment Advisory Corp. and Van Kampen American Capital
Management, Inc.
Stefanie V. Chang (36) Vice President Officer Executive Director of Morgan Stanley Investment Management.
1221 Avenue of the Americas since 2003 Vice President of funds in the Fund Complex.
New York, NY 10020
Joseph J. McAlinden (60) Executive Vice Officer Managing Director and Chief Investment Officer of Morgan
1221 Avenue of the Americas President and Chief since 2002 Stanley Investment Advisors Inc., Morgan Stanley Investment
New York, NY 10020 Investment Officer Management Inc. and Morgan Stanley Investments LP and
Director of Morgan Stanley Trust for over 5 years. Executive
Vice President and Chief Investment Officer of funds in the
Fund Complex. Managing Director and Chief Investment Officer
of Van Kampen Investments, the Advisers and Van Kampen
Advisors Inc. since December 2002.
42
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS
John R. Reynoldson (50) Vice President Officer Executive Director and Portfolio Specialist of the Advisers
1 Parkview Plaza since 2000 and Van Kampen Advisors Inc. Vice President of funds in the
P.O. Box 5555 Fund Complex. Prior to July 2001, Principal and Co-head of
Oakbrook Terrace, IL 60181 the Fixed Income Department of the Advisers and Van Kampen
Advisors Inc. Prior to December 2000, Senior Vice President
of the Advisers and Van Kampen Advisors Inc. Prior to May
2000, Senior Vice President of the investment grade taxable
group for the Advisers. Prior to June 1999, Senior Vice
President of the government securities bond group for Asset
Management.
Ronald E. Robison (64) Executive Vice Officer Chief Executive Officer and Chairman of Investor Services.
1221 Avenue of the Americas President and since 2003 Executive Vice President and Principal Executive Officer of
New York, NY 10020 Principal Executive funds in the Fund Complex. Chief Global Operations Officer
Officer and Managing Director of Morgan Stanley Investment
Management Inc. Managing Director of Morgan Stanley.
Managing Director and Director of Morgan Stanley Investment
Advisors Inc. and Morgan Stanley Services Company Inc. Chief
Executive Officer and Director of Morgan Stanley Trust. Vice
President of the Morgan Stanley Funds.
A. Thomas Smith III (46) Vice President and Officer Managing Director of Morgan Stanley, Managing Director and
1221 Avenue of the Americas Secretary since 1999 Director of Van Kampen Investments, Director of the
New York, NY 10020 Advisers, Van Kampen Advisors Inc., the Distributor,
Investor Services and certain other subsidiaries of Van
Kampen Investments. Managing Director and General
Counsel-Mutual Funds of Morgan Stanley Investment Advisors,
Inc. Vice President and Secretary of funds in the Fund
Complex. Prior to July 2001, Managing Director, General
Counsel, Secretary and Director of Van Kampen Investments,
the Advisers, the Distributor, Investor Services, and
certain other subsidiaries of Van Kampen Investments. Prior
to December 2000, Executive Vice President, General Counsel,
Secretary and Director of Van Kampen Investments, the
Advisers, Van Kampen Advisors Inc., the Distributor,
Investor Services and certain other subsidiaries of Van
Kampen Investments. Prior to January 1999, Vice President
and Associate General Counsel to New York Life Insurance
Company ("New York Life"), and prior to March 1997,
Associate General Counsel of New York Life. Prior to
December 1993, Assistant General Counsel of The Dreyfus
Corporation. Prior to August 1991, Senior Associate, Willkie
Farr & Gallagher. Prior to January 1989, Staff Attorney at
the Securities and Exchange Commission, Division of
Investment Management, Office of Chief Counsel.
43
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS
John L. Sullivan (48) Vice President, Chief Officer Director and Managing Director of Van Kampen Investments,
1 Parkview Plaza Financial Officer and since 1996 the Advisers, Van Kampen Advisors Inc. and certain other
P.O. Box 5555 Treasurer subsidiaries of Van Kampen Investments. Vice President,
Oakbrook Terrace, IL 60181 Chief Financial Officer and Treasurer of funds in the Fund
Complex. Head of Fund Accounting for Morgan Stanley
Investment Management. Prior to December 2002, Executive
Director of Van Kampen Investments, the Advisers and Van
Kampen Advisors Inc.
44
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 conduct with
us, our affiliates, or third parties. We may also collect information you
provide when using our Web site, and text files (also known as "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 System Inc. and Van Kampen Exchange Corp., as well as the many
Van Kampen mutual funds and Van Kampen unit investment trusts.
The Statement of Additional Information includes additional information about
Fund trustees and is available, without charge, upon request by calling (800)
847-2424.
Van Kampen Funds Inc.
1 Parkview Plaza, P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
www.vankampen.com
(VAN KAMPEN INVESTMENTS LOGO)
Copyright (C)2003 Van Kampen
Funds Inc. All rights reserved.
Member NASD/SIPC. 28, 128, 228
HYI ANR 10/03 12031J03-AP-10/03
Item 2. Code of Ethics.
(a) The Fund has adopted a code of ethics (the "Code of Ethics") that applies to
its principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the Fund or a third
party.
(b) No information need be disclosed pursuant to this paragraph.
(c) The Fund has amended its Code of Ethics during the period covered by the
shareholder report presented in Item 1 hereto
(d) The Fund has granted a waiver or an implicit waiver from a provision of its
Code of Ethics.
(e) Not applicable.
(f)
(1) The Fund's Code of Ethics is attached hereto as Exhibit 10A.
(2) Not applicable.
(3) Not applicable.
Item 3. Audit Committee Financial Expert.
The Fund's Board of Trustees has determined that it has three "audit committee
financial experts" serving on its audit committee, each of whom are
"independent" Trustees : J. Miles Branagan, Jerry Choate and R. Craig Kennedy.
Under applicable securities laws, a person who is determined to be an audit
committee financial expert will not be deemed an "expert" for any purpose,
including without limitation for the purposes of Section 11 of the Securities
Act of 1933, as a result of being designated or identified as an audit committee
financial expert. The designation or identification of a person as an audit
committee financial expert does not impose on such person any duties,
obligations, or liabilities that are greater than the duties, obligations, and
liabilities imposed on such person as a member of the audit committee and Board
of Trustees in the absence of such designation or identification.
Item 4. Principal Accountant Fees and Services.
Applicable only for reports covering fiscal years ending on or after December
15, 2003.
Item 5. Audit Committee of Listed Registrants.
Applicable only for reports covering periods ending on or after the earlier of
(i) the first annual shareholder meeting after January 15, 2004 or (ii) October
31, 2004.
Item 6. [Reserved.]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Applicable only to annual reports filed by closed-end funds.
Item 8. [Reserved.]
Item 9. Controls and Procedures
(a) The Fund's principal executive officer and principal financial officer have
concluded that the Fund's disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the Fund in this Form N-CSR
was recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, based
upon such officers' evaluation of these controls and procedures as of a date
within 90 days of the filing date of the report.
There were no significant changes or corrective actions with regard to
significant deficiencies or material weaknesses in the Fund's internal controls
or in other factors that could significantly affect the Fund's internal controls
subsequent to the date of their evaluation.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's second fiscal half-year that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 10. Exhibits.
(a) The Code of Ethics for Principal Executive and Senior Financial Officers is
attached hereto.
(b) A separate certification for each Principal Executive Officer and Principal
Financial Officer of the registrant are attached hereto as part of EX-99.CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Van Kampen High Income Corporate Bond Fund
------------------------------------------------------------------
By: /s/ Ronald E. Robison
----------------------------------------------------------------------------
Name: Ronald E. Robison
Title: Principal Executive Officer
Date: October 20, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
By: /s/ Ronald E. Robison
----------------------------------------------------------------------------
Name: Ronald E. Robison
Title: Principal Executive Officer
Date: October 20, 2003
By: /s/ John L. Sullivan
----------------------------------------------------------------------------
Name: John L. Sullivan
Title: Principal Financial Officer
Date: October 20, 2003