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Table of Contents
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 4
PORTFOLIO AT A GLANCE
CREDIT QUALITY 6
SIX-MONTH DIVIDEND HISTORY 6
TOP FIVE INDUSTRIES 6
Q&A WITH YOUR PORTFOLIO MANAGERS 7
GLOSSARY OF TERMS 10
BY THE NUMBERS
YOUR FUND'S INVESTMENTS 11
FINANCIAL STATEMENTS 22
NOTES TO FINANCIAL STATEMENTS 28
VAN KAMPEN INVESTMENTS
THE VAN KAMPEN FAMILY OF FUNDS 36
BOARD OF TRUSTEES AND IMPORTANT ADDRESSES 37
It's important not to let the events of the day overshadow your long-term plans.
This report must be preceded or accompanied by a prospectus for the fund being
offered.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
OVERVIEW
LETTER TO SHAREHOLDERS
March 26, 2003
Dear Shareholder,
Van Kampen joins the nation in support of the coalition forces engaged in the
war in Iraq. We commend their courage and sacrifice, and hope for their safe and
speedy return home.
For all of us, the past weeks have prompted reflection on what matters
most--family, friends and community.
At the same time, it's understandable if you're contemplating the direction of
the markets and your investments. It's important not to let the events of the
day overshadow your long-term plans. The market has persevered through many
crises, and our nation's market system remains the strongest in the world. In
addition, remember that you have a time-tested partner in Van Kampen. You can be
confident our experienced portfolio managers are overseeing--with utmost
vigilance--the assets entrusted to their care.
At Van Kampen, we believe that diversification and asset
allocation are the best strategies for managing a
portfolio--in any market environment. We also believe strongly
in the value of investment advice. In times such as these,
your financial advisor is a particularly important resource for you. Your
financial advisor is uniquely qualified to address your concerns on a personal
level, and to help you make sure that your asset allocation is suitable for you.
All of us at Van Kampen remain grateful for the trust you have placed in us and
for the opportunity to help you achieve life's true wealth.
Sincerely,
[SIG]
David M. Swanson
Chief Operating Officer
Van Kampen Asset Management Inc.
1
ECONOMIC SNAPSHOT
ECONOMIC ACTIVITY THROUGHOUT FEBRUARY 2003 WAS LACKLUSTER. THE THREAT OF WAR
FUELED AN OVERALL UNEASINESS FELT THROUGHOUT THE INVESTMENT COMMUNITY AND THE
GENERAL POPULATION.
ACROSS MUCH OF THE COUNTRY, A LATE-SEASON SNOWFALL SLOWED ACTIVITY FURTHER. AS A
RESULT, RETAIL SALES WERE WEAKER-THAN-EXPECTED. MEANWHILE, EMPLOYERS CONTINUED
TO REDUCE PAYROLLS AND MANUFACTURERS DID NOT EXPAND BEYOND LEVELS ESTABLISHED
EARLIER IN THE YEAR. ALSO, BUSINESSES AND CONSUMERS FOUND THEMSELVES ADJUSTING
THEIR SPENDING PLANS AS ENERGY PRICES MOVED HIGHER.
DESPITE SUCH DISAPPOINTING DATA, SOME SIGNS OF STRENGTH REMAINED. EXISTING HOME
SALES ROSE TO RECORD LEVELS, WHILE THE UPWARD REVISION OF THE FOURTH-QUARTER
GROSS DOMESTIC PRODUCT DATA REFLECTED BETTER-THAN-EXPECTED GROWTH.
2
U.S. GROSS DOMESTIC PRODUCT
SEASONALLY ADJUSTED ANNUALIZED RATES
(December 31, 2000--December 31, 2002)
[BAR GRAPH]
U.S. GROSS DOMESTIC PRODUCT
---------------------------
Dec 00 1.1%
Mar 01 -0.6%
Jun 01 -1.6%
Sep 01 -0.3%
Dec 01 2.7%
Mar 02 5.0%
Jun 02 1.3%
Sep 02 4.0%
Dec 02 1.4%
Source: Bureau of Economic Analysis
INTEREST RATES AND INFLATION
(February 28, 2001--February 28, 2003)
[LINE GRAPH]
INTEREST RATES INFLATION
-------------- ---------
Feb 01 5.5 3.5
5.0 2.9
4.5 3.3
May 01 4.0 3.6
3.75 3.2
3.75 2.7
Aug 01 3.5 2.7
3.0 2.6
2.5 2.1
Nov 01 2.0 1.9
1.75 1.6
1.75 1.1
Feb 02 1.75 1.1
1.75 1.5
1.75 1.6
May 02 1.75 1.2
1.75 1.1
1.75 1.5
Aug 02 1.75 1.8
1.75 1.5
1.75 2.0
Nov 02 1.25 2.2
1.25 2.4
1.25 2.6
Feb 03 1.25 3.0
Interest rates are represented by the closing midline federal funds target rate
on the last day of each month. Inflation is indicated by the annual percentage
change of the Consumer Price Index for all urban consumers at the end of each
month.
Source: Bloomberg
3
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(as of February 28, 2003)
A SHARES B SHARES C SHARES
-----------------------------------------------------------------------------------
Six-month total return based on
NAV(1) 7.52% 6.77% 6.83%
-----------------------------------------------------------------------------------
Six-month total return(2) 2.33% 2.77% 5.83%
-----------------------------------------------------------------------------------
One-year average annual total
return(2) -6.53% -6.21% -3.59%
-----------------------------------------------------------------------------------
Five-year average annual total
return(2) -4.28% -4.29% -4.10%
-----------------------------------------------------------------------------------
Ten-year average annual total
return(2) 3.22% 3.23%(3) N/A
-----------------------------------------------------------------------------------
Life-of-Fund average annual total
return(2) 6.71% 3.81%(3) 2.18%
-----------------------------------------------------------------------------------
Commencement date 10/02/78 07/02/92 07/06/93
-----------------------------------------------------------------------------------
Distribution rate(4) 8.98% 8.69% 8.78%
-----------------------------------------------------------------------------------
SEC Yield(5) 7.98% 7.59% 7.69%
-----------------------------------------------------------------------------------
N/A = Not Applicable
(1) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge (4.75% for Class A Shares) or
contingent deferred sales charge (CDSC) for Class B and Class C Shares. On
purchases of Class A Shares of $1 million or more, a CDSC of 1% may be
imposed on certain redemptions made within one year of purchase. Returns for
Class B Shares are calculated without the effect of the maximum 4% CDSC,
charged on certain redemptions made within the first and second year of
purchase and declining to 0% after the fifth year. Returns for Class C
Shares are calculated without the effect of the maximum 1% CDSC, charged on
certain redemptions made within one year of purchase. If the sales charges
were included, total returns would be lower. These returns include combined
Rule 12b-1 fees and service fees of up to .25% for Class A Shares and 1% for
Class B and Class C Shares and do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or redemption of Fund shares.
4
(2) Assumes reinvestment of all distributions for the period and includes
payment of the maximum sales charge (4.75% for Class A Shares) or CDSC for
Class B and Class C Shares and combined Rule 12b-1 fees and service fees. On
purchases of Class A Shares of $1 million or more, a CDSC of 1% may be
imposed on certain redemptions made within one year of purchase. Returns for
Class B Shares are calculated with the effect of the maximum 4% CDSC,
charged on certain redemptions made within the first and second year of
purchase and declining to 0% after the fifth year. Returns for Class C
Shares are calculated with the effect of the maximum 1% CDSC, charged on
certain redemptions made within one year of purchase. The combined Rule
12b-1 fees and service fees for Class A Shares is up to .25% and for Class B
and Class C Shares is 1%. These returns do not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the redemption
of Fund shares.
(3) Reflects the conversion of Class B Shares into Class A Shares six years
after the end of the calendar month in which the shares were purchased. See
Footnote 3 in the Notes to Financial Statements for additional information.
(4) Distribution rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.
(5) SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio
should theoretically generate for the 30-day period ended February 28, 2003.
See the Comparative Performance section of the current prospectus. An
investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. Please review the Risk/Return Summary
of the Prospectus for further details on investment risks. Past performance
is no guarantee of future results. Investment returns and principal value
will fluctuate and fund shares, when redeemed, may be worth more or less
than their original cost. As a result of recent market activity, current
performance may vary from the figures shown. For more up-to-date
information, please visit vankampen.com or speak with your financial
advisor.
Market forecasts provided in this report may not necessarily come to pass.
5
PORTFOLIO AT A GLANCE
CREDIT QUALITY
(as a percentage of corporate debt obligations)
As of February 28, 2003
- BBB/Baa............ 13.3% [PIE CHART]
- BB/Ba.............. 31.0%
- B/B................ 44.5%
- CCC/Caa............ 5.5%
- CC/Ca.............. 2.0%
- C/C................ 0.4%
- Non-Rated.......... 3.3%
As of August 31, 2002
- BBB/Baa............ 12.0% [PIE CHART]
- BB/Ba.............. 32.1%
- B/B................ 45.9%
- CCC/Caa............ 5.4%
- CC/Ca.............. 2.5%
- C/C................ 0.9%
- Non-Rated.......... 1.2%
Based upon the credit quality ratings as issued by Standard & Poor's Credit
Market Services/Moody's Investor Services, respectively. Subject to change
daily.
SIX-MONTH DIVIDEND HISTORY
(for the six months ending February 28, 2003)
[BAR GRAPH]
DIVIDENDS
---------
9/02 $0.0278
10/02 $0.0278
11/02 $0.0278
12/02 $0.0253
1/03 $0.0253
2/03 $0.0253
The dividend history represents dividends that were paid on the fund's Class A
shares and is no guarantee of the fund's future dividends.
TOP FIVE INDUSTRIES
(as a percentage of long-term investments)
[BAR GRAPH]
FEBRUARY 28, 2003 AUGUST 31, 2002
----------------- ---------------
Energy 10.9% 10.5%
Gaming & Leisure 8.8% 9.8%
Chemicals 6.7% 5.2%
Diversified Media 6.6% 6.0%
Forest Products 6.6% 6.1%
Subject to change daily. All information is provided for informational
purposes only and should not be deemed as a recommendation to buy the
securities in the industries shown above. Morgan Stanley is a full-service
securities firm engaged in securities trading and brokerage activities,
investment banking, research and analysis, financing and financial advisory
services.
6
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH THE PORTFOLIO MANAGEMENT TEAM FOR THE VAN KAMPEN HIGH
INCOME CORPORATE BOND FUND ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED
THE MARKETS AND INFLUENCED THE FUND'S RETURN DURING THE SIX-MONTH PERIOD ENDED
FEBRUARY 28, 2003. THE FUND IS MANAGED BY THE ADVISER'S TAXABLE FIXED INCOME
TEAM. MEMBERS OF THE TEAM(1) INCLUDE STEPHEN ESSER, MANAGING DIRECTOR, GORDON W.
LOERY, EXECUTIVE DIRECTOR, AND DEANNE LOUGHNANE, EXECUTIVE DIRECTOR. THE
FOLLOWING DISCUSSION REFLECTS THEIR VIEWS ON THE FUND'S PERFORMANCE.
(1) Team members may change without notice at any time.
Q HOW WOULD YOU CHARACTERIZE
THE MARKET ENVIRONMENT OF THE PAST SIX MONTHS?
A The high-yield market began the
period in the doldrums, with investors pulling money out of the asset class
based on declining expectations for economic growth and corporate profits
driving down both the equity and credit markets. These forces combined to push
the high-yield market steadily lower as yield spreads rose through September and
into the first half of October.
After hitting a low in mid-October, however, the high-yield market returned
to positive territory for the rest of the period. Investors appeared to be drawn
back to the asset class by a combination of relatively low valuations,
expectations for improvement in the economy, and declining default rates. The
resulting increase in investor interest made November 2002 one of the best
months for performance in the history of the high-yield market.
The rally in high yield has been particularly strong in CCC credits, which
led the asset class in returns for the first two months of 2003. At least part
of the appeal for investors appeared to be the ability to create equity-like
exposure to smaller companies at a relatively low price multiple. Investors also
seemed attracted by the relatively strong value of lower-quality credits, which
in many cases end up trading at a higher price after restructuring.
The strong performance of the high-yield market has also resulted from (and
encouraged) strong inflows into the asset class. These inflows led to a surge of
buying by fund managers, and this demand easily absorbed securities brought to
market in the first two months of 2003. Even with that buying, however,
aggregate cash levels remained fairly high.
7
Q HOW DID THE FUND PERFORM IN
THIS ENVIRONMENT?
A The fund continued to provide
shareholders with what we believe is an attractive level of income, as its
monthly dividend of $0.0253 per Class A share translates to a distribution rate
of 8.98 percent based on the fund's maximum offering price as of February 28,
2003. For the six-month period ended February 28, 2003, the fund generated a
total return of 7.52 percent.
Performance information for the fund reflects Class A shares at net asset
value including combined Rule 12b-1 fees and service fees of up to 0.25 percent
and excluding a maximum sales charge of 4.75 percent; if the maximum sales
charge were included, the return would be lower. The return above does not
reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares. Of course, past performance is
no guarantee of future results. Performance of other share classes will vary.
Investment return and principal value will fluctuate and fund shares, when
redeemed, may be worth more or less than their original cost. As a result of
recent market activity, current performance may vary from the figures shown. For
more up-to-date information, please visit vankampen.com or speak with your
financial advisor.
By comparison, the Chase Global High Yield Index posted a total return of
8.68 percent and the Lipper High Yield Bond Fund Index posted a return of 8.39
percent, for the same period. The Chase Global High Yield index is a
broad-based, unmanaged index which reflects the general performance of the
global high-yield corporate debt market. The Lipper High Yield Bond Fund Index
is an index of funds with similar investment objectives. Index returns do not
include any sales charges or fees that would be paid by an investor purchasing
the securities they represent. Such costs would lower performance. It is not
possible to invest directly in an index. For additional performance results,
please refer to the chart and footnotes on page 4.
Q WHAT STRATEGIES DID YOU USE
TO MANAGE THE FUND?
A We maintained our bias to higher-
quality securities and kept the portfolio's aggregate quality higher than the
market's. This is in keeping with our long-term belief that we can potentially
achieve a strong total return for the fund by investing in well-managed
companies with good prospects.
We also remained focused on bottom-up analysis and security selection.
Through the work of our credit analysts, we were able to identify what we
believe are attractive companies that are likely to do especially well during an
improving economic environment. Through selected purchases of these securities,
we boosted the fund's exposure to companies in the manufacturing, chemical,
housing and diversified media industries.
Our research also indicated that there were some parts of the market to
avoid. For example, the utilities sector represents an increasingly large part
of most high-yield benchmarks. While we have increased the fund's weighting
slightly, we have kept it smaller than the benchmarks' because our analysis
showed that utility companies have a
8
poor outlook in terms of their ability to withstand ongoing price competition
and consolidation. We also underweighted aerospace companies because of the
ongoing financial troubles of the travel industry.
Q WHAT IS YOUR OUTLOOK FOR THE
HIGH-YIELD MARKET?
A Our outlook for the high-yield
market is optimistic. While the eventual date of any turnaround in the economy
is impossible to predict, we believe the high-yield sector is poised to benefit
even in the event of only moderate growth. Spreads remain quite high relative to
their historical levels over Treasuries. Moreover, defaults thus far have been
steadily declining and are likely to continue to do so as the higher-quality
issuance of the past two years becomes a larger and larger part of the market.
We have also seen a decrease in the amount of bonds trading at distressed
levels, and we anticipate that those numbers will continue to fall. Overall, we
believe that the asset class represents value, and we look forward to finding
more strong investment opportunities for the fund's shareholders.
ANNUAL HOUSEHOLDING NOTICE
To reduce fund expenses, the fund attempts to eliminate duplicate mailings to
the same address. The fund delivers a single copy of certain shareholder
documents to investors who share an address, even if the accounts are registered
under different names. The fund's prospectuses and shareholder reports
(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.
9
GLOSSARY OF TERMS
A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.
CREDIT RATING: An evaluation of a bond issuer's credit history and capability of
repaying debt obligations. Standard & Poor's Ratings Group and Moody's Investors
Service are two companies that assign credit ratings. Standard & Poor's ratings
range from a high of AAA to a low of D, while Moody's ratings range from a high
of Aaa to a low of C.
CREDIT SPREAD: Also called quality spread, the difference in yield between
higher-quality issues (such as Treasury securities) and lower-quality issues.
Normally, lower-quality issues provide higher yields to compensate investors for
the additional credit risk.
DEFAULT: The failure to make required debt payments on time.
NET ASSET VALUE (NAV): The value of a mutual fund share, calculated by deducting
a fund's liabilities from the total assets in its portfolio and dividing this
amount by the number of shares outstanding. The NAV does not include any initial
or contingent deferred sales charges.
TOTAL RETURN: The annual rate of return on a bond, including interest income
plus price appreciation or depreciation. If a bond is held to maturity, its
total return equals its yield to maturity.
YIELD: The annual rate of return on an investment, expressed as a percentage.
10
BY THE NUMBERS
YOUR FUND'S INVESTMENTS
February 28, 2003 (Unaudited)
THE FOLLOWING PAGES DETAIL YOUR FUND'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
CORPORATE BONDS 87.2%
AEROSPACE 0.3%
$4,309 Air Canada (Canada) (k).................... 10.250% 03/15/11 $ 1,572,785
------------
BROADCASTING 2.4%
3,410 Interep National Radio Sales, Inc., Ser
B.......................................... 10.000 07/01/08 2,574,550
3,796 Nextmedia Operating, Inc. ................. 10.750 07/01/11 4,099,680
2,095 Salem Communications Corp. ................ 7.750 12/15/10 2,147,375
5,184 TV Azteca SA, Ser B (Mexico)............... 10.500 02/15/07 4,678,560
------------
13,500,165
------------
CABLE 5.7%
4,930 British Sky Broadcasting Group PLC (United
Kingdom) (a)............................... 8.200 07/15/09 5,519,184
9,470 Callahan Nordrhein Westfallen (Germany) (b)
(c)........................................ 14.000 07/15/10 426,150
705 Avalon Cable LLC (d)....................... 0/11.750 12/01/08 482,925
281 Charter Communications Holdings LLC........ 10.250 01/15/10 136,285
943 Charter Communications Holdings LLC (d).... 0/11.750 05/15/11 315,905
3,530 Charter Communications Holdings LLC........ 8.250 04/01/07 1,712,050
875 Charter Communications Holdings LLC........ 8.625 04/01/09 424,375
2,225 Charter Communications Holdings LLC (d).... 0/11.750 01/15/10 856,625
815 CSC Holdings, Inc. ........................ 9.875 02/15/13 851,675
455 CSC Holdings, Inc. ........................ 10.500 05/15/16 487,987
4,140 Directv Holdings/Finance, 144A--Private
Placement (a) (e).......................... 8.375 03/15/13 4,388,400
6,148 Echostar DBS Corp. (a)..................... 9.125 01/15/09 6,609,100
3,425 Multicanal Participacoes, Ser B (Brazil)
(b)........................................ 12.625 06/18/04 1,104,562
865 Pegasus Communications Corp., Ser B........ 9.750 12/01/06 672,537
1,085 Pegasus Communications Corp., Ser B........ 12.500 08/01/07 865,287
1,447 Quebecor Media, Inc. (Canada) (d).......... 0/13.750 07/15/11 1,020,135
1,618 Quebecor Media, Inc. (Canada).............. 11.125 07/15/11 1,715,080
450 Renaissance Media Group (d)................ 0/10.000 04/15/08 398,250
6,395 Satelites Mexicanos SA (Mexico) (a)........ 10.125 11/01/04 2,126,337
6,665 Telewest Communications PLC (United
Kingdom) (b)............................... 11.000 10/01/07 1,266,350
See Notes to Financial Statements
11
YOUR FUND'S INVESTMENTS
February 28, 2003 (Unaudited)
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
CABLE (CONTINUED)
$ 785 Telewest Communications PLC (United
Kingdom) (b) (d)........................... 0/11.375% 02/01/10 $ 121,675
4,500 UIH Australia/Pacific, Inc., Ser B (b)..... 14.000 05/15/06 275,625
------------
31,776,499
------------
CHEMICALS 6.2%
2,370 Acetex Corp. (Canada)...................... 10.875 08/01/09 2,512,200
2,147 Avecia Group PLC (United Kingdom).......... 11.000 07/01/09 1,728,335
3,283 Equistar Chemicals LP...................... 10.125 09/01/08 2,987,530
1,564 FMC Corp., 144A--Private Placement (e)..... 10.250 11/01/09 1,673,480
3,924 Huntsman ICI Chemicals LLC................. 10.125 07/01/09 3,345,210
2,800 Huntsman International LLC (Euro).......... 10.125 07/01/09 2,359,268
1,280 ISP Chemco, Inc., Ser B.................... 10.250 07/01/11 1,356,800
4,645 ISP Holdings, Inc., Ser B.................. 10.625 12/15/09 4,459,200
2,131 Lyondell Chemical Co. ..................... 9.500 12/15/08 1,992,485
1,715 Lyondell Chemical Co., Ser B............... 9.875 05/01/07 1,663,550
2,917 Messer Griesham (Germany) (Euro)........... 10.375 06/01/11 3,342,324
4,001 Millennium America, Inc. .................. 7.000 11/15/06 3,960,990
1,105 PCI Chemicals Canada, Inc. (Canada)........ 10.000 12/31/08 845,108
368 Pioneer Cos., Inc. ........................ 5.355 12/31/06 274,338
2,020 Terra Industries, Inc., Ser B.............. 10.500 06/15/05 1,757,400
------------
34,258,218
------------
CONSUMER PRODUCTS 0.8%
3,000 Elizabeth Arden, Inc. ..................... 11.750 02/01/11 3,135,000
4,000 Sleepmaster LLC (b) (c).................... 11.000 05/15/09 1,100,000
------------
4,235,000
------------
DIVERSIFIED MEDIA 6.1%
4,354 Alliance Atlantis Communications, Inc.
(Canada)................................... 13.000 12/15/09 4,920,020
1,227 AOL Time Warner, Inc. ..................... 6.875 05/01/12 1,296,615
435 Cinemark USA, Inc., 144A--Private Placement
(e)........................................ 9.000 02/01/13 452,400
4,058 Hollinger Participation Trust, 144A--
Private Placement (e) (f).................. 12.125 11/15/10 3,977,207
1,580 Houghton Mifflin Co., 144A--Private
Placement (e).............................. 8.250 02/01/11 1,651,100
1,325 Houghton Mifflin Co., 144A--Private
Placement (e).............................. 9.875 02/01/13 1,397,875
3,697 Mail-Well I Corp. ......................... 9.625 03/15/12 3,549,120
3,235 MDC Corporation, Inc. (Canada)............. 10.500 12/01/06 2,862,975
5,347 Muzak LLC.................................. 9.875 03/15/09 4,631,839
See Notes to Financial Statements
12
YOUR FUND'S INVESTMENTS
February 28, 2003 (Unaudited)
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
DIVERSIFIED MEDIA (CONTINUED)
$3,350 Premier Parks, Inc. (d).................... 0/10.000% 04/01/08 $ 3,199,250
4,109 Primedia, Inc. ............................ 8.875 05/15/11 3,944,640
1,915 RH Donnelley Finance Corp. I, 144A--
Private Placement (e)...................... 10.875 12/15/12 2,130,437
------------
34,013,478
------------
ENERGY 10.1%
5,081 BRL Universal Equipment.................... 8.875 02/15/08 5,385,860
4,960 Chesapeake Energy Corp. ................... 8.125 04/01/11 5,208,000
1,420 Citgo Petroleum Corp., 144A--Private
Placement (e).............................. 11.375 02/01/11 1,434,200
3,659 El Paso Energy Partners LP, 144A--Private
Placement (e).............................. 10.625 12/01/12 3,915,130
4,385 Frontier Oil Corp. ........................ 11.750 11/15/09 4,735,800
4,200 Grey Wolf, Inc. ........................... 8.875 07/01/07 4,347,000
4,010 Hanover Equipment Trust, 144A--Private
Placement (e).............................. 8.500 09/01/08 3,859,625
2,304 Hanover Equipment Trust, 144A--Private
Placement (e).............................. 8.750 09/01/11 2,194,560
4,142 Husky Oil Ltd. (Variable Rate Coupon)
(Canada)................................... 8.900 08/15/28 4,668,138
1,994 Magnum Hunter Resources, Inc. ............. 9.600 03/15/12 2,123,610
695 Northwest Pipeline Corp., 144A--Private
Placement (e).............................. 8.125 03/01/10 712,375
3,898 Port Arthur Finance Corp., Ser A........... 12.500 01/15/09 4,385,036
2,234 Stone Energy Corp. ........................ 8.250 12/15/11 2,328,945
5,344 Tesoro Petroleum Corp. .................... 9.625 04/01/12 4,355,360
640 Transcontinental Gas Pipe Line Corp., Ser
B.......................................... 8.875 07/15/12 668,800
5,153 Vintage Petroleum, Inc. ................... 7.875 05/15/11 5,127,235
750 Westport Resources Corp., 144A--Private
Placement (e).............................. 8.250 11/01/11 793,125
------------
56,242,799
------------
FINANCIAL 1.7%
1,771 Anthem Insurance Cos., Inc., 144A--Private
Placement (e).............................. 9.125 04/01/10 2,172,379
2,920 Health Net, Inc. .......................... 8.375 04/15/11 3,383,343
3,555 Istar Financial, Inc. ..................... 8.750 08/15/08 3,833,609
------------
9,389,331
------------
See Notes to Financial Statements
13
YOUR FUND'S INVESTMENTS
February 28, 2003 (Unaudited)
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
FOOD & DRUG 1.4%
$3,298 California Farm Lease Trust, 144A--Private
Placement (e).............................. 8.500% 07/15/17 $ 3,662,624
4,035 Delhaize America, Inc. .................... 8.125 04/15/11 3,944,212
1,200 Jitney-Jungle Stores America, Inc. (b) (c)
(h)........................................ 12.000 03/01/06 120
------------
7,606,956
------------
FOOD & TOBACCO 1.9%
2,969 Michael Foods, Inc., Ser B................. 11.750 04/01/11 3,369,815
800 Pilgrim's Pride Corp. ..................... 9.625 09/15/11 760,000
6,658 Smithfield Foods, Inc. .................... 7.625 02/15/08 6,383,357
------------
10,513,172
------------
FOREST PRODUCTS 6.1%
3,325 Georgia-Pacific Corp., 144A--Private
Placement (e).............................. 8.875 02/01/10 3,325,000
4,180 MDP Acquisitions PLC, 144A--Private
Placement (Ireland) (Euro) (e)............. 10.125 10/01/12 4,542,093
1,050 Owens Brockway Glass Containers, 144A--
Private Placement (e)...................... 8.750 11/15/12 1,060,500
5,391 Owens-Illinois, Inc. ...................... 7.500 05/15/10 4,838,422
5,016 Pacifica Papers, Inc. (Canada)............. 10.000 03/15/09 5,291,880
695 Pliant Corp. .............................. 13.000 06/01/10 573,375
2,219 Pliant Corp. .............................. 13.000 06/01/10 1,764,105
3,205 Riverwood International Corp. ............. 10.875 04/01/08 3,180,962
4,073 Tekni-Plex, Inc., Ser B.................... 12.750 06/15/10 3,665,700
5,800 Tembec Industries, Inc. (Canada)........... 7.750 03/15/12 5,684,000
------------
33,926,037
------------
GAMING & LEISURE 8.3%
2,650 Harrahs Operating Co., Inc. ............... 7.875 12/15/05 2,799,062
1,628 Harrahs Operating Co., Inc. ............... 8.000 02/01/11 1,847,969
2,456 Hilton Hotels Corp. ....................... 7.950 04/15/07 2,483,146
2,325 Hilton Hotels Corp. ....................... 7.625 12/01/12 2,259,809
1,303 HMH Properties, Inc. ...................... 7.875 08/01/05 1,286,712
4,280 HMH Properties, Inc., Ser B................ 7.875 08/01/08 4,001,800
5,592 Horseshoe Gaming LLC....................... 8.625 05/15/09 5,871,600
3,348 International Game Technology.............. 8.375 05/15/09 3,939,869
1,660 Park Place Entertainment Corp. ............ 7.875 12/15/05 1,691,125
2,888 Park Place Entertainment Corp. ............ 8.875 09/15/08 3,003,520
4,148 Prime Hospitality Corp., Ser B............. 8.375 05/01/12 3,650,240
884 Starwood Hotels Resorts, 144A--Private
Placement (e).............................. 7.375 05/01/07 870,740
See Notes to Financial Statements
14
YOUR FUND'S INVESTMENTS
February 28, 2003 (Unaudited)
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
GAMING & LEISURE (CONTINUED)
$4,461 Starwood Hotels Resorts, 144A--Private
Placement (e).............................. 7.875% 05/01/12 $ 4,416,390
2,975 Station Casinos, Inc. ..................... 8.875 12/01/08 3,086,562
1,800 Station Casinos, Inc. ..................... 9.875 07/01/10 1,962,000
2,525 Venetian Casino Resort LLC................. 11.000 06/15/10 2,588,125
------------
45,758,669
------------
HEALTHCARE 5.6%
1,108 Amerisourcebergen Corp. ................... 8.125 09/01/08 1,202,180
3,775 Amerisourcebergen Corp., 144A--Private
Placement (e).............................. 7.250 11/15/12 3,944,875
2,440 Fisher Scientific International, Inc. ..... 7.125 12/15/05 2,507,100
2,480 Fisher Scientific International, Inc.,
144A--Private Placement (e)................ 8.125 05/01/12 2,635,000
4,660 Fresenius Medical Care Capital Trust IV.... 7.875 06/15/11 4,683,300
725 HCA, Inc. ................................. 6.910 06/15/05 767,244
4,029 HCA, Inc. ................................. 8.750 09/01/10 4,731,102
1,299 HEALTHSOUTH Corp. ......................... 7.625 06/01/12 1,065,180
350 Manor Care, Inc. .......................... 7.500 06/15/06 361,485
1,008 Manor Care, Inc. .......................... 8.000 03/01/08 1,063,440
1,940 Omnicare, Inc., Ser B...................... 8.125 03/15/11 2,090,350
4,429 Tenet Healthcare Corp. .................... 6.500 06/01/12 4,307,202
1,780 Tenet Healthcare Corp. .................... 7.375 02/01/13 1,802,250
------------
31,160,708
------------
HOUSING 5.6%
3,622 CB Richard Ellis Service, Inc. ............ 11.250 06/15/11 3,386,570
3,000 KB Home.................................... 7.750 02/01/10 3,060,000
1,278 Louisiana Pacific Corp. ................... 10.875 11/15/08 1,399,410
961 Louisiana Pacific Corp. ................... 8.875 08/15/10 1,050,887
1,360 Meritage Corp., 144A-- Private Placement
(e)........................................ 9.750 06/01/11 1,431,400
735 Nortek Holdings, Inc. ..................... 9.250 03/15/07 757,969
4,723 Schuler Homes, Inc. ....................... 9.375 07/15/09 5,077,225
1,186 Tech Olympic USA, Inc. .................... 9.000 07/01/10 1,168,210
2,236 Tech Olympic USA, Inc. .................... 10.375 07/01/12 2,191,280
1,600 Tech Olympic USA, Inc., 144A--Private
Placement (e).............................. 9.000 07/01/10 1,576,000
4,923 Toll Corp. ................................ 8.250 02/01/11 5,218,380
4,560 Webb (Del E.) Corp. ....................... 10.250 02/15/10 4,993,200
------------
31,310,531
------------
See Notes to Financial Statements
15
YOUR FUND'S INVESTMENTS
February 28, 2003 (Unaudited)
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
INFORMATION TECHNOLOGY 2.0%
$9,000 CHS Electronics, Inc. (b) (c) (h).......... 9.875% 04/15/05 $ 78,750
3,519 Fairchild Semiconductor Corp. ............. 10.375 10/01/07 3,721,343
470 Flextronics International Ltd.
(Singapore)................................ 8.750 10/15/07 493,500
2,486 Flextronics International Ltd.
(Singapore)................................ 9.875 07/01/10 2,722,170
1,575 Iron Mountain, Inc. ....................... 8.625 04/01/13 1,669,500
2,145 Iron Mountain, Inc. ....................... 7.750 01/15/15 2,182,538
------------
10,867,801
------------
MANUFACTURING 4.9%
1,490 Brand Services, Inc., 144A--Private
Placement (e).............................. 12.000 10/15/12 1,620,375
3,264 Eagle-Picher Industries, Inc. ............. 9.375 03/01/08 2,464,320
990 Flowserve Corp. ........................... 12.250 08/15/10 1,098,900
772 Johnsondiversey, Inc. ..................... 9.625 05/15/12 843,041
2,456 Johnsondiversey, Inc., Ser B............... 9.625 05/15/12 2,627,920
3,950 Manitowoc, Inc. ........................... 10.500 08/01/12 4,127,750
1,959 NMHG Holdings Co. ......................... 10.000 05/15/09 2,047,155
6,000 Outsourcing Services Group, Inc. .......... 10.875 03/01/06 4,530,000
1,417 Reunion Industries, Inc. (b)............... 13.000 05/01/03 804,148
3,399 Trimas Corp., 144A--Private Placement
(e)........................................ 9.875 06/15/12 3,331,020
1,415 Trimas Corp., 144A--Private Placement
(e)........................................ 9.875 06/15/12 1,386,700
2,629 Tyco International Group SA (Luxembourg)... 6.750 02/15/11 2,497,550
------------
27,378,879
------------
METALS 1.5%
5,440 Doe Run Resources Corp. (f) (g) (h)........ 11.750 11/01/08 1,904,140
6,655 GS Technologies Operating, Inc. (b) (c)
(h)........................................ 12.000 09/01/04 199,650
2,450 GS Technologies Operating, Inc. (b) (c)
(h)........................................ 12.250 10/01/05 110,250
3,220 Murrin Murrin Holdings Property Ltd.
(Australia) (b)............................ 9.375 08/31/07 861,350
2,279 Oregon Steel Mills, Inc. .................. 10.000 07/15/09 2,216,328
1,416 Republic Engineer Products (h)............. 10.000 08/16/09 283,294
3,317 Ucar Finance, Inc. ........................ 10.250 02/15/12 2,670,185
------------
8,245,197
------------
RETAIL 1.6%
3,002 Big 5 Corp., Ser B (a)..................... 10.875 11/15/07 3,148,348
1,657 Gap, Inc. ................................. 10.550 12/15/08 1,880,695
525 Penney, JC Co., Inc. ...................... 7.600 04/01/07 539,438
1,445 Penney, JC Co., Inc. ...................... 8.000 03/01/10 1,481,125
1,271 Penney, JC Co., Inc. ...................... 9.000 08/01/12 1,356,793
489 Penney, JC Co., Inc. ...................... 6.875 10/15/15 440,100
------------
8,846,499
------------
See Notes to Financial Statements
16
YOUR FUND'S INVESTMENTS
February 28, 2003 (Unaudited)
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
SERVICES 2.1%
$6,500 Allied Waste North America, Inc. .......... 10.000% 08/01/09 $ 6,630,000
1,500 Encompass Services Corp. (b)............... 10.500 05/01/09 37,500
6,250 Hydrochem Industrial Services, Inc., Ser
B.......................................... 10.375 08/01/07 4,734,375
------------
11,401,875
------------
TELECOMMUNICATIONS 1.2%
2,660 360networks, Inc. (Canada) (b) (c) (h)..... 13.000 05/01/08 0
2,800 360networks, Inc. (Canada) (Euro) (b) (c)
(h)........................................ 13.000 05/01/08 0
1,050 Asia Global Crossing (Bermuda) (b) (c)..... 13.375 10/15/10 131,250
6,650 E.Spire Communications, Inc. (b) (c) (h)... 10.000 11/01/05 665
3,612 Exodus Communications, Inc. (b) (c) (h).... 11.250 07/01/08 216,749
283 Exodus Communications, Inc. (b) (c) (h).... 11.625 07/15/10 17,000
2,711 Exodus Communications, Inc. (Euro) (b) (c)
(h) (i).................................... 11.375 07/15/08 175,350
192 Focal Communications Corp., Ser B (b)
(c)........................................ 11.875 01/15/10 10,560
8,805 Global Crossing Holdings Ltd. (Bermuda) (b)
(c)........................................ 9.125 11/15/06 286,163
2,990 Global Crossing Holdings Ltd. (Bermuda) (b)
(c)........................................ 8.700 08/01/07 97,175
795 Globix Corp., 144A-- Private Placement (e)
(f)........................................ 11.000 05/01/08 560,588
5,305 GST Network Funding, Inc. (b) (c) (h)...... 10.500 05/01/08 531
4,335 Metromedia Fiber Network, Inc. (b) (c)
(h)........................................ 10.000 12/15/09 151,725
3,000 Park N View, Inc., Ser B (b) (c) (h)....... 13.000 05/15/08 30,000
3,500 PF Net Communications, Inc. (b) (c)........ 13.750 05/15/10 350
2,434 Primus Telecom Group....................... 9.875 05/15/08 1,825,500
11,565 PSINet, Inc. (b) (c)....................... 10.500 12/01/06 636,075
1,750 PSINet, Inc. (Euro) (b) (c)................ 10.500 12/01/06 75,477
1,790 WorldCom, Inc. (b) (c)..................... 6.950 08/15/28 404,988
9,970 WorldCom, Inc. (b) (c)..................... 8.250 05/15/31 2,255,713
5,800 Worldwide Fiber, Inc. (Canada) (b) (c)..... 12.000 08/01/09 580
------------
6,876,439
------------
TRANSPORTATION 5.1%
9,885 Aetna Industries, Inc. (b) (c) (h)......... 11.875 10/01/06 1,581,600
117 Aran Shipping & Trading, SA (b) (h)........ 8.300 01/31/04 0
1,673 ArvinMeritor, Inc. ........................ 8.750 03/01/12 1,781,745
3,088 Autonation, Inc. .......................... 9.000 08/01/08 3,226,960
2,783 Collins & Aikman Products Co. ............. 10.750 12/31/11 2,734,298
2,447 Dana Corp. ................................ 9.000 08/15/11 2,495,940
1,736 Dana Corp. (Euro).......................... 9.000 08/15/11 1,796,468
2,820 Dura Operating Corp., Ser B................ 8.625 04/15/12 2,777,700
3,120 Intermet Corp. ............................ 9.750 06/15/09 2,901,600
See Notes to Financial Statements
17
YOUR FUND'S INVESTMENTS
February 28, 2003 (Unaudited)
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
TRANSPORTATION (CONTINUED)
$1,953 Lear Corp., Ser B.......................... 8.110% 05/15/09 $ 2,143,418
3,276 Metaldyne Corp. ........................... 11.000 06/15/12 2,604,420
840 Sonic Automotive, Inc., Ser D.............. 11.000 08/01/08 886,200
3,425 TRW Automotive, Inc., 144A--Private
Placement (e).............................. 9.375 02/15/13 3,510,625
------------
28,440,974
------------
UTILITY 2.9%
2,620 AES Corp. ................................. 9.375 09/15/10 1,912,600
1,070 AES Corp. ................................. 8.875 02/15/11 765,050
840 Allegheny Energy, Inc. .................... 7.750 08/01/05 827,400
3,500 Calpine Corp. ............................. 8.625 08/15/10 1,680,000
400 Calpine Corp. ............................. 8.500 02/15/11 194,000
425 CMS Energy Corp. .......................... 7.500 01/15/09 353,224
2,550 CMS Energy Corp. .......................... 8.500 04/15/11 2,119,976
4,232 Dynegy Holdings, Inc. ..................... 6.875 04/01/11 2,412,240
3,030 Monongahela Power Co. ..................... 5.000 10/01/06 2,978,266
2,679 PSEG Energy Holdings, Inc. ................ 8.625 02/15/08 2,601,697
------------
15,844,453
------------
WIRELESS COMMUNICATIONS 3.7%
5,154 American Cellular Corp. ................... 9.500 10/15/09 1,005,030
1,480 American Tower Escrow Corp. (g)............ * 08/01/08 917,600
1,163 Centennial Cellular Operating Co. ......... 10.750 12/15/08 761,765
3,030 Dobson Communications Corp. ............... 10.875 07/01/10 2,939,100
6,650 Microcell Telecommunications, Ser B
(Canada) (b)............................... 14.000 06/01/06 465,500
1,900 Nextel Communications, Inc. (d)............ 0/9.950 02/15/08 1,942,750
1,000 Nextel Communications, Inc. ............... 12.000 11/01/08 1,070,000
3,917 Nextel Communications, Inc. ............... 9.375 11/15/09 3,956,170
1,750 PTC International Finance (Luxembourg)
(Euro)..................................... 10.875 05/01/08 2,027,174
3,842 SBA Communications Corp. (d)............... 0/12.000 03/01/08 2,631,770
1,208 SBA Communications Corp. .................. 10.250 02/01/09 791,240
2,312 Triton PCS, Inc. .......................... 8.750 11/15/11 1,890,060
------------
20,398,159
------------
TOTAL CORPORATE BONDS 87.2%................................................ 483,564,624
------------
CONVERTIBLE CORPORATE OBLIGATION 0.5%
INFORMATION TECHNOLOGY 0.5%
5,028 Solectron Corp., Inc., LYON................ * 11/20/20 2,715,120
------------
See Notes to Financial Statements
18
YOUR FUND'S INVESTMENTS
February 28, 2003 (Unaudited)
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
FOREIGN GOVERNMENT OBLIGATIONS 2.6%
$ 365 Federal Republic of Brazil (Brazil)........ 11.000% 01/11/12 $ 283,788
4,088 Federal Republic of Brazil (Brazil)........ 8.000 04/15/14 3,065,794
2,711 Republic of Colombia (Columbia)............ 9.750 04/09/11 2,785,077
1,500 Republic of Columbia (Columbia)............ 9.750 04/23/09 1,578,750
5,973 United Mexican States (Mexico)............. 8.375 01/14/11 6,761,436
------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS........................................ 14,474,845
------------
EQUITIES 2.8%
Broadwing Communications, Inc. (77,630 Preferred Shares,
12.50% coupon, $1,000 par per share) (j).................. 504,595
Contour Energy Co. (75,000 Common Shares) (j)............... 1,950
DecisionOne Corp. (14,661 Common Shares) (h) (j)............ 0
DecisionOne Corp. (8,219 Common Stock Warrants Class A) (h)
(j)....................................................... 0
DecisionOne Corp. (14,162 Common Stock Warrants Class B) (h)
(j)....................................................... 0
DecisionOne Corp. (8,400 Common Stock Warrants Class C) (h)
(j)....................................................... 0
Dobson Communications Corp. (34,837 Preferred Shares, 13.00%
coupon, $1,000 par per share) (f)......................... 2,307,969
Doe Run Resources Corp. (21 Common Stock Warrants) (h)
(j)....................................................... 0
Globix Corp. (75,803 Common Shares) (f) (j)................. 200,878
HF Holdings, Inc. (36,820 Common Stock Warrants) (h) (j).... 0
ICG Communications, Inc. (36,267 Common Shares) (j)......... 149,599
ICG Communications, Inc. (5,879 Common Stock Warrants) (h)
(j)....................................................... 0
Intermedia Communications, Inc. (15,230 Preferred Shares,
Ser B, 13.50% coupon, $1,000 par per share) (j)........... 175,145
Intersil Holding Corp., Class A (31,481 Common Shares)
(j)....................................................... 492,678
Jazztel, PLC, 144A--Private Placement (3,450 Common Stock
Warrants) (United Kingdom) (e) (h) (j).................... 0
McLeodUSA, Inc. (25,943 Preferred Shares, Ser A) (h) (j).... 85,612
McLeodUSA, Inc. (57,567 Common Stock Warrants Class A) (h)
(j)....................................................... 12,665
McLeodUSA, Inc., Class A (3,462 Common Shares) (h) (j)...... 2,285
Mediq, Inc. (5,526 Common Shares) (h) (j)................... 30,006
Motient Corp. (32,388 Common Shares) (j).................... 118,216
Nextel Communications, Inc. (39,640 Preferred Shares, Ser D,
13.00% coupon, $1,000 par per share) (f).................. 4,152,290
Nextlink Communications, Inc. (2,490 Preferred Shares, Ser
B, 13.50% coupon, $1,000 par per share) (b) (c) (f)....... 25
Nextlink Communications, Inc. (7,114 Common Shares) (c)
(j)....................................................... 20,986
Occidente Y Caribe Celular SA (20,850 Common Stock Warrants)
(j)....................................................... 208
OpTel, Inc. (3,275 Common Shares) (h) (j)................... 0
See Notes to Financial Statements
19
YOUR FUND'S INVESTMENTS
February 28, 2003 (Unaudited)
MARKET
DESCRIPTION VALUE
EQUITIES (CONTINUED)
Park N View, Inc., 144A--Private Placement (3,000 Common
Stock Warrants) (c) (e) (h) (j)........................... $ 30
Paxon Communication Corp. (40,025 Preferred Shares, 13.25%
coupon, $1,000 par per share) (f)......................... 2,731,689
PF Net Communications, Inc. (3,500 Common Stock Warrants)
(h) (j)................................................... 0
Pioneer Cos., Inc. (71,438 Common Shares) (h) (j)........... 214,314
Primus Telecommunications Group (2,000 Common Stock
Warrants) (h) (j)......................................... 20
Republic Technologies International, Inc. (7,525 Common
Stock Warrants) (j)....................................... 75
Startec Global Communications (8,100 Common Stock Warrants)
(h) (j)................................................... 0
TNP Enterprises, Inc. (56,372 Preferred Shares, Ser D,
14.50% coupon, $1,000 par per share) (f).................. 4,241,965
UIH Australia/Pacific, Inc. (5,000 Common Stock Warrants)
(h) (j)................................................... 50
Viatel Holding Ltd. (32,114 Common Shares) (Bermuda) (h).... 36,931
VS Holdings, Inc. (568,177 Common Shares) (h) (j)........... 106,079
------------
TOTAL EQUITIES 2.8%........................................ 15,586,260
------------
TOTAL LONG-TERM INVESTMENTS 93.1%
(Cost $686,434,840)....................................... 516,340,849
REPURCHASE AGREEMENT 6.0%
Banc of America Securities LLC ($32,923,000 par
collateralized by U.S. Government obligations in a pooled
cash account, dated 02/28/03, to be sold on 03/03/03 at
$32,926,676)
(Cost $32,923,000)........................................ 32,923,000
------------
TOTAL INVESTMENTS 99.1%
(Cost $719,357,840)....................................... 549,263,849
OTHER ASSETS IN EXCESS OF LIABILITIES 0.9%................. 5,055,915
------------
NET ASSETS 100.0%.......................................... $554,319,764
============
* Zero coupon bond
(a) Assets segregated as collateral for when-issued or delayed delivery purchase
commitments and open forward transactions.
(b) Non-income producing as security is in default.
(c) This borrower has filed for protection in federal bankruptcy court.
See Notes to Financial Statements
20
YOUR FUND'S INVESTMENTS
February 28, 2003 (Unaudited)
(d) Security is a "step-up" bond where the coupon increases or steps up at a
predetermined date.
(e) 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.
(f) Payment-in-kind security.
(g) These securities are restricted and may be resold only in transactions
exempt from registration which are normally those transactions with
qualified institutional buyers.
(h) Market value is determined in accordance with procedures established in good
faith by the Board of Trustees.
(i) Securities purchased on a when-issued or delayed delivery basis.
(j) Non-income producing security.
(k) Subsequent to February 28, 2002, this borrower has filed for protection in
federal bankruptcy court.
LYON--Liquid Yield Option Note
See Notes to Financial Statements
21
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
February 28, 2003 (Unaudited)
ASSETS:
Total Investments (Cost $719,357,840)....................... $ 549,263,849
Cash........................................................ 15,410
Receivables:
Interest.................................................. 11,327,521
Fund Shares Sold.......................................... 1,634,515
Investments Sold.......................................... 1,410,059
Other....................................................... 160,692
--------------
Total Assets............................................ 563,812,046
--------------
LIABILITIES:
Payables:
Investments Purchased..................................... 5,970,137
Income Distributions...................................... 1,224,479
Fund Shares Repurchased................................... 1,155,205
Distributor and Affiliates................................ 368,596
Investment Advisory Fee................................... 223,474
Accrued Expenses............................................ 231,812
Trustees' Deferred Compensation and Retirement Plans........ 188,264
Forward Foreign Currency Contracts.......................... 130,315
--------------
Total Liabilities....................................... 9,492,282
--------------
NET ASSETS.................................................. $ 554,319,764
==============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $1,070,030,647
Accumulated Undistributed Net Investment Income............. (18,403,991)
Net Unrealized Depreciation................................. (170,212,614)
Accumulated Net Realized Loss............................... (327,094,278)
--------------
NET ASSETS.................................................. $ 554,319,764
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $349,051,320 and 108,349,011 shares of
beneficial interest issued and outstanding)............. $ 3.22
Maximum sales charge (4.75%* of offering price)......... .16
--------------
Maximum offering price to public........................ $ 3.38
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $168,135,976 and 51,990,554 shares of
beneficial interest issued and outstanding)............. $ 3.23
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $37,132,468 and 11,595,068 shares of
beneficial interest issued and outstanding)............. $ 3.20
==============
* On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
22
Statement of Operations
For the Six Months Ended February 28, 2003 (Unaudited)
INVESTMENT INCOME:
Interest.................................................... $ 24,795,254
Dividends................................................... 1,222,899
Other....................................................... 335,826
-------------
Total Income............................................ 26,353,979
-------------
EXPENSES:
Investment Advisory Fee..................................... 1,423,368
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $380,745, $815,880 and $170,692,
respectively)............................................. 1,367,317
Shareholder Services........................................ 600,775
Custody..................................................... 43,891
Trustees' Fees and Related Expenses......................... 13,656
Legal....................................................... 9,336
Other....................................................... 173,479
-------------
Total Expenses.......................................... 3,631,822
Less Credits Earned on Cash Balances.................... 12,835
-------------
Net Expenses............................................ 3,618,987
-------------
NET INVESTMENT INCOME....................................... $ 22,734,992
=============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $(109,353,983)
Forward Foreign Currency Contracts........................ (1,403,137)
Foreign Currency Transactions............................. 15,211
-------------
Net Realized Loss........................................... (110,741,909)
-------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (297,691,151)
-------------
End of the Period:
Investments............................................. (170,093,991)
Forward Foreign Currency Contracts...................... (130,315)
Foreign Currency Translation............................ 11,692
-------------
(170,212,614)
-------------
Net Unrealized Appreciation During the Period............... 127,478,537
-------------
NET REALIZED AND UNREALIZED GAIN............................ $ 16,736,628
=============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 39,471,620
=============
See Notes to Financial Statements
23
Statements of Changes in Net Assets
(Unaudited)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2003 AUGUST 31, 2002
------------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................... $ 22,734,992 $ 61,348,079
Net Realized Loss................................... (110,741,909) (75,202,141)
Net Unrealized Appreciation/Depreciation During the
Period............................................ 127,478,537 (89,189,391)
------------- -------------
Change in Net Assets from Operations................ 39,471,620 (103,043,453)
------------- -------------
Distributions from Net Investment Income:
Class A Shares.................................... (16,263,524) (39,465,139)
Class B Shares.................................... (7,720,721) (22,497,111)
Class C Shares.................................... (1,714,640) (5,037,475)
------------- -------------
(25,698,885) (66,999,725)
------------- -------------
Return of Capital Distribution:
Class A Shares.................................... -0- (3,148,224)
Class B Shares.................................... -0- (1,750,514)
Class C Shares.................................... -0- (390,906)
------------- -------------
-0- (5,289,644)
------------- -------------
Total Distributions................................. (25,698,885) (72,289,369)
------------- -------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES........................................ 13,772,735 (175,332,822)
------------- -------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold........................... 161,154,852 230,137,084
Net Asset Value of Shares Issued Through Dividend
Reinvestment...................................... 17,161,224 44,727,982
Cost of Shares Repurchased.......................... (151,784,003) (288,241,556)
------------- -------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.. 26,532,073 (13,376,490)
------------- -------------
TOTAL INCREASE/DECREASE IN NET ASSETS............... 40,304,808 (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
($18,403,991) and ($15,440,098), respectively).... $ 554,319,764 $ 514,014,956
============= =============
See Notes to Financial Statements
24
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
SIX MONTHS
ENDED YEAR ENDED AUGUST 31,
CLASS A SHARES FEB. 28, -----------------------------------------------
2003 2002 (a) 2001 2000 1999 1998
------------------------------------------------------------
NET ASSET VALUE, BEGINNING
OF THE PERIOD............. $ 3.15 $ 4.23 $ 5.24 $ 5.68 $ 6.06 $ 6.55
------ -------- ------- ------- ------- ------
Net Investment Income..... .15 .39 .51 .59 .63 .61
Net Realized and
Unrealized Gain/Loss.... .08 (1.01) (.96) (.43) (.37) (.48)
------ -------- ------- ------- ------- ------
Total from Investment
Operations................ .23 (.62) (.45) .16 .26 .13
------ -------- ------- ------- ------- ------
Less:
Distributions from Net
Investment Income....... .16 .43 .55 .60 .64 .62
Return of Capital
Distributions........... -0- .03 .01 -0- -0- -0-
------ -------- ------- ------- ------- ------
Total Distributions......... .16 .46 .56 .60 .64 .62
------ -------- ------- ------- ------- ------
NET ASSET VALUE, END OF THE
PERIOD.................... $ 3.22 $ 3.15 $ 4.23 $ 5.24 $ 5.68 $ 6.06
====== ======== ======= ======= ======= ======
Total Return (b)............ 7.52%* -15.75% -9.04% 3.09% 4.41% 1.66%
Net Assets at End of the
Period (In millions)...... $349.1 $ 308.5 $ 394.4 $ 465.0 $ 492.4 $499.3
Ratio of Expenses to Average
Net Assets................ 1.11% 1.08% 1.05% 1.03% 1.03% 1.00%
Ratio of Net Investment
Income to Average Net
Assets.................... 9.05% 10.39% 10.93% 10.90% 10.65% 9.33%
Portfolio Turnover.......... 41%* 83% 80% 68% 51% 90%
* Non-Annualized
(a) As required, effective September 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment Companies
and began amortizing premium on fixed income securities 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 combined Rule 12b-1 fees and service fees of up to .25% and do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares.
See Notes to Financial Statements
25
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
SIX MONTHS
ENDED YEAR ENDED AUGUST 31,
CLASS B SHARES FEB. 28, ----------------------------------------------
2003 2002 (a) 2001 2000 1999 1998
-----------------------------------------------------------
NET ASSET VALUE, BEGINNING
OF THE PERIOD............. $ 3.16 $ 4.24 $ 5.25 $ 5.68 $ 6.06 $ 6.56
------ -------- ------- ------- ------ ------
Net Investment Income..... .13 .35 .48 .55 .58 .57
Net Realized and
Unrealized Gain/Loss.... .09 (1.01) (.97) (.43) (.37) (.49)
------ -------- ------- ------- ------ ------
Total from Investment
Operations................ .22 (.66) (.49) .12 .21 .08
------ -------- ------- ------- ------ ------
Less:
Distributions from Net
Investment Income....... .15 .39 .51 .55 .59 .58
Return of Capital
Distributions........... -0- .03 .01 -0- -0- -0-
------ -------- ------- ------- ------ ------
Total Distributions......... .15 .42 .52 .55 .59 .58
------ -------- ------- ------- ------ ------
NET ASSET VALUE, END OF THE
PERIOD.................... $ 3.23 $ 3.16 $ 4.24 $ 5.25 $ 5.68 $ 6.06
====== ======== ======= ======= ====== ======
Total Return (b)............ 6.77%* -16.12% -9.80% 2.43% 3.57% .77%
Net Assets at End of the
Period (In millions)...... $168.1 $ 168.8 $ 249.6 $ 268.7 $318.2 $283.1
Ratio of Expenses to Average
Net Assets................ 1.88% 1.84% 1.83% 1.78% 1.79% 1.79%
Ratio of Net Investment
Income to Average Net
Assets.................... 8.36% 9.67% 10.13% 10.15% 9.88% 8.52%
Portfolio Turnover.......... 41%* 83% 80% 68% 51% 90%
* Non-Annualized
(a) As required, effective September 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment Companies
and began amortizing premium on fixed income securities 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 redemption of Fund shares.
See Notes to Financial Statements
26
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
SIX MONTHS
ENDED YEAR ENDED AUGUST 31,
CLASS C SHARES FEB. 28, ----------------------------------------------
2003 2002 (a) 2001 2000 1999 1998
-----------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
THE PERIOD................. $ 3.13 $ 4.20 $ 5.22 $ 5.65 $ 6.04 $ 6.53
------ ------- ------- ------- ------ ------
Net Investment Income...... .13 .35 .48 .55 .58 .57
Net Realized and Unrealized
Gain/Loss................ .09 (1.00) (.98) (.43) (.38) (.49)
------ ------- ------- ------- ------ ------
Total from Investment
Operations................. .22 (.65) (.50) .12 .20 .08
------ ------- ------- ------- ------ ------
Less:
Distributions from Net
Investment Income........ .15 .39 .51 .55 .59 .57
Return of Capital
Distributions............ -0- .03 .01 -0- -0- -0-
------ ------- ------- ------- ------ ------
Total Distributions.......... .15 .42 .52 .55 .59 .57
------ ------- ------- ------- ------ ------
NET ASSET VALUE, END OF THE
PERIOD..................... $ 3.20 $ 3.13 $ 4.20 $ 5.22 $ 5.65 $ 6.04
====== ======= ======= ======= ====== ======
Total Return (b)............. 6.83%* -16.04% -10.06% 2.45% 3.42% .93%
Net Assets at End of the
Period (In millions)....... $ 37.1 $ 36.7 $ 58.7 $ 59.4 $ 67.3 $ 55.8
Ratio of Expenses to Average
Net Assets................. 1.83% 1.84% 1.82% 1.78% 1.79% 1.79%
Ratio of Net Investment
Income to Average Net
Assets..................... 8.40% 9.68% 10.12% 10.15% 9.87% 8.49%
Portfolio Turnover........... 41%* 83% 80% 68% 51% 90%
* Non-Annualized
(a) As required, effective September 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment Companies
and began amortizing premium on fixed income securities 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.
See Notes to Financial Statements
27
NOTES TO
FINANCIAL STATEMENTS
February 28, 2003 (Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen High Income Corporate Bond Fund (the "Fund") is organized as a
Delaware business trust, and is registered as a diversified, open-end management
investment company under the Investment Company Act of 1940 (the "1940 Act"), as
amended. The Fund's primary investment objective is to seek to maximize current
income. Capital appreciation is a secondary objective which is sought only when
consistent with the Fund's primary investment objective. The Fund commenced
investment operations on October 2, 1978. The distribution of the Fund's Class B
and Class C shares commenced on July 2, 1992 and July 6, 1993, respectively.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
A. SECURITY VALUATION Fixed income investments and preferred stock are stated at
value using market quotations or indications of value obtained from an
independent pricing service. Investments in securities listed on a securities
exchange are valued at their sale price as of the close of such securities
exchange. Listed and unlisted securities for which the last sale price is not
available are valued at the mean of the bid and asked prices. For those
securities where quotations or prices are not available, valuations are
determined in accordance with procedures established in good faith by the Board
of Trustees. Short-term securities with remaining maturities of 60 days or less
are valued at amortized cost, which approximates market value.
B. SECURITY TRANSACTIONS Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when-issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when-issued or delayed delivery
purchase commitments until payment is made. At February 28, 2003, the Fund had
$175,350 of when-issued and delayed delivery purchase commitments.
28
NOTES TO
FINANCIAL STATEMENTS
February 28, 2003 (Unaudited)
The Fund may invest in repurchase agreements, which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen Asset Management Inc. (the "Adviser") or its
affiliates, the daily aggregate of which is invested in repurchase agreements.
Repurchase agreements are fully collateralized by the underlying debt security.
The Fund will make payment for such securities only upon physical delivery or
evidence of book entry transfer to the account of the custodian bank. The seller
is required to maintain the value of the underlying security at not less than
the repurchase proceeds due the Fund.
C. INCOME AND EXPENSES Interest income is recorded on an accrual basis and
dividend income is recorded on the ex-dividend date. Discounts on debt
securities are accreted and premiums are amortized over the expected life of
each applicable security. Income and expenses of the Fund are allocated on a pro
rata basis to each class of shares, except for distribution and service fees and
transfer agency costs which are unique to each class of shares.
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, 2002, the Fund had an accumulated capital loss carryforward
for tax purposes of $149,845,954 which expires between August 31, 2003 and
August 31, 2010. Of this amount, $8,026,371 will expire on August 31, 2003.
At February 28, 2003, the cost and related gross unrealized appreciation and
depreciation are as follows:
Cost of investments for tax purposes........................ $ 720,966,137
=============
Gross tax unrealized appreciation........................... $ 26,887,806
Gross tax unrealized depreciation........................... (198,590,094)
-------------
Net tax unrealized depreciation on investments.............. $(171,702,288)
=============
29
NOTES TO
FINANCIAL STATEMENTS
February 28, 2003 (Unaudited)
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.
The tax character of distributions paid during the year ended August 31,
2002 was as follows:
2002
Distributions paid from:
Ordinary income........................................... $67,777,960
Long-term capital gain.................................... -0-
Return of capital......................................... 5,289,644
-----------
$73,067,604
===========
Net realized gains or losses may differ for financial reporting and tax
purposes primarily as a result of the deferral of losses relating to wash sales
transactions.
F. EXPENSE REDUCTIONS During the six months ended February 28, 2003, the Fund's
custody fee was reduced by $12,836 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.
30
NOTES TO
FINANCIAL STATEMENTS
February 28, 2003 (Unaudited)
2. INVESTMENT ADVISORY AGREEMENT AND
OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
AVERAGE DAILY NET ASSETS % PER ANNUM
First $150 million.......................................... .625%
Next $150 million........................................... .550%
Over $300 million........................................... .500%
For the six months ended February 28, 2003, the Fund recognized expenses of
approximately $9,300 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
Under an Accounting Services Agreement, the Adviser provides accounting
services to the Fund. The Adviser allocates the cost of such services to each
fund. For the six months ended February 28, 2003, the Fund recognized expenses
of approximately $23,200 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 six months ended
February 28, 2003, the Fund recognized expenses of approximately $503,600
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 $98,439 are included in
"Other" assets on the Statement of Assets and Liabilities at February 28, 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
31
NOTES TO
FINANCIAL STATEMENTS
February 28, 2003 (Unaudited)
years of service to the Fund. The maximum annual benefit per trustee under the
plan is $2,500.
3. CAPITAL TRANSACTIONS
At February 28, 2003, capital aggregated $745,634,412, $263,403,310 and
$60,992,925 for Classes A, B and C, respectively. For the six months ended
February 28, 2003, transactions were as follows:
SHARES VALUE
Sales:
Class A............................................... 43,835,724 $ 136,324,857
Class B............................................... 6,294,894 19,649,774
Class C............................................... 1,671,245 5,180,221
----------- -------------
Total Sales............................................. 51,801,863 $ 161,154,852
=========== =============
Dividend Reinvestment:
Class A............................................... 3,579,048 $ 11,247,654
Class B............................................... 1,548,196 4,878,819
Class C............................................... 331,426 1,034,751
----------- -------------
Total Dividend Reinvestment............................. 5,458,670 $ 17,161,224
=========== =============
Repurchases:
Class A............................................... (36,923,539) $(116,305,375)
Class B............................................... (9,191,728) (28,823,658)
Class C............................................... (2,133,013) (6,654,970)
----------- -------------
Total Repurchases....................................... (48,248,280) $(151,784,003)
=========== =============
32
NOTES TO
FINANCIAL STATEMENTS
February 28, 2003 (Unaudited)
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 six months ended February 28, 2003 and the
year ended August 31, 2002, 204,667 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 six months ended February 28, 2003 and the year ended August
31, 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
33
NOTES TO
FINANCIAL STATEMENTS
February 28, 2003 (Unaudited)
CDSC will be imposed on most redemptions made within five years of the purchase
for Class B Shares and one year of the purchase for Class C Shares as detailed
in the following schedule.
CONTINGENT DEFERRED
SALES CHARGE
AS A PERCENTAGE
OF DOLLAR AMOUNT
SUBJECT TO CHARGE
--------------------------
YEAR OF REDEMPTION CLASS B CLASS C
First...................................................... 4.00% 1.00%
Second..................................................... 4.00% None
Third...................................................... 3.00% None
Fourth..................................................... 2.50% None
Fifth...................................................... 1.50% None
Sixth and Thereafter....................................... None None
For the six months ended February 28, 2003, Van Kampen, as Distributor for
the Fund, received net commissions on sales of the Fund's Class A Shares of
approximately $47,000 and CDSC on redeemed shares of approximately $206,400.
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 $230,874,771 and $202,459,154,
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
34
NOTES TO
FINANCIAL STATEMENTS
February 28, 2003 (Unaudited)
resulting in an unrealized loss. Selling securities on a forward commitment
involves different risks and can result in losses more significant than those
arising from the purchase of such securities. Risks may arise as a result of the
potential inability of the counterparties to meet the terms of their contracts.
A forward foreign currency contract is a commitment to purchase or sell a
foreign currency at a future date at a negotiated forward rate. Upon the
settlement of the contract, a realized gain or loss is recognized and is
included as a component of realized gain/loss on forwards. Risks may arise as a
result of the potential inability of the counterparties to meet the terms of
their contracts.
The following forward foreign currency contracts were outstanding as of
February 28, 2003:
UNREALIZED
CURRENT APPRECIATION/
VALUE DEPRECIATION
SHORT CONTRACTS:
Euro Currency,
$9,975,000 expiring 4/24/03............................. $10,732,065 $ (92,730)
$4,000,000 expiring 4/24/03............................. 4,303,585 (37,585)
----------- ---------
$15,035,650 $(130,315)
=========== =========
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. Included in these fees for the six months ended February 28, 2003
are payments retained by Van Kampen of approximately $641,500 and payments made
to Morgan Stanley DW Inc., an affiliate of the Adviser, of approximately
$54,500. Also, the amount of distribution expenses incurred by Van Kampen and
not yet reimbursed was approximately $5,697,600 and $0 for Class B and Class C
Shares, respectively. This amount may be recovered from future payments under
the distribution plan or CDSC.
35
VAN KAMPEN INVESTMENTS
THE VAN KAMPEN
FAMILY OF FUNDS
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
Tax Managed Equity Growth
Technology
Growth and Income
Comstock
Equity and Income
Growth and Income
Harbor
Real Estate Securities
Utility
Value
Value Opportunities
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
Income
Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
Limited Maturity Government
U.S. Government
Capital Preservation
Reserve
Tax Free Money
Senior Loan
Prime Rate Income Trust
Senior Floating Rate
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
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
36
BOARD OF TRUSTEES AND IMPORTANT ADDRESSES
VAN KAMPEN HIGH INCOME CORPORATE
BOND FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
JERRY D. CHOATE
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
MITCHELL M. MERIN*
JACK E. NELSON
RICHARD F. POWERS, III*
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY
INVESTMENT ADVISER
VAN KAMPEN ASSET MANAGEMENT INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 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
* "Interested persons" of the Fund, as defined in the Investment Company Act
of 1940, as amended.
37
Van Kampen
Privacy Notice
The Van Kampen companies and investment products* respect your right to privacy.
We also know that you expect us to conduct and process your business in an
accurate and efficient manner. To do so, we must collect and maintain certain
nonpublic personal information about you. This is information we collect from
you on applications or other forms, and from the transactions you make with us,
our affiliates, or third parties. We may also collect information you provide
when using our web site, and text files (a.k.a. "cookies") may be placed on your
computer to help us to recognize you and to facilitate transactions you
initiate. We do not disclose any nonpublic personal information about you or any
of our former customers to anyone, except as permitted by law. For instance, so
that we may continue to offer you Van Kampen investment products and services
that meet your investing needs, and to effect transactions that you request or
authorize, we may disclose the information we collect to companies that perform
services on our behalf, such as printers and mailers that assist us in the
distribution of investor materials. These companies will use this information
only for the services for which we hired them, and are not permitted to use or
share this information for any other purpose. To protect your nonpublic personal
information internally, we permit access to it only by authorized employees, and
maintain physical, electronic and procedural safeguards to guard your nonpublic
personal information.
* Includes Van Kampen Investments Inc., Van Kampen Investment Advisory Corp.,
Van Kampen Asset Management Inc., Van Kampen Advisors Inc., Van Kampen
Management Inc., Van Kampen Funds Inc., Van Kampen Investor Services Inc., Van
Kampen Trust Company, Van Kampen System Inc. and Van Kampen Exchange Corp., as
well as the many Van Kampen mutual funds and Van Kampen unit investment
trusts.
Van Kampen Funds Inc.
1 Parkview Plaza, P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
www.vankampen.com
[VAN KAMPEN INVESTMENTS LOGO]
Copyright (C)2003 Van Kampen Funds Inc. All rights reserved.
28, 128, 228 Member NASD/SIPC.
HYI SAR 4/03 10234D03-AP-4/03