Table of Contents
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
PERFORMANCE OF A $10,000 INVESTMENT 4
RETURN HIGHLIGHTS 5
PORTFOLIO AT A GLANCE
CREDIT QUALITY 7
TWELVE-MONTH DIVIDEND HISTORY 7
TOP FIVE INDUSTRIES 7
Q&A WITH YOUR PORTFOLIO MANAGERS 8
GLOSSARY OF TERMS 12
BY THE NUMBERS
YOUR FUND'S INVESTMENTS 13
FINANCIAL STATEMENTS 24
NOTES TO FINANCIAL STATEMENTS 30
REPORT OF INDEPENDENT AUDITORS 40
VAN KAMPEN INVESTMENTS
THE VAN KAMPEN FAMILY OF FUNDS 41
BOARD OF TRUSTEES AND IMPORTANT ADDRESSES 42
TRUSTEE AND OFFICER INFORMATION 43
You have a time-tested partner in Van Kampen.
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
September 20, 2002
Dear Shareholder,
Due to events in the markets and the well-publicized controversies surrounding
certain companies, the recent months have been challenging for many investors.
Against this backdrop, you may be re-evaluating your investments. In this
regard, your financial advisor is a particularly valuable resource. Your advisor
can help you review your current asset allocation and determine whether it
remains appropriate for your goals, risk tolerance and time horizon.
You also have a time-tested partner in Van Kampen. With roots extending to 1927,
our legacy spans other market downturns and periods of uncertainty. While the
causes of turbulence have changed, our generations of experience have taught us
the enduring value of patience, discipline and long-term
focus.
Thank you for your continued trust in Van Kampen. We
appreciate the opportunity to help you and your loved ones enjoy life's true
wealth--family, friends and life's daily pleasures.
Sincerely,
[SIG]
Richard F. Powers, III
President and CEO
Van Kampen Asset Management Inc.
1
ECONOMIC SNAPSHOT
THE ECONOMY
THE STRENGTH OF THE ECONOMY'S APPARENT, YET FRAGILE, RECOVERY GARNERED
CONSIDERABLE ATTENTION THROUGHOUT THE REPORTING PERIOD. WEAK SECOND-QUARTER
GROWTH, FOLLOWED BY ANECDOTAL EVIDENCE OF A MID-SUMMER ECONOMIC PERFORMANCE THAT
WAS BELOW EXPECTATIONS, LEFT MANY WONDERING WHETHER THE THIRD QUARTER WOULD
RECORD ANY POSITIVE PROGRESS. AS SUCH, AUGUST'S POSITIVE DEVELOPMENTS--IMPROVED
CORPORATE PROFITS, STRONG RETAIL SALES, AND MODEST EMPLOYMENT GAINS--HELPED
DOWNPLAY SUCH CONCERNS.
CONSUMER SPENDING REMAINED UNEXPECTEDLY STRONG THROUGHOUT THE REPORTING PERIOD,
BOLSTERED BY 0-PERCENT FINANCING DEALS OFFERED BY AUTO MANUFACTURERS AND
HISTORICALLY LOW MORTGAGE RATES THAT SPARKED ANOTHER SURGE IN HOME MORTGAGE
REFINANCING. IN CONTRAST, BUSINESS SPENDING REMAINED AT SUBDUED, ALBEIT
GRADUALLY GROWING LEVELS. BUT THE ONGOING CONCERN OF WAR WITH IRAQ AND SLOW JOB
GROWTH COMBINED TO DRAG CONSUMER CONFIDENCE BACK TO LEVELS WITNESSED IN THE
FOURTH QUARTER OF 2001.
AGAINST THIS BACKDROP, THE FED TOOK A WAIT-AND-SEE APPROACH AND LEFT ITS
INTEREST RATE TARGET FOR FEDERAL FUNDS AT 1.75 PERCENT. HOWEVER, DURING ITS
REGULARLY SCHEDULED AUGUST 12 MEETING, THE FED SHIFTED ITS BIAS FROM ECONOMIC
NEUTRALITY TO CONCERN OVER POTENTIAL ECONOMIC WEAKNESS. THIS POLICY SHIFT ONLY
REINFORCED INVESTORS' CONCERNS ABOUT SLOW GROWTH.
2
U.S. GROSS DOMESTIC PRODUCT
SEASONALLY ADJUSTED ANNUALIZED RATES
(June 30, 2000--June 30, 2002)
[BAR GRAPH]
U.S. GROSS DOMESTIC PRODUCT
---------------------------
Jun 00 4.80%
Sep 00 0.60%
Dec 00 1.10%
Mar 01 -0.60%
Jun 01 -1.60%
Sep 01 -0.30%
Dec 01 2.70%
Mar 02 5.00%
Jun 02 1.30%
Source: Bureau of Economic Analysis
INTEREST RATES AND INFLATION
(August 31, 2000--August 31, 2002)
[LINE GRAPH]
INTEREST RATES INFLATION
-------------- ---------
Aug 00 6.50 3.40
6.50 3.50
6.50 3.40
Nov 00 6.50 3.40
6.50 3.40
5.50 3.70
Feb 01 5.50 3.50
5.00 2.90
4.50 3.30
May 01 4.00 3.60
3.75 3.20
3.75 2.70
Aug 01 3.50 2.70
3.00 2.60
2.50 2.10
Nov 01 2.00 1.90
1.75 1.60
1.75 1.10
Feb 02 1.75 1.10
1.75 1.50
1.75 1.60
May 02 1.75 1.20
1.75 1.10
1.75 1.50
Aug 02 1.75 1.80
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
PERFORMANCE OF A $10,000 INVESTMENT
(August 31, 1992--August 31, 2002)
[LINE GRAPH]
CHASE GLOBAL HIGH YIELD
INDEX IS A BROAD-BASED,
UNMANAGED INDEX THAT
REFLECTS THE GENERAL LIPPER HIGH YIELD BOND
PERFORMANCE OF THE GLOBAL FUND INDEX IS AN INDEX OF
HIGH INCOME CORPORATE HIGH-YIELD CORPORATE DEBT FUNDS WITH SIMILAR RETURN
BOND FUND MARKET.* OBJECTIVES.**
--------------------- ------------------------- -------------------------
8/92 9524.000 10000.000
9580.000 10099.000
9618.000 10214.100
10246.000 10.924.28
10812.000 11448.500
10945.000 11661.400
12/93 11457.000 10000.000 12242.600
11391.000 9820.000 12112.500
11291.000 9805.000 11951.200
11168.000 9858.000 11947.500
12/94 11043.000 9843.000 11793.000
11563.000 10428.000 12368.600
12113.000 11046.000 13021.000
12584.000 11397.000 13472.200
12/95 12968.000 11764.000 13845.700
13380.000 12019.000 14199.800
13738.000 12238.000 14433.600
14305.000 12798.000 15118.000
12/96 14739.000 13294.000 15641.900
14944.000 13408.000 15713.600
15632.000 14028.000 16545.300
16359.000 14696.000 17438.200
12/97 16543.000 14941.000 17703.400
17356.000 15444.000 18480.700
17511.000 15576.000 18550.900
16074.000 14673.000 17150.300
12/98 16619.000 15086.000 17689.900
17080.000 15372.000 18253.700
17029.000 15533.000 18372.500
16920.000 15272.000 18050.500
12/99 17267.000 15595.000 18534.700
17196.000 15334.000 18253.500
17346.000 15413.000 18179.900
17229.000 15471.000 16038.200
12/00 15848.000 14708.000 16733.800
16362.000 15489.000 17306.100
15742.000 15379.000 16756.200
14800.000 14725.000 15734.100
12/01 15429.000 15601.000 16561.300
15020.000 15988.000 16630.100
13967.000 15616.000 15700.100
8/02 13412.000 15300.000(1) 15446.300
(1)The figure shown represents the performance of the Chase Global High Yield
Index since its inception date of 12/31/93.
This chart compares your fund's performance to that of the Chase Global
High Yield Index and the Lipper High Yield Bond Fund Index over time.
These indexes are unmanaged broad-based, statistical composites and their
performance does not include any sales charges or fees that would be paid
by an investor purchasing the securities they represent. Such costs would
lower performance. The historical performance of the index is shown for
illustrative purposes only; it is not meant to forecast, imply, or
guarantee the future performance of any investment vehicle. It is not
possible to invest directly in an index.
The above chart reflects the performance of Class A shares of the fund. The
performance of Class A shares will differ from that of other share classes of
the fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The fund's performance
assumes reinvestment of all distributions, and includes payment of the maximum
sales charge (4.75% for Class A shares) and combined Rule 12b-1 fees and service
fees of up to 0.25 percent. The performance above does not reflect the deduction
of taxes that a shareholder would pay on fund distributions or the redemption of
fund shares. Results are hypothetical.
While past performance is no guarantee of future results, the above information
provides a broader vantage point from which to evaluate the discussion of the
fund's performance found in the following pages.
Source:
* Bloomberg
** Lipper Inc.
4
RETURN HIGHLIGHTS
(as of August 31, 2002)
A SHARES B SHARES C SHARES
--------------------------------------------------------------------------------
One-year total return based on NAV(1) -15.75% -16.12% -16.04%
--------------------------------------------------------------------------------
One-year total return(2) -19.73% -19.11% -16.79%
--------------------------------------------------------------------------------
Five-year average annual total
return(2) -4.40% -4.33% -4.18%
--------------------------------------------------------------------------------
Ten-year average annual total
return(2) 2.98% 2.99%(3) N/A
--------------------------------------------------------------------------------
Life-of-Fund average annual total
return(2) 6.53% 3.26%(3) 1.57%
--------------------------------------------------------------------------------
Commencement date 10/02/78 07/02/92 07/06/93
--------------------------------------------------------------------------------
Distribution rate(4) 12.11% 11.77% 11.89%
--------------------------------------------------------------------------------
SEC Yield(5) 10.86% 10.58% 10.69%
--------------------------------------------------------------------------------
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.
5
(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 August 31, 2002.
See the Comparative Performance section of the current prospectus. An
investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. Please review the Risk/Return Summary
of the Prospectus for further details on investment risks. Past performance
is no guarantee of future results. Investment returns and principal value
will fluctuate and fund shares, when redeemed, may be worth more or less
than their original cost. As a result of recent market activity, current
performance may vary from the figures shown. For more up-to-date
information, please visit vankampen.com or speak with your financial
advisor.
Market forecasts provided in this report may not necessarily come to pass.
6
PORTFOLIO AT A GLANCE
CREDIT QUALITY
(as a percentage of corporate debt obligations)
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%
As of August 31, 2001
- BBB/Baa............ 6.2% [PIE CHART]
- BB/Ba.............. 19.4%
- B/B................ 65.1%
- CCC/Caa............ 5.8%
- CC/Ca.............. 1.0%
- C/C................ 0.3%
- Non-Rated.......... 2.2%
Based upon the credit quality ratings as issued by Standard & Poor's Credit
Market Services/Moody's Investor Services, respectively. Subject to change
daily.
TWELVE-MONTH DIVIDEND HISTORY
(for the year ended August 31, 2002)
[BAR GRAPH]
DIVIDENDS
---------
9/01 0.0427
10/01 0.0427
11/01 0.0427
12/01 0.0393
1/02 0.0393
2/02 0.0383
3/02 0.0383
4/02 0.0358
5/02 0.0358
6/02 0.0334
7/02 0.0334
8/02 0.0334
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]
AUGUST 31, 2002 AUGUST 31, 2001
--------------- ---------------
Energy 10.5% 6.8%
Gaming & Leisure 9.8% 6.6%
Housing 6.2% 2.3%
Wireless Communications 6.2% 17.7%
Manufacturing 6.1% 2.7%
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 and others
affiliated with it may hold positions in or may seek to perform
investment-banking services for the companies listed.
7
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 12-MONTH PERIOD ENDED
AUGUST 31, 2002. THE FUND IS MANAGED BY THE ADVISER'S HIGH YIELD TEAM. MEMBERS
OF THE TEAM(1) INCLUDE STEPHEN ESSER, MANAGING DIRECTOR; GORDON 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 12 MONTHS?
A The past 12 months have been an
extraordinarily turbulent time for the high-yield market. The period began with
the terrorist attacks of September 11, which precipitated one of the worst
single months in the history of the high-yield market. All sectors related to
travel, including airlines, gaming and hotels, were especially hard hit as
travel dropped around the world. Economically sensitive sectors also suffered as
business activity nationwide came to a halt for several days. Sectors that had
already been performing poorly, such as telecom and wireless, joined in the
general decline.
Much of that trend reversed, however, when investors' expectations for the
economy turned positive in October. Fears of a prolonged recession gave way to
an anticipation of imminent growth. At the same time, it appeared that many
investors saw high-yield securities as an attractively valued asset class after
the September sell-off. As a result, the high-yield market rallied strongly
through the end of 2001, and managing over that time to regain a large portion
of its September losses.
The high-yield market continued to perform strongly through the first four
months of 2002 as the economy appeared to be getting back on track. Those gains
came to an end in May, however, when the high-yield market began to slump in
tandem with the equity markets. Credit concerns began to overwhelm the market
when Qwest and WorldCom, two large investment-grade issuers, were downgraded to
junk status. The market environment turned worse shortly after that when a
stream of accounting scandals began to seriously undermine investor confidence
in the financial statements of public companies. The high-yield sector
experienced significant outflows
8
through the month of July, including a 10-consecutive-week run of asset losses.
Against this volatile backdrop, sector performance varied highly. Many
sectors, including those most sensitive to broader economic activity,
experienced alternating periods of weak and strong performance in keeping with
more pervasive investor expectations for economic growth. Telecom continued its
losing streak, with its already weak relative performance worsened by WorldCom's
default. The cable and wireless sectors also underperformed, with the cable
sector experiencing a high-profile business scandal and many wireless companies
showing lower growth during this period.
Q HOW DID THE FUND PERFORM
IN THIS ENVIRONMENT?
A The fund continued to provide
shareholders with what we believe to be an attractive level of income, as its
monthly dividend of $0.0334 per Class A share translates to a distribution rate
of 12.11 percent based on the fund's maximum offering price as of August 31,
2002. For the 12-month period ended August 31, 2002, the fund generated a total
return of -15.75 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
-2.75 percent and the Lipper High Yield Bond Fund Index posted a total return of
-8.77 percent for the same period. The Chase Global High Yield Index is a
broad-based, unmanaged index that 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 return objectives. These index returns do not
include any sales charges or fees that would be paid by an investor purchasing
the securities they represent. Such costs would lower performance. It is not
possible to invest directly in an index. For additional performance results,
please refer to the chart and footnotes on page 5.
Q WHAT WERE THE KEY DRIVERS OF
THE FUND'S PERFORMANCE RELATIVE TO THESE BENCHMARKS?
A Toward the beginning of the
period, our analysis indicated that the most prudent course for the portfolio
would be to trim several overweighted positions in order to reduce the fund's
overall risk profile. We successfully took some of these positions down over the
course of the period, including the fund's above-market holdings in the
9
telecom, wireless and cable sectors. However, we were not able to sell out
before accounting scandals overwhelmed the market, and the fund suffered
somewhat from the fallout.
Q WHAT STRATEGIES DID YOU USE
IN MANAGING THE FUND?
A As mentioned, one of the primary
strategies we employed involved a reduction in the fund's holdings in sectors
that we thought most likely to underperform in the coming months. The biggest
change was in the wireless sector, where we cut the fund's exposure by
two-thirds over the course of the period. We also reduced the fund's holdings in
several sectors where we identified individual companies that had either met our
performance targets or we believed were unlikely to deliver strong performance.
For example, we sold the bonds of several cable companies whose business
prospects no longer warranted keeping an exposure to them in the portfolio.
We put the proceeds from these sales to work in a variety of situations. The
bulk of these were ideas generated by our bottom-up research at the company
level. Through this process we added what we believed to be attractively priced
bonds in the energy, gaming and media sectors.
We also began to position the fund selectively to possibly gain from any
upturn in economic activity by adding to holdings in such economically sensitive
sectors as manufacturing and transportation. We also concluded that the U.S.
consumer sectors were unlikely to participate as fully as others in a recovery.
As a result, we kept the fund underweighted in consumer-related issues in order
to protect shareholders from any weakness there.
Q WHAT IS YOUR OUTLOOK FOR THE
HIGH-YIELD MARKET?
A We are confident that the current
state of mistrust regarding public companies is likely to sort itself out in the
coming months. With both management and auditors under enormous pressure to
produce clean results, we believe that the worst is behind us in terms of the
sheer number of negative announcements and revisions. This is likely to be a
positive force for investor confidence and, by extension, the high-yield market.
As for the high-yield market itself, spreads are currently at close to all-
time high levels. These attractive prices, coupled with low interest rates in
the broader economy, could well begin to lure investors back to the high-yield
asset class. While this is of course impossible to predict with certainty, we
believe that the current level of valuations may prove beneficial for high-
yield investors. The most significant unknown in this equation is the state of
the U.S. economy. As always, we will continue to watch the market and economy
closely for opportunities.
10
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.
11
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.
YIELD: The annual rate of return on an investment, expressed as a percentage.
12
BY THE NUMBERS
YOUR FUND'S INVESTMENTS
August 31, 2002
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 84.0%
AEROSPACE 0.5%
$4,110 Air Canada (Canada)....................... 10.250% 03/15/11 $ 2,650,950
300 Jet Equipment Trust, Ser 95-D,
144A--Private Placement (a)............... 11.440 11/01/14 166,459
200 Jet Equipment Trust, Ser C1, 144A--Private
Placement (a)............................. 11.790 06/15/13 30,000
------------
2,847,409
------------
BROADCASTING 2.8%
3,290 Interep National Radio Sales, Inc., Ser
B......................................... 10.000 07/01/08 2,961,000
3,605 Nextmedia Operating, Inc. ................ 10.750 07/01/11 3,496,850
3,150 Radio Unica Corp. (b)..................... 0/11.750 08/01/06 1,756,125
5,560 TV Azteca SA, Ser B (Mexico).............. 10.500 02/15/07 5,407,100
835 Young Broadcasting, Inc. ................. 10.000 03/01/11 768,200
------------
14,389,275
------------
CABLE 5.5%
7,175 British Sky Broadcasting Group PLC (United
Kingdom).................................. 8.200 07/15/09 7,226,014
9,470 Callahan Nordrhein Westfallen (Germany)
(c) (d)................................... 14.000 07/15/10 272,262
100 Charter Communications Holdings........... 10.250 01/15/10 70,000
900 Charter Communications Holdings (b)....... 0/11.750 05/15/11 342,000
3,530 Charter Communications Holdings LLC....... 8.250 04/01/07 2,453,350
2,225 Charter Communications Holdings LLC (b)... 0/11.750 01/15/10 945,625
275 Echostar DBS Corp. ....................... 9.250 02/01/06 275,000
6,475 Echostar DBS Corp., 144A--Private
Placement (a)............................. 9.125 01/15/09 6,345,500
5,500 International Cabletel, Inc., Ser B (c)
(d)....................................... 11.500 02/01/06 907,500
3,425 Multicanal Participacoes, Ser B
(Brazil).................................. 12.625 06/18/04 1,447,062
1,135 NTL, Inc. (b) (c) (d)..................... 0/9.750 04/01/08 170,250
4,710 Ono Finance PLC (United Kingdom).......... 13.000 05/01/09 965,550
810 Pegasus Communications Corp., Ser B....... 9.750 12/01/06 386,775
1,085 Pegasus Communications Corp., Ser B....... 12.500 08/01/07 518,087
1,350 Quebecor Media, Inc. (Canada) (b)......... 0/13.750 07/15/11 648,000
2,085 Quebecor Media, Inc. (Canada)............. 11.125 07/15/11 1,751,400
6,250 Satelites Mexicanos SA (Mexico)........... 10.125 11/01/04 2,328,125
See Notes to Financial Statements
13
YOUR FUND'S INVESTMENTS
August 31, 2002
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
CABLE (CONTINUED)
$6,665 Telewest Communications PLC (United
Kingdom).................................. 11.000% 10/01/07 $ 1,033,075
785 Telewest Communications PLC (United
Kingdom) (b).............................. 0/11.375 02/01/10 98,125
4,500 UIH Australia/Pacific, Inc., Ser B (c).... 14.000 05/15/06 33,750
4,415 United Pan-Europe Communication, Ser B
(Netherlands) (c)......................... 10.875 11/01/07 176,600
4,260 United Pan-Europe Communication, Ser B
(Netherlands) (b) (c)..................... 0/12.500 08/01/09 117,150
------------
28,511,200
------------
CHEMICALS 4.7%
2,220 Acetex Corp. (Canada)..................... 10.875 08/01/09 2,319,900
3,505 Equistar Chemicals LP..................... 10.125 09/01/08 3,382,325
3,780 Huntsman ICI Chemicals LLC................ 10.125 07/01/09 3,383,100
2,800 Huntsman ICI Chemicals LLC (Euro)......... 10.125 07/01/09 2,243,173
1,185 ISP Chemco, Inc., Ser B................... 10.250 07/01/11 1,190,925
4,413 ISP Holdings, Inc., Ser B................. 10.625 12/15/09 3,817,245
2,610 Lyondell Chemical Co., Ser B.............. 9.875 05/01/07 2,590,425
2,800 Messer Griesham (Germany) (Euro).......... 10.375 06/01/11 2,809,021
1,105 PCI Chemicals Canada, Inc. (Canada)....... 10.000 12/31/08 747,064
368 Pioneer Cos., Inc. ....................... 5.355 12/31/06 245,339
2,020 Terra Industries, Inc., Ser B............. 10.500 06/15/05 1,626,100
------------
24,354,617
------------
CONSUMER PRODUCTS 0.8%
3,000 Elizabeth Arden, Inc. .................... 11.750 02/01/11 3,060,000
4,000 Sleepmaster LLC (c) (d)................... 11.000 05/15/09 825,000
------------
3,885,000
------------
DIVERSIFIED MEDIA 5.4%
4,410 Alliance Atlantis Communications, Inc.
(Canada).................................. 13.000 12/15/09 4,685,625
2,980 AOL Time Warner, Inc. .................... 6.875 05/01/12 2,690,258
3,720 Hollinger Participation Trust,
144A--Private Placement (a)............... 12.125 11/15/10 3,124,464
3,855 Mail Well I Corp., 144A--Private Placement
(a)....................................... 9.625 03/15/12 2,679,225
3,235 MDC Corporation, Inc. (Canada)............ 10.500 12/01/06 2,701,225
5,415 Muzak LLC................................. 9.875 03/15/09 4,548,600
5,000 Premier Parks, Inc. (b)................... 0/10.000 04/01/08 4,362,500
3,950 Primedia, Inc. ........................... 8.875 05/15/11 3,100,750
------------
27,892,647
------------
See Notes to Financial Statements
14
YOUR FUND'S INVESTMENTS
August 31, 2002
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
ENERGY 9.6%
$4,895 BRL Universal Equipment................... 8.875% 02/15/08 $ 4,980,662
6,040 Chesapeake Energy Corp. .................. 8.125 04/01/11 5,949,400
4,385 Frontier Oil Corp. ....................... 11.750 11/15/09 4,461,737
4,200 Grey Wolf, Inc. .......................... 8.875 07/01/07 4,284,000
3,945 Hanover Equipment Trust, 144A--Private
Placement (a)............................. 8.500 09/01/08 3,688,575
2,180 Hanover Equipment Trust, 144A--Private
Placement (a)............................. 8.750 09/01/11 2,016,500
5,575 Husky Oil Ltd. (Variable Rate Coupon)
(Canada).................................. 8.900 08/15/28 6,197,900
1,730 Magnum Hunter Resources, Inc.,
144A--Private Placement (a)............... 9.600 03/15/12 1,773,250
3,966 Port Arthur Finance Corp. ................ 12.500 01/15/09 4,184,557
2,115 Stone Energy Corp. ....................... 8.250 12/15/11 2,152,012
4,670 Tesoro Petroleum Corp., 144A--Private
Placement (a)............................. 9.625 04/01/12 3,455,800
6,430 Vintage Petroleum, Inc. .................. 7.875 05/15/11 6,012,050
------------
49,156,443
------------
FINANCIAL 2.6%
3,395 Americo Life, Inc. (e).................... 9.250 06/01/05 3,344,075
2,945 Anthem Insurance Cos., Inc., 144A--Private
Placement (a)............................. 9.125 04/01/10 3,410,940
2,785 Health Net, Inc. ......................... 8.375 04/15/11 3,161,304
3,620 Istar Financial, Inc. .................... 8.750 08/15/08 3,710,500
------------
13,626,819
------------
FOOD & DRUG 0.5%
2,219 California Farm Lease Trust, 144A--Private
Placement (a)............................. 8.500 07/15/17 2,401,926
1,200 Jitney-Jungle Stores America, Inc. (c)
(d)....................................... 12.000 03/01/06 120
------------
2,402,046
------------
FOOD & TOBACCO 1.6%
2,800 Michael Foods, Inc., Ser B................ 11.750 04/01/11 3,080,000
5,520 Smithfield Foods, Inc. ................... 7.625 02/15/08 5,133,600
------------
8,213,600
------------
FOREST PRODUCTS 5.5%
5,275 Owens-Illinois, Inc. ..................... 7.500 05/15/10 4,510,125
1,775 Owens-Illinois, Inc. ..................... 7.800 05/15/18 1,428,875
5,200 Pacifica Papers, Inc. (Canada)............ 10.000 03/15/09 5,330,000
2,090 Pliant Corp. ............................. 13.000 06/01/10 2,110,900
2,545 Radnor Holdings Corp., Ser B (Canada)..... 10.000 12/01/03 2,277,775
See Notes to Financial Statements
15
YOUR FUND'S INVESTMENTS
August 31, 2002
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
FOREST PRODUCTS (CONTINUED)
$3,040 Riverwood International Corp. ............ 10.875% 04/01/08 $ 3,100,800
4,025 Tekni-Plex, Inc., Ser B................... 12.750 06/15/10 4,025,000
5,800 Tembec Industries, Inc. (Canada).......... 7.750 03/15/12 5,626,000
------------
28,409,475
------------
GAMING & LEISURE 9.0%
2,650 Harrahs Operating Co., Inc. .............. 7.875 12/15/05 2,769,250
1,910 Harrahs Operating Co., Inc. .............. 8.000 02/01/11 2,098,962
2,250 Hilton Hotels Corp. ...................... 7.950 04/15/07 2,295,137
1,225 HMH Properties, Inc. ..................... 7.875 08/01/05 1,206,625
4,825 HMH Properties, Inc., Ser B............... 7.875 08/01/08 4,607,875
5,365 Horseshoe Gaming LLC...................... 8.625 05/15/09 5,593,012
4,785 International Game Technology............. 8.375 05/15/09 5,167,800
1,660 Park Place Entertainment Corp. ........... 7.875 12/15/05 1,684,900
2,845 Park Place Entertainment Corp. ........... 8.875 09/15/08 2,951,688
3,725 Prime Hospitality Corp., Ser B............ 8.375 05/01/12 3,576,000
850 Starwood Hotels Resorts, 144A--Private
Placement (a)............................. 7.375 05/01/07 835,125
4,515 Starwood Hotels Resorts, 144A--Private
Placement (a)............................. 7.875 05/01/12 4,435,988
2,975 Station Casinos, Inc. .................... 8.875 12/01/08 3,071,688
2,800 Station Casinos, Inc. .................... 9.875 07/01/10 3,003,000
2,820 Venetian Casino Resort LLC, 144A--Private
Placement (a)............................. 11.000 06/15/10 2,844,675
------------
46,141,725
------------
HEALTHCARE 4.4%
3,690 Amerisourcebergen Corp. .................. 8.125 09/01/08 3,856,050
1,555 Columbia HCA.............................. 6.910 06/15/05 1,626,045
2,300 Fisher Scientific International, Inc. .... 7.125 12/15/05 2,317,250
615 Fisher Scientific International, Inc. .... 9.000 02/01/08 639,600
800 Fresenius Medical Care Capital Trust II... 7.875 02/01/08 678,000
5,085 Fresenius Medical Care Capital Trust IV... 7.875 06/15/11 4,220,550
3,840 HCA--The Healthcare Co. .................. 8.750 09/01/10 4,383,348
3,570 HEALTHSOUTH Corp., 144A--Private Placement
(a)....................................... 7.625 06/01/12 2,865,246
1,755 Omnicare, Inc., Ser B..................... 8.125 03/15/11 1,833,975
------------
22,420,064
------------
HOUSING 5.6%
3,400 CB Richard Ellis Service, Inc. ........... 11.250 06/15/11 3,026,000
4,200 Louisiana Pacific Corp. .................. 10.875 11/15/08 4,436,250
1,180 Louisiana Pacific Corp. .................. 8.875 08/15/10 1,236,721
See Notes to Financial Statements
16
YOUR FUND'S INVESTMENTS
August 31, 2002
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
HOUSING (CONTINUED)
$4,855 Schuler Homes, Inc. ...................... 9.375% 07/15/09 $ 4,915,688
2,300 Tech Olympic USA, Inc., 144A--Private
Placement (a)............................. 9.000 07/01/10 2,179,250
2,100 Tech Olympic USA, Inc., 144A--Private
Placement (a)............................. 10.375 07/01/12 1,937,250
5,025 Toll Corp. ............................... 8.250 02/01/11 4,999,875
5,600 Webb (Del E.) Corp. ...................... 10.250 02/15/10 6,167,000
------------
28,898,034
------------
INFORMATION TECHNOLOGY 1.1%
9,000 CHS Electronics, Inc. (c) (d)............. 9.875 04/15/05 180,000
3,500 Fairchild Semiconductor Corp. ............ 10.375 10/01/07 3,675,000
470 Flextronics International Ltd.
(Singapore)............................... 8.750 10/15/07 472,350
1,125 Flextronics International Ltd.
(Singapore)............................... 9.875 07/01/10 1,170,000
------------
5,497,350
------------
MANUFACTURING 4.9%
2,100 American Plumbing & Mechanical............ 11.625 10/15/08 1,165,500
2,100 Anchor Lamina, Inc. (Canada).............. 9.875 02/01/08 661,500
1,650 Case Corp., Ser B......................... 6.250 12/01/03 1,584,551
1,850 Case Credit Corp. ........................ 6.125 02/15/03 1,787,126
4,500 Eagle-Picher Industries, Inc. ............ 9.375 03/01/08 3,532,500
1,335 Foamex LP/Capital Corp., 144A--Private
Placement (a)............................. 10.750 04/01/09 1,234,875
1,605 Johnsondiversey, Inc., 144A--Private
Placement (a)............................. 9.625 05/15/12 1,596,975
2,045 Manitowoc, Inc., 144A--Private Placement
(a)....................................... 10.500 08/01/12 2,121,688
1,040 NMHG Holdings Co., 144A--Private Placement
(a)....................................... 10.000 05/15/09 1,055,600
1,580 Numatics, Inc., Ser B..................... 9.625 04/01/08 797,900
6,000 Outsourcing Services Group, Inc., Ser B... 10.875 03/01/06 4,680,000
1,417 Reunion Industries, Inc. (c).............. 13.000 05/01/03 800,605
2,335 Trimas Corp., 144A--Private Placement
(a)....................................... 9.875 06/15/12 2,323,325
2,130 Tyco International Group SA
(Luxembourg).............................. 6.750 02/15/11 1,760,445
------------
25,102,590
------------
METALS 2.5%
9,380 Doe Run Resources Corp., Ser B (c)........ 11.250 03/15/05 2,391,900
6,655 GS Technologies Operating, Inc. (c) (d)... 12.000 09/01/04 299,475
2,450 GS Technologies Operating, Inc. (c) (d)... 12.250 10/01/05 110,250
See Notes to Financial Statements
17
YOUR FUND'S INVESTMENTS
August 31, 2002
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
METALS (CONTINUED)
$3,240 Intermet Corp., 144A--Private Placement
(a)....................................... 9.750% 06/15/09 $ 3,304,800
2,855 Murrin Murrin Holdings Property Ltd.
(Australia)............................... 9.375 08/31/07 874,344
1,655 Oregon Steel Mills, Inc., 144A--Private
Placement (a)............................. 10.000 07/15/09 1,714,994
5,000 Renco Steel Holdings, Inc., Ser B......... 10.875 02/01/05 375,000
7,525 Republic Technologies International LLC
(c) (d)................................... 13.750 07/15/09 526,750
3,125 Ucar Finance, Inc. ....................... 10.250 02/15/12 3,156,250
------------
12,753,763
------------
RETAIL 1.3%
2,585 Autonation, Inc. ......................... 9.000 08/01/08 2,714,250
3,725 Big 5 Corp., Ser B (e).................... 10.875 11/15/07 3,822,781
------------
6,537,031
------------
SERVICES 2.6%
6,020 Allied Waste North America, Inc. ......... 10.000 08/01/09 5,959,800
1,500 Encompass Services Corp. ................. 10.500 05/01/09 157,500
6,250 Hydrochem Industrial Services, Inc., Ser
B......................................... 10.375 08/01/07 5,031,250
1,900 Waste Management, Inc. ................... 7.000 10/15/06 1,962,924
------------
13,111,474
------------
TELECOMMUNICATIONS 2.8%
2,660 360networks, Inc. (Canada) (c) (d)........ 13.000 05/01/08 266
2,800 360networks, Inc. (Canada) (Euro) (c)
(d)....................................... 13.000 05/01/08 6,868
2,085 Asia Global Crossing (Bermuda) (c)........ 13.375 10/15/10 344,025
6,650 E.Spire Communications, Inc. (c) (d)...... 10.000 11/01/05 665
4,210 Exodus Communications, Inc. (c) (d)....... 11.250 07/01/08 252,600
3,430 Exodus Communications, Inc. (c) (d)....... 11.625 07/15/10 205,800
2,750 Exodus Communications, Inc. (Euro) (c)
(d)....................................... 11.375 07/15/08 161,824
192 Focal Communications Corp., Ser B......... 11.875 01/15/10 31,680
9,335 Global Crossing Holdings Ltd. (Bermuda)
(c) (d)................................... 9.125 11/15/06 151,694
3,500 Global Crossing Holdings Ltd. (Bermuda)
(c) (d)................................... 8.700 08/01/07 56,875
3,305 Globix Corp. (c) (d)...................... 12.500 02/01/10 611,425
5,305 GST Network Funding, Inc. (c) (d)......... 10.500 05/01/08 159,150
12,590 GT Group Telecom, Inc. (Canada) (b)....... 0/13.250 02/01/10 78,688
11,075 ICG Holdings, Inc. (c) (d)................ 13.500 09/15/05 110,750
2,500 ICG Holdings, Inc. (c) (d)................ 12.500 05/01/06 25,000
3,400 Jazztel PLC (United Kingdom) (Euro)....... 13.250 12/15/09 383,660
See Notes to Financial Statements
18
YOUR FUND'S INVESTMENTS
August 31, 2002
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
TELECOMMUNICATIONS (CONTINUED)
$3,450 Jazztel PLC (United Kingdom) (Euro)....... 14.000% 07/15/10 $ 287,703
4,525 Madison River Capital/Madison River
Financial................................. 13.250 03/01/10 2,782,875
4,335 Metromedia Fiber Network, Inc. (c) (d).... 10.000 12/15/09 43,350
1,925 MGC Communications, Inc., Ser B (c) (d)... 13.000 10/01/04 779,625
2,030 Netia Holdings BV (Netherlands) (Euro)
(c)....................................... 13.750 06/15/10 299,068
1,525 Netia Holdings BV, Ser B (Netherlands)
(c)....................................... 10.250 11/01/07 266,875
6,965 Netia Holdings BV, Ser B (Netherlands)
(c)....................................... 11.250 11/01/07 1,218,875
1,165 Nextlink Communications, Inc. (b) (c)
(d)....................................... 0/9.450 04/15/08 17,475
2,265 Nextlink Communications, Inc. (b) (c)
(d)....................................... 0/12.125 12/01/09 33,975
4,510 Nextlink Communications, Inc. (c) (d)..... 10.500 12/01/09 67,650
3,000 Park N View, Inc., Ser B (c) (d).......... 13.000 05/15/08 30,000
3,500 PF Net Communications, Inc. (c) (d)....... 13.750 05/15/10 26,250
6,875 Primus Telecom Group...................... 9.875 05/15/08 3,334,375
11,565 PSINet, Inc. (c) (d)...................... 10.500 12/01/06 1,185,413
1,750 PSINet, Inc. (Euro) (c) (d)............... 10.500 12/01/06 128,723
425 Viatel, Inc. (b) (c) (d).................. 0/12.500 04/15/08 3,188
7,790 Viatel, Inc. (c) (d)...................... 11.500 03/15/09 58,425
1,790 WorldCom, Inc. (c) (d).................... 6.950 08/15/28 255,075
7,870 WorldCom, Inc. (c) (d).................... 8.250 05/15/31 1,121,475
5,800 Worldwide Fiber, Inc. (Canada) (c) (d).... 12.000 08/01/09 580
------------
14,521,945
------------
TRANSPORTATION 4.8%
9,885 Aetna Industries, Inc. (c) (d)............ 11.875 10/01/06 1,581,600
117 Aran Shipping & Trading, SA (c)........... 8.300 01/31/04 0
1,580 ArvinMeritor, Inc. ....................... 8.750 03/01/12 1,676,589
1,405 Collins & Aikman Products Co. ............ 11.500 04/15/06 1,331,238
3,725 Collins & Aikman Products Co. ............ 10.750 12/31/11 3,687,750
5,275 Dana Corp. ............................... 9.000 08/15/11 5,064,000
1,700 Dana Corp. (Euro)......................... 9.000 08/15/11 1,504,951
2,950 Dura Operating Corp., Ser B............... 8.625 04/15/12 3,009,000
1,835 Lear Corp., Ser B......................... 8.110 05/15/09 1,931,338
3,035 Metaldyne Corp., 144A--Private Placement
(a)....................................... 11.000 06/15/12 2,678,388
2,045 Stoneridge, Inc. ......................... 11.500 05/01/12 2,116,575
------------
24,581,429
------------
UTILITY 1.2%
3,500 Calpine Corp. ............................ 8.625 08/15/10 1,907,500
30 Calpine Corp. ............................ 8.500 02/15/11 15,900
3,255 Dynegy Holdings, Inc. .................... 6.875 04/01/11 1,122,975
See Notes to Financial Statements
19
YOUR FUND'S INVESTMENTS
August 31, 2002
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
UTILITY (CONTINUED)
$2,450 PG & E National Energy Group, Inc. ....... 10.375% 05/16/11 $ 918,750
2,900 PSEG Energy Holdings, Inc., 144A--Private
Placement (a)............................. 8.625 02/15/08 2,177,593
------------
6,142,718
------------
WIRELESS COMMUNICATIONS 4.3%
1,645 Alamosa Delaware, Inc. ................... 12.500 02/01/11 551,075
6,480 Alamosa PCS Holdings, Inc. (b)............ 0/12.875 02/15/10 939,600
2,525 American Cellular Corp. .................. 9.500 10/15/09 353,500
4,370 American Tower Corp. ..................... 9.375 02/01/09 2,731,250
3,610 Centennial Cellular Operating Co. ........ 10.750 12/15/08 1,823,050
5,925 CTI Holdings SA (Argentina) (b)........... 0/11.500 04/15/08 325,875
3,610 Dobson Communications Corp. .............. 10.875 07/01/10 2,653,350
9,675 IPCS, Inc. (b)............................ 0/14.000 07/15/10 1,499,625
6,650 Microcell Telecommunications, Ser B
(Canada).................................. 14.000 06/01/06 83,125
1,900 Nextel Communications, Inc. (b)........... 0/9.950 02/15/08 1,396,500
1,000 Nextel Communications, Inc. .............. 12.000 11/01/08 855,000
3,880 Nextel Communications, Inc. .............. 9.375 11/15/09 3,045,800
1,750 PTC International Finance (Luxembourg)
(Euro).................................... 10.875 05/01/08 1,711,273
6,650 Spectrasite Holdings, Inc. (b)............ 0/11.250 04/15/09 1,163,750
2,167 Tritel PCS, Inc. ......................... 10.375 01/15/11 2,058,650
4,040 US Unwired, Inc. (b)...................... 0/13.375 11/01/09 949,400
------------
22,140,823
------------
TOTAL CORPORATE BONDS 84.0%............................................. 431,537,477
------------
CONVERTIBLE CORPORATE OBLIGATIONS 1.5%
INFORMATION TECHNOLOGY 0.8%
9,535 Solectron Corp., LYON..................... * 11/20/20 4,195,400
------------
MANUFACTURING 0.7%
8,320 Corning, Inc. ............................ * 11/08/15 3,660,800
------------
See Notes to Financial Statements
20
YOUR FUND'S INVESTMENTS
August 31, 2002
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
TELECOMMUNICATIONS 0.0%
$ 76 KPNQwest NV (Netherlands) (d)............. 10.000% 03/15/12 $ 190
220 KPNQwest NV (Netherlands) (Euro) (d)...... 10.000 03/15/12 540
------------
730
------------
TOTAL CONVERTIBLE CORPORATE OBLIGATIONS 1.5%............................ 7,856,930
------------
FOREIGN GOVERNMENT OBLIGATIONS 2.6%
365 Federal Republic of Brazil (Brazil)....... 11.000 01/11/12 223,563
4,304 Federal Republic of Brazil (Brazil)....... 8.000 04/15/14 2,684,916
2,812 Republic of Colombia (Columbia)........... 9.750 04/09/11 2,748,390
1,500 Republic of Columbia (Columbia)........... 9.750 04/23/09 1,398,750
5,905 United Mexican States (Mexico)............ 8.375 01/14/11 6,303,588
------------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS..................................... 13,359,207
------------
EQUITIES 3.1%
AT&T Canada, Inc., Class B (31,718 ADR Common Shares)
(Canada) (f).............................................. $ 1,015,928
Broadwing Communications, Inc. (73,300 Preferred Shares,
12.50% coupon, $1,000 par per share)...................... 733,000
Contour Energy Co. (75,000 Common Shares) (f)............... 2,887
DecisionOne Corp. (14,162 Common Stock Warrants Class B)
(f)....................................................... 0
DecisionOne Corp. (14,661 Common Shares) (f)................ 0
DecisionOne Corp. (8,219 Common Stock Warrants Class A)
(f)....................................................... 0
DecisionOne Corp. (8,400 Common Stock Warrants Class C)
(f)....................................................... 0
Dobson Communications Corp. (34,810 Preferred Shares, 13.00%
coupon, $1,000 par per share) (g)......................... 774,522
Focal Communications Corp. (1,256 Common Shares) (f)........ 1,294
Globalstar Telecommunications, 144A--Private Placement (285
Common Stock Warrants) (a) (f)............................ 3
GT Group Telecom, Inc., 144A--Private Placement (12,590
Common Stock Warrants) (Canada) (a) (f)................... 126
HF Holdings, Inc. (36,820 Common Stock Warrants) (f)........ 368
Intermedia Communications, Inc. (14,730 Preferred Shares,
Ser B, 13.50% coupon, $1,000 par per share)............... 62,602
Intersil Holding Corp., Class A (31,481 Common Shares)
(f)....................................................... 532,659
IPCS, Inc., 144A--Private Placement (9,675 Common Stock
Warrants) (a) (f)......................................... 97
Jazztel PLC (3,450 Common Stock Warrants) (United Kingdom)
(f)....................................................... 34
McLeodUSA, Inc. (24,783 Preferred Shares, Ser A) (f)........ 58,488
McLeodUSA, Inc. (54,917 Common Stock Warrants) (f).......... 4,943
See Notes to Financial Statements
21
YOUR FUND'S INVESTMENTS
August 31, 2002
MARKET
DESCRIPTION VALUE
EQUITIES (CONTINUED)
McLeodUSA, Inc., Class A (3,462 Common Shares) (f).......... $ 1,350
Mediq, Inc. (5,526 Common Shares) (f)....................... 30,006
Motient Corp. (22,388 Common Shares) (f).................... 28,657
Motient Corp., 144A--Private Placement (300 Common Stock
Warrants) (a) (f)......................................... 3
Nextel Communications, Inc. (60,290 Preferred Shares, Ser D,
13.00% coupon, $1,000 par per share) (f) (g).............. 3,753,052
Nextlink Communications, Inc. (2,490 Preferred Shares, Ser
B, 13.50% coupon, $1,000 par per share) (d) (f) (g)....... 25
NTL, Inc., 144A--Private Placement (6,889 Common Stock
Warrants) (a) (f)......................................... 1,206
Occidente Y Caribe Celular SA, 144A--Private Placement
(20,850 Common Stock Warrants) (a) (f).................... 208
Ono Finance PLC, 144A--Private Placement (4,710 Common Stock
Warrants) (United Kingdom) (a) (f)........................ 1,766
OpTel, Inc. (3,275 Common Shares) (f)....................... 33
Park N View, Inc., 144A--Private Placement (3,000 Common
Stock Warrants) (a) (d) (f)............................... 30
Paxon Communication Corp. (35,300 Preferred Shares, 13.25%
coupon, $1,000 par per share) (g)......................... 2,126,825
PF Net Communications, Inc., 144A--Private Placement (3,500
Common Stock Warrants) (a) (f)............................ 35
Pioneer Cos., Inc. (71,438 Common Shares) (f)............... 128,588
Primus Telecommunications Group (2,000 Common Stock
Warrants) (f)............................................. 20
Republic Technologies International, Inc., 144A--Private
Placement (7,525 Common Stock Warrants) (a) (d) (f)....... 75
Rural Cellular Corp. (115,160 Preferred Shares, 11.375%
coupon, $1,000 par per share) (g)......................... 2,331,990
Song Networks Holding AB (5,195 ADR Common Shares) (Sweden)
(f)....................................................... 312
Star Gas Partners, L.P. (1,219 Units of Limited Partnership
Interests)................................................ 22,137
Startec Global Communications, 144A--Private Placement
(8,100 Common Stock Warrants) (a) (f)..................... 81
Terex Corp. (28,000 Common Stock Rights) (f)................ 0
TNP Enterprises, Inc. (48,850 Preferred Shares, Ser D,
14.50% coupon, $1,000 par per share) (g).................. 4,408,712
UIH Australia/Pacific, Inc. (5,000 Common Stock Warrants)
(f)....................................................... 50
VS Holdings, Inc. (568,177 Common Shares) (f)............... 106,079
------------
TOTAL EQUITIES 3.1%........................................ 16,128,191
------------
TOTAL LONG-TERM INVESTMENTS 91.2%
(Cost $766,536,651)..................................... 468,881,805
See Notes to Financial Statements
22
YOUR FUND'S INVESTMENTS
August 31, 2002
MARKET
DESCRIPTION VALUE
REPURCHASE AGREEMENT 7.0%
Banc of America Securities LLC ($35,755,000 par
collateralized by U.S. Government obligations in a pooled
cash account, dated 08/30/02, to be sold on 09/03/02 at
$35,762,350) (Cost $35,755,000)........................... $ 35,755,000
------------
TOTAL INVESTMENTS 98.2%
(Cost $802,291,651)..................................... 504,636,805
OTHER ASSETS IN EXCESS OF LIABILITIES 1.8%................. 9,378,151
------------
NET ASSETS 100.0%.......................................... $514,014,956
============
* Zero coupon bond
(a) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933, as amended. These securities may only be
resold in transactions exempt from registration which are normally those
transactions with qualified institutional buyers.
(b) Security is a "step-up" bond where the coupon increases or steps up at a
predetermined date.
(c) Non-income producing as security is in default.
(d) This borrower has filed for protection in federal bankruptcy court.
(e) Assets segregated as collateral for open forward transactions.
(f) Non-income producing security.
(g) Payment-in-kind security.
ADR--American Depositary Receipt
LYON--Liquid Yield Option Note
See Notes to Financial Statements
23
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
August 31, 2002
ASSETS:
Total Investments (Cost $802,291,651)....................... $ 504,636,805
Cash........................................................ 137
Receivables:
Interest.................................................. 12,202,144
Investments Sold.......................................... 2,856,326
Fund Shares Sold.......................................... 1,882,248
Other....................................................... 142,276
--------------
Total Assets............................................ 521,719,936
--------------
LIABILITIES:
Payables:
Investments Purchased..................................... 2,992,561
Income Distributions...................................... 1,857,922
Fund Shares Repurchased................................... 1,779,797
Distributor and Affiliates................................ 358,060
Investment Advisory Fee................................... 233,612
Accrued Expenses............................................ 240,585
Trustees' Deferred Compensation and Retirement Plans........ 202,239
Forward Foreign Currency Contract........................... 40,204
--------------
Total Liabilities....................................... 7,704,980
--------------
NET ASSETS.................................................. $ 514,014,956
==============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $1,043,498,574
Accumulated Undistributed Net Investment Income............. (15,440,098)
Accumulated Net Realized Loss............................... (216,352,369)
Net Unrealized Depreciation................................. (297,691,151)
--------------
NET ASSETS.................................................. $ 514,014,956
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $308,491,152 and 97,857,778 shares of
beneficial interest issued and outstanding)............. $ 3.15
Maximum sales charge (4.75%* of offering price)......... .16
--------------
Maximum offering price to public........................ $ 3.31
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $168,775,463 and 53,339,192 shares of
beneficial interest issued and outstanding)............. $ 3.16
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $36,748,341 and 11,725,410 shares of
beneficial interest issued and outstanding)............. $ 3.13
==============
* On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
24
Statement of Operations
For the Year Ended August 31, 2002
INVESTMENT INCOME:
Interest.................................................... $ 66,552,051
Dividends................................................... 3,097,476
Other....................................................... 220,910
-------------
Total Income............................................ 69,870,437
-------------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $837,049, $2,125,854 and $472,001,
respectively)............................................. 3,434,904
Investment Advisory Fee..................................... 3,304,154
Shareholder Services........................................ 1,270,257
Custody..................................................... 74,598
Trustees' Fees and Related Expenses......................... 28,115
Legal....................................................... 21,969
Other....................................................... 414,372
-------------
Total Expenses.......................................... 8,548,369
Less Credits Earned on Cash Balances.................... 26,011
-------------
Net Expenses............................................ 8,522,358
-------------
NET INVESTMENT INCOME....................................... $ 61,348,079
=============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ (74,250,601)
Forward Foreign Currency Contract......................... (1,090,095)
Foreign Currency Transactions............................. 138,555
-------------
Net Realized Loss........................................... (75,202,141)
-------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (208,501,760)
-------------
End of the Period:
Investments............................................. (297,654,846)
Forward Foreign Currency Contract....................... (40,204)
Foreign Currency Translation............................ 3,899
-------------
(297,691,151)
-------------
Net Unrealized Depreciation During the Period............... (89,189,391)
-------------
NET REALIZED AND UNREALIZED LOSS............................ $(164,391,532)
=============
NET DECREASE IN NET ASSETS FROM OPERATIONS.................. $(103,043,453)
=============
See Notes to Financial Statements
25
Statements of Changes in Net Assets
YEAR ENDED YEAR ENDED
AUGUST 31, 2002 AUGUST 31, 2001
----------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................ $ 61,348,079 $ 76,409,177
Net Realized Loss.................................... (75,202,141) (76,486,992)
Net Unrealized Depreciation During the Period........ (89,189,391) (75,914,495)
------------- -------------
Change in Net Assets from Operations................. (103,043,453) (75,992,310)
------------- -------------
Distributions from Net Investment Income:
Class A Shares..................................... (39,465,139) (48,820,753)
Class B Shares..................................... (22,497,111) (27,920,646)
Class C Shares..................................... (5,037,475) (6,374,410)
------------- -------------
(66,999,725) (83,115,809)
------------- -------------
Return of Capital Distribution:
Class A Shares..................................... (3,148,224) (689,811)
Class B Shares..................................... (1,750,514) (397,113)
Class C Shares..................................... (390,906) (91,210)
------------- -------------
(5,289,644) (1,178,134)
------------- -------------
Total Distributions.................................. (72,289,369) (84,293,943)
------------- -------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES.. (175,332,822) (160,286,253)
------------- -------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold............................ 230,137,084 340,214,717
Net Asset Value of Shares Issued Through Dividend
Reinvestment....................................... 44,727,982 48,871,390
Cost of Shares Repurchased........................... (288,241,556) (319,107,793)
------------- -------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS... (13,376,490) 69,978,314
------------- -------------
TOTAL DECREASE IN NET ASSETS......................... (188,709,312) (90,307,939)
NET ASSETS:
Beginning of the Period.............................. 702,724,268 793,032,207
------------- -------------
End of the Period (Including accumulated
undistributed net investment income of
($15,440,098) and ($7,555,855), respectively)...... $ 514,014,956 $ 702,724,268
============= =============
See Notes to Financial Statements
26
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 --------------------------------------------
2002 (a) 2001 2000 1999 1998
--------------------------------------------
NET ASSET VALUE, BEGINNING OF THE
PERIOD............................. $ 4.23 $ 5.24 $ 5.68 $ 6.06 $ 6.55
------- ------ ------ ------ ------
Net Investment Income.............. .39 .51 .59 .63 .61
Net Realized and Unrealized Loss... (1.01) (.96) (.43) (.37) (.48)
------- ------ ------ ------ ------
Total from Investment Operations..... (.62) (.45) .16 .26 .13
------- ------ ------ ------ ------
Less:
Distributions from Net Investment
Income........................... .43 .55 .60 .64 .62
Return of Capital Distributions.... .03 .01 -0- -0- -0-
------- ------ ------ ------ ------
Total Distributions.................. .46 .56 .60 .64 .62
------- ------ ------ ------ ------
NET ASSET VALUE, END OF THE PERIOD... $ 3.15 $ 4.23 $ 5.24 $ 5.68 $ 6.06
======= ====== ====== ====== ======
Total Return (b)..................... -15.75% -9.04% 3.09% 4.41% 1.66%
Net Assets at End of the Period (In
millions).......................... $ 308.5 $394.4 $465.0 $492.4 $499.3
Ratio of Expenses to Average Net
Assets............................. 1.08% 1.05% 1.03% 1.03% 1.00%
Ratio of Net Investment Income to
Average Net Assets................. 10.39% 10.93% 10.90% 10.65% 9.33%
Portfolio Turnover................... 83% 80% 68% 51% 90%
(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
27
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 --------------------------------------------
2002 (a) 2001 2000 1999 1998
--------------------------------------------
NET ASSET VALUE, BEGINNING OF THE
PERIOD.............................. $ 4.24 $ 5.25 $ 5.68 $ 6.06 $ 6.56
------- ------ ------ ------ ------
Net Investment Income............... .35 .48 .55 .58 .57
Net Realized and Unrealized Loss.... (1.01) (.97) (.43) (.37) (.49)
------- ------ ------ ------ ------
Total from Investment Operations...... (.66) (.49) .12 .21 .08
------- ------ ------ ------ ------
Less:
Distributions from Net Investment
Income............................ .39 .51 .55 .59 .58
Return of Capital Distributions..... .03 .01 -0- -0- -0-
------- ------ ------ ------ ------
Total Distributions................... .42 .52 .55 .59 .58
------- ------ ------ ------ ------
NET ASSETS VALUE, END OF THE PERIOD... $ 3.16 $ 4.24 $ 5.25 $ 5.68 $ 6.06
======= ====== ====== ====== ======
Total Return (b)...................... -16.12% -9.80% 2.43% 3.57% .77%
Net Assets at End of the Period (In
millions)........................... $ 168.8 $249.6 $268.7 $318.2 $283.1
Ratio of Expenses to Average Net
Assets.............................. 1.84% 1.83% 1.78% 1.79% 1.79%
Ratio of Net Investment Income to
Average Net Assets.................. 9.67% 10.13% 10.15% 9.88% 8.52%
Portfolio Turnover.................... 83% 80% 68% 51% 90%
(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
28
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 -----------------------------------------------
2002 (a) 2001 2000 1999 1998
-----------------------------------------------
NET ASSET VALUE, BEGINNING OF THE
PERIOD............................. $ 4.20 $ 5.22 $ 5.65 $6.04 $6.53
------- ------- ------ ----- -----
Net Investment Income.............. .35 .48 .55 .58 .57
Net Realized and Unrealized Loss... (1.00) (.98) (.43) (.38) (.49)
------- ------- ------ ----- -----
Total from Investment Operations..... (.65) (.50) .12 .20 .08
------- ------- ------ ----- -----
Less:
Distributions from Net Investment
Income........................... .39 .51 .55 .59 .57
Return of Capital Distributions.... .03 .01 -0- -0- -0-
------- ------- ------ ----- -----
Total Distributions.................. .42 .52 .55 .59 .57
------- ------- ------ ----- -----
NET ASSET VALUE, END OF THE PERIOD... $ 3.13 $ 4.20 $ 5.22 $5.65 $6.04
======= ======= ====== ===== =====
Total Return (b)..................... -16.04% -10.06% 2.45% 3.42% .93%
Net Assets at End of the Period (In
millions).......................... $ 36.7 $ 58.7 $ 59.4 $67.3 $55.8
Ratio of Expenses to Average Net
Assets............................. 1.84% 1.82% 1.78% 1.79% 1.79%
Ratio of Net Investment Income to
Average Net Assets................. 9.68% 10.12% 10.15% 9.87% 8.49%
Portfolio Turnover................... 83% 80% 68% 51% 90%
(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
29
NOTES TO
FINANCIAL STATEMENTS
August 31, 2002
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 August 31, 2002, there were no
when-issued or delayed delivery purchase commitments.
30
NOTES TO
FINANCIAL STATEMENTS
August 31, 2002
The Fund may invest in repurchase agreements, which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen Asset Management Inc. (the "Adviser") or its
affiliates the daily aggregate of which is invested in repurchase agreements.
Repurchase agreements are fully collateralized by the underlying debt security.
The Fund will make payment for such securities only upon physical delivery or
evidence of book entry transfer to the account of the custodian bank. The seller
is required to maintain the value of the underlying security at not less than
the repurchase proceeds due the Fund.
C. INCOME AND EXPENSES Interest income is recorded on an accrual basis and
dividend income is recorded on the ex-dividend date. Discounts on debt
securities are accreted and premiums are amortized over the expected life of
each applicable security. Income and expenses of the Fund are allocated on a pro
rata basis to each class of shares, except for distribution and service fees and
transfer agency costs which are unique to each class of shares.
As required, effective September 1, 2001, the Fund has adopted the
provisions of the AICPA Audit and Accounting Guide for Investment Companies and
began amortizing premium on fixed income securities. Prior to September 1, 2001,
the Fund did not amortize premiums on fixed income securities. The cumulative
effect of this accounting change had no impact on total net assets of the Fund,
but resulted in a $1,168,050 reduction in cost of securities and a corresponding
$1,168,050 decrease in net unrealized depreciation based on securities held by
the Fund on September 1, 2001.
The effect of this change for the year ended August 31, 2002 was to decrease
net investment income by $607,466; increase net unrealized depreciation by
$187,544, and decrease net realized loss by $795,010. The statement of changes
in net assets and financial highlights for prior periods have not been restated
to reflect this change in presentation.
The revised version of the Guide also requires that paydown gains and losses
on mortgage- and asset-backed securities be presented as interest income.
Previously, paydown gains and losses on mortgage- and asset-backed securities
were shown as a component of realized gain/loss. The effect of this change for
the year ended August 31, 2002 was an increase in net investment income and an
increase in net realized loss of $2,329.
31
NOTES TO
FINANCIAL STATEMENTS
August 31, 2002
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 August 31, 2002, the cost and related gross unrealized appreciation and
depreciation are as follows:
Cost of investments for tax purposes........................ $ 806,115,303
-------------
Gross tax unrealized appreciation........................... $ 10,336,941
Gross tax unrealized depreciation........................... (311,815,439)
-------------
Net tax unrealized depreciation on investments.............. $(301,478,498)
=============
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 2002 and 2001 was as follows:
2002 2001
Distributions paid from:
Ordinary income......................................... $67,777,960 $78,237,130
Long-term capital gain.................................. 0 0
Return of capital....................................... 5,289,644 1,176,956
----------- -----------
$73,067,604 $79,414,086
=========== ===========
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 book and tax
basis differences relating to the return of capital distributions of $5,288,466
were reclassified from accumulated undistributed net investment income to
capital. Additionally, permanent book and tax differences of $109,500 related to
consent fee income and net realized foreign currency gains totaling $951,540
were reclassified from accumulated undistributed net investment income to
accumulated
32
NOTES TO
FINANCIAL STATEMENTS
August 31, 2002
net realized loss. Also, $2,329 relating to the recognition of net realized
gains on paydowns of mortgage pool obligations was reclassed 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 and the deferral of
losses relating to wash sale transactions.
F. EXPENSE REDUCTIONS During the year ended August 31, 2002, the Fund's custody
fee was reduced by $26,011 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.
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, 2002, the Fund recognized expenses of
approximately $22,000 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
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, 2002, the Fund recognized expenses of
33
NOTES TO
FINANCIAL STATEMENTS
August 31, 2002
approximately $48,300 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, 2002, the Fund recognized expenses of approximately $1,073,000
representing transfer agency fees paid to VKIS. Transfer agency fees are
determined through negotiations with the Fund's Board of Trustees and are based
on competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation.
Amounts deferred are retained by the Fund and to the extent permitted by the
1940 Act, as amended, may be invested in the common shares of those funds
selected by the trustees. Investments in such funds of $106,681 are included in
"Other" assets on the Statement of Assets and Liabilities at August 31, 2002.
Appreciation/ depreciation and distributions received from these investments are
recorded with an offsetting increase/decrease in the deferred compensation
obligation and do not affect the net asset value of the Fund. Benefits under the
retirement plan are payable upon retirement for a ten-year period and are based
upon each trustee's years of service to the Fund. The maximum annual benefit per
trustee under the plan is $2,500.
34
NOTES TO
FINANCIAL STATEMENTS
August 31, 2002
3. CAPITAL TRANSACTIONS
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)
=========== =============
35
NOTES TO
FINANCIAL STATEMENTS
August 31, 2002
At August 31, 2001, capital aggregated $702,941,005, $289,139,154, and
$70,083,371 for Classes A, B and C, respectively. For the year ended August 31,
2001, transactions were as follows:
SHARES VALUE
Sales:
Class A............................................... 39,566,053 $ 183,387,498
Class B............................................... 25,823,429 121,621,870
Class C............................................... 7,516,010 35,205,349
----------- -------------
Total Sales............................................. 72,905,492 $ 340,214,717
=========== =============
Dividend Reinvestment:
Class A............................................... 6,736,427 $ 30,752,478
Class B............................................... 3,217,974 14,676,957
Class C............................................... 761,816 3,441,955
----------- -------------
Total Dividend Reinvestment............................. 10,716,217 $ 48,871,390
=========== =============
Repurchases:
Class A............................................... (41,661,180) $(193,713,914)
Class B............................................... (21,292,875) (99,170,760)
Class C............................................... (5,683,215) (26,223,119)
----------- -------------
Total Repurchases....................................... (68,637,270) $(319,107,793)
=========== =============
Class B Shares purchased on or after June 1, 1996, and any dividend
reinvestment plan Class B Shares received thereon, automatically convert to
Class A Shares eight years after the end of the calendar month in which the
shares were purchased. Class B Shares purchased before June 1, 1996, and any
dividend reinvestment plan Class B Shares received thereon, automatically
convert to Class A Shares six years after the end of the calendar month in which
the shares were purchased. For the years ended August 31, 2002 and 2001,
2,088,300 and 1,820,303 Class B Shares automatically converted to Class A
Shares, respectively, and are shown in the above table as sales of Class A
Shares and repurchases of Class B Shares. Class C Shares purchased before
January 1, 1997, and any dividend reinvestment plan Class C Shares received on
such shares, automatically convert to Class A Shares ten years after the end of
the calendar month in which such shares were purchased. Class C Shares purchased
on or after January 1, 1997 do not possess a conversion feature. For the years
ended August 31, 2002 and 2001, no Class C Shares converted to Class A Shares.
Class B and C Shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). The CDSC will be imposed
on most redemptions made within five
36
NOTES TO
FINANCIAL STATEMENTS
August 31, 2002
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, 2002, Van Kampen, as Distributor for the Fund,
received net commissions on sales of the Fund's Class A Shares of approximately
$125,600 and CDSC on redeemed shares of approximately $608,200. Sales charges do
not represent expenses of the Fund.
On October 27, 2000, the Fund acquired all of the assets and liabilities of
the Van Kampen High Yield and Total Return Fund (the "VKHYTR Fund") through a
tax free reorganization approved by VKHYTR Fund shareholders on October 11,
2000. The Fund issued 1,164,310, 3,514,197 and 907,160 shares of Classes A, B
and C valued at $5,670,192, $17,149,280, and $4,399,728, respectively, in
exchange for VKHYTR Fund's net assets. The shares of VKHYTR Fund were converted
into Fund shares at a ratio of .5025 to 1, .5045 to 1 and .5013 to 1, for
Classes A, B and C, respectively. Included in these net assets was a capital
loss carryforward of $2,747,360 and deferred wash sale losses of $49,802 which
is included in accumulated net realized gain/loss. Net unrealized depreciation
of VKHYTR Fund as of October 27, 2000 was $5,150,365. Shares issued in
connection with this reorganization are included in proceeds from shares sold
for the year ended August 31, 2001. Combined net assets on the day of
reorganization were $721,982,089.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $479,519,991 and $510,469,820,
respectively.
37
NOTES TO
FINANCIAL STATEMENTS
August 31, 2002
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 futures or forward commitment. In these instances, the
recognition of gain or loss is postponed until the disposal of the security
underlying the futures or forward commitment.
Purchasing securities on a forward commitment involves a risk that the
market value at the time of delivery may be lower than the agreed upon purchase
price resulting in an unrealized loss. Selling securities on a forward
commitment involves different risks and can result in losses more significant
than those arising from the purchase of such securities. Risks may arise as a
result of the potential inability of the counterparties to meet the terms of
their contracts.
A forward foreign currency contract is a commitment to purchase or sell a
foreign currency at a future date at a negotiated forward rate. Upon the
settlement of the contract, a realized gain or loss is recognized and is
included as a component of realized gain/loss on forwards. Risks may arise as a
result of the potential inability of the counterparties to meet the terms of
their contracts.
The following forward foreign currency contract was outstanding as of August
31, 2002:
UNREALIZED
CURRENT APPRECIATION/
VALUE DEPRECIATION
SHORT CONTRACT:
Euro Currency,
$9,975,000 expiring 10/28/02............................ $9,758,548 $(40,204)
========== ========
38
NOTES TO
FINANCIAL STATEMENTS
August 31, 2002
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 year ended August 31, 2002 are
payments retained by Van Kampen of approximately $1,798,600 and payments made to
Morgan Stanley DW Inc., an affiliate of the Adviser, of approximately $110,600.
39
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, including
the portfolio of investments, of Van Kampen High Income Corporate Bond Fund (the
"Fund"), as of August 31, 2002, 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
three 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 each of the two
years in the period 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, 2002 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
Fund at August 31, 2002, 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 three years in the period
then ended in conformity with accounting principles generally accepted in the
United States.
/s/ Ernst & Young LLP
Chicago, Illinois
October 7, 2002
40
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 Prospectus [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
41
BOARD OF TRUSTEES AND IMPORTANT ADDRESSES
VAN KAMPEN HIGH INCOME CORPORATE
BOND FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
JERRY D. CHOATE
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
MITCHELL M. MERIN*
JACK E. NELSON
RICHARD F. POWERS, III*
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY
INVESTMENT ADVISER
VAN KAMPEN ASSET MANAGEMENT INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 218256
Kansas City, Missouri 64121-8256
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02110
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, Illinois 60606
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, 2002. For the fiscal year ended August 31, 2002, 5% 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.
42
TRUSTEE AND OFFICER INFORMATION
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 report.
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
J. Miles Branagan (70) Trustee Trustee Private investor. 55
1632 Morning Mountain Road since 1991 Trustee/Director of funds
Raleigh, NC 27614 in the Fund Complex.
Co-founder, and prior to
August 1996, Chairman,
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.
43
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 (64) Trustee Trustee Trustee/Director of funds 55 Director of Amgen Inc., a
53 Monarch Bay Drive since 1999 in the Fund Complex. biotechnological company,
Dana Point, CA 92629 Prior to January 1999, and Director of Valero
Chairman and Chief Energy Corporation, an
Executive Officer of the independent refining
Allstate Corporation company.
("Allstate") and Allstate
Insurance Company. Prior
to January 1995,
President and Chief
Executive Officer of
Allstate. Prior to August
1994, various management
positions at Allstate.
Linda Hutton Heagy (54) Trustee Trustee Regional Managing Partner 55
Sears Tower since 1995 of Heidrick & Struggles,
233 South Wacker Drive an executive search firm.
Suite 7000 Trustee/ Director of
Chicago, IL 60606 funds in the Fund
Complex. Trustee on the
University 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,
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. Formerly,
Executive Vice President
of ABN AMRO, N.A., a
Dutch bank holding
company. Prior to 1992,
Executive Vice President
of La Salle National
Bank.
44
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
R. Craig Kennedy (50) Trustee Trustee Director and President, 55
1744 R Street, N.W. since 1995 German Marshall Fund of
Washington, D.C. 20009 the United States, an
independent U.S.
foundation created to
deepen understanding,
promote collaboration and
stimulate exchanges of
practical experience
between Americans and
Europeans.
Trustee/Director of funds
in the Fund Complex.
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.
Jack E. Nelson (66) Trustee Trustee President, Nelson 55
423 Country Club Drive since 1995 Investment Planning
Winter Park, FL 32789 Services, Inc., a
financial planning
company and registered
investment adviser in the
State of Florida.
President, Nelson Ivest
Brokerage Services Inc.,
a member of the National
Association of Securities
Dealers, Inc. and
Securities Investors
Protection Corp. Trustee/
Director of funds in the
Fund Complex.
45
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
Suzanne H. Woolsey (60) Trustee Trustee Chief Communications 55 Director of Neurogen
2101 Constitution Ave., N.W. since 1999 Officer of the National Corporation, a
Room 285 Academy of pharmaceutical company,
Washington, D.C. 20418 Sciences/National since January 1998.
Research Council, an
independent, federally
chartered policy
institution, since 2001
and previously Chief
Operating Officer from
1993 to 2001.
Trustee/Director of funds
in the Fund Complex.
Director of the Institute
for Defense Analyses, a
federally funded research
and development center,
Director of the German
Marshall Fund of the
United States, Trustee of
Colorado College and Vice
Chair of the Board of the
Council for Excellence in
Government. 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.
46
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 INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Mitchell M. Merin* (49) Trustee Trustee President and Chief 55
1221 Avenue of the Americas since 1999 Operating Officer of
New York, NY 10020 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.
Trustee/Director of funds
in the Fund Complex.
Previously Chief
Strategic Officer of
Morgan Stanley Investment
Advisors Inc. and Morgan
Stanley Services Company
Inc. and Executive Vice
President of Morgan
Stanley Distributors Inc.
April 1997-June 1998,
Vice President of the
Morgan Stanley Funds May
1997-April 1999, and
Executive Vice President
of Dean Witter, Discover
& Co. prior to May 1997.
47
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
Richard F. Powers, III* (56) Trustee and Trustee Chairman, President, 92
1 Parkview Plaza President since 1999 Chief Executive Officer,
P.O. Box 5555 Director and Managing
Oakbrook Terrace, IL 60181 Director of Van Kampen
Investments. Chairman,
Director and Chief
Executive Officer of the
Advisers, the Distributor
and Van Kampen Advisors
Inc. since 1998. Managing
Director of the Advisers,
the Distributor and Van
Kampen Advisors Inc.
since July 2001. Director
and Officer of certain
other subsidiaries of Van
Kampen Investments. Chief
Sales and Marketing
Officer of Morgan
Stanley. Asset
Management,
Trustee/Director and
President or Trustee,
President and Chairman of
the Board 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* (63) Trustee Trustee Partner in the law firm 92
333 West Wacker Drive since 1995 of Skadden, Arps, Slate,
Chicago, IL 60606 Meagher & Flom
(Illinois), legal counsel
to funds in the Fund
Complex. Trustee/
Director/Managing General
Partner of 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 positions with
Morgan Stanley or its affiliates.
48
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 (61) Vice President Officer Managing Director and Chief Investment Officer of Van Kampen
2800 Post Oak Blvd. since 1998 Investments, and Managing Director and President of the
45th Floor Advisers and Van Kampen Advisors Inc. Executive Vice
Houston, TX 77056 President and Chief Investment Officer of funds in the Fund
Complex. 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.
Joseph J. McAlinden (59) Chief Investment Officer Managing Director and Chief Investment Officer of Morgan
1221 Avenue of the Americas Officer since 2002 Stanley Investment Advisors Inc., Morgan Stanley Investment
New York, NY 10020 Management Inc. and Morgan Stanley Investments LP and
Director of Morgan Stanley Trust for over 5 years.
49
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
A. Thomas Smith III (45) Vice President and Officer Managing Director and Director of Van Kampen Investments,
1221 Avenue of Secretary since 1999 Director of the Advisers, Van Kampen Advisors Inc., the
the Americas Distributor, Investor Services and certain other
New York, NY 10020 subsidiaries of Van Kampen Investments. Managing Director
and General Counsel-Mutual Funds of Morgan Stanley
Investment Advisors, Inc. Vice President or Principal Legal
Officer 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.
John R. Reynoldson (49) Vice President Officer Executive Director of the Advisers and Van Kampen Advisors
1 Parkview Plaza since 2000 Inc. Vice President of funds in the Fund Complex. Prior to
Oakbrook Terrace, IL 60181 July 2001, Principal and Co-head of 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, he
managed the investment grade taxable group for the Advisers
since July 1999. From July 1988 to June 1999, he managed the
government securities bond group for Asset Management. Mr.
Reynoldson has been with Asset Management since April 1987.
50
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 (47) Vice President, Chief Officer Executive Director of Van Kampen Investments, the Advisers
1 Parkview Plaza Financial Officer and since 1996 and Van Kampen Advisors Inc. Vice President, Chief Financial
Oakbrook Terrace, IL 60181 Treasurer Officer and Treasurer of funds in the Fund Complex. Head of
Fund Accounting for Morgan Stanley Investment Management.
John H. Zimmermann, III (44) Vice President Officer Managing Director and Director of Van Kampen Investments,
Harborside Financial Center since 2000 and Managing Director, President and Director of the
Plaza 2 - 7th Floor Distributor. Vice President of funds in the Fund Complex.
Jersey City, NJ 07311 Prior to December 2000, President of Van Kampen Insurance
Agency of Illinois Inc., and Senior Vice President and
Director of Van Kampen Investments. From November 1992 to
December 1997, Mr. Zimmermann was Senior Vice President of
the Distributor.
51
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.
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)2002 Van Kampen Funds Inc. All rights reserved.
28, 128, 228 Member NASD/SIPC.
HYI ANR 10/02 8072J02-AP-10/02