UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-02423 Van Kampen Corporate Bond Fund - -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 1221 Avenue of the Americas, New York, New York 10020 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Ronald Robison 1221 Avenue of the Americas, New York, New York 10020 - -------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: 212-762-4000 Date of fiscal year end: 8/31 Date of reporting period: 8/31/03 Item 1. Report to Shareholders Welcome, Shareholder In this report, you'll learn about how your investment in Van Kampen Corporate Bond Fund performed during the annual period. The portfolio management team will provide an overview of the market conditions and discuss some of the factors that affected investment performance during the reporting period. In addition, this report includes the fund's financial statements and a list of fund investments as of August 31, 2003. This material must be preceded or accompanied by a prospectus for the fund being offered. Market forecasts provided in this report may not necessarily come to pass. There is no assurance that the fund will achieve its investment objective. The fund is subject to market risk, which is the possibility that the market values of securities owned by the fund will decline and, therefore, the value of the fund shares may be less than what you paid for them. Accordingly, you can lose money investing in this fund. Please see the prospectus for more complete information on investment risks. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE Performance Summary PERFORMANCE OF A $10,000 INVESTMENT This chart compares your fund's performance to that of the Lehman Brothers Corporate Bond Index and the Lipper Corporate BBB-Rated Index from 8/31/93 through 8/31/03. Class A shares, adjusted for sales charges. (LINE GRAPH) <Table> <Caption> VAN KAMPEN CORPORATE LEHMAN BROTHERS CORPORATE LIPPER CORPORATE BOND FUND BOND INDEX BBB-RATED INDEX -------------------- ------------------------- ---------------- 8/93 10000.00 10000.00 10000.00 10017.00 10044.40 10029.00 12/93 9924.00 10066.20 10049.70 9670.00 9791.41 9716.16 9443.00 9715.46 9534.70 9485.00 9815.21 9601.56 12/94 9500.00 9798.70 9593.15 9981.00 10320.70 10048.90 10715.00 10967.80 10751.40 10996.00 11193.20 11011.60 12/95 11519.00 11660.10 11528.40 11148.00 11497.40 11293.20 11198.00 11553.00 11342.00 11383.00 11778.30 11591.80 12/96 11825.00 12122.40 12017.30 11740.00 12072.70 11937.10 12253.00 12492.20 12434.80 12773.00 12887.80 12917.70 12/97 13085.00 13135.60 13253.30 13329.00 13356.90 13485.60 13630.00 13622.80 13759.40 13775.00 14167.40 13930.20 12/98 14035.00 14224.90 14047.60 13833.00 14226.00 14017.70 13507.00 14110.30 13854.60 13542.00 14209.40 13851.80 12/99 13569.00 14247.80 13890.10 13725.00 14424.30 14148.90 13757.00 14633.30 14221.90 14178.00 15102.60 14584.80 12/00 14632.00 15596.20 14979.70 15119.00 16215.50 15483.90 15249.00 16379.70 15556.00 15771.00 17060.10 15962.00 12/01 16009.00 17119.80 16096.10 15763.00 17090.30 16048.30 15831.00 17633.40 16345.40 16050.00 18372.30 16741.80 12/02 16550.00 18855.10 17254.40 16902.00 19280.50 17691.20 17692.00 20055.00 18545.00 8/03 16500.00 19498.90 18054.40 </Table> Source: Confluence Technologies, Inc. and Lipper Inc. <Table> <Caption> A SHARES B SHARES C SHARES since 09/23/71 since 09/28/92 since 08/30/93 - --------------------------------------------------------------------------------------------- AVERAGE ANNUAL W/O SALES W/SALES W/O SALES W/SALES W/O SALES W/SALES TOTAL RETURNS CHARGES CHARGES CHARGES CHARGES CHARGES CHARGES Since Inception 7.95% 7.79% 5.83% 5.83% 4.83% 4.83% 10-year 5.65 5.14 5.14 5.14 4.83 4.83 5-year 5.05 4.03 4.28 4.04 4.28 4.28 1-year 9.20 3.99 8.38 4.38 8.38 7.38 - --------------------------------------------------------------------------------------------- 30-Day SEC Yield 4.40 3.87 3.87 </Table> Past performance is no guarantee of future results. Investment return and principal value will fluctuate, and fund shares, when redeemed, may be worth more or less than their original cost. The returns shown in this report do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. As a result of recent market activity, current performance may vary from the figures shown. For more up-to-date information, please visit vankampen.com or speak with your financial advisor. Average annual total return with sales charges includes payment of the maximum sales charge of 4.75 percent for Class A shares, a contingent deferred sales charge of 4.00 percent for Class B shares (in year one and declining to zero after year five), a contingent deferred sales charge of 1.00 percent for Class C shares in year one, and combined Rule 12b-1 fees and service fees of up to 0.25 percent for Class A shares and 1.00 percent for Class B and C shares. The since inception and 10-year returns for Class B shares reflect the conversion of Class B shares into Class A shares six years after purchase. See footnote 3 in the Notes to Financial Statements for additional information. Figures shown above assume reinvestment of all dividends and capital gains. SEC yield is a calculation for determining the amount of portfolio income, excluding non-income items as prescribed by the SEC. Yields are subject to change. Distribution rate represents the monthly annualized distributions of the fund at the end of the period and not the earnings of the fund. Lehman Brothers Corporate Bond Index is a market-weighted index of investment-grade corporate fixed-rate debt issues with maturities of one year or more. Lipper Corporate BBB-Rated Index is an index of funds with similar investment objectives as this fund. Indexes are unmanaged and do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index. 1 Fund Report FOR THE 12-MONTH PERIOD ENDED AUGUST 31, 2003 Van Kampen Corporate Bond Fund is managed by the adviser's Taxable Fixed Income team. Members of the team include Gordon W. Loery, Executive Director, and David S. Horowitz, Vice President.(1) The following discussion reflects their views on the fund's performance. Q. BEFORE YOU DISCUSS HOW THE FUND PERFORMED, PLEASE DESCRIBE THE OVERALL MARKET ENVIRONMENT. A. The environment for U.S. investment-grade corporate bonds during the period was favorable. Investors were drawn to the sector by valuations that, as measured by the yield advantage over Treasuries, were near record levels. Expectations of economic recovery and signs of improvement in corporate earnings also contributed to growing demand for corporate bonds. Strong performance resulted across the ratings spectrum, with lower-quality issues posting particularly robust results. Perhaps the greatest driver of corporate bond performance was the decline in interest rates. The Federal Reserve Board lowered rates throughout the period in an attempt to stimulate a stronger economic recovery. These rate reductions, coupled with a general flight to quality, reduced yields on government debt across the yield curve. Consequently, the relatively higher yields available from corporate debt grew more attractive to investors. The strongest returns during the course of the period were earned by sectors and securities that were most heavily out of favor during the preceding years. Wireless communications, utilities, telecommunications and cable all soared after performing dismally in early 2002. These sectors benefited from a combination of low valuations, perceived improvement in corporate governance and financial results that exceeded cautious investor expectations. Q. HOW DID THE FUND PERFORM DURING THE REPORTING PERIOD? A. The fund outperformed its benchmark indexes -- The fund returned 9.20 percent for the 12 months that ended August 31, 2003. Performance figures are for Class A shares, and assume the reinvestment of all distributions but do not reflect the deduction of any applicable sales charges. If sales charges were included, performance would be lower. Past performance is no guarantee of future results. (1)Team members may change at any time without notice. 2 -- The fund's benchmarks, the Lehman Brothers Corporate Bond Index and the Lipper Corporate BBB-Rated Index, returned 8.13 and 8.81 percent, respectively. -- The fund's monthly dividend of $0.0295 translated to a distribution rate of 5.12 percent based on the fund's maximum offering price on August 31, 2003 (Class A shares adjusted for sales charges). See Performance Summary for additional information and index definitions. Q. WHAT HELPED PERFORMANCE DURING THE REPORTING PERIOD? A. The portfolio benefited from its exposure to the information-technology, telecommunications, and wireless-communications sectors, all of which gained from expectations of faster economic growth. The fund's holdings in the gaming and leisure industry also performed well, reflecting optimism that higher levels of consumer confidence would translate into additional spending in these areas. We kept the fund's duration (price sensitivity to changes in interest-rate levels) lower than that of its benchmarks as a defensive measure against the potential effects of rising interest rates. As a result, the fund was not impacted as severely when interest rates rose significantly toward the end of the period. We limited the fund's exposure to the five- to ten-year part of the yield curve because we believed this area to be prohibitively expensive. This strategy proved beneficial as securities in this maturity range underperformed the market during the reporting period. Q. WHAT FACTORS HINDERED PERFORMANCE? A. The fund's positions in the transportation, energy and health-care sectors held back performance. While each of these areas earned positive returns during the 12-month period, they lagged the broader <Table> TOP 5 INDUSTRIES AS OF 8/31/03 RATING ALLOCATION AS OF 8/31/03 Captive Finance 7.3% AAA/Aaa 4.0% Life Insurance 7.3 AA/Aa 4.4 Electric 6.6 A/A 27.2 Telecommunications 5.6 BBB/Baa 55.2 Paper 5.5 BB/Ba 8.7 B/B 0.5 </Table> Subject to change daily. All percentages are as a percentage of long-term investments. Provided for informational purposes only and should not be deemed as a recommendation to buy securities in the industries shown above. Rating allocations based upon ratings as issued by Standard and Poor's and Moody's, respectively. Morgan Stanley is a full-service securities firm engaged in securities trading and brokerage activities, investment banking, research and analysis, financing and financial advisory services. 3 market. Underperformance by these sectors resulted from disparate factors, namely lingering concerns over the trading of energy contracts, perceived compressed margins on the health-care side, and valuations in the transportation sector that appeared higher than warranted. Until the middle of June, the portfolio's lower duration dampened returns as interest rates continued to fall. After that point, however, with interest rates on the rise, the fund's more conservative stance towards rising rates began to pay off. Q. PLEASE WALK US THROUGH HOW YOU POSITIONED THE FUND, HIGHLIGHTING KEY ISSUES. A. It became clear to us during the period that the best values were to be found among lower-rated debt. After conducting intensive credit analysis, our analysts identified several suitable opportunities among BBB rated bonds. Consequently, we moved assets out of higher-quality issues to increase the fund's exposure to BBB paper. In addition, we positioned the fund to potentially benefit from an economic recovery, with concentrations relative to the benchmarks in the industrial and consumer-cyclical sectors--areas that typically prosper during periods of economic improvement. Q. NOW THAT YOU'VE PROVIDED AN OVERVIEW FOR THE FUND, DO YOU HAVE ANY CLOSING THOUGHTS? A. We are continuing to maintain a defensive posture regarding interest rates, which we believe are too low given current economic and market conditions. Should the economy continue to improve, we would expect rates to increase. Regardless of where rates may be headed, however, we will continue with our disciplined investment approach, monitoring the market closely for opportunities. 4 ANNUAL HOUSEHOLDING NOTICE To reduce expenses, the fund attempts to eliminate duplicate mailings to the same address. The fund delivers a single copy of certain shareholder documents to investors who share an address, even if the accounts are registered under different names. The fund's prospectus and shareholder reports (including annual privacy notices) will be delivered to you in this manner indefinitely unless you instruct us otherwise. You can request multiple copies of these documents by either calling (800) 341-2911 or writing to Van Kampen Investor Services at 1 Parkview Plaza, P.O. Box 5555, Oakbrook Terrace, IL 60181. Once Investor Services has received your instructions, we will begin sending individual copies for each account within 30 days. PROXY VOTING POLICIES AND PROCEDURES A description of the fund's policies and procedures with respect to the voting of proxies relating to the Fund's portfolio securities is available without charge, upon request, by calling 1-800-847-2424. This information is also available on the Securities and Exchange Commission's website at http://www.sec.gov. 5 BY THE NUMBERS YOUR FUND'S INVESTMENTS August 31, 2003 THE FOLLOWING PAGES DETAIL YOUR FUND'S PORTFOLIO OF INVESTMENTS AT THE END OF THE REPORTING PERIOD. <Table> <Caption> PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE CORPORATE BONDS 89.6% AEROSPACE & DEFENSE 2.7% $ 2,065 Boeing Capital Corp. ...................... 5.800% 01/15/13 $ 2,073,097 265 Boeing Capital Corp. ...................... 6.500 02/15/12 279,626 1,775 Boeing Capital Corp. ...................... 6.100 03/01/11 1,845,116 345 Boeing Co. ................................ 6.625 02/15/38 341,291 1,090 Goodrich Corp. ............................ 7.625 12/15/12 1,191,375 1,000 Lockheed Martin Corp. ..................... 8.200 12/01/09 1,196,844 3,225 Lockheed Martin Corp. ..................... 8.500 12/01/29 4,107,147 1,960 Raytheon Co. .............................. 8.300 03/01/10 2,315,144 ------------ 13,349,640 ------------ AUTOMOTIVE 3.2% 735 Arvinmeritor, Inc. ........................ 6.625 06/15/07 731,325 1,280 Arvinmeritor, Inc. ........................ 8.750 03/01/12 1,331,200 2,915 Daimler Chrysler NA Holding................ 8.500 01/18/31 3,286,718 900 Delphi Corp. .............................. 6.125 05/01/04 918,111 8,305 Ford Motor Co. ............................ 7.450 07/16/31 7,398,709 1,380 General Motors Acceptance Corp. ........... 4.500 07/15/06 1,383,649 305 Hertz Corp. ............................... 7.625 08/15/07 323,917 ------------ 15,373,629 ------------ BANKING 4.2% 1,145 Citigroup, Inc. ........................... 6.000 02/21/12 1,222,162 3,820 Citigroup, Inc. ........................... 5.625 08/27/12 3,950,613 160 Citigroup, Inc. ........................... 6.625 06/15/32 169,167 5,355 JP Morgan Chase & Co. ..................... 6.750 02/01/11 5,937,753 700 MBNA American Bank NA...................... 7.125 11/15/12 776,751 3,460 MBNA Corp. ................................ 6.125 03/01/13 3,569,056 2,470 UFJ Finance Aruba AEC (Aruba).............. 6.750 07/15/13 2,449,200 1,690 Washington Mutual Bank FA.................. 5.500 01/15/13 1,701,081 275 Washington Mutual, Inc. ................... 8.250 04/01/10 330,137 ------------ 20,105,920 ------------ BEVERAGE 0.5% 2,200 Miller Brewing Co., 144A -Private Placement (a)........................................ 4.250 08/15/08 2,195,574 ------------ BROKERAGE 1.7% 2,715 Goldman Sachs Group, Inc. ................. 6.875 01/15/11 3,022,425 380 Goldman Sachs Group, Inc. ................. 6.600 01/15/12 414,382 1,160 Goldman Sachs Group, Inc. ................. 6.125 02/15/33 1,126,919 </Table> 6 See Notes to Financial Statements YOUR FUND'S INVESTMENTS August 31, 2003 <Table> <Caption> PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE BROKERAGE (CONTINUED) $ 2,000 Lehman Brothers Holdings, Inc. ............ 8.500% 05/01/07 $ 2,316,236 1,355 Lehman Brothers Holdings, Inc. ............ 6.625 01/18/12 1,487,936 ------------ 8,367,898 ------------ BUILDING MATERIALS 0.6% 1,335 Centex Corp. .............................. 7.500 01/15/12 1,491,559 1,160 Mohawk Industries, Inc., Ser D............. 7.200 04/15/12 1,278,290 ------------ 2,769,849 ------------ CAPTIVE FINANCE 6.9% 4,305 Countrywide Home Loans, Inc. .............. 3.250 05/21/08 4,114,620 555 Ford Motor Credit Co. ..................... 7.375 10/28/09 573,712 8,330 Ford Motor Credit Co. ..................... 7.250 10/25/11 8,430,035 5,100 General Electric Capital Corp. ............ 6.750 03/15/32 5,469,439 2,985 General Motors Acceptance Corp. ........... 6.875 09/15/11 2,990,660 7,280 General Motors Acceptance Corp. ........... 8.000 11/01/31 7,023,096 2,000 Heller Financial, Inc. .................... 6.375 03/15/06 2,183,452 2,500 International Lease Finance Corp. ......... 8.375 12/15/04 2,706,247 ------------ 33,491,261 ------------ CHEMICALS 0.0% 120 FMC Corp. ................................. 10.250 11/01/09 136,200 ------------ CONGLOMERATES 2.2% 2,260 Cooper Industries, Inc. ................... 5.250 07/01/07 2,376,433 4,370 Honeywell International, Inc. ............. 6.125 11/01/11 4,709,361 1,890 Hutchison Whampoa International Ltd., 144A-Private Placement (United Kingdom) (a)........................................ 6.500 02/13/13 1,873,137 475 Tyco International Group SA (Luxembourg)... 5.800 08/01/06 487,469 140 Tyco International Group SA (Luxembourg)... 6.750 02/15/11 143,150 1,275 Tyco International Group SA (Luxembourg)... 6.375 10/15/11 1,282,969 ------------ 10,872,519 ------------ CONSTRUCTION MACHINERY 0.6% 2,915 Kennametal, Inc. .......................... 7.200 06/15/12 3,025,024 ------------ ELECTRIC 6.2% 1,595 Appalachian Power Co., Ser H............... 5.950 05/15/33 1,427,011 1,140 Cincinnati Gas & Electric Co. ............. 5.700 09/15/12 1,169,409 910 Cincinnati Gas & Electric Co., Ser A....... 5.400 06/15/33 789,182 1,030 Cincinnati Gas & Electric Co., Ser B....... 5.375 06/15/33 889,844 1,705 Columbus Southern Power Co., Ser B, 144A-Private Placement (a)................. 6.600 03/01/33 1,716,040 475 Consumers Energy Co., Ser B, 144A-Private Placement (a).............................. 5.375 04/15/13 452,518 1,675 Consumers Energy Co., Ser E, 144A-Private Placement (a).............................. 4.000 05/15/10 1,560,185 </Table> See Notes to Financial Statements 7 YOUR FUND'S INVESTMENTS August 31, 2003 <Table> <Caption> PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE ELECTRIC (CONTINUED) $ 510 Consumers Energy Co., Ser G, 144A-Private Placement (a).............................. 4.800% 02/17/09 $ 506,773 1,495 Detroit Edison Co. ........................ 6.125 10/01/10 1,605,454 1,640 Duquesne Light Co., Ser O.................. 6.700 04/15/12 1,793,307 1,365 El Paso Energy Partners LP, 144A-Private Placement (a).............................. 8.500 06/01/10 1,453,725 1,070 Exelon Corp. .............................. 6.750 05/01/11 1,168,354 1,930 First Energy Corp., Ser B.................. 6.450 11/15/11 1,893,280 1,190 First Energy Corp., Ser C.................. 7.375 11/15/31 1,128,964 605 Florida Power & Light...................... 4.850 02/01/13 599,024 560 Indianapolis Power & Light Co., 144A-Private Placement (a)................. 6.300 07/01/13 554,306 965 Monongahela Power Co. ..................... 5.000 10/01/06 954,144 2,457 Niagara Mohawk Power Corp., Ser F.......... 7.625 10/01/05 2,698,924 1,450 Nisource Financial Corp. .................. 7.625 11/15/05 1,594,055 1,990 Ohio Edison Co., 144A-Private Placement (a)........................................ 5.450 05/01/15 1,831,616 250 Ohio Power Co., Ser E, 144A-Private Placement (a).............................. 6.600 02/15/33 251,294 1,970 PSEG Energy Holdings....................... 9.125 02/10/04 1,989,952 1,400 PSEG Energy Holdings....................... 8.625 02/15/08 1,401,526 140 Wisconsin Electric Power................... 5.625 05/15/33 132,075 645 Wisconsin Energy Corp. .................... 6.200 04/01/33 636,612 ------------ 30,197,574 ------------ ENVIRONMENTAL SERVICES 1.8% 810 Allied Waste North America, Inc., Ser B.... 8.500 12/01/08 864,675 1,185 Republic Services, Inc. ................... 6.750 08/15/11 1,281,867 1,220 Waste Management, Inc. .................... 7.000 10/15/06 1,338,367 1,745 Waste Management, Inc. .................... 7.375 08/01/10 1,962,319 2,600 Waste Management, Inc. .................... 7.000 07/15/28 2,691,902 315 Waste Management, Inc. .................... 7.375 05/15/29 337,816 ------------ 8,476,946 ------------ FOOD 1.1% 2,000 ConAgra Foods, Inc. ....................... 7.500 09/15/05 2,197,524 295 Smithfield Foods, Inc., 144A-Private Placement (a).............................. 7.750 05/15/13 305,325 2,470 Smithfield Foods, Inc., Ser B.............. 8.000 10/15/09 2,605,850 ------------ 5,108,699 ------------ GAMING 2.0% 4,040 Harrahs Operating Co., Inc. ............... 8.000 02/01/11 4,628,507 2,555 MGM Mirage, Inc. .......................... 8.500 09/15/10 2,880,762 1,385 Park Place Entertainment Corp. ............ 7.500 09/01/09 1,481,950 620 Station Casinos, Inc. ..................... 8.375 02/15/08 661,850 ------------ 9,653,069 ------------ </Table> 8 See Notes to Financial Statements YOUR FUND'S INVESTMENTS August 31, 2003 <Table> <Caption> PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE HEALTHCARE 4.1% $ 4,835 Aetna, Inc. ............................... 7.375% 03/01/06 $ 5,329,529 250 Aetna, Inc. ............................... 7.875 03/01/11 288,672 1,085 AmerisourceBergen Corp. ................... 8.125 09/01/08 1,152,812 2,000 HCA, Inc. ................................. 6.910 06/15/05 2,088,718 2,055 HCA, Inc. ................................. 6.300 10/01/12 1,994,893 365 HCA, Inc. ................................. 9.000 12/15/14 408,553 1,010 HCA, Inc. ................................. 7.190 11/15/15 1,002,177 455 Medco Health Solutions, Inc. .............. 7.250 08/15/13 471,756 590 Omnicare, Inc. ............................ 6.125 06/01/13 566,400 1,590 Tenet Healthcare Corp. .................... 7.375 02/01/13 1,570,125 3,565 Tenet Healthcare Corp. .................... 6.875 11/15/31 3,137,200 1,840 Unitedhealth Group, Inc. .................. 5.200 01/17/07 1,950,783 ------------ 19,961,618 ------------ HOME CONSTRUCTION 1.2% 1,260 D.R. Horton, Inc. ......................... 6.875 05/01/13 1,222,200 830 M.D.C. Holdings, Inc. ..................... 7.000 12/01/12 863,934 2,185 Pulte Homes, Inc. ......................... 7.875 08/01/11 2,489,200 1,465 Pulte Homes, Inc. ......................... 6.375 05/15/33 1,318,327 ------------ 5,893,661 ------------ INTEGRATED ENERGY 4.3% 4,740 Conoco, Inc. .............................. 6.950 04/15/29 5,215,678 2,345 Constellation Energy Group................. 7.600 04/01/32 2,594,203 125 Devon Financing Corp ULC................... 6.875 09/30/11 138,311 540 Kerr-McGee Corp. .......................... 5.875 09/15/06 574,654 945 Kerr-McGee Corp. .......................... 6.875 09/15/11 1,037,091 200 Kerr-McGee Corp. .......................... 7.875 09/15/31 223,628 2,325 Marathon Oil Corp. ........................ 6.800 03/15/32 2,404,150 3,410 Pemex Project Funding Master Trust......... 8.000 11/15/11 3,733,950 1,035 Pemex Project Funding Master Trust......... 8.625 02/01/22 1,099,687 995 Pemex Project, Inc. ....................... 9.125 10/13/10 1,164,150 150 Petro-Canada (Canada)...................... 4.000 07/15/13 135,226 1,905 Petro-Canada (Canada)...................... 5.350 07/15/33 1,663,332 890 Sempra Energy.............................. 6.000 02/01/13 916,692 ------------ 20,900,752 ------------ LIFE INSURANCE 6.9% 175 AIG Sunamerica Global Financial, 144A-Private Placement (a)................. 6.900 03/15/32 192,672 4,420 Anthem Insurance Cos. Inc., 144A-Private Placement (a).............................. 9.125 04/01/10 5,303,836 1,385 Cigna Corp. ............................... 6.375 10/15/11 1,427,917 575 Hartford Financial Services Group.......... 2.375 06/01/06 565,133 330 Hartford Life, Inc. ....................... 7.650 06/15/27 377,117 2,790 Hartford Life, Inc. ....................... 7.375 03/01/31 3,102,770 4,040 Health Net, Inc. .......................... 8.375 04/15/11 4,658,189 </Table> See Notes to Financial Statements 9 YOUR FUND'S INVESTMENTS August 31, 2003 <Table> <Caption> PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE LIFE INSURANCE (CONTINUED) $ 5,670 John Hancock Co., 144A-Private Placement (a)........................................ 7.375% 02/15/24 $ 6,094,434 190 Metlife, Inc. ............................. 6.125 12/01/11 201,378 275 Metropolitan Life Insurance Co., 144A-Private Placement (a)................. 7.450 11/01/23 287,166 920 Nationwide Financial Services, Inc. ....... 6.250 11/15/11 967,603 1,150 Nationwide Mutual Insurance Co., 144A-Private Placement (a)................. 7.500 02/15/24 1,184,278 845 Nationwide Mutual Insurance Co., 144A-Private Placement (a)................. 8.250 12/01/31 966,632 1,740 Prudential Hldgs, LLC, Ser B, 144A-Private Placement (a).............................. 7.245 12/18/23 1,899,203 5,165 Prudential Hldgs, LLC, Ser C, 144A-Private Placement (a).............................. 8.695 12/18/23 6,132,038 ------------ 33,360,366 ------------ LODGING 2.2% 1,950 Hilton Hotels Corp. ....................... 7.625 12/01/12 2,067,000 2,360 Hyatt Equities LLC, 144A-Private Placement (a)........................................ 6.875 06/15/07 2,438,484 1,080 Marriott International, Ser D.............. 8.125 04/01/05 1,174,793 1,085 Marriott International, Ser E.............. 7.000 01/15/08 1,192,891 1,005 Starwood Hotels & Resorts Worldwide, Inc. ...................................... 7.375 05/01/07 1,057,762 2,610 Starwood Hotels & Resorts Worldwide, Inc. ...................................... 7.875 05/01/12 2,740,500 ------------ 10,671,430 ------------ MEDIA-CABLE 2.9% 1,540 AOL Time Warner, Inc. ..................... 7.700 05/01/32 1,695,465 1,000 Comcast Cable Communications, Inc. ........ 8.125 05/01/04 1,040,446 1,805 Comcast Cable Communications, Inc. ........ 8.375 05/01/07 2,067,487 465 Comcast Cable Communications, Inc. ........ 6.750 01/30/11 506,005 240 Comcast Cable Communications, Inc. ........ 7.125 06/15/13 264,510 3,610 Comcast Corp. ............................. 6.500 01/15/15 3,795,124 2,360 Cox Communications, Inc. .................. 7.125 10/01/12 2,630,085 1,705 Echostar DBS Corp. ........................ 9.375 02/01/09 1,822,219 ------------ 13,821,341 ------------ MEDIA-NONCABLE 3.4% 400 AOL Time Warner, Inc. ..................... 6.875 05/01/12 435,606 2,650 AOL Time Warner, Inc. ..................... 7.625 04/15/31 2,879,461 2,500 Clear Channel Communications, Inc. ........ 7.250 10/15/27 2,711,405 2,660 Liberty Media Corp. ....................... 5.700 05/15/13 2,564,995 3,000 News America Hldg, Inc. ................... 8.875 04/26/23 3,698,193 1,735 News America, Inc. ........................ 7.300 04/30/28 1,858,452 </Table> 10 See Notes to Financial Statements YOUR FUND'S INVESTMENTS August 31, 2003 <Table> <Caption> PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE MEDIA-NONCABLE (CONTINUED) $ 1,650 News America, Inc. ........................ 7.280% 06/30/28 $ 1,763,743 650 Time Warner, Inc. ......................... 6.625 05/15/29 631,047 ------------ 16,542,902 ------------ METALS 0.9% 1,330 Inco Ltd. (Canada)......................... 7.750 05/15/12 1,482,419 2,880 Inco Ltd. (Canada)......................... 7.200 09/15/32 2,931,180 ------------ 4,413,599 ------------ NATURAL GAS DISTRIBUTORS 0.5% 2,050 Consolidated Natural Gas Co., Ser C........ 6.250 11/01/11 2,200,794 ------------ NATURAL GAS PIPELINES 0.3% 1,485 Gulfterra Energy Partners LP, 144A-Private Placement (a).............................. 6.250 06/01/10 1,455,300 ------------ NONCAPTIVE-CONSUMER FINANCE 2.6% 4,660 American Express Co. ...................... 5.500 09/12/06 5,005,693 1,000 Household Finance Corp. ................... 7.875 03/01/07 1,142,977 4,040 Household Finance Corp. ................... 6.750 05/15/11 4,439,811 1,980 Newcourt Credit Group, Ser B (Canada)...... 6.875 02/16/05 2,108,900 ------------ 12,697,381 ------------ OIL FIELD SERVICES 0.2% 855 Key Energy Services, Inc. ................. 6.375 05/14/13 816,525 ------------ PACKAGING 0.4% 1,985 Sealed Air Corp., 144A-Private Placement (a)........................................ 5.625 07/15/13 1,919,185 ------------ PAPER 5.2% 3,020 Abitibi-Consolidated, Inc. (Canada)........ 8.550 08/01/10 3,209,230 1,810 Abitibi-Consolidated, Inc. (Canada)........ 8.850 08/01/30 1,791,978 5,050 Bowater Canada Finance (Canada)............ 7.950 11/15/11 5,026,921 1,010 Celulosa Arauco y Constitucion, 144A-Private Placement (Chile) (a)......... 5.125 07/09/13 953,527 2,115 International Paper Co. ................... 5.850 10/30/12 2,159,125 2,170 International Paper Co. ................... 5.300 04/01/15 2,053,942 1,675 Meadwestvaco Corp. ........................ 6.850 04/01/12 1,819,397 800 Owens Brockway Glass Containers............ 8.750 11/15/12 844,000 1,115 Owens Brockway Glass Containers, 144A-Private Placement (a)................. 7.750 05/15/11 1,120,575 1,285 Packaging Corp of America, 144A-Private Placement (a).............................. 5.750 08/01/13 1,250,395 </Table> See Notes to Financial Statements 11 YOUR FUND'S INVESTMENTS August 31, 2003 <Table> <Caption> PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE PAPER (CONTINUED) $ 1,310 Sappi Papier Hldg AG, 144A-Private Placement (Austria) (a).................... 6.750% 06/15/12 $ 1,398,806 3,510 Weyerhaeuser Co. .......................... 6.750 03/15/12 3,751,172 ------------ 25,379,068 ------------ PHARMACEUTICALS 0.9% 2,000 Abbott Laboratories........................ 5.625 07/01/06 2,160,360 2,000 Eli Lilly & Co. ........................... 5.500 07/15/06 2,155,042 ------------ 4,315,402 ------------ PROPERTY & CASUALTY 1.1% 3,535 Farmers Exchange Capital, 144A-Private Placement (a).............................. 7.050 07/15/28 2,958,703 2,471 Farmers Insurance Exchange Surplus, 144A-Private Placement (a)................. 8.625 05/01/24 2,354,018 ------------ 5,312,721 ------------ RAILROADS 1.3% 1,500 CSX Corp. ................................. 6.750 03/15/11 1,650,704 4,000 Union Pacific Corp. ....................... 8.350 05/01/25 4,473,528 ------------ 6,124,232 ------------ REAL ESTATE INVESTMENT TRUSTS 2.7% 4,035 EOP Operating LP........................... 7.500 04/19/29 4,295,863 420 Istar Financial, Inc. ..................... 7.000 03/15/08 431,550 1,495 Istar Financial, Inc. ..................... 8.750 08/15/08 1,649,434 3,455 Simon Property Group LP.................... 6.375 11/15/07 3,742,356 960 Simon Property Group LP.................... 6.350 08/28/12 1,012,002 1,725 Vornado Realty............................. 5.625 06/15/07 1,796,696 ------------ 12,927,901 ------------ REFINING 1.1% 3,815 Amerada Hess Corp. ........................ 7.875 10/01/29 4,199,995 895 Ashland, Inc. ............................. 7.830 08/15/05 963,791 250 Vintage Petroleum, Inc. ................... 7.875 05/15/11 253,750 ------------ 5,417,536 ------------ RETAIL 3.4% 2,360 CVS Corp. ................................. 5.500 02/15/04 2,402,782 465 CVS Corp. ................................. 5.625 03/15/06 498,863 800 CVS Corp. ................................. 3.875 11/01/07 797,232 2,000 Federated Department Stores, Inc. ......... 6.625 09/01/08 2,212,756 1,500 Federated Department Stores, Inc. ......... 6.300 04/01/09 1,619,775 1,165 Gap, Inc. ................................. 10.550 12/15/08 1,393,631 870 Lowe's Companies, Inc. .................... 6.875 02/15/28 942,808 1,710 Lowe's Companies, Inc. .................... 6.500 03/15/29 1,786,440 2,970 May Department Stores Co. ................. 5.950 11/01/08 3,121,048 </Table> 12 See Notes to Financial Statements YOUR FUND'S INVESTMENTS August 31, 2003 <Table> <Caption> PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE RETAIL (CONTINUED) $ 620 May Department Stores Co. ................. 6.700% 09/15/28 $ 621,067 929 May Department Stores Co. ................. 7.875 03/01/30 1,050,869 ------------ 16,447,271 ------------ SERVICES 1.3% 2,210 Cendant Corp. ............................. 7.375 01/15/13 2,441,067 1,960 Cendant Corp. ............................. 7.125 03/15/15 2,112,092 1,157 Iron Mountain, Inc. ....................... 7.750 01/15/15 1,185,925 685 Iron Mountain, Inc. ....................... 6.625 01/01/16 645,613 ------------ 6,384,697 ------------ SUPERMARKETS 1.7% 1,755 Albertson's, Inc. ......................... 7.500 02/15/11 1,960,302 930 Albertson's, Inc. ......................... 7.450 08/01/29 979,065 4,910 Kroger Co. ................................ 7.500 04/01/31 5,437,216 ------------ 8,376,583 ------------ TECHNOLOGY 1.1% 2,085 Arrow Electronics, Inc. ................... 6.875 07/01/13 2,004,275 465 Arrow Electronics, Inc. ................... 6.875 06/01/18 428,964 1,090 Electronic Data Systems Corp. ............. 7.125 10/15/09 1,124,360 1,675 Electronic Data Systems Corp., 144A-Private Placement (a).............................. 6.000 08/01/13 1,559,544 ------------ 5,117,143 ------------ TELECOMMUNICATIONS 5.3% 425 AT&T Corp. (b)............................. 7.300/7.800 11/15/11 476,698 3,900 AT&T Corp. (b)............................. 8.000/8.500 11/15/31 4,415,206 2,850 AT&T Wireless Services, Inc. .............. 7.875 03/01/11 3,224,801 325 AT&T Wireless Services, Inc. .............. 8.750 03/01/31 386,421 3,085 Deutsche Telekom International Finance BV (Netherlands).............................. 8.750 06/15/30 3,717,573 1,500 Sprint Capital Corp. ...................... 7.125 01/30/06 1,613,481 1,000 Sprint Capital Corp. ...................... 6.125 11/15/08 1,039,948 1,000 Verizon Communications, Inc. .............. 7.510 04/01/09 1,142,677 5,570 Verizon Communications, Inc. .............. 6.940 04/15/28 5,765,863 3,295 Verizon Global Funding Corp. .............. 7.750 12/01/30 3,795,244 165 Verizon New England, Inc. ................. 6.500 09/15/11 179,791 ------------ 25,757,703 ------------ </Table> See Notes to Financial Statements 13 YOUR FUND'S INVESTMENTS August 31, 2003 <Table> <Caption> PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE TOBACCO 0.9% $ 1,970 Altria Group, Inc. ........................ 7.750% 01/15/27 $ 1,863,230 1,225 Kraft Foods, Inc. ......................... 5.625 11/01/11 1,233,656 1,015 Kraft Foods, Inc. ......................... 6.250 06/01/12 1,061,077 ------------ 4,157,963 ------------ TOTAL CORPORATE BONDS 89.6%................................................... 433,496,876 ------------ CONVERTIBLE CORPORATE OBLIGATION 0.0% TECHNOLOGY 0.0% 600 Solectron Corp. (Convertible into 7,072 common shares) LYON........................ * 11/20/20 340,500 ------------ MORTGAGE BACKED SECURITIES 0.8% 1,237 Government National Mortgage Association Pool....................................... 7.000 05/15/31 1,308,482 1,508 World Financial Property, 144A-Private Placement (a).............................. 6.910 09/01/13 1,647,914 711 World Financial Property, 144A-Private Placement (a).............................. 6.950 09/01/13 778,946 ------------ TOTAL MORTGAGE BACKED SECURITIES............................................... 3,735,342 ------------ GOVERNMENT OBLIGATIONS 3.5% 1,345 Republic of Columbia (Columbia)............ 10.750 01/15/13 1,516,487 2,000 United Mexican States (Mexico)............. 10.375 02/17/09 2,505,000 2,665 United Mexican States (Mexico)............. 8.375 01/14/11 3,074,077 560 United Mexican States (Mexico)............. 8.000 09/24/22 586,600 2,000 United Mexican States (Mexico)............. 8.300 08/15/31 2,145,000 1,500 United States Treasury Bill................ 0.000 01/15/04 1,494,543 1,470 United States Treasury Notes (STRIPS) (c)........................................ 0.000 02/15/24 455,541 3,665 United States Treasury Notes (STRIPS) (c)........................................ 0.000 05/15/24 1,117,356 3,665 United States Treasury Notes (STRIPS) (c)........................................ 0.000 08/15/24 1,101,446 8,260 United States Treasury Notes (STRIPS) (c)........................................ 0.000 11/15/24 2,477,480 1,470 United States Treasury Notes (STRIPS) (c)........................................ 0.000 02/15/25 431,982 ------------ TOTAL GOVERNMENT OBLIGATIONS................................................... 16,905,512 ------------ ASSET BACKED SECURITIES 0.7% 616 Continental Airlines, Inc. ................ 6.545 08/02/20 577,099 174 Continental Airlines, Inc. ................ 6.648 03/15/19 161,147 </Table> 14 See Notes to Financial Statements YOUR FUND'S INVESTMENTS August 31, 2003 <Table> <Caption> PAR AMOUNT MARKET (000) DESCRIPTION COUPON MATURITY VALUE ASSET BACKED SECURITIES (CONTINUED) $ 2,031 Continental Airlines, Inc. ................ 6.900% 01/02/18 $ 1,890,127 565 Ras Laffan Liquefied Natural Gas Co. Ltd., 144A-Private Placement (a)................. 8.294 03/15/14 639,919 ------------ TOTAL ASSET BACKED SECURITIES.................................................. 3,268,292 ------------ </Table> <Table> <Caption> SHARES COMMON STOCK 0.0% OTHER UTILITIES 0.0% McLeodUSA, Inc. (Warrants of Class A expiring 04/16/07) (d)......... 970 359 ------------ CONVERTIBLE PREFERRED STOCK 0.0% TELECOMMUNICATIONS 0.0% McLeodUSA, Inc., Ser A-Convertible Preferred (d).................... 438 2,479 ------------ TOTAL LONG-TERM INVESTMENTS 94.6% (Cost $443,910,179)........................................................ 457,749,360 ------------ SHORT-TERM INVESTMENTS 4.0% REPURCHASE AGREEMENT 3.9% BankAmerica ($18,636,000 par collateralized by U.S. Government obligations in a pooled cash account, dated 08/29/03, to be sold on 09/02/03 at $18,638,050)................................................................. 18,636,000 ------------ U.S. TREASURY OBLIGATIONS 0.1% United States Treasury Bill ($600,000 par, yielding 1.098%, 09/25/03 maturity).................................................................... 599,561 ------------ TOTAL SHORT-TERM INVESTMENTS (Cost $19,235,561)......................................................... 19,235,561 ------------ TOTAL INVESTMENTS 98.6% (Cost $463,145,740)........................................................ 476,984,921 OTHER ASSETS IN EXCESS OF LIABILITIES 1.4%.................................. 6,551,961 ------------ NET ASSETS 100.0%........................................................... $483,536,882 ============ </Table> * 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. See Notes to Financial Statements 15 YOUR FUND'S INVESTMENTS August 31, 2003 (b) Security is a "step-up" bond where the coupon increases or steps up at a predetermined date. (c) Interest only strip. (d) Non-income producing security. LYON--Liquid Yield Option Note 16 See Notes to Financial Statements FINANCIAL STATEMENTS Statement of Assets and Liabilities August 31, 2003 <Table> ASSETS: Total Investments (Cost $463,145,740)....................... $476,984,921 Receivables: Interest.................................................. 8,413,209 Fund Shares Sold.......................................... 1,876,739 Investments Sold.......................................... 502,242 Variation Margin on Futures............................... 180,557 Other....................................................... 107,936 ------------ Total Assets............................................ 488,065,604 ------------ LIABILITIES: Payables: Investments Purchased..................................... 1,724,914 Fund Shares Repurchased................................... 1,636,758 Distributor and Affiliates................................ 337,558 Income Distributions...................................... 328,707 Investment Advisory Fee................................... 175,185 Custodian Bank............................................ 25,527 Trustees' Deferred Compensation and Retirement Plans........ 156,682 Accrued Expenses............................................ 143,391 ------------ Total Liabilities....................................... 4,528,722 ------------ NET ASSETS.................................................. $483,536,882 ============ NET ASSETS CONSIST OF: Capital (Par value of $.01 per share with an unlimited number of shares authorized).............................. $489,585,061 Net Unrealized Appreciation................................. 19,889,383 Accumulated Undistributed Net Investment Income............. (1,337,620) Accumulated Net Realized Loss............................... (24,599,942) ------------ NET ASSETS.................................................. $483,536,882 ============ MAXIMUM OFFERING PRICE PER SHARE: Class A Shares: Net asset value and redemption price per share (Based on net assets of $318,370,594 and 48,363,424 shares of beneficial interest issued and outstanding)............. $ 6.58 Maximum sales charge (4.75%* of offering price)......... .33 ------------ Maximum offering price to public........................ $ 6.91 ============ Class B Shares: Net asset value and offering price per share (Based on net assets of $135,593,078 and 20,642,901 shares of beneficial interest issued and outstanding)............. $ 6.57 ============ Class C Shares: Net asset value and offering price per share (Based on net assets of $29,573,210 and 4,502,458 shares of beneficial interest issued and outstanding)............. $ 6.57 ============ </Table> * On sales of $100,000 or more, the sales charge will be reduced. See Notes to Financial Statements 17 Statement of Operations For the Year Ended August 31, 2003 <Table> INVESTMENT INCOME: Interest.................................................... $26,141,487 ----------- EXPENSES: Distribution (12b-1) and Service Fees (Attributed to Classes A, B and C of $689,210, $1,279,065 and $271,043, respectively)............................................. 2,239,318 Investment Advisory Fee..................................... 1,904,170 Shareholder Services........................................ 1,027,480 Custody..................................................... 51,294 Trustees' Fees and Related Expenses......................... 26,750 Legal....................................................... 12,991 Other....................................................... 328,124 ----------- Total Expenses.......................................... 5,590,127 Less Credits Earned on Cash Balances.................... 7,484 ----------- Net Expenses............................................ 5,582,643 ----------- NET INVESTMENT INCOME....................................... $20,558,844 =========== REALIZED AND UNREALIZED GAIN/LOSS: Realized Gain/Loss: Investments............................................... $ 2,627,420 Futures................................................... (3,097,960) ----------- Net Realized Loss........................................... (470,540) ----------- Unrealized Appreciation/Depreciation: Beginning of the Period................................... 4,415,201 ----------- End of the Period: Investments............................................. 13,839,181 Futures................................................. 6,050,202 ----------- 19,889,383 ----------- Net Unrealized Appreciation During the Period............... 15,474,182 ----------- NET REALIZED AND UNREALIZED GAIN............................ $15,003,642 =========== NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $35,562,486 =========== </Table> 18 See Notes to Financial Statements Statements of Changes in Net Assets <Table> <Caption> YEAR ENDED YEAR ENDED AUGUST 31, 2003 AUGUST 31, 2002 ---------------------------------- FROM INVESTMENT ACTIVITIES: Operations: Net Investment Income..................................... $ 20,558,844 $ 18,922,120 Net Realized Loss......................................... (470,540) (12,195,843) Net Unrealized Appreciation/Depreciation During the Period.................................................. 15,474,182 (6,002,818) ------------- ------------- Change in Net Assets from Operations...................... 35,562,486 723,459 ------------- ------------- Distributions from Net Investment Income: Class A Shares.......................................... (16,543,987) (14,216,903) Class B Shares.......................................... (6,542,723) (5,593,096) Class C Shares.......................................... (1,386,369) (1,108,399) ------------- ------------- Total Distributions....................................... (24,473,079) (20,918,398) ------------- ------------- NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES....... 11,089,407 (20,194,939) ------------- ------------- FROM CAPITAL TRANSACTIONS: Proceeds from Shares Sold................................. 295,935,507 191,497,372 Net Asset Value of Shares Issued Through Dividend Reinvestment............................................ 20,028,626 16,451,045 Cost of Shares Repurchased................................ (225,767,690) (139,588,118) ------------- ------------- NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS........ 90,196,443 68,360,299 ------------- ------------- TOTAL INCREASE IN NET ASSETS.............................. 101,285,850 48,165,360 NET ASSETS: Beginning of the Period................................... 382,251,032 334,085,672 ------------- ------------- End of the Period (Including accumulated undistributed net investment income of ($1,337,620) and ($2,131,370) respectively............................................ $ 483,536,882 $ 382,251,032 ============= ============= </Table> See Notes to Financial Statements 19 Financial Highlights THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND OUTSTANDING THROUGHOUT THE PERIODS INDICATED. <Table> <Caption> YEAR ENDED AUGUST 31, CLASS A SHARES ------------------------------------------------ 2003 (a) 2002 (c) 2001 2000 (a) 1999 ------------------------------------------------ NET ASSET VALUE, BEGINNING OF THE PERIOD....... $ 6.39 $ 6.75 $ 6.43 $ 6.53 $ 7.03 ------ ------ ------ ------ ------ Net Investment Income........................ .33 .37 .41 .43 .43 Net Realized and Unrealized Gain/Loss........ .25 (.33) .33 (.12) (.49) ------ ------ ------ ------ ------ Total from Investment Operations............... .58 .04 .74 .31 (.06) Less Distributions from Net Investment Income....................................... .39 .40 .42 .41 .44 ------ ------ ------ ------ ------ NET ASSET VALUE, END OF THE PERIOD............. $ 6.58 $ 6.39 $ 6.75 $ 6.43 $ 6.53 ====== ====== ====== ====== ====== Total Return (b)............................... 9.20% 0.54% 12.10% 5.01% -1.02% Net Assets at End of the Period (In millions).................................... $318.4 $246.5 $221.4 $167.7 $172.9 Ratio of Expenses to Average Net Assets (c).... 1.01% 1.03% 1.07% 1.15% 1.08% Ratio of Net Investment Income to Average Net Assets (c)................................... 4.98% 5.48% 6.56% 6.80% 6.26% Portfolio Turnover............................. 46% 82% 112% 94% 43% </Table> (a) Based on average shares outstanding. (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 4% 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 Rules 12b-1 fees and service fees of up to .25% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. (c) As required, effective September 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium on fixed income securities. The effect of this change for the year ended August 31, 2002, was to decrease net investment income per share by $.03, increase net realized and unrealized gains and losses per share by $.03 and decrease the Ratio of Net Investment Income to Average Net Assets from 6.00% to 5.48%. Per share, ratios and supplemental data for periods prior to August 31, 2002, have not been restated to reflect this change in presentation. 20 See Notes to Financial Statements Financial Highlights THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND OUTSTANDING THROUGHOUT THE PERIODS INDICATED. <Table> <Caption> YEAR ENDED AUGUST 31, CLASS B SHARES ------------------------------------------------ 2003 (a) 2002 (c) 2001 2000 (a) 1999 ------------------------------------------------ NET ASSET VALUE, BEGINNING OF THE PERIOD....... $ 6.38 $ 6.74 $ 6.42 $6.51 $ 7.01 ------ ------ ------ ----- ------ Net Investment Income........................ .28 .32 .37 .39 .38 Net Realized and Unrealized Gain/Loss........ .25 (.33) .32 (.12) (.49) ------ ------ ------ ----- ------ Total from Investment Operations............... .53 (.01) .69 .27 (.11) Less Distributions from Net Investment Income....................................... .34 .35 .37 .36 .39 ------ ------ ------ ----- ------ NET ASSET VALUE, END OF THE PERIOD............. $ 6.57 $ 6.38 $ 6.74 $6.42 $ 6.51 ====== ====== ====== ===== ====== Total Return (b)............................... 8.38% -0.22% 11.28% 4.34% -1.78% Net Assets at End of the Period (In millions).................................... $135.6 $112.3 $ 93.8 $54.5 $ 54.0 Ratio of Expenses to Average Net Assets (c).... 1.77% 1.78% 1.82% 1.92% 1.86% Ratio of Net Investment Income to Average Net Assets (c)................................... 4.23% 4.73% 5.81% 6.03% 5.47% Portfolio Turnover............................. 46% 82% 112% 94% 43% </Table> (a) Based on average shares outstanding. (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 years 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 1% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or redemption of Fund shares. (c) As required, effective September 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium on fixed income securities. The effect of this change for the year ended August 21, 2002, was to decrease net investment income per share by $.03, increase net realized and unrealized gains and losses per share by $.03 and decrease the Ratio of Net Investment Income to Average Net Assets from 5.25% to 4.73%. Per share, ratios and supplemental data for periods prior to August 31, 2002, have not been restated to reflect this change in presentation. See Notes to Financial Statements 21 Financial Highlights THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND OUTSTANDING THROUGHOUT THE PERIODS INDICATED. <Table> <Caption> YEAR ENDED AUGUST 31, CLASS C SHARES ------------------------------------------------ 2003 (a) 2002 (c) 2001 2000 (a) 1999 ------------------------------------------------ NET ASSET VALUE, BEGINNING OF THE PERIOD....... $6.38 $ 6.74 $ 6.42 $6.51 $ 7.01 ----- ------ ------ ----- ------ Net Investment Income........................ .28 .32 .37 .39 .39 Net Realized and Unrealized Gain/Loss........ .25 (.33) .32 (.12) (.50) ----- ------ ------ ----- ------ Total from Investment Operations............... .53 (.01) .69 .27 (.11) Less Distributions from Net Investment Income....................................... .34 .35 .37 .36 .39 ----- ------ ------ ----- ------ NET ASSET VALUE, END OF THE PERIOD............. $6.57 $ 6.38 $ 6.74 $6.42 $ 6.51 ===== ====== ====== ===== ====== Total Return (b)............................... 8.38% -0.22% 11.28% 4.34% -1.78% Net Assets at End of the Period (In millions).................................... $29.6 $ 23.4 $ 18.9 $12.0 $ 14.3 Ratio of Expenses to Average Net Assets (c).... 1.77% 1.78% 1.84% 1.92% 1.86% Ratio of Net Investment Income to Average Net Assets (c)................................... 4.22% 4.73% 5.79% 6.03% 5.47% Portfolio Turnover............................. 46% 82% 112% 94% 43% </Table> (a) Based on average shares outstanding. (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 1% and do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. (c) As required, effective September 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium on fixed income securities. The effect of this change for the year ended August 31, 2002, was to decrease net investment income per share by $.03, increase net realized and unrealized gains and losses per share by $.03 and decrease the Ratio of Net Investment Income to Average Net Assets from 5.25% to 4.73%. Per share, ratios and supplemental data for periods prior to August 31, 2002, have not been restated to reflect this change in presentation. 22 See Notes to Financial Statements NOTES TO FINANCIAL STATEMENTS August 31, 2003 1. SIGNIFICANT ACCOUNTING POLICIES Van Kampen 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 provide current income with preservation of capital. The Fund commenced investment operations on September 23, 1971. The distribution of the Fund's Class B and Class C Shares commenced on September 28, 1992 and August 30, 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 are stated at value using market quotations or indications of value obtained from an independent pricing service. Investments in securities listed on a securities exchange are valued at their sale price as of the close of such securities exchange. Equity securities traded on NASDAQ are valued at the NASDAQ Official Closing Price. Listed and unlisted securities for which the last sales price is not available are valued at the mean of the bid and asked prices. For those securities where quotations or prices are not available as noted above, valuations are determined in accordance with procedures established in good faith by the Board of Trustees. Futures contracts are valued at the settlement price established each day on the exchange in which they are traded. 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 invests 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. Discounts on debt securities purchased 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 23 NOTES TO FINANCIAL STATEMENTS August 31, 2003 each class of shares, except for distribution and service fees and transfer agency costs which are unique to each class of shares. D. FEDERAL INCOME TAXES It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no provision for federal income taxes is required. The Fund intends to utilize provisions of the federal income tax laws which allow it to carry a realized capital loss forward for eight years following the year of the loss and offset these losses against any future realized capital gains. At August 31, 2003, the Fund had an accumulated capital loss carryforward for tax purposes of $18,503,503 which will expire between August 31, 2008 and August 31, 2011. At August 31, 2003, the cost and related gross unrealized appreciation and depreciation are as follows: <Table> Cost of investments for tax purposes........................ $464,350,513 ============ Gross tax unrealized appreciation........................... $ 18,848,566 Gross tax unrealized depreciation........................... (6,214,158) ------------ Net tax unrealized appreciation on investments.............. $ 12,634,408 ============ </Table> 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 and gains on future transactions. All short-term capital gains and a portion of future gains are included in ordinary income for tax purposes. The tax character of distributions paid during 2003 and 2002 was as follows: <Table> <Caption> 2003 2002 Distribution paid from: Ordinary Income........................................... $24,512,386 $20,898,347 Long-term capital gain.................................... -- -- ----------- ----------- $24,512,386 $20,898,347 =========== =========== </Table> Due to inherent differences in the recognition of income, expenses and realized gains/ losses under accounting principles generally accepted in the United States of America and federal income tax purposes, permanent differences between book and tax basis reporting have been identified and appropriately reclassified on the Statement of Assets and Liabilities. Permanent book and tax differences of $25,521 related to the recognition of net realized losses on paydowns of mortgage pool obligations and $2,736 related to investments in other regulated investment companies were reclassified from accumulated net realized loss to accumulated undistributed net investment income. Additionally, a permanent book and tax 24 NOTES TO FINANCIAL STATEMENTS August 31, 2003 difference of $4,679,728 related to book to tax amortization differences were reclassified from accumulated undistributed net investment income to accumulated net realized loss. As of August 31, 2003, the components of distributable earnings on a tax basis were as follows: <Table> Undistributed ordinary income............................... $288,566 </Table> Net realized gains or losses may differ for financial and tax reporting purposes as a result of gains recognized for tax purposes on open futures contracts and the deferral of losses relating to wash sale transactions. F. EXPENSE REDUCTIONS During the year ended August 31, 2003, the Fund's custody fee was reduced by $7,484 as a result of credits earned on cash balances. 2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES Under the terms of the Fund's Investment Advisory Agreement, the Adviser will provide investment advice and facilities to the Fund for an annual fee payable monthly as follows: <Table> <Caption> AVERAGE DAILY NET ASSETS % PER ANNUM First $150 million.......................................... .50% Next $100 million........................................... .45% Next $100 million........................................... .40% Over $350 million........................................... .35% </Table> For the year ended August 31, 2003, the Fund recognized expenses of approximately $13,000 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, 2003, the Fund recognized expenses of approximately $40,000 representing Van Kampen Investments Inc.'s or its affiliates (collectively "Van Kampen") cost of providing accounting services to the Fund, which are reported as part of "Other" expenses in the Statement of Operations. Van Kampen Investor Services Inc. (VKIS), an affiliate of the Adviser, serves as the shareholder servicing agent for the Fund. For the year ended August 31, 2003, the Fund recognized expenses of approximately $883,400 representing transfer agency fees paid to VKIS. Transfer agency fees are determined through negotiations with the Fund's Board of Trustees. Certain officers and trustees of the Fund are also officers and directors of Van Kampen. The Fund does not compensate its officers or trustees who are officers of Van Kampen. The Fund provides deferred compensation and retirement plans for its trustees who are not officers of Van Kampen. Under the deferred compensation plan, trustees may elect to defer all or a portion of their compensation. Amounts deferred are retained by the Fund and, 25 NOTES TO FINANCIAL STATEMENTS August 31, 2003 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 approximately $68,200 are included in "Other" assets on the Statement of Assets and Liabilities at August 31, 2003. Appreciation/depreciation and distributions received from these investments are recorded with an offsetting increase/decrease in the deferred compensation obligation and do not affect the net asset value of the Fund. Benefits under the retirement plan are payable upon retirement for a ten-year period and are based upon each trustee's years of service to the Fund. The maximum annual benefit per trustee under the plan is $2,500. 3. CAPITAL TRANSACTIONS At August 31, 2003, capital aggregated $324,864,449, $135,041,913 and $29,678,699 for Classes A, B and C, respectively. For the year ended August 31, 2003, transactions were as follows: <Table> <Caption> SHARES VALUE Sales: Class A................................................... 33,860,873 $ 223,054,574 Class B................................................... 8,733,393 57,165,431 Class C................................................... 2,395,255 15,715,502 ----------- ------------- Total Sales................................................. 44,989,521 $ 295,935,507 =========== ============= Dividend Reinvestment: Class A................................................... 2,118,750 $ 13,930,487 Class B................................................... 775,621 5,088,552 Class C................................................... 153,893 1,009,587 ----------- ------------- Total Dividend Reinvestment................................. 3,048,264 $ 20,028,626 =========== ============= Repurchases: Class A................................................... (26,177,791) $(172,148,255) Class B................................................... (6,476,025) (42,378,021) Class C................................................... (1,716,574) (11,241,414) ----------- ------------- Total Repurchases........................................... (34,370,390) $(225,767,690) =========== ============= </Table> 26 NOTES TO FINANCIAL STATEMENTS August 31, 2003 At August 31, 2002, capital aggregated $260,027,643, $115,165,951, and $24,195,024 for Classes A, B and C, respectively. For the year ended August 31, 2002, transactions were as follows: <Table> <Caption> SHARES VALUE Sales: Class A................................................... 17,230,700 $ 113,453,070 Class B................................................... 9,602,063 63,335,340 Class C................................................... 2,235,298 14,708,962 ----------- ------------- Total Sales................................................. 29,068,061 $ 191,497,372 =========== ============= Dividend Reinvestment: Class A................................................... 1,739,745 $ 11,443,287 Class B................................................... 638,312 4,189,631 Class C................................................... 124,633 818,127 ----------- ------------- Total Dividend Reinvestment................................. 2,502,690 $ 16,451,045 =========== ============= Repurchases: Class A................................................... (13,203,530) $ (86,712,392) Class B................................................... (6,551,762) (43,000,505) Class C................................................... (1,501,806) (9,875,221) ----------- ------------- Total Repurchases........................................... (21,257,098) $(139,588,118) =========== ============= </Table> Class B Shares purchased on or after June 1, 1996, and any dividend reinvestment Class B Shares received on such shares, 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 on such shares, automatically convert to Class A Shares six years after the end of the calendar month in which the shares were purchased. For the years ended August 31, 2003 and 2002, 492,903 and 933,528 Class B Shares automatically converted to Class A Shares, respectively, and are shown in the above tables as sales of Class A Shares and repurchases of Class B Shares. Class C Shares purchased before January 1, 1997, and any dividend reinvestment plan Class C Shares received on such shares, automatically convert to Class A Shares ten years after the end of the calendar month in which the shares were purchased. Class C Shares purchased on or after January 1, 1997 do not possess a conversion feature. For the years ended August 31, 2003 and 2002, no Class C Shares converted to Class A Shares. Class B and C Shares are offered without a front end sales charge, but are subject to a contingent deferred sales charge (CDSC). The CDSC will be imposed on most redemptions made within five 27 NOTES TO FINANCIAL STATEMENTS August 31, 2003 years of the purchase for Class B and one year of the purchase for Class C as detailed in the following schedule. <Table> <Caption> CONTINGENT DEFERRED SALES CHARGE 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 </Table> For the year ended August 31, 2003, Van Kampen, as Distributor for the Fund, received commissions on sales of the Fund's Class A Shares of approximately $252,800 and CDSC on redeemed shares of approximately $350,500. Sales charges do not represent expenses of the Fund. 4. INVESTMENT TRANSACTIONS During the period, the cost of purchases and proceeds from sales of investments, excluding short-term investments, were $268,950,577 and $192,144,081, respectively. 5. DERIVATIVE FINANCIAL INSTRUMENTS A derivative financial instrument in very general terms refers to a security whose value is "derived" from the value of an underlying asset, reference rate or index. The Fund has a variety of reasons to use derivative instruments, such as to attempt to protect the Fund against possible changes in the market value of its portfolio or generate potential gain. All of the Fund's portfolio holdings, including derivative instruments, are marked to market each day with the change in value reflected in unrealized appreciation/ depreciation. Upon disposition, a realized gain or loss is recognized accordingly, except when taking delivery of a security underlying a future contract. In this instance, the recognition of gain or loss is postponed until the disposal of the security underlying the future contract. Risk may arise as a result of the potential inability of the counterparties to meet the terms of their contracts. During the period, the Fund invested in futures contracts, a type of derivative. A futures contract is an agreement involving the delivery of a particular asset on a specified future date at an agreed upon price. The Fund generally invests in futures on U.S. Treasury Notes. These contracts are generally used as a substitute for purchasing and selling specific securities. Upon entering into futures contracts, the Fund maintains an amount of cash or liquid securities with a value equal to a percentage of the contract amount with either a futures commission 28 NOTES TO FINANCIAL STATEMENTS August 31, 2003 merchant pursuant to rules and regulations promulgated under the 1940 Act, as amended, or with its custodian in an account in the broker's name. This amount is known as initial margin. During the period the futures contract is open, payments are received from or made to the broker based upon changes in the value of the contract (the variation margin). The risk of loss associated with a futures contract is in excess of the variation margin reflected on the statement of Assets and Liabilities. Transactions in futures contracts for the year ended August 31, 2003, were as follows: <Table> <Caption> CONTRACTS Outstanding at August 31, 2002.............................. 641 Futures Opened.............................................. 4,677 Futures Closed.............................................. (4,145) ------ Outstanding at August 31, 2003.............................. 1,173 ====== </Table> The futures contracts outstanding as of August 31, 2003, and the descriptions and unrealized appreciation/depreciation are as follows: <Table> <Caption> UNREALIZED CONTRACTS APPRECIATION LONG CONTRACTS: U.S. Treasury Notes 2 Year Futures, December 2003 (Current Notional Value of $213,047 per contract) 80 $ 23,764 SHORT CONTRACTS: U.S. Treasury Bonds, December 2003 (Current Notional Value of $106,000 per contract) 128 11,703 U.S. Treasury Bonds, September 2003 (Current Notional Value of $107,406 per contract) 361 4,436,367 U.S. Treasury Notes 10 Year Futures, December 2003 (Current Notional Value of $109,719 per contract) 40 9,460 U.S. Treasury Notes 10 Year Futures, September 2003 (Current Notional Value of $111,531 per contract) 392 966,188 U.S. Treasury Notes 5 Year Futures, December 2003 (Current Notional Value of $109,859 per contract) 17 2,795 U.S. Treasury Notes 5 Year Futures, September 2003 (Current Notional Value of $111,484 per contract) 155 599,925 ----- ---------- 1,173 $6,050,202 ===== ========== </Table> 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 Class A Shares, Class B Shares, and Class C Shares; the provision of 29 NOTES TO FINANCIAL STATEMENTS August 31, 2003 ongoing shareholder services with respect to such classes of shares; and the maintenance of shareholder accounts with respect to such classes of shares. Annual fees under the Plans of up to 0.25% of Class A average daily net assets and 1.00% each for Class B and Class C average daily net assets are accrued daily. The amount of distribution expenses incurred by Van Kampen and not yet reimbursed ("unreimbursed receivable") was approximately $3,044,000 and $11,300 for Class B and Class C Shares, respectively. This amount may be recovered from future payments under the distribution plan or CDSC. To the extent the unreimbursed receivable has been fully recovered, any excess 12b-1 fees will be refunded to the Fund on a quarterly basis. Included in these fees for the year ended August 31, 2003, are payments retained by Van Kampen of approximately $1,079,900 and payments made to Morgan Stanley DW Inc., an affiliate of the Adviser, of approximately $131,000. 30 REPORT OF INDEPENDENT AUDITORS To the Shareholders and Board of Trustees of Van Kampen Corporate Bond Fund: We have audited the accompanying statement of assets and liabilities of Van Kampen Corporate Bond Fund (the "Fund"), including the portfolio of investments, as of August 31, 2003, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the four years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights of the Fund for the year ended August 31, 1999 were audited by other auditors whose report dated October 6, 1999 expressed an unqualified opinion on those financial highlights. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of August 31, 2003, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Van Kampen Corporate Bond Fund at August 31, 2003, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the four years in the period then ended in conformity with accounting principles generally accepted in the United States. -s- Ernst & Young LLP Chicago, Illinois October 8, 2003 31 BOARD OF TRUSTEES AND IMPORTANT ADDRESSES VAN KAMPEN CORPORATE BOND FUND BOARD OF TRUSTEES DAVID C. ARCH J. MILES BRANAGAN JERRY D. CHOATE ROD DAMMEYER LINDA HUTTON HEAGY R. CRAIG KENNEDY HOWARD J KERR MITCHELL M. MERIN* JACK E. NELSON RICHARD F. POWERS, III* HUGO F. SONNENSCHEIN WAYNE W. WHALEN* - Chairman SUZANNE H. WOOLSEY INVESTMENT ADVISER VAN KAMPEN ASSET MANAGEMENT INC. 1 Parkview Plaza P.O. Box 5555 Oakbrook Terrace, Illinois 60181-5555 DISTRIBUTOR VAN KAMPEN FUNDS INC. 1 Parkview Plaza P.O. Box 5555 Oakbrook Terrace, Illinois 60181-5555 SHAREHOLDER SERVICING AGENT VAN KAMPEN INVESTOR SERVICES INC. P.O. Box 947 Jersey City, New Jersey 07303-0947 CUSTODIAN STATE STREET BANK AND TRUST COMPANY 225 Franklin Street P.O. Box 1713 Boston, Massachusetts 02110 LEGAL COUNSEL SKADDEN, ARPS, SLATE MEAGHER & FLOM (ILLINOIS) 333 West Wacker Drive Chicago, Illinois 60606 INDEPENDENT AUDITORS ERNST & YOUNG LLP 233 South Wacker Drive Chicago, Illinois 60606 * "Interested persons" of the Fund, as defined in the Investment Company Act of 1940, as amended. 32 TRUSTEES AND OFFICERS The business and affairs of the Fund are managed under the direction of the Fund's Board of Trustees and the Fund's officers appointed by the Board of Trustees. The tables below list the trustees and executive officers of the Fund and their principal occupations during the last five years, other directorships held by trustees and their affiliations, if any, with Van Kampen Investments Inc. ("Van Kampen Investments"), Van Kampen Investment Advisory Corp. ("Advisory Corp."), Van Kampen Asset Management Inc. ("Asset Management"), Van Kampen Funds Inc. (the "Distributor"), Van Kampen Advisors Inc., Van Kampen Exchange Corp. and Van Kampen Investor Services Inc. ("Investor Services"). Advisory Corp. and Asset Management sometimes are referred to herein collectively as the "Advisers." The term "Fund Complex" includes each of the investment companies advised by the Advisers or their affiliates as of the date of this Statement of Additional Information. Trustees serve until reaching their retirement age or until their successors are duly elected and qualified. Officers are annually elected by the trustees. INDEPENDENT TRUSTEES <Table> <Caption> NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE David C. Arch (58) Trustee Trustee Chairman and Chief 90 Trustee/Director/Managing Blistex Inc. since 2003 Executive Officer of General Partner of funds 1800 Swift Drive Blistex Inc., a consumer in the Fund Complex. Oak Brook, IL 60523 health care products manufacturer. Former Director of the World Presidents Organization-Chicago Chapter. Director of the Heartland Alliance, a nonprofit organization serving human needs based in Chicago. J. Miles Branagan (71) Trustee Trustee Private investor. 88 Trustee/Director/Managing 1632 Morning Mountain Road since 1991 Co-founder, and prior to General Partner of funds Raleigh, NC 27614 August 1996, Chairman, in the Fund Complex. Chief Executive Officer and President, MDT Corporation (now known as Getinge/Castle, Inc., a subsidiary of Getinge Industrier AB), a company which develops, manufactures, markets and services medical and scientific equipment. </Table> 33 <Table> <Caption> NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Jerry D. Choate (65) Trustee Trustee Prior to January 1999, 88 Trustee/Director/Managing 33971 Selva Road since 1999 Chairman and Chief General Partner of funds Suite 130 Executive Officer of the in the Fund Complex. Dana Point, CA 92629 Allstate Corporation Director of Amgen Inc., a ("Allstate") and Allstate biotechnological company, Insurance Company. Prior and Director of Valero to January 1995, Energy Corporation, an President and Chief independent refining Executive Officer of company. Allstate. Prior to August 1994, various management positions at Allstate. Rod Dammeyer (62) Trustee Trustee President of CAC, llc., a 90 Trustee/Director/Managing CAC, llc. since 2003 private company offering General Partner of funds 4350 LaJolla Village Drive capital investment and in the Fund Complex. Suite 980 management advisory Director of TeleTech San Diego, CA 92122-6223 services. Prior to July Holdings Inc., 2000, Managing Partner of Stericycle, Inc., Equity Group Corporate TheraSense, Inc., GATX Investment (EGI), a Corporation, Arris Group, company that makes Inc. and Trustee of the private investments in University of Chicago other companies. Hospitals and Health Systems. Prior to May 2002, Director of Peregrine Systems Inc. Prior to February 2001, Vice Chairman and Director of Anixter International, Inc. and IMC Global Inc. Prior to July 2000, Director of Allied Riser Communications Corp., Matria Healthcare Inc., Transmedia Networks, Inc., CNA Surety, Corp. and Grupo Azcarero Mexico (GAM). Prior to April 1999, Director of Metal Management, Inc. </Table> 34 <Table> <Caption> NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Linda Hutton Heagy (55) Trustee Trustee Managing Partner of 88 Trustee/Director/Managing Heidrick & Struggles since 1995 Heidrick & Struggles, an General Partner of funds 233 South Wacker Drive executive search firm. in the Fund Complex. Suite 7000 Trustee on the University Chicago, IL 60606 of Chicago Hospitals Board, Vice Chair of the Board of the YMCA of Metropolitan Chicago and a member of the Women's Board of the University of Chicago. Prior to 1997, Partner of Ray & Berndtson, Inc., an executive recruiting firm. Prior to 1996, Trustee of The International House Board, a fellowship and housing organization for international graduate students. Prior to 1995, Executive Vice President of ABN AMRO, N.A., a bank holding company. Prior to 1992, Executive Vice President of La Salle National Bank. R. Craig Kennedy (51) Trustee Trustee Director and President of 88 Trustee/Director/Managing 11 DuPont Circle, N.W. since 1995 the German Marshall Fund General Partner of funds Washington, D.C. 20016 of the United States, an in the Fund Complex. independent U.S. foundation created to deepen understanding, promote collaboration and stimulate exchanges of practical experience between Americans and Europeans. Formerly, advisor to the Dennis Trading Group Inc., a managed futures and option company that invests money for individuals and institutions. Prior to 1992, President and Chief Executive Officer, Director and member of the Investment Committee of the Joyce Foundation, a private foundation. Howard J Kerr (67) Trustee Trustee Prior to 1998, President 90 Trustee/Director/Managing 736 North Western Avenue since 2003 and Chief Executive General Partner of funds P.O. Box 317 Officer of Pocklington in the Fund Complex. Lake Forest, IL 60045 Corporation, Inc., an Director of the Lake investment holding Forest Bank & Trust. company. Director of the Marrow Foundation </Table> 35 <Table> <Caption> NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Jack E. Nelson (67) Trustee Trustee President of Nelson 88 Trustee/Director/Managing 423 Country Club Drive since 1995 Investment Planning General Partner of funds Winter Park, FL 32789 Services, Inc., a in the Fund Complex. financial planning company and registered investment adviser in the State of Florida. President of Nelson Ivest Brokerage Services Inc., a member of the NASD, Securities Investors Protection Corp. and the Municipal Securities Rulemaking Board. President of Nelson Sales and Services Corporation, a marketing and services company to support affiliated companies. Hugo F. Sonnenschein (62) Trustee Trustee President Emeritus and 90 Trustee/Director/Managing 1126 E. 59th Street since 2003 Honorary Trustee of the General Partner of funds Chicago, IL 60637 University of Chicago and in the Fund Complex. the Adam Smith Director of Winston Distinguished Service Laboratories, Inc. Professor in the Department of Economics at the University of Chicago. Prior to July 2000, President of the University of Chicago. Trustee of the University of Rochester and a member of its investment committee. Member of the National Academy of Sciences, the American Philosophical Society and a fellow of the American Academy of Arts and Sciences. Suzanne H. Woolsey (61) Trustee Trustee Chief Communications 88 Trustee/Director/Managing 2101 Constitution Ave., N.W. since 1999 Officer of the National General Partner of funds Room 285 Academy of in the Fund Complex. Washington, D.C. 20418 Sciences/National Director of Neurogen Research Council, an Corporation, a independent, federally pharmaceutical company, chartered policy since January 1998. institution, since 2001 and previously Chief Operating Officer from 1993 to 2001. Director of the Institute for Defense Analyses, a federally funded research and development center, Director of the German Marshall Fund of the United States, and Trustee of Colorado College. Prior to 1993, Executive Director of the Commission on Behavioral and Social Sciences and Education at the National Academy of Sciences/National Research Council. From 1980 through 1989, Partner of Coopers & Lybrand. </Table> 36 INTERESTED TRUSTEES* <Table> <Caption> NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS OF INTERESTED TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Mitchell M. Merin* (50) Trustee, Trustee President and Chief 88 Trustee/Director/Managing 1221 Avenue of the Americas President since 1999 Executive Officer of General Partner of funds New York, NY 10020 and Chief funds in the Fund in the Fund Complex. Executive Complex. Chairman, Officer President, Chief Executive Officer and Director of the Advisers and VK Advisors Inc. since December 2002. Chairman, President and Chief Executive Officer of Van Kampen Investments since December 2002. Director of Van Kampen Investments since December 1999. Chairman and Director of Van Kampen Funds Inc. since December 2002. President, Director and Chief Operating Officer of Morgan Stanley Investment Management since December 1998. President and Director since April 1997 and Chief Executive Officer since June 1998 of Morgan Stanley Investment Advisors Inc. and Morgan Stanley Services Company Inc. Chairman, Chief Executive Officer and Director of Morgan Stanley Distributors Inc. since June 1998. Chairman since June 1998, and Director since January 1998 of Morgan Stanley Trust. Director of various Morgan Stanley subsidiaries. President of the Morgan Stanley Funds since May 1999. Previously Chief Executive Officer of Van Kampen Funds Inc. from December 2002 to July 2003, Chief Strategic Officer of Morgan Stanley Investment Advisors Inc. and Morgan Stanley Services Company Inc. and Executive Vice President of Morgan Stanley Distributors Inc. from April 1997 to June 1998. Chief Executive Officer from September 2002 to April 2003 and Vice President from May 1997 to April 1999 of the Morgan Stanley Funds. </Table> 37 <Table> <Caption> NUMBER OF TERM OF FUNDS IN OFFICE AND FUND POSITION(S) LENGTH OF COMPLEX NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS OF INTERESTED TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE Richard F. Powers, III* (57) Trustee Trustee Advisory Director of 90 Trustee/Director/Managing 1 Parkview Plaza since 1999 Morgan Stanley. Prior to General Partner of funds P.O. Box 5555 December 2002, Chairman, in the Fund Complex. Oakbrook Terrace, IL 60181 Director, President, Chief Executive Officer and Managing Director of Van Kampen Investments and its investment advisory, distribution and other subsidiaries. Prior to December 2002, President and Chief Executive Officer of funds in the Fund Complex. Prior to May 1998, Executive Vice President and Director of Marketing at Morgan Stanley and Director of Dean Witter, Discover & Co. and Dean Witter Realty. Prior to 1996, Director of Dean Witter Reynolds Inc. Wayne W. Whalen* (64) Trustee Trustee Partner in the law firm 90 Trustee/Director/Managing 333 West Wacker Drive since 1995 of Skadden, Arps, Slate, General Partner of funds Chicago, IL 60606 Meagher & Flom in the Fund Complex. (Illinois), legal counsel to funds in the Fund Complex. </Table> * Such trustee is an "interested person" (within the meaning of Section 2(a)(19) of the 1940 Act). Mr. Whalen is an interested person of certain funds in the Fund Complex by reason of his firm currently acting as legal counsel to such funds in the Fund Complex. Messrs. Merin and Powers are interested persons of funds in the Fund Complex and the Advisers by reason of their current or former positions with Morgan Stanley or its affiliates. 38 OFFICERS <Table> <Caption> TERM OF OFFICE AND POSITION(S) LENGTH OF NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S) ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS Stephen L. Boyd (62) Vice President Officer Managing Director of Global Research Investment Management. 2800 Post Oak Blvd. since 1998 Vice President of funds in the Fund Complex. Prior to 45th Floor December 2002, Chief Investment Officer of Van Kampen Houston, TX 77056 Investments and President and Chief Operations Officer of the Advisers and Van Kampen Advisors Inc. Prior to May 2002, Executive Vice President and Chief Investment Officer of funds in the Fund Complex. Prior to May 2001, Managing Director and Chief Investment Officer of Van Kampen Investments, and Managing Director and President of the Advisers and Van Kampen Advisors Inc. Prior to December 2000, Executive Vice President and Chief Investment Officer of Van Kampen Investments, and President and Chief Operating Officer of the Advisers. Prior to April 2000, Executive Vice President and Chief Investment Officer for Equity Investments of the Advisers. Prior to October 1998, Vice President and Senior Portfolio Manager with AIM Capital Management, Inc. Prior to February 1998, Senior Vice President and Portfolio Manager of Van Kampen American Capital Asset Management, Inc., Van Kampen American Capital Investment Advisory Corp. and Van Kampen American Capital Management, Inc. Stefanie V. Chang (36) Vice President Officer Executive Director of Morgan Stanley Investment Management. 1221 Avenue of the Americas since 2003 Vice President of funds in the Fund Complex. New York, NY 10020 Joseph J. McAlinden (60) Executive Vice Officer Managing Director and Chief Investment Officer of Morgan 1221 Avenue of the Americas President and Chief since 2002 Stanley Investment Advisors Inc., Morgan Stanley Investment New York, NY 10020 Investment Officer Management Inc. and Morgan Stanley Investments LP and Director of Morgan Stanley Trust for over 5 years. Executive Vice President and Chief Investment Officer of funds in the Fund Complex. Managing Director and Chief Investment Officer of Van Kampen Investments, the Advisers and Van Kampen Advisors Inc. since December 2002. </Table> 39 <Table> <Caption> TERM OF OFFICE AND POSITION(S) LENGTH OF NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S) ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS John R. Reynoldson (50) Vice President Officer Executive Director and Portfolio Specialist of the Advisers 1 Parkview Plaza since 2000 and Van Kampen Advisors Inc. Vice President of funds in the P.O. Box 5555 Fund Complex. Prior to July 2001, Principal and Co-head of Oakbrook Terrace, IL 60181 the Fixed Income Department of the Advisers and Van Kampen Advisors Inc. Prior to December 2000, Senior Vice President of the Advisers and Van Kampen Advisors Inc. Prior to May 2000, Senior Vice President of the investment grade taxable group for the Advisers. Prior to June 1999, Senior Vice President of the government securities bond group for Asset Management. Ronald E. Robison (64) Executive Vice Officer Chief Executive Officer and Chairman of Investor Services. 1221 Avenue of the Americas President and since 2003 Executive Vice President and Principal Executive Officer of New York, NY 10020 Principal Executive funds in the Fund Complex. Chief Global Operations Officer Officer and Managing Director of Morgan Stanley Investment Management Inc. Managing Director of Morgan Stanley. Managing Director and Director of Morgan Stanley Investment Advisors Inc. and Morgan Stanley Services Company Inc. Chief Executive Officer and Director of Morgan Stanley Trust. Vice President of the Morgan Stanley Funds. A. Thomas Smith III (46) Vice President and Officer Managing Director of Morgan Stanley, Managing Director and 1221 Avenue of the Americas Secretary since 1999 Director of Van Kampen Investments, Director of the New York, NY 10020 Advisers, Van Kampen Advisors Inc., the Distributor, Investor Services and certain other subsidiaries of Van Kampen Investments. Managing Director and General Counsel-Mutual Funds of Morgan Stanley Investment Advisors, Inc. Vice President and Secretary of funds in the Fund Complex. Prior to July 2001, Managing Director, General Counsel, Secretary and Director of Van Kampen Investments, the Advisers, the Distributor, Investor Services, and certain other subsidiaries of Van Kampen Investments. Prior to December 2000, Executive Vice President, General Counsel, Secretary and Director of Van Kampen Investments, the Advisers, Van Kampen Advisors Inc., the Distributor, Investor Services and certain other subsidiaries of Van Kampen Investments. Prior to January 1999, Vice President and Associate General Counsel to New York Life Insurance Company ("New York Life"), and prior to March 1997, Associate General Counsel of New York Life. Prior to December 1993, Assistant General Counsel of The Dreyfus Corporation. Prior to August 1991, Senior Associate, Willkie Farr & Gallagher. Prior to January 1989, Staff Attorney at the Securities and Exchange Commission, Division of Investment Management, Office of Chief Counsel. </Table> 40 <Table> <Caption> TERM OF OFFICE AND POSITION(S) LENGTH OF NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S) ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS John L. Sullivan (48) Vice President, Chief Officer Director and Managing Director of Van Kampen Investments, 1 Parkview Plaza Financial Officer and since 1996 the Advisers, Van Kampen Advisors Inc. and certain other P.O. Box 5555 Treasurer subsidiaries of Van Kampen Investments. Vice President, Oakbrook Terrace, IL 60181 Chief Financial Officer and Treasurer of funds in the Fund Complex. Head of Fund Accounting for Morgan Stanley Investment Management. Prior to December 2002, Executive Director of Van Kampen Investments, the Advisers and Van Kampen Advisors Inc. </Table> 41 Van Kampen Privacy Notice The Van Kampen companies and investment products* respect your right to privacy. We also know that you expect us to conduct and process your business in an accurate and efficient manner. To do so, we must collect and maintain certain nonpublic personal information about you. This is information we collect from you on applications or other forms, and from the transactions you conduct with us, our affiliates, or third parties. We may also collect information you provide when using our Web site, and text files (also known as "cookies") may be placed on your computer to help us to recognize you and to facilitate transactions you initiate. We do not disclose any nonpublic personal information about you or any of our former customers to anyone, except as permitted by law. For instance, so that we may continue to offer you Van Kampen investment products and services that meet your investing needs, and to effect transactions that you request or authorize, we may disclose the information we collect to companies that perform services on our behalf, such as printers and mailers that assist us in the distribution of investor materials. These companies will use this information only for the services for which we hired them, and are not permitted to use or share this information for any other purpose. To protect your nonpublic personal information internally, we permit access to it only by authorized employees, and maintain physical, electronic and procedural safeguards to guard your nonpublic personal information. * Includes Van Kampen Investments Inc., Van Kampen Investment Advisory Corp., Van Kampen Asset Management Inc., Van Kampen Advisors Inc., Van Kampen Management Inc., Van Kampen Funds Inc., Van Kampen Investor Services Inc., Van Kampen System Inc. and Van Kampen Exchange Corp., as well as the many Van Kampen mutual funds and Van Kampen unit investment trusts. The Statement of Additional Information includes additional information about Fund trustees and is available, without charge, upon request by calling (800) 847-2424. Van Kampen Funds Inc. 1 Parkview Plaza, P.O. Box 5555 Oakbrook Terrace, IL 60181-5555 www.vankampen.com (VAN KAMPEN INVESTMENTS LOGO) Copyright (C)2003 Van Kampen Funds Inc. All rights reserved. Member NASD/SIPC. 17, 117, 217 CORP ANR 10/03 12033J03-AP-10/03 Item 2. Code of Ethics. (a) The Fund has adopted a code of ethics (the "Code of Ethics") that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the Fund or a third party. (b) No information need be disclosed pursuant to this paragraph. (c) Not applicable. (d) Not applicable. (e) Not applicable. (f) (1) The Fund's Code of Ethics is attached hereto as Exhibit 10A. (2) Not applicable. (3) Not applicable. Item 3. Audit Committee Financial Expert. The Fund's Board of Trustees has determined that it has three "audit committee financial experts" serving on its audit committee, each of whom are "independent" Trustees : J. Miles Branagan, Jerry Choate and R. Craig Kennedy. Under applicable securities laws, a person who is determined to be an audit committee financial expert will not be deemed an "expert" for any purpose, including without limitation for the purposes of Section 11 of the Securities Act of 1933, as a result of being designated or identified as an audit committee financial expert. The designation or identification of a person as an audit committee financial expert does not impose on such person any duties, obligations, or liabilities that are greater than the duties, obligations, and liabilities imposed on such person as a member of the audit committee and Board of Trustees in the absence of such designation or identification. Item 4. Principal Accountant Fees and Services. Applicable only for reports covering fiscal years ending on or after December 15, 2003. Item 5. Audit Committee of Listed Registrants. Applicable only for reports covering periods ending on or after the earlier of (i) the first annual shareholder meeting after January 15, 2004 or (ii) October 31, 2004. Item 6. [Reserved.] Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Applicable only to annual reports filed by closed-end funds. Item 8. [Reserved.] Item 9. Controls and Procedures (a) The Fund's principal executive officer and principal financial officer have concluded that the Fund's disclosure controls and procedures are sufficient to ensure that information required to be disclosed by the Fund in this Form N-CSR was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, based upon such officers' evaluation of these controls and procedures as of a date within 90 days of the filing date of the report. There were no significant changes or corrective actions with regard to significant deficiencies or material weaknesses in the Fund's internal controls or in other factors that could significantly affect the Fund's internal controls subsequent to the date of their evaluation. (b) There were no changes in the registrant's internal control over financial reporting that occurred during the registrant's second fiscal half-year that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 10. Exhibits. (a) The Code of Ethics for Principal Executive and Senior Financial Officers is attached hereto. (b) A separate certification for each Principal Executive Officer and Principal Financial Officer of the registrant are attached hereto as part of EX-99.CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) Van Kampen Corporate Bond Fund ------------------------------------------------------ By: /s/ Ronald E. Robison -------------------------------------------------------------- Name: Ronald E. Robison Title: Principal Executive Officer Date: October 20, 2003 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Ronald E. Robison -------------------------------------------------------------- Name: Ronald E. Robison Title: Principal Executive Officer Date: October 20, 2003 By: /s/ John L. Sullivan -------------------------------------------------------------- Name: John L. Sullivan Title: Principal Financial Officer Date: October 20, 2003