-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Rglj70DV42teQArLgJdOwOXgEKJ/HnzaYSjHcMOU5Ke2VEWVwKbhMpEN5Per8goS xVwtl9JLDsiKuZk8veEGZw== 0000950131-97-005233.txt : 19970825 0000950131-97-005233.hdr.sgml : 19970825 ACCESSION NUMBER: 0000950131-97-005233 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970822 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: VAN KAMPEN AMERICAN CAPITAL BOND FUND CENTRAL INDEX KEY: 0000005094 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 520906083 STATE OF INCORPORATION: MD FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-02090 FILM NUMBER: 97668437 BUSINESS ADDRESS: STREET 1: 2800 POST OAK BLVD STREET 2: 46TH FLOOR CITY: HOUSTON STATE: TX ZIP: 77056 BUSINESS PHONE: 7139930500 MAIL ADDRESS: STREET 1: 2800 POST OAK BLVD STREET 2: 46TH FL CITY: HOUSTON STATE: TX ZIP: 77056 FORMER COMPANY: FORMER CONFORMED NAME: VAN KAMPEN AMERICAN CAPITAL BOND FUND INC DATE OF NAME CHANGE: 19960102 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN CAPITAL BOND FUND INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN GENERAL BOND FUND INC DATE OF NAME CHANGE: 19831101 N-30D 1 BOND FUND JUNE 30, 1997 ANNUAL REPORT Van Kampen American Capital BOND FUND ANNUAL REPORT JUNE 30, 1997 [GRAPHIC APPEARS HERE] -- A Wealth of Knowledge . A Knowledge of Wealth . -- VAN KAMPEN AMERICAN CAPITAL Table of Contents Letter to Shareholders................ 1 Performance Results................... 4 Portfolio of Investments.............. 5 Statement of Assets and Liabilities... 9 Statement of Operations............... 10 Statement of Changes in Net Assets.... 11 Financial Highlights.................. 12 Notes to Financial Statements......... 14 Report of Independent Accountants..... 18 Dividend Reinvestment Plan............ 19
ACB ANR 8/97 Letter to Shareholders [PHOTOS OF DENNIS J. MCDONNELL AND DON G. POWELL HERE] July 30, 1997 Dear Shareholder, As you know, Van Kampen American Capital was acquired by Morgan Stanley Group Inc., a world leader in asset management. On February 5, 1997, Morgan Stanley Group Inc. and Dean Witter, Discover & Co. agreed to merge; the merger was completed on May 31, creating the combined company of Morgan Stanley, Dean Witter, Discover & Co. This preeminent global financial services firm boasts a market capitalization of $21 billion and leading market positions in securities, asset management, and credit services. Additionally, I am very pleased to announce that Philip N. Duff, formerly the chief financial officer of Morgan Stanley, has joined Van Kampen American Capital as president and chief executive officer. I will continue as chairman of the firm. As the financial industry continues to witness unprecedented consolidations and new partnerships, we believe that those firms who are leaders in all facets of their business will be able to offer investors the greatest opportunities and services as we move into the next century. We are confident that these changes will continue to work to the benefit of our fund shareholders as we move into the next century. Economic Review Volatility dominated the bond market during the 12 months ended June 30. Initially, prices fell as the economy grew stronger, which fueled fears of an interest rate hike by the Federal Reserve Board. When growth slowed to a moderate 2.1 percent rate in the third quarter of 1996 and a Democratic president was re-elected along with a Republican Congress, bond prices resumed their rise. The split government was seen as a restraint on spending increases that could potentially undermine efforts to control the federal budget deficit. By late November, the 30-year Treasury bond's yield, which moves in the opposite direction of its price, slipped to 6.35 percent from over 7.00 percent in July. The scenario shifted again at the start of 1997. Economic growth began to accelerate, reigniting fears of a Fed rate hike, and bond prices resumed their retreat. Despite a temporary reversal in February on signs of moderating inflation, the price decline continued, gaining momentum after the Fed raised short-term interest rates a quarter percentage point in late March. The rate hike was viewed as the first of many, imposing additional downward pressure on bond prices. First-quarter growth soared at a 4.9 percent pace, and by mid- April, the yield on the 30-year Treasury bond jumped to 7.17 percent. The market reversed itself once more after signs of a slowing economy re-emerged in May and the Fed refrained from raising rates again. By the end of June, the price of the 30-year Treasury rose as its yield slipped to 6.79 percent. Throughout most of the 12-month period, investment-grade corporate bonds moved in tandem with Treasury securities. Strong demand by investors for corporate bonds more than offset the sharp increase in their supply, which jumped more than 31 percent in 1996. First-quarter issuance was also up more than 31 percent compared to the level seen a year earlier. 1 Continued on page two Fund Strategy We maintained a heavy weighting in investment-grade corporate bonds, diversifying those assets by credit quality and issuers. As of June 30, approximately 88 percent of Fund long-term investments, were investment grade, including 60 percent that were rated BBB, the lowest rating Standard & Poor's Ratings Group assigns to investment-grade bonds. Among the remaining long-term investments, about 8 percent were AA-rated or cash equivalents, 20 percent were A-rated, 9 percent were BB-rated, and 3 percent were B-rated. Investing throughout the ratings spectrum may help to balance the portfolio's relative volatility to changing interest rates. BBB-rated bonds usually have higher yields than other investment-grade bonds and, as a result, tend to outperform those securities during periods of rising interest rates. The additional income generated by BBB-rated bonds help cushion the decline in principal. BB-rated bonds usually provide higher yields than BBB-rated securities. AA-rated and A-rated bonds typically have performed better when rates are declining, and have tended to provide safety of principal. Portfolio turnover during the 12-month period was limited because market conditions offered few opportunities to add value to existing holdings. The average yield of bonds in the portfolio was higher than current market yields, and tight spreads between the yields of BBB-rated bonds and A-rated bonds provided little incentive to adjust the portfolio. Trading activity focused on improving the Fund's call protection and maintaining its dividend, which has been stable for four years. As a result, purchases emphasized long-term securities that would not be callable for several years, and high-yielding bonds. Among the bonds added to the portfolio during the second half of the fiscal year were U.S. Can Corp., Tenet Healthcare Corp.; Americredit Corp., an auto-lending company; and Comcast Cable Communications, a cable company. Bonds that were sold included securities that had capital gains and one bond that had been tendered to the issuer at a premium. Going forward, we hope to add more high yield securities to the Fund in order to help maintain its income-paying ability. The Fund can invest up to 20 percent of its assets in high yield bonds, but as of June 30, only 12 percent of its long-term investments were in high yield securities. During the 12-month period, the duration of the Fund declined because a number of bonds that had appreciated in price began to trade according to their call date rather than their maturity date. Duration is a measure of a portfolio's sensitivity to interest rates changes. The longer the duration, the greater the effect of rate changes on the value of a portfolio; the shorter the duration, the smaller that effect. The relatively short duration of the Fund helped to underpin its net asset value in March and April, when interest rates rose. We hope to gradually extend the Fund's duration as interest rates stabilize. The Fund remains widely diversified in the number of securities it holds. Its largest sector exposure is in electric utilities, followed by consumer services, transportation, and processing industries. We continue to find utility bonds attractive because of the slow pace of industry deregulation and the bonds' relatively high yields.
Holdings by Sector as of June 30, 1997* Utilities................................ 35% Energy.............................. 7% Consumer Services........................ 13% Government.......................... 5% Transportation........................... 11% Other............................... 5% Raw Materials/Processing Industries...... 11% Health Care......................... 3% Producer Manufacturing................... 7% Finance............................. 3% * As a Percentage of Long-Term Investments
2 Continued on page three Performance Summary For the 12-month period ended June 30, 1997, the Bond Fund generated a total return at market price of 15.06 percent/1/. For the same period, the Lehman Brothers Corporate Bond Index returned 3.07 percent. Keep in mind that this index is a broad-based, unmanaged index that reflects the general performance of corporate bonds, and does not reflect any commissions or fees that would be paid by an investor purchasing the securities it represents. The Fund's return reflects the change in market price per share on the New York Stock Exchange from $18.125 on June 30, 1996, to $19.250 on June 30, 1997, and dividends totaling $1.54 per share. Outlook We continue to see strength in the economy, but we do not believe that second- quarter growth was nearly as vibrant as the 4.9 percent pace set in the first quarter. While labor productivity and manufacturing remained strong in the second quarter, retail sales fell, and the unemployment rate, which had slipped below 5.0 percent in April and May, edged up to that level in June. We expect that growth will accelerate again during the second half of the year because the economy's strong underlying fundamentals, including consumer confidence, job growth, and moderate inflation, remain intact. As a result, we believe the Federal Reserve may not raise rates again before year end. Given this outlook, we expect the yield on the 30-year Treasury bond to range between 6.25 and 6.75 percent for the remainder of the year. We believe that the Fund's heavy weighting of high-quality investment-grade bonds and its relatively short average maturity serves to potentially limit price volatility due to changing market conditions. In addition, the Fund is well-diversified among different securities and different market sectors. We do not anticipate making major adjustments to the portfolio until market fundamentals shift substantially, and we will monitor the economy in addition to Fed policy in order to anticipate such a shift. In addition, we will continue to seek a balance between the Fund's total return and its dividend income, and will seek to add value through security selection. Thank you for your continued confidence in your investment with Van Kampen American Capital. Sincerely, /s/ Don G. Powell /s/ Dennis J. McDonnell Don G. Powell Dennis J. McDonnell Chairman President Van Kampen American Capital Van Kampen American Capital Asset Management, Inc. Asset Management, Inc. 3 Performance Results for the Period Ended June 30, 1997 Van Kampen American Capital Bond Fund NYSE Ticker Symbol--ACB
Common Share Total Returns One-year total return based on market price/1/.................. 15.06% One-year total return based on NAV/2/........................... 9.46% Distribution Rate Distribution rate as a % of closing common stock price/3/....... 8.00% Share Valuations................................................ Net asset value................................................. $20.26 Closing common stock price...................................... $19.250 One-year high common stock price (02/24/97)..................... $19.500 One-year low common stock price (09/11/96)...................... $17.750
/1/Total return based on market price assumes an investment at the market price at the beginning of the period indicated, reinvestment of all distributions for the period in accordance with the Fund's dividend reinvestment plan, and sale of all shares at the closing stock price at the end of the period indicated. /2/Total return based on net asset value (NAV) assumes an investment at the beginning of the period indicated, reinvestment of all distributions for the period, and sale of all shares at the end of the period, all at NAV. /3/Distribution rate represents the quarterly annualized distributions of the Fund at the end of the period and not the earnings of the Fund. Past performance does not guarantee future results. Investment return, stock price and net asset value will fluctuate with market conditions. Fund shares, when sold, may be worth more or less than their original cost. 4 Portfolio of Investments June 30, 1997 ====================================================================================
Par Amount (000) Description Coupon Maturity Market Value - ------------------------------------------------------------------------------------- Corporate Bonds 89.9% Consumer Distribution 0.3% $ 750 Dimon, Inc. 8.875% 06/01/06 $ 782,625 ----------- Consumer Durables 0.4% 1,000 Chrysler Corp. 7.450 03/01/27 991,180 ----------- Consumer Non-Durables 1.9% 4,000 Coca Cola Enterprises, Inc. 8.500 02/01/12 4,488,400 ----------- Consumer Services 12.6% 1,250 Belo A H Corp. 7.125 06/01/07 1,253,125 2,500 Columbia Pictures Entertainment, Inc. 9.875 02/01/98 2,561,250 2,000 Comcast Cable Communications, 144A Private Placement (a) 8.125 05/01/04 2,098,200 3,000 Cox Communications, Inc. 7.250 11/15/15 2,933,070 5,000 Harcourt General, Inc. 9.500 03/15/00 5,349,500 1,750 Harcourt General, Inc. 8.875 06/01/22 2,004,100 1,000 News America Holdings, Inc. 8.875 04/26/23 1,081,300 100 Premier Parks, Inc. 9.750 01/15/07 104,000 11,000 Tele Communications, Inc. 9.250 01/15/23 11,531,300 ----------- 28,915,845 ----------- Energy 7.1% 7,400 Ashland Oil Inc. 8.800 11/15/12 8,352,380 750 Barrett Resources Corp. 7.550 02/01/07 723,750 5,025 PDV America, Inc. 7.875 08/01/03 5,122,987 1,000 Transcontinental Gas Pipe Line Corp. 7.250 12/01/26 962,900 1,000 Union Oil Co. 9.125 02/15/06 1,137,900 ----------- 16,299,917 ----------- Finance 2.4% 1,000 Americredit Corp. 9.250 02/01/04 987,500 3,288 First PV Funding Corp. 10.300 01/15/14 3,518,160 1,000 Royal Bank Scotland Group 6.375 02/01/11 926,900 ----------- 5,432,560 ----------- 5 See Notes to Financial Statements
Portfolio of Investments (Continued) June 30, 1997 - --------------------------------------------------------------------------------
Par Amount (000) Description Coupon Maturity Market Value - ----------------------------------------------------------------------------------------- Healthcare 2.8% $2,300 Aetna Services, Inc............................. 7.125% 08/15/06 $ 2,313,340 1,000 Allegiance Corp................................. 7.800 10/15/16 1,017,800 500 Manor Care, Inc................................. 7.500 06/15/06 508,850 1,500 Tenet Healthcare Corp........................... 10.125 03/01/05 1,638,750 1,000 Tenet Healthcare Corp........................... 8.625 01/15/07 1,031,400 ----------- 6,510,140 ----------- Producer Manufacturing 6.4% 250 American Builders, 144A Private Placement (a)... 10.625 05/15/07 258,750 4,400 ITT Corp........................................ 6.750 11/15/05 4,172,520 1,000 ITT Corp........................................ 7.375 11/15/15 948,900 6,000 John Deere Capital Corp......................... 9.625 11/01/98 6,265,800 250 Rayovac Corp.................................... 10.250 11/01/06 263,125 2,500 Rubbermaid, Inc................................. 6.600 11/15/06 2,449,250 250 US Can Corp..................................... 10.125 10/15/06 265,000 ----------- 14,623,345 ----------- Raw Materials/Processing Industries 10.7% 2,000 Bowater, Inc.................................... 9.375 12/15/21 2,385,400 1,000 Crown Cork & Seal, Inc.......................... 8.000 04/15/23 1,022,400 5,000 Federal Paper Board, Inc........................ 8.875 07/01/12 5,765,500 9,500 Georgia Pacific Corp............................ 9.500 02/15/18 9,949,350 1,500 James River Corp................................ 8.375 11/15/01 1,581,225 3,100 Owens Corning Fiberglass Corp................... 9.375 06/01/12 3,604,370 250 Pride Petroleum Services, Inc................... 9.375 05/01/07 262,550 ----------- 24,570,795 ----------- Technology 2.2% 5,000 Unisys Corp..................................... 15.000 07/01/97 5,043,750 ----------- Transportation 10.9% 3,000 AMR Corp........................................ 9.500 05/15/01 3,285,900 4,250 CSX Corp........................................ 8.625 05/15/22 4,747,250 2,500 Kansas City Southern Industries, Inc............ 7.875 07/01/02 2,598,500
6 See Notes to Financial Statements Portfolio of Investments (Continued) June 30, 1997 - --------------------------------------------------------------------------------
Par Amount (000) Description Coupon Maturity Market Value - ---------------------------------------------------------------------------------------- Transportation (Continued) $7,000 Union Pacific Corp......................... 8.350% 05/01/25 $ 7,297,500 6,000 United Airlines, Inc....................... 10.020 03/22/14 7,222,800 ------------ 25,151,950 ------------ Utilities 32.2% 5,000 A T & T Corp............................... 8.625 12/01/31 5,418,750 1,000 AES Corp................................... 10.250 07/15/06 1,090,000 3,000 Arizona Public Service Co.................. 9.500 04/15/21 3,297,000 3,500 Arizona Public Service Co.................. 8.750 01/15/24 3,708,250 2,000 Arizona Public Service Co.................. 8.000 02/01/25 1,981,940 6,200 Cleveland Electric Illuminating Co......... 10.000 06/01/20 6,541,000 1,000 Commonwealth Edison Co..................... 8.625 02/01/22 1,026,100 7,000 Consumers Energy Co........................ 8.750 02/15/98 7,151,200 5,000 GTE North, Inc............................. 8.500 12/15/31 5,294,500 3,000 Gulf States Utilities Co................... 8.940 01/01/22 3,176,400 4,000 Long Island Lighting Co.................... 9.750 05/01/21 4,230,800 3,000 Long Island Lighting Co.................... 9.000 11/01/22 3,334,500 4,150 Montana Power Co........................... 8.950 02/01/22 4,467,060 7,000 Public Service Co. Colorado................ 8.750 03/01/22 7,587,300 2,000 Southern California Gas Co................. 8.750 10/01/21 2,159,200 2,500 Texas Utilities Electric Co................ 8.875 02/01/22 2,743,000 1,500 United Illuminating Co..................... 10.240 01/02/20 1,616,550 5,000 United Telecommunications Kansas........... 9.500 04/01/03 5,609,500 500 UtiliCorp United, Inc...................... 6.700 10/15/06 499,600 3,000 UtiliCorp United, Inc...................... 9.000 11/15/21 3,205,800 ------------ 74,138,450 ------------ Total Corporate Bonds........................................ 206,948,957 ------------ Government and Government Agency Obligations 4.6% 11 Federal Home Loan Mortgage Corp., Pool..... 7.375 12/01/02 11,250 2 Government National Mortgage Assn., Pool... 10.000 10/15/16 1,834 8 Government National Mortgage Assn., Pool... 10.000 07/15/20 8,403
7 See Notes to Financial Statements Portfolio of Investments (Continued) June 30, 1997 - --------------------------------------------------------------------------------
Par Amount (000) Description Coupon Maturity Market Value - --------------------------------------------------------------------------------------------------- Government and Government Agency Obligations (Continued) $4,000 Newfoundland Province Canada......................... 9.000% 10/15/21 $ 4,660,400 5,500 Saskatchewan Province Canada......................... 8.000 02/01/13 5,896,000 ------------ Total Government and Government Agency Obligations.................... 10,577,887 ------------ Preferred Stock 2.2% Commonwealth Edison Co. (44,830 preferred shares, 8.38% coupon)............ 4,438,170 Time Warner, Inc. (566 preferred shares, 10.25% coupon).................... 626,762 ------------ Total Preferred Stock................................................. 5,064,932 ------------ Total Long-Term Investments 96.7% (Cost $208,063,082).............................................................. 222,591,776 ------------ Repurchase Agreement 1.2% BA Securities ($2,715,000 par collateralized by U.S. Government obligations in a pooled cash account, dated 06/30/97, to be sold on 07/01/97 at $2,715,459)....... 2,715,000 ------------ Total Investments 97.9% (Cost $210,778,082).............................................................. 225,306,776 Other Assets in Excess of Liabilities 2.1%......................................... 4,890,639 ------------ Net Assets 100.0%.................................................................. $230,197,415 ============
(a) 144A securities are those which are exempt from registration under Rule 144A of the Securities Act of 1933. These securities may only be resold in transactions exempt from registration which are normally transactions with qualified institutional buyers. The following table summarizes the long-term debt security portfolio composition at June 30, 1997, based upon the highest quality ratings as determined by Standard & Poor's or Moody's. Portfolio Composition by Credit Quality AA.............................. 8.0% A............................... 19.9 BBB............................. 60.2 BB.............................. 9.2 B............................... 2.7 ------ 100.0% ======
8 See Notes to Financial Statements Statement of Assets and Liabilities June 30, 1997 - --------------------------------------------------------------------------------
Assets: Total Investments (Cost $210,778,082)........................... $225,306,776 Cash............................................................ 2,189 Receivables: Interest...................................................... 5,214,939 Dividends..................................................... 93,919 Other........................................................... 31,490 ------------ Total Assets............................................... 230,649,313 ------------ Liabilities: Payables: Income Distributions.......................................... 292,199 Investment Advisory Fee....................................... 91,755 Affiliates.................................................... 2,400 Accrued Expenses................................................ 48,876 Retirement Plan................................................. 16,668 ------------ Total Liabilities.......................................... 451,898 ------------ Net Assets...................................................... $230,197,415 ============ Net Assets Consist of: Common Shares ($1.00 par value with 15,000,000 shares authorized, 11,362,465 shares issued and outstanding)......... $ 11,362,465 Capital......................................................... 235,011,011 Net Unrealized Appreciation..................................... 14,528,694 Accumulated Undistributed Net Investment Income................. 436,585 Accumulated Net Realized Loss................................... (31,141,340) ------------ Net Assets...................................................... $230,197,415 ============ Net Asset Value Per Common Share ($230,197,415 divided by 11,362,465 shares outstanding)....... $ 20.26 ============
9 See Notes to Financial Statements Statement of Operations For the Year Ended June 30, 1997 - --------------------------------------------------------------------------------
Investment Income: Interest................................................ $18,813,560 Dividends............................................... 432,989 ----------- Total Income........................................ 19,246,549 ----------- Expenses: Investment Advisory Fee................................. 1,103,615 Shareholder Services.................................... 127,842 Trustees Fees and Expenses.............................. 25,159 Legal................................................... 23,273 Custody................................................. 18,713 Other................................................... 272,398 ----------- Total Expenses........................................ 1,571,000 ----------- Net Investment Income................................... $17,675,549 =========== Realized and Unrealized Gain/Loss: Net Realized Gain/Loss: Investments........................................... $ 242,258 Futures............................................... (13,940) ----------- 228,318 ----------- Unrealized Appreciation/Depreciation: Beginning of the Period............................... 11,631,688 End of the Period: Investments......................................... 14,528,694 ----------- Net Unrealized Appreciation During the Period........... 2,897,006 ----------- Net Realized and Unrealized Gain........................ $ 3,125,324 =========== Net Increase in Net Assets from Operations.............. $20,800,873 ===========
10 See Notes to Financial Statements Statement of Changes in Net Assets For the Years Ended June 30, 1997 and 1996 - --------------------------------------------------------------------------------
Year Ended Year Ended June 30, 1997 June 30, 1996 ------------- ------------- From Investment Activities: Operations: Net Investment Income....................................... $ 17,675,549 $ 17,463,773 Net Realized Gain........................................... 228,318 997,239 Net Unrealized Appreciation/Depreciation During the Period................................................ 2,897,006 (6,005,192) ------------ ------------ Change in Net Assets from Operations........................ 20,800,873 12,455,820 Distributions from Net Investment Income.................... (17,499,005) (17,499,350) ------------ ------------ Net Change in Net Assets from Investment Activities..................................... 3,301,868 (5,043,530) Net Assets: Beginning of the Period..................................... 226,895,547 231,939,077 ------------ ------------ End of the Period (Including accumulated undistributed net investment income of $436,585 and $257,548, respectively)............ $230,197,415 $226,895,547 ============ ============
11 See Notes to Financial Statements Financial Highlights The following schedule presents financial highlights for one common share of the Fund outstanding throughout the periods indicated. - --------------------------------------------------------------------------------
--------------------------- 1997 1996 1995 - ------------------------------------------------------------------------------------ Net Asset Value, Beginning of the Period............................. $ 19.97 $ 20.41 $ 19.07 ------- ------- ------- Net Investment Income............................... 1.556 1.54 1.52 Net Realized and Unrealized Gain/Loss............... .273 (.44) 1.36 ------- ------- ------- Total from Investment Operations...................... 1.829 1.10 2.88 Less Distributions from Net Investment Income......... 1.540 1.54 1.54 ------- ------- ------- Net Asset Value, End of the Period.................... $20.259 $ 19.97 $ 20.41 ======= ======= ======= Market Price Per Share at End of the Period........... $19.250 $18.125 $19.125 Total Investment Return at Market Price (a) (d)....... 15.06% 2.61% 14.89% Total Return at Net Asset Value (b) (d)............... 9.46% 5.94% 16.54% Net Assets at End of the Period (In millions) (d)..... $ 230.2 $ 226.9 $ 231.9 Ratio of Operating Expenses to Average Net Assets..... .68% .67% .68% Ratio of Convertible Note Expenses to Average Net Assets (c).............................. -- -- .39% Ratio of Net Investment Income to Average Net Assets.................................. 7.70% 7.47% 7.92% Portfolio Turnover.................................... 8% 11% 8% Assuming full dilution of debt (c): Net Asset Value, End of the Period.................. -- -- -- Number of Shares Outstanding, End of the Period (000)........................... -- -- --
(a) Total Investment Return at Market Price reflects the change in market value of the common shares for the period indicated with reinvestment of dividends in accordance with the Fund's dividend reinvestment plan. (b) Total Return at Net Asset Value (NAV) reflects the change in value of the Fund's assets with reinvestment of dividends based upon NAV. (c) On January 3, 1995, the Fund paid off its outstanding convertible extendible note. (d) Prior to fiscal year end 1992, this item was not a required disclosure. 12
================================================================================== Year Ended June 30, - ---------------------------------------------------------------------------------- 1994 1993 1992 1991 1990 1989 1988 - ---------------------------------------------------------------------------------- $ 21.33 $ 19.85 $ 18.68 $ 18.72 $ 20.34 $ 21.49 $ 21.87 ------- ------- ------- ------- ------- ------- ------- 1.56 1.575 1.735 1.76 2.07 1.90 1.95 (2.28) 1.55 1.115 (.03) (1.615) (.85) (.13) ------- ------- ------- ------- ------- ------- ------- (.72) 3.125 2.85 1.73 .455 1.05 1.82 1.54 1.645 1.68 1.77 2.075 2.20 2.20 ------- ------- ------- ------- ------- ------- ------- $ 19.07 $ 21.33 $ 19.85 $ 18.68 $ 18.72 $ 20.34 $ 21.49 ======= ======= ======= ======= ======= ======= ======= $18.125 $20.750 $19.750 $18.375 $16.500 $20.250 $21.125 (5.59%) 13.76% 17.12% -- -- -- -- (3.37%) 16.35% 15.79% -- -- -- -- $ 216.6 $ 235.6 $ 218.5 -- -- -- -- .68% .71% .71% .72% .71% .71% .70% .82% .98% 1.05% 1.09% 1.55% 1.90% 1.95% 7.29% 7.65% 8.90% 9.42% 10.65% 9.03% 9.22% 2% 19% 39% 18% 14% 13% 41% $ 19.07 $ 21.09 $ 19.78 $ 18.74 $ 18.78 $ 20.17 $ 21.15 12,411 12,411 12,372 12,304 12,304 12,746 12,701
13 See Notes to Financial Statements Notes to Financial Statements June 30, 1997 - -------------------------------------------------------------------------------- 1. Significant Accounting Policies Van Kampen American Capital Bond Fund (the "Fund") is registered as a diversified closed-end management investment company under the Investment Company Act of 1940, as amended. The Fund's investment objective is to provide current income with preservation of capital through investing primarily in a diversified portfolio of debt securities. 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 generally accepted accounting principles 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. Investments in securities listed on a securities exchange are valued at their sale price as of the close of such securities exchange. Unlisted securities and listed 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, valuations are determined in accordance with procedures established in good faith by the Board of Trustees. Short-term securities with remaining maturities of 60 or less days are valued at amortized cost. B. Security Transactions--Security transactions are recorded on a trade date basis. Realized gains and losses are determined on an identified cost basis. The Fund may purchase and sell securities on a "when issued" or "delayed delivery" basis, with settlement to occur at a later date. The value of the security so purchased is subject to market fluctuations during this period. The Fund will maintain, in a segregated account with its custodian, assets having an aggregate value at least equal to the amount of the when issued or delayed delivery purchase commitments until payment is made. At June 30, 1997, there were no when issued or delayed delivery purchase commitments. The Fund may invest in repurchase agreements, which are short-term investments whereby 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 American Capital 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 14 Notes to Financial Statements (Continued) June 30, 1997 ================================================================================ bank. The seller is required to maintain the value of the underlying security at not less than the repurchase proceeds due the Fund. C. Investment Income--Interest income is recorded on an accrual basis and dividend income is recorded on the ex-dividend date. Original issue discount is amortized over the expected life of each applicable security. Premiums on debt securities are not amortized. Market discounts are recognized at the time of sale as realized gains for book purposes and ordinary income for tax purposes. 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 June 30, 1997, the Fund had an accumulated capital loss carryforward for tax purposes of $31,141,340 which will expire between June 30, 1998 and June 30, 2000. Of this amount, $26,984,856 will expire on June 30, 1998. At June 30, 1997, for federal income tax purposes, cost of long- and short- term investments is $210,778,082; the aggregate gross unrealized appreciation is $15,319,677 and the aggregate gross unrealized depreciation is $790,983, resulting in net unrealized appreciation of $14,528,694. E. Distribution of Income and Gains--The Fund declares and pays dividends from net investment income to shareholders quarterly. 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 option and futures transactions. All short-term capital gains and a portion of option and futures gains are included in ordinary income for tax purposes. Due to inherent differences in the recognition of income, expenses and realized gains/losses under generally accepted accounting principles and federal income tax purposes, permanent differences between book and tax basis reporting for the current fiscal year have been identified and appropriately reclassified. Permanent differences related to the recognition of net realized gains on paydowns of mortgage-backed securities totaling $2,236 were reclassified from accumulated net realized gain/loss to accumulated undistributed net investment income. In addition, permanent differences related to the recognition of certain expenses which are not deductible for tax purposes totaling $257 have been reclassified from accumulated undistributed net investment income to capital. 15 Notes to Financial Statements (Continued) June 30, 1997 =============================================================================== 2. Investment Advisory Agreement and Other Transactions with Affiliates Under the terms of the Fund's Investment Advisory Agreement, the Adviser will provide investment advice and facilities to the Fund for an annual fee payable monthly as follows: Average Net Assets % Per Annum =============================================================================== First $150 million ............................................... .50 of 1% Next $100 million ................................................ .45 of 1% Next $100 million ................................................ .40 of 1% Over $350 million ................................................ .35 of 1% For the year ended June 30, 1997, the Fund recognized expenses of approximately $39,500 representing Van Kampen American Capital Distributors, Inc.'s or its affiliates' (collectively "VKAC") cost of providing accounting services to the Fund. These services are provided by VKAC at cost. Certain officers and trustees of the Fund are also officers and directors of VKAC. The Fund does not compensate its officers or trustees who are officers of VKAC. The Trustees of the Fund instituted a Retirement Plan effective April 1, 1996. The Plan is not funded, and obligations under the Plan will be paid solely out of the Fund's general accounts. The Fund will not reserve or set aside funds for the payment of its obligations under the Plan by any form of trust or escrow. For the current Trustees not affiliated with the Adviser, the annual retirement benefit payable per year for a ten-year period is based upon the highest total annual compensation received in any of the three calendar years preceding retirement. Trustees with more than five but less than ten years of service at retirement will receive a prorated reduced benefit. Under the Plan, for the Trustees retiring with the effectiveness of the Plan, the annual retirement benefit payable per year for a ten-year period is equal to 75% of the total compensation received from the Fund during the 1995 calendar year. 3. Investment Transactions During the period, the cost of purchases and proceeds from sales of investments, excluding short-term investments, were $17,650,446 and $18,924,916, respectively. 4. 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 to manage the Fund's maturity and duration. All of the Fund's portfolio holdings, including derivative instruments, are marked to market each day with the change in value reflected in the unrealized appreciation/depre- 16 Notes to Financial Statements (Continued) June 30, 1997 ================================================================================ ciation. Upon disposition, a realized gain or loss is recognized accordingly, except when exercising an option contract or taking delivery of a security underlying a futures contract. In these instances, the recognition of gain or loss is postponed until the disposal of the security underlying the option or futures contract. 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 exchange traded futures contracts on U.S. Treasury Bonds and typically closes the contract prior to the delivery date. These contracts are generally used to manage the portfolio's effective maturity and duration. Upon entering into futures contracts, the Fund maintains, in a segregated account with its custodian, securities with a value equal to its obligation under the futures contracts. 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). Transactions in futures contracts, each with a par value of $100,000, for the year ended June 30, 1997, were as follows: Contracts ============================================================================== Outstanding at June 30, 1996 ...................................... 20 Futures Opened .................................................... -0- Futures Closed .................................................... (20) --- Outstanding at June 30, 1997 ...................................... -0- === 17 Report of Independent Accountants To the Shareholders and Board of Trustees of Van Kampen American Capital Bond Fund We have audited the accompanying statement of assets and liabilities, including the portfolio of investments of Van Kampen American Capital Bond Fund, as of June 30, 1997, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the ten 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. We conducted our audits in accordance with generally accepted auditing standards. 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. Our procedures included confirmation of securities owned as of June 30, 1997, by correspondence with the custodian. 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 Van Kampen American Capital Bond Fund at June 30, 1997, 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 ten years in the period then ended, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Houston, Texas July 25, 1997 18 Dividend Reinvestment Plan The Fund pays distributions in cash, but if you own more than 100 shares in your own name, you may elect to participate in the Fund's dividend reinvestment plan (the "Plan"). Under the Plan, shares will be issued by the Fund at net asset value on a date determined by the Board of Trustees between the record and payable dates on each distribution; however, if the market price, including brokerage commissions, is less than the net asset value, the amount of the distribution will be paid to the Plan Agent, which will buy such shares as are available at prices below the net asset value. (If the market price is not significantly less than the net asset value, it is possible that open market purchases of shares may increase the market price so that such price plus brokerage commissions would equal or exceed the net asset value of such shares). If Plan Agent cannot buy the necessary shares at less than net asset value before the distribution date, the balance of the distribution will be made in authorized but unissued shares of the Fund at net asset value. The cost per share will be the average cost, including brokerage commissions, of all shares purchased. Since all shares purchased from the Fund are net asset value, there will be no dilution, and no brokerage commissions are charged on such shares. You will receive tax information annually for your personal records and to help you prepare your federal income tax return. The automatic reinvestment of dividends and capital gain distributions does not relieve you of any income tax which may be payable (or required to be withheld) on dividends or distributions. You may begin or discontinue participation in the Plan at any time by written notice to the address below. If you withdraw from the Plan, you may rejoin at any time if you own of record the required 100 shares. Elections and terminations will be effective for distributions declared after receipt. If you withdraw from the Plan, a certificate for the whole shares and a check for the fractional shares, if any, credited to your Plan account will be sent as soon as practicable after receipt of your election to withdraw. Except for brokerage commissions, if any, which are borne by Plan participants, all costs of the Plan are borne by the Fund. The Fund reserves the right to amend or terminate the Plan on 30 days' written notice prior to the record date of the distribution for which such amendment or termination is effective. Record stockholders should address all notices, correspondence, questions or other communications about the Plan to: Boston EquiServe LP P.O Box 8200 Boston, MA 02266-8200 1-800-341-2929 If your shares are not held directly in your name, you should contact your brokerage firm, bank or other nominee for more information and to see if your nominee will participate in the Plan on your behalf. If you participate through your broker and choose to move your account to another broker, you will need to re-enroll in the Plan through your new broker. 19 GLOBAL AND INTERNATIONAL Global Equity Fund Global Government Securities Fund Global Managed Assets Fund Short-Term Global Income Fund Strategic Income Fund EQUITY Growth Aggressive Growth Fund Emerging Growth Fund Enterprise Fund Growth Fund Pace Fund Growth & Income Comstock Fund Equity Income Fund Growth and Income Fund Harbor Fund Real Estate Securities Fund Utility Fund FIXED INCOME Corporate Bond Fund Government Securities Fund High Income Corporate Bond Fund High Yield Fund Limited Maturity Government Fund Prime Rate Income Trust Reserve Fund U.S. Government Fund U.S. Government Trust for Income TAX-FREE California Insured Tax Free Fund Florida Insured Tax Free Income Fund High Yield Municipal Fund Insured Tax Free Income Fund Intermediate Term Municipal Income Fund Municipal Income Fund New Jersey Tax Free Income Fund New York Tax Free Income Fund Pennsylvania Tax Free Income Fund Tax Free High Income Fund Tax Free Money Fund MORGAN STANLEY FUND, INC. Aggressive Equity Fund American Value Fund Asian Growth Fund Emerging Markets Fund Global Equity Allocation Fund Global Fixed Income Fund High Yield Fund International Magnum Fund Latin American Fund U.S. Real Estate Fund Value Fund Worldwide High Income Fund Ask your investment representative for a prospectus containing more complete information, including sales charges and expenses. Please read it carefully before you invest or send money. Or call us weekdays from 7:00 a.m. to 7:00 p.m. Central time at 1-800-341-2911 for Van Kampen American Capital funds or for Morgan Stanley retail funds. 20 Van Kampen American Capital Bond Fund Board of Trustees Donald M. Carlton A. Benton Cocanougher Stephen R. Gross Alan G. Merten Steven Muller R. Richardson Pettit Don G. Powell* -- Chairman Alan B. Shepard, Jr. Officers Don G. Powell* President Dennis J. McDonnell* Executive Vice President Ronald A. Nyberg* Vice President and Secretary Edward C. Wood, III* Vice President and Chief Financial Officer Curtis W. Morell* Vice President and Chief Accounting Officer John L. Sullivan* Treasurer Tanya M. Loden* Controller Peter W. Hegel* Alan T. Sachtleben* Paul R. Wolkenberg* Vice Presidents Investment Adviser Van Kampen American Capital Asset Management, Inc. One Parkview Plaza Oakbrook Terrace, Illinois 60181 Custodian State Street Bank and Trust Co. 225 Franklin Street Boston, Massachusetts 02105 Shareholder Servicing Agent Boston EquiServe LP P.O. Box 8200 Boston, Massachusetts 02266-8200 Legal Counsel Sullivan & Worcester LLP 1025 Connecticut Ave, NW Washington, DC 20036 Independent Accountants Ernst & Young LLP 1221 McKinney Suite 2400 Houston, Texas 77010 --------------------------------------------- INQUIRIES ABOUT AN INVESTOR'S ACCOUNT SHOULD BE REFERRED TO THE FUND'S TRANSFER AGENT BOSTON EQUISERVE P.O. BOX 8200 BOSTON, MASSACHUSETTS 02266-8200 TELEPHONE: (800) 341-2929 ALASKA AND HAWAII CALL COLLECT: (713) 993-0500 Ask for Closed-End Fund Account Services --------------------------------------------- * "Interested" persons of the Fund, as defined in the Investment Company Act of 1940. (C) Van Kampen American Capital Distributors, Inc., 1997 All rights reserved. /SM/ denotes a service mark of Van Kampen American Capital Distributors, Inc. 21 +--------------------+ Van Kampen American Capital Distributors, Inc. | Bulk Rate | One Parkview Plaza | U.S. Postage | Oakbrook Terrace, Illinois 60181 | PAID | | VAN KAMPEN | | AMERICAN CAPITAL | +--------------------+ -----END PRIVACY-ENHANCED MESSAGE-----