<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders...................... 1
Performance Results......................... 3
Portfolio Manager Comments.................. 4
Portfolio of Investments.................... 6
Statement of Assets and Liabilities......... 8
Statement of Operations..................... 9
Statement of Changes in Net Assets.......... 10
Financial Highlights........................ 11
Notes to Financial Statements............... 13
</TABLE>
11-CORP-SAR-4/95
<PAGE>
LETTER TO SHAREHOLDERS
[PHOTO OF DON G. POWELL]
DON G. POWELL
March 27, 1995
Dear Shareholder:
During the six-month period covered by this report, September 1, 1994 through
February 28, 1995, we saw the close of a challenging and difficult year in the
financial markets--and the beginning of a new year, with renewed optimism and
strength on many fronts.
MARKET OVERVIEW
In an effort to moderate economic growth and keep inflation under control,
the Federal
Reserve Board (the "Fed") raised the federal funds rate (the rate banks charge
each other for overnight loans) seven times over a 12-month period. As a re-
sult, the fed funds rate doubled from 3 percent to 6 percent, its highest level
in three years. Intermediate and long-term interest rates quickly followed the
Fed's lead and moved significantly higher as well. The yield on 30-year Trea-
sury securities, for example, began 1994 at 6.35 percent and increased to a
high of 8.16 percent, before retreating to 7.89 percent at the end of the year.
However, since yields and prices move in opposite directions, this had a nega-
tive impact on prices of fixed-income securities.
Stock market investors did not fare much better during this rising interest
rate environment, despite the robust economy and stronger corporate earnings.
Concerned that higher interest rates and the prospect for continued rate hikes
might altogether extinguish the
economic expansion, the equity market sputtered for most of 1994. The S&P 500
Index, for example, produced a 1.36 percent total return for 1994, while the
average price change for the year for all stocks listed on the New York Stock
Exchange was down 20 percent.
In contrast, 1995 began more positively, as the bond market got a boost from
growing sentiment that the Fed appeared to have stabilized economic growth
while keeping inflation under control, and that it may be near the end of its
tightening cycle. Subsequently, the yield on 30-year Treasury securities fell
to 7.44 percent by the end of February--down nearly three quarters of a per-
centage point--from its high of 8.16 percent in November.
The stock market responded in late February with the Dow Jones Industrial Av-
erage breaking through the 4000 mark, setting a new record high and raising ex-
pectations for a stronger market in 1995. At the same time, almost all other
major stock indexes rose, including the S&P 500 Index, the New York Stock Ex-
change Composite Index, and the Nasdaq Composite Index.
Additionally, the Van Kampen American Capital Index of Investor Intentions
for February reached 233--an increase of 17 percent over January's level of
200--its largest monthly increase since February 1994. The index, computed from
an independently conducted survey and published by Van Kampen American Capital,
measures the investment climate (investors' confidence) by asking 1,000 invest-
ors about what they intend to do with their money over the next 60-90 days. A
total of 45.6 percent of investors said the next 60-90 days would be a "good"
time to invest.
(Continued on page two)
1
<PAGE>
On the following pages, you can read about your Fund's performance during
the past six months, as well as portfolio management's outlook for 1995. We
hope that you will find the information contained in the question-and-answer
section helpful.
CORPORATE NEWS
As you may have already noticed, we have adopted a new design for our share-
holder reports that begins to reflect our new identity as Van Kampen American
Capital. Going forward, we will continue to look for new ways to improve upon
the presentation of information in your Fund's report.
In addition, we have developed a new corporate ad campaign introducing Van
Kampen American Capital to investors and the investment community. Full page
ads appeared in The Wall Street Journal in February--watch for more advertis-
ing throughout the year.
We look forward to communicating with you on a regular basis, providing in-
formation about your Fund's performance, new investment opportunities, and our
newly created company. We appreciate your continued confidence in your Fund
and Van Kampen American Capital.
Sincerely,
LOGO
Don G. Powell
President
Van Kampen American Capital
Asset Management, Inc.
2
<PAGE>
PERFORMANCE RESULTS FOR THE PERIOD ENDED FEBRUARY 28, 1995
AMERICAN CAPITAL CORPORATE BOND FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS
Six-month total return based on NAV/1/.............. 2.54% 2.28% 2.13%
Six-month total return/2/........................... (2.33%) (1.68%) 1.14%
One-year total return/2/............................ (5.04%) (4.75%) (2.11%)
Five-year average annual total return/2/............ 7.75% N/A N/A
Ten-year average annual total return/2/............. 9.36% N/A N/A
Life of Fund average annual total return/2/......... 8.16% 2.56% (1.60%)
Commencement Date................................... 09/23/71 09/28/92 08/30/93
DISTRIBUTION RATE AND YIELD
Distribution Rate/3/................................ 6.99% 6.47% 6.48%
SEC Yield/4/........................................ 6.86% 6.43% 6.40%
</TABLE>
N/A = Not Applicable
/1/Assumes reinvestment of all distributions for the period ended February 28,
1995, and does not include payment of the maximum sales charge (4.75% for A
shares) or contingent deferred sales charge (4% for B shares; 1% for C
shares).
/2/Standardized total return for the period ended February 28, 1995.
/3/Distribution rate represents the monthly annualized distributions of the Fund
at the end of February 1995, and not the earnings of the Fund.
/4/SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio
should theoretically generate for the 30-day period ending February 28, 1995.
See the Fund Performance section of the current prospectus. Past performance
does not guarantee future results. Investment return and net asset value will
fluctuate with market conditions. Investor's shares, when redeemed, may be
worth more or less than their original cost.
3
<PAGE>
PORTFOLIO MANAGER COMMENTS
AMERICAN CAPITAL CORPORATE BOND FUND
The following is an interview with the management team of American Capital
Corporate Bond Fund. The team is lead by David Troth, portfolio manager, and
Robert C. Peck, Jr., executive vice president for fixed-income investments.
Q WHAT MARKET EVENTS SIGNIFICANTLY INFLUENCED THE FUND OVER THE SIX-MONTH
PERIOD ENDED FEBRUARY 28, 1995?
A Seeking to calm inflation fears, the Federal Reserve Board (the "Fed")
continued to increase interest rates over the past six months. This ac-
tion shows the Fed's desire to control money growth and maintain a defensive
stance against inflation, which should help to create a favorable environment
for fixed-income products. However, because bond prices and yields have an in-
verse relationship, most bonds -- including some of the Fund's holdings -- de-
clined in value, as the Fed increased interest rates.
A secondary market factor, the Mexican peso crisis, reminded us of the im-
portance of credit quality. Although this event had no direct effect on the
Fund, it did create an environment of market uncertainty and a flight to qual-
ity. You should be reassured in knowing the Fund's current exposure to foreign
securities is limited to those issues rated investment grade or better. More
importantly, securities of foreign issuers cannot exceed twenty percent of the
Fund's assets and all must be denominated in U.S. dollars. (A dollar-denomi-
nated security makes principal and interest payments in U.S. dollars.)
As interest rates declined (1987-1993), many corporations retired or refi-
nanced their debt. Today, because interest rates have increased, refinancing
has become less economical. As a result, the supply of new corporate bond debt
has declined, including the supply of new issuance. This lower supply of bonds
should help to strengthen prices. Also, we have positioned the Fund with many
long-term non-callable issues, which are not subject to early refinancing
should interest rates decline.
Q WAS IT NECESSARY TO REPOSITION THE FUND'S PORTFOLIO IN RESPONSE TO THESE
EVENTS?
A Although the Fund required a minimal amount of portfolio activity, its
duration was lengthened as a result of interest rate changes. During this
six-month period the
[PERFORMANCE GRAPH APPEARS HERE]
QUALITY RATING OF THE PORTFOLIO AS OF FEBRUARY 28, 1995
A=18.7%
AA=1.9%
Cash & Equivalents=18.0%
BA=5.2%
Preferred Stock=1.5%
BAA=54.7%
4
<PAGE>
Fund's duration increased from 5.40 years to 6.02 years. (Duration is a meas-
ure used to evaluate how the price of a bond will react to changes in interest
rates.)
At present, the Fund holds a relatively small position in the following
foreign securities: Grand Metropolitan Investment Corp. (U.K.), Nova Scotia,
Saskatchewan, and Newfoundland provincial debt (Canada). Together, these secu-
rities accounted for approximately 7.23 percent of the portfolio's assets.
Q WHAT TYPE OF INVESTMENT STRATEGY DO YOU ADHERE TO AND HOW HAS IT
AFFECTED THE FUND'S PERFORMANCE?
A We placed an emphasis on owning securities with ratings between A and
BAA, in addition to keeping the Fund well diversified. Occasionally, we
will hedge the portfolio using financial bond futures, a strategy which has
proven effective in controlling the Fund's duration during periods of rising
yields.
The Fund's (Class A Shares) six-month total return, at net asset value, was
2.54 percent./1/ Its long-term performance remains strong. The Fund (Class A
Shares) reported a ten-year average annual total return, at net asset value,
of 9.89 percent./1/ (To view the Fund's six-month, five-, and ten-year average
annual total returns please see page three.)
Q HOW DID THE FUND PERFORM RELATIVE TO A COMPARATIVE INDEX?
A The Lehman Brothers Corporate Bond Index achieved a six-month total re-
turn of 3.56 percent. This is a broad-based index which reflects the
performance of all publicly issued, fixed-rate, nonconvertible investment
grade corporate debt. The index is unmanaged and does not reflect any commis-
sions or fees that would be paid by an investor purchasing the securities it
represents.
Q WHAT IS YOUR OUTLOOK FOR THE MARKET IN 1995 AND, MORE SPECIFICALLY, FOR
CORPORATE BONDS?
A Over the long run, we believe significant value exists in the fixed-in-
come marketplace. Aggressive Fed interest rate tightening during 1994
should produce moderating economic growth during 1995 and into the following
year. Evidence suggests that inflation should increase, but still within a
range of tolerance and from a relatively low base.
Normally, credit risk increases for corporate bonds during an environment of
economic slowdown. However, should we enter such a period today, we feel cor-
porate bond issuers generally are in a strong position, as a result of balance
sheets and income statements showing significant signs of improvement from
prior years.
LOGO LOGO
Robert C. Peck, Jr. David Troth
Executive Vice President Portfolio Manager
Fixed Income Investments
Please see footnotes on page three.
5
<PAGE>
See Notes to Financial Statements
PORTFOLIO OF INVESTMENTS
February 28, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Market Value
................................................................................
<C> <S> <C>
CORPORATE OBLIGATIONS 73.5%
CONSUMER DISTRIBUTION 1.0%
Grand Metropolitan Investment Corp., 8.00%,
$ 2,000,000 9/15/22........................................ $ 1,954,800
----------------
CONSUMER NON-DURABLES 1.1%
2,000,000 Coca-Cola Enterprises, Inc., 8.50%, 2/1/12..... 2,064,800
----------------
CONSUMER SERVICES 7.4%
Columbia Pictures Entertainment, Inc., 9.875%,
6,215,000 2/1/98......................................... 6,619,596
1,250,000 Hartcourt General, Inc., 8.875%, 6/1/22........ 1,315,000
6,000,000 News America Holdings, Inc., 8.875%, 4/26/23... 5,919,000
----------------
TOTAL CONSUMER SERVICES........................ 13,853,596
----------------
ENERGY 19.8%
6,300,000 Ashland Oil Inc., 8.80%, 11/15/12.............. 6,550,110
2,500,000 Coastal Corp., 11.75%, 6/15/06................. 2,725,500
9,000,000 Occidental Petroleum Corp., 9.625%, 7/1/99..... 9,265,500
6,300,000 PDV America Inc., 7.875%, 8/1/03............... 5,797,260
5,000,000 Phillips Petroleum Corp., 8.86%, 5/15/22....... 5,046,000
Union Oil Co. of California
4,000,000 9.125%, 2/15/06............................... 4,324,800
3,000,000 9.25%, 2/1/03................................. 3,236,400
----------------
TOTAL ENERGY................................... 36,945,570
----------------
FINANCE 9.4%
Bank of America, Series 1980-1, 11.875%,
37,222 4/1/10......................................... 37,780
4,924,000 Beaver Valley II Funding Corp., 9.00%, 6/1/17.. 3,816,100
First PV Funding Corp., Series 1986-A, 10.30%,
3,500,000 1/15/14........................................ 3,500,000
3,769,000 PNPP II Funding Corp., 8.51%, 11/30/06......... 3,757,316
4,500,000 Ryder Systems, Inc., 9.25%, 5/15/01............ 4,806,675
1,500,000 United Illuminating Co., 10.24%, 1/2/20........ 1,590,300
----------------
TOTAL FINANCE.................................. 17,508,171
----------------
PRODUCER MANUFACTURING 2.9%
5,000,000 John Deere Credit Corp., 9.625%, 11/1/98....... 5,343,500
----------------
RAW MATERIAL/PROCESSING INDUSTRIES 6.4%
4,000,000 Crown Cork & Seal Co., Inc., 8.00%, 4/15/23.... 3,782,400
4,000,000 Federal Paper Board, Inc., 8.875%, 7/1/12...... 4,169,600
3,000,000 Georgia-Pacific Corp., 9.50%, 2/15/18.......... 3,090,000
500,000 James River Corp., 8.375%, 11/15/01............ 511,070
300,000 Owens-Corning Fiberglass Corp., 9.375%, 6/1/12. 326,340
----------------
TOTAL RAW MATERIALS/PROCESSING INDUSTRIES...... 11,879,410
----------------
TECHNOLOGY 3.5%
International Business Machines Corp., 7.50%,
5,000,000 6/15/13........................................ 4,688,000
2,000,000 Tele-Comunications, Inc., 9.25%, 1/15/23....... 1,929,000
----------------
TOTAL TECHNOLOGY............................... 6,617,000
----------------
</TABLE>
6
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Amount
/Number of shares Market Value
................................................................................
<C> <S> <C>
TRANSPORTATION 6.0%
$ 3,000,000 AMR Corp., 9.50%, 5/15/01................ $ 3,189,600
750,000 CSX Corp., 8.625%, 5/15/22............... 772,950
Kansas City Southern Industries, Inc.
1,500,000 7.875%, 7/1/02.......................... 1,492,350
700,000 8.800%, 7/01/22......................... 711,270
5,000,000 United Airlines Pass-through
Certificates, Series 1991-A,
10.02%, 3/22/14.......................... 4,945,500
----------------
TOTAL TRANSPORTATION..................... 11,111,670
----------------
UTILITIES 16.0%
Arizona Public Service Co.
1,000,000 8.75%, 1/15/24.......................... 1,003,800
2,000,000 9.50%, 4/15/21.......................... 2,105,240
2,300,000 Cleveland Electric Illuminating Co., 2,213,520
10.00%, 6/1/20...........................
9,800,000 Commonwealth Edison Co., 8.25%, 12/1/07.. 9,534,420
1,720,000 Connecticut Yankee Atomic Power, Series 1,823,200
A, 12.00%, 6/1/00........................
1,605,000 Consumers Power Co., 8.875%, 11/15/99.... 1,647,131
1,000,000 Gulf States Utilities, 8.94%, 1/1/22..... 1,007,400
Long Island Lighting Co.
1,000,000 9.00%, 11/1/22.......................... 971,400
4,000,000 9.75%, 5/1/21........................... 4,114,800
1,500,000 Niagara Mohawk Power Corp., 8.50%, 1,392,210
7/15/23..................................
2,500,000 Texas Utility Electric Co., 8.875%, 2,565,250
2/1/22...................................
1,500,000 Union Electric Co., 8.00%, 12/15/22...... 1,436,715
----------------
TOTAL UTILITIES.......................... 29,815,086
----------------
TOTAL CORPORATE OBLIGATIONS (Cost 137,093,603
$134,551,310)............................
----------------
CANADIAN GOVERNMENT OBLIGATIONS 6.2%
4,000,000 Province of Newfoundland, 9.00%, 4,277,200
10/15/21.................................
4,650,000 Province of Nova Scotia, 8.25%, 7/30/22.. 4,602,105
Province of Saskatchewan
650,000 8.00%, 2/1/13........................... 633,913
2,000,000 8.50%, 7/15/22.......................... 2,015,780
----------------
TOTAL CANADIAN GOVERNMENT OBLIGATIONS 11,528,998
(Cost $11,202,258).......................
----------------
PREFERRED STOCK 1.5%
105,000 General Motors Corp., $2.281 (Cost 2,782,500
$2,682,174)..............................
----------------
SHORT-TERM INVESTMENT 17.8%
33,325,000 Repurchase Agreement with Salomon
Brothers, Inc., dated 2/28/95, 6.125%,
due 3/1/95 (collateralized by U.S.
Government obligations in a pooled cash
account) repurchased proceeds $33,330,670
(Cost $33,325,000)....................... 33,325,000
----------------
TOTAL INVESTMENTS (Cost 184,730,101
$181,760,742) 99.0%......................
Other assets and liabilities, net 1.0%... 1,873,169
----------------
NET ASSETS 100%.......................... $ 186,603,270
----------------
</TABLE>
See Notes to Financial Statements
7
<PAGE>
See Notes to Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
February 28, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at market value (Cost $181,760,742)................ $184,730,101
Cash............................................................ 1,509
Interest receivable............................................. 2,942,851
Receivables for Fund shares sold................................ 238,302
Other assets.................................................... 2,726
------------
TOTAL ASSETS................................................... 187,915,489
------------
LIABILITIES
Payable for Fund shares redeemed................................ 549,265
Dividends payable............................................... 432,028
Accrued expenses................................................ 77,864
Due to Distributor.............................................. 76,394
Due to Adviser.................................................. 75,440
Due to shareholder service agent................................ 63,852
Deferred directors' compensation................................ 37,376
------------
TOTAL LIABILITIES.............................................. 1,312,219
------------
NET ASSETS, equivalent to $6.54 per share for Class A, $6.55
Class B, and $6.54 Class C shares.............................. $186,603,270
------------
NET ASSETS WERE COMPRISED OF:
Capital stock, at par; 25,649,484 Class A, 2,391,188 Class B and
480,065 Class C shares outstanding............................. $ 285,207
Capital surplus................................................. 208,634,405
Accumulated net realized loss on securities..................... (25,296,590)
Net unrealized appreciation of investments...................... 2,969,359
Undistributed net investment income............................. 10,889
------------
NET ASSETS at February 28, 1995................................. $186,603,270
------------
</TABLE>
8
<PAGE>
See Notes to Financial Statements
STATEMENT OF OPERATIONS
Six Months Ended February 28, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT IN-
COME
Interest...... $ 7,503,447
Dividends..... 59,883
----------------
Investment
Income...... 7,563,330
----------------
EXPENSES
Management
fees......... 446,264
Shareholder
service
agent's fees
and expenses. 323,117
Service Fees--
Class A...... 157,966
Distribution
and service
fees--Class
B............ 70,827
Distribution
and service
fees--Class
C............ 13,003
Registration
and filing
fees......... 49,975
Accounting
services..... 36,878
Reports to
shareholders. 31,401
Audit fees.... 19,001
Directors'
fees and ex-
penses....... 5,209
Custodian
fees......... 4,866
Legal fees.... 2,827
Miscellaneous. 4,960
----------------
Total ex-
penses...... 1,166,294
----------------
NET INVESTMENT
INCOME....... 6,397,036
----------------
NET REALIZED
AND
UNREALIZED
GAIN (LOSS)
ON SECURITIES
Net realized
loss on in-
vestments.... (223,244)
Net realized
gain on
futures con-
tracts....... 7,937
Net unrealized
depreciation
of invest-
ments during
the period... (1,352,008)
Net unrealized
appreciation
of invest-
ments during
the period... 33,688
----------------
NET REALIZED
AND
UNREALIZED
LOSS ON SECU-
RITIES....... (1,533,627)
----------------
INCREASE IN
NET ASSETS
RESULTING
FROM OPERA-
TIONS........ $ 4,863,409
----------------
</TABLE>
9
<PAGE>
See Notes to Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
February 28, 1995 August 31, 1994
................................................................................
<S> <C> <C>
NET ASSETS, beginning of period............ $175,714,857 $199,175,777
------------ ------------
Operations
Net investment income...................... 6,397,036 13,188,386
Net realized gain (loss) on securities..... (215,307) 616,599
Net unrealized depreciation of securities
during the period......................... (1,318,320) (20,913,290)
------------ ------------
Increase (decrease) in net assets result-
ing from operations....................... 4,863,409 (7,108,305)
------------ ------------
Dividends to shareholders from net invest-
ment income
Class A................................... (6,119,499) (12,131,907)
Class B................................... (474,978) (720,427)
Class C................................... (89,355) (80,110)
------------ ------------
(6,683,832) (12,932,444)
------------ ------------
Net equalization debits.................... (45,347) (98,274)
------------ ------------
FUND SHARE TRANSACTIONS
Proceeds from shares sold
Class A................................... 28,290,351 20,186,241
Class B................................... 3,898,674 11,819,720
Class C................................... 1,036,644 2,728,483
------------ ------------
33,225,669 34,734,444
------------ ------------
Proceeds from shares issued for dividends
reinvested
Class A................................... 4,041,381 7,494,419
Class B................................... 306,469 495,396
Class C................................... 52,001 52,439
------------ ------------
4,399,851 8,042,254
------------ ------------
Cost of shares redeemed
Class A................................... (22,733,651) (39,698,456)
Class B................................... (1,915,120) (6,040,076)
Class C................................... (222,566) (360,063)
------------ ------------
(24,871,337) (46,098,595)
------------ ------------
Increase (decrease) in net assets result-
ing from share transactions............. 12,754,183 (3,321,897)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS.......... 10,888,413 (23,460,920)
------------ ------------
NET ASSETS, end of period.................. $186,603,270 $175,714,857
------------ ------------
</TABLE>
10
<PAGE>
See Notes to Financial Statements
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each of the
periods indicated (Unaudited).
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
-------------------------------------------------------------
Six Months
Ended Year Ended August 31
February 28, ------------------------------------------
1995 1994 1993(/1/) 1992 1991 1990
................................................................................
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PER-
FORMANCE
Net asset value, begin-
ning of period......... $ 6.62 $ 7.36 $ 6.98 $ 6.57 $ 6.34 $ 6.78
------ ------ ------ ------ ------ ------
Income from investment
operations
Investment income...... .27 .57 .58 .60 .64 .715
Expenses............... (.04) (.08) (.07) (.07) (.06) (.06)
------ ------ ------ ------ ------ ------
Net investment income.. .23 .49 .51 .53 .58 .655
Net realized and
unrealized gains or
losses on securities.. (.07) (.745) .3875 .44 .2425 (.46)
------ ------ ------ ------ ------ ------
Total from investment
operations............. .16 (.255) .8975 .97 .8225 .195
------ ------ ------ ------ ------ ------
Dividends from net in-
vestment income........ (.24) (.485) (.5175) (.56) (.5925) (.635)
------ ------ ------ ------ ------ ------
Net asset value, end of
period................. $ 6.54 $ 6.62 $ 7.36 $ 6.98 $ 6.57 $ 6.34
------ ------ ------ ------ ------ ------
TOTAL RETURN(/2/)....... 2.54% (3.55)% 13.48% 15.38% 13.61% 2.94%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of pe-
riod (millions)........ $167.8 $160.0 $190.8 $191.8 $184.6 $191.2
Average net assets (mil-
lions)................. $164.9 $175.5 $188.0 $186.5 $189.0 $215.1
Ratios to average net
assets.................
Expenses............... 1.22%(/3/) 1.09% 1.05% 1.00% 1.00% .94%
Net investment income.. 7.18%(/3/) 7.06% 7.24% 7.90% 9.03% 10.07%
Portfolio turnover rate. 7% 0% 19% 37% 15% 54%
</TABLE>
(1) Based on average month-end shares outstanding.
(2) Total return for period of less than one full year is not annualized. Total
return does not consider the effect of sales charges.
(3) Annualized.
11
<PAGE>
See Notes to Financial Statements
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share of capital stock outstanding throughout each of the
periods indicated (Unaudited).
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B Class C
------------------------------------------------- -----------------------------
Six Months September 28, Six Months
Ended Year Ended 1992(/1/) through Ended Year Ended
February 28, August 31, August 31, February 28, August 31,
1995 1994 1993(/2/) 1995 1994(/2/)
................................................................................
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net asset value, begin-
ning of period.......... $6.62 $7.36 $ 7.05 $6.62 $7.36(/3/)
----- ----- ------ ----- ----------
Income from investment
operations
Investment income....... .27 .57 .56 .26 .57
Expenses................ (.07) (.13) (.13) (.06) (.13)
----- ----- ------ ----- ----------
Net investment income... .20 .44 .43 .20 .44
Net realized and
unrealized gains or
losses on securities... (.056) (.755) .3465 (.066) (.755)
----- ----- ------ ----- ----------
Total from investment
operations.............. .144 (.315) .7765 .134 (.315)
----- ----- ------ ----- ----------
Dividends from net in-
vestment income......... (.214) (.425) (.4665) (.214) (.425)
----- ----- ------ ----- ----------
Net asset value, end of
period.................. $6.55 $6.62 $ 7.36 $6.54 $ 6.62
----- ----- ------ ----- ----------
TOTAL RETURN (/4/)....... 2.28% (4.38)% 11.54% 2.13% (4.51)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(millions).............. $15.7 $13.5 $ 8.4 $ 3.1 $ 2.3
Average net assets
(millions).............. $14.2 $11.5 $ 3.2 $ 2.6 $ 1.2
Ratios to average net as-
sets
Expenses................ 2.05%(/5/) 1.90% 1.96%(/5/) 2.05%(/5/) 1.93%
Net investment income... 6.34%(/5/) 6.29% 6.21%(/5/) 6.33%(/5/) 6.49%
Portfolio turnover rate.. 7% 0% 19% 7% 0%
</TABLE>
(/1/)Commencement of offering of sales
(/2/)Based on average month-end shares outstanding
(/3/)Sales of Class C shares commenced on August 30, 1993 at a net asset value
of $7.40 per share. At August 31, 1993, there were 68 Class C shares
outstanding with a per share net asset value of $7.36. The decrease in net
asset value was due principally to a $.0375 dividend, which was declared as
of August 31, 1993. Other financial highlights for the Class C shares for
this short period are not presented as they are not meaningful.
(/4/)Total return for periods of less than one full year are not annualized.
Total return does not consider the effect of sales charges.
(/5/)Annualized
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
American Capital Corporate Bond Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified open-end manage-
ment investment company. The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of its financial
statements.
A. INVESTMENT VALUATIONS-Securities listed or traded principally on a national
securities exchange are valued at the last sale price. Unlisted securities and
listed securities for which the last sale price is not available are valued at
the mean between the last reported bid and asked prices.
Short-term investments with a maturity of 60 days or less when purchased are
valued at amortized cost, which approximates market value. Short-term invest-
ments with a maturity of more than 60 days when purchased are valued based on
market quotations, until the remaining days to maturity becomes less than 61
days. From such time, until maturity, the investments are valued at amortized
cost.
B. FUTURES CONTRACTS-Transactions in futures contracts are utilized in strate-
gies to manage the market risk of the Fund's investments. The purchase of a
futures contract increases the impact on net asset value of changes in the mar-
ket price of investments. There is also a risk that the market movement of such
instruments may not be in the direction forecasted.
Upon entering into futures contracts, the Fund maintains, in a segregated ac-
count with its custodian, securities with a value equal to its obligation under
the futures contracts. A portion of these funds is held as collateral in an ac-
count in the name of the broker, the Fund's agent in acquiring the futures po-
sition. During the period the futures contract is open, changes in the value of
the contract ("variation margin") are recognized by marking the contract to
market on a daily basis. As unrealized gains or losses are incurred, variation
margin payments are received from or made to the broker. Upon the closing or
cash settlement of a contract, gains and losses are realized. The cost of secu-
rities acquired through delivery under a contract is adjusted by the unrealized
gain or loss on the contract.
C. REPURCHASE AGREEMENTS-A repurchase agreement is a short-term investment 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 in-
vest independently in repurchase agreements, or transfer uninvested cash bal-
ances into a pooled cash account along with other investment companies advised
or sub-advised by Van Kampen American Capital Asset Management, Inc. (the "Ad-
viser"), the daily aggregate of which is invested in repurchase agreements. Re-
purchase agreements are collateralized by the underlying debt security. The
Fund
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
- -------------------------------------------------------------------------------
makes payment for such securities only upon physical delivery or evidence of
book entry transfer to the account of the custodian bank. The seller is re-
quired to maintain the value of the underlying security at not less than the
repurchase proceeds due the Fund.
D. FEDERAL INCOME TAXES-No provision for federal income taxes is required be-
cause the Fund has elected to be taxed as a "regulated investment company" un-
der the Internal Revenue Code and intends to maintain this qualification by
annually distributing all of its taxable net investment income and taxable net
realized capital gains to its shareholders. It is anticipated that no distri-
butions of capital gains will be made until tax basis capital loss
carryforwards expire or are offset by net realized capital gains.
The net realized capital loss carryforward for federal income tax purposes
of approximately $25.1 million at August 31, 1994 may be utilized to offset
current or future capital gains until expiration in 1997 through 2000.
E. INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME-Investment transac-
tions are accounted for on the trade date. Realized gains and losses on in-
vestments are determined on the basis of identified cost. Dividend income is
recorded on the ex-dividend date. Interest income is accrued daily.
F. DIVIDENDS AND DISTRIBUTIONS-Dividends and distributions to shareholders are
recorded on the record date. The Fund distributes tax basis earnings in accor-
dance with the minimum distribution requirements of the Internal Revenue Code,
which may result in dividends or distributions in excess of financial state-
ment earnings.
G. DEBT DISCOUNT OR PREMIUM-The Fund accounts for original issue discounts and
premiums on the same basis as is followed for federal income tax reporting.
Accordingly, original discounts on long-term debt securities purchased are am-
ortized over the life of the security. Premiums on debt securities are not am-
ortized. Market discounts are recognized at the time of sale as realized gains
for book purposes and ordinary income for tax purposes.
H. EQUALIZATION-At December 1, 1994, the Fund discontinued the accounting
practice of equalization, which it had used since its inception. Equalization
is a practice whereby a portion of the proceeds from sales and costs of re-
demptions of Fund shares, equivalent on a per-share basis to the amount of the
undistributed net investment income, is charged or credited to undistributed
net investment income.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
- -------------------------------------------------------------------------------
The balance of equalization included in undistributed net investment income
at the date of change, which was $285,421, was reclassified to capital sur-
plus. Such reclassification had no effect on net assets, results of opera-
tions, or net asset value per share of the Fund.
NOTE 2--MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Adviser serves as investment manager of the Fund. Management fees are paid
monthly, based on the average daily net assets of the Fund at an annual rate
of .50% of the first $150 million, .45% of the next $100 million, .40% of the
next $100 million, and .35% of the amount in excess of $350 million.
Accounting services include the salaries and overhead expenses of the Fund's
Treasurer and the personnel operating under his direction. Charges are allo-
cated among investment companies advised or sub-advised by the Adviser. For
the period ended February 28, 1995, these charges included $4,312 as the
Fund's share of the employee costs attributable to the Fund's accounting offi-
cers. A portion of the accounting services expense was paid to the Adviser in
reimbursement of personnel, facilities and equipment costs attributable to the
provision of accounting services to the Fund. The services provided by the Ad-
viser are at cost.
ACCESS Investor Services, Inc., an affiliate of the Adviser, serves as the
Fund's shareholder service agent. These services are provided at cost plus a
profit. For the period ended February 28, 1995, the fees for such services
were $270,010.
The Fund has been advised that Van Kampen American Capital Distributors,
Inc. (the "Distributor") and Advantage Capital Corp. (the "Retail Dealer"),
both affiliates of the Adviser, received $1,733 and $620, respectively, as
their portion of the commissions charged on sales of Fund shares during the
period.
Under the Distribution Plans, the Fund pays up to .25% per annum of its av-
erage daily net assets to the Distributor for expenses and service fees in-
curred. Class B shares and Class C shares pay an additional fee of up to .75%
per annum of their average net assets to reimburse the Distributor for its
distribution expenses. Actual distribution expenses incurred by the Distribu-
tor for Class B shares and Class C shares may exceed the amounts reimbursed to
the Distributor by the Fund. At February 28, 1995, the unreimbursed expenses
incurred by the Distributor under the Class B plan and Class C plan aggregated
approximately $646,000 and $36,000, respectively, and may be carried forward
and reimbursed through either the collection of the contingent deferred sales
charges from share redemptions or, subject to the annual renewal of the plans,
future Fund reimbursements of distribution fees.
Legal fees were for services rendered by O'Melveny & Myers, counsel for the
Fund. Lawrence J. Sheehan, of counsel to that firm, is a director of the Fund.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
- -------------------------------------------------------------------------------
Certain officers and directors of the Fund are officers and directors of the
Adviser, the Distributor, the Retail Dealer and the shareholder service agent.
NOTE 3--INVESTMENT ACTIVITY
During the period the costs of purchases and proceeds from sales of invest-
ments, excluding short-term investments, were $11,595,664 and $17,508,224, re-
spectively.
The cost of investments owned at February 28, 1995 was the same for federal
income tax and financial reporting purposes. Gross unrealized appreciation of
investments aggregated $5,431,271 and gross unrealized depreciation of invest-
ments aggregated $2,461,912.
NOTE 4--DIRECTOR COMPENSATION
Fund directors who are not affiliated with the Adviser are compensated by the
Fund at the annual rate of $980 plus a fee of $25 per day for Board and Com-
mittee meetings attended. The Chairman receives additional fees from the Fund
at the annual rate of $370. During the period, such fees aggregated $4,116.
The directors may participate in a voluntary Deferred Compensation Plan (the
"Plan"). 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. Each director covered under the Plan elects to be credited
with an earnings component on amounts deferred equal to the income earned by
the Fund on its short-term investments or equal to the total return of the
Fund.
NOTE 5--CAPITAL
The Fund offers three classes of shares at their respective net asset values
per share, plus a sales charge which is imposed either at the time of purchase
(the Class A shares) or at the time of redemption on a contingent deferred ba-
sis (the Class B shares and Class C shares). All classes of shares have the
same rights, except that Class B shares and Class C shares bear the cost of
distribution fees and certain other class specific expenses. Realized and
unrealized gains or losses, investment income and expenses (other than class
specific expenses) are allocated daily to each class of shares based upon the
relative proportion of net assets of each class. Class B shares and Class C
shares automatically convert to Class A shares six years and ten years after
purchase, respectively, subject to certain conditions.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
- -------------------------------------------------------------------------------
The Fund has 200 million shares of each class of $.01 par value capital
stock authorized. Transactions in shares of capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Shares sold
Class A.............................................. 4,401,943 2,874,913
Class B.............................................. 606,845 1,679,847
Class C.............................................. 161,484 391,322
---------- ----------
5,170,272 4,946,082
---------- ----------
Shares issued for dividends reinvested
Class A.............................................. 628,789 1,081,127
Class B.............................................. 47,580 71,673
Class C.............................................. 8,083 7,742
---------- ----------
684,452 1,160,542
---------- ----------
Shares redeemed
Class A.............................................. (3,555,115) (5,704,287)
Class B.............................................. (297,955) (861,542)
Class C.............................................. (34,572) (54,062)
---------- ----------
(3,887,642) (6,619,891)
---------- ----------
Increase (decrease) in Fund shares outstanding........ 1,967,082 (513,267)
---------- ----------
</TABLE>
NOTE 6--SUBSEQUENT DIVIDEND
The Board of Directors of the Fund declared a dividend of $.04 per share for
Class A shares and $.036 per share for Class B shares and Class C shares from
net investment income, payable April 17, 1995 to shareholders of record on
March 31, 1995.
17
<PAGE>
FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL
GLOBAL AND INTERNATIONAL
Govett Emerging Markets Fund
AC Global Equity Fund
Govett Global Government Income Fund
AC Global Government Securities
AC Global Managed Assets Fund
Govett International Equity Fund
Govett Latin America Fund
Govett Pacific Strategy Fund
EQUITY
GROWTH
AC Emerging Growth Fund
AC Enterprise Fund
AC Pace Fund
Govett Smaller Companies Fund
GROWTH & INCOME
VKM Balanced Fund
AC Comstock Fund
AC Equity Income Fund
AC Growth and Income Fund
VKM Growth and Income Fund
AC Harbor Fund
AC Real Estate Securities Fund
VKM Utility Fund
AC Utilities Income Fund
FIXED INCOME
VKM Adjustable Rate U.S. Government Fund
AC Corporate Bond Fund
AC Federal Mortgage Trust
AC Government Securities
VKM High Yield Fund
AC High Yield Investments
VKM Money Market Fund
VKM Prime Rate Income Trust
AC Reserve Fund
VKM Short-Term Global Income Fund
VKM Strategic Income Fund
VKM U.S. Government Fund
AC U.S. Government Trust for Income
TAX-FREE
VKM California Insured Tax Free Fund
VKM Florida Insured Tax Free Income Fund
VKM Insured Tax Free Income Fund
VKM Limited Term Municipal Income Fund
AC Municipal Bond Fund
VKM Municipal Income Fund
VKM New Jersey Tax Free Income Fund
VKM New York Tax Free Income Fund
VKM Pennsylvania Tax Free Income Fund
AC Tax-Exempt Trust
--High Yield Municipal Portfolio
--Insured Municipal Portfolio
VKM Tax Free High Income Fund
VKM Tax Free Money Fund
AC Texas Municipal Securities
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 direct at 1-800-421-5666 weekdays
from 7:00 a.m. to 7:00 p.m. Central time.
18
<PAGE>
AMERICAN CAPITAL CORPORATE BOND FUND, INC.
BOARD OF DIRECTORS
J. MILES BRANAGAN
RICHARD E. CARUSO
ROGER HILSMAN
DON G. POWELL
DAVID REES
LAWRENCE J. SHEEHAN
FERNANDO SISTO*
WILLIAM S. WOODSIDE
*Chairman of the Board
OFFICERS
DON G. POWELL
President
CURTIS W. MORELL
Vice President and Treasurer
DENNIS J. MCDONNELL
RONALD A. NYBERG
ROBERT C. PECK, JR.
DAVID R. TROTH
PAUL R. WOLKENBERG
Vice Presidents
TANYA M. LODEN
Vice President and Controller
NORI L. GABERT
Vice President and Secretary
J. DAVID WISE
Vice President and Assistant Secretary
PERRY F. FARRELL
M. ROBERT SULLIVAN
Assistant Treasurers
HUEY P. FALGOUT, JR.
Assistant Secretary
INVESTMENT ADVISER
VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC.
2800 Post Oak Blvd. Houston, Texas 77056
DISTRIBUTOR
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
2800 Post Oak Blvd. Houston, Texas 77056
SHAREHOLDER SERVICE AGENT
ACCESS INVESTOR SERVICES, INC.
P.O. Box 418256 Kansas City, Missouri 64141-9256
CUSTODIAN
STATE STREET BANK AND TRUST CO.
225 Franklin Street Boston, Massachusetts 02110
COUNSEL
O'MELVENY & MYERS
400 South Hope Street Los Angeles, California 90071
(C) Van Kampen American Capital Distributors, Inc., 1995
All rights reserved.
SM denotes a service mark of
Van Kampen Armerican Capital Distributors, Inc.
This report is submitted for the general information of the shareholders of
the Fund. It is not authorized for distribution to prospective investors un-
less it has been preceded or is accompanied by an effective prospectus of the
Fund which contains additional information on how to purchase shares, the
sales charge, and other pertinent data.
19
<PAGE>
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20
<PAGE>
