<PAGE> 1
________________________________________________________________________________
AMERICAN CAPITAL BOND FUND, INC.
__________________________________________________
Semiannual Report
December 31, 1994
(Unaudited)
________________________
[AMERICAN CAPITAL LOGO]
________________________________________________________________________________
<PAGE> 2
SHAREHOLDERS' MESSAGE
February 14, 1995
[Photo of Don G. Powell]
Dear Shareholder,
For more than six decades, American Capital has helped investors achieve their
financial goals. As a shareholder, you know that American Capital's goal is to
provide you with consistent, competitive returns and outstanding customer
service. Those goals will remain unchanged as we embark on a new era as Van
Kampen American Capital.
In December, shareholders of American Capital funds approved new
agreements with the funds' manager that cleared the way for completion of the
merger between American Capital Management & Research, Inc., the company that
owns your Fund's manager, and the Van Kampen Merritt Companies, Inc. on
December 20, 1994. While this merger will have no direct impact on your Fund
shares, it will create a stronger company that will be able to provide
shareholders with a broader range of investment options and nearly 100 years
of combined investment experience.
The strength and experience of Van Kampen American Capital is
enhanced further by the international and emerging markets expertise of John
Govett & Co. Ltd. Last fall, Van Kampen American Capital Distributors, Inc.
(formerly American Capital Marketing, Inc.) became the exclusive U.S.
distributor of The Govett Funds, Inc. This relationship will provide six
additional fund options for Van Kampen American Capital shareholders who want
to add an international or global component to their portfolios.
Although 1994 was a year of significant change for American Capital,
one thing has not changed: our belief in investing for the long term. The past
year was extremely challenging for both the stock and bond markets, as
concerns about rising inflation prompted repeated increases in short-term
interest rates that made many investors nervous. While the markets did not
perform as well in 1994 as in previous years, investing in a bond mutual fund
still is one of the best ways to generate current income.
We will continue to communicate with you on a regular basis as we go
forward, providing information about both market conditions and new investment
opportunities. We appreciate your continued confidence in your Fund and Van
Kampen American Capital.
Sincerely,
/s/ DON G. POWELL
Don G. Powell
PRESIDENT
1
<PAGE> 3
PORTFOLIO PERSPECTIVE
----------------------------------------------------------------------
THE FOLLOWING IS AN INTERVIEW WITH THE MANAGEMENT TEAM OF AMERICAN
CAPITAL BOND FUND, INC. THE TEAM IS LED BY PORTFOLIO MANAGER DAVID R.
TROTH AND ROBERT C. PECK, JR., CHIEF INVESTMENT OFFICER.
----------------------------------------------------------------------
Q. WHAT MARKET CONDITIONS HAD THE MOST IMPACT ON THE FUND DURING THE
SECOND HALF OF 1994?
A. Strong economic growth prompted the Federal Reserve Board to raise
short-term interest rates three times during the reporting period in
an effort to slow inflation. Consequently, yields on three-month U.S.
Treasury bills rose steadily throughout the period to 5.75% at
year-end. Bond yields increased steadily, but the inverse
relationship between price and yield meant that longer-term higher
quality bond prices suffered a drop of about 20%. While the value of
most bond funds declined less than individual bonds, the funds' net
asset values were impacted by the declining prices.
Q. HOW DID YOU RESPOND TO THE CHANGING MARKET CONDITIONS?
A. During the reporting period, your Fund benefitted from management's
emphasis on high quality issues, diversification and, to a lesser
degree, call protection. In addition, the average maturity of the
investments in your Fund's portfolio was reduced from 19.2 years to
17.6 years. Your Fund continued to focus on purchasing
investment-grade quality bonds, seeking the best balance between
credit safety and yield. As the chart at left shows, on December 31,
1994, 93% of the Fund's portfolio was invested in bonds rated Baa or
higher or in repurchase agreement investments considered equivalent
to cash.
[Pie Chart Showing Quality Rating]
In terms of diversification, at the end of December, your
portfolio had holdings in 12 industry sectors including government
securities.
Finally, although call protection normally is more valuable in
a period of declining interest rates, the market still favors issues
with this feature, which helps support their value. Call protection
prevents issuers from replacing higher-yielding issues with
lower-yielding ones when interest rates decline.
2
<PAGE> 4
Q. HOW DID THE FUND PERFORM DURING THE SIX MONTHS ENDED DECEMBER 31,
1994?
A. The Fund achieved a total investment return on market price of
-3.41%. Total investment return includes a decrease in market price
on the New York Stock Exchange from $18.13 at the beginning of the
reporting period to $16.75 at December 31 and the reinvestment of
dividends totalling $.77 per share. The net asset value of American
Capital Bond Fund decreased during the period from $19.07 to $18.59,
for a total return at net asset value of 1.92%, including
reinvestment of dividends. David R. Troth, senior vice president of
Van Kampen American Capital Asset Management, Inc., has been your
Fund's portfolio manager since 1986.
[Photo of Man and Woman looking at Computer Screen]
Q. HOW DID CORPORATE BONDS IN GENERAL PERFORM DURING THE REPORTING
PERIOD?
A. The Lehman Brothers Corporate Bond Index achieved a total return of
1.17%. The Index is a broad-based, unmanaged index that reflects the
general performance of corporate bonds. It does not reflect any
commissions or fees that would be paid by an investor purchasing the
securities it represents.
Q. WHAT'S THE OUTLOOK FOR THE NEXT SIX MONTHS?
A. The Fed raised short-term interest rates again in early 1995. The
increased cost of money is expected to slow rates of economic growth
this year, paving the way for greater stability in the bond markets.
Given the current rates on long-term U.S. Treasury bonds and higher
quality municipal bonds, fixed-income securities and funds are
attractive for investors who need regular income.
The Fed's efforts to keep inflation under control ultimately
should be good news for fixed-income investors. "Real" returns
(investment return minus inflation) from bonds and bond funds remain
attractive, and these investments continue to be appropriate for
income-oriented investors. We will continue to seek out opportunities
for the Fund to generate attractive returns.
/s/ ROBERT C. PECK, JR. /s/ DAVID R. TROTH
Robert C. Peck, Jr. David R. Troth
CHIEF INVESTMENT OFFICER PORTFOLIO MANAGER
3
<PAGE> 5
INVESTMENT PORTFOLIO
December 31, 1994 (Unaudited)
<TABLE>
<CAPTION>
Principal Market
Amount Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Corporate Obligations 82.9%
CONSUMER DISTRIBUTION 0.5%
$ 1,000,000 Grand Metropolitan Investment Corp., 8.00%, 9/15/22 . . . . . . . . . . . . . $ 936,200
-----------------
CONSUMER NON-DURABLES 1.9%
4,000,000 Coca-Cola Enterprises, Inc., 8.50%, 2/1/12 . . . . . . . . . . . . . . . . . . 4,012,200
-----------------
CONSUMER SERVICES 5.0%
2,500,000 Columbia Pictures Entertainment, Inc., 9.875%, 2/1/98 . . . . . . . . . . . . 2,609,750
Harcourt General, Inc.
1,750,000 8.875%, 6/1/22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,760,150
5,000,000 9.50%, 3/15/00 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,201,500
1,000,000 News America Holdings, Inc., 8.875%, 4/26/23 . . . . . . . . . . . . . . . . . 938,800
-----------------
TOTAL CONSUMER SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,510,200
-----------------
ENERGY 8.0%
7,400,000 Ashland Oil, Inc., 8.80%, 11/15/12 . . . . . . . . . . . . . . . . . . . . . . 7,439,960
Occidental Petroleum Corp.
4,000,000 9.625%, 7/1/99 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,065,200
5,025,000 PDV America, Inc., 7.875%, 8/01/03 . . . . . . . . . . . . . . . . . . . . . 4,450,643
1,000,000 Union Oil Co. of California, 9.125%, 2/15/06 . . . . . . . . . . . . . . . . . 1,034,700
-----------------
TOTAL ENERGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,990,503
-----------------
FINANCE 3.7%
Bank of America National Trust
205,194 9.50%, 11/1/08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208,271
205,402 9.50%, 1/1/09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208,484
1,970,000 Beaver Valley II Funding Corp., 9.00%, 6/1/17 . . . . . . . . . . . . . . . . 1,467,551
4,500,000 First PV Funding Corp., Series 1986A, 10.30%, 1/15/14 . . . . . . . . . . . . 4,275,000
110,962 Home Savings and Loan Association of California, Second Series,
Variable Pass-Through Rate (9.109% at 12/31/94), 6/1/08 . . . . . . . . . . . 106,524
1,500,000 United Illuminating Co., Seabrook Unit 1, 10.24%, 1/2/20 . . . . . . . . . . . 1,538,100
-----------------
TOTAL FINANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,803,930
-----------------
</TABLE>
4
<PAGE> 6
<TABLE>
<CAPTION>
Principal Market
Amount Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PRODUCER MANUFACTURING 4.9%
$ 10,000,000 John Deere Credit Corp., 9.625%, 11/1/98 . . . . . . . . . . . . . . . . . . . $ 10,409,000
-----------------
RAW MATERIALS/PROCESSING INDUSTRIES 11.3%
2,000,000 Bowater, Inc., 9.375%, 12/15/21 . . . . . . . . . . . . . . . . . . . . . . . 2,011,120
1,000,000 Crown Cork & Seal Co., Inc., 8.00%, 4/15/23 . . . . . . . . . . . . . . . . . 905,700
5,000,000 Federal Paper Board, Inc., 8.875%, 7/1/12 . . . . . . . . . . . . . . . . . . 4,960,500
9,500,000 Georgia Pacific Corp., 9.50%, 2/15/18 . . . . . . . . . . . . . . . . . . . . 9,405,950
1,500,000 James River Corp., 8.375%, 11/15/01 . . . . . . . . . . . . . . . . . . . . . 1,479,225
3,100,000 Owens-Corning Fiberglass Corp., 9.375%, 6/1/12 . . . . . . . . . . . . . . . . 3,211,600
1,700,000 Scott Paper Co., 8.80%, 5/15/22 . . . . . . . . . . . . . . . . . . . . . . . 1,834,470
-----------------
TOTAL RAW MATERIALS/PROCESSING INDUSTRIES . . . . . . . . . . . . . . . . . 23,808,565
-----------------
TECHNOLOGY 4.8%
11,000,000 Tele-Communications, Inc., 9.25%, 1/15/23 . . . . . . . . . . . . . . . . . . 10,143,650
-----------------
TRANSPORTATION 7.7%
3,000,000 AMR Corp., 9.50%, 5/15/01 . . . . . . . . . . . . . . . . . . . . . . . . . . 3,085,800
4,250,000 CSX Corp., 8.625%, 5/15/22 . . . . . . . . . . . . . . . . . . . . . . . . . . 4,254,462
Kansas City Southern Industries, Inc.
2,500,000 7.875%, 7/1/02 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,396,500
865,000 8.80%, 7/1/22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 843,634
6,000,000 United Air Lines, Inc., Series 1991-A, 10.02%, 3/22/14 . . . . . . . . . . . . 5,689,200
-----------------
TOTAL TRANSPORTATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,269,596
-----------------
UTILITIES 35.1%
5,000,000 American Telephone & Telegraph Co., 8.625%, 12/1/31 . . . . . . . . . . . . . 4,933,750
Arizona Public Service Co.
2,000,000 8.00%, 2/1/25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,786,560
3,500,000 8.75%, 1/15/24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,323,950
3,000,000 9.50%, 4/15/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,052,050
6,200,000 Cleveland Electric Illuminating Co., Series E, 10.00%, 6/1/20 . . . . . . . . 5,745,540
Commonwealth Edison Co.
1,000,000 8.625%, 2/1/22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 922,960
6,000,000 9.625%, 7/1/19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,020,400
7,000,000 Consumer Power Co., 8.75%, 2/15/98 . . . . . . . . . . . . . . . . . . . . . . 7,008,400
5,000,000 GTE North, Inc., 8.50%, 12/15/31 . . . . . . . . . . . . . . . . . . . . . . . 4,853,000
3,000,000 Gulf States Utilities Co., 8.94%, 1/1/22 . . . . . . . . . . . . . . . . . . . 2,916,450
</TABLE>
5
<PAGE> 7
<TABLE>
<CAPTION>
Principal Market
Amount Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
UTILITIES-CONTINUED
Long Island Lighting Co.
$ 3,000,000 9.00%, 11/1/22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,794,500
4,000,000 9.75%, 5/1/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,968,800
4,150,000 Montana Power Co., Series 16, 8.95%, 2/1/22 . . . . . . . . . . . . . . . . . 4,102,690
1,000,000 Niagara Mohawk Power Corp., 8.50%, 7/1/23 . . . . . . . . . . . . . . . . . . 913,470
7,000,000 Public Service Co. of Colorado, 8.75%, 3/1/22 . . . . . . . . . . . . . . . . 6,860,000
2,000,000 Southern California Gas Co., Series Y, 8.75%, 10/1/21 . . . . . . . . . . . . 1,973,100
2,500,000 Texas Utility Electric Co., 8.875%, 2/1/22 . . . . . . . . . . . . . . . . . . 2,463,000
2,500,000 Union Electric Co., 8.00%, 12/15/22 . . . . . . . . . . . . . . . . . . . . . 2,312,725
5,000,000 United Telecommunications, Inc., 9.50%, 4/1/03 . . . . . . . . . . . . . . . . 5,275,950
3,000,000 Utilicorp United, Inc., 9.00%, 11/15/21 . . . . . . . . . . . . . . . . . . . 2,907,300
-----------------
TOTAL UTILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74,134,595
-----------------
TOTAL CORPORATE OBLIGATIONS (Cost $177,335,178) . . . . . . . . . . . . . . . 175,018,439
-----------------
Canadian Government Obligations 7.8%
Province of Newfoundland
1,250,000 8.65%, 10/22/22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,207,875
4,000,000 9.00%, 10/15/21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,092,800
4,000,000 Province of Nova Scotia, 8.25%, 7/30/22 . . . . . . . . . . . . . . . . . . . 3,809,200
Province of Saskatchewan
5,500,000 8.00%, 2/1/13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,198,600
2,250,000 8.50%, 7/15/22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,187,135
-----------------
TOTAL CANADIAN GOVERNMENT OBLIGATIONS
(Cost $16,832,518) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,495,610
-----------------
Number of
Shares Preferred Stock 2.4%
- --------------------
44,830 Commonwealth Edison Co., $8.38 . . . . . . . . . . . . . . . . . . . . . . . . 3,945,040
50,000 Ford Motor Co. $2.0625 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,218,750
-----------------
TOTAL PREFERRED STOCK (Cost $5,478,782) . . . . . . . . . . . . . . . . . . 5,163,790
-----------------
</TABLE>
6
<PAGE> 8
<TABLE>
<CAPTION>
Principal Market
Amount Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
United States Agency Obligations 0.0%
$ 23,476 Federal Home Loan Mortgage Corp., 7.375% Pools, 12/1/02 . . . . . . . . . . . $ 22,889
30,222 Government National Mortgage Association, 10.00% Pools,
10/15/16 to 7/15/20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,791
-----------------
TOTAL UNITED STATES AGENCY OBLIGATIONS (Cost $53,902) . . . . . . . . . . . 54,680
-----------------
Repurchase Agreement 14.5%
30,570,000 Salomon Brothers, Inc., dated 12/30/94, 5.75%, due 1/3/95
(Collateralized by U.S. Government obligations in a pooled
cash account) repurchase proceeds $30,589,531 (Cost $30,570,000) . . . . . . 30,570,000
-----------------
TOTAL INVESTMENTS (Cost $230,270,380) 107.6% . . . . . . . . . . . . . . . . 227,302,519
Other assets and liabilities, net (7.6%) . . . . . . . . . . . . . . . . . . . (16,086,986)
-----------------
NET ASSETS 100% . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 211,215,533
=================
</TABLE>
See Notes to Financial Statements.
7
<PAGE> 9
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994 (Unaudited)
<TABLE>
<S> <C>
ASSETS
Investments, at market value (Cost $230,270,380) . . $227,302,519
Cash . . . . . . . . . . . . . . . . . . . . . . . . 1,540
Interest and dividends receivable . . . . . . . . . . 5,339,970
Other assets . . . . . . . . . . . . . . . . . . . . 8,388
------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . 232,652,417
------------
LIABILITIES
Convertible notes payable . . . . . . . . . . . . . . 20,130,000
Dividends payable . . . . . . . . . . . . . . . . . . 325,296
Due to Adviser . . . . . . . . . . . . . . . . . . . 85,415
Accrued expenses . . . . . . . . . . . . . . . . . . 896,173
------------
TOTAL LIABILITIES . . . . . . . . . . . . . . . 21,436,884
------------
NET ASSETS, equivalent to $18.59 per share . . . . . $211,215,533
============
NET ASSETS WERE COMPRISED OF:
Capital stock, par value $1 per share; 15,000,000
shares authorized; 11,362,465 shares
outstanding . . . . . . . . . . . . . . . . . . $ 11,362,465
Capital surplus . . . . . . . . . . . . . . . . . . . 235,012,752
Accumulated net realized loss on securities . . . . . (32,528,753)
Net unrealized depreciation of investments . . . . . (2,967,861)
Undistributed net investment income . . . . . . . . . 336,930
------------
NET ASSETS at December 31, 1994 . . . . . . . . . . . $211,215,533
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 10
STATEMENT OF OPERATIONS
Six Months Ended December 31, 1994 (Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest . . . . . . . . . . . . . . . . . . . . . . $ 9,959,705
Dividends . . . . . . . . . . . . . . . . . . . . . . 256,420
-----------
Investment income . . . . . . . . . . . . . . . 10,216,125
-----------
EXPENSES
Convertible note expenses:
Interest . . . . . . . . . . . . . . . . . . . . 842,539
Trustee's fees . . . . . . . . . . . . . . . . . 5,716
Management fees . . . . . . . . . . . . . . . . . . . 520,736
Shareholder service agent's fees and expenses . . . . 76,596
Reports to shareholders . . . . . . . . . . . . . . . 35,416
Accounting services . . . . . . . . . . . . . . . . . 33,364
Directors' fees and expenses . . . . . . . . . . . . 21,697
Registration and filing fees . . . . . . . . . . . . 12,255
Audit fees . . . . . . . . . . . . . . . . . . . . . 11,774
Legal fees . . . . . . . . . . . . . . . . . . . . . 5,922
Custodian fees . . . . . . . . . . . . . . . . . . . 5,382
State franchise taxes . . . . . . . . . . . . . . . . 4,174
Miscellaneous . . . . . . . . . . . . . . . . . . . . 6,181
-----------
Total expenses . . . . . . . . . . . . . . . . . 1,581,752
-----------
Net investment income . . . . . . . . . . . . . 8,634,373
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITIES
Net realized gain on securities . . . . . . . . . . . 743,484
Net unrealized depreciation of securities
during the period . . . . . . . . . . . . . . . (6,029,061)
-----------
Net realized and unrealized loss on securities . (5,285,577)
-----------
Increase in net assets resulting from operations $ 3,348,796
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE> 11
STATEMENT OF CASH FLOWS
Six Months Ended December 31, 1994 (Unaudited)
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Interest and dividends received . . . . . . . . . . . $ 10,652,386
Interest expense paid . . . . . . . . . . . . . . . . (855,525)
Operating expenses paid . . . . . . . . . . . . . . . (739,725)
------------
Net cash provided by operating activities . . . 9,057,136
------------
INVESTING ACTIVITIES
Purchase of short-term portfolio securities, net . . (18,218,340)
Purchase of long-term portfolio securities . . . . . (6,528,025)
Proceeds from sales of long-term portfolio
securities . . . . . . . . . . . . . . . . . . . 24,459,450
------------
Net cash used for investing activities . . . . . (286,915)
------------
FINANCING ACTIVITIES
Dividends and distributions paid . . . . . . . . . . (8,772,528)
------------
Net cash used for financing activities . . . . . (8,772,528)
Decrease in cash . . . . . . . . . . . . . . . . (2,307)
Cash, beginning of period . . . . . . . . . . . 3,847
------------
Cash, end of period . . . . . . . . . . . . . . $ 1,540
============
RECONCILIATION OF INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
Increase in net assets resulting from operations . . $ 3,348,796
Reconciling adjustments:
Net realized and unrealized loss on securities . 5,285,577
Decrease in receivables . . . . . . . . . . . . 446,039
Increase in accrued expenses . . . . . . . . . . (29,802)
Non-cash net income items . . . . . . . . . . . 6,526
------------
Net cash provided by operating activities $ 9,057,136
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE> 12
STATEMENT OF CHANGES IN NET ASSETS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, JUNE 30,
1994 1994
---------------- -----------
<S> <C> <C>
NET ASSETS, beginning of period . . . . . . . . . . . $216,629,352 $235,649,803
------------ ------------
OPERATIONS
Net investment income . . . . . . . . . . . . . 8,634,373 17,225,081
Net realized gain on securities . . . . . . . . 743,484 1,870,842
Net unrealized depreciation of securities
during the period . . . . . . . . . . . . . . (6,029,061) (26,939,500)
------------ ------------
Increase (decrease) in net assets resulting from
operations . . . . . . . . . . . . . . . . . . 3,348,796 (7,843,577)
------------ ------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT
INCOME . . . . . . . . . . . . . . . . . . . . . (8,748,733) (17,357,536)
------------ ------------
FUND SHARE TRANSACTIONS
Proceeds from conversion of convertible
note (Note 5) . . . . . . . . . . . . . . . . (13,882) 6,180,662
Proceeds from shares issued for dividends
reinvested . . . . . . . . . . . . . . . . . . - -
Increase (decrease) in net assets resulting from Fund
share transactions . . . . . . . . . . . . . . (13,882) 6,180, 662
------------ ------------
DECREASE IN NET ASSETS . . . . . . . . . . . . . . . (5,413,819) (19,020,451)
------------ ------------
NET ASSETS, end of period . . . . . . . . . . . . . . $211,215,533 $216,629,352
============ ============
CHANGE IN FUND SHARES OUTSTANDING
Shares issued for conversion of convertible note . . - 312,499
Shares issued for dividends reinvested . . . . . . . - -
------------ ------------
Increase in Fund shares outstanding . . . . . . - 312,499
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1-Significant Accounting Policies
American Capital Bond Fund (the "Fund") is registered under the Investment
Company Act of 1940, as amended, as a diversified closed-end management
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 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 price.
Short-term investments with a maturity of 60 days or less when
purchased are valued at amortized cost, which approximates market
value. Short-term investments 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. Federal Income Taxes
No provision for federal income taxes is required because the Fund has
elected to be taxed as a "regulated investment company" under 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 distributions of capital gains will be made until
tax basis capital loss carryforwards expire or are offset by future
net realized capital gains.
C. Investment Transactions and Related Investment Income
Investment transactions are accounted for on the trade date. Realized
gains and losses on investments are determined on the basis of
identified cost. Dividend income is recorded on the ex-dividend date.
Interest income is accrued weekly.
D. Dividends and Distributions
Dividends and distributions to shareholders are recorded on the record
date. The Fund distributes tax basis earnings in accordance with the
minimum distribution requirements of the Internal Revenue Code, which
may result in dividends or distributions in excess of financial
statement earnings.
E. Debt Discount or Premium
The Fund accounts for original issue discounts and premiums on the
same basis as is used for federal income tax reporting. Accordingly,
original issue discounts on long-term debt securities purchased are
amortized over the life of the 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.
12
<PAGE> 14
F. Cash Flow Information
The Fund invests in securities and makes distributions from net
investment income and net realized gains, which are paid in cash or
are reinvested at the discretion of shareholders. These transactions
are reported in the Statement of Changes in Net Assets. Additional
information on cash receipts and cash payments is presented in the
Statement of Cash Flows.
Accounting practices that do not affect reporting activities on a cash
basis include carrying investments at market value, amortizing
discounts on debt obligations and the conversion of convertible notes
into common stock of the Fund. Cash, as used in the Statement of Cash
Flows, reflects the Fund's cash in banks and excludes short-term
investments.
Note 2-Management Fees and Other Transactions with Affiliates
Van Kampen American Capital Asset Management, Inc. (the "Adviser") serves as
investment manager of the Fund. Management fees are paid monthly, based on the
average weekly 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
allocated among all investment companies advised or subadvised by the Adviser.
For the period ended December 31, 1994, these charges included $3,458 as the
Fund's share of the employee costs attributable to the Fund's accounting
officers. 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 accounting services
provided by the Adviser are at cost.
Certain officers and directors of the Fund are officers and directors of the
Adviser.
Note 3-Investment Activity
During the year, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $6,528,025 and $23,556,450,
respectively.
The cost of investments owned at December 31, 1994 was the same for federal
income tax and financial reporting purposes. Gross unrealized appreciation of
investments aggregated $2,300,320 and gross depreciation of investments
aggregated $5,268,181.
For federal income tax purposes, the net realized capital loss of
approximately $33 million at June 30,1994 may be utilized to offset current or
future capital gains of which $29 million expire in 1997 and 1998 and the
remainder expiring in 1999 and 2000.
13
<PAGE> 15
Note 4-Director Compensation
Fund directors who are not affiliated with the Adviser are compensated by the
Fund at the annual rate of $2,040 plus $141 per meeting attended. During the
period, such fees aggregated $18,925.
Note 5-Convertible Note
The Fund has an outstanding issue of a $20,130,000 principal amount, 8.50%
Five Year Convertible Extendible Note due January 1, 1995. The note is
convertible at any time prior to maturity into common stock of the Fund at a
conversion price of $19.20 per share. The Fund has reserved a portion of its
authorized but unissued shares of common stock to be issued upon the exercise
of the conversion feature. Any such shares, when issued upon such exercise,
will be duly and validly issued, fully paid and non-assessable.
Note 6-Subsequent Event
On January 3, 1995, the Fund paid off its outstanding Convertible Extendible
Note of $20,130,000 principal amount at 8.50% due January 1, 1995.
14
<PAGE> 16
FINANCIAL HIGHLIGHTS
Selected data for a share of common stock outstanding throughout each of the
periods indicated. (Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED JUNE 30
DECEMBER 31, -------------------------------------------------
1994 1994 1993 1992 1991 1990
----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning of period . . . . $19.07 $21.33 $19.85 $18.68 $18.72 $20.34
INCOME FROM INVESTMENT
OPERATIONS
Investment income . . . . . . . . . . . . . . .90 1.88 1.925 2.075 2.095 2.51
Operating expenses . . . . . . . . . . . . . (.08) (.15) (.15) (.14) (.135) (.14)
Convertible note expenses(2) . . . . . . . . (.06) (.17) (.20) (.20) (.20) (.30)
------ ------ ------ ------ ------ ------
Net investment income . . . . . . . . . . . . .76 1.56 1.575 1.735 1.76 2.07
Net realized or unrealized gains or
losses on securities . . . . . . . . . . . . (.47) (2.28) 1.55 1.115 (.03) (1.615)
------ ------ ------ ------ ------ ------
Total from investment operations . . . . . . .29 (.72) 3.125 2.85 1.73 .455
------ ------ ------ ------ ------ ------
DIVIDENDS FROM NET
INVESTMENT INCOME . . . . . . . . . . . . . (.77) (1.54) (1.645) (1.68) (1.77) (2.075)
------ ------ ------ ------ ------ ------
Net asset value, end of period . . . . . . . $18.59 $19.07 $21.33 $19.85 $18.68 $18.72
====== ====== ====== ====== ====== ======
Market price, end of period . . . . . . . . $16.75 $18.13 $20.75 $19.75 $18.38 $16.50
====== ====== ====== ====== ====== ======
TOTAL RETURN, at net asset value . . . . . . 1.92% (3.37%) 16.35% 15.79% 10.49% 3.16%
TOTAL RETURN, at market price . . . . . . . (3.41%) (5.59%) 13.76% 17.12% 23.30% (8.67%)
RATIOS/
SUPPLEMENTAL DATA
Net assets, end of period (millions) . . . . $211.2 $216.6 $235.6 $218.5 $204.4 $204.9
Average net assets (millions) . . . . . . . . $214.8 $236.3 $227.3 $213.4 $204.3 $211.4
Ratios to average net assets
Operating expenses . . . . . . . . . . . . .68%(1) .68% .71% .71% .72% .71%
Convertible note expenses(2) . . . . . . . .78%(1) .82% .98% 1.05% 1.09% 1.55%
Net investment income . . . . . . . . . . . 7.97%(1) 7.29% 7.65% 8.90% 9.42% 10.65%
Portfolio turnover rate . . . . . . . . . . . 3% 2% 19% 39% 18% 14%
Assuming full dilution of debt(2)
Net asset value, end of period . . . . . . $18.64 $19.07 $21.09 $19.78 $18.74 $18.78
Number of shares outstanding,
end of period (thousands) . . . . . . . . 12,411 12,411 12,411 12,372 12,304 12,304
</TABLE>
(1) ANNUALIZED
(2) SEE NOTE 5
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE> 17
AMERICAN CAPITAL BOND FUND, INC.
BOARD OF DIRECTORS
Donald M. Carlton
A. Benton Cocanougher
Stephen R. Gross
Dr. Norman Hackerman
Robert D.H. Harvey
Jeffrey B. Lane
Alan G. Merten
Steven Muller
F. Robert Paulsen
A. Richardson Pettit
Don G. Powell
Alan B. Shepard, Jr.
Miller Upton
Benjamin N. Woodson
INQUIRIES ABOUT AN INVESTOR'S ACCOUNT SHOULD BE REFERRED TO THE FUND'S TRANSFER
AGENT: BOSTON FINANCIAL DATA SERVICES, INC. P.O. BOX 366 BOSTON, MASSACHUSETTS
02101 TELEPHONE: (800) 821-1238 ALASKA, CALIFORNIA AND HAWAII CALL COLLECT:
(617) 328-5000 EXTENSION: 2223
OFFICERS
Don G. Powell
CHAIRMAN OF THE
BOARD AND PRESIDENT
Curtis W. Morell
VICE PRESIDENT AND
TREASURER
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
INVESTMENT ADVISER
Van Kampen American Capital Asset Management, Inc.
2800 Post Oak Blvd., Houston,Texas 77056
CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street, Boston, Massachusetts 02101
SHAREHOLDER SERVICE AGENT
Boston Financial Data Services, Inc.
P.O. Box 366, Boston, Massachusetts 02101
CONVERTIBLE NOTE TRUSTEE
United States Trust Company of New York
45 Wall Street, New York, New York 10005
NEW YORK STOCK EXCHANGE SYMBOLS
COMMON STOCK-ACB
8.5% CONVERTIBLE
NOTES-ADBB
Nationally distributed by Van Kampen American Capital Distributors, Inc.
16
<PAGE> 18
American Capital
Bond Fund, Inc.
C/O BFDS
P.O. Box 366
Boston, MA 02101
PRINTED MATTER
Printed in U.S.A. 995RPT-002
