<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders...................... 1
Dividend Reinvestment Plan.................. 3
Portfolio of Investments.................... 4
Statement of Assets and Liabilities......... 7
Statement of Operations..................... 8
Statement of Cash Flows..................... 9
Statement of Changes in Net Assets.......... 10
Financial Highlights........................ 11
Notes to Financial Statements............... 12
</TABLE>
BOND ARN 8/95
<PAGE>
LETTER TO SHAREHOLDERS
[PHOTO OF DENNIS J. MCDONNELL AND DON G. POWELL]
August 3, 1995
Dear Shareholder:
The fiscal year ended June 30, 1995 has been a very positive one for most in-
vestors. After a poor first half, both the fixed-income and stock markets have
made considerable gains.
The first six months of 1995 serve as a reminder of just how quickly markets
can move, and how difficult it can be to predict the timing of those movements.
Moreover, this year reinforces the importance of maintaining a long-term per-
spective, and reaffirms the principle that it is time--not timing--that leads
to investment success.
ECONOMIC OVERVIEW
Due in large part to the Federal Reserve Board's efforts to tighten monetary
supply in 1994, the economy has slowed significantly this year. Evidence of
this guided slowdown was reflected in gross domestic product for the second
quarter, which grew at an annual rate of 0.5 percent, substantially lower than
its first quarter rate of 2.7 percent and fourth quarter 1994 rate of 5.1 per-
cent. While other key economic data, including unemployment rates and housing
starts, have shown mixed signs during recent weeks, the general trend for the
first half of the year suggested a "soft landing" scenario. Subsequently, con-
cern over inflation has subsided, as its annualized rate has run at a modest
pace of 3.2 percent year-to-date.
Financial markets, perceiving the Fed's monetary initiatives had taken hold
without driving the economy into a recession, rallied through the first six
months of the year. With slowing growth, interest rates declined and the value
of fixed-income investments rose. For example, the yield on 30-year Treasury
securities fell from 7.88 percent at the end of December to 6.62 percent at the
end of June, while prices on the "long bond" rose 18 percent.
As a group, corporate bonds also benefited from falling interest rates. Due
to their relatively short supply, bonds issued by U.S. corporations rose in
price faster than U.S. Treasuries. Corporate bonds were in short supply for two
reasons: 1) high interest rates in 1994 kept many companies out of the market;
and 2) corporate cash flows were in many cases so plentiful that it was unnec-
essary to issue new debt.
PERFORMANCE SUMMARY
Because of their somewhat higher level of credit risk, investment grade cor-
porate bonds typically offer higher yields than U.S. government bonds of compa-
rable maturity. And, like all bonds, those issued by corporations appreciate in
value when interest rates drop. Both factors contributed to a strong perfor-
mance for the period ended June 30, 1995. American Capital
(Continued on page two)
1
<PAGE>
Bond Fund produced a one-year total return at market price of 14.89 percent.
This return reflects an increase in market price per share on the New York
Stock Exchange from $18.13 on June 30, 1994 to $19.13 on June 30, 1995, and re-
investment of dividends totaling $1.54 per share. For the same one-year period,
the Lehman Corporate Bond Index produced a total return of 15.12 percent. The
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.
As of June 30, 1995, the Fund's net assets were primarily invested in a mix-
ture of AA, A and BBB rated securities.
OUTLOOK
Comfortable with the economy's rate of growth and level of inflation, the Fed
reversed course and lowered short-term interest rates on July 6. We believe
that the Fed will move cautiously before easing again, waiting for further
signs that the economy has settled into a slow growth pattern. We anticipate
that the economy will grow at an annual rate between 2 and 3 percent in the
second half of the year, and that inflation will run at an annualized rate be-
tween 3.3 and 3.5 percent. Based upon this generally slow growth and low infla-
tion outlook, we believe that fixed-income markets will continue to make
attractive gains as interest rates fall. As a result, the American Capital Bond
Fund will continue to maintain a portfolio with a relatively long maturity of
roughly 20 years. This should enable the Fund to lock into higher yields for a
longer period of time.
During recent months, debate over tax reform has dominated the agenda in
Washington. There has been varied speculation about the impact of reform, which
may have caused you to wonder how it might affect your investment goals. At
this point, no one knows for sure what will happen or when it might actually
take place. As various proposals come to the forefront, there may be short-term
market fluctuations, just as we saw during the debate over the U.S. health care
system. We will continue to keep a close watch over any new developments and
evaluate the potential impact that they may have on your investments.
Once again, it is important to remember that financial markets will inevita-
bly experience highs and lows, but by maintaining a long-term investment per-
spective, it may allow you to ride the ups and downs of the markets more easily
as you pursue your investment goals.
We appreciate your continued confidence in your investment with Van Kampen
American Capital, and we look forward to communicating with you again regarding
the performance of your Fund.
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.
2
<PAGE>
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 reinvest-
ment 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 Directors 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 State Street Bank and Trust Company
("State Street"), 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 in-
crease the market price so that such price plus brokerage commissions would
equal or exceed the net asset value of such shares.) If State Street 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 at net asset value, there will be no dilu-
tion, 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 distri-
butions.
You may begin or discontinue participation in the Plan at any time by writ-
ten 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 termi-
nations 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 broker-
age 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 termi-
nate the Plan on 30 days' written notice prior to the record date of the dis-
tribution for which such amendment or termination is effective.
Record stockholders should address all notices, correspondence, questions or
other communications about the Plan to:
STATE STREET BANK AND TRUST COMPANY
P.O. BOX 8200
BOSTON, MA 02266-8200
1-800-821-1238
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.
3
<PAGE>
PORTFOLIO OF INVESTMENTS
June 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE OBLIGATIONS 87.1%
CONSUMER DISTRIBUTION 0.5%
$ 1,000 Grand Metropolitan Investment
Corp.............................. 8.000% 09/15/22 $ 1,082,100
--------------
CONSUMER NON-DURABLES 2.0%
4,000 Coca-Cola Enterprises, Inc........ 8.500 02/01/12 4,505,600
--------------
CONSUMER SERVICES 12.6%
5,000 AT&T Corp......................... 8.625 12/01/31 5,471,500
2,500 Columbia Pictures Entertainment,
Inc............................... 9.875 02/01/98 2,707,750
5,000 GTE North, Inc.................... 8.500 12/15/31 5,431,000
1,750 Harcourt General, Inc............. 8.875 06/01/22 2,009,700
5,000 Harcourt General, Inc............. 9.500 03/15/00 5,568,500
1,000 News America Holdings, Inc........ 8.875 04/26/23 1,096,050
1,125 New York Times.................... 8.250 03/15/25 1,214,775
5,000 United Telecommunications, Inc.... 9.500 04/01/03 5,799,450
--------------
TOTAL CONSUMER SERVICES........... 29,298,725
--------------
ENERGY 8.0%
7,400 Ashland Oil, Inc.................. 8.800 11/15/12 8,352,010
4,000 Occidental Petroleum Corp......... 9.625 07/01/99 4,134,000
5,025 PDV America, Inc.................. 7.875 08/01/03 4,928,017
1,000 Union Oil Co. of California....... 9.125 02/15/06 1,156,800
--------------
TOTAL ENERGY...................... 18,570,827
--------------
FINANCE 3.6%
183 Bank of America National Trust,
Mortgage Pass Through Certificate. 9.500 11/01/08 185,280
191 Bank of America National Trust,
Mortgage Pass Through Certificate. 9.500 01/01/09 194,240
1,970 Beaver Valley II Funding Corp..... 9.000 06/01/17 1,630,175
4,500 First PV Funding Corp., Series
1986 A............................ 10.300 01/15/14 4,612,500
98 Home Savings & Loan Association of
California, Second Series,
Variable Pass-Through Rate (coupon
at 6/30/95)....................... 9.609 06/01/08 94,248
1,500 United Illuminating Co............ 10.240 01/02/20 1,629,300
--------------
TOTAL FINANCE..................... 8,345,743
--------------
PRODUCER MANUFACTURING 4.7%
10,000 John Deere Credit Corp............ 9.625 11/01/98 10,963,500
--------------
RAW MATERIALS/PROCESSING
INDUSTRIES 10.5%
2,000 Bowater, Inc...................... 9.375 12/15/21 2,378,900
1,000 Crown Cork & Seal Co, Inc......... 8.000 04/15/23 1,027,950
5,000 Federal Paper Board, Inc.......... 8.875 07/01/12 5,600,000
9,500 Georgia Pacific Corp.............. 9.500 02/15/18 10,029,150
1,500 James River Corp.................. 8.375 11/15/01 1,604,685
3,100 Owens-Corning Fiberglass Corp..... 9.375 06/01/12 3,620,800
--------------
TOTAL RAW MATERIALS/PROCESSING
INDUSTRIES........................ 24,261,485
--------------
</TABLE>
See Notes to Financial Statements
4
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TECHNOLOGY 4.8%
$11,000 Tele-Communications, Inc.......... 9.250% 01/15/23 $ 11,176,000
--------------
TRANSPORTATION 12.5%
3,000 AMR Corp.......................... 9.500 05/15/01 3,346,200
4,250 CSX Corp.......................... 8.625 05/15/22 4,804,413
2,500 Kansas City Southern Industries,
Inc............................... 7.875 07/01/02 2,650,000
865 Kansas City Southern Industries,
Inc............................... 8.800 07/01/22 959,804
10,000 Union Pacific Co.................. 8.350 05/01/25 10,548,000
6,000 United Airlines, Series 1991-A,
Pass Through Certificate.......... 10.020 03/22/14 6,744,600
--------------
TOTAL TRANSPORTATION.............. 29,053,017
--------------
UTILITIES 27.9%
2,000 Arizona Public Service Co......... 8.000 02/01/25 1,973,400
3,000 Arizona Public Service Co., 1st
Mortgage.......................... 9.500 04/15/21 3,372,450
3,500 Arizona Public Service Co., 1st
Mortgage.......................... 8.750 01/15/24 3,789,870
6,200 Cleveland Electric Illuminating
Co., 1st Mortgage, Series E....... 10.000 06/01/20 6,396,540
6,000 Commonwealth Edison Co............ 9.625 07/01/19 6,398,400
1,000 Commonwealth Edison Co............ 8.625 02/01/22 1,060,260
7,000 Consumers Power Co., 1st Mortgage. 8.750 02/15/98 7,346,850
3,000 Gulf States Utilities Co.......... 8.940 01/01/22 3,138,150
3,000 Long Island Lighting Co........... 9.000 11/01/22 2,857,500
4,000 Long Island Lighting Co........... 9.750 05/01/21 4,094,800
4,150 Montana Power Co.................. 8.950 02/01/22 4,612,725
1,000 Niagara Mohawk Power Corp......... 8.500 07/01/23 1,009,220
7,000 Public Service Co. of Colorado.... 8.750 03/01/22 7,699,720
2,000 Southern California Gas Co.,
Series-Y.......................... 8.750 10/01/21 2,194,200
2,500 Texas Utilities Electric Co....... 8.875 02/01/22 2,744,750
2,500 Union Electric Co................. 8.000 12/15/22 2,608,000
3,000 Utilicorp United, Inc............. 9.000 11/15/21 3,334,890
--------------
TOTAL UTILITIES................... 64,631,725
--------------
TOTAL CORPORATE OBLIGATIONS (Cost
$186,707,550)..................... 201,888,722
--------------
CANADIAN GOVERNMENT
OBLIGATIONS 8.2%
1,250 Province of Newfoundland.......... 8.650 10/22/22 1,384,375
4,000 Province of Newfoundland.......... 9.000 10/15/21 4,759,200
4,000 Province of Nova Scotia........... 8.250 07/30/22 4,425,600
5,500 Province of Saskatchewan.......... 8.000 02/01/13 6,013,975
2,250 Province of Saskatchewan.......... 8.500 07/15/22 2,507,760
--------------
TOTAL CANADIAN GOVERNMENT
OBLIGATIONS
(Cost $16,832,518)................ 19,090,910
--------------
</TABLE>
See Notes to Financial Statements
5
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount/
Number of
Shares
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
PREFERRED STOCK 1.9%
45 Commonwealth Edison Co., $8.38
(Cost $4,276,782)............. $ 4,471,793
--------------
UNITED STATES AGENCY
OBLIGATIONS 0.0%
$ 21 Federal Home Loan Mortgage
Corp.......................... 7.375% 12/01/02 21,310
32 Government National Mortgage
Association................... 10.000 10/16 to 7/20 32,318
--------------
TOTAL UNITED STATES AGENCY
OBLIGATIONS
(Cost $51,323)................ 53,628
--------------
REPURCHASE AGREEMENT 0.5%
1,150 Lehman Government Securities,
Inc., dated 6/30/95
(Collateralized by U.S.
Government obligations in a
pooled cash account)
repurchase proceeds $1,150,592
(Cost $1,150,000)............. 6.180 07/03/95 1,150,000
--------------
TOTAL INVESTMENTS (Cost $209,018,173) 97.7%................... 226,655,053
OTHER ASSETS AND LIABILITIES, NET 2.3%........................ 5,284,024
--------------
NET ASSETS 100%............................................... $ 231,939,077
--------------
</TABLE>
See Notes to Financial Statements
6
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at market value (Cost $209,018,173)................ $226,655,053
Cash............................................................ 88
Interest and dividends receivable............................... 5,443,812
Other assets.................................................... 15,229
------------
Total Assets................................................... 232,114,182
------------
LIABILITIES
Due to Adviser.................................................. 93,499
Dividends payable............................................... 10,007
Accrued expenses................................................ 71,599
------------
Total Liabilities.............................................. 175,105
------------
NET ASSETS, equivalent to $20.41 per share...................... $231,939,077
------------
NET ASSETS WERE COMPRISED OF:
Common stock, par value $1 per share; 15,000,000 shares
authorized; 11,362,465 shares outstanding...................... $ 11,362,465
Capital surplus................................................. 235,011,268
Accumulated net realized loss on securities..................... (32,351,418)
Net unrealized appreciation of investments...................... 17,636,880
Undistributed net investment income............................. 279,882
------------
NET ASSETS...................................................... $231,939,077
------------
</TABLE>
See Notes to Financial Statements
7
<PAGE>
STATEMENT OF OPERATIONS
Year Ended June 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest........................................................... $19,212,244
Dividends.......................................................... 444,258
-----------
Investment income................................................. 19,656,502
-----------
EXPENSES
Management fees.................................................... 1,059,057
Shareholder service agent's fees and expenses...................... 160,401
Convertible note expenses
Interest.......................................................... 842,539
Trustee's fees.................................................... 12,669
Accounting services................................................ 71,430
Directors' fees and expenses....................................... 39,396
Audit fees......................................................... 23,200
Custodian fees..................................................... 11,976
Legal fees......................................................... 12,284
State franchise taxes.............................................. 15,706
Reports to shareholders............................................ 61,402
Registration and filing fees....................................... 26,532
Miscellaneous...................................................... 9,475
-----------
Total expenses.................................................... 2,346,067
-----------
NET INVESTMENT INCOME.............................................. 17,310,435
-----------
REALIZED AND UNREALIZED GAIN ON SECURITIES
Net realized gain on securities.................................... 935,680
Net unrealized appreciation of securities during the period........ 14,575,680
-----------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES..................... 15,511,360
-----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................... $32,821,795
-----------
</TABLE>
See Notes to Financial Statements
8
<PAGE>
STATEMENT OF CASH FLOWS
Year Ended June 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Interest and dividends received.................................. $ 19,992,189
Interest expense paid............................................ (1,711,050)
Operating expenses paid.......................................... (1,475,114)
------------
Net cash provided by operating activities....................... 16,806,025
------------
INVESTING ACTIVITIES
Proceeds of short-term portfolio securities, net................. 11,201,660
Purchase of long-term portfolio securities....................... (17,633,701)
Proceeds from sales of long-term portfolio securities............ 27,589,529
------------
Net cash provided by investing activities....................... 21,157,488
------------
FINANCING ACTIVITIES
Maturity of convertible notes.................................... (20,130,000)
Dividends and distributions paid................................. (17,837,272)
------------
Net cash used for financing activities.......................... (37,967,272)
------------
Decrease in cash................................................ (3,759)
Cash, beginning of period....................................... 3,847
------------
Cash, end of period............................................. $ 88
------------
RECONCILIATION OF INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS
TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Increase in net assets resulting from operations................. $32,821,795
Reconciling adjustments:
Net realized and unrealized gain on securities.................. (15,511,360)
Decrease in receivables......................................... 335,687
Increase in accrued expenses.................................... (846,292)
Non-cash net income items....................................... 6,195
------------
NET CASH PROVIDED BY OPERATING ACTIVITIES........................ $ 16,806,025
------------
</TABLE>
See Notes to Financial Statements
9
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended June 30
--------------------------
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
NET ASSETS, beginning of period.................... $216,629,352 $235,649,803
------------ ------------
Operations
Net investment income............................. 17,310,435 17,225,081
Net realized gain on securities................... 935,680 1,870,842
Net unrealized appreciation (depreciation) of
securities during the period..................... 14,575,680 (26,939,500)
------------ ------------
Increase (decrease) in net assets resulting from
operations........................................ 32,821,795 (7,843,577)
------------ ------------
Dividends to shareholders from net investment
income............................................. (17,512,070) (17,357,536)
------------ ------------
Capital transactions
Proceeds from conversion of convertible note (Note
5)................................................ -- 6,180,662
------------ ------------
Increase in net assets resulting from capital
transactions...................................... -- 6,180,662
------------ ------------
INCREASE (DECREASE) IN NET ASSETS.................. 15,309,725 (19,020,451)
------------ ------------
NET ASSETS, end of period.......................... $231,939,077 $216,629,352
------------ ------------
CHANGE IN FUND SHARES OUTSTANDING
Shares issued for conversion of convertible note... -- 312,499
------------ ------------
Increase in Fund shares outstanding............... -- 312,499
------------ ------------
</TABLE>
See Notes to Financial Statements
10
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of common stock outstanding throughout each of the
periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended June 30
--------------------------------------
1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------
<S> <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
------ ------ ------ ------ ------
Income from investment operations
Investment income..................... 1.73 1.88 1.925 2.075 2.095
Operating Expenses.................... (.13) (.15) (.15) (.14) (.135)
Convertible note expenses(/1/)........ (.08) (.17) (.20) (.20) (.20)
------ ------ ------ ------ ------
Net investment income.................. 1.52 1.56 1.575 1.735 1.76
Net realized or unrealized gains or
losses on securities.................. 1.36 (2.28) 1.55 1.115 (.03)
------ ------ ------ ------ ------
Total from investment operations....... 2.88 (.72) 3.125 2.85 1.73
------ ------ ------ ------ ------
Distributions from net investment
income................................. (1.54) (1.54) (1.645) (1.68) (1.77)
------ ------ ------ ------ ------
Net asset value, end of period......... $20.41 $19.07 $21.33 $19.85 $18.68
------ ------ ------ ------ ------
Market price, end of period............ $19.13 $18.13 $20.75 $19.75 $18.38
------ ------ ------ ------ ------
TOTAL RETURN, at net asset value ...... 16.54% (3.37%) 16.35% 15.79% 10.49%
TOTAL RETURN, at net market price ..... 14.89% (5.59%) 13.76% 17.12% 23.30%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)... $231.9 $216.6 $235.6 $218.5 $204.4
Average net assets (millions).......... $218.7 $236.3 $227.3 $213.4 $204.3
Ratios to average net assets
Operating expenses.................... .68% .68% .71% .71% .72%
Convertible note expenses(/1/)........ .39% .82% .98% 1.05% 1.09%
Net investment income................. 7.92% 7.29% 7.65% 8.90% 9.42%
Portfolio turnover rate................ 8% 2% 19% 39% 18%
Assuming full dilution of debt(/1/)
Net asset value, end of period........ -- $19.07 $21.09 $19.78 $18.74
Number of shares outstanding, end of
period (thousands)................... -- 12,411 12,411 12,372 12,304
</TABLE>
(1) See Note 5.
See Notes to Financial Statements
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
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 in-
vestment company. The following is a summary of significant accounting poli-
cies 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 se-
curities 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 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. 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 future net realized capital gains.
For federal income tax purposes, the net realized capital loss carryforward
of approximately $32.4 million at June 30, 1995, may be utilized to offset fu-
ture capital gains of which $28 million expires in 1998 and the remainder ex-
pires in 1999 and 2000.
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 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.
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. Ac-
cordingly, original
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
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 pur-
poses and ordinary income for tax purposes.
F. CASH FLOW INFORMATION-The Fund invests in securities and makes distribu-
tions 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 ob-
ligations 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 allo-
cated among investment companies advised by the Adviser. For the period these
charges included $9,560 as the Fund's share of the employee costs attributable
to the Fund's accounting officers. A portion of the accounting services ex-
pense 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 period, the cost of purchases and proceeds from sales of invest-
ments, excluding short-term investments, were $17,633,701 and $26,686,529, re-
spectively.
The cost of investments owned at the end of the period was the same for fed-
eral income tax and financial reporting purposes. Gross unrealized apprecia-
tion of investments aggregated $18,161,810 and gross depreciation of
investments aggregated $524,930.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
NOTE 4--DIRECTOR COMPENSATION
Fund directors who are not affiliated with the Adviser are compensated by the
Fund at the annual rate of $2,240 plus $144 per meeting attended. During the
period, such fees aggregated $35,690.
NOTE 5--CONVERTIBLE NOTE
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. The note
was convertible at any time prior to maturity into common stock of the Fund at
a conversion price of $19.20 per share.
NOTE 6--SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of quarterly results of operations for the two
years ended June 30, 1995.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------
9/30/94 12/31/94 3/31/95 6/30/95 TOTAL
---------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net realized and
unrealized gain (loss)
on investments........ $3,396,479 $(8,682,055) $ 14,287,410 $ 6,509,526 $ 15,511,360
Net realized and
unrealized gain (loss)
on investments per
share................. .03 (.50) 1.07 0.76 1.36
Investment income....... 5,173,016 5,043,109 4,684,908 4,755,469 19,656,502
Net investment income... 4,383,545 4,250,827 4,307,364 4,368,699 17,310,435
Net investment income
per share............. 0.39 0.37 0.38 0.38 1.52
<CAPTION>
QUARTER ENDED
--------------------------------------------------
9/30/93 12/31/93 3/31/94 6/30/94 TOTAL
---------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net realized and
unrealized gain (loss)
on investments........ $6,885,059 $(6,829,476) $(13,124,993) $(11,999,248) $(25,068,658)
Net realized and
unrealized gain (loss)
on investments per
share................. .62 (.67) (1.17) (1.06) (2.28)
Investment income....... 5,261,121 5,215,297 5,124,627 5,170,607 20,771,652
Net investment income... 4,292,439 4,288,104 4,280,568 4,363,970 17,225,081
Net investment income
per share............. .39 .39 .38 .40 1.56
</TABLE>
14
<PAGE>
AMERICAN CAPITAL BOND FUND, INC.
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
AMERICAN CAPITAL BOND FUND, INC.
We have audited the accompanying statement of assets and liabilities, includ-
ing the investment portfolio, of American Capital Bond Fund, Inc., as of June
30, 1995, and the related statements of operations and cash flows for the year
then ended, the statements of changes in net assets for each of the two years
in the period then ended, and the financial highlights for each of the five
years in the period then ended. These financial statements and financial high-
lights 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 stan-
dards. 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, 1995, 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 presenta-
tion. 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
American Capital Bond Fund, Inc. at June 30, 1995, the results of its opera-
tions and its cash flows for the year then ended, the changes in its net as-
sets for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Houston, Texas
July 28, 1995
15
<PAGE>
FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL
GLOBAL AND INTERNATIONAL
Global Equity Fund
Global Government Securities Fund
Global Managed Assets Fund
Short-Term Global Income Fund
Strategic Income Fund
EQUITY
Growth
Emerging Growth Fund
Enterprise Fund
Pace Fund
Growth & Income
Balanced Fund
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
Limited 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
Texas Tax Free Income Fund
THE GOVETT FUNDS
Emerging Markets Fund
Global Income Fund
International Equity Fund
Latin America Fund
Pacific Strategy Fund
Smaller Companies 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 direct at 1-800-421-5666 weekdays
from 7:00 a.m. to 7:00 p.m. Central time.
16
<PAGE>
AMERICAN CAPITAL BOND FUND, INC.
BOARD OF DIRECTORS
DONALD M. CARLTON
A. BENTON COCANOUGHER
STEPHEN R. GROSS
DR. NORMAN HACKERMAN
ROBERT D.H. HARVEY
ALAN G. MERTEN
STEVEN MULLER
F. ROBERT PAULSEN
R. RICHARDSON PETTIT
DON G. POWELL
ALAN B. SHEPARD, JR.
MILLER UPTON
BENJAMIN N. WOODSON
OFFICERS
DON G. POWELL
Chairman of the Board and 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
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
INDEPENDENT AUDITORS
Ernst & Young LLP
1221 McKinney
Houston, Texas 77010
(C)Van Kampen American Capital
Distributors, Inc. 1995 All
rights reserved.
SM denotes a service mark of Van Kampen American Capital Distributors, Inc.
TAX STATUS
The Federal Tax status of
the dividends paid by the
Fund will be reported to
you on your individualized
tax statement (Form 1099)
to be mailed in January,
1996. The Form should be
retained for use in prepar-
ing your 1995 Federal In-
come Tax Return.
The per share dividends
taxable to you thus far
during 1995 were as fol-
lows:
----------------------------
<TABLE>
<CAPTION>
Taxable as Tax Cost of
Ordinary Shares Received
Dividend on Reinvestment
Payment Date Income of Dividends
-------------------------------------------
<S> <C> <C>
March 31, 1995 $.385 $18.33
June 30, 1995 .385 19.15
-------------------------------------------
</TABLE>
For 1995, 2.56% of the
dividends taxable as ordi-
nary income qualify for the
70% dividend received de-
duction for corporations.
- -------------------------------------------------------------------------------
NEW YORK STOCK EXCHANGE SYMBOL
COMMON STOCK-ACB
- -------------------------------
Nationally distributed by Van
Kampen
American Capital Distributors,
Inc.
- -------------------------------
INQUIRIES ABOUT AN INVESTOR'S
ACCOUNT SHOULD BE REFERRED
TO THE FUND'S TRANSFER AGENT
BOSTON FINANCIAL DATA SERVIC-
ES, INC.
P.O. BOX 366
BOSTON, MASSACHUSETTS 02101
TELEPHONE: (800) 821-1238
ALASKA, CALIFORNIA AND HAWAII
CALL COLLECT: (617) 328-5000
EXTENSION: 2223
- -------------------------------
17
<PAGE>
AMERICAN CAPITAL BOND FUND, INC.
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18
<PAGE>
AMERICAN CAPITAL BOND FUND, INC.
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19
<PAGE>
AMERICAN CAPITAL BOND FUND, INC.
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20
