<PAGE>
TABLE OF CONTENTS
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders...................... 1
Dividend Reinvestment Plan.................. 4
Portfolio of Investments.................... 5
Statement of Assets and Liabilities......... 8
Financial Statements........................ 9
Financial Highlights........................ 10
Notes to Financial Statements............... 11
Independent Auditors' Report................ 14
Shareholder Meeting Results................. 15
</TABLE>
ACB ANR 8/96
<PAGE>
LETTER TO SHAREHOLDERS
LOGO
DENNIS J. MCDONNELL AND DON G. POWELL
LOGO
Continued on page two
August 6, 1996
Dear Shareholder,
The bond market turned in a mixed performance during the 12-month period
ended June 30, 1996. Through the first half of the Fund's fiscal year, bond
prices appreciated as interest rates on intermediate and long-term bonds fell
steadily. However, in February, interest rates began to change direction as
economic growth accelerated. The yield on benchmark 30-year U.S. Treasury
bonds rose from 6.03 percent at the end of January to 6.47 percent by the end
of February.
After an anemic 0.3 percent growth rate in gross domestic product in the
fourth quarter of 1995, GDP (the nation's gross domestic product) rose 2.0
percent in the first quarter of 1996 and 4.2 percent in the second quarter.
The strengthening economic growth was spurred by consumer spending, as retail
sales rose more than 5 percent in the first five months of this year versus
the comparable 1995 period. This brisk activity generated new fears of infla-
tion, which had been running under 3 percent for several years. Investors be-
gan to suspect that the Federal Reserve might tighten monetary policy in order
to ward off inflation.
PORTFOLIO STRATEGY
The Van Kampen American Capital Bond Fund invests primarily in corporate
bonds rated investment-grade and higher. During periods of rising interest
rates, higher-grade securities, which trade in similar fashion to U.S. Trea-
suries, typically do not perform as well as lower-grade securities. In re-
sponse to this environment, the Fund maintained a duration of approximately
six years. This generally short duration should make the Fund less sensitive
to rising interest rates.
[PIE CHART APPEARS HERE]
HOLDINGS BY SECTOR AS A PERCENTAGE OF NET ASSETS AS OF JUNE 30, 1995
Government Obligations.......................... 5%
Utilities....................................... 31%
Transportation.................................. 13%
Raw Materials/Processing Industries............. 11%
Producer Manufacturing.......................... 5%
Energy.......................................... 6%
Consumer Services............................... 15%
Other........................................... 14%
1
<PAGE>
Continued on page three
During the fiscal year, the Fund took profits on long-maturity Canadian bonds
and utility issues and reinvested the monies in shorter maturity issues of con-
sumer service and healthcare companies. Utilities remain the largest sector of
the Fund, followed by consumer services and transportation.
New issues in the portfolio include ITT Corp., a lodging company enjoying
high occupancy rates, Cox Communications, a fast-growing cable television com-
pany based in the Southeast, and Time Warner, the entertainment and publishing
conglomerate currently in the process of reducing its debt.
PERFORMANCE SUMMARY
Because of the volatile interest rate environment, bonds produced excellent
returns in the last half of 1995 but struggled through the first half of 1996.
For the one-year period ended June 30, 1996, the Bond Fund produced a total
return at market price of 2.61 percent. For the same period, the Lehman Broth-
ers Corporate Bond Index generated a total return of 5.12 percent. Keep in mind
that the Index is a broad-based, unmanaged index that reflects the general per-
formance of corporate bonds and does not reflect any commissions or fees that
would be paid by an investor purchasing the securities it represents.
The Fund's return reflects the change in market price per share on the New
York Stock Exchange from $19.13 on June 30, 1995 to $18.13 on June 30, 1996,
and dividends totaling $1.54 per share. Although rising interest rates have ex-
erted downward pressure on corporate bond prices, we believe that bonds offer
good relative value. Today, long-term corporate bonds are generally yielding
more than 7.00 percent, while the current inflation rate, by most measures, is
running under 3 percent. Historically, that is a significant premium.
OUTLOOK
We anticipate that reasonably strong economic growth will continue during the
balance of 1996, albeit at more moderate rates than the second quarter's swift
pace. While we expect rates of inflation to remain near current levels, the Fed
may begin to lean toward greater restraint in its monetary policy in the coming
months. That suggests an upward bias for short-term interest rates and for
yields on long-term bonds to remain steady at current levels. In particular, we
expect 10-year Treasuries to remain within a trading range of 6.50 and 7.25
percent.
CORPORATE NEWS
As you may be aware, an agreement was reached in late June for VK/AC Holding,
Inc., the parent company of Van Kampen American Capital, Inc., to be acquired
by Morgan Stanley Group Inc.. While this announcement may appear commonplace in
an ever-changing financial industry, we believe it represents an exciting op-
portunity for shareholders of our investment products.
2
<PAGE>
With Morgan Stanley's global leadership in investment banking and asset man-
agement and Van Kampen American Capital's reputation for competitive long-term
performance and superior investor services, together we will offer a broader
range of investment opportunities.
The new ownership will not affect our commitment to pursuing excellence in
all aspects of our business. And, we expect very little change in the way your
closed-end fund account is maintained and serviced.
A proxy will be mailed to you shortly explaining the acquisition and asking
for your vote of approval. Please read it carefully and return your response
for inclusion in the shareholder vote. We value our relationship with you and
look forward to communicating more details of this transaction, which is antic-
ipated to be completed in November.
Sincerely,
LOGO LOGO
Don G. Powell Dennis J. McDonnell
Chairman President
Van Kampen American Capital Van Kampen American Capital
Asset Management, Inc. Asset Management, Inc.
3
<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 reinvestment
plan (the "Plan"). Under the Plan, shares will be issued by the Fund at net as-
set 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 dis-
tribution 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 val-
ue. (If the market price is not significantly less than the net asset value, it
is possible that open market purchases of shares may increase the market price
so that such price plus brokerage commissions would equal or exceed the net as-
set 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 dis-
tribution will be made in authorized but unissued shares of the Fund at net as-
set 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 dilution, and no brokerage commissions
are charged on such shares.
You will receive tax information annually for your personal records and to
help you prepare your federal income tax return. The automatic reinvestment of
dividends and capital gain distributions does not relieve you of any income tax
which may be payable (or required to be withheld) on dividends or distribu-
tions.
You may begin or discontinue participation in the Plan at any time by written
notice to the address below. If you withdraw from the Plan, you may rejoin at
any time if you own of record the required 100 shares. Elections and termina-
tions will be effective for distributions declared after receipt. If you with-
draw from the Plan, a certificate for the whole shares and a check for the
fractional shares, if any, credited to your Plan account will be sent as soon
as practicable after receipt of your election to withdraw. Except for brokerage
commissions, if any, which are borne by Plan participants, all costs of the
Plan are borne by the Fund. The Fund reserves the right to amend or terminate
the Plan on 30 days' written notice prior to the record date of the distribu-
tion 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.
4
<PAGE>
PORTFOLIO OF INVESTMENTS
June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE OBLIGATIONS 90.6%
CONSUMER NON-DURABLES 2.3%
$ 4,000 Coca-Cola Enterprises, Inc............ 8.500% 02/01/12 $ 4,409,600
750 Dimon Inc............................. 8.875 06/01/06 756,810
------------
5,166,410
------------
CONSUMER SERVICES 14.9%
2,500 Columbia Pictures Entertainment, Inc.. 9.875 02/01/98 2,636,000
3,000 Cox Communications, Inc............... 7.250 11/15/15 2,871,300
1,750 Harcourt General, Inc................. 8.875 06/01/22 1,970,675
5,000 Harcourt General, Inc................. 9.500 03/15/00 5,393,500
2,000 ITT Corp.............................. 6.250 11/15/00 1,952,800
4,400 ITT Corp.............................. 6.750 11/15/05 4,221,140
1,750 ITT Corp.............................. 7.375 11/15/15 1,664,845
1,125 New York Times Co..................... 8.250 03/15/25 1,168,088
1,000 News America Holdings, Inc............ 8.875 04/26/23 1,060,900
11,000 Tele-Communications, Inc.............. 9.250 01/15/23 10,979,100
------------
33,918,348
------------
ENERGY 6.2%
7,400 Ashland Inc. ......................... 8.800 11/15/12 8,194,020
5,025 PDV America, Inc...................... 7.875 08/01/03 4,864,703
1,000 Union Oil Co. of California........... 9.125 02/15/06 1,113,950
------------
14,172,673
------------
FINANCE 3.4%
148 Bank of America National Trust, Mtg
Pass-Through Certificate.............. 9.500 11/01/08 149,907
162 Bank of America National Trust, Mtg
Pass-Through Certificate.............. 9.500 01/01/09 165,111
4,500 First PV Funding Corp., Series 1986 A. 10.300 01/15/14 4,781,250
1,000 Royal Bank of Scotland................ 6.375 02/01/11 899,690
1,500 United Illuminating Co................ 10.240 01/02/20 1,622,550
------------
7,618,508
------------
HEALTH CARE 2.4%
500 Manor Care Inc........................ 7.500 06/15/06 504,350
3,000 OrNda Healthcorp...................... 12.250 05/15/02 3,247,500
1,500 Tenet Healthcare Corp................. 10.125 03/01/05 1,593,750
------------
5,345,600
------------
PRODUCER MANUFACTURING 4.7%
10,000 John Deere Credit Corp................ 9.625 11/01/98 10,708,000
------------
RAW MATERIALS/PROCESSING
INDUSTRIES 10.6%
2,000 Bowater Inc........................... 9.375 12/15/21 2,323,800
1,000 Crown Cork & Seal Co Inc.............. 8.000 04/15/23 985,400
5,000 Federal Paper Board Inc............... 8.875 07/01/12 5,605,000
9,500 Georgia Pacific Corp.................. 9.500 02/15/18 9,983,550
</TABLE>
See Notes to Financial Statements
5
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 1,500 James River Corp...................... 8.375% 11/15/01 $ 1,583,160
3,100 Owens Corning Fiberglass Corp......... 9.375 06/01/12 3,507,960
------------
23,988,870
------------
TECHNOLOGY 2.4%
5,000 Unisys Corp........................... 15.000 07/01/97 5,318,750
------------
TRANSPORTATION 12.6%
3,000 AMR Corp.............................. 9.500 05/15/01 3,295,200
4,250 CSX Corp.............................. 8.625 05/15/22 4,651,413
2,500 Kansas City Southern Industries Inc... 7.875 07/01/02 2,597,000
865 Kansas City Southern Industries Inc... 8.800 07/01/22 904,401
10,000 Union Pacific Co...................... 8.350 05/01/25 10,235,000
6,000 United Airlines, Series 1991 A, Pass-
Through Certificate................... 10.020 03/22/14 6,989,940
------------
28,672,954
------------
UTILITIES 31.1%
1,000 AES Corp.............................. 10.250 07/15/06 1,006,250
2,000 Arizona Public Service Co............. 8.000 02/01/25 1,972,500
3,000 Arizona Public Service Co, 1st Mtg.... 9.500 04/15/21 3,256,050
3,500 Arizona Public Service Co, 1st Mtg.... 8.750 01/15/24 3,706,500
5,000 A T &T Corp........................... 8.625 12/01/31 5,341,750
6,200 Cleveland Electric Illumination Co,
1st Mtg, Series E..................... 10.000 06/01/20 6,296,720
1,000 Commonwealth Edison Co................ 8.625 02/01/22 1,021,700
7,000 Consumers Power Co, 1st Mtg........... 8.750 02/15/98 7,256,900
5,000 GTE North Inc......................... 8.500 12/15/31 5,268,000
3,000 Gulf States Utilities Co.............. 8.940 01/01/22 3,186,450
3,000 Long Island Lighting Co............... 9.000 11/01/22 2,758,200
4,000 Long Island Lighting Co............... 9.750 05/01/21 4,056,400
4,150 Montana Power Co...................... 8.950 02/01/22 4,435,105
7,000 Public Service Co of Colorado......... 8.750 03/01/22 7,420,070
2,000 Southern California Gas Co, 1st Mtg,
Series Y.............................. 8.750 10/01/21 2,091,700
2,500 Texas Utilities Electric Co........... 8.875 02/01/22 2,643,000
5,000 United Telecommunications Inc......... 9.500 04/01/03 5,639,500
3,000 Utilicorp United Inc.................. 9.000 11/15/21 3,258,870
------------
70,615,665
------------
TOTAL CORPORATE OBLIGATIONS (Cost $194,872,138)........ 205,525,778
------------
</TABLE>
See Notes to Financial Statements
6
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------
<C> <S> <C> <C> <C>
GOVERNMENT OBLIGATIONS 4.5%
$ 16 Federal Home Loan Mtg Corp....... 7.375% 12/01/02 $ 15,907
12 Government National Mtg
4,000 Association, Pool................ 10.000 various 13,504
Province of Newfoundland
(Canada)......................... 9.000 10/15/21 4,516,800
5,500 Province of Saskatchewan
(Canada)......................... 8.000 02/01/13 5,806,845
------------
TOTAL GOVERNMENT OBLIGATIONS
(Cost $9,435,609)................ 10,353,056
------------
Number of
Shares
(000)
---------
PREFERRED STOCK 2.2%
45 Commonwealth Edison Co, $8.38..................... 4,415,755
1 Time Warner Inc, 10.25%, Private Placement
(purchased 6/14/96 for $510,765).................. 495,807
------------
TOTAL PREFERRED STOCK (Cost $4,787,547)........... 4,911,562
------------
<CAPTION>
Par
Amount
(000)
---------
<C> <S> <C> <C> <C>
UNITED STATES SHORT-TERM
OBLIGATIONS 1.2%
AGENCY 0.8%
$ *1,815 Federal Home Loan Bank........... 5.523 07/01/96 1,814,165
GOVERNMENT 0.4%
*1,000 Treasury Bills................... 5.096 09/12/96 989,300
------------
TOTAL UNITED STATES SHORT-TERM OBLIGATIONS (Cost
$2,803,815)....................................... 2,803,465
------------
TOTAL INVESTMENTS (Cost $211,899,109) 98.5%................. 223,593,861
OTHER ASSETS AND LIABILITIES, NET 1.5%...................... 3,301,686
------------
NET ASSETS 100%............................................. $226,895,547
------------
</TABLE>
*Securities with a market value of approximately $2.7 million were placed as
collateral for futures contracts (see Note 1B).
See Notes to Financial Statements
7
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at market value (Cost $211,899,109)................. $223,593,861
Cash............................................................. 3,478
Interest and dividends receivable................................ 5,267,322
Other assets..................................................... 156,367
------------
Total Assets.................................................... 229,021,028
------------
LIABILITIES
Payable for investments purchased................................ 1,549,872
Dividends payable................................................ 302,876
Due to Adviser................................................... 90,644
Accrued expenses................................................. 182,089
------------
Total Liabilities............................................... 2,125,481
------------
NET ASSETS, equivalent to $19.97 per share....................... $226,895,547
------------
NET ASSETS WERE COMPRISED OF:
Share 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...................... (31,367,422)
Net unrealized appreciation (depreciation) of securities
Investments..................................................... 11,694,752
Futures contracts............................................... (63,064)
Undistributed net investment income.............................. 257,548
------------
NET ASSETS....................................................... $226,895,547
------------
</TABLE>
See Notes to Financial Statements
8
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
June 30, 1996
-------------
<S> <C>
INVESTMENT INCOME
Interest......................................................... $ 18,632,804
Dividends........................................................ 386,441
------------
Investment income............................................... 19,019,245
------------
EXPENSES
Management fees.................................................. 1,126,704
Shareholder service agent's fees and expenses.................... 137,191
Accounting services.............................................. 82,097
Directors' fees and expenses..................................... 37,472
Audit fees....................................................... 21,500
Custodian fees................................................... 11,467
Legal fees....................................................... 25,478
Reports to shareholders.......................................... 60,562
Registration and filing fees..................................... 23,753
State franchise taxes............................................ 22,659
Miscellaneous.................................................... 6,589
------------
Total expenses.................................................. 1,555,472
------------
NET INVESTMENT INCOME............................................ 17,463,773
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITIES
Net realized gain on securities.................................. 997,239
Net unrealized depreciation of securities during the period
Investments..................................................... (5,942,128)
Futures contracts............................................... (63,064)
------------
NET REALIZED AND UNREALIZED LOSS ON SECURITIES................... (5,007,953)
------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................. $ 12,455,820
------------
</TABLE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended June 30
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
NET ASSETS, beginning of period.................... $231,939,077 $216,629,352
------------ ------------
OPERATIONS
Net investment income.............................. 17,463,773 17,310,435
Net realized gain on securities.................... 997,239 935,680
Net unrealized appreciation (depreciation) of
securities during the period...................... (6,005,192) 14,575,680
------------ ------------
Increase in net assets resulting from operations.. 12,455,820 32,821,795
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT
INCOME............................................. (17,499,350) (17,512,070)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS.................. (5,043,530) 15,309,725
------------ ------------
NET ASSETS, end of period (including undistributed
net investment income of $257,548 and $279,882,
respectively)..................................... $226,895,547 $231,939,077
------------ ------------
</TABLE>
See Notes to Financial Statements
9
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of common stock outstanding throughout each of the
periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended June 30
--------------------------------------
1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period... $20.41 $19.07 $21.33 $19.85 $18.68
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Investment income..................... 1.67 1.73 1.88 1.925 2.075
Operating expenses.................... (.13) (.13) (.15) (.15) (.14)
Convertible note expenses(/1/)........ -- (.08) (.17) (.20) (.20)
------ ------ ------ ------ ------
Net investment income.................. 1.54 1.52 1.56 1.575 1.735
Net realized or unrealized gain (loss)
on securities......................... (.44) 1.36 (2.28) 1.55 1.115
------ ------ ------ ------ ------
Total from investment operations....... 1.10 2.88 (.72) 3.125 2.85
------ ------ ------ ------ ------
DISTRIBUTIONS FROM NET INVESTMENT
INCOME................................ (1.54) (1.54) (1.54) (1.645) (1.68)
------ ------ ------ ------ ------
Net asset value, end of period......... $19.97 $20.41 $19.07 $21.33 $19.85
------ ------ ------ ------ ------
Market price, end of period............ $18.13 $19.13 $18.13 $20.75 $19.75
------ ------ ------ ------ ------
TOTAL RETURN, at net asset value....... 5.94% 16.54% (3.37%) 16.35% 15.79%
TOTAL RETURN, at market price.......... 2.61% 14.89% (5.59%) 13.76% 17.12%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)... $226.9 $231.9 $216.6 $235.6 $218.5
Average net assets (millions).......... $233.7 $218.7 $236.3 $227.3 $213.4
Ratios to average net assets
Operating expenses.................... .67% .68% .68% .71% .71%
Convertible note expenses(/1/)........ -- .39% .82% .98% 1.05%
Net investment income................. 7.47% 7.92% 7.29% 7.65% 8.90%
Portfolio turnover rate................ 11% 8% 2% 19% 39%
Assuming full dilution of debt(/1/)
Net asset value, end of period........ -- -- $19.07 $21.09 $19.78
Number of shares outstanding, end of
period (000)......................... -- -- 12,411 12,411 12,372
</TABLE>
(1) On January 3, 1995, the Fund paid off its outstanding convertible
extendible note.
See Notes to Financial Statements
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Bond Fund, Inc. (the "Fund", formerly American Cap-
ital Bond Fund, Inc.) is registered under the Investment Company Act of 1940,
as amended, as a diversified closed-end management investment company. The Fund
seeks income with the preservation of capital by investing primarily in debt
investments.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The prepa-
ration of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the amounts reported. Actual amounts may differ from these estimates.
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. FUTURE 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 a risk that the market movement of such in-
struments 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. 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 or losses are
realized. The cost of securities acquired through delivery under a contract is
adjusted by the unrealized gain or loss on the contract. See Note 3--Investment
Activity for additional information.
C. 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
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
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.
For federal income tax purposes, the net realized capital loss carryforward
of approximately $31.4 million at the end of the period, may be utilized to
offset future capital gains of which $27 million expires in 1998 and the re-
mainder expires in 1999 and 2000.
D. 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.
E. 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 statement
earnings.
F. 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. Accord-
ingly, original issue discounts on long-term debt securities purchased are am-
ortized 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.
G. PRIVATE PLACEMENTS--The Fund owns securities purchased in private placement
transactions, which have not been registered under the Securities Act of 1933.
Such securities generally may be resold only in a privately negotiated transac-
tion with a limited number of purchasers or in a public offering after they
have been registered under the Securities Act of 1933. The issuers of privately
placed debt securities held by the Fund generally have agreed to register the
securities within specified time periods or increase the interest paid on such
securities.
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.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Accounting services include the salaries and overhead expenses of the Fund's
Chief Accounting Officer and the personnel operating under his direction.
Charges are allocated among investment companies advised by the Adviser. For
the period these charges included $6,438 as the Fund's share of the employee
costs attributable to the Fund's accounting officers. A portion of the account-
ing services expense was paid to the Adviser in reimbursement of personnel, fa-
cilities 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 $26,043,582 and $25,813,700, re-
spectively.
At the end of the period, the Fund held 20 short United States Treasury Bond
futures contracts expiring in September 1996. The market value of such con-
tracts was $2,190,625 and the unrealized depreciation was $63,064.
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 appreciation
of investments aggregated $12,590,427 and gross unrealized depreciation of in-
vestments aggregated $895,675.
NOTE 4--DIRECTOR COMPENSATION
Fund directors who are not affiliated with the Adviser are compensated by the
Fund at the annual rate of $1,921 plus $128 per meeting attended. During the
period, such fees aggregated $29,130.
The Directors of the Fund instituted a Retirement Plan effective April 1,
1996. The Plan is not funded, and obligations under the Plan will be paid
solely out of the Fund's general accounts. The Fund will not reserve or set
aside funds for the payment of its obligations under the Plan by any form of
trust or escrow. For the current Directors not affiliated with the Adviser, the
annual retirement benefit payable per year for a ten-year period is based upon
the highest total annual compensation received in any of the three calendar
years preceding retirement. Directors with more than five but less than ten
years of service at retirement will receive a prorated reduced benefit. Under
the Plan, for the Directors retiring with the effectiveness of the Plan, the
annual retirement benefit payable per year for a ten-year period is equal to
75% of the total compensation received from the Fund during the 1995 calendar
year. Retirement plan expenses for the period aggregated $5,909.
13
<PAGE>
VAN KAMPEN AMERICAN CAPITAL BOND FUND, INC.
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
VAN KAMPEN AMERICAN CAPITAL BOND FUND, INC.
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of the Van Kampen American Capital Bond Fund,
Inc., as of June 30, 1996, and the related statements of operations for the
year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial high-
lights 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, 1996, by correspondence with the custodian. An audit also includes assess-
ing the accounting principles used and significant estimates made by manage-
ment, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Van Kampen American Capital Bond Fund, Inc. at June 30, 1996, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and the financial highlights for
each of the five years in the period then ended, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Houston, Texas
July 26, 1996
14
<PAGE>
SHAREHOLDER MEETING RESULTS
(Unaudited)
- --------------------------------------------------------------------------------
a) The Annual Meeting of Shareholders for American Capital Bond Fund, Inc.
was held on December 14, 1995.
b) The following were voted on at the meeting:
1) The election of Directors whose term expired in 1995:
<TABLE>
<CAPTION>
WITHHOLDING
FOR AUTHORITY
--------- -----------
<S> <C> <C>
Donald M. Carlton 7,870,675 204,241
A. Benton Cocanougher 7,830,962 243,955
Robert D. H. Harvey 7,859,467 215,450
Miller Upton 7,850,490 224,427
</TABLE>
The above Directors were elected to a new term to expire in 1998.
Other Directors whose terms did not expire in 1995:
Stephen R. Gross R. Richard Pettit
Norman Hackerman Don G. Powell
Alan G. Merten Alan B. Shepard, Jr.
Steven Muller Benjamin N. Woodson
F. Robert Paulsen
2) Approval of an amendment to the Fund's Articles of Incorporation to
change the name of the Fund.
For 7,473,791 Against 392,170 Abstain 208,954
3) Ratification of the selection of Ernst & Young LLP as independent
accountants for the Fund's current fiscal year:
For 7,903,983 Against 50,803 Abstain 120,129
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
Aggressive Growth Fund
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
Intermediate Term Municipal Income Fund
Municipal Income Fund
New Jersey Tax Free Income Fund
New York Tax Free Income Fund
Pennsylvania Tax Free Income Fund
Tax Free High Income Fund
Tax Free Money Fund
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 1-800-341-2911 weekdays
from 7:00 a.m. to 7:00 p.m. Central time.
16
<PAGE>
VAN KAMPEN AMERICAN CAPITAL BOND FUND, INC.
BOARD OF DIRECTORS
DONALD M. CARLTON
A. BENTON COCANOUGHER
STEPHEN R. GROSS
ALAN G. MERTEN
STEVEN MULLER
F. ROBERT PAULSEN
R. RICHARDSON PETTIT
DON G. POWELL
ALAN B. SHEPARD, JR.
OFFICERS
DON G. POWELL
Chairman of the Board and President
DENNIS J. MCDONNELL
Executive Vice President
EDWARD C. WOOD, III
Vice President and Chief Financial Officer
CURTIS W. MORELL
Vice President and Chief Accounting Officer
DAVID R. TROTH
Vice President and Portfolio Manager
WILLIAM BROWN
RONALD A. NYBERG
ROBERT C. PECK, JR.
PAUL R. WOLKENBERG
Vice Presidents
JOHN L. SULLIVAN
Treasurer
TANYA M. LODEN
Controller
NORI L. GABERT
Vice President and Corporate Secretary
HUEY P. FALGOUT, JR.
Assistant Corporate Secretary
STEVEN HILL
Assistant Treasurer
M. ROBERT SULLIVAN
Assistant Controller
INVESTMENT ADVISER
VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC.
One Parkview Plaza Oakbrook Terrace, Illinois 60181
CUSTODIAN
STATE STREET BANK AND TRUST CO.
225 Franklin Street Boston, Massachusetts 02101
SHAREHOLDER SERVICE AGENT
BOSTON FINANCIAL DATA SERVICES, INC.
P.O. Box 366
Boston, Massachusetts 02101
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
1221 McKinney Suite 2400
Houston, Texas 77010
(C)Van Kampen American Capital
Distributors, Inc. 1996 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 indi-
vidualized tax statement (Form
1099) to be mailed in January,
1997. The Form should be retained
for use in preparing your 1996
Federal Income Tax Return.
The per share dividends taxable
to you thus far during 1996 were
as follows:
----------------------------------
<TABLE>
<CAPTION>
Taxable as Tax Cost of
Ordinary Shares Received
Dividend on Reinvestment
Payment Date Income of Dividends
-------------------------------------------
<S> <C> <C>
March 29, 1996 $.385 $19.48
June 28, 1996 .385 18.13
-------------------------------------------
</TABLE>
For 1996, 2.21% of the dividends
taxable as ordinary income qual-
ify for the 70% dividend received
deduction for corporations.
- --------------------------------------------------------------------------------
NEW YORK STOCK EXCHANGE SYMBOL
COMMON STOCK-ACB
- -------------------------------------
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
- -------------------------------------
17
