<PAGE>
Van Kampen American Capital
BOND FUND
Annual Report
June 30, 1998
[ARTWORK APPEARS HERE]
Van Kampen
Funds
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
<S> <C>
Letter to Shareholders......................... 1
Performance Results............................ 4
Glossary of Terms.............................. 5
Portfolio of Investments....................... 6
Statement of Assets and Liabilities............ 11
Statement of Operations........................ 12
Statement of Changes in Net Assets............. 13
Financial Highlights........................... 14
Notes to Financial Statements.................. 16
Report of Independent Accountants.............. 19
Dividend Reinvestment Plan..................... 20
</TABLE>
<PAGE>
Letter to Shareholders
[PHOTO APPEARS HERE]
Dennis J. McDonnell and Don G. Powell
July 23, 1998
Dear Shareholder,
Recently, we decided to consolidate all Van Kampen American Capital mutual
funds under the single name of Van Kampen Funds. This move accompanies the
change in the legal name of our firm to Van Kampen Funds Inc. Consequently, your
fund's name will be changing to Van Kampen Bond Fund on August 28. You can be
assured that the change in your Fund's name will not affect its management or
daily operations, and your Fund will continue to trade under its current ticker
symbol. If you have any questions regarding your Fund or our new name, please
contact your financial adviser.
Economic Review
In the last six months of 1997, the bond market rallied as fears of rising
inflation dissipated, in spite of strong economic growth during the reporting
period. After the currency crisis in Asia emerged, the demand for corporate
securities did not keep pace with the surge in supply. Investors favored U.S.
Treasury bonds over corporate bonds because of their greater liquidity and
potential to preserve capital.
In the first six months of 1998, the U.S. economy continued to expand at a
robust pace despite the deepening recession in Asia. For the first quarter
alone, GDP growth was measured at 5.4 percent, a rate considered by many
economists to be virtually unsustainable without leading to inflation. Despite
the generally solid pace of economic activity, however, inflation remained
benign. Consumer prices rose by 1.7 percent during the 12 months through June,
while producer prices actually declined over the same period. Falling commodity
prices and a strong dollar helped offset the inflationary implications of a
tight labor market and active consumer spending.
Although the Federal Reserve Board declined to raise short-term interest
rates during the period, minutes of the central bank's May policy meeting
indicated a growing sentiment for tightening monetary policy in the event that
the Asian financial crisis fails to moderate domestic economic growth. By the
end of the reporting period, indications showed no increase in domestic growth
for two consecutive months, while unemployment rose to 4.5 percent in June from
a 28-year low in May.
Domestic fixed-income securities benefited from a global "flight to
quality" caused by turmoil in Asia and by the growing perception that the
domestic economy was slowing. After starting the year at 5.92 percent, the yield
on the 30-year Treasury benchmark bond rose to over 6 percent during the spring
amid signs that some Asian economies were beginning to recover. When weakness in
the Japanese yen undercut that recovery, U.S. bond prices surged, causing long-
term government yields to fall to 5.62 percent by the end of the reporting
period.
Continued on page two
1
<PAGE>
Fund Strategy
During the past 12 months, our emphasis has been on enhancing
diversification in the Fund's portfolio. In the last six months of the reporting
period, we added 11 new names to the portfolio, bringing the total number of
securities held to 85. The credit quality allocation among the portfolio is
little changed from your last report in December, with the exception of an
increase in A-rated securities and a corresponding decrease in AA-rated
securities. This shuffle between the investment-grade securities was due largely
to several BBB-rated securities that were upgraded during the period, as well as
the addition of new A-rated securities. In adding new names to the portfolio, we
focused on companies that we believe are industry leaders with strong cash flows
in growth-oriented sectors. This included medical companies such as Beckman
Coulter and Baxter International, and oil and industrial companies.
The majority of our new purchases, specifically among the investment-grade
securities, were non-callable securities. These securities, which tended to
dominate the field of new issuance during the period, move closely with
Treasuries, whereas callable securities tend to lag the market in a falling rate
environment such as this one. Non-callable securities contributed to the Fund's
return, as did Treasuries, which were boosted by high demand. The past 12 months
were marked by a bountiful supply of new issuance, as new corporate issuers
stepped up to issue bonds immediately following nearly every market rally during
the period. This abundance of supply forced a widening of the spread between
corporate bonds and Treasury securities and lowered the potential return of new
purchases.
As of June 30, 53.5 percent of Fund's long-term investments were rated BBB,
31.5 percent were rated A, and 2.4 percent were rated AA. In addition, 12.6
percent were non-investment grade (rated BB or below). During the 12-month
reporting period, the portfolio's percentage of non-investment grade bonds
declined slightly as a result of credit upgrades. The mixture of credit quality
represented in the Fund's portfolio is designed to help balance its price
volatility in response to changing interest rates. During periods of rising
interest rates, bonds rated BBB and below tend to outperform because they are
valued based on credit quality and are not as sensitive to interest rate
movements. During periods of falling rates, bonds rated A or higher tend to
perform better because they are more interest-rate sensitive.
During the reporting period, the duration of the Fund remained stable.
Duration, which is expressed in years, is a measure of a portfolio's sensitivity
to changes in interest rates. Long-duration portfolios tend to perform better
when interest rates are falling; short-duration portfolios tend to outperform
when rates are rising. When rates fall, as they did throughout most of the
reporting period, the duration of bonds tend to fall because many begin to trade
to their call dates rather than maturity dates. We purchased long-duration bonds
during the reporting period in order to offset this decline in the duration of
portfolio holdings. At the end of the period, the Fund's duration was 6.2 years,
which is comparable to its December 31, 1997 duration of 5.8 years, as well as
to the 6.04 year duration of its benchmark, the Lehman Brothers Corporate Bond
Index. The slight lengthening is due mostly to the new, longer-term purchases
that were added to the portfolio this time.
<TABLE>
<CAPTION>
Holdings by Sector as of June 30, 1998*
<S> <C> <C> <C>
Utilities............................. 25% Government.................... 5%
Consumer Services..................... 18% Producer Manufacturing........ 4%
Transportation........................ 11% Finance....................... 4%
Health Care........................... 9% Consumer Non-Durables......... 3%
Raw Materials/Processing Industries... 9% Technology.................... 3%
Energy................................ 8% Consumer Durables............. 1%
</TABLE>
*As a Percentage of Long-Term Investments
Continued on page three
2
<PAGE>
Performance Summary
For the fiscal year ended June 30, 1998, the Fund generated a total return
of 10.08 percent/1/ at market price and 12.19 percent/2/ at net asset value. For
the same period, the Lehman Brothers Corporate Bond Index returned 11.38
percent. This 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.
The Fund's return reflects an increase in market price per common share on
the New York Stock Exchange from $19.25 on June 30, 1997 to $19.6875 on June 30,
1998, and includes reinvestment of dividends totaling $1.51 per share. Please
refer to the chart on page four for additional Fund performance results.
Economic Outlook
Economic growth is likely to slow in coming months as the impact of the
Asian crisis becomes more evident. A return to the "Goldilocks" economy--not too
hot, not too cold--should allow long-term interest rates to fall modestly from
current levels. If fallout from Asia does not brake economic activity enough to
counteract the inflationary pressures building in the economy, we would expect
the Federal Reserve to raise short-term interest rates by the end of the year.
We believe the Fund's emphasis on high-quality investment-grade bonds and
its relatively short duration will help to reduce potential price volatility due
to changing market conditions. We do not expect to make any major changes to the
portfolio unless market conditions shift dramatically. We will continue to seek
a balance between the Fund's total return and its dividend income, and look to
add value through our investment strategies and bond selection. Thank you for
your continued confidence and trust in Van Kampen.
Sincerely,
/s/ Don G. Powell /s/ Dennis J. McDonnell
Don G. Powell Dennis J. McDonnell
Chairman President
Van Kampen Asset Management Inc. Van Kampen Asset Management Inc.
3 Please see footnotes on page four
<PAGE>
Performance Results for the Period Ended June 30, 1998
Van Kampen American Capital Bond Fund
NYSE Ticker Symbol -- ACB
<TABLE>
<S> <C>
Common Share Total Returns
One-year total return based on market price/1/...................... 10.08%
One-year total return based on NAV/2/............................... 12.19%
Distribution Rate
Distribution rate as a % of closing common stock price/3/........... 7.21%
Share Valuations
Net asset value..................................................... $ 21.16
Closing common stock price ......................................... $19.6875
One-year high common stock price (01/15/98)......................... $21.4375
One-year low common stock price (07/01/97).......................... $19.1250
</TABLE>
/1/ Total return based on market price assumes an investment at the market price
at the beginning of the period indicated, reinvestment of all distributions
for the period in accordance with the Fund's dividend reinvestment plan, and
sale of all shares at the closing stock price at the end of the period
indicated.
/2/ Total return based on net asset value (NAV) assumes an investment at the
beginning of the period indicated, reinvestment of all distributions for the
period, and sale of all shares at the end of the period, all at NAV.
/3/ Distribution rate represents the quarterly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.
Past performance does not guarantee future results. Investment return, stock
price and net asset value will fluctuate with market conditions. Fund shares,
when sold, may be worth more or less than their original cost.
4
<PAGE>
Glossary of Terms
Basis point: A measure used in quoting bond yields. One hundred basis points is
equal to one percent. For example, if a bond's yield changes from 7.00 to 6.65
percent, it is a 35 basis-point move.
Credit spread: Also called quality spread, the difference in yield between
higher-quality issues (such as Treasury securities) and lower-quality issues.
Normally, lower-quality issues provide higher yields to compensate investors
for the additional credit risk.
Duration: A measure of the sensitivity of a bond's price to changes in interest
rates, expressed in years. Each year of duration represents an expected one
percent change in the price of a bond for every one percent change in interest
rates. The longer a fund's duration, the greater the effect of interest rate
movements on net asset value. Typically, funds with shorter durations have
performed better in rising rate environments, while funds with longer
durations have performed better when rates decline.
Federal funds rate: The interest rate charged by one institution lending federal
funds to another. This overnight rate is used to meet banks' daily reserve
requirements. The Federal Reserve Board uses the federal funds rate to affect
the direction of interest rates.
Federal Reserve Board (the Fed): The governing body of the Federal Reserve
System, which is the central bank system of the United States. Its policy-
making committee, called the Federal Open Market Committee, meets eight times
a year to establish monetary policy and monitor the economic pulse of the U.S.
Inflation: An economic state in which the money supply and business activity
dramatically increase, accompanied by sharply rising prices. Inflation is
widely measured by the Consumer Price Index, an economic indicator that
measures the change in the cost of purchased goods and services.
Net asset value (NAV): The value of a mutual fund share, calculated by deducting
a fund's liabilities from its total assets and dividing this amount by the
number of shares outstanding.
Premium redemption: The redemption of a bond at a dollar amount above a stated
par value, or the redemption of a bond by the issuer prior to its maturity
date.
Yield: The annual rate of return on an investment, expressed as a percentage.
For bonds and notes, the yield is the annual interest divided by the market
price.
Yield spread: The difference between the yields of different bonds, due to their
different credit ratings or maturities. When yield spreads between bonds of
different credit quality are narrow, there is less incentive to own the lower-
quality bond. When yield spreads between bonds of different maturities are
narrow, there is less incentive to own the bond with the longer maturity. In
both cases, the investor is not being compensated for the additional risk.
5
<PAGE>
Portfolio of Investments
June 30, 1998
================================================================================
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
========================================================================================
<S> <C> <C> <C> <C>
Corporate Bonds 90.8%
Consumer Distribution 0.3%
$ 750 Dimon, Inc................................. 8.875% 06/01/06 $ 738,750
-----------
Consumer Durables 0.8%
750 Brunswick Corp............................. 7.125 08/01/27 776,700
1,000 Chrysler Corp.............................. 7.450 03/01/27 1,110,800
-----------
1,887,500
-----------
Consumer Non-Durables 2.9%
4,000 Coca Cola Enterprises, Inc................. 8.500 02/01/12 4,859,600
2,000 Westpoint Stevens, Inc., 144A Private
Placement(a)............................... 7.875 06/15/05 2,020,000
-----------
6,879,600
-----------
Consumer Services 17.3%
1,250 Belo A H Corp.............................. 7.125 06/01/07 1,330,000
2,500 Clear Channel Commerce, Inc................ 7.250 10/15/27 2,580,925
2,000 Comcast Cable Communications............... 8.125 05/01/04 2,179,200
3,000 Cox Communications, Inc.................... 7.250 11/15/15 3,220,800
1,250 CSC Holdings, Inc.......................... 7.875 12/15/07 1,321,875
2,500 CSC Holdings, Inc.......................... 7.875 02/15/18 2,637,500
5,000 Harcourt General, Inc...................... 9.500 03/15/00 5,266,650
1,750 Harcourt General, Inc...................... 8.875 06/01/22 2,201,675
1,000 Harcourt General, Inc...................... 7.200 08/01/27 1,064,600
1,000 News America Holdings, Inc................. 8.875 04/26/23 1,230,900
250 Premier Parks, Inc......................... 9.250 04/01/06 258,125
100 Premier Parks, Inc......................... 9.750 01/15/07 109,000
375 Premier Parks, Inc.(b)..................... 0/10.000 04/01/08 249,375
3,500 Royal Caribbean Cruises.................... 7.500 10/15/27 3,697,400
1,500 Stewart Enterprises, Inc................... 6.400 05/01/03 1,510,350
11,000 Tele Communications, Inc................... 9.250 01/15/23 12,830,070
-----------
41,688,445
-----------
Energy 8.2%
7,400 Ashland Oil, Inc........................... 8.800 11/15/12 9,072,400
750 Barrett Resources Corp..................... 7.550 02/01/07 770,625
</TABLE>
See Notes to Financial Statements
6
<PAGE>
Portfolio of Investments (Continued)
June 30, 1998
================================================================================
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
========================================================================================
<S> <C> <C> <C> <C>
Energy (Continued)
$ 5,025 PDV America, Inc........................... 7.875% 08/01/03 $ 5,232,532
1,500 Petroliam Nasional Berhad, 144A Private
Placement (a).............................. 7.625 10/15/26 1,222,950
1,000 R & B Falcon Corp.......................... 6.500 04/15/03 1,004,000
1,000 Transcontinental Gas Pipe Line Corp........ 7.250 12/01/26 1,083,800
1,000 Union Oil Co............................... 9.125 02/15/06 1,196,200
-----------
19,582,507
-----------
Finance 3.7%
1,000 Americredit Corp........................... 9.250 02/01/04 1,020,000
3,005 First PV Funding Corp...................... 10.300 01/15/14 3,200,325
4,500 Hutchinson Whampoa Finance, 144A Private
Placement (a).............................. 7.500 08/01/27 3,638,700
1,000 Royal Bank Scotland Group.................. 6.375 02/01/11 1,001,400
-----------
8,860,425
-----------
Healthcare 8.9%
2,300 Aetna Services, Inc........................ 7.125 08/15/06 2,406,720
1,000 Allegiance Corp............................ 7.800 10/15/16 1,117,300
6,000 Baxter International, Inc.................. 6.625 02/15/28 6,143,400
1,500 Beckman Coulter, Inc., 144A Private
Placement (a).............................. 7.450 03/04/08 1,537,500
500 Manor Care, Inc............................ 7.500 06/15/06 508,650
1,000 Tenet Healthcare Corp...................... 8.625 01/15/07 1,032,500
8,500 Tenet Healthcare Corp., 144A
Private Placement (a)...................... 8.125 12/01/08 8,585,000
-----------
21,331,070
-----------
Producer Manufacturing 4.1%
1,750 IDEX Corp................................... 6.875 02/15/08 1,739,063
4,400 ITT Corp.................................... 6.750 11/15/05 4,261,400
1,000 ITT Corp.................................... 7.375 11/15/15 943,140
162 Rayovac Corp................................ 10.250 11/01/06 176,175
2,500 Rubbermaid, Inc............................. 6.600 11/15/06 2,578,775
250 U.S. Can Corp............................... 10.125 10/15/06 262,500
-----------
9,961,053
-----------
See Notes to Financial Statements
</TABLE>
7
<PAGE>
Portfolio of Investments (Continued)
June 30, 1998
================================================================================
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
========================================================================================
<S> <C> <C> <C> <C>
Raw Materials/Processing Industries 8.8%
$ 2,000 Bowater, Inc................................. 9.375% 12/15/21 $ 2,706,000
1,000 Crown Cork & Seal, Inc....................... 8.000 04/15/23 1,105,300
5,000 Federal Paper Board, Inc..................... 8.875 07/01/12 6,183,500
4,000 IMC Global, Inc.............................. 6.875 07/15/07 4,120,000
1,000 IMC Global, Inc.............................. 7.300 01/15/28 1,025,800
3,100 Owens Corning Fiberglass Corp................ 9.375 06/01/12 3,747,280
1,250 Owens Illinois, Inc.......................... 7.150 05/15/05 1,256,250
250 Pride Petroleum Services, Inc................ 9.375 05/01/07 264,375
750 Smithfield Foods, Inc., 144A Private
Placement (a)................................ 7.625 02/15/08 750,000
-----------
21,158,505
-----------
Technology 2.4%
5,000 Computer Associates International, Inc., 144A
Private Placement (a)........................ 6.375 04/15/05 5,050,500
750 Raytheon Co.................................. 7.200 08/15/27 806,475
-----------
5,856,975
-----------
Transportation 11.2%
3,000 AMR Corp..................................... 9.500 05/15/01 3,255,000
4,250 CSX Corp..................................... 8.625 05/15/22 5,333,750
2,500 Kansas City Southern Industries, Inc......... 7.875 07/01/02 2,636,250
7,000 Union Pacific Corp........................... 8.350 05/01/25 7,920,500
6,000 United Airlines, Inc......................... 10.020 03/22/14 7,766,400
-----------
26,911,900
-----------
Utilities 22.2%
1,000 AES Corp..................................... 10.250 07/15/06 1,090,000
3,000 Arizona Public Service Co.................... 9.500 04/15/21 3,354,480
3,500 Arizona Public Service Co.................... 8.750 01/15/24 3,858,435
2,000 Arizona Public Service Co.................... 8.000 02/01/25 2,141,200
1,000 Commonwealth Edison Co....................... 8.625 02/01/22 1,119,980
5,000 GTE North, Inc............................... 8.500 12/15/31 5,513,000
3,000 Gulf States Utilities Co..................... 8.940 01/01/22 3,192,855
3,000 Long Island Lighting Co...................... 9.000 11/01/22 3,435,000
See Notes to Financial Statements
</TABLE>
8
<PAGE>
Portfolio of Investments (Continued)
June 30, 1998
<TABLE>
<CAPTION>
===========================================================================================================================
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Utilities (Continued)
$ 4,150 Montana Power Co................................................. 8.950% 02/01/22 $ 4,904,263
1,750 Niagara Mohawk Power Corp........................................ 7.625 10/01/05 1,793,750
7,000 Public Service Co. of Colorado................................... 8.750 03/01/22 8,143,100
2,000 Southern California Gas Co....................................... 8.750 10/01/21 2,324,400
2,500 Texas Utilities Electric Co...................................... 8.875 02/01/22 2,931,250
5,000 United Telecommunications Kansas................................. 9.500 04/01/03 5,660,500
500 UtiliCorp United, Inc............................................ 6.700 10/15/06 521,123
3,000 UtiliCorp United, Inc............................................ 9.000 11/15/21 3,482,130
------------
53,465,466
------------
Total Corporate Bonds................................................................. 218,322,196
------------
Government and Government Agency Obligations 4.9%
8 Federal Home Loan Mortgage Corp., Pool........................... 7.375 12/01/02 7,794
1 Government National Mortgage Assn., Pool......................... 10.000 10/15/16 1,362
8 Government National Mortgage Assn., Pool......................... 10.000 07/15/20 8,383
4,000 Newfoundland Province Canada..................................... 9.000 10/15/21 5,275,200
5,500 Saskatchewan Province Canada..................................... 8.000 02/01/13 6,484,775
------------
Total Government and Government Agency Obligations.................................... 11,777,514
------------
Preferred Stock 2.2%
Commonwealth Edison Co. (44,830 preferred shares, 8.38% coupon)........................................... 4,550,245
Time Warner, Inc. (594 preferred shares, 10.25% coupon)................................................... 663,795
------------
Total Preferred Stock................................................................. 5,214,040
------------
Total Long-Term Investments 97.9%
(Cost $212,074,258).................................................................................. 235,313,750
------------
Repurchase Agreement 0.2%
BA Securities ($480,000 par collaterized by U.S. Government obligations in a
pooled cash account, dated 06/30/98, to be sold on 07/01/98 at $480,081)
(Cost $480,000)...................................................................................... 480,000
------------
Total Investments 98.1%
(Cost $212,554,258).................................................................................. 235,793,750
Other Assets in Excess of Liabilities 1.9%................................................................ 4,598,733
------------
Net Assets 100.0%......................................................................................... $240,392,483
============
</TABLE>
*Zero coupon bond
(a) 144A securities are those which are exempt from registration under Rule
144A of the Securities Act of 1933. These securities may only be resold in
transactions exempt from registration which are normally transactions with
qualified institutional buyers.
(b) Security bond is a "step-up" bond where the coupon increases or steps up at
a predetermined date.
See Notes to Financial Statements
9
<PAGE>
Portfolio of Investments (Continued)
June 30, 1998
===============================================================================
The following table summarizes the long-term debt security portfolio composition
at June 30, 1998, based upon the highest quality ratings as determined by
Standard & Poor's or Moody's.
<TABLE>
<CAPTION>
Portfolio Composition by Credit Quality
<S> <C>
AA............................ 2.4%
A............................. 31.5
BBB........................... 53.5
BB............................ 11.7
B............................. .9
-----
100.0%
=====
</TABLE>
See Notes to Financial Statements
10
<PAGE>
Statement of Assets and Liabilities
June 30, 1998
========================================================================
<TABLE>
<CAPTION>
Assets:
<S> <C>
Total Investments (Cost $212,554,258).................... $235,793,750
Cash..................................................... 473
Receivables:
Interest............................................... 4,783,322
Dividends.............................................. 93,919
Investments Sold....................................... 78,000
Other.................................................... 96,077
------------
Total Assets........................................ 240,845,541
------------
Liabilities:
Payables:
Income Distributions................................... 263,688
Investment Advisory Fee................................ 95,175
Affiliates............................................. 4,191
Accrued Expenses......................................... 58,749
Trustees' Deferred Compensation and Retirement Plans..... 31,255
------------
Total Liabilities................................... 453,058
------------
Net Assets............................................... $240,392,483
============
Net Assets Consist of:
Common Shares ($1.00 par value with 15,000,000 shares
authorized, 11,362,465 shares issued and outstanding).. $ 11,362,465
Capital.................................................. 209,801,851
Net Unrealized Appreciation.............................. 23,239,492
Accumulated Undistributed Net Investment Income.......... 145,160
Accumulated Net Realized Loss............................ (4,156,485)
------------
Net Assets............................................... $240,392,483
============
Net Asset Value Per Common Share.........................
($240,392,483 divided by 11,362,465 shares outstanding) $ 21.16
============
</TABLE>
See Notes to Financial Statements
11
<PAGE>
Statement of Operations
For the Year Ended June 30, 1998
===============================================================================
<TABLE>
<S> <C>
Investment Income:
Interest ........................................................ $17,881,059
Dividends ....................................................... 438,373
-----------
Total Income ................................................ 18,319,432
-----------
Expenses:
Investment Advisory Fee ......................................... 1,146,991
Shareholder Services ............................................ 129,057
Custody ......................................................... 22,708
Trustees' Fees and Expenses ..................................... 12,700
Legal ........................................................... 11,517
Other ........................................................... 221,936
-----------
Total Expenses .............................................. 1,544,909
-----------
Net Investment Income ........................................... $16,774,523
===========
Realized and Unrealized Gain/Loss:
Net Realized Gain ............................................... $ 1,867,201
----------
Unrealized Appreciation/Depreciation:
Beginning of the Period ..................................... 14,528,694
End of the Period ........................................... 23,239,492
-----------
Net Unrealized Appreciation During the Period ................... 8,710,798
-----------
Net Realized and Unrealized Gain ................................ $10,577,999
===========
Net Increase in Net Assets from Operations ...................... $27,352,522
===========
</TABLE>
See Notes to Financial Statements
12
<PAGE>
Statement of Changes in Net Assets
For the Years Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
========================================================================================
Year Ended Year Ended
June 30, 1998 June 30, 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income .................................. $ 16,774,523 $ 17,675,549
Net Realized Gain ...................................... 1,867,201 228,318
Net Unrealized Appreciation During the Period .......... 8,710,798 2,897,006
------------ ------------
Change in Net Assets from Operations ................... 27,352,522 20,800,873
Distributions from Net Investment Income ............... (17,157,454) (17,499,005)
------------ ------------
Net Change in Net Assets from Investment Activities .... 10,195,068 3,301,868
Net Assets:
Beginning of the Period ................................ 230,197,415 226,895,547
------------ ------------
End of the Period
(Including accumulated undistributed net investment
income of $145,160 and $436,585, respectively) ..... $240,392,483 $230,197,415
============ ============
</TABLE>
See Notes to Financial Statements
13
<PAGE>
Financial Highlights
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated.
<TABLE>
<CAPTION>
==================================================================================================
---------------------------------------
1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of the Period................................ $ 20.259 $ 19.97 $ 20.41 $ 19.07
-------- ------- ------- -------
Net Investment Income.................................. 1.476 1.556 1.54 1.52
Net Realized and Unrealized Gain/Loss.................. .932 .273 (.44) 1.36
-------- ------- ------- -------
Total from Investment Operations......................... 2.408 1.829 1.10 2.88
Less Distributions from Net Investment Income............ 1.510 1.540 1.54 1.54
-------- ------- ------- -------
Net Asset Value, End of the Period....................... $ 21.157 $20.259 $ 19.97 $ 20.41
======== ======= ======= =======
Market Price Per Share at End of the Period.............. $19.6875 $19.250 $18.125 $19.125
Total Investment Return at Market Price (a) (d).......... 10.08% 15.06% 2.61% 14.89%
Total Return at Net Asset Value (b) (d).................. 12.19% 9.46% 5.94% 16.54%
Net Assets at End of the Period (In millions) (d)........ $ 240.4 $ 230.2 $ 226.9 $ 231.9
Ratio of Operating Expenses to
Average Net Assets..................................... .65% .68% .67% .68%
Ratio of Convertible Note Expenses to Average
Net Assets (c)......................................... -- -- -- .39%
Ratio of Net Investment Income to Average
Net Assets............................................. 7.04% 7.70% 7.47% 7.92%
Portfolio Turnover....................................... 27% 8% 11% 8%
Assuming full dilution of debt (c):
Net Asset Value, End of the Period..................... -- -- -- --
Number of Shares Outstanding,
End of the Period (000).............................. -- -- -- --
</TABLE>
(a) Total Investment Return at Market Price reflects the change in market value
of the common shares for the period indicated with reinvestment of dividends
in accordance with the Fund's dividend reinvestment plan.
(b) Total Return at Net Asset Value (NAV) reflects the change in value of the
Fund's assets with reinvestment of dividends based upon NAV.
(c) On January 3, 1995, the Fund paid off its outstanding convertible extendible
note.
(d) Prior to fiscal year end 1992, this item was not a required disclosure.
14
<PAGE>
<TABLE>
<CAPTION>
==================================================================
Year Ended June 30,
- ------------------------------------------------------------------
1994 1993 1992 1991 1990 1989
- ------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 21.33 $ 19.85 $ 18.68 $ 18.72 $ 20.34 $ 21.49
- ------- ------- ------- ------- ------- -------
1.56 1.575 1.735 1.76 2.07 1.90
(2.28) 1.55 1.115 (.03) (1.615) (.85)
- ------- ------- ------- ------- ------- -------
(.72) 3.125 2.85 1.73 .455 1.05
1.54 1.645 1.68 1.77 2.075 2.20
- ------- ------- ------- ------- ------- -------
$ 19.07 $ 21.33 $ 19.85 $ 18.68 $ 18.72 $ 20.34
======= ======= ======= ======= ======= =======
$18.125 $20.750 $19.750 $18.375 $16.500 $20.250
(5.59%) 13.76% 17.12% -- -- --
(3.37%) 16.35% 15.79% -- -- --
$ 216.6 $ 235.6 $ 218.5 -- -- --
.68% .71% .71% .72% .71% .71%
.82% .98% 1.05% 1.09% 1.55% 1.90%
7.29% 7.65% 8.90% 9.42% 10.65% 9.03%
2% 19% 39% 18% 14% 13%
$ 19.07 $ 21.09 $ 19.78 $ 18.74 $ 18.78 $ 20.17
12,411 12,411 12,372 12,304 12,304 12,746
</TABLE>
See Notes to Financial Statements
15
<PAGE>
Notes to Financial Statements
June 30, 1998
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
Van Kampen American Capital Bond Fund (the "Fund") is registered as a
diversified closed-end management investment company under the Investment
Company Act of 1940, as amended. The Fund's investment objective is to provide
current income with preservation of capital through investing primarily in a
diversified portfolio of debt securities.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. Security Valuation--Fixed income investments are stated at value using market
quotations. Investments in securities listed on a securities exchange are valued
at their sale price as of the close of such securities exchange. Unlisted
securities and listed securities for which the last sales price is not available
are valued at the mean of the bid and asked prices. For those securities where
quotations or prices are not available, valuations are determined in accordance
with procedures established in good faith by the Board of Trustees. Short-term
securities with remaining maturities of 60 days or less are valued at amortized
cost.
B. Security Transactions--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made. At June 30, 1998, there were no when
issued or delayed delivery purchase commitments.
The Fund may invest in repurchase agreements, which are short-term
investments whereby the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen Asset Management Inc. (the "Adviser") or its
affiliates, the daily aggregate of which is invested in repurchase agreements.
Repurchase agreements are fully collateralized by the underlying debt security.
The Fund will make payment for such securities only upon physical delivery or
evidence of book entry transfer to the account of the custodian bank. The seller
16
<PAGE>
Notes to Financial Statements (Continued)
June 30, 1998
- --------------------------------------------------------------------------------
is required to maintain the value of the underlying security at not less than
the repurchase proceeds due the Fund.
C. Investment Income--Interest income is recorded on an accrual basis and
dividend income is recorded on the ex-dividend date. Original issue discount is
amortized over the expected life of each applicable security. Premiums on debt
securities are not amortized.
D. Federal Income Taxes--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset these losses against any future realized capital
gains. At June 30, 1998, the Fund had an accumulated capital loss carryforward
for tax purposes of $4,156,485 which will expire between June 30, 1999 and June
30, 2000. Of this amount, $953,175 will expire on June 30, 1999.
At June 30, 1998, for federal income tax purposes, cost of long- and short-
term investments is $212,554,258; the aggregate gross unrealized appreciation is
$24,206,384 and the aggregate gross unrealized depreciation is $966,892,
resulting in net unrealized appreciation of $23,239,492.
E. Distribution of Income and Gains--The Fund declares and pays quarterly
dividends from net investment income. Net realized gains, if any, are
distributed annually. Distributions from net realized gains for book purposes
may include short-term capital gains and gains on option and futures
transactions. All short-term capital gains and a portion of option and futures
gains are included in ordinary income for tax purposes.
Due to inherent differences in the recognition of certain expenses under
generally accepted accounting principles and federal income tax purposes, the
amount of net investment income may differ between book and federal income tax
purposes for a particular period. These differences are temporary in nature, but
may result in book basis distributions in excess of net investment income for
certain periods.
Permanent book and tax basis differences relating to the expiration of a
portion of the capital loss carryforward totaling $25,209,160 were reclassified
from net realized gain/loss to capital. Permanent book and tax basis differences
relating to the recognition of net realized gains on paydowns of mortgage pool
obligations totaling $386 and market discount on bonds totaling $91,120 were
reclassified from accumulated net realized gain/loss to accumulated
undistributed net investment income.
17
<PAGE>
Notes to Financial Statements (Continued)
June 30, 1998
================================================================================
2. Investment Advisory Agreement and Other Transactions with Affiliates
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
<TABLE>
<CAPTION>
Average Net Assets % Per Annum
================================================================================
<S> <C>
First $150 million ................................................. .50 of 1%
Next $100 million .................................................. .45 of 1%
Next $100 million .................................................. .40 of 1%
Over $350 million .................................................. .35 of 1%
</TABLE>
For the year ended June 30, 1998, the Fund recognized expenses of
approximately $1,500 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the year ended June 30, 1998, the Fund recognized expenses of
approximately $34,500 representing Van Kampen Funds Inc.'s or its affiliates'
(collectively "Van Kampen") cost of providing accounting services to the Fund.
Certain officers and trustees of the Fund are also officers and directors
of Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
3. Investment Transactions
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments, were $63,208,296 and $61,069,983,
respectively.
18
<PAGE>
Report of Independent Accountants
To the Shareholders and Board of Trustees of
Van Kampen American Capital Bond Fund
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments of Van Kampen American Capital Bond Fund, as of
June 30, 1998, and the related statement of operations for the year then ended,
the statement of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the ten years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1998, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen American Capital Bond Fund at June 30, 1998, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the ten years in the period then ended, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Houston, Texas
July 22, 1998
19
<PAGE>
Dividend Reinvestment Plan
Glossary of Terms
The Fund pays distributions in cash, but if you own more than 100 shares in your
own name, you may elect to participate in the Fund's dividend reinvestment plan
(the "Plan"). Under the Plan, shares will be issued by the Fund at net asset
value on a date determined by the Board of Trustees between the record and
payable dates on each distribution; however, if the market price, including
brokerage commissions, is less than the net asset value, the amount of the
distribution will be paid to the Plan Agent, which will buy such shares as are
available at prices below the net asset value. (If the market price is not
significantly less than the net asset value, it is possible that open market
purchases of shares may increase the market price so that such price plus
brokerage commissions would equal or exceed the net asset value of such shares).
If Plan Agent cannot buy the necessary shares at less than net asset value
before the distribution date, the balance of the distribution will be made in
authorized but unissued shares of the Fund at net asset value. The cost per
share will be the average cost, including brokerage commissions, of all shares
purchased. Since all shares purchased from the Fund are 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 distributions.
You may begin or discontinue participation in the Plan at any time by written
notice to the address below. If you withdraw from the Plan, you may rejoin at
any time if you own the required 100 shares. Elections and terminations will be
effective for distributions declared after receipt. If you withdraw from the
Plan, a certificate for the whole shares and a check for the fractional shares,
if any, credited to your Plan account will be sent as soon as practicable after
receipt of your election to withdraw. Except for brokerage commissions, if any,
which are borne by Plan participants, all costs of the Plan are borne by the
Fund. The Fund reserves the right to amend or terminate the Plan on 30 days'
written notice prior to the record date of the distribution for which such
amendment or termination is effective.
Record stockholders should address all notices, correspondence, questions or
other communications about the Plan to:
Boston EquiServe LP
P.O. Box 8200
Boston, MA 02266-8200
1-800-821-1238
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.
20
<PAGE>
Van Kampen American Capital Bond Fund
Board of Trustees
David C. Arch
Rod Dammeyer
Howard J Kerr
Dennis J. McDonnell* - Chairman
Steven Muller
Theodore A. Myers
Don G. Powell*
Hugo F. Sonnenschein
Wayne W. Whalen
Officers
Don G. Powell*
President
Dennis J. McDonnell*
Executive Vice President
Ronald A. Nyberg*
Vice President and Secretary
Edward C. Wood, III*
Vice President and Chief Financial Officer
Curtis W. Morell*
Vice President and Chief Accounting Officer
John L. Sullivan*
Treasurer
Tanya M. Loden*
Controller
Peter W. Hegel*
Paul R. Wolkenberg*
Vice Presidents
Investment Adviser
Van Kampen
Asset Management Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Custodian
State Street Bank and Trust Co.
225 Franklin Street
Boston, Massachusetts 02105
Shareholder Servicing Agent
Boston EquiServe LP
P.O. Box 8200
Boston, Massachusetts 02266-8200
Legal Counsel
Skadden, Arps, Slate
Meagher & Flom (Illinois)
333 West Wacker Drive
Chicago, Illinois 60606
Independent Accountants
Ernst & Young LLP
1221 McKinney Suite 2400
Houston, Texas 77010
- --------------------------------------------------------------------------------
INQUIRIES ABOUT AN INVESTOR'S
ACCOUNT SHOULD BE REFERRED
TO THE FUND'S TRANSFER AGENT
BOSTON EQUISERVE
P.O. BOX 8200
BOSTON, MASSACHUSETTS 02266-8200
TELEPHONE: (800) 821-1238
ALASKA AND HAWAII
CALL COLLECT: (781) 575-2000
Ask for Closed-End Fund Account Services
- --------------------------------------------------------------------------------
* "Interested" persons of the Fund, as defined in the Investment Company Act
of 1940.
(C) Van Kampen Funds Inc., 1998
All rights reserved.
/SM/ denotes a service mark of
Van Kampen Funds Inc.
21
<PAGE>
Bulk Rate
U.S. Postage
PAID
VAN KAMPEN
FUNDS
Van Kampen Funds Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> BOND FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 212,554,258
<INVESTMENTS-AT-VALUE> 235,793,750
<RECEIVABLES> 4,955,241
<ASSETS-OTHER> 96,077
<OTHER-ITEMS-ASSETS> 473
<TOTAL-ASSETS> 240,845,541
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 453,058
<TOTAL-LIABILITIES> 453,058
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 221,164,316
<SHARES-COMMON-STOCK> 11,362,465
<SHARES-COMMON-PRIOR> 11,362,465
<ACCUMULATED-NII-CURRENT> 145,160
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4,156,485)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 23,239,492
<NET-ASSETS> 240,392,483
<DIVIDEND-INCOME> 438,373
<INTEREST-INCOME> 17,881,059
<OTHER-INCOME> 0
<EXPENSES-NET> (1,544,909)
<NET-INVESTMENT-INCOME> 16,774,523
<REALIZED-GAINS-CURRENT> 1,867,201
<APPREC-INCREASE-CURRENT> 8,710,798
<NET-CHANGE-FROM-OPS> 27,352,522
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (17,157,454)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 10,195,068
<ACCUMULATED-NII-PRIOR> 436,585
<ACCUMULATED-GAINS-PRIOR> (31,141,340)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,146,991
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,544,909
<AVERAGE-NET-ASSETS> 238,302,597
<PER-SHARE-NAV-BEGIN> 20.259
<PER-SHARE-NII> 1.476
<PER-SHARE-GAIN-APPREC> 0.932
<PER-SHARE-DIVIDEND> (1.510)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 21.157
<EXPENSE-RATIO> 0.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
