1
Van Kampen
Bond Fund
ANNUAL REPORT
JUNE 30, 2001
[PHOTO]
Privacy Notice information on the back.
[VAN KAMPEN INVESTMENTS LOGO]
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Table of Contents
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 4
PORTFOLIO AT A GLANCE
CREDIT QUALITY 5
TWELVE-MONTH DIVIDEND HISTORY 5
TOP FIVE SECTORS 6
NET ASSET VALUE AND MARKET PRICE 6
Q&A WITH YOUR PORTFOLIO MANAGER 7
GLOSSARY OF TERMS 10
BY THE NUMBERS
YOUR FUND'S INVESTMENTS 11
FINANCIAL STATEMENTS 19
NOTES TO FINANCIAL STATEMENTS 24
REPORT OF INDEPENDENT AUDITORS 28
DIVIDEND REINVESTMENT PLAN 29
BOARD OF TRUSTEES AND IMPORTANT ADDRESSES 30
RESULTS OF SHAREHOLDER VOTES 31
Long-term investment strategies can help you cope with uncertain markets.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
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OVERVIEW
LETTER TO SHAREHOLDERS
July 20, 2001
Dear Shareholder,
The first few months of 2001 were challenging for everyone. The markets
experienced dramatic downshifts which affected many investors, no matter the
size of their portfolios. We realize this is unsettling to
shareholders--especially those who may be accustomed to positive returns--but it
is important to keep in mind that maintaining a long-term investment horizon may
be your most efficient strategy for coping with uncertain markets.
To help you make sense of recent events and put your fund's performance into
perspective, this report examines how your fund's portfolio manager invested
your assets. Packed with information and insightful commentary, this report
includes an interview with the fund manager, a complete list of the fund's
holdings at the end of the reporting period, charts and graphs which summarize
interest rate and inflation trends, and other information to help you better
understand your investment.
With nearly four generations of investment management experience, we at Van
Kampen understand market declines are inevitable--and new opportunities may
arise at any time. So, as you strive to craft a successful investment strategy
and try to protect yourself against future downturns, consider these time-tested
investing principles:
- DIVERSIFY--Owning a portfolio that includes a variety of
stock funds and fixed-income funds
may moderate your investment risk and improve your long-term portfolio
performance.
- SEEK FINANCIAL ADVICE--Your financial advisor can help you develop a
personalized investment strategy based on your age, family status and goals.
When comparing asset allocation strategies to your personal financial
situation, you should consider your time frame and all of your personal
savings and investments, in addition to your retirement assets and risk
tolerance level. Your financial advisor can help you assess your individual
situation before you make any decisions. Though no portfolio is immune to
volatility, your advisor can help you structure a portfolio designed to
address your long-term financial goals.
We are grateful for your continued trust in Van Kampen. We appreciate the
opportunity to manage your assets while you enjoy true wealth--family, friends,
and life's daily pleasures.
Sincerely,
[SIG]
Richard F. Powers, III
President and CEO
Van Kampen Asset Management Inc.
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ECONOMIC SNAPSHOT
ECONOMIC GROWTH
THE U.S. ECONOMY CONTINUED TO SHOW SIGNS OF OVERALL WEAKNESS IN JUNE 2001. GROSS
DOMESTIC PRODUCT (GDP), THE PRIMARY MEASURE OF ECONOMIC GROWTH, ROSE A
DISAPPOINTING 1.2 PERCENT ON AN ANNUALIZED BASIS FOR THE FIRST QUARTER OF
2001--CONSIDERABLY SLOWER THAN THE GOVERNMENT'S INITIAL 2-PERCENT ESTIMATE AND
SUBSEQUENT REVISIONS. THIS STAGNATING GROWTH ONLY COMPLICATED THE ECONOMIC
OUTLOOK, AS MIXED DATA MADE IT DIFFICULT FOR ANALYSTS AND INVESTORS ALIKE TO
DRAW ANY CLEAR CONCLUSIONS.
CONSUMER SPENDING AND EMPLOYMENT
AS REPORTS OF LACKLUSTER GROWTH AND CORPORATE LAYOFFS MOUNTED, THE AMERICAN
CONSUMER CONTINUED TO SURPRISE ANALYSTS. SPURRED BY THE FEDERAL RESERVE'S (THE
FED) SIXTH INTEREST RATE CUT THIS YEAR, CONSUMER CONFIDENCE IMPROVED SLIGHTLY IN
JUNE. THIS RENEWED OPTIMISM WAS SURPRISING TO SOME, GIVEN THE UNEMPLOYMENT RATE
CLIMBED TO 4.5 PERCENT. WHILE UNEMPLOYMENT HOVERED AT HISTORICALLY LOW LEVELS,
SOME ANALYSTS WERE ENCOURAGED BY AN INCREASE IN FACTORY ORDERS--AN INDICATION
THE ECONOMY MIGHT BE MOVING TOWARD A RECOVERY.
INTEREST RATES AND INFLATION
CONSUMERS' RENEWED CONFIDENCE CAME ON THE HEELS OF THE GOVERNMENT'S ATTEMPT TO
JUMP-START THE ECONOMY. BETWEEN JANUARY 1 AND JUNE 30, 2001, THE FED CUT
INTEREST RATES SIX TIMES BY A TOTAL OF 2.75 PERCENT. THE FED STATED ITS LATEST
RATE CUT WAS PROMPTED BY DECLINING CORPORATE PROFITS AND BUSINESS CAPITAL
SPENDING, WEAK CONSUMPTION AND A SLOWING GLOBAL ECONOMY--BUT ALSO INDICATED
ADDITIONAL RATE CUTS REMAINED A POSSIBILITY. INDUSTRY ANALYSTS AND INVESTORS
WELCOMED THE FED'S ACTIONS, VIEWING THEM AS NECESSARY STEPS TO WARD OFF A
RECESSION AND RETURN THE GROWTH OF GDP TO A HEALTHY AND SUSTAINABLE RATE.
THE CONSUMER PRICE INDEX, A COMMON MEASURE OF THE INFLATION RATE, ROSE 3.2
PERCENT IN THE 12 MONTHS ENDED JUNE 30. ALTHOUGH INFLATION WAS NOT AN IMMEDIATE
THREAT, SOME ANALYSTS CAUTIONED THAT RISING MEDICAL COSTS AND SEASONAL DEMANDS
FOR ELECTRICITY AND NATURAL GAS MIGHT DRIVE INFLATION HIGHER.
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U.S. GROSS DOMESTIC PRODUCT
SEASONALLY ADJUSTED ANNUALIZED RATES
(March 31, 1999--March 31, 2001)
[BAR GRAPH]
U.S. GROSS DOMESTIC PRODUCT
---------------------------
Mar 99 3.50
Jun 99 2.50
Sep 99 5.70
Dec 99 8.30
Mar 00 4.80
Jun 00 5.60
Sep 00 2.20
Dec 00 1.00
Mar 01 1.20
Source: Bureau of Economic Analysis
INTEREST RATES AND INFLATION
(June 30, 1999--June 30, 2001)
[LINE GRAPH]
INTEREST RATES INFLATION
-------------- ---------
Jun 99 5.00 2.00
5.00 2.10
5.25 2.30
Sep 99 5.25 2.60
5.25 2.60
5.50 2.60
Dec 99 5.50 2.70
5.50 2.70
5.75 3.20
Mar 00 6.00 3.80
6.00 3.10
6.50 3.20
Jun 00 6.50 3.70
6.50 3.70
6.50 3.40
Sep 00 6.50 3.50
6.50 3.40
6.50 3.40
Dec 00 6.50 3.40
5.50 3.70
5.50 3.50
Mar 01 5.00 2.90
4.50 3.30
4.00 3.60
Jun 01 3.75 3.20
Interest rates are represented by the closing midline federal funds target rate
on the last day of each month. Inflation is indicated by the annual percentage
change of the Consumer Price Index for all urban consumers at the end of each
month.
Source: Bloomberg
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PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(as of June 30, 2001)
------------------------------
NYSE Ticker Symbol - VBF
------------------------------
MARKET(1) NAV(2)
-------------------------------------------------------------------------------
One-year total return 23.10% 11.37%
-------------------------------------------------------------------------------
Distribution rate as a % of closing common share
price(3) 7.31%
-------------------------------------------------------------------------------
Net asset value $19.41
-------------------------------------------------------------------------------
Closing common share price $19.15
-------------------------------------------------------------------------------
One-year high common share price (02/12/01) $19.65
-------------------------------------------------------------------------------
One-year low common share price (10/18/00) $16.25
-------------------------------------------------------------------------------
(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 common share 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 annualized distributions of the Fund at the
end of the period and not the earnings of the Fund.
Past performance is no guarantee of future results. Investment return, share
price and net asset value will fluctuate and Fund shares, when sold, may be
worth more or less than their original cost. An investment in the Fund is
subject to investment risks, and you could lose money on your investment in
the Fund. As a result of recent market activity, current performance may
vary from the figures shown.
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PORTFOLIO AT A GLANCE
CREDIT QUALITY
(as a percentage of long-term investments)
As of June 30, 2001
- AAA/Aaa............ 0.5% [PIE CHART]
- AA/Aa.............. 8.4%
- A/A................ 31.4%
- BBB/Baa............ 49.1%
- BB/Ba.............. 9.9%
- B/B................ 0.7%
As of June 30, 2000
- AAA/Aaa............ 3.9% [PIE CHART]
- AA/Aa.............. 13.1%
- A/A................ 23.7%
- BBB/Baa............ 49.9%
- BB/Ba.............. 9.0%
- B/B................ 0.4%
Based upon the credit quality ratings as issued by Standard & Poor's Credit
Market Services/Moody's Investor Services, respectively. Subject to change
daily.
TWELVE-MONTH DIVIDEND HISTORY
(for the period ended June 30, 2001)
[BAR GRAPH]
DIVIDENDS
---------
9/00 0.34
12/00 0.34
3/01 0.34
6/01 0.35
The dividend history represents dividends that were paid on the fund and is no
guarantee of the fund's future dividends.
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TOP FIVE SECTORS*
(as a percentage of long-term investments)
[INVESTMENT PERFORMANCE GRAPH]
June 30, 2001 June 30, 2000
Finance 22 13.2
Utilities 19.7 22.1
Consumer Services 15.8 19.4
Energy 9.3 10.5
Transportation 7.6 9.5
*Subject to change daily.
NET ASSET VALUE AND MARKET PRICE
(based upon quarter-end values--June 1991 through June 2001)
[INVESTMENT PERFORMANCE GRAPH]
NET ASSET VALUE MARKET PRICE
--------------- ------------
6/91 18.6800 18.3800
19.3400 19.1300
19.8900 20.1300
19.3600 19.6300
6/92 19.8500 19.7500
20.4100 21.2500
20.0500 20.2500
20.9400 20.7500
6/93 21.3300 20.7500
21.9500 20.8800
21.2900 20.3800
20.1200 18.0000
6/94 19.0600 18.1300
18.7900 17.1300
18.5900 16.7500
19.3000 18.2500
6/95 20.4100 19.1300
20.5700 19.0000
21.2700 19.6300
20.1800 19.3800
6/96 19.6400 18.1300
19.9600 18.7500
20.3100 18.7500
18.8700 18.6300
6/97 20.4300 19.2500
20.7700 19.8100
20.9100 20.8100
20.9200 20.3800
6/98 21.1600 19.6875
21.3500 19.8125
21.0900 20.0625
20.4000 19.2500
6/99 19.5900 17.8750
19.3100 16.3750
18.9800 15.6875
18.9800 16.0625
6/00 18.7000 16.7500
18.9200 17.0625
19.2900 17.4375
19.5700 18.5000
6/01 19.4100 19.1500
The solid line above represents the trust's net asset value (NAV), which
indicates overall changes in value among the trust's underlying securities. The
trust's market price is represented by the dashed line, which indicates the
price the market is willing to pay for shares of the trust at a given time.
Market price is influenced by a range of factors, including supply and demand
and market conditions.
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[PHOTO]
Q&A WITH YOUR PORTFOLIO MANAGER
WE RECENTLY SPOKE WITH THE PORTFOLIO MANAGER OF THE VAN KAMPEN BOND FUND ABOUT
THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED THE MARKETS AND INFLUENCED
THE FUND'S RETURN DURING THE PAST TWELVE MONTHS. KELLY GILBERT, PORTFOLIO
MANAGER, HAS MANAGED THE FUND SINCE 1999 AND HAS WORKED IN THE INVESTMENT
INDUSTRY SINCE 1995. THE FOLLOWING DISCUSSION REFLECTS HER VIEWS ON THE FUND'S
PERFORMANCE DURING THE 12-MONTH PERIOD ENDED JUNE 30, 2001.
Q HOW WOULD YOU DESCRIBE THE
MARKET ENVIRONMENT IN WHICH THE FUND OPERATED AND HOW DID THE FUND PERFORM
IN THAT ENVIRONMENT?
A The first six months of the fiscal
year were part of one of the most difficult periods for the corporate bond
market. Over the last two quarters of 2000, investors reacted to a slowing
economy and deteriorating corporate earnings by shunning lower-rated corporate
bonds in favor of higher-quality corporate issues and U.S. Treasury securities.
During this period, the Treasury market yield curve inverted (in other words,
short-term rates moved higher than long-term rates) and the yield spread between
Treasuries and corporates moved toward a 10-year high. In the end, the
performance of Treasuries through the last half of 2000 was much stronger than
that of corporate bonds.
By the start of 2001, however, it had become clear that the Federal Reserve
Board (the "Fed") would need to ease short-term interest rates in order to
encourage business and consumer borrowing and trigger spending that could
stimulate economic growth. They responded by lowering the target federal funds
rate on six separate occasions over the first half of the year, resulting in a
cumulative reduction of two-and-three-quarter percentage points.
With these rate cuts, the yield curve steepened (short-term rates came down
more than long-term rates) and investors became more optimistic that an economic
recession could be avoided. As the Fed seemed willing to take steps to
kick-start the economy, investors appeared more willing to take on investment
risk, venturing away from ultra-safe investments in search of additional yield.
New corporate bond issuance in the first half of 2001 was well received by the
marketplace, and new-issue volume in the first two quarters alone exceeded the
volume for all of last year.
The slowing economy continues to cast a shadow on the corporate bond market,
as investors fret over its impact on corporate earnings. A seemingly endless
parade of negative earnings
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announcements in the first two quarters of 2001 have kept investors on edge,
pushing back hopes for an economic recovery.
Also, a number of corporate issuers in the packaging and building materials
sectors were hit hard--or even put out of business--by asbestos-related
liability claims. These concerns have haunted the market since late last year.
Fortunately, many of last year's "fallen angels" (well-known companies that
surprised the market with credit problems that led to downgrades) have rebounded
this year, a welcome sign that suggests the market may have regained its
footing.
The market has improved from the standpoint of technical factors, such as
supply/demand dynamics, tightening yield spreads, and a firming equity market,
but a number of fundamental factors--such as the economy's continued weakness,
poor corporate earnings, rising unemployment and continued layoffs, and signs
that consumer spending may be losing steam--are still cause for concern. In this
environment, corporate bonds have outperformed all but high-yield bonds in the
fixed-income category.
For the twelve months ended June 30, 2001, the fund produced a total return
of 23.10 percent based on market price. The fund's return reflects an increase
in market price from $16.75 per share on June 30, 2000, to $19.15 per share on
June 30, 2001. The fund's quarterly dividend of $.3500 per share translates to a
distribution rate of 7.31 percent based on the fund's closing market price on
June 30, 2001.
Of course, past performance is no guarantee of future results. As a result
of recent market activity, current performance may vary from the figures shown.
For more up-to-date information, please visit www.vankampen.com or speak with
your financial advisor. By comparison, the Lehman Brothers BBB Corporate Bond
Index posted a total return of 11.30 percent for the same period. The Lehman
Brothers BBB Corporate Bond Index is a broad-based, unmanaged index which
reflects the general performance of corporate bonds. Its returns do not include
any sales charges or fees that would be paid by an investor purchasing the
securities it represents. Such costs would lower performance. It is not possible
to invest directly in an index. For additional performance results, please refer
to the chart and footnotes on page 4.
Q WHAT SPECIFIC STRATEGIES DID
YOU EMPLOY IN REPOSITIONING THE PORTFOLIO?
A With declining interest rates in the
spotlight, we increased our exposure to financial issuers during the period,
targeting banks and finance companies. Our focus has been on top names in this
sector, such as Household, Mellon, and Capital One.
One group that we have moved away from is the utilities sector, which due to
the ongoing problems in California has continued to unsettle investors. We will
continue to monitor this sector closely.
Otherwise, we have generally maintained a neutral weighting in most sectors
(relative to the fund's benchmark, the Lehman Brother BBB Corporate Index).
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We continue to look for opportunities to enhance the portfolio's yield
component and to pursue bond issues that we believe exhibit strong relative
value.
Q WHAT IS YOUR OUTLOOK FOR
THE MARKET AND THE FUND IN THE MONTHS AHEAD?
A Although the market's technical
indicators continue to be strong, we remain cautiously optimistic on the long-
term prospects for the investment-grade corporate sector. Since the start of the
year, yield spreads have narrowed considerably, suggesting that the market could
be vulnerable to spread widening. Expectations are for weak second quarter
earnings announcements, and the "summer doldrums" could further dampen trading.
Investors are anticipating perhaps one or two further interest rate cuts by
the Fed, but it is widely accepted that we are nearing the end of the Fed's
easing cycle. Historically, an interest rate cut has taken about six months to
take effect on economic activity, so we hope to see improvement in the economy
over the last half of 2001. If the economy turns up, corporate bonds should
benefit.
As of July 24, 2001, the fund is managed by the High Yield and High Grade teams
of Van Kampen Asset Management Inc. ("The Adviser"). The teams are made up of
established investment professionals. Current members of the High Yield Team
include Gordon Loery, an Executive Director of the Adviser. Current members of
the High Grade team include Angelo Manioudakis, and Executive Director of the
Adviser. The composition of each team may change without notice from time to
time.
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GLOSSARY OF TERMS
A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.
EARNINGS ESTIMATE: A forecast for a company's net income during a given period.
An earnings estimate can come from the company's management as well as from
independent analysts.
FEDERAL FUNDS RATE: The interest rate charged by one financial institution
lending federal funds to another. The Federal Reserve Board adjusts 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 of the United States. Its policy-making
committee, called the Federal Open Market Committee, meets at least eight times
a year to establish monetary policy and monitor the economic pulse of the United
States.
INVESTMENT-GRADE BONDS: Securities rated BBB and above by Standard & Poor's
Ratings Group or Baa and above by Moody's Investors Service. Bonds rated below
BBB or Baa are noninvestment grade.
YIELD: The annual rate of return on an investment, expressed as a percentage.
YIELD CURVE: The pattern that results from viewing the yields of U.S. Treasury
securities maturing in 1, 5, 10, and 30 years. When grouped together and
graphed, a pattern of increasing yield is often reflected as the time to
maturity extends. This pattern creates an upward sloping "curve." A "flat" yield
curve represents little difference between short- and long-term interest rates,
while a "negative" yield curve represents decreasing yields as the time to
maturity extends.
YIELD SPREAD: The additional yield investors can earn by either investing in
bonds with longer maturities or by investing in bonds with lower credit ratings.
The spread is the difference in yield between bonds with short versus long
maturities or the difference in yield between high-quality bonds and
lower-quality bonds.
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BY THE NUMBERS
YOUR FUND'S INVESTMENTS
June 30, 2001
THE FOLLOWING PAGES DETAIL YOUR FUND'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
CORPORATE BONDS 92.3%
CONSUMER DISTRIBUTION 4.6%
$1,000 Anheuser Busch Cos., Inc. ....... 7.550% 10/01/30 $ 1,089,304
2,000 ConAgra, Inc. ................... 7.500 09/15/05 2,077,578
1,000 Constellation Brands, Inc.,
144A--Private Placement (a)...... 8.000 02/15/08 1,002,500
1,000 Federated Dept Stores, Inc. ..... 6.300 04/01/09 960,033
250 K-Mart Corp. .................... 9.375 02/01/06 244,124
2,400 Kroger Co. ...................... 7.375 03/01/05 2,491,087
250 Owens & Minor, Inc., 144A--
Private Placement (a) (b)........ 8.500 07/15/11 252,500
1,000 Pepsi Bottling Group, Inc. ...... 7.000 03/01/29 1,003,035
1,000 Safeway, Inc. ................... 7.250 02/01/31 986,010
------------
10,106,171
------------
CONSUMER DURABLES 0.3%
750 Brunswick Corp. ................. 7.125 08/01/27 626,893
------------
CONSUMER NON-DURABLES 1.2%
250 BRL Universal Equipment.......... 8.875 02/15/08 257,500
1,000 Kellogg Co., 144A--Private
Placement (a).................... 6.600 04/01/11 978,929
1,500 Kellogg Co., 144A--Private
Placement (a).................... 7.450 04/01/31 1,503,595
------------
2,740,024
------------
CONSUMER SERVICES 15.4%
250 Adelphia Communications Corp. ... 9.250 10/01/02 251,250
1,000 AT&T Canada, Inc. (Canada)....... 7.650 09/15/06 989,365
500 Charter Communication Holdings
LLC.............................. 8.250 04/01/07 473,750
See Notes to Financial Statements
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YOUR FUND'S INVESTMENTS
June 30, 2001
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
CONSUMER SERVICES (CONTINUED)
$2,500 Clear Channel Commerce, Inc. .... 7.250% 10/15/27 $ 2,366,010
2,000 Comcast Cable Communications..... 8.125 05/01/04 2,122,112
1,250 CSC Holdings, Inc. .............. 7.875 12/15/07 1,253,125
2,500 CSC Holdings, Inc. .............. 7.875 02/15/18 2,362,500
1,000 Harcourt General, Inc. .......... 7.200 08/01/27 885,874
1,750 Harcourt General, Inc. .......... 8.875 06/01/22 1,862,961
1,750 Liberty Media Corp. ............. 8.250 02/01/30 1,528,109
125 Mandalay Resort Group............ 10.250 08/01/07 131,250
1,000 MGM Mirage, Inc. ................ 8.500 09/15/10 1,038,963
2,880 News America Holdings, Inc. ..... 8.875 04/26/23 3,041,663
2,000 Park Place Entertainment
Corp. ........................... 7.950 08/01/03 2,061,496
250 Primedia, Inc., 144A--Private
Placement (a).................... 8.875 05/15/11 237,500
500 Station Casinos, Inc. ........... 8.375 02/15/08 501,875
746 Stewart Enterprises, Inc. ....... 6.400 05/01/03 716,922
7,000 Tele-Communications, Inc. ....... 9.250 01/15/23 7,389,193
2,000 Time Warner Entertainment Co. ... 8.375 07/15/33 2,180,530
1,000 Time Warner, Inc. ............... 7.975 08/15/04 1,063,052
1,000 Viacom, Inc. .................... 7.750 06/01/05 1,063,311
500 Viacom, Inc. .................... 7.875 07/30/30 528,253
------------
34,049,064
------------
ENERGY 9.0%
1,000 Amerada Hess Corp. .............. 7.875 10/01/29 1,059,989
1,000 Ashland Oil, Inc. ............... 8.800 11/15/12 1,117,717
1,000 Ashland, Inc. ................... 6.860 05/01/09 974,056
750 Barrett Resources Corp. (c)...... 7.550 02/01/07 774,375
500 Coastal Corp..................... 7.500 08/15/06 515,763
2,900 El Paso Energy Corp. ............ 6.950 12/15/07 2,874,190
1,000 Gulf Canada Resources Ltd.
(Canada)......................... 7.125 01/15/11 1,028,201
2,000 Norcen Energy Resources Ltd.
(Canada)......................... 7.375 05/15/06 2,095,838
2,025 PDV America, Inc. ............... 7.875 08/01/03 2,039,876
1,500 Petroliam Nasional Berhad, 144A--
Private Placement (Malaysia)
(a).............................. 7.625 10/15/26 1,346,709
See Notes to Financial Statements
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YOUR FUND'S INVESTMENTS
June 30, 2001
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
ENERGY (CONTINUED)
$1,250 R&B Falcon Corp. ................ 6.750% 04/15/05 $ 1,275,000
1,500 Tosco Corp. ..................... 8.250 05/15/03 1,580,970
1,000 Transcontinental Gas Pipe Line
Corp. ........................... 7.250 12/01/26 951,241
1,000 Union Oil Co. ................... 9.125 02/15/06 1,114,282
250 Vintage Petroleum, Inc., 144A--
Private Placement (a)............ 7.875 05/15/11 242,500
1,000 Williams Cos., Inc.,
144A--Private Placement (a)...... 7.500 01/15/31 939,986
------------
19,930,693
------------
FINANCE 21.5%
2,500 American Re Corp. ............... 7.450 12/15/26 2,567,852
500 Banco Santiago (Chile)........... 7.000 07/18/07 488,726
1,000 Bank of America Corp. ........... 7.400 01/15/11 1,040,832
1,000 Bank One Corp. .................. 6.500 02/01/06 1,013,618
1,000 Banque Nationale de Paris........ 7.200 01/15/07 1,042,620
1,000 Banque Paribas NY (France)....... 8.350 06/15/07 1,104,707
1,250 BB&T Corp. ...................... 6.375 06/30/05 1,243,925
500 BB&T Corp. ...................... 7.250 06/15/07 507,419
1,000 Capital One Bank................. 8.250 06/15/05 1,035,058
500 Citigroup, Inc. ................. 7.250 10/01/10 520,984
2,000 Conseco, Inc. ................... 8.500 10/15/02 1,980,000
1,000 Firstar Bank..................... 7.125 12/01/09 1,023,366
2,000 Ford Motor Credit Co. ........... 6.875 02/01/06 2,028,160
1,000 General Electric Capital
Corp. ........................... 6.500 12/10/07 1,035,549
1,000 Goldman Sachs Group, Inc. ....... 7.800 01/28/10 1,056,155
2,000 Heller Financial, Inc. .......... 6.375 03/15/06 2,017,136
1,000 Household Finance Corp. ......... 6.750 05/15/11 988,300
See Notes to Financial Statements
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YOUR FUND'S INVESTMENTS
June 30, 2001
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
FINANCE (CONTINUED)
$1,000 Household Finance Corp. ......... 7.875% 03/01/07 $ 1,069,086
1,500 Household Finance Corp. ......... 8.375 11/15/01 1,521,777
2,500 International Lease Finance
Corp. ........................... 8.375 12/15/04 2,720,165
500 JP Morgan Chase & Co. ........... 6.750 02/01/11 501,571
1,000 Korea Development Bank (Republic
of Korea)........................ 7.375 09/17/04 1,042,613
2,000 Lehman Brothers Holdings, Inc.... 8.500 05/01/07 2,181,562
1,000 Liberty Property LP.............. 8.500 08/01/10 1,070,947
1,750 Mack Cali Realty LP.............. 7.750 02/15/11 1,772,248
2,250 MBNA American Bank (d)........... 6.500 06/20/06 2,215,786
1,000 Mellon Funding Corp. ............ 6.400 05/14/11 984,443
1,750 Nordbanken AB, 144A--Private
Placement (Sweden) (a)........... 7.250 11/12/09 1,790,612
500 Pemex Project, 144A--Private
Placement (a).................... 9.125 10/13/10 528,750
1,000 PNC Funding Corp. ............... 6.875 07/15/07 1,019,849
1,000 Republic NY Corp. ............... 7.750 05/15/09 1,053,087
500 State Street Corp. .............. 7.650 06/15/10 535,004
1,000 Union Planters Corp. ............ 7.750 03/01/11 1,033,513
1,250 UtiliCorp Canada Finance, 144A--
Private Placement (Canada) (a)... 7.750 06/15/11 1,239,669
1,250 Verizon Global Funding Corp.,
144A--Private Placement (a)...... 6.750 12/01/05 1,283,969
1,000 Washington Mutual Capital,
Inc. ............................ 8.375 06/01/27 1,018,010
1,000 Washington Mutual, Inc. ......... 7.500 08/15/06 1,054,339
1,000 Wells Fargo Bank................. 6.450 02/01/11 985,106
------------
47,316,513
------------
HEALTHCARE 1.8%
2,000 Columbia HCA Healthcare Corp. ... 6.910 06/15/05 1,971,054
2,000 Tenet Healthcare Corp. .......... 8.000 01/15/05 2,055,000
------------
4,026,054
------------
See Notes to Financial Statements
14
17
YOUR FUND'S INVESTMENTS
June 30, 2001
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
PRODUCER MANUFACTURING 5.6%
$1,000 Allied Waste North America, Inc.,
144A--Private Placement (a)...... 8.875% 04/01/08 $ 1,025,000
250 Briggs & Straton, 144A--Private
Placement (a).................... 8.875 03/15/11 252,500
2,000 Daimler Chrysler NA Holding...... 7.375 09/15/06 2,070,056
2,000 ITT Corp. ....................... 6.750 11/15/05 1,960,000
1,000 Lockheed Martin Corp. ........... 8.500 12/01/29 1,112,119
3,000 Tyco International Group SA
(Luxembourg)..................... 6.125 11/01/08 2,905,617
250 United Rentals North America,
Inc., 144A--Private Placement
(a).............................. 10.750 04/15/08 258,750
1,750 USA Waste Services, Inc. ........ 7.000 10/01/04 1,782,301
1,000 USX Marathon Group............... 6.650 02/01/06 1,016,969
------------
12,383,312
------------
RAW MATERIALS/PROCESSING INDUSTRIES 4.1%
1,500 Abitibi-Consolidated, Inc.
(Canada)......................... 8.300 08/01/05 1,579,290
1,000 Dow Chemical Co. ................ 7.375 11/01/29 1,023,380
1,000 Georgia Pacific Corp. ........... 7.500 05/15/06 1,006,146
2,000 Georgia Pacific Corp. ........... 9.950 06/15/02 2,075,156
1,000 IMC Global, Inc. ................ 6.875 07/15/07 822,500
1,500 Rohm & Haas Co. ................. 6.950 07/15/04 1,556,324
450 Sequa Corp. ..................... 9.000 08/01/09 447,750
500 Stora Enso Corp. (Finland)....... 7.375 05/15/11 507,482
------------
9,018,028
------------
TECHNOLOGY 0.1%
250 Amkor Technology, Inc., 144A--
Private Placement (a)............ 9.250 02/15/08 233,750
------------
See Notes to Financial Statements
15
18
YOUR FUND'S INVESTMENTS
June 30, 2001
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
TELECOMMUNICATIONS 2.0%
$1,000 AT & T Wireless Services, Inc.,
144A--Private Placement (a)...... 7.875% 03/01/11 $ 1,003,582
2,000 France Telecom, 144A--Private
Placement (France) (a)........... 7.750 03/01/11 2,042,006
125 McLeodUSA, Inc. ................. 11.375 01/01/09 80,000
250 Tritel PCS, Inc. ................ 10.375 01/15/11 228,125
1,000 WorldCom, Inc. .................. 8.250 05/15/31 983,539
------------
4,337,252
------------
TRANSPORTATION 7.4%
1,625 Canadian National Railway Co.
(Canada)......................... 7.625 05/15/23 1,684,750
1,000 CSX Corp. ....................... 6.750 03/15/11 982,832
7,000 Union Pacific Corp. ............. 8.350 05/01/25 7,357,980
6,000 United Airlines, Inc. ........... 10.020 03/22/14 6,370,470
------------
16,396,032
------------
UTILITIES 19.3%
1,000 AES Corp. ....................... 9.500 06/01/09 1,018,750
3,500 Arizona Public Service Co. ...... 8.750 01/15/24 3,636,080
1,000 Calpine Corp. ................... 8.625 08/15/10 980,000
1,000 Cleveland Electric Illuminating
Co. ............................. 7.625 08/01/02 1,020,607
2,000 CMS Energy Corp. ................ 6.750 01/15/04 1,940,000
1,000 Commonwealth Edison Co. ......... 8.625 02/01/22 1,051,179
250 Dobson Communications Corp. ..... 10.875 07/01/10 251,250
2,500 Enron Corp. ..................... 7.125 05/15/07 2,563,053
1,435 Global Crossing Holdings Ltd.
(Bermuda)........................ 9.125 11/15/06 1,133,650
5,000 GTE North, Inc. ................. 8.500 12/15/31 5,185,050
3,000 Gulf States Utilities Co. ....... 8.940 01/01/22 3,101,829
500 Israel Electric Corp., Ltd.,
144A--Private Placement (Israel)
(a).............................. 8.250 10/15/09 515,002
See Notes to Financial Statements
16
19
YOUR FUND'S INVESTMENTS
June 30, 2001
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
UTILITIES (CONTINUED)
$1,323 Niagara Mohawk Power Corp. ...... 7.625% 10/01/05 $ 1,369,482
4,500 Public Service Co. of Colorado... 8.750 03/01/22 4,673,237
2,000 Qwest Capital Funding, Inc. ..... 7.900 08/15/10 2,069,548
2,000 Southern California Gas Co. ..... 8.750 10/01/21 2,074,484
2,000 Southern Energy, Inc., 144A--
Private Placement (a)............ 7.900 07/15/09 1,968,852
500 Telefonos De Mexico SA Reg S
Tranche (Mexico)................. 8.250 01/26/06 518,125
500 Telefonos De Mexico SA, 144A--
Private Placement (Mexico) (a)... 8.250 01/26/06 518,125
5,000 United Telecommunication Kansas.. 9.500 04/01/03 5,313,905
500 UtiliCorp United, Inc. .......... 6.700 10/15/06 502,375
1,000 Vodafone Airtouch PLC (United
Kingdom)......................... 7.750 02/15/10 1,052,299
------------
42,456,882
------------
TOTAL CORPORATE BONDS 92.3%.............................................. 203,620,668
------------
GOVERNMENT AND GOVERNMENT AGENCY
OBLIGATIONS 5.3%
1 Federal Home Loan Mortgage Corp.
Pool............................. 7.375 01/01/03 1,220
4 Government National Mortgage
Association Pool................. 10.000 10/15/16 to 07/15/20 4,945
1,000 Malaysia (Malaysia).............. 8.750 06/01/09 1,076,458
1,400 Ontario Province (Canada)........ 7.625 06/22/04 1,496,025
2,500 Quebec Province (Canada)......... 8.800 04/15/03 2,663,800
500 Republic of Italy (Italy)........ 5.250 04/05/06 491,825
3,000 Saskatchewan Province (Canada)... 8.000 07/15/04 3,220,530
1,500 United Mexican States (Mexico)... 8.375 01/14/11 1,511,625
1,000 United Mexican States (Mexico)... 10.375 02/17/09 1,125,000
100 United States Treasury Bond...... 6.250 05/15/30 106,078
------------
TOTAL GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS........................ 11,697,506
------------
See Notes to Financial Statements
17
20
YOUR FUND'S INVESTMENTS
June 30, 2001
MARKET
DESCRIPTION VALUE
TOTAL LONG-TERM INVESTMENTS 97.6%
(Cost $211,557,080) $215,318,174
REPURCHASE AGREEMENT 0.3%
BankAmerica Securities ($715,000 par collateralized by U.S. Government
obligations in a pooled cash account, dated 06/29/01, to be sold on
07/02/01 at $715,241)
(Cost $715,000)................................................... 715,000
------------
TOTAL INVESTMENTS 97.9%
(Cost $212,272,080)................................................... 216,033,174
OTHER ASSETS IN EXCESS OF LIABILITIES 2.1%............................. 4,503,805
------------
NET ASSETS 100.0%...................................................... $220,536,979
============
(a) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933, as amended. These securities may only be
resold in transactions exempt from registration which are normally those
transactions with qualified institutional buyers.
(b) Securities purchased on a when-issued or delayed delivery basis.
(c) Assets segregated as collateral for when-issued or delayed delivery purchase
commitments.
(d) These securities are restricted and may be resold only in transactions
exempt from registration which are normally those transactions with
qualified institutional buyers.
See Notes to Financial Statements
18
21
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
June 30, 2001
ASSETS:
Total Investments (Cost $212,272,080)....................... $216,033,174
Cash........................................................ 765,801
Interest Receivable......................................... 4,466,210
Other....................................................... 53,009
------------
Total Assets............................................ 221,318,194
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 250,000
Income Distributions...................................... 228,935
Investment Advisory Fee................................... 88,668
Shareholder Reports....................................... 50,511
Affiliates................................................ 3,537
Trustees' Deferred Compensation and Retirement Plans........ 107,116
Accrued Expenses............................................ 52,448
------------
Total Liabilities....................................... 781,215
------------
NET ASSETS.................................................. $220,536,979
============
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..................................................... 207,624,858
Net Unrealized Appreciation................................. 3,761,094
Accumulated Undistributed Net Investment Income............. 802,655
Accumulated Net Realized Loss............................... (3,014,093)
------------
NET ASSETS.................................................. $220,536,979
============
NET ASSET VALUE PER COMMON SHARE ($220,536,979 divided by
11,362,465 shares outstanding)............................ $ 19.41
============
See Notes to Financial Statements
19
22
Statement of Operations
For the Year Ended June 30, 2001
INVESTMENT INCOME:
Interest.................................................... $17,372,013
Other....................................................... 15,860
-----------
Total Income.............................................. 17,387,873
-----------
EXPENSES:
Investment Advisory Fee..................................... 1,067,886
Shareholder Services........................................ 113,612
Shareholder Reports......................................... 81,395
Trustees' Fees and Related Expenses......................... 75,002
Custody..................................................... 20,397
Legal....................................................... 5,479
Other....................................................... 137,941
-----------
Total Expenses.......................................... 1,501,712
Less Credits Earned on Cash Balances.................... 923
-----------
Net Expenses............................................ 1,500,789
-----------
NET INVESTMENT INCOME....................................... $15,887,084
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $ 1,117,893
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (2,902,755)
End of the Period......................................... 3,761,094
-----------
Net Unrealized Appreciation During the Period............... 6,663,849
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 7,781,742
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $23,668,826
===========
See Notes to Financial Statements
20
23
Statements of Changes in Net Assets
For the Years Ended June 30, 2001 and 2000
YEAR ENDED YEAR ENDED
JUNE 30, 2001 JUNE 30, 2000
------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.................................. $ 15,887,084 $ 16,242,799
Net Realized Gain/Loss................................. 1,117,893 (4,142,167)
Net Unrealized Appreciation/Depreciation During the
Period............................................... 6,663,849 (6,420,944)
------------ ------------
Change in Net Assets from Operations................... 23,668,826 5,679,688
Distributions from Net Investment Income............... (15,565,382) (15,861,856)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES.... 8,103,444 (10,182,168)
NET ASSETS:
Beginning of the Period................................ 212,433,535 222,615,703
------------ ------------
End of the Period (Including accumulated undistributed
net investment income of $802,655 and $470,562,
respectively)........................................ $220,536,979 $212,433,535
============ ============
See Notes to Financial Statements
21
24
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
------------------------------------
2001 2000 1999 1998
------------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD........ $18.70 $19.59 $ 21.16 $ 20.26
------ ------ ------- --------
Net Investment Income......................... 1.40 1.43 1.41 1.48
Net Realized and Unrealized Gain/Loss......... .68 (.93) (1.56) .93
------ ------ ------- --------
Total from Investment Operations................ 2.08 .50 (.15) 2.41
Less Distributions from Net Investment Income... 1.37 1.39 1.42 1.51
------ ------ ------- --------
NET ASSET VALUE, END OF THE PERIOD.............. $19.41 $18.70 $ 19.59 $ 21.16
====== ====== ======= ========
Market Price Per Share at End of the Period..... $19.15 $16.75 $17.875 $19.6875
Total Investment Return at Market Price (a)..... 23.10% 1.88% -2.45% 10.08%
Total Return at Net Asset Value (b)............. 11.37% 2.67% -0.87% 12.19%
Net Assets at End of the Period (In millions)... $220.5 $212.4 $ 222.6 $ 240.4
Ratio of Operating Expenses to Average Net
Assets........................................ .68% .64% .66% .65%
Ratio of Convertible Note Expenses to Average
Net Assets (c)................................ -- -- -- --
Ratio of Net Investment Income to Average Net
Assets........................................ 7.25% 7.48% 6.79% 7.04%
Portfolio Turnover.............................. 88% 71% 10% 27%
Assuming full dilution of debt: (c)
Net Asset Value, End of the Period............ -- -- -- --
Number of Shares Outstanding, End of the
Period (000)................................ -- -- -- --
(a) 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 common share price at the end of the
period indicated.
(b) 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.
(c) On January 3, 1995, the Fund paid off its outstanding convertible extendible
note.
22
25
YEAR ENDED JUNE 30,
-----------------------------------------------------------
1997 1996 1995 1994 1993 1992
-----------------------------------------------------------
$19.97 $ 20.41 $ 19.07 $ 21.33 $19.85 $18.68
------ ------- ------- ------- ------ ------
1.56 1.54 1.52 1.56 1.58 1.74
.27 (.44) 1.36 (2.28) 1.55 1.11
------ ------- ------- ------- ------ ------
1.83 1.10 2.88 (.72) 3.13 2.85
1.54 1.54 1.54 1.54 1.65 1.68
------ ------- ------- ------- ------ ------
$20.26 $ 19.97 $ 20.41 $ 19.07 $21.33 $19.85
====== ======= ======= ======= ====== ======
$19.25 $18.125 $19.125 $18.125 $20.75 $19.75
15.06% 2.61% 14.89% -5.59% 13.76% 17.12%
9.46% 5.94% 16.54% -3.37% 16.35% 15.79%
$230.2 $ 226.9 $ 231.9 $ 216.6 $235.6 $218.5
.68% .67% .68% .68% .71% .71%
-- -- .39% .82% .98% 1.05%
7.70% 7.47% 7.92% 7.29% 7.65% 8.90%
8% 11% 8% 2% 19% 39%
-- -- -- $ 19.07 $21.09 $19.78
-- -- -- 12,411 12,411 12,372
See Notes to Financial Statements
23
26
NOTES TO
FINANCIAL STATEMENTS
June 30, 2001
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen 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 seek interest income while
conserving capital through investing in a diversified portfolio consisting
primarily of high-quality 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 accounting principles
generally accepted in the United States of America 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 or indications of value obtained from an independent pricing service.
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 as noted above, 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, which approximates market value.
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.
The Fund may invest in repurchase agreements, which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund may 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
24
27
NOTES TO
FINANCIAL STATEMENTS
June 30, 2001
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 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. Discounts are accreted over
the expected life of each applicable security. Premiums on debt securities are
not amortized.
In November 2000, the American Institute of Certified Public Accountants
(AICPA) issued a revised version of the AICPA Audit and Accounting Guide for
Investment Companies (the "Guide"). The revised version of the Guide is
effective for annual financial statements issued for fiscal years beginning
after December 15, 2000 and will require investment companies to amortize
premiums and accrete discounts on fixed income securities. The Fund currently
does not amortize premiums on fixed income securities. Upon adoption, the Fund
will be required to record a cumulative effect adjustment to reflect the
amortization of premiums. The adjustment will reduce accumulated undistributed
net investment income and increase unrealized appreciation on securities and
therefore will not impact total net assets. As of June 30, 2001, the cumulative
effect adjustment to reflect the amortization of market premium would be
$588,991.
The revised version of the Guide will also require paydown gains and losses
on mortgage- and asset-backed securities to be presented as interest income.
Currently, paydown gains and losses on mortgage- and asset-backed securities are
shown as a component of realized gain/loss. Had the Trust adopted this policy
during the fiscal year ended June 30, 2001, interest income would have decreased
and realized gain/loss would have increased by $395.
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, 2001, the Fund had an accumulated capital loss carryforward
for tax purposes of $2,737,618, which will expire between June 30, 2008 and June
30, 2009. Net realized gains or losses may differ for financial reporting and
tax purposes
25
28
NOTES TO
FINANCIAL STATEMENTS
June 30, 2001
primarily as a result of the deferral of losses relating to wash sale
transactions and post-October losses which may not be recognized for tax
purposes until the first day of the following fiscal year.
At June 30, 2001, for federal income tax purposes, the cost of long- and
short-term investments is $212,276,300, the aggregate gross unrealized
appreciation is $5,643,907 and the aggregate gross unrealized depreciation is
$1,887,033, resulting in net unrealized appreciation on long- and short-term
investments of $3,756,874.
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. All short-term capital gains are included
in ordinary income for tax purposes.
Due to inherent differences in the recognition of income, expenses and
realized gain/losses under generally accepted accounting principles and federal
income tax purposes, permanent differences between financial and tax basis
reporting for the 2001 fiscal year have been identified and appropriately
reclassified. Permanent differences relating to expenses which are not
deductible for tax purposes totaling $20,646 were reclassified from accumulated
undistributed net investment income to capital, $9,860 relating to fee income
received from tender offers was reclassified from accumulated undistributed net
investment income to accumulated net realized loss and $395 relating to the
recognition of net realized gains on paydowns of mortgage pool obligations was
reclassified from accumulated undistributed net investment income to accumulated
net realized loss.
F. EXPENSE REDUCTIONS During the year ended June 30, 2001, the Fund's custody
fee was reduced by $923 as a result of credits earned on cash balances.
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:
AVERAGE DAILY NET ASSETS % PER ANNUM
First $150 million.......................................... 0.50%
Next $100 million........................................... 0.45%
Next $100 million........................................... 0.40%
Over $350 million........................................... 0.35%
26
29
NOTES TO
FINANCIAL STATEMENTS
June 30, 2001
For the year ended June 30, 2001, the Fund recognized expenses of
approximately $5,500 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.
Under an Accounting Services agreement, the Adviser provides accounting
services to the Fund. The Adviser allocates cost of such services to each fund.
For the year ended June 30, 2001, the Fund recognized expenses of approximately
$21,500 representing Van Kampen Investments Inc.'s or its affiliates'
(collectively "Van Kampen") cost of providing accounting services to the Fund,
which are reported as part of other expenses in the Statement of Operations.
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 upon retirement 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 $188,381,977 and $188,674,991,
respectively.
27
30
REPORT OF INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of Van Kampen Bond Fund
We have audited the accompanying statement of assets and liabilities of Van
Kampen Bond Fund (the "Fund"), including the portfolio of investments, as of
June 30, 2001, the related statements of operations for the year then ended, and
the statements of changes in net assets and the financial highlights for each of
the two 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. The Fund's financial highlights for the periods ended prior
to June 30, 2000, were audited by other auditors whose report, dated July 23,
1999, expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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, 2001, by correspondence with the Fund's
custodian and brokers, and through the performance of other auditing procedures.
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 Bond Fund as of June 30, 2001, the results of its operations for the year
then ended, the changes in its net assets and the financial highlights for the
respective stated periods, in conformity with accounting principles generally
accepted in the United States of America.
DELOITTE & TOUCHE LLP
Chicago, Illinois
August 9, 2001
28
31
DIVIDEND REINVESTMENT PLAN
The Fund pays distributions in cash, but if you own more than 100 shares in
you 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 the 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:
STATE STREET BANK AND TRUST COMPANY
C/O EQUISERVE LLP
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.
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32
BOARD OF TRUSTEES AND IMPORTANT ADDRESSES
VAN KAMPEN BOND FUND
BOARD OF TRUSTEES
DAVID C. ARCH
ROD DAMMEYER
HOWARD J KERR
THEODORE A. MYERS
RICHARD F. POWERS, III* - Chairman
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN *
INVESTMENT ADVISER
VAN KAMPEN ASSET MANAGEMENT INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
CUSTODIAN AND SHAREHOLDER
SERVICING AGENT
STATE STREET BANK
AND TRUST COMPANY
c/o EquiServe LLP
P.O. Box 43011
Providence, Rhode Island 02940-3011
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER, & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT AUDITORS
DELOITTE & TOUCHE LLP
180 North Stetson Avenue
Chicago, Illinois 60601
Inquiries about an investor's account should be referred to the Fund's transfer
agent
STATE STREET BANK AND TRUST COMPANY
C/O EQUISERVE LLP
P.O. Box 43011
Providence, Rhode Island 02940-3011
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, as amended.
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33
RESULTS OF
SHAREHOLDER VOTES
An Annual Meeting of Shareholders of the Fund was held on June 27, 2001, where
shareholders voted on the election of trustees.
1) With regard to the election of the following trustees:
# OF SHARES
-----------------------------
IN FAVOR WITHHELD
--------------------------------------------------------------------------------------
Richard F. Powers, III................................. 9,900,063 169,353
Hugo F. Sonnenschein................................... 9,938,155 131,261
Theodore A. Myers...................................... 9,915,577 153,839
The other trustees of the Fund whose terms did not expire in 2001 were David C.
Arch, Rod Dammeyer, Howard J Kerr, and Wayne W. Whalen.
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34
Van Kampen
Privacy Notice
The Van Kampen companies and investment products* respect your right to privacy.
We also know that you expect us to conduct and process your business in an
accurate and efficient manner. To do so, we must collect and maintain certain
nonpublic personal information about you. This is information we collect from
you on applications or other forms, and from the transactions you make with us,
our affiliates, or third parties. We may also collect information you provide
when using our web site, and text files (a.k.a. "cookies") may be placed on your
computer to help us to recognize you and to facilitate transactions you
initiate. We do not disclose any nonpublic personal information about you or any
of our former customers to anyone, except as permitted by law. For instance, so
that we may continue to offer you Van Kampen investment products and services
that meet your investing needs, and to effect transactions that you request or
authorize, we may disclose the information we collect to companies that perform
services on our behalf, such as printers and mailers that assist us in the
distribution of investor materials. These companies will use this information
only for the services for which we hired them, and are not permitted to use or
share this information for any other purpose. To protect your nonpublic personal
information internally, we permit access to it only by authorized employees, and
maintain physical, electronic and procedural safeguards to guard your nonpublic
personal information.
* Includes Van Kampen Investments Inc., Van Kampen Investment Advisory Corp.,
Van Kampen Asset Management Inc., Van Kampen Advisors Inc., Van Kampen
Management Inc., Van Kampen Funds Inc., Van Kampen Investor Services Inc., Van
Kampen Trust Company, Van Kampen System Inc. and Van Kampen Exchange Corp., as
well as the many Van Kampen mutual funds and Van Kampen unit investment
trusts.
Van Kampen Funds Inc.
1 Parkview Plaza, P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
www.vankampen.com
[VAN KAMPEN INVESTMENTS LOGO]
Copyright (C)2001 Van Kampen Funds Inc. All rights reserved.
VBF ANR 8/01 3546H01-AS-8/01