Table of Contents
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 4
PORTFOLIO AT A GLANCE
CREDIT QUALITY 5
SIX-MONTH DIVIDEND HISTORY 5
TOP FIVE SECTORS 6
NET ASSET VALUE AND MARKET PRICE 6
Q&A WITH YOUR PORTFOLIO MANAGERS 7
GLOSSARY OF TERMS 10
BY THE NUMBERS
YOUR FUND'S INVESTMENTS 11
FINANCIAL STATEMENTS 19
NOTES TO FINANCIAL STATEMENTS 24
BOARD OF TRUSTEES AND IMPORTANT ADDRESSES 29
Van Kampen
wishes peace
and prosperity
to all
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
OVERVIEW
LETTER TO SHAREHOLDERS
January 18, 2002
Dear Shareholder,
As the new year begins, Van Kampen wishes peace, prosperity and hope to all.
With a legacy that spans nearly four generations, Van Kampen has helped
investors pursue their goals through social, political and economic change. In
the face of challenges and uncertainty, our core investment philosophy has been
tested and, we believe affirmed. Whether you're new to the Van Kampen family or
revisiting your investment strategy, we encourage you to focus on two
fundamental investing principles:
SEEK FINANCIAL ADVICE BEFORE YOU INVEST. Your financial advisor can help you
develop a tailored investment strategy based on several factors, including your
age, family status and goals. While no portfolio is immune to volatility, your
advisor can help you structure a portfolio designed to address your long-term
financial goals.
EXAMINE YOUR PORTFOLIO AND MODERATE YOUR INVESTMENT
RISK--DIVERSIFY. Consider including a variety of stock and
fixed-income funds in your portfolio, which may improve your
long-term performance.
We are grateful for your continued trust in Van Kampen and appreciate the
opportunity to manage your assets. In the new year, we hope you and your loved
ones enjoy life's true wealth--family, friends and life's daily pleasures.
Sincerely,
[SIG]
Richard F. Powers, III
President and CEO
Van Kampen Asset Management Inc.
1
ECONOMIC SNAPSHOT
THE ECONOMY
DECEMBER 2001 MARKED THE NINTH MONTH OF RECESSION FOR THE U.S. ECONOMY, BUT
MIXED DATA AT YEAR'S END SUGGESTED THE WORST MAY BE OVER. GROSS DOMESTIC PRODUCT
(GDP), THE PRIMARY MEASURE OF ECONOMIC GROWTH, INCREASED AT AN ANNUAL RATE OF
0.2 PERCENT FOR THE FOURTH QUARTER.
BUSINESS ACTIVITY, WHICH SLOWED PRIOR TO THE SEPTEMBER TERRORIST ATTACKS AND
SPIRALED DOWNWARD AFTER, APPEARED TO RETURN TO MORE STABLE--ALBEIT
WEAK--PRE-ATTACK LEVELS. MANUFACTURING, THE SECTOR HARDEST HIT BY THE INVENTORY
CYCLE AND ITS EFFECT ON PRODUCTION DEMAND, CONTINUED TO CONTRACT IN
DECEMBER--BUT AT A MUCH SLOWER RATE THAN IN PREVIOUS MONTHS.
CONSUMER SPENDING AND EMPLOYMENT
CONSUMER SPENDING, WHICH DRIVES TWO-THIRDS OF U.S. ECONOMIC GROWTH, REMAINED
SURPRISINGLY RESILIENT THROUGHOUT THE REPORTING PERIOD. PRICE-CONSCIOUS
CONSUMERS SHUNNED HIGH-PRICED DEPARTMENT AND SPECIALTY STORES FOR DISCOUNT
STORES DURING THE HOLIDAY SHOPPING SEASON. MANY ALSO TOOK ADVANTAGE OF
HISTORICALLY LOW MORTGAGE RATES TO REFINANCE THEIR LOANS OR PURCHASE NEW HOMES.
BUT HOMES WEREN'T THE ONLY BIG-TICKET ITEMS POPULAR WITH CONSUMERS DURING THE
REPORTING PERIOD. DEEP PRICE DISCOUNTING AND ZERO-PERCENT FINANCING OFFERED BY
CARMAKERS DURING THE FIRST TWO MONTHS OF THE FOURTH QUARTER LURED MANY CAR
BUYERS INTO DEALERS' SHOWROOMS.
CONSUMER CONFIDENCE, WHICH HAD FALLEN FOR FIVE CONSECUTIVE MONTHS, SHOT UP IN
DECEMBER AS REPORTS OF THE U.S. MILITARY'S APPARENT VICTORIES IN AFGHANISTAN
WERE CIRCULATED. HOWEVER, THIS NEWFOUND OPTIMISM WAS TEMPERED BY MOUNTING JOB
REDUCTION ANNOUNCEMENTS AND RISING UNEMPLOYMENT. BY THE END OF DECEMBER,
UNEMPLOYMENT LEVELS HAD SURGED TO 5.8 PERCENT.
INTEREST RATES AND INFLATION
CONSISTENT WITH ITS RECENT ACTIONS, THE FEDERAL RESERVE BOARD (THE FED) AGAIN
ATTEMPTED TO STIMULATE THE FALTERING ECONOMY BY SLASHING INTEREST RATES. THE
FED'S 0.25 PERCENT CUT ON DECEMBER 11--THE 11TH RATE-CUT TO OCCUR SINCE JANUARY
1, 2001--BROUGHT THE FEDERAL FUNDS RATE TO 1.75 PERCENT, A 40-YEAR LOW.
FINALLY, INFLATION REMAINED MODEST DURING THE REPORTING PERIOD. THE CONSUMER
PRICE INDEX, A COMMON MEASURE OF THE INFLATION RATE, ROSE 1.6 PERCENT IN THE 12
MONTHS ENDED DECEMBER 31.
2
U.S. GROSS DOMESTIC PRODUCT
SEASONALLY ADJUSTED ANNUALIZED RATES
(December 31, 1999--December 31, 2001)
[BAR GRAPH]
U.S. GROSS DOMESTIC PRODUCT
---------------------------
Dec 99 8.30
Mar 00 4.80
Jun 00 5.70
Sep 00 1.30
Dec 00 1.90
Mar 01 1.30
Jun 01 0.30
Sep 01 -1.30
Dec 01 0.20
Source: Bureau of Economic Analysis
INTEREST RATES AND INFLATION
(December 31, 1999--December 31, 2001)
[LINE GRAPH]
INTEREST RATES INFLATION
-------------- ---------
Dec 99 5.5 2.7
5.5 2.7
5.75 3.2
Mar 00 6 3.8
6 3.1
6.5 3.2
Jun 00 6.5 3.7
6.5 3.7
6.5 3.4
Sep 00 6.5 3.5
6.5 3.4
6.5 3.4
Dec 00 6.5 3.4
5.5 3.7
5.5 3.5
Mar 01 5 2.9
4.5 3.3
4 3.6
Jun 01 3.75 3.2
3.75 2.7
3.5 2.7
Sep 01 3 2.6
2.5 2.1
2 1.9
Dec 01 1.75 1.6
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
3
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(as of December 31, 2001)
------------------------------
NYSE Ticker Symbol - VBF
------------------------------
MARKET(1) NAV(2)
------------------------------------------------------------------------
Six-month total return 4.16% 5.08%
------------------------------------------------------------------------
One-year total return 18.57% 9.51%
------------------------------------------------------------------------
Five-year average annual total return 8.43% 6.69%
------------------------------------------------------------------------
Ten-year average annual total return 7.67% 7.59%
------------------------------------------------------------------------
Distribution rate as a % of closing common share
price(3) 6.85%
------------------------------------------------------------------------
Net asset value $19.71
------------------------------------------------------------------------
Closing common share price $19.27
------------------------------------------------------------------------
Six-month high common share price (07/03/01) $20.35
------------------------------------------------------------------------
Six-month low common share price (09/24/01) $17.85
------------------------------------------------------------------------
(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. For more up-to-date information, please visit
vankampen.com or speak with your financial advisor.
4
PORTFOLIO AT A GLANCE
CREDIT QUALITY
(as a percentage of long-term investments)
As of December 31, 2001
- AAA/Aaa............ 2.0% [PIE CHART]
- AA/Aa.............. 4.9%
- A/A................ 35.5%
- BBB/Baa............ 48.9%
- BB/Ba.............. 6.4%
- B/B................ 0.8%
- CCC/Caa............ 0.1%
- Non-Rated.......... 1.4%
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%
Based upon the credit quality ratings as issued by Standard & Poor's Credit
Market Services/Moody's Investor Services, respectively. Subject to change
daily.
SIX-MONTH DIVIDEND HISTORY
(for the six months ending December 31, 2001)
[BAR GRAPH]
DIVIDENDS
---------
9/01 0.35
12/01 0.33
The dividend history represents dividends that were paid on the fund and is no
guarantee of the fund's future dividends.
5
TOP FIVE SECTORS
(as a percentage of long-term investments--December 31, 2001)
[BAR GRAPH]
DECEMBER 31, 2001
-----------------
Telecommunications 15.80
Life Insurance 7.60
Media-Cable 6.70
Captive Finance 5.90
Electric 5.70
Subject to change daily.
NET ASSET VALUE AND MARKET PRICE
(based upon quarter-end values--December 1991 through December 2001)
[LINE GRAPH]
NET ASSET VALUE MARKET PRICE
--------------- ------------
12/91 19.8900 20.1300
19.3600 19.6300
19.8500 19.7500
20.4100 21.2500
12/92 20.0500 20.2500
20.9400 20.7500
21.3300 20.7500
21.9500 20.8800
12/93 21.2900 20.3800
20.1200 18.0000
19.0600 18.1300
18.7900 17.1300
12/94 18.5900 16.7500
19.3000 18.2500
20.4100 19.1300
20.5700 19.0000
12/95 21.2700 19.6300
20.1800 19.3800
19.6400 18.1300
19.9600 18.7500
12/96 20.3100 18.7500
18.8700 18.6300
20.4300 19.2500
20.7700 19.8100
12/97 20.9100 20.8100
20.9200 20.3800
21.1600 19.6875
21.3500 19.8125
12/98 21.0900 20.0625
20.4000 19.2500
19.5900 17.8750
19.3100 16.3750
12/99 18.9800 15.6875
18.9800 16.0625
18.7000 16.7500
18.9200 17.0625
12/00 19.2900 17.4375
19.5700 18.5000
19.4100 19.1500
19.7000 19.6000
12/01 19.7100 19.2700
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.
6
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH THE PORTFOLIO MANAGEMENT TEAM 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 SIX-MONTH PERIOD ENDED DECEMBER 31, 2001. THE FUND
IS MANAGED BY THE ADVISER'S HIGH YIELD AND HIGH GRADE TEAMS. CURRENT MEMBERS(1)
OF THE HIGH YIELD TEAM INCLUDE GORDON W. LOERY, EXECUTIVE DIRECTOR. CURRENT
MEMBERS(1) OF THE HIGH GRADE TEAM INCLUDE ANGELO G. MANIOUDAKIS, EXECUTIVE
DIRECTOR. THE FOLLOWING DISCUSSION REFLECTS THEIR VIEWS ON THE FUND'S
PERFORMANCE.
(1) Team members may change at any time without notice.
Q HOW WOULD YOU CHARACTERIZE
THE MARKET ENVIRONMENT IN WHICH THE PORTFOLIO OPERATED IN THE LAST SIX
MONTHS, AND HOW DID THE PORTFOLIO PERFORM IN THAT ENVIRONMENT?
A The dominant factor in the market
over the first four months of the period (as it was for most of the year) was
the slowing U.S. economy. The tragic events of September 11 made a bad economic
situation worse. Business activity came to a standstill nationwide and across
industries, and the travel sector was especially hard hit. Employment, which had
been weak to begin with, fell sharply as companies announced layoffs as part of
a general move to cut costs to address a markedly weaker future. For the third
quarter of 2001, gross domestic product (GDP) fell by 1.3 percent, its largest
decline since the recession of the early 1990s.
The Federal Reserve Bank (the "Fed") responded to this economic weakness
decisively. The group cut short-term rates 11 times over the course of the year,
with four of those cuts occurring after September 11. The bond market reacted
favorably to the interest-rate cuts through October. Rates fell across the yield
curve, with the most dramatic declines happening on the short end of the yield
curve, which is the most responsive to changes in monetary policy. This shift
steepened the curve significantly as short- and intermediate-term paper rallied
strongly. That trend only strengthened in the wake of September 11 as investors
flocked to the perceived safety of shorter-duration, lower-risk assets.
The market shifted in early November, as confidence appeared to be slowly
returning to the investor psyche. A combination of stabilization in geopolitical
events and a growing belief that the economy was likely to turn positive in the
first half of 2002 led many investors to sell their long-duration Treasury
holdings. This pushed interest rates at the long end of
7
the curve higher while rates on the short end fell even further in response
to continued interest rate cuts (the last cut of the year came on December 11).
This further steepened the yield curve.
Falling interest rates for U.S. Treasury bonds helped to make corporate
bonds more attractive to investors searching for yield. Falling rates also
prodded corporations to issue bonds at record levels to take advantage of low
financing costs. As a result, the market was fairly evenly balanced between the
supply of new issues and investors' demand for yield. While September proved to
be a terrible month for corporate bonds, by the end of the year investors had
started to bid up prices in anticipation of a potential economic recovery.
For the six months through December 31, 2001, the fund produced a total
return of 4.16 percent based on market price. The fund's return reflects an
increase in market price from $19.15 per share on June 30, 2001, to $19.27 per
share on December 31, 2001. The fund's quarterly dividend of $.3300 per share
translates to a distribution rate of 6.85 percent based on the fund's closing
market price on December 31, 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. 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. For more up-to-date information, please visit vankampen.com
or speak with your financial advisor.
By comparison, the Lehman Brothers BBB Corporate Bond Index posted a total
return of 4.05 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 HOW DID THESE FACTORS AFFECT THE
WAY YOU MANAGED THE FUND?
A We kept the fund defensively
positioned for much of the period based on our concern that continued economic
uncertainty would have a negative impact on corporate bonds. One of the main
ways we achieved this was by maintaining the fund's investment-grade orientation
by limiting its exposure to what we believed were lower-quality bonds. Within
the investment-grade segment of the market, we emphasized BBB credits for their
yield advantage.
We were similarly conservative in our approach to sectors for the first
months of the period. Information technology and telecommunications were two
examples of sectors that we underweighted in the portfolio. Both industries
faced steep business hurdles that caused us to be concerned about the underlying
credit quality. We also took steps to underweight bonds issued
8
by financial companies that we felt were too exposed to the slowing economy
because of their lending activities.
In the fall, our analysis began to indicate that the outlook for the economy
was improving going into 2002. Based on this analysis, we began to adjust the
portfolio to potentially benefit from any improvements as well as to take
advantage of attractively priced securities. Within the financial sector, we
kept the fund's exposure in below-average banks low but added to brokerage
holdings, which we expected to come back from their lows. We also added
selectively to the fund's transportation, healthcare and retail holdings in
those cases where we felt the market had oversold particular companies that we
expected would see increased demand for their goods and services. In keeping
with this theme, we added to the fund's aerospace holdings.
We also adjusted the portfolio's interest-rate profile to potentially
benefit from economic developments. Given our expectations for the economy's
recovery, we anticipated an end to the trend of falling interest rates. As a
result, we moved to shorten the portfolio's duration slightly in the fourth
quarter, and also adjusted the portfolio's exposure along the yield curve by
shifting some assets out of the intermediate part of the curve.
Q WHAT IS YOUR OUTLOOK FOR
THE MARKET?
A In general, we expect a more
constructive environment. We agree with the general sentiment that the economy
may likely improve as we move through 2002, with economic growth turning
positive. At the same time, we expect inflation to remain tame, coming in below
2 percent, and the dollar to remain stable.
Within that context, we anticipate that the bond markets will react as they
typically have in times of strengthening economic conditions, with interest
rates rising across the yield curve as investors demand more compensation for
holding bonds. In this scenario, interest rates at the short end of the curve
are likely to rise even more than on the long end; this would have the effect of
flattening the yield curve. We expect this may occur throughout 2002.
9
GLOSSARY OF TERMS
A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.
DEFENSIVE INVESTMENT STRATEGY: A method of portfolio allocation and management
aimed at minimizing the risk of losing principal. Defensive investors place a
high percentage of their investable assets in bonds, cash equivalents, and
stocks that are less volatile than average.
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 1
percent change in the price of a bond for every 1 percent change in interest
rates. The longer a bond's duration, the greater the effect of interest-rate
movements on its price. Typically, funds with shorter durations perform better
in rising-rate environments, while funds with longer durations perform better
when rates decline.
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.
10
BY THE NUMBERS
YOUR FUND'S INVESTMENTS
December 31, 2001 (Unaudited)
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 90.7%
AEROSPACE & DEFENSE 3.8%
$1,865 Boeing Capital Corp. .......... 6.500% 02/15/12 $ 1,859,327
900 Lockheed Martin Corp. ......... 7.750 05/01/26 973,508
1,000 Lockheed Martin Corp. ......... 8.500 12/01/29 1,197,412
2,250 Northrop Grumman Corp. ........ 7.125 02/15/11 2,352,868
1,900 Raytheon Co. .................. 8.300 03/01/10 2,111,187
------------
8,494,302
------------
AUTOMOTIVE 4.1%
2,000 Daimler Chrysler NA Holding.... 7.375 09/15/06 2,025,466
2,355 Dana Corp., 144A--
Private Placement (a).......... 9.000 08/15/11 2,166,600
3,000 Ford Motor Co. ................ 7.450 07/16/31 2,756,289
2,210 TRW, Inc. ..................... 7.625 03/15/06 2,278,103
------------
9,226,458
------------
BANKING 1.7%
500 JP Morgan Chase & Co. ......... 6.750 02/01/11 512,702
2,250 MBNA American Bank NA (b)...... 6.500 06/20/06 2,210,015
1,000 Washington Mutual Capital,
Inc. .......................... 8.375 06/01/27 1,003,332
------------
3,726,049
------------
BROKERAGE 2.9%
625 Credit Suisse First Boston USA,
Inc. .......................... 5.875 08/01/06 636,424
1,000 Goldman Sachs Group, Inc. ..... 7.800 01/28/10 1,081,434
2,225 Goldman Sachs Group, Inc. ..... 6.875 01/15/11 2,282,627
2,000 Lehman Brothers Holdings,
Inc. .......................... 8.500 05/01/07 2,222,068
256 World Financial Prop.,
144A-Private Placement (a)..... 6.910 09/01/13 257,740
------------
6,480,293
------------
BUILDING MATERIALS 0.7%
1,445 Centex Corp. .................. 7.875 02/01/11 1,474,466
------------
CAPTIVE FINANCE 5.5%
180 Case Credit Corp. ............. 6.125 02/15/03 169,726
See Notes to Financial Statements
11
YOUR FUND'S INVESTMENTS
December 31, 2001 (Unaudited)
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
CAPTIVE FINANCE (CONTINUED)
$2,000 Ford Motor Credit Co. ......... 6.875% 02/01/06 $ 2,004,638
2,335 Ford Motor Credit Co. ......... 7.250 10/25/11 2,276,165
580 General Motors Acceptance
Corp. ......................... 6.875 09/15/11 569,134
2,370 General Motors Acceptance
Corp. ......................... 8.000 11/01/31 2,419,061
2,000 Heller Financial, Inc. ........ 6.375 03/15/06 2,115,302
2,500 International Lease Finance
Corp. ......................... 8.375 12/15/04 2,733,120
------------
12,287,146
------------
CONGLOMERATES 3.6%
2,350 Honeywell International,
Inc. .......................... 6.125 11/01/11 2,329,480
1,350 Hutchinson Whampoa Finance
Corp., 144A-Private Placement
(Cayman Islands) (a)........... 7.500 08/01/27 1,277,965
3,000 Tyco International Group SA
(Luxembourg)................... 6.125 11/01/08 2,966,394
1,495 Tyco International Group SA
(Luxembourg)................... 6.375 10/15/11 1,463,124
------------
8,036,963
------------
CONSTRUCTION MACHINERY 0.1%
300 Case Corp. .................... 6.250 12/01/03 279,647
------------
ELECTRIC 5.3%
1,025 American Electric Power,
Inc. .......................... 6.125 05/15/06 1,015,624
750 Barrett Resources Corp. (c).... 7.550 02/01/07 806,250
1,000 Calpine Corp. ................. 8.625 08/15/10 895,000
1,000 Cleveland Electric Illuminating
Co. ........................... 7.625 08/01/02 1,024,344
2,000 CMS Energy Corp. (c)........... 6.750 01/15/04 1,970,000
1,000 Commonwealth Edison Co. ....... 8.625 02/01/22 1,017,757
865 Detroit Edison Co. ............ 6.125 10/01/10 850,960
1,665 Mirant Americas Generation LLC,
144A- Private Placement (a).... 7.200 10/01/08 1,472,090
1,323 Niagara Mohawk Power Corp. .... 7.625 10/01/05 1,399,253
1,385 PSEG Energy Holdings........... 9.125 02/10/04 1,456,556
------------
11,907,834
------------
ENTERTAINMENT 1.0%
2,000 Time Warner Entertainment
Co. ........................... 8.375 07/15/33 2,274,106
------------
See Notes to Financial Statements
12
YOUR FUND'S INVESTMENTS
December 31, 2001 (Unaudited)
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
ENVIRONMENTAL SERVICES 2.4%
$ 830 Republic Services, Inc. ....... 6.750% 08/15/11 $ 832,567
1,750 Waste Management, Inc. ........ 7.000 10/01/04 1,815,926
1,500 Waste Management, Inc. ........ 7.000 10/15/06 1,543,242
550 Waste Management, Inc. ........ 7.375 08/01/10 563,270
570 Waste Management, Inc. ........ 7.000 07/15/28 528,472
------------
5,283,477
------------
FOOD 1.3%
2,000 ConAgra Foods, Inc. ........... 7.500 09/15/05 2,160,638
675 Smithfield Foods, Inc.,
144A-Private Placement (a)..... 8.000 10/15/09 695,250
------------
2,855,888
------------
GAMING 1.5%
550 Harrahs Operating Co., Inc. ... 8.000 02/01/11 567,473
2,000 Park Place Entertainment
Corp. ......................... 7.950 08/01/03 2,039,850
180 Park Place Entertainment
Corp. ......................... 7.500 09/01/09 175,612
500 Station Casinos, Inc. ......... 8.375 02/15/08 510,000
------------
3,292,935
------------
HEALTHCARE 2.9%
3,365 Aetna, Inc. ................... 7.375 03/01/06 3,376,912
310 Amerisourcebergen Corp. ....... 8.125 09/01/08 319,300
1,275 Columbia/HCA, Inc. ............ 6.910 06/15/05 1,310,062
1,700 Tenet Healthcare Corp.,
144A-Private Placement (a)..... 6.875 11/15/31 1,569,151
------------
6,575,425
------------
HOME CONSTRUCTION 1.1%
2,575 Pulte Homes, Inc., 144A-Private
Placement (a).................. 7.875 08/01/11 2,556,295
------------
INDEPENDENT ENERGY 0.2%
455 Equistar Chemicals LP.......... 10.125 09/01/08 459,550
------------
INTEGRATED ENERGY 1.6%
2,025 PDV America, Inc. ............. 7.875 08/01/03 2,072,721
1,500 Tosco Corp. ................... 8.250 05/15/03 1,592,279
------------
3,665,000
------------
LIFE INSURANCE 7.1%
2,300 Anthem Insurance Cos. Inc.,
144A-Private Placement (a)..... 9.125 04/01/10 2,475,226
See Notes to Financial Statements
13
YOUR FUND'S INVESTMENTS
December 31, 2001 (Unaudited)
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
LIFE INSURANCE (CONTINUED)
$2,045 Cigna Corp. ................... 6.375% 10/15/11 $ 2,011,644
1,805 Hartford Life, Inc. ........... 7.375 03/01/31 1,867,455
1,560 Health Net, Inc. .............. 8.375 04/15/11 1,610,939
2,210 John Hancock Co., 144A-Private
Placement (a).................. 7.375 02/15/24 2,217,658
585 Nationwide Financial Services,
Inc. .......................... 6.250 11/15/11 563,957
750 Nationwide Mutual Insurance
Co., 144A-Private Placement
(a)............................ 7.500 02/15/24 676,538
550 Nationwide Mutual Insurance
Co., 144A-Private Placement
(a)............................ 8.250 12/01/31 550,329
845 Prudential Holdings, LLC,
144A-Private Placement (a)..... 7.245 12/18/23 868,076
2,840 Prudential Holdings, LLC,
144A-Private Placement (a)..... 8.695 12/18/23 2,962,918
------------
15,804,740
------------
LODGING 1.0%
390 Marriott International,
144A-Private Placement (a)..... 7.000 01/15/08 392,815
2,000 Starwood Hotels & Resorts...... 6.750 11/15/05 1,945,000
------------
2,337,815
------------
MEDIA-CABLE 6.3%
250 Adelphia Communications
Corp. ......................... 9.250 10/01/02 252,500
170 Adelphia Communications
Corp. ......................... 7.875 05/01/09 156,613
500 Charter Communication Holdings
LLC............................ 8.250 04/01/07 481,250
1,095 Comcast Cable Communications... 8.375 05/01/07 1,208,650
2,000 Comcast Cable Communications... 8.125 05/01/04 2,156,538
2,500 CSC Holdings, Inc. (c)......... 7.875 02/15/18 2,437,500
7,000 TCI Communications, Inc. ...... 9.250 01/15/23 7,395,724
------------
14,088,775
------------
MEDIA-NONCABLE 5.3%
460 AOL Time Warner, Inc. ......... 7.625 04/15/31 488,048
285 Belo Corp. .................... 8.000 11/01/08 291,462
See Notes to Financial Statements
14
YOUR FUND'S INVESTMENTS
December 31, 2001 (Unaudited)
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
MEDIA-NONCABLE (CONTINUED)
$2,500 Clear Channel Commerce, Inc. .. 7.250% 10/15/27 $ 2,326,948
1,750 Harcourt General, Inc. ........ 8.875 06/01/22 2,044,935
1,000 Harcourt General, Inc. ........ 7.200 08/01/27 928,392
2,880 News America Holdings, Inc. ... 8.875 04/26/23 3,121,776
470 Reed Elsevier Capital, Inc. ... 6.750 08/01/11 477,598
1,100 Viacom, Inc. .................. 6.625 05/15/11 1,120,194
1,000 Viacom, Inc. .................. 7.750 06/01/05 1,079,076
------------
11,878,429
------------
NATURAL GAS DISTRIBUTORS 0.4%
565 Consolidated Natural Gas
Co. ........................... 6.250 11/01/11 553,950
425 Midamerican Funding LLC........ 6.750 03/01/11 417,624
------------
971,574
------------
NATURAL GAS PIPELINES 1.2%
1,000 Transcontinental Gas Pipe Line
Corp. ......................... 7.250 12/01/26 929,751
850 Transcontinental Gas Pipe Line
Corp., 144A-Private Placement
(a)............................ 7.000 08/15/11 831,051
1,000 Williams Cos., Inc. ........... 7.500 01/15/31 977,036
------------
2,737,838
------------
NONCAPTIVE--CONSUMER FINANCE 2.5%
3,075 American Express Co. .......... 5.500 09/12/06 3,080,547
1,000 Household Finance Corp. ....... 7.875 03/01/07 1,075,656
150 Household Finance Corp. ....... 8.000 07/15/10 161,724
1,200 Household Finance Corp. ....... 6.750 05/15/11 1,195,268
------------
5,513,195
------------
NONCAPTIVE--DIVERSIFIED FINANCE 0.5%
1,000 General Electric Capital
Corp. ......................... 6.500 12/10/07 1,063,793
------------
OTHER INDUSTRIAL 0.3%
746 Stewart Enterprises, Inc. ..... 6.400 05/01/03 747,865
------------
PROPERTY & CASUALTY 1.6%
2,000 Farmers Exchange Capital,
144A-Private Placement (a)..... 7.050 07/15/28 1,592,788
1,815 Farmers Insurance Exchange
Surplus, 144A-Private Placement
(a)............................ 8.625 05/01/24 1,742,525
See Notes to Financial Statements
15
YOUR FUND'S INVESTMENTS
December 31, 2001 (Unaudited)
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
PROPERTY & CASUALTY (CONTINUED)
$ 255 Florida Windstorm Underwriting,
144A-Private Placement (a)..... 7.125% 02/25/19 $ 262,127
------------
3,597,440
------------
RAILROADS 4.0%
1,000 CSX Corp. ..................... 6.750 03/15/11 1,017,639
7,000 Union Pacific Corp. ........... 8.350 05/01/25 7,990,514
------------
9,008,153
------------
REAL ESTATE INVESTMENT TRUSTS 1.6%
1,310 EOP Operating LP............... 7.500 04/19/29 1,256,959
495 Istar Financial, Inc. ......... 8.750 08/15/08 495,957
1,995 Simon Property LP.............. 6.375 11/15/07 1,950,113
------------
3,703,029
------------
REFINING 0.1%
250 Vintage Petroleum, Inc. ....... 7.875 05/15/11 246,250
------------
RETAIL 3.0%
750 Brunswick Corp. (c)............ 7.125 08/01/27 617,780
1,500 Federated Department Stores,
Inc. .......................... 6.625 09/01/08 1,497,068
1,000 Federated Department Stores,
Inc. .......................... 6.300 04/01/09 975,996
250 K-Mart Corp. (e) .............. 9.375 02/01/06 206,884
945 K-Mart Corp., 144A-Private
Placement (a)(e)............... 9.875 06/15/08 784,350
1,200 Lowe's Cos., Inc. ............. 6.500 03/15/29 1,162,850
490 Lowe's Cos., Inc. ............. 6.875 02/15/28 491,699
820 May Department Stores Co. ..... 5.950 11/01/08 823,856
205 May Department Stores Co. ..... 6.700 09/15/28 196,771
------------
6,757,254
------------
SUPERMARKETS 1.0%
2,035 Kroger Co. .................... 7.375 03/01/05 2,150,376
------------
TECHNOLOGY 0.4%
905 Sun Microsystems, Inc. ........ 7.650 08/15/09 919,941
------------
TELECOMMUNICATIONS 14.7%
225 AT&T Corp., 144A-Private
Placement (a).................. 7.300 11/15/11 230,980
2,530 AT&T Corp., 144A-Private
Placement (a).................. 8.000 11/15/31 2,657,095
See Notes to Financial Statements
16
YOUR FUND'S INVESTMENTS
December 31, 2001 (Unaudited)
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
TELECOMMUNICATIONS (CONTINUED)
$1,110 AT&T Wireless Services,
Inc. .......................... 8.750% 03/01/31 $ 1,261,659
1,000 AT&T Wireless Services,
Inc. .......................... 7.875 03/01/11 1,070,765
2,095 Cox Communications, Inc. ...... 7.750 11/01/10 2,240,684
1,380 Deutsche Telekom International
Finance (Netherlands).......... 8.250 06/15/30 1,536,104
1,435 Global Crossing Holdings Ltd.
(Bermuda) (d) (e).............. 9.125 11/15/06 157,850
475 Global Crossing Holdings Ltd.
(Bermuda) (d) (e).............. 8.700 08/01/07 45,125
125 McLeodUSA, Inc. (d) (e)........ 11.375 01/01/09 28,750
915 Nextel Communications, Inc. ... 9.375 11/15/09 722,850
2,415 Qwest Capital Funding, Inc. ... 7.250 02/15/11 2,357,204
1,185 Qwest Capital Funding, Inc. ... 7.750 02/15/31 1,140,163
2,000 Qwest Capital Funding, Inc. ... 7.900 08/15/10 2,037,830
5,000 United Telecommunication
Kansas......................... 9.500 04/01/03 5,351,745
985 Verizon Communications,
Inc. .......................... 6.940 04/15/28 980,037
1,250 Verizon Global Funding
Corp. ......................... 6.750 12/01/05 1,319,180
590 Verizon New England, Inc. ..... 6.500 09/15/11 600,923
1,000 Vodafone Airtouch PLC (United
Kingdom)....................... 7.750 02/15/10 1,099,969
7,600 WorldCom, Inc. ................ 8.250 05/15/31 8,056,593
------------
32,895,506
------------
TOTAL CORPORATE BONDS 90.7%............................................ 203,297,807
------------
CONVERTIBLE CORPORATE OBLIGATION 0.1%
420 Corning, Inc. (Convertible into
3,498,768 common shares)....... * 11/08/15 219,450
------------
GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS 2.4%
1 Federal Home Loan Mortgage
Corp. Pool..................... 7.375 01/01/03 541
4 Government National Mortgage
Association Pool............... 10.000 10/15/16 to 07/15/20 4,875
1,400 Ontario Province (Canada)...... 7.625 06/22/04 1,522,346
500 Republic of Italy (Italy)...... 5.250 04/05/06 510,780
3,000 Saskatchewan Province
(Canada)....................... 8.000 07/15/04 3,262,503
------------
See Notes to Financial Statements
17
YOUR FUND'S INVESTMENTS
December 31, 2001 (Unaudited)
MARKET
DESCRIPTION VALUE
TOTAL GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS 2.4%............... $ 5,301,045
------------
TOTAL LONG-TERM INVESTMENTS 93.2%
(Cost $206,451,687).................................................. 208,818,302
------------
SHORT-TERM INVESTMENTS 5.1%
REPURCHASE AGREEMENT 4.8%
Bank of America Securities ($10,642,000 par collateralized by U.S.
Government obligations in a pooled cash account, dated 12/31/01, to
be sold on 01/02/02 at $10,643,035).................................. 10,642,000
------------
U.S. GOVERNMENT AGENCY OBLIGATIONS 0.3%
United States Treasury Bill ($250,000 par, yielding 2.005%, 01/17/02
maturity) (c)........................................................ 249,778
United States Treasury Bill ($500,000 par, yielding 1.82%, 04/18/02
maturity) (c)........................................................ 497,310
------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS............................... 747,088
------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $11,389,088)................................................... 11,389,088
------------
TOTAL INVESTMENTS 98.3%
(Cost $217,840,775).................................................. 220,207,390
OTHER ASSETS IN EXCESS OF LIABILITIES 1.7%............................ 3,783,996
------------
NET ASSETS 100.0%..................................................... $223,991,386
============
* Zero coupon bond
(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) These securities are restricted and may be resold only in transactions
exempt from registration which are normally those transactions with
qualified institutional buyers.
(c) Assets segregated as collateral for open futures transactions.
(d) Non-income producing as security is in default.
(e) Subsequent to December 31, 2001, this company has filed for protection in
federal bankruptcy court.
See Notes to Financial Statements
18
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
December 31, 2001 (Unaudited)
ASSETS:
Total Investments (Cost $217,840,775)....................... $220,207,390
Cash........................................................ 369
Interest Receivable......................................... 4,149,729
Other....................................................... 47,241
------------
Total Assets............................................ 224,404,729
------------
LIABILITIES:
Payables:
Variation Margin on Futures............................... 118,797
Investment Advisory Fee................................... 91,924
Shareholder Reports....................................... 32,185
Affiliates................................................ 2,948
Trustees' Deferred Compensation and Retirement Plans........ 108,907
Accrued Expenses............................................ 58,582
------------
Total Liabilities....................................... 413,343
------------
NET ASSETS.................................................. $223,991,386
============
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................................. 3,039,735
Accumulated Net Realized Gain............................... 2,085,762
Accumulated Distributions in Excess of Net Investment
Income.................................................... (121,434)
------------
NET ASSETS.................................................. $223,991,386
============
NET ASSET VALUE PER COMMON SHARE ($223,991,386 divided by
11,362,465 shares outstanding)............................ $ 19.71
============
See Notes to Financial Statements
19
Statement of Operations
For the Six Months Ended December 31, 2001 (Unaudited)
INVESTMENT INCOME:
Interest.................................................... $ 8,115,780
Other....................................................... 1,875
-----------
Total Income............................................ 8,117,655
-----------
EXPENSES:
Investment Advisory Fee..................................... 548,515
Shareholder Services........................................ 51,081
Trustees' Fees and Related Expenses......................... 17,780
Custody..................................................... 14,237
Legal....................................................... 4,877
Other....................................................... 95,353
-----------
Total Expenses.......................................... 731,843
Less Credits Earned on Cash Balances.................... 4,970
-----------
Net Expenses............................................ 726,873
-----------
NET INVESTMENT INCOME....................................... $ 7,390,782
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 4,343,916
Futures................................................... 755,939
-----------
Net Realized Gain........................................... 5,099,855
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 4,349,911
End of the Period:
Investments............................................. 2,366,615
Futures................................................. 673,120
-----------
3,039,735
-----------
Net Unrealized Depreciation During the Period............... (1,310,176)
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 3,789,679
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $11,180,461
===========
See Notes to Financial Statements
20
Statements of Changes in Net Assets
For the Six Months Ended December 31, 2001 and the Year Ended June 30, 2001
(Unaudited)
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 2001 JUNE 30, 2001
----------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................... $ 7,390,782 $ 15,887,084
Net Realized Gain................................... 5,099,855 1,117,893
Net Unrealized Appreciation/Depreciation During the
Period............................................ (1,310,176) 6,663,849
------------ ------------
Change in Net Assets from Operations................ 11,180,461 23,668,826
Distributions from and in Excess of Net Investment
Income............................................ (7,726,054) (15,565,382)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES........................................ 3,454,407 8,103,444
NET ASSETS:
Beginning of the Period............................. 220,536,979 212,433,535
------------ ------------
End of the Period (Including accumulated
undistributed net investment income of ($121,434)
and $802,655, respectively)....................... $223,991,386 $220,536,979
============ ============
See Notes to Financial Statements
21
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
SIX MONTHS
ENDED
DECEMBER 31, -------------------------
2001 (D) 2001 2000 1999
----------------------------------------
NET ASSET VALUE, BEGINNING OF THE PERIOD.... $19.41 $18.70 $19.59 $ 21.16
------ ------ ------ -------
Net Investment Income..................... .65 1.40 1.43 1.41
Net Realized and Unrealized Gain/Loss..... .33 .68 (.93) (1.56)
------ ------ ------ -------
Total from Investment Operations............ .98 2.08 .50 (.15)
Less Distributions from Net Investment
Income.................................... .68 1.37 1.39 1.42
------ ------ ------ -------
NET ASSET VALUE, END OF THE PERIOD.......... $19.71 $19.41 $18.70 $ 19.59
====== ====== ====== =======
Market Price Per Share at End of the
Period.................................... $19.27 $19.15 $16.75 $17.875
Total Investment Return at Market Price
(a)....................................... 4.16%* 23.10% 1.88% -2.45%
Total Return at Net Asset Value (b)......... 5.08%* 11.37% 2.67% -0.87%
Net Assets at End of the Period (In
millions)................................. $224.0 $220.5 $212.4 $ 222.6
Ratio of Operating Expenses to Average Net
Assets.................................... .64% .68% .64% .66%
Ratio of Convertible Note Expenses to
Average Net Assets (c).................... -- -- -- --
Ratio of Net Investment Income to Average
Net Assets................................ 6.51% 7.25% 7.48% 6.79%
Portfolio Turnover.......................... 69%* 88% 71% 10%
Assuming full dilution of debt: (c)
Net Asset Value, End of the Period.......... -- -- -- --
Number of Shares Outstanding, End of the
Period (000).............................. -- -- -- --
* Non-Annualized
(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 stock 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.
(d) As required, effective July 1, 2001, the Fund has adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premium on fixed income securities. The effect of this change for
the six months ended December 31, 2001 was to decrease net investment income
per share by $.02, increase net realized and unrealized gains and losses per
share by $.02 and decrease the ratio of net investment income to average net
assets by .18%. Per share, ratios and supplemental data for periods prior to
December 31, 2001 have not been restated to reflect this change in
presentation.
22
YEAR ENDED JUNE 30,
---------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992
---------------------------------------------------------------------
$ 20.26 $19.97 $ 20.41 $ 19.07 $ 21.33 $19.85 $18.68
-------- ------ ------- ------- ------- ------ ------
1.48 1.56 1.54 1.52 1.56 1.58 1.74
.93 .27 (.44) 1.36 (2.28) 1.55 1.11
-------- ------ ------- ------- ------- ------ ------
2.41 1.83 1.10 2.88 (.72) 3.13 2.85
1.51 1.54 1.54 1.54 1.54 1.65 1.68
-------- ------ ------- ------- ------- ------ ------
$ 21.16 $20.26 $ 19.97 $ 20.41 $ 19.07 $21.33 $19.85
======== ====== ======= ======= ======= ====== ======
$19.6875 $19.25 $18.125 $19.125 $18.125 $20.75 $19.75
10.08% 15.06% 2.61% 14.89% -5.59% 13.76% 17.12%
12.19% 9.46% 5.94% 16.54% -3.37% 16.35% 15.79%
$ 240.4 $230.2 $ 226.9 $ 231.9 $ 216.6 $235.6 $218.5
.65% .68% .67% .68% .68% .71% .71%
-- -- -- .39% .82% .98% 1.05%
7.04% 7.70% 7.47% 7.92% 7.29% 7.65% 8.90%
27% 8% 11% 8% 2% 19% 39%
-- -- -- -- $ 19.07 $21.09 $19.78
-- -- -- -- 12,411 12,411 12,372
See Notes to Financial Statements
23
NOTES TO
FINANCIAL STATEMENTS
December 31, 2001 (Unaudited)
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. Listed securities and
unlisted 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. At December 31, 2001, there were no
when-issued or delayed delivery purchase commitments.
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
24
NOTES TO
FINANCIAL STATEMENTS
December 31, 2001 (Unaudited)
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 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. Premiums are amortized and
discounts are accreted over the expected life of each applicable security.
As required, effective July 1, 2001, the Fund has adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies (the "Guide") and
began amortizing premium on fixed income securities. Prior to July 1, 2001, the
Fund did not amortize premiums on fixed income securities. The cumulative effect
of this accounting change had no impact on total net assets of the Fund, but
resulted in a $588,817 reduction in cost of securities and a corresponding
$588,817 increase in net unrealized appreciation based on securities held by the
Fund on July 1, 2001.
The effect of this change for the six months ended December 31, 2001 was to
decrease net investment income by $201,934; decrease net unrealized appreciation
by $128,267, and increase net realized gains by $330,201. The Statement of
Changes in Net Assets and Financial Highlights for prior periods have not been
restated to reflect this change in presentation.
The revised version of the Guide also requires that paydown gains and losses
on mortgage- and asset-backed securities be presented as interest income.
Previously, paydown gains and losses on mortgage- and asset-backed securities
were shown as a component of realized gain/loss. The effect of this change for
the six months ended December 31, 2001 was to decrease net investment income and
increase realized gain/loss by $27.
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
25
NOTES TO
FINANCIAL STATEMENTS
December 31, 2001 (Unaudited)
realized gains or losses may differ for financial reporting and tax purposes
primarily as a result of the deferral of losses relating to wash sale
transactions.
At December 31, 2001, for federal income tax purposes, cost of long- and
short-term investments is $218,305,545, the aggregate gross unrealized
appreciation is $5,500,800 and the aggregate gross unrealized depreciation is
$3,598,955, resulting in net unrealized appreciation on long- and short-term
investments of $1,901,845.
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 income, expenses and
realized gain/losses 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.
F. EXPENSE REDUCTIONS During the six months ended December 31, 2001, the Fund's
custody fee was reduced by $4,970 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%
For the six months ended December 31, 2001, the Fund recognized expenses of
approximately $4,900 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.
26
NOTES TO
FINANCIAL STATEMENTS
December 31, 2001 (Unaudited)
Under an Accounting Services agreement, the Adviser provides accounting
services to the Fund. The Adviser allocates the cost of such services to each
fund. For the six months ended December 31, 2001, the Fund recognized expenses
of approximately $9,200 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 $146,650,525 and $155,385,197,
respectively.
4. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio or to generate potential gain. All of the Fund's portfolio holdings,
including derivative instruments, are marked to market each day with the change
in value reflected in the unrealized appreciation/depreciation. Upon
disposition, a realized gain or loss is recognized accordingly, except when
exercising a call option contract or taking delivery of a security underlying a
futures contract. In these instances, the recognition of gain or loss is
postponed until the disposal of the security underlying the option or futures
contract. Risks may arise as a result of the potential inability of the
counterparties to meet the terms of their contracts.
During the period, the Fund invested in futures contracts, a type of
derivative. A futures contract is an agreement involving the delivery of a
particular asset on a specified future date at an agreed upon price. The Fund
generally invests in exchange traded stock index futures. These contracts are
generally used as a substitute for purchasing and selling specific securities.
Upon entering into futures contracts, the Fund maintains an amount of cash or
liquid securities with a value
27
NOTES TO
FINANCIAL STATEMENTS
December 31, 2001 (Unaudited)
equal to a percentage of the contract amount with either a future commission
merchant pursuant to rules and regulations promulgated under the 1940 Act, as
amended, or with its custodian in an account in the broker's name. This amount
is known as initial margin. During the period the futures contract is open,
payments are received from or made to the broker based upon changes in the value
of the contract (the variation margin).
Transactions in futures contracts for the six months ended December 31,
2001, were as follows:
CONTRACTS
Outstanding at June 30, 2001................................ -0-
Futures Opened.............................................. 989
Futures Closed.............................................. (567)
----
Outstanding at December 31, 2001............................ 422
====
The futures contracts outstanding as of December 31, 2001 and the
descriptions and unrealized appreciation/depreciation are as follows:
UNREALIZED
APPRECIATION/
CONTRACTS (DEPRECIATION)
Long Contracts:
5-Year U.S. Treasury Note Future, March 2002-
(Current Notional Value of $105,828 per contract)...... 180 $151,099
Short Contracts:
U.S. Treasury Bonds Future, March 2002-
(Current Notional Value of $101,531 per contract)...... 181 546,538
2-Year U.S. Treasury Note Future, March 2002-
(Current Notional Value of $208,984 per contract)...... 30 (26,276)
10-Year U.S. Treasury Note Future, March 2002-
(Current Notional Value of $105,141 per contract)...... 31 1,759
--- --------
422 $673,120
=== ========
28
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.
29
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
vankampen.com
[VAN KAMPEN INVESTMENTS LOGO]
Copyright (C)2002 Van Kampen Funds Inc. All rights reserved.
VBF SAR 2/02 Member NASD/SIPC.
5230B02-AS-2/02