UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-02090
Van Kampen Bond Fund
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(Exact name of registrant as specified in charter)
522 Fifth Avenue, New York, New York 10036
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(Address of principal executive offices) (Zip code)
Ronald Robison
522 Fifth Avenue, New York, New York 10036
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(Name and address of agent for service)
Registrant's telephone number, including area code: 212-762-4000
Date of fiscal year end: 6/30
Date of reporting period: 6/30/07
Item 1. Reports to Shareholders.
The Fund's annual report transmitted to shareholders pursuant to Rule 30e-1
under the Investment Company Act of 1940 is as follows:
Welcome, Shareholder
In this report, you'll learn about how your investment in Van Kampen Bond
Fund performed during the annual period. The portfolio management team
will provide an overview of the market conditions and discuss some of the
factors that affected investment performance during the reporting period.
In addition, this report includes the fund's financial statements and a
list of fund investments as of June 30, 2007.
MARKET FORECASTS PROVIDED IN THIS REPORT MAY NOT NECESSARILY COME TO
PASS. THERE IS NO ASSURANCE THAT THE FUND WILL ACHIEVE ITS INVESTMENT
OBJECTIVE. FUNDS ARE SUBJECT TO MARKET RISK, WHICH IS THE POSSIBILITY
THAT THE MARKET VALUES OF SECURITIES OWNED BY THE FUND WILL DECLINE AND
THAT THE VALUE OF THE FUND SHARES MAY THEREFORE BE LESS THAN WHAT YOU
PAID FOR THEM. ACCORDINGLY, YOU CAN LOSE MONEY INVESTING IN THIS FUND.
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NOT FDIC INSURED OFFER NO BANK GUARANTEE MAY LOSE VALUE
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NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY NOT A DEPOSIT
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Performance Summary as of 6/30/07
BOND FUND
SYMBOL: VBF
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AVERAGE ANNUAL BASED ON BASED ON
TOTAL RETURNS MARKET PRICE NAV
10-year 5.44% 6.01%
5-year 4.04 5.85
1-year 8.38 6.17
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PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH IS NO GUARANTEE OF
FUTURE RESULTS, AND CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE FIGURES
SHOWN. FOR THE MOST RECENT MONTH-END PERFORMANCE FIGURES, PLEASE VISIT
VANKAMPEN.COM OR SPEAK WITH YOUR FINANCIAL ADVISOR. INVESTMENT RETURNS, NET
ASSET VALUE (NAV) AND COMMON SHARE MARKET PRICE WILL FLUCTUATE AND FUND SHARES,
WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
The NAV per share is determined by dividing the value of the fund's portfolio
securities, cash and other assets, less all liabilities, by the total number of
common shares outstanding. The common share market price is the price the market
is willing to pay for shares of the fund at a given time. Common share market
price is influenced by a range of factors, including supply and demand and
market conditions. Total return assumes an investment at the beginning of the
period, reinvestment of all distributions for the period in accordance with the
fund's dividend reinvestment plan, and sale of all shares at the end of the
period.
The Lehman Brothers BBB Corporate Bond Index is generally representative of
corporate bonds. The index does not include any expenses, fees or sales charges,
which would lower performance. The index is unmanaged and should not be
considered an investment. It is not possible to invest directly in an index.
1
Trust Report
FOR THE 12-MONTH PERIOD ENDED JUNE 30, 2007
MARKET CONDITIONS
The economy sent mixed signals about its overall strength during the fiscal
reporting year. Economic growth moderated early in the period, with gross
domestic product (GDP) growth measuring 2.0 percent and 2.5 percent for the
third and fourth quarters of 2006, respectively. Weaker consumer spending,
rising energy prices and ongoing geopolitical uncertainty continued to weigh on
the economy, as did a contraction in the residential real estate sector, and GDP
growth for the first quarter of 2007 slowed to just 0.7 percent. As the weeks
progressed, however, various economic indicators, including business spending,
labor market data, and manufacturing indicators suggested that second quarter
growth was becoming much more robust. At the same time, annualized inflation--as
measured by the core personal consumption expenditure deflator--remained at the
top end of the Federal Open Market Committee's (the "Fed") self-described 1 to 2
percent comfort zone. Nonetheless, the Fed held the target federal funds rate at
5.25 percent throughout the reporting period while reiterating that inflation
risks still remained their primary concern.
Anxieties surrounding sub-prime mortgage lending were evident throughout much of
the period, reaching their peak in the last weeks of the fiscal year with the
highly publicized failure of a handful of hedge funds. The hedge funds in
question held leveraged positions in collateralized debt obligations, or CDOs,
tied to sub-prime mortgages, and suffered major losses as a result of declines
in sub-prime bond prices.
Yields moved lower for most of the last half of 2006, particularly in the short
and intermediate portions of the curve, then reversed course and generally rose
across the curve throughout the first half of 2007. Within the investment-grade
corporate sector, lower-rated issues (BBB and A rated) outpaced higher-rated
issues (AA rated and above) during the last six months of 2006. In the first
half of this year, however, investor concerns about sub-prime mortgages led to
the market's re-pricing of the level of risk inherent in these bonds, which
caused spreads (a measure of investors' willingness to assume credit risk) to
widen and prices to fall. Overall, longer-dated corporate issues outperformed
intermediate-maturity issues during the period and yield spreads across the
corporate market widened.
2
PERFORMANCE ANALYSIS
The Fund's return can be calculated based upon either the market price or the
net asset value (NAV) of its shares. NAV per share is determined by dividing the
value of the Fund's portfolio securities, cash and other assets, less all
liabilities by the total number of common shares outstanding, while market price
reflects the supply and demand for the shares. As a result, the two returns can
differ, as they did during the reporting period. On an NAV basis, the Fund
underperformed its benchmark index, the Lehman Brothers BBB Corporate Bond
Index. On a market price basis, the Fund outperformed its benchmark.
TOTAL RETURNS FOR THE 12-MONTH PERIOD ENDED JUNE 30, 2007
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BASED ON BASED ON LEHMAN BROTHERS
NAV MARKET PRICE BBB CORPORATE BOND INDEX
6.17% 8.38% 7.25%
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Performance data quoted represents past performance, which is no guarantee of
future results, and current performance may be lower or higher than the figures
shown. Investment return, net asset value and common share market price will
fluctuate and Fund shares, when sold, may be worth more or less than their
original cost. See Performance Summary for additional performance information
and index definition.
We kept the Fund's overall duration (a measure of interest-rate sensitivity)
below that of the Lehman Brothers BBB Corporate Bond Index. Although this
conservative interest-rate posture detracted from performance during the first
six months of the period when interest rates were falling, it proved additive to
performance in the last half of the period as interest rates moved higher.
We also maintained the Fund's below-benchmark sensitivity to credit spreads,
also known as "spread duration". This lower spread sensitivity detracted from
performance early in the period when credit spreads narrowed, but had a positive
impact on performance later in the period when spreads widened. We also used
interest rate swaps to adjust the portfolio's liquidity profile. Interest-rate
swap spreads widened during the period and had a negative impact on relative
performance.
Over the course of the period, we modestly favored selected insurance issues and
medium-quality credits. Security selection within both the investment grade and
below-investment grade sectors was generally additive to performance.
There is no guarantee that any sectors mentioned will continue to perform as
discussed herein or that securities in such sectors will be held by the Fund in
the future.
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CHANGES IN INVESTMENT POLICIES/PORTFOLIO MANAGER CHANGE
The fund approved changes/clarifications in its investment policies to allow the
fund to enter into the following transactions.
SECURITIES OF FOREIGN ISSUERS
The fund removed an investment restriction and is now permitted to (i) invest up
to 20% of the fund's assets in both U.S. dollar-denominated and non-U.S.
dollar-denominated securities of foreign issuers (which may include issuers from
emerging market countries), and (ii) engage in forward contracts and cross
hedges. In addition, the fund's more restrictive credit quality limitation on
issuers of foreign securities is eliminated (which does not change the fund's
overall strategy of investing primarily in high-quality debt securities)
This section describes the risks of investing in securities of foreign issuers.
Note that the fund was already subject to many of these risks as the fund was
previously permitted to invest up to 10% of its assets in U.S. dollar-
denominated securities of foreign issuers subject to certain credit quality
constraints.
Securities of foreign issuers may be denominated in U.S. dollars or in
currencies other than U.S. dollars. Investments in securities of foreign issuers
present certain risks not ordinarily associated with investments in securities
of U.S. issuers. These risks include fluctuations in foreign currency exchange
rates, political, economic or legal developments (including war or other
instability, expropriation of assets, nationalization and confiscatory
taxation), the imposition of foreign exchange limitations (including currency
blockage), withholding taxes on income or capital transactions or other
restrictions, higher transaction costs (including higher brokerage, custodial
and settlement costs and currency conversion costs) and possible difficulty in
enforcing contractual obligations or taking judicial action. Securities of
foreign issuers may not be as liquid and may be more volatile than comparable
securities of domestic issuers.
In addition, there often is less publicly available information about many
foreign issuers, and issuers of foreign securities are subject to different,
often less comprehensive, auditing, accounting and financial reporting
disclosure requirements than domestic issuers. There is generally less
government regulation of exchanges, brokers and listed companies abroad than in
the United States and, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of foreign exchanges,
brokers and dealers than there is in the United States, the fund may experience
settlement difficulties or delays not usually encountered in the United States.
Delays in making trades in securities of foreign issuers relating to volume
constraints, limitations or restrictions, clearance or settlement procedures, or
otherwise could impact yields and result in temporary periods when assets of
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the Fund are not fully invested or attractive investment opportunities are
foregone.
The fund may invest in securities of issuers determined by the investment
adviser to be in developing or emerging market countries. Investments in
securities of issuers in developing or emerging market countries are subject to
greater risks than investments in securities of developed countries since
emerging market countries tend to have economic structures that are less diverse
and mature and political systems that are less stable than developed countries.
In addition to the increased risks of investing in securities of foreign
issuers, there are often increased transaction costs associated with investing
in securities of foreign issuers, including the costs incurred in connection
with converting currencies, higher foreign brokerage or dealer costs and higher
settlement costs or custodial costs.
The fund may invest in securities of foreign issuers in the form of depositary
receipts. Depositary receipts involve substantially identical risks to those
associated with direct investment in securities of foreign issuers. In addition,
the underlying issuers of certain depositary receipts, particularly unsponsored
or unregistered depositary receipts, are under no obligation to distribute
shareholder communications to the holders of such receipts, or to pass through
to them any voting rights with respect to the deposited securities.
Since the fund may invest in securities denominated or quoted in currencies
other than the U.S. dollar, the Fund may be affected by changes in foreign
currency exchange rates (and exchange control regulations) which affect the
value of investments in the Fund and the accrued income and appreciation or
depreciation of the investments. Changes in foreign currency exchange rates
relative to the U.S. dollar will affect the U.S. dollar value of the fund's
assets denominated in that currency and the Fund's return on such assets as well
as any temporary uninvested reserves in bank deposits in foreign currencies. In
addition, the Fund will incur costs in connection with conversions between
various currencies.
The fund may purchase and sell foreign currency on a spot (i.e., cash) basis in
connection with the settlement of transactions in securities traded in such
foreign currency.
CERTAIN DERIVATIVE 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.
Forward contracts, foreign currency options and cross-hedges. The fund may enter
into contracts with banks, brokers or dealers to purchase or sell securities or
foreign currencies at a future date ("forward contracts"). A foreign currency
5
forward contract is a negotiated agreement between the contracting parties to
exchange a specified amount of currency at a specified future time at a
specified rate. The rate can be higher or lower than the spot rate between the
currencies that are the subject of the contract.
The fund may attempt to protect against adverse changes in the value of the U.S.
dollar in relation to a foreign currency by entering into a forward contract for
the purchase or sale of the amount of foreign currency invested or to be
invested, or by buying or selling a foreign currency option or futures contract
for such amount. Such strategies may be employed before the fund purchases a
foreign security traded in the currency which the fund anticipates acquiring or
between the date the foreign security is purchased or sold and the date on which
payment therefor is made or received.
Seeking to protect against a change in the value of a foreign currency in the
foregoing manner does not eliminate fluctuations in the prices of portfolio
securities or prevent losses if the prices of such securities decline.
Furthermore, such transactions reduce or preclude the opportunity for gain if
the value of the currency should move in the direction opposite to the position
taken. Unanticipated changes in currency prices may result in poorer overall
performance for the fund than if it had not entered into such contracts. The
value of a foreign currency option depends upon the value of the underlying
currency relative to the U.S. dollar. As a result, the price of the option
position may vary with changes in the value of either or both currencies and
have no relationship to the investment merits of a foreign security. Because
foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
There is no systematic reporting of last sale information for foreign currencies
or any regulatory requirement that quotations available through dealers or other
market sources be firm or revised on a timely basis. Quotation information
available is generally representative of very large transactions in the
interbank market and thus may not reflect relatively smaller transactions (i.e.,
less than $1 million) where rates may be less favorable. The interbank market in
foreign currencies is a global, around-the-clock market. To the extent that the
U.S. options markets are closed while the markets for the underlying currencies
remain open, significant price and rate movements may take place in the
underlying markets that are not reflected in the options market.
The fund may also cross-hedge currencies by entering into a transaction to
purchase or sell one or more currencies that are expected to change in value
relative to other currencies to which it has or expects to have exposure. The
fund's entry into forward contracts, options, futures or other derivatives will
generally require the Fund to segregate cash and/or liquid securities at least
equal to the Fund's obligations throughout the duration of the contract.
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The use of currency transactions can result in the fund incurring losses because
of the imposition of exchange controls, suspension of settlements or the
inability of the Fund to deliver or receive a specified currency. In addition,
amounts paid as premiums and cash or other assets held in margin accounts with
respect to such transactions are not otherwise available to the fund for
investment purposes.
When conducted outside the United States, such transactions may not be regulated
as rigorously as in the United States, may not involve a clearing mechanism and
related guarantees, and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the United States of data on which to make trading
decisions, (iii) delays in the Fund's ability to act upon economic events
occurring in foreign markets during non-business hours in the United States,
(iv) the imposition of different exercise and settlement terms and procedures
and margin requirements than in the United States and (v) lower trading volume
and liquidity.
STRUCTURED PRODUCTS. The fund may invest in structured notes and other types of
structured investments (referred to collectively as "structured products"). A
structured note is a derivative security for which the amount of principal
repayment and/or interest payments is based on the movement of one or more
"factors." These factors include, but are not limited to, currency exchange
rates, interest rates (such as the prime lending rate or LIBOR), referenced
bonds and stock indices. Some of these factors may or may not correlate to the
total rate of return on one or more underlying instruments referenced in such
notes. In some cases, the impact of the movements of these factors may increase
or decrease through the use of multipliers or deflators.
Generally, investments in structured products are interests in entities
organized and operated for the purpose of restructuring the investment
characteristics of underlying investment interests or securities. These
investment entities may be structured as trusts or other types of pooled
investment vehicles. This type of restructuring generally involves the deposit
with or purchase by an entity of the underlying investments and the issuance by
that entity of one or more classes of securities backed by, or representing
interests in, the underlying investments referencing an indicator related to
such investments. The cash flow or rate of return on the underlying investments
may be apportioned among the newly issued securities to create different
investment characteristics, such as varying maturities, credit quality, payment
priorities and interest rate provisions. The cash flow or rate of return on a
structured product may be determined by applying a multiplier to the rate of
total return on the underlying investments or referenced indicator. Application
of a multiplier is comparable to the use of financial leverage, a speculative
technique. Leverage magnifies the potential for gain and the risk of loss. As a
result, a relatively small decline in the value of
7
the underlying investments or referenced indicator could result in a relatively
large loss in the value of a structured product. Holders of structured products
bear risks of the underlying index or reference obligation and are subject to
counterparty risk.
The fund may have the right to receive payments to which it is entitled only
from the structured product, and generally does not have direct rights against
the issuer. While certain structured investment vehicles enable the investor to
acquire interests in a pool of securities without the brokerage and other
expenses associated with directly holding the same securities, investors in
structured vehicles generally pay their share of the investment vehicle's
administrative and other expenses. Certain structured products may be thinly
traded or have a limited trading market and may have the effect of increasing
the fund's illiquidity to the extent that the fund, at a particular point in
time, may be unable to find qualified buyers for these securities.
Investments in structured notes involve risks including interest rate risk,
credit risk and market risk. Where the fund's investments in structured notes
are based upon the movement of one or more factors, including currency exchange
rates, interest rates, referenced bonds and stock indices, depending on the
factor used and the use of multipliers or deflators, changes in interest rates
and movement of the factor may cause significant price fluctuations.
Additionally, changes in the reference instrument or security may cause the
interest rate on the structured note to be reduced to zero and any further
changes in the reference instrument may then reduce the principal amount payable
on maturity. Structured notes may be less liquid than other types of securities
and more volatile than the reference instrument or security underlying the note.
SWAPS. The fund may enter into interest rate, index, total rate of return and
credit default swaps and the purchase or sale of related caps, floors and
collars. The fund expects to enter into these transactions primarily to preserve
a return or spread on a particular investment or portion of its portfolio, as a
duration management technique or to protect against any increase in the price of
securities the fund anticipates purchasing at a later date. The fund intends to
use these transactions as hedges and not as speculative investments and will not
sell interest rate caps or floors where it does not own securities or other
instruments providing the income stream the fund may be obligated to pay.
Interest swaps involve the exchange by the fund with another party of their
respective commitments to pay or receive interest, e.g., an exchange of floating
rate payments for fixed rate payments with respect to a notional amount of
principal. The purchase of an interest rate cap entitles the purchaser, to the
extent that a specified index exceeds a predetermined interest rate, to receive
payments of interest on a contractually-based principal amount from the party
selling the interest rate cap. The purchase of an interest rate floor entitles
the purchaser, to the extent that a specified index falls below a predetermined
interest rate, to receive payments of interest on a contractually-based
principal amount from the party selling the interest rate floor. An interest
rate collar
8
combines the elements of purchasing a cap and selling a floor. The collar
protects against an interest rate rise above the maximum amount but foregoes the
benefit of an interest rate decline below the minimum amount.
An index swap is an agreement to swap cash flows on a notional amount based on
changes in the values of the reference indices. The purchase of a cap entitles
the purchaser to receive payments on a notional principal amount from the party
selling such cap to the extent that a specified index exceeds a predetermined
interest rate or amount. The purchase of a floor entitles the purchaser to
receive payments on a notional principal amount from the party selling such
floor to the extent that a specified index falls below a predetermined interest
rate or amount. A collar is a combination of a cap and a floor that preserves a
certain return within a predetermined range of interest rates or values.
A total rate of return swap is an agreement in which one party (total return
payer) transfers the total economic performance of a reference obligation to the
other party (total return receiver). Total economic performance includes income
from interest and fees, gains or losses from market movements, and credit
losses. The total return receiver assumes the entire economic exposure -- that
is, both market and credit exposure -- to the reference asset. The total return
payer -- often the owner of the reference obligation -- gives up economic
exposure to the performance of the reference asset and in return takes on
counterparty credit exposure to the total return receiver in the event of a
default or fall in value of the reference asset.
The fund may enter into credit default swap contracts or credit-linked notes for
hedging purposes or to gain exposure to a credit in which the fund may otherwise
invest. A credit default swap is an agreement between two parties to exchange
the credit risk of an issuer (reference entity). A buyer of a credit default
swap is said to buy protection by paying periodic fees in return for a
contingent payment from the seller if the reference entity has a credit event
such as a bankruptcy, a failure to pay outstanding obligations or deteriorating
credit while the swap is outstanding. A seller of a credit default swap is said
to sell protection and thus collects the periodic fees and profits if the credit
of the reference entity remains stable or improves while the swap is outstanding
but the seller in a credit default swap contract would be required to pay an
agreed-upon amount to the buyer in the event of an adverse credit event of the
reference entity. A credit-linked note is a synthetic security, typically issued
by a special purpose vehicle, that trades like a bond issued by the reference
entity but with the economics of the credit default swap. For this security, the
buyer of protection sells the note. The buyer of protection (note seller) will
pay periodic payments and profit if the reference entity defaults. Unlike the
swap, the buyer of protection in a credit-linked note will receive money at the
time of transaction from the sale of the note, and will return this money at the
contract's maturity if no credit event occurs. Conversely, the seller of
protection purchases the notes. As with a credit default swap, the note
purchaser
9
(protection seller) received periodic payments. Unlike the swap transaction, the
protection seller must pay for the note at the time of the transaction and will
collect this money at the contract's maturity if no credit event occurs.
The fund will enter into swap, cap or floor transactions only with
counterparties approved by the Adviser in accordance with guidelines established
by the fund's Board of Trustees. The Adviser will monitor the creditworthiness
of counterparties to the fund's swap, cap, floor and collar transactions on an
ongoing basis. If there is a default by the other party to such a transaction,
the fund will have contractual remedies pursuant to the agreements related to
the transaction. The fund may enter into swaps, caps, collars and floors on
either an asset-based or liability-based basis, and will usually enter into
swaps on a net basis, i.e., the two payment streams are netted out, with the
fund receiving or paying, as the case may be, only the net amount of the two
payments. The net amount of the excess, if any, of the fund's obligations over
its entitlements with respect to each swap will be accrued on a daily basis and
the fund segregates an amount of cash and/or liquid securities having an
aggregate net asset value at least equal to the accrued excess. If the fund
enters into a swap transaction on other than a net basis, the fund would
segregate the full amount accrued on a daily basis of the fund's obligations
with respect to the swap. To the extent the fund sells (i.e. writes) caps,
floors and collars, it will segregate cash and/or liquid securities having an
aggregate net asset value at lease equal to the full amount, accrued on a daily
basis, of the fund's net obligations with respect to the caps, floors or
collars.
The use of swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If the Adviser is incorrect in its forecasts of the
market values, interest rates and other applicable factors, the investment
performance of the fund would diminish compared with what it would have been if
these investment techniques were not used. The use of swaps, caps, collars and
floors may also have the effect of shifting the recognition of income between
current and future periods.
OPTIONS ON SWAPS. The fund may write (sell) and purchase put and call swap
options. A swap option is a contract that gives a counterparty the right (but
not the obligation) to enter into a new swap agreement or to shorten, extend,
cancel or otherwise modify an existing swap agreement, at some designated future
time on specified terms. The Fund may use swap options for hedging purposes or
to manage and mitigate the credit and interest rate risk of the fund.
A swap option is a contract that gives a counterparty the right (but not the
obligation) to enter into a new swap agreement or to shorten, extend, cancel or
otherwise modify an existing swap agreement, at some designated future time on
specified terms. The fund may write (sell) and purchase put and call swap
options. The use of swap options involves risks, including, among others,
changes in the market value of securities held by the fund, and of swap options
relating to those securities may not be proportionate, (ii) there may not be a
10
liquid market for the fund to sell a swap option, which could result in
difficulty closing a position, (iii) swap options can magnify the extent of
losses incurred due to changes in the market value of the securities to which
they relate and (iv) counterparty risk.
Collateralized Mortgage Obligations and Multiclass Pass-Through Securities. The
fund may invest in collateralized mortgage obligations ("CMOs"). CMOs are debt
obligations collateralized by mortgage loans or mortgage pass-through
securities. Typically, CMOs are collateralized by GNMA, FNMA or FHLMC
certificates, but also may be collateralized by whole loans or private pass-
through securities (such collateral collectively hereinafter referred to as
"Mortgage Assets"). Multiclass pass-through securities are equity interests in a
trust composed of Mortgage Assets. Unless the context indicates otherwise, all
references herein to CMOs include multiclass pass-through securities. Payments
of principal and interest on the Mortgage Assets, and any reinvestment income
thereon, provide the funds to pay debt service on the CMOs or make scheduled
distributions on the multiclass pass-through securities. CMOs deemed to be U.S.
government securities are those issued or guaranteed as to principal and
interest by a person controlled or supervised by and acting as an agency or
instrumentality of the U.S. government. The issuer of a series of CMOs may elect
to be treated as a Real Estate Mortgage Investment Conduit (a "REMIC").
In a CMO, a series of bonds or certificates is issued in multiple classes. Each
class of CMOs, often referred to as a "tranche," is issued at a specific fixed
or floating coupon rate and has a stated maturity or final distribution date.
Principal prepayments on the Mortgage Assets may cause the CMOs to be retired
substantially earlier than their stated maturities or final distribution dates.
Interest is paid or accrues on all classes of the CMOs on a monthly, quarterly
or semi-annual basis. The principal of and interest on the Mortgage Assets may
be allocated among the several classes of a series of a CMO in innumerable ways.
The fund may invest in, among others, parallel pay CMOs and Planned
Authorization Class CMOs ("PAC Bonds"). Parallel pay CMOs are structured to
provide payments of principal on each payment date to more than one class. These
simultaneous payments are taken into account in calculating the stated maturity
date or final distribution date of each class, which, as with other CMO
structures, must be retired by its stated maturity date or final distribution
date but may be retired earlier. PAC Bonds generally require payments of a
specified amount of principal on each payment date. PAC Bonds are always
parallel pay CMOs with the required principal payment on such securities having
the highest priority after interest has been paid to all classes. Substantially
all of the CMOs in which the fund invests are PAC Bonds.
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PORTFOLIO MANAGER CHANGE
The Fund is managed by members of the Adviser's Taxable Fixed Income team. The
Taxable Fixed Income team consists of portfolio managers and analysts. The
current members of the team jointly and primarily responsible for the day-to-
day management of the Fund's portfolio are Steven Kreider, a Managing Director
of the Adviser, and Gerhardt P. Herbert, an Executive Director of the Adviser.
Mr. Kreider has been associated with the Adviser in an investment management
capacity since 1988 and joined the team that manages the Fund in June 2007. Mr.
Herbert has been associated with the Adviser in an investment management
capacity since 1994 and joined the team that manages the Fund in June 2005.
Mr. Kreider is the lead manager of the Fund. Each team member is responsible for
specific sectors. All team members are responsible for the execution of the
overall strategy of the Fund.
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RATINGS ALLOCATION AS OF 6/30/07
AAA/Aaa 26.3%
AA/Aa 15.5
A/A 22.8
BBB/Baa 29.3
BB/Ba 3.0
B/B 1.4
Non-Rated 1.7
SUMMARY OF INVESTMENTS BY INDUSTRY CLASSIFICATION AS OF 6/30/07
U.S. Government Agency Obligations 21.9%
Banking 14.2
Electric 5.9
Noncaptive-Consumer Finance 5.4
Retailers 4.1
Property & Casualty Insurance 3.3
Wireline 2.9
Noncaptive-Diversified Finance 2.8
Automotive 2.7
Media-Cable 2.6
Railroads 2.0
Life Insurance 2.0
Diversified Manufacturing 2.0
Integrated Energy 1.7
Food/Beverage 1.4
Brokerage 1.4
Supermarkets 1.0
Construction Machinery 0.9
REITS 0.8
Pipelines 0.8
Pharmaceuticals 0.8
Consumer Products 0.7
Other Utilities 0.7
Independent Energy 0.7
Media-Noncable 0.6
Refining 0.6
Aerospace & Defense 0.6
Health Care 0.5
Services 0.5
Restaurants 0.4
Chemicals 0.3
Distributors 0.2
(continued on next page)
13
SUMMARY OF INVESTMENTS BY INDUSTRY CLASSIFICATION AS OF 6/30/07
(continued from previous page)
Environmental & Facilities Services 0.2
Airlines 0.2
Tobacco 0.2
Technology 0.2
-----
Total Long-Term Investments 87.2
Total Short-Term Investments 12.8
-----
Total Investments 100.0%
Subject to change daily. Provided for informational purposes only and should not
be deemed as a recommendation to buy or sell the securities mentioned or
securities in the industries shown above. Ratings allocation percentages are as
a percentage of long-term debt investments. Summary of Investments by industry
classification percentages are as a percentage of total investments. Securities
are classified by sectors that represent broad groupings of related industries.
Ratings allocations based upon ratings as issued by Standard and Poor's and
Moody's, respectively. Van Kampen is a wholly owned subsidiary of a global
securities firm which is engaged in a wide range of financial services
including, for example, securities trading and brokerage activities, investment
banking, research and analysis, financing and financial advisory services.
14
FOR MORE INFORMATION ABOUT PORTFOLIO HOLDINGS
Each Van Kampen fund provides a complete schedule of portfolio holdings
in its semiannual and annual reports within 60 days of the end of the
fund's second and fourth fiscal quarters. The semiannual reports and the
annual reports are filed electronically with the Securities and Exchange
Commission (SEC) on Form N-CSRS and Form N-CSR, respectively. Van Kampen
also delivers the semiannual and annual reports to fund shareholders, and
makes these reports available on its public Web site, www.vankampen.com.
In addition to the semiannual and annual reports that Van Kampen delivers
to shareholders and makes available through the Van Kampen public Web
site, each fund files a complete schedule of portfolio holdings with the
SEC for the fund's first and third fiscal quarters on Form N-Q. Van
Kampen does not deliver the reports for the first and third fiscal
quarters to shareholders, nor are the reports posted to the Van Kampen
public Web site. You may, however, obtain the Form N-Q filings (as well
as the Form N-CSR and N-CSRS filings) by accessing the SEC's Web site,
http://www.sec.gov. You may also review and copy them at the SEC's Public
Reference Room in Washington, D.C. Information on the operation of the
SEC's Public Reference Room may be obtained by calling the SEC at (800)
SEC-0330. You can also request copies of these materials, upon payment of
a duplicating fee, by electronic request at the SEC's e-mail address
(publicinfo@sec.gov) or by writing the Public Reference section of the
SEC, Washington, DC 20549-0102.
You may obtain copies of a fund's fiscal quarter filings by contacting
Van Kampen Client Relations at (800) 341-2929.
In addition to filing a complete schedule of portfolio holdings with the
SEC each fiscal quarter, the fund makes portfolio holdings information
available by periodically providing the information on its public web
site, www.vankampen.com. The fund provides a complete schedule of
portfolio holdings on the public web site on a calendar-quarter basis
approximately 31 calendar days after the close of the calendar quarter.
The fund also provides Top 10 holdings information on the public web site
approximately 15 business days following the end of each month. For more
information, call (800) 341-2929.
PROXY VOTING POLICY AND PROCEDURES AND PROXY VOTING RECORD
You may obtain a copy of the Fund's Proxy Voting Policy and Procedures
without charge, upon request, by calling toll free (800) 341-2929 or by
visiting our Web site at www.vankampen.com. It is also available on the
Securities and Exchange Commission's Web site at http://www.sec.gov.
15
You may obtain information regarding how the Fund voted proxies relating
to portfolio securities during the most recent twelve-month period ended
June 30 without charge by visiting our Web site at www.vankampen.com.
This information is also available on the Securities and Exchange
Commission's Web site at http://www.sec.gov.
16
Investment Advisory Agreement Approval
Both the Investment Company Act of 1940 and the terms of the Fund's investment
advisory agreement require that the investment advisory agreement between the
Fund and its investment adviser be approved annually both by a majority of the
Board of Trustees and by a majority of the independent trustees voting
separately.
At meetings held on April 17, 2007 and May 30, 2007, the Board of Trustees, and
the independent trustees voting separately, considered and ultimately determined
that the terms of the investment advisory agreement are fair and reasonable and
approved the continuance of the investment advisory agreement as being in the
best interests of the Fund and its shareholders. In making its determination,
the Board of Trustees considered materials that were specifically prepared by
the investment adviser at the request of the Board and Fund counsel, and by an
independent provider of investment company data contracted to assist the Board,
relating to the investment advisory agreement review process. The Board also
considered information received periodically about the portfolio, performance,
the investment strategy, portfolio management team and fees and expenses of the
Fund. The Board of Trustees considered the investment advisory agreement over a
period of several months and the trustees held sessions both with the investment
adviser and separate from the investment adviser in reviewing and considering
the investment advisory agreement.
In approving the investment advisory agreement, the Board of Trustees
considered, among other things, the nature, extent and quality of the services
provided by the investment adviser, the performance, fees and expenses of the
Fund compared to other similar funds and other products, the investment
adviser's expenses in providing the services and the profitability of the
investment adviser and its affiliated companies. The Board of Trustees
considered the extent to which any economies of scale experienced by the
investment adviser are shared with the Fund's shareholders, and the propriety of
existing and alternative breakpoints in the Fund's investment advisory fee
schedule. The Board of Trustees considered comparative advisory fees of the Fund
and other investment companies and/or other products at different asset levels,
and considered the trends in the industry. The Board of Trustees evaluated other
benefits the investment adviser and its affiliates derive from their
relationship with the Fund. The Board of Trustees reviewed information about the
foregoing factors and considered changes, if any, in such information since its
previous approval. The Board of Trustees discussed the financial strength of the
investment adviser and its affiliated companies and the capability of the
personnel of the investment adviser, and specifically the strength and
background of its portfolio management personnel. The Board of Trustees reviewed
the statutory and regulatory requirements for approval and disclosure of
investment advisory agreements. The Board of Trustees, including the independent
trustees, evaluated all of the foregoing and does not believe any
17
single factor or group of factors control or dominate the review process, and,
after considering all factors together, has determined, in the exercise of its
business judgment, that approval of the investment advisory agreement is in the
best interests of the Fund and its shareholders. The following summary provides
more detail on certain matters considered but does not detail all matters
considered.
Nature, Extent and Quality of the Services Provided. On a regular basis, the
Board of Trustees considers the roles and responsibilities of the investment
adviser as a whole and for those specific portfolio management, support and
trading functions servicing the Fund. The trustees discuss with the investment
adviser the resources available and used in managing the Fund. The trustees also
discuss certain other services which are provided on a cost-reimbursement basis
by the investment adviser or its affiliates to the Van Kampen funds including
certain accounting, administrative and legal services. The Board has determined
that the nature, extent and quality of the services provided by the investment
adviser support its decision to approve the investment advisory agreement.
Performance, Fees and Expenses of the Fund. On a regular basis, the Board of
Trustees reviews the performance, fees and expenses of the Fund compared to its
peers and to appropriate benchmarks. In addition, the Board spends more focused
time on the performance of the Fund and other funds in the Van Kampen complex,
paying specific attention to underperforming funds. The trustees discuss with
the investment adviser the performance goals and the actual results achieved in
managing the Fund. When considering a fund's performance, the trustees and the
investment adviser place emphasis on trends and longer-term returns (focusing on
one-year, three-year and five-year performance with special attention to
three-year performance) and, when a fund's weighted performance is under the
fund's benchmark, they discuss the causes and where necessary seek to make
specific changes to investment strategy or investment personnel. The Fund
discloses more information about its performance elsewhere in this report. The
trustees discuss with the investment adviser the level of advisory fees for this
Fund relative to comparable funds and other products advised by the adviser and
others in the marketplace. The trustees review not only the advisory fees but
other fees and expenses (whether paid to the adviser, its affiliates or others)
and the Fund's overall expense ratio. The Board has determined that the
performance, fees and expenses of the Fund support its decision to approve the
investment advisory agreement.
Investment Adviser's Expenses in Providing the Service and Profitability. At
least annually, the trustees review the investment adviser's expenses in
providing services to the Fund and other funds advised by the investment adviser
and the profitability of the investment adviser. These profitability reports are
put together by the investment adviser with the oversight of the Board. The
trustees discuss with the investment adviser its revenues and expenses,
including among other things, revenues for advisory services, portfolio
management-related
18
expenses, revenue sharing arrangement costs and allocated expenses both on an
aggregate basis and per fund. The Board has determined that the analysis of the
investment adviser's expenses and profitability support its decision to approve
the investment advisory agreement.
Economies of Scale. On a regular basis, the Board of Trustees considers the size
of the Fund and how that relates to the Fund's expense ratio and particularly
the Fund's advisory fee rate. In conjunction with its review of the investment
adviser's profitability, the trustees discuss with the investment adviser how
more (or less) assets can affect the efficiency or effectiveness of managing the
Fund's portfolio and whether the advisory fee level is appropriate relative to
current asset levels and/or whether the advisory fee structure reflects
economies of scale as asset levels change. The Board has determined that its
review of the actual and potential economies of scale of the Fund support its
decision to approve the investment advisory agreement.
Other Benefits of the Relationship. On a regular basis, the Board of Trustees
considers other benefits to the investment adviser and its affiliates derived
from its relationship with the Fund and other funds advised by the investment
adviser. These benefits include, among other things, fees for transfer agency
services provided to the funds, in certain cases research received by the
adviser generated from commission dollars spent on funds' portfolio trading, and
in certain cases distribution or service related fees related to funds' sales.
The trustees review with the investment adviser each of these arrangements and
the reasonableness of its costs relative to the services performed. The Board
has determined that the other benefits received by the investment adviser or its
affiliates support its decision to approve the investment advisory agreement.
19
VAN KAMPEN BOND FUND
PORTFOLIO OF INVESTMENTS -- JUNE 30, 2007
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
-------------------------------------------------------------------------------------------
CORPORATE BONDS 72.3%
AEROSPACE & DEFENSE 0.6%
$1,307 Raytheon Co. .................................. 4.500% 11/15/07 $ 1,302,535
------------
AIRLINES 0.3%
488 America West Airlines, Inc., Class G........... 7.100 04/02/21 514,919
------------
AUTOMOTIVE 3.0%
605 Arvinmeritor, Inc. ............................ 8.750 03/01/12 614,075
1,280 DaimlerChrysler NA Holding Corp. .............. 8.500 01/18/31 1,622,177
1,655 Ford Motor Credit Co. ......................... 7.250 10/25/11 1,594,265
2,550 General Motors Acceptance Corp. ............... 6.875 09/15/11 2,510,567
------------
6,341,084
------------
BANKING 15.7%
800 Bank of America Corp. ......................... 3.375 02/17/09 776,491
880 Bank of America Corp. ......................... 4.875 09/15/12 850,133
1,075 Citigroup, Inc. ............................... 5.250 02/27/12 1,062,105
2,250 HBOS Treasury Services PLC (United Kingdom)
(a)............................................ 3.500 11/30/07 2,235,515
2,860 JPMorgan Chase & Co. .......................... 6.750 02/01/11 2,973,765
2,255 Marshall & Ilsley Bank......................... 3.800 02/08/08 2,234,583
1,635 MBNA Corp. (b)................................. 5.786 05/05/08 1,641,520
2,315 National City Bank............................. 3.375 10/15/07 2,301,404
1,430 Popular North America, Inc. ................... 4.250 04/01/08 1,415,613
805 Popular North America, Inc. ................... 5.650 04/15/09 804,819
2,620 Sovereign Bancorp, Inc (b)..................... 5.590 03/23/10 2,622,413
2,195 SunTrust Banks, Inc. .......................... 5.050 07/01/07 2,195,000
2,700 Unicredito Luxembourg Finance (Luxembourg) (a)
(b)............................................ 5.405 10/24/08 2,701,604
1,090 USB Capital IX................................. 6.189 04/15/42 1,098,962
2,250 U.S. Bancorp................................... 3.950 08/23/07 2,245,655
2,865 Wachovia Capital Trust III..................... 5.800 08/29/49 2,854,858
1,350 Wachovia Corp. ................................ 3.625 02/17/09 1,315,040
925 Washington Mutual Bank FA...................... 5.500 01/15/13 905,019
900 Washington Mutual, Inc. ....................... 8.250 04/01/10 958,248
------------
33,192,747
------------
BROKERAGE 1.5%
2,180 Goldman Sachs Capital II....................... 5.793 12/29/49 2,129,795
729 World Financial Properties (a)................. 6.910 09/01/13 752,876
332 World Financial Properties (a)................. 6.950 09/01/13 342,840
------------
3,225,511
------------
CHEMICALS 0.3%
640 ICI Wilmington, Inc. .......................... 4.375 12/01/08 629,429
------------
CONSTRUCTION MACHINERY 1.0%
2,045 Caterpillar Financial Services Corp., Ser F.... 3.625 11/15/07 2,031,869
------------
20 See Notes to Financial Statements
VAN KAMPEN BOND FUND
PORTFOLIO OF INVESTMENTS -- JUNE 30, 2007 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
-------------------------------------------------------------------------------------------
CONSUMER PRODUCTS 0.8%
$1,725 Clorox Co. (b)................................. 5.485% 12/14/07 $ 1,726,058
------------
DISTRIBUTORS 0.3%
585 KeySpan Corp. ................................. 4.900 05/16/08 582,217
------------
DIVERSIFIED MANUFACTURING 2.2%
1,345 Brascan Corp. (Canada)......................... 7.125 06/15/12 1,414,416
685 Brookfield Asset Management, Inc. (Canada)..... 5.800 04/25/17 662,958
1,275 Cooper Industries, Inc. ....................... 5.250 07/01/07 1,275,000
1,325 Cooper Industries, Inc. ....................... 5.250 11/15/12 1,300,840
------------
4,653,214
------------
ELECTRIC 6.5%
1,740 Arizona Public Service Co. .................... 5.800 06/30/14 1,719,383
805 Carolina Power & Light Co. .................... 6.800 08/15/07 805,967
65 Detroit Edison Co. ............................ 5.200 10/15/12 63,719
865 Detroit Edison Co. ............................ 6.125 10/01/10 881,059
960 Duquesne Light Co., Ser O...................... 6.700 04/15/12 1,003,422
655 Entergy Gulf States, Inc. ..................... 3.600 06/01/08 643,454
1,600 Entergy Gulf States, Inc. (b).................. 5.760 12/01/09 1,600,102
425 Entergy Gulf States, Inc. (a) (b).............. 6.110 12/08/08 426,283
300 Exelon Corp. .................................. 6.750 05/01/11 309,354
255 Indianapolis Power & Light Co. (a)............. 6.300 07/01/13 260,210
900 NiSource Finance Corp. (b)..................... 5.930 11/23/09 901,898
1,080 Ohio Edison Co. ............................... 6.400 07/15/16 1,105,219
1,270 Ohio Power Co., Ser K.......................... 6.000 06/01/16 1,273,386
265 PSE&G Energy Holdings, LLC..................... 8.625 02/15/08 269,821
570 Public Service Electric & Gas, Ser B........... 5.125 09/01/12 557,852
855 TXU Energy Co. ................................ 7.000 03/15/13 882,953
570 Union Electric Co. ............................ 6.400 06/15/17 582,583
560 Wisconsin Electric Power Co. .................. 3.500 12/01/07 555,484
------------
13,842,149
------------
ENVIRONMENTAL & FACILITIES SERVICES 0.3%
550 Waste Management, Inc. ........................ 7.375 08/01/10 576,634
------------
FOOD/BEVERAGE 1.6%
660 ConAgra Foods, Inc. ........................... 7.000 10/01/28 689,449
520 ConAgra Foods, Inc. ........................... 8.250 09/15/30 617,245
475 Pilgrim's Pride Corp. ......................... 7.625 05/01/15 476,188
160 Pilgrim's Pride Corp. ......................... 9.625 09/15/11 166,400
960 Sara Lee Corp. ................................ 6.125 11/01/32 861,420
465 Smithfield Foods, Inc., Ser B.................. 8.000 10/15/09 481,275
------------
3,291,977
------------
See Notes to Financial Statements 21
VAN KAMPEN BOND FUND
PORTFOLIO OF INVESTMENTS -- JUNE 30, 2007 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
-------------------------------------------------------------------------------------------
HEALTH CARE 0.6%
$ 650 Wellpoint, Inc. ............................... 3.750% 12/14/07 $ 644,977
590 Wellpoint, Inc. ............................... 4.250 12/15/09 571,834
------------
1,216,811
------------
INDEPENDENT ENERGY 0.7%
1,025 Devon Financing Corp. ULC...................... 6.875 09/30/11 1,071,011
470 Kerr-McGee Corp. .............................. 6.625 10/15/07 471,552
------------
1,542,563
------------
INTEGRATED ENERGY 1.9%
830 Amerada Hess Corp. ............................ 6.650 08/15/11 858,318
515 Chesapeake Energy Corp. ....................... 7.625 07/15/13 530,450
790 Consumers Energy Co., Ser F.................... 4.000 05/15/10 758,212
455 Consumers Energy Co., Ser H.................... 4.800 02/17/09 449,662
1,300 Kinder Morgan, Inc. ........................... 6.500 09/01/12 1,302,587
------------
3,899,229
------------
LIFE INSURANCE 2.2%
635 AXA Financial, Inc. ........................... 6.500 04/01/08 639,573
475 John Hancock Financial Services, Inc. ......... 5.625 12/01/08 476,665
105 MetLife, Inc. ................................. 6.125 12/01/11 107,331
1,030 Monumental Global Funding II (a)............... 3.850 03/03/08 1,019,011
585 Nationwide Financial Services, Inc. ........... 6.250 11/15/11 598,993
1,895 Xlliac Global Funding (a)...................... 4.800 08/10/10 1,854,661
------------
4,696,234
------------
MEDIA-CABLE 2.9%
1,835 Comcast Cable Communications, Inc. ............ 6.750 01/30/11 1,900,823
90 Comcast Cable Communications, Inc. ............ 7.125 06/15/13 95,503
655 Comcast Corp. ................................. 6.500 01/15/15 672,597
935 Echostar DBS Corp. ............................ 6.375 10/01/11 918,637
1,505 Time Warner, Inc. (b).......................... 5.590 11/13/09 1,507,274
1,095 Time Warner, Inc. ............................. 5.875 11/15/16 1,066,885
------------
6,161,719
------------
MEDIA-NONCABLE 0.7%
225 Interpublic Group of Cos., Inc. ............... 6.250 11/15/14 207,562
1,310 Viacom, Inc. .................................. 6.875 04/30/36 1,269,499
------------
1,477,061
------------
NONCAPTIVE-CONSUMER FINANCE 6.0%
1,000 American Express Co. .......................... 4.750 06/17/09 990,011
230 American General Finance Corp. ................ 4.625 05/15/09 226,924
2,000 American General Finance Corp. ................ 4.625 09/01/10 1,948,212
2,245 Countrywide Home Loans, Inc. .................. 3.250 05/21/08 2,200,749
150 Household Finance Corp. ....................... 8.000 07/15/10 160,314
2,560 HSBC Finance Corp. ............................ 6.750 05/15/11 2,659,597
2,595 Residential Capital, LLC....................... 6.375 06/30/10 2,563,217
1,600 SLM Corp. (b).................................. 5.515 07/26/10 1,518,742
400 Washington Mutual Preferred Funding II (a)..... 6.665 12/31/49 382,512
------------
12,650,278
------------
22 See Notes to Financial Statements
VAN KAMPEN BOND FUND
PORTFOLIO OF INVESTMENTS -- JUNE 30, 2007 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
-------------------------------------------------------------------------------------------
NONCAPTIVE-DIVERSIFIED FINANCE 3.1%
$ 415 CIT Group, Inc. ............................... 3.650% 11/23/07 $ 412,125
290 CIT Group, Inc. ............................... 4.750 08/15/08 287,618
1,195 Capmark Financial Group, Inc. (a).............. 5.875 05/10/12 1,180,567
495 Capmark Financial Group, Inc. (a).............. 6.300 05/10/17 487,987
2,100 General Electric Capital Corp. ................ 4.750 09/15/14 1,989,615
90 General Electric Capital Corp., Ser A.......... 5.875 02/15/12 91,145
2,240 Nationwide Building Society (United Kingdom)
(a)............................................ 4.250 02/01/10 2,173,667
------------
6,622,724
------------
OTHER UTILITIES 0.8%
375 CenterPoint Energy Resource Corp. ............. 6.250 02/01/37 362,348
1,295 Plains All American Pipeline................... 6.700 05/15/36 1,300,633
------------
1,662,981
------------
PHARMACEUTICALS 0.8%
1,765 Hospira, Inc. (b).............................. 5.840 03/30/10 1,770,544
------------
PIPELINES 0.9%
465 Colorado Interstate Gas Co. ................... 6.800 11/15/15 480,538
590 Consolidated Natural Gas Co., Ser C............ 6.250 11/01/11 603,237
755 Texas Eastern Transmission Corp. .............. 7.000 07/15/32 830,752
------------
1,914,527
------------
PROPERTY & CASUALTY INSURANCE 3.7%
1,445 AIG SunAmerica Global Financing VI (a)......... 6.300 05/10/11 1,481,181
680 Farmers Exchange Capital (a)................... 7.050 07/15/28 690,749
1,230 Farmers Insurance Exchange Surplus (a)......... 8.625 05/01/24 1,424,513
1,800 Mantis Reef, Ltd. (Australia) (a).............. 4.692 11/14/08 1,779,595
1,415 St. Paul Travelers Cos., Inc. ................. 5.010 08/16/07 1,414,430
1,035 Two-Rock Pass Through Trust (Bermuda) (a)
(b)............................................ 6.298 02/11/49 1,019,734
------------
7,810,202
------------
RAILROADS 2.2%
1,060 Burlington Northern Santa Fe Corp. ............ 6.125 03/15/09 1,071,630
1,000 CSX Corp. ..................................... 6.750 03/15/11 1,034,367
2,600 Union Pacific Corp. ........................... 6.625 02/01/08 2,617,041
------------
4,723,038
------------
REFINING 0.6%
720 Enterprise Products Operating, LP, Ser B....... 5.600 10/15/14 700,963
675 Valero Energy Corp. ........................... 3.500 04/01/09 654,748
------------
1,355,711
------------
REITS 0.9%
1,970 iStar Financial, Inc. (b)...................... 5.710 03/09/10 1,973,453
------------
RESTAURANTS 0.4%
745 YUM! Brands, Inc. ............................. 8.875 04/15/11 820,325
------------
See Notes to Financial Statements 23
VAN KAMPEN BOND FUND
PORTFOLIO OF INVESTMENTS -- JUNE 30, 2007 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
-------------------------------------------------------------------------------------------
RETAILERS 4.6%
$ 270 CVS Caremark Corp. ............................ 3.875% 11/01/07 $ 268,488
650 CVS Caremark Corp. ............................ 5.750 08/15/11 650,542
730 CVS Caremark Corp. ............................ 5.750 06/01/17 705,627
1,281 CVS Lease Pass Through Trust (a)............... 6.036 12/10/28 1,247,159
500 Federated Department Stores, Inc. ............. 6.300 04/01/09 505,013
1,500 Federated Department Stores, Inc. ............. 6.625 09/01/08 1,510,257
1,940 Home Depot, Inc. (b)........................... 5.485 12/16/09 1,938,085
345 JC Penney Corp., Inc. ......................... 5.750 02/15/18 333,709
1,275 May Department Stores Co. ..................... 5.950 11/01/08 1,276,895
1,320 May Department Stores Co. ..................... 6.700 07/15/34 1,230,751
------------
9,666,526
------------
SERVICES 0.5%
1,105 FedEx Corp. ................................... 5.500 08/15/09 1,106,505
------------
SUPERMARKETS 1.1%
794 Delhaize America, Inc. ........................ 9.000 04/15/31 963,240
1,270 Fred Meyer, Inc. .............................. 7.450 03/01/08 1,286,040
------------
2,249,280
------------
TECHNOLOGY 0.2%
470 Xerox Corp. ................................... 5.500 05/15/12 462,411
------------
TOBACCO 0.2%
465 Reynolds American, Inc. ....................... 6.500 07/15/10 475,037
------------
WIRELINE 3.2%
1,835 AT&T Corp. .................................... 8.000 11/15/31 2,187,445
1,325 France Telecom SA (France)..................... 8.500 03/01/31 1,669,647
1,125 SBC Communications, Inc. ...................... 6.150 09/15/34 1,082,133
1,010 Sprint Capital Corp. .......................... 8.750 03/15/32 1,137,425
590 Verizon New England, Inc. ..................... 6.500 09/15/11 606,111
------------
6,682,761
------------
TOTAL CORPORATE BONDS 72.3%...................................... 152,850,263
------------
UNITED STATES TREASURY OBLIGATIONS 24.2%
9,580 United States Treasury Bonds................... 6.125 08/15/29 10,749,066
5,760 United States Treasury Bonds................... 6.375 08/15/27 6,586,203
2,000 United States Treasury Notes................... 4.000 02/15/14 1,893,908
21,250 United States Treasury Notes (d)............... 4.250 08/15/13 20,524,525
3,900 United States Treasury Notes (d)............... 4.250 11/15/14 3,722,371
1,000 United States Treasury Notes................... 4.500 02/28/11 986,719
24 See Notes to Financial Statements
VAN KAMPEN BOND FUND
PORTFOLIO OF INVESTMENTS -- JUNE 30, 2007 continued
PAR
AMOUNT
(000) DESCRIPTION COUPON MATURITY VALUE
-------------------------------------------------------------------------------------------
UNITED STATES TREASURY OBLIGATIONS (CONTINUED)
$4,200 United States Treasury Notes................... 4.625% 10/31/11 $ 4,152,422
2,500 United States Treasury Notes................... 4.750 01/31/12 2,482,033
------------
TOTAL UNITED STATES TREASURY OBLIGATIONS 24.2%............................. 51,097,247
------------
TOTAL LONG-TERM INVESTMENTS 96.5%
(Cost $205,406,533)....................................................... 203,947,510
------------
SHORT-TERM INVESTMENTS 14.1%
REPURCHASE AGREEMENTS 1.7%
Citigroup Global Markets, Inc. ($1,129,225 par collateralized by U.S.
Government obligations in a pooled cash account, interest rate of 5.33%,
dated 06/29/07, to be sold on 07/02/07 at $1,129,726)...................... 1,129,225
State Street Bank & Trust Co. ($2,443,775 par collateralized by U.S.
Government obligations in a pooled cash account, interest rate of 4.85%,
dated 06/29/07, to be sold on 07/02/07 at $2,444,763)...................... 2,443,775
------------
TOTAL REPURCHASE AGREEMENTS.................................................. 3,573,000
------------
UNITED STATES GOVERNMENT AGENCY OBLIGATIONS 11.8%
Federal Home Loan Mortgage Corp. ($21,250,000 par, yielding 5.236%, 07/18/07
maturity).................................................................. 21,202,060
Federal National Mortgage Association ($3,734,000 par, yielding 5.237%,
07/19/07 maturity)......................................................... 3,725,049
------------
TOTAL UNITED STATES GOVERNMENT AGENCY OBLIGATIONS............................ 24,927,109
------------
UNITED STATES TREASURY OBLIGATIONS 0.6%
United States Treasury Bill ($1,100,000 par, yielding 4.745%,
07/12/07 maturity) (e)..................................................... 1,098,435
United States Treasury Bill ($300,000 par, yielding 5.110%,
07/12/07 maturity) (e)..................................................... 299,550
------------
TOTAL UNITED STATES TREASURY OBLIGATIONS..................................... 1,397,985
------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $29,893,791)......................................................... 29,898,094
------------
TOTAL INVESTMENTS 110.6%
(Cost $235,300,324)........................................................ 233,845,604
LIABILITIES IN EXCESS OF OTHER ASSETS (10.6%)................................ (22,427,817)
------------
NET ASSETS 100.0%........................................................... $211,417,787
============
See Notes to Financial Statements 25
VAN KAMPEN BOND FUND
PORTFOLIO OF INVESTMENTS -- JUNE 30, 2007 continued
Percentages are calculated as a percentage of net assets.
(a) 144A-Private Placement security which is 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) Floating Rate Coupon
(c) Variable Rate Coupon
(d) Security purchased on a when-issued or delayed delivery basis.
(e) All or a portion of this security has been physically segregated in
connection with open futures or swap contracts.
SWAP AGREEMENTS OUTSTANDING AS OF JUNE 30, 2007:
CREDIT DEFAULT SWAPS
PAY/
RECEIVE NOTIONAL UNREALIZED
BUY/SELL FIXED EXPIRATION AMOUNT APPRECIATION/
COUNTERPARTY REFERENCE ENTITY PROTECTION RATE DATE (000) DEPRECIATION
The Gap, Inc. Buy 1.190% 03/20/12 $1,300 $ (14,253)
Bank of America, N.A...
Dell, Inc. Buy 0.220 03/20/12 1,095 (838)
Goldman Sachs Capital
Markets, L.P. ........
Motorola, Inc. Buy 0.150 12/20/11 720 3,711
Goldman Sachs Capital
Markets, L.P. ........
Motorola, Inc. Buy 0.157 12/20/11 1,500 7,428
Goldman Sachs Capital
Markets, L.P. ........
Southwest Airlines Co. Buy 0.220 12/20/11 2,200 11,732
Goldman Sachs Capital
Markets, L.P. ........
The Chubb Corp. Buy 0.100 03/20/12 2,200 2,353
Goldman Sachs Capital
Markets, L.P. ........
The Hartford Financial
Services Group, Inc. Buy 0.120 12/20/11 2,200 359
Goldman Sachs Capital
Markets, L.P. ........
Belo Corp. Buy 1.180 06/20/14 380 2,793
JP Morgan Chase
Bank, N.A.............
Belo Corp. Buy 1.300 06/20/14 1,100 1,320
JP Morgan Chase
Bank, N.A.............
Union Pacific Corp. Buy 0.190 12/20/11 1,100 2,466
JP Morgan Chase
Bank, N.A.............
Residential Capital,
LLC Sell 2.000 03/20/17 2,200 (81,405)
Goldman Sachs Capital
Markets, L.P. ........
SLM Corp Sell 0.737 06/20/12 2,160 (158,500)
Goldman Sachs Capital
Markets, L.P. ........
---------
$(222,834)
TOTAL CREDIT DEFAULT SWAPS....................................................................
---------
26 See Notes to Financial Statements
VAN KAMPEN BOND FUND
PORTFOLIO OF INVESTMENTS -- JUNE 30, 2007 continued
INTEREST RATE SWAPS
PAY/
RECEIVE NOTIONAL UNREALIZED
FLOATING FIXED EXPIRATION AMOUNT APPRECIATION/
COUNTERPARTY FLOATING RATE INDEX RATE RATE DATE (000) DEPRECIATION
Citibank, N.A., New
York............... USD-LIBOR BBA Pay 5.414% 05/25/17 $32,400 $ (623,065)
Citibank, N.A., New
York............... USD-LIBOR BBA Pay 5.440 05/29/17 6,475 (111,298)
JP Morgan Chase Bank,
N.A................ USD-LIBOR BBA Pay 5.448 05/29/17 6,475 (107,367)
-----------
TOTAL INTEREST RATE SWAPS................................................................ $ (841,730)
-----------
TOTAL SWAP CONTRACTS..................................................................... $(1,064,564)
-----------
FUTURES CONTRACTS OUTSTANDING AS OF JUNE 30, 2007:
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
LONG CONTRACTS:
U.S. Treasury Notes 2-Year Futures, September 2007
(Current Notional Value of $203,781 per contract)......... 87 $(38,302)
U.S. Treasury Notes 5-Year Futures, September 2007
(Current Notional Value of $104,078 per contract)......... 181 (163,332)
SHORT CONTRACTS:
U.S. Treasury Bond Futures, September 2007
(Current Notional Value of $107,750 per contract)......... 107 88,327
U.S. Treasury Notes 10-Year Futures, September 2007
(Current Notional Value of $105,703 per contract)......... 120 103,779
--- --------
TOTAL FUTURES CONTRACTS..................................... 495 $ (9,528)
=== ========
See Notes to Financial Statements 27
VAN KAMPEN BOND FUND
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
June 30, 2007
ASSETS:
Total Investments (Cost $235,300,324)....................... $233,845,604
Cash........................................................ 21,837
Receivables:
Investments Sold.......................................... 14,404,185
Interest.................................................. 3,077,945
Swap Contracts............................................ 32,162
------------
Total Assets............................................ 251,381,733
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 38,229,315
Income Distributions...................................... 124,039
Variation Margin on Futures............................... 81,266
Investment Advisory Fee................................... 73,097
Other Affiliates.......................................... 8,853
Swap Contracts.............................................. 1,096,726
Trustees' Deferred Compensation and Retirement Plans........ 243,881
Accrued Expenses............................................ 106,769
------------
Total Liabilities....................................... 39,963,946
------------
NET ASSETS.................................................. $211,417,787
============
NET ASSET VALUE PER COMMON SHARE ($211,417,787 divided by
11,308,623 shares outstanding)............................ $ 18.70
============
NET ASSETS CONSIST OF:
Common Shares ($1.00 par value with 15,000,000 shares
authorized, 11,308,623 shares issued and outstanding)..... $ 11,308,623
Paid in Surplus............................................. 206,706,494
Accumulated Undistributed Net Investment Income............. (1,299,978)
Net Unrealized Depreciation................................. (2,528,812)
Accumulated Net Realized Loss............................... (2,768,540)
------------
NET ASSETS.................................................. $211,417,787
============
28 See Notes to Financial Statements
VAN KAMPEN BOND FUND
FINANCIAL STATEMENTS continued
Statement of Operations
For the Year Ended June 30, 2007
INVESTMENT INCOME:
Interest.................................................... $11,453,046
-----------
EXPENSES:
Investment Advisory Fee..................................... 908,812
Transfer Agent Fees......................................... 57,164
Reports to Shareholders..................................... 56,051
Professional Fees........................................... 52,535
Trustees' Fees and Related Expenses......................... 51,626
Accounting and Administrative Expenses...................... 49,489
Custody..................................................... 28,355
Registration Fees........................................... 22,780
Other....................................................... 13,317
-----------
Total Expenses.......................................... 1,240,129
Less Credits Earned on Cash Balances.................... 400
-----------
Net Expenses............................................ 1,239,729
-----------
NET INVESTMENT INCOME....................................... $10,213,317
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ (197,963)
Futures................................................... 370,182
Swap Contracts............................................ (57,946)
-----------
Net Realized Gain........................................... 114,273
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (4,055,795)
-----------
End of the Period:
Investments............................................. (1,454,720)
Futures................................................. (9,528)
Swap Contracts.......................................... (1,064,564)
-----------
(2,528,812)
-----------
Net Unrealized Appreciation During the Period............... 1,526,983
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 1,641,256
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $11,854,573
===========
See Notes to Financial Statements 29
VAN KAMPEN BOND FUND
FINANCIAL STATEMENTS continued
Statements of Changes in Net Assets
FOR THE FOR THE
YEAR ENDED YEAR ENDED
JUNE 30, 2007 JUNE 30, 2006
-----------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income....................................... $ 10,213,317 $ 10,056,111
Net Realized Gain........................................... 114,273 113,668
Net Unrealized Appreciation/Depreciation During the
Period.................................................... 1,526,983 (11,820,422)
------------ ------------
Change in Net Assets from Operations........................ 11,854,573 (1,650,643)
Distributions from Net Investment Income.................... (10,712,430) (10,885,053)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... 1,142,143 (12,535,696)
FROM CAPITAL TRANSACTIONS:
Repurchase of Shares........................................ (949,378) -0-
------------ ------------
TOTAL INCREASE/DECREASE IN NET ASSETS....................... 192,765 (12,535,696)
NET ASSETS:
Beginning of the Period..................................... 211,225,022 223,760,718
------------ ------------
End of the Period (Including accumulated undistributed net
investment income of $(1,299,978) and $(1,423,038),
respectively)............................................. $211,417,787 $211,225,022
============ ============
30 See Notes to Financial Statements
VAN KAMPEN BOND FUND
FINANCIAL HIGHLIGHTS
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
YEAR ENDED JUNE 30,
----------------------------------------------
2007 2006 2005 2004 2003
----------------------------------------------
NET ASSET VALUE, BEGINNING OF
THE PERIOD............................... $18.59 $19.69 $19.15 $19.78 $18.78
------ ------ ------ ------ ------
Net Investment Income.................... 0.90(a) 0.89(a) 0.96 1.03 1.10
Net Realized and Unrealized Gain/Loss.... 0.15 (1.03) 0.60 (0.54) 1.11
------ ------ ------ ------ ------
Total from Investment Operations........... 1.05 (0.14) 1.56 0.49 2.21
Less Distributions from Net
Investment Income........................ 0.94 0.96 1.02 1.12 1.21
------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE PERIOD......... $18.70 $18.59 $19.69 $19.15 $19.78
====== ====== ====== ====== ======
Common Share Market Price at End of
the Period............................... $16.84 $16.40 $17.80 $17.02 $19.57
Total Return (b)........................... 8.38% -2.59% 10.69% -7.44% 12.67%
Net Assets at End of the Period
(In millions)............................ $211.4 $211.2 $223.8 $217.6 $224.7
Ratio of Expenses to Average
Net Assets............................... .57% .59% .60% .65% .65%
Ratio of Net Investment Income to Average
Net Assets............................... 4.72% 4.61% 4.90% 5.24% 5.79%
Portfolio Turnover......................... 188% 64% 61% 41% 57%
(a) Based on average shares outstanding.
(b) Total return based on common share market price assumes an investment at the
common share 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 market price at the end of the period indicated.
See Notes to Financial Statements 31
VAN KAMPEN BOND FUND
NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 2007
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 (the
"1940 Act"), 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
last sale price as of the close of such securities exchange. Listed and unlisted
securities for which the last sale price is not available are valued at the mean
of the last reported bid and asked prices. For those securities where quotations
or prices are not readily available as noted above, valuations are determined in
accordance with procedures established in good faith by the Board of Trustees.
Futures contracts are valued at the settlement price established each day on the
exchange on which they are traded. Credit default and interest rate swaps are
valued using market quotations from brokers. 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
segregate assets with its custodian having an aggregate value at least equal to
the amount of the when-issued or delayed delivery purchase commitments until
payment is made. At June 30, 2007, the Fund had $24,426,979 of 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 advised by Van Kampen Asset Management (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.
32
VAN KAMPEN BOND FUND
NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 2007 continued
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.
D. FEDERAL INCOME TAXES It is the Fund's policy to comply with the requirements
of Subchapter M 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, 2007, the Fund had an accumulated capital loss carryforward
for tax purposes of $1,225,950, which will expire according to the following
schedule:
AMOUNT EXPIRATION
$753,340 ... June 30, 2011
472,610 ... June 30, 2015
At June 30, 2007, the cost and related gross unrealized appreciation and
depreciation are as follows:
Cost of investments for tax purposes........................ $236,749,960
============
Gross tax unrealized appreciation........................... $ 1,138,877
Gross tax unrealized depreciation........................... (4,043,233)
------------
Net tax unrealized depreciation on investments.............. $ (2,904,356)
============
E. DISTRIBUTION OF INCOME AND GAINS The Fund declares and pays quarterly
dividends from net investment income. Net realized gains, if any, are
distributed at least annually. Distributions from net realized gains for book
purposes may include short-term capital gains and gains on futures transactions.
All short-term capital gains and a portion of futures gains are included as
ordinary income for tax purposes.
The tax character of distributions paid during the years ended June 30, 2007
and 2006 were as follows:
2007 2006
Distributions paid from:
Ordinary income........................................... $10,723,719 $10,897,728
Long-term capital gain.................................... -0- -0-
----------- -----------
$10,723,719 $10,897,728
=========== ===========
33
VAN KAMPEN BOND FUND
NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 2007 continued
Permanent differences, primarily due to reclassification of swap gains and
losses to income and book to tax amortization differences, resulted in the
following reclassifications among the Fund's components of net assets at June
30, 2007:
ACCUMULATED UNDISTRIBUTED ACCUMULATED NET
NET INVESTMENT INCOME REALIZED LOSS PAID-IN SURPLUS
$622,173 $(622,173) -0-
As of June 30, 2007, the components of distributable earnings on a tax basis
were as follows:
Undistributed ordinary income............................... $137,366
Net realized gains or losses may differ for financial reporting and tax
purposes primarily as a result of the deferral of losses relating to wash sales
transactions, post October losses which are not recognized for tax purposes
until the first day of the following fiscal year and gains and losses recognized
for tax purposes on open futures transactions on June 30, 2007.
F. EXPENSE REDUCTIONS During the year ended June 30, 2007, the Fund's custody
fee was reduced by $400 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 $500 million.......................................... .42%
Over $500 million........................................... .35%
For the year ended June 30, 2007, the Fund recognized expenses of
approximately $18,000 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom LLP, of which a trustee of the Fund is a partner of such
firm and he and his law firm provide legal services as legal counsel to the
Fund.
Under separate Accounting Services and Chief Compliance Officer (CCO)
Employment agreements, the Adviser provides accounting services and the CCO
provides compliance services to the Fund. The costs of these services are
allocated to each fund. For the year ended June 30, 2007, the Fund recognized
expenses of approximately $16,300 representing Van Kampen Investments Inc.'s or
its affiliates' (collectively "Van Kampen") cost of providing accounting
services to the Fund, as well as the salary, benefits and related costs of the
CCO and related support staff paid by Van Kampen. Services provided pursuant to
the Accounting Services and CCO Employment agreement are reported as part of
"Accounting and Administrative Expenses" on 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 also
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
34
VAN KAMPEN BOND FUND
NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 2007 continued
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. CAPITAL TRANSACTIONS
For the years ended June 30, 2007 and 2006, transactions in common shares were
as follows:
FOR THE FOR THE
YEAR ENDED YEAR ENDED
JUNE 30, 2007 JUNE 30, 2006
Beginning Shares............................................ 11,362,465 11,362,465
Shares Repurchased*......................................... (53,842) -0-
---------- ----------
Ending Shares............................................... 11,308,623 11,362,465
========== ==========
* For the period ended June 30, 2007, the Fund repurchased 53,842 of its
shares at an average discount of 8.26% from net assets value per share.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments and U.S. Government securities, were
$56,665,779 and $58,786,554, respectively. The cost of purchases and proceeds
from sales of long-term U.S. Government securities, including paydowns on
mortgage-backed securities, for the period were $356,938,260 and $320,273,522,
respectively.
5. 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 may use derivative instruments for a variety of reasons, 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 unrealized appreciation/ depreciation. Upon disposition, a
realized gain or loss is recognized accordingly, except when taking delivery of
a security underlying a futures contract. In this instance, the recognition of
gain or loss is postponed until the disposal of the security underlying the
futures contract. Risks may arise as a result of the potential inability of the
counterparties to meet the terms of their contracts.
Summarized below are specific types of derivative financial instruments used
by the Fund.
A. FUTURES CONTRACTS 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 futures contracts on U.S. Treasury
securities for duration and risk management purposes and typically closes the
contract prior to the delivery date. Upon entering into futures contracts, the
Fund maintains an amount of cash or liquid securities with a value equal to a
percentage of the contract amount with either a futures commission merchant
pursuant to rules and regulations promulgated under the 1940 Act, as amended, or
35
VAN KAMPEN BOND FUND
NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 2007 continued
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). The risk of loss associated with a futures
contract is in excess of the variation margin reflected on the Statement of
Assets and Liabilities.
Transactions in futures contracts for the year ended June 30, 2007 were as
follows:
CONTRACTS
Outstanding at June 30, 2006................................ 409
Futures Opened.............................................. 3,352
Futures Closed.............................................. (3,266)
------
Outstanding at June 30, 2007................................ 495
======
B. SWAP CONTRACTS The Fund may enter into credit default swap contracts for
hedging purposes or to gain exposure to a credit in which the Fund may otherwise
invest. A credit default swap is an agreement between two parties to exchange
the credit risk of an issuer. A buyer of a credit default swap is said to buy
protection by paying periodic fees in return for a contingent payment from the
seller if the issuer has a credit event such as bankruptcy, a failure to pay
outstanding obligations or deteriorating credit while the swap is outstanding. A
seller of a credit default swap is said to sell protection and thus collects the
periodic fees and profits if the credit of the issuer remains stable or improves
while the swap is outstanding but the seller in a credit default swap contract
would be required to pay an agreed-upon amount, which approximates the notional
amount of the swap as disclosed in the table following the Portfolio of
Investments, to the buyer in the event of an adverse credit event of the issuer.
The Fund accrues for the periodic fees on credit default swaps on a daily basis
with the net amount accrued recorded within unrealized appreciation/depreciation
of swap contracts. Upon cash settlement of the periodic fees, the net amount is
recorded as realized gain/loss on swap contracts on the Statement of Operations.
Net unrealized gains are recorded as an asset or net unrealized losses are
reported as a liability on the Statement of Assets and Liabilities. The change
in value of the swap contracts is reported as unrealized gains or losses on the
Statement of Operations. Credit default swaps may involve greater risks than if
a Fund had invested in the issuer directly. Credit default swaps are subject to
general market risk, counterparty risk and credit risk.
The Fund may also enter into interest rate swaps primarily to preserve a
return or spread on a particular investment or portion of its portfolio, as a
duration management technique or to protect against any increase in the price of
securities the Fund anticipates purchasing at a later date. Interest rate swaps
are contractual agreements to exchange periodic interest payment streams
calculated on a predetermined notional principal amount. Interest rate swaps
generally involve one party paying a fixed interest rate and the other party
paying a variable rate. The Fund will usually enter into interest rate swaps on
a net basis, i.e., the two payment streams are netted out in a cash settlement
on the payment date or dates specified in the instrument, with the Fund
receiving or paying, as the case may be, only the net amount of the two
payments. The Fund accrues the net amount with respect to each interest rate
swap on a daily basis. This net amount is recorded within unrealized
appreciation/depreciation on swap contracts. Upon cash settlement of the
periodic payments, the net amount is recorded as realized gain/loss on swap
contracts on the Statement of
36
VAN KAMPEN BOND FUND
NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 2007 continued
Operations. Risks may arise as a result of the potential inability of the
counterparties to meet the terms of their contracts.
If there is a default by the counterparty to a swap agreement, the Fund will
have contractual remedies pursuant to the agreements related to the transaction.
Counterparties are required to pledge collateral daily (based on the valuation
of each swap) on behalf of the Fund with a value approximately equal to the
amount of any unrealized gain. Reciprocally, when the Fund has an unrealized
loss on a swap contract, the Fund has instructed the custodian to pledge cash or
liquid securities as collateral with a value approximately equal to the amount
of the unrealized loss. Collateral pledges are monitored and subsequently
adjusted if and when the swap valuations fluctuate. Restricted cash, if any, for
segregating purposes is shown on the Statement of Assets and Liabilities.
6. INDEMNIFICATIONS
The Fund enters into contracts that contain a variety of indemnifications. The
Fund's maximum exposure under these arrangements is unknown. However, the Fund
has not had prior claims or losses pursuant to these contracts and expects the
risk of loss to be remote.
7. ACCOUNTING PRONOUNCEMENTS
In July 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation 48, Accounting for Uncertainty in Income Taxes--an interpretation
of FASB Statement 109 (FIN 48). FIN 48 clarifies the accounting for income taxes
by prescribing the minimum recognition threshold a tax position must meet before
being recognized in the financial statements. FIN 48 is effective for the fiscal
years beginning after December 15, 2006 and is to be applied to all open tax
years as of the effective date. Recent SEC guidance allows implementing FIN 48
in the fund NAV calculations as late as the fund's last NAV calculation in the
first required financial statement period. As a result, the Fund will
incorporate FIN 48 in its semi annual report on December 31, 2007. The impact to
the Fund's financial statements, if any, is currently being assessed.
In addition, in September 2006, Statement of Financial Accounting Standards
No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for
fiscal years beginning after November 15, 2007. SFAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. Management is currently evaluating the impact the
adoption of SFAS 157 will have on the Fund's financial statement disclosures.
37
VAN KAMPEN BOND FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of Van Kampen Bond Fund
We have audited the accompanying statement of assets and liabilities Van Kampen
Bond Fund (the "Fund"), including the portfolio of investments, as of June 30,
2007, the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). 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.
The Fund is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits included consideration
of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of June 30, 2007, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. 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, 2007, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended, in conformity with accounting principles generally
accepted in the United States of America.
DELOITTE & TOUCHE LLP
Chicago, Illinois
August 21, 2007
38
VAN KAMPEN BOND FUND
DIVIDEND REINVESTMENT PLAN
The dividend reinvestment plan offers you a prompt and simple way to
reinvest your dividends and capital gains distributions into additional shares
of your fund. Under the plan, the money you earn from dividends and capital
gains distributions will be reinvested automatically in more shares of your
fund, allowing you to potentially increase your investment over time.
PLAN BENEFITS
- ADD TO YOUR ACCOUNT
You may increase your shares in your fund easily and automatically with the
dividend reinvestment plan.
- LOW TRANSACTION COSTS
Shareholders who participate in the plan are able to buy shares at below-
market prices when the fund is trading at a premium to its net asset value. In
addition, transaction costs are low because when new shares are issued by the
fund, there is no brokerage fee, and when shares are bought in blocks on the
open market, the brokerage commission is shared among all participants.
- CONVENIENCE
You will receive a detailed account statement from Computershare Trust
Company, N.A., which administers the plan, whenever shares are reinvested for
you. The statement shows your total distributions, date of investment, shares
acquired, and price per share, as well as the total number of shares in your
reinvestment account.
- SAFEKEEPING
Computershare Trust Company, N.A. will hold the shares it has acquired for
you in safekeeping, which provides added protection against loss, theft, or
inadvertent destruction of certificates. However, you may request that a
certificate representing your reinvested shares be issued to you.
HOW DOES THE PLAN WORK?
If you choose to participate in the plan, your dividends and capital gains
distributions will be promptly reinvested for you, automatically increasing your
shares. If your fund is trading at a share price that is equal to its net asset
value (NAV), you'll pay that amount for your reinvested shares. However, if your
fund is trading above or below its NAV, the price is determined by one of two
ways:
1. PREMIUM If your fund is trading at a premium--a market price that is
higher than its NAV--you'll pay either the NAV or 95 percent of the market
price, whichever is greater. When your fund trades at a premium, you'll pay
less for your reinvested shares than an ordinary investor purchasing shares
on the stock exchange. Keep in mind, a portion of your price reduction may be
taxable because you are receiving shares at less than market price.
2. DISCOUNT If your fund is trading at a discount--a market price that is
lower than its NAV--you'll pay the market price for your reinvested shares.
39
VAN KAMPEN BOND FUND
DIVIDEND REINVESTMENT PLAN continued
HOW TO PARTICIPATE IN THE PLAN
If you own shares in your own name, you can participate directly in the
plan. If your shares are held in "street name"--in the name of your brokerage
firm, bank, or other financial institution--you must instruct that entity to
participate on your behalf. If they are unable to participate on your behalf,
you may request that they reregister your shares in your own name so that you
may enroll in the plan.
If you choose to participate in the plan, whenever your fund declares a
dividend or capital gains distribution, it will be invested in additional shares
of your fund that are purchased on the open market.
HOW TO ENROLL
To enroll in the Dividend Reinvestment Plan please visit vankampen.com or
call (800) 341-2929 or notify us in writing at the address below.
Van Kampen Closed-End Funds
Computershare Trust Company, N.A.
P.O. Box 43011
Providence, RI 02940-3011
Please include your Fund name and account number and ensure that all
shareholders listed on the account sign these written instructions. Your
participation in the plan will begin with the next dividend or capital gains
distribution payable after Computershare Trust Company, N.A. receives your
authorization, as long as they receive it before the "record date," which is
generally ten business days before the dividend is paid. If your authorization
arrives after such record date, your participation in the plan will begin with
the following dividend or distribution.
COSTS OF THE PLAN
There is no direct charge to you for reinvesting dividends and capital gains
distributions because the plan's fees are paid by your fund. If your fund is
trading at or above its NAV, your new shares are issued directly by the fund and
there are no brokerage charges or commissions. However, if your fund is trading
at a discount, the shares are purchased on the open market, and you will pay
your portion of any brokerage commissions. These brokerage commissions are
typically less than the standard brokerage charges for individual transactions
because shares are purchased for all participants in blocks, resulting in lower
commissions for each individual participant. Any brokerage commissions or
service fees are averaged into the purchase price.
40
VAN KAMPEN BOND FUND
DIVIDEND REINVESTMENT PLAN continued
TAX IMPLICATIONS
The automatic reinvestment of dividends and capital gains distributions does
not relieve you of any income tax that may be due on dividends or distributions.
You will receive tax information annually to help you prepare your federal and
state income tax returns.
HOW TO WITHDRAW FROM THE PLAN
To withdraw from the Dividend Reinvestment Plan please visit vankampen.com
or call (800) 341-2929 or notify us in writing at the address below.
Van Kampen Closed-End Funds
Computershare Trust Company, N.A.
P.O. Box 43011
Providence, RI 02940-3011
All shareholders listed on the account must sign any written withdrawal
instructions. If you withdraw, you have two choices for receiving your shares:
- CERTIFICATE
We will issue a certificate for the full shares and send you a check for any
fractional shares without a charge.
- CHECK
We will sell all full and fractional shares and send the proceeds to your
address of record after deducting brokerage commissions and a $2.50 service fee.
The Fund and Computershare Trust Company, N.A. may amend or terminate the
plan. Participants will receive written notice at least 30 days before the
effective date of any amendment. In the case of termination, participants will
receive written notice at least 30 days before the record date for the payment
of any dividend or capital gains distribution by your fund.
TO OBTAIN A COMPLETE COPY OF THE DIVIDEND REINVESTMENT PLAN, PLEASE CALL OUR
CLIENT RELATIONS DEPARTMENT AT 800-341-2929 OR VISIT VANKAMPEN.COM.
41
VAN KAMPEN BOND FUND
BOARD OF TRUSTEES, OFFICERS AND IMPORTANT ADDRESSES
BOARD OF TRUSTEES
DAVID C. ARCH
JERRY D. CHOATE
ROD DAMMEYER
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
HOWARD J KERR
JACK E. NELSON
HUGO F. SONNENSCHEIN
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY
OFFICERS
RONALD E. ROBISON
President and Principal Executive Officer
DENNIS SHEA
Vice President
J. DAVID GERMANY
Vice President
AMY R. DOBERMAN
Vice President
STEFANIE V. CHANG
Vice President and Secretary
JOHN L. SULLIVAN
Chief Compliance Officer
STUART N. SCHULDT
Chief Financial Officer and Treasurer
INVESTMENT ADVISER
VAN KAMPEN ASSET MANAGEMENT
522 Fifth Avenue
New York, New York 10036
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
One Lincoln Street
Boston, Massachusetts 02111
TRANSFER AGENT
COMPUTERSHARE TRUST COMPANY, N.A.
C/O COMPUTERSHARE INVESTOR SERVICES
P.O. Box 43011
Providence, Rhode Island 02940-3011
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
DELOITTE & TOUCHE LLP
111 South Wacker Drive
Chicago, Illinois 60606
* "Interested persons" of the Fund, as defined in the Investment Company Act
of 1940, as amended.
42
VAN KAMPEN BOND FUND
RESULTS OF SHAREHOLDER VOTES
The Annual Meeting of Shareholders of the Fund was held on June 22, 2007, where
shareholders voted on the election of trustees.
With regard to the election of the following trustees by common shareholders of
the Fund:
# OF SHARES
-----------------------------
IN FAVOR WITHHELD
------------------------------------------------------------------------------------------
Jack E. Nelson............................................. 6,802,405 622,970
R. Craig Kennedy........................................... 6,814,844 650,531
Hugo F. Sonnenschein....................................... 6,810,885 654,490
The other trustees of the Fund whose terms did not expire in 2007 are David C.
Arch, Jerry D. Choate, Rod Dammeyer, Linda Hutton Heagy, Howard J Kerr, Wayne W.
Whalen, and Suzanne H. Woolsey.
43
VAN KAMPEN BOND FUND
TRUSTEE AND OFFICER INFORMATION
The business and affairs of the Fund are managed under the direction of the
Fund's Board of Trustees and the Fund's officers appointed by the Board of
Trustees. The tables below list the trustees and executive officers of the Fund
and their principal occupations during the last five years, other directorships
held by trustees and their affiliations, if any, with Van Kampen Investments,
the Adviser, the Distributor, Van Kampen Advisors Inc., Van Kampen Exchange
Corp. and Investor Services. The term "Fund Complex" includes each of the
investment companies advised by the Adviser as of the date of this Annual
Report. Trustees of the Fund generally serve three year terms or until their
successors are duly elected and qualified. Officers are annually elected by the
trustees.
INDEPENDENT TRUSTEES
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
David C. Arch (62) Trustee Trustee Chairman and Chief 72 Trustee/Director/Managing
Blistex Inc. since 1997 Executive Officer of General Partner of funds
1800 Swift Drive Blistex Inc., a consumer in the Fund Complex.
Oak Brook, IL 60523 health care products Director of the Heartland
manufacturer. Alliance, a nonprofit
organization serving
human needs based in
Chicago. Board member of
the Illinois
Manufacturers'
Association.
Jerry D. Choate (68) Trustee Trustee Prior to January 1999, 72 Trustee/Director/Managing
33971 Selva Road since 2003 Chairman and Chief General Partner of funds
Suite 130 Executive Officer of the in the Fund Complex.
Dana Point, CA 92629 Allstate Corporation Director of H&R Block,
("Allstate") and Allstate Amgen Inc., a
Insurance Company. Prior biotechnological company,
to January 1995, and Valero Energy
President and Chief Corporation, an
Executive Officer of independent refining
Allstate. Prior to August company.
1994, various management
positions at Allstate.
44
VAN KAMPEN BOND FUND
TRUSTEE AND OFFICER INFORMATION continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Rod Dammeyer (66) Trustee Trustee President of CAC, L.L.C., 72 Trustee/Director/Managing
CAC, L.L.C. since 1997 a private company General Partner of funds
4350 LaJolla Village Drive offering capital in the Fund Complex.
Suite 980 investment and management Director of Quidel
San Diego, CA 92122-6223 advisory services. Corporation, Stericycle,
Inc., and Ventana Medical
Systems, Inc. and Trustee
of The Scripps Research
Institute. Prior to April
2007, Director of GATX
Corporation. Prior to
January 2005, Trustee of
the University of Chicago
Hospitals and Health
Systems. Prior to April
2004, Director of
TheraSense, Inc. Prior to
January 2004, Director of
TeleTech Holdings Inc.
and Arris Group, Inc.
Linda Hutton Heagy++ (59) Trustee Trustee Managing Partner of 72 Trustee/Director/Managing
Heidrick & Struggles since 2003 Heidrick & Struggles, an General Partner of funds
233 South Wacker Drive international executive in the Fund Complex.
Suite 7000 search firm. Prior to Trustee on the University
Chicago, IL 60606 1997, Partner of Ray & of Chicago Hospitals
Berndtson, Inc., an Board, Vice Chair of the
executive recruiting Board of the YMCA of
firm. Prior to 1995, Metropolitan Chicago and
Executive Vice President a member of the Women's
of ABN AMRO, N.A., a bank Board of the University
holding company. Prior to of Chicago.
1990, Executive Vice
President of The Exchange
National Bank.
45
VAN KAMPEN BOND FUND
TRUSTEE AND OFFICER INFORMATION continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
R. Craig Kennedy (55) Trustee Trustee Director and President of 72 Trustee/Director/Managing
1744 R Street, NW since 2003 the German Marshall Fund General Partner of funds
Washington, DC 20009 of the United States, an in the Fund Complex.
independent U.S.
foundation created to
deepen understanding,
promote collaboration and
stimulate exchanges of
practical experience
between Americans and
Europeans. Formerly,
advisor to the Dennis
Trading Group Inc., a
managed futures and
option company that
invests money for
individuals and
institutions. Prior to
1992, President and Chief
Executive Officer,
Director and member of
the Investment Committee
of the Joyce Foundation,
a private foundation.
Howard J Kerr (71) Trustee Trustee Prior to 1998, President 72 Trustee/Director/Managing
14 Huron Trace since 1997 and Chief Executive General Partner of funds
Galena, IL 61036 Officer of Pocklington in the Fund Complex.
Corporation, Inc., an Director of the Lake
investment holding Forest Bank & Trust.
company. Director of the Marrow
Foundation.
Jack E. Nelson (71) Trustee Trustee President of Nelson 72 Trustee/Director/Managing
423 Country Club Drive since 2003 Investment Planning General Partner of funds
Winter Park, FL 32789 Services, Inc., a in the Fund Complex.
financial planning
company and registered
investment adviser in the
State of Florida.
President of Nelson Ivest
Brokerage Services Inc.,
a member of the NASD,
Securities Investors
Protection Corp. and the
Municipal Securities
Rulemaking Board.
President of Nelson Sales
and Services Corporation,
a marketing and services
company to support
affiliated companies.
46
VAN KAMPEN BOND FUND
TRUSTEE AND OFFICER INFORMATION continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Hugo F. Sonnenschein (66) Trustee Trustee President Emeritus and 72 Trustee/Director/Managing
1126 E. 59th Street since 1997 Honorary Trustee of the General Partner of funds
Chicago, IL 60637 University of Chicago and in the Fund Complex.
the Adam Smith Trustee of the University
Distinguished Service of Rochester and a member
Professor in the of its investment
Department of Economics committee. Member of the
at the University of National Academy of
Chicago. Prior to July Sciences, the American
2000, President of the Philosophical Society and
University of Chicago. a fellow of the American
Academy of Arts and
Sciences.
47
VAN KAMPEN BOND FUND
TRUSTEE AND OFFICER INFORMATION continued
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INDEPENDENT TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Suzanne H. Woolsey, Ph.D. (65) Trustee Trustee Chief Communications 72 Trustee/Director/Managing
815 Cumberstone Road since 2003 Officer of the National General Partner of funds
Harwood, MD 20776 Academy of in the Fund Complex.
Sciences/National Director of Fluor Corp.,
Research Council, an an engineering,
independent, federally procurement and
chartered policy construction
institution, from 2001 to organization, since
November 2003 and Chief January 2004. Director of
Operating Officer from Intelligent Medical
1993 to 2001. Prior to Devices, Inc., a symptom
1993, Executive Director based diagnostic tool for
of the Commission on physicians and clinical
Behavioral and Social labs. Director of the
Sciences and Education at Institute for Defense
the National Academy of Analyses, a federally
Sciences/National funded research and
Research Council. From development center,
1980 through 1989, Director of the German
Partner of Coopers & Marshall Fund of the
Lybrand. United States, Director
of the Rocky Mountain
Institute and Trustee of
California Institute of
Technology and the
Colorado College.
48
VAN KAMPEN BOND FUND
TRUSTEE AND OFFICER INFORMATION continued
INTERESTED TRUSTEE*
NUMBER OF
TERM OF FUNDS IN
OFFICE AND FUND
POSITION(S) LENGTH OF COMPLEX
NAME, AGE AND ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
OF INTERESTED TRUSTEE FUND SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
Wayne W. Whalen* (67) Trustee Trustee Partner in the law firm 72 Trustee/Director/Managing
333 West Wacker Drive since 1997 of Skadden, Arps, Slate, General Partner of funds
Chicago, IL 60606 Meagher & Flom LLP, legal in the Fund Complex.
counsel to funds in the Director of the Abraham
Fund Complex. Lincoln Presidential
Library Foundation.
------------------------------------
++ As indicated above, Ms. Heagy is an employee of Heidrick and Struggles, an
international executive search firm ("Heidrick"). Heidrick has been (and may
continue to be) engaged by Morgan Stanley from time to time to perform
executive searches. Such searches have been unrelated to Van Kampen's or
Morgan Stanley's asset management businesses and have been done by
professionals at Heidrick without any involvement by Ms. Heagy. Ethical wall
procedures exist to ensure that Ms. Heagy will not have any involvement with
any searches performed by Heidrick for Morgan Stanley. Ms. Heagy does not
receive any compensation, directly or indirectly, for searches performed by
Heidrick for Morgan Stanley. Ms. Heagy does own common shares of Heidrick
(representing less than 1% of Heidrick's outstanding common shares).
* Mr. Whalen is an "interested person" (within the meaning of Section 2(a)(19)
of the 1940 Act) of certain funds in the Fund Complex by reason of he and his
firm currently providing legal services as legal counsel to such funds in the
Fund Complex.
49
VAN KAMPEN BOND FUND
TRUSTEE AND OFFICER INFORMATION continued
OFFICERS:
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS
Ronald E. Robison (68) President and Officer President of funds in the Fund Complex since September 2005
522 Fifth Avenue Principal since 2003 and Principal Executive Officer of funds in the Fund Complex
New York, NY 10036 Executive since May 2003. Managing Director of Van Kampen Advisors
Officer Inc. since June 2003. Director of Investor Services since
September 2002. Director of the Adviser, Van Kampen
Investments and Van Kampen Exchange Corp. since January
2005. Managing Director of Morgan Stanley and Morgan Stanley
& Co. Incorporated. Managing Director and Director of Morgan
Stanley Investment Management Inc. Chief Administrative
Officer, Managing Director and Director of Morgan Stanley
Investment Advisors Inc. and Morgan Stanley Services Company
Inc. Managing Director and Director of Morgan Stanley
Distributors Inc. and Morgan Stanley Distribution Inc. Chief
Executive Officer and Director of Morgan Stanley Trust.
Executive Vice President and Principal Executive Officer of
the Institutional and Retail Morgan Stanley Funds. Director
of Morgan Stanley SICAV. Previously, Chief Global Operations
Officer of Morgan Stanley Investment Management Inc. and
Executive Vice President of funds in the Fund Complex from
May 2003 to September 2005.
Dennis Shea (54) Vice President Officer Managing Director of Morgan Stanley Investment Advisors
522 Fifth Avenue since 2006 Inc., Morgan Stanley Investment Management Inc., the Adviser
New York, NY 10036 and Van Kampen Advisors Inc. Chief Investment
Officer--Global Equity of the same entities since February
2006. Vice President of Morgan Stanley Institutional and
Retail Funds since February 2006. Vice President of funds in
the Fund Complex since March 2006. Previously, Managing
Director and Director of Global Equity Research at Morgan
Stanley from April 2000 to February 2006.
J. David Germany (52) Vice President Officer Managing Director of Morgan Stanley Investment Advisors
20 Bank Street, since 2006 Inc., Morgan Stanley Investment Management Inc., the Adviser
Canary Wharf and Van Kampen Advisors Inc. Chief Investment
London, GBR E14 4AD Officer--Global Fixed Income of the same entities since
December 2005. Managing Director and Director of Morgan
Stanley Investment Management Ltd. Director of Morgan
Stanley Investment Management (ACD) Limited since December
2003. Vice President of Morgan Stanley Institutional and
Retail Funds since February 2006. Vice President of funds in
the Fund Complex since March 2006.
50
VAN KAMPEN BOND FUND
TRUSTEE AND OFFICER INFORMATION continued
TERM OF
OFFICE AND
POSITION(S) LENGTH OF
NAME, AGE AND HELD WITH TIME PRINCIPAL OCCUPATION(S)
ADDRESS OF OFFICER FUND SERVED DURING PAST 5 YEARS
Amy R. Doberman (45) Vice President Officer Managing Director and General Counsel--U.S. Investment
522 Fifth Avenue since 2004 Management; Managing Director of Morgan Stanley Investment
New York, NY 10036 Management Inc., Morgan Stanley Investment Advisors Inc. and
the Adviser. Vice President of the Morgan Stanley
Institutional and Retail Funds since July 2004 and Vice
President of funds in the Fund Complex since August 2004.
Previously, Managing Director and General Counsel of
Americas, UBS Global Asset Management from July 2000 to July
2004 and General Counsel of Aeltus Investment Management,
Inc. from January 1997 to July 2000.
Stefanie V. Chang (40) Vice President Officer Executive Director of Morgan Stanley Investment Management
522 Fifth Avenue and Secretary since 2003 Inc. Vice President and Secretary of funds in the Fund
New York, NY 10036 Complex.
John L. Sullivan (51) Chief Compliance Officer Chief Compliance Officer of funds in the Fund Complex since
1 Parkview Plaza - Suite 100 Officer since 1996 August 2004. Prior to August 2004, Director and Managing
P.O. Box 5555 Director of Van Kampen Investments, the Adviser, Van Kampen
Oakbrook Terrace, IL 60181 Advisors Inc. and certain other subsidiaries of Van Kampen
Investments, Vice President, Chief Financial Officer and
Treasurer of funds in the Fund Complex and head of Fund
Accounting for Morgan Stanley Investment Management Inc.
Prior to December 2002, Executive Director of Van Kampen
Investments, the Adviser and Van Kampen Advisors Inc.
Stuart N. Schuldt (45) Chief Financial Officer Executive Director of Morgan Stanley Investment Management
1 Parkview Plaza - Suite 100 Officer and since 2007 Inc. since June 2007; Chief Financial Officer and Treasurer
P.O. Box 5555 Treasurer of funds in the Fund Complex since June 2007. Prior to June
Oakbrook Terrace, IL 60181 2007, Senior Vice President of Northern Trust Company,
Treasurer and Principal Financial Officer of Northern Trust
U.S. mutual fund complex.
In accordance with Section 303A.12(a) of the New York Stock Exchange Listed
Company Manual, the Fund's Chief Executive Officer has certified to the New York
Stock Exchange that, as of June 27, 2007, he was not aware of any violation by
the Fund of NYSE corporate governance listing standards.
The certifications by the Fund's principal executive officer and principal
financial officer required by Rule 30a-2 under the 1940 Act were filed with the
Fund's report to the SEC on Form N-CSR and are available on the Securities and
Exchange Commission's web site at http://www.sec.gov.
51
Van Kampen Bond Fund
An Important Notice Concerning Our U.S. Privacy Policy
We are required by federal law to provide you with a copy of our Privacy
Policy annually.
The following Policy applies to current and former individual clients of Van
Kampen Investments Inc., Van Kampen Asset Management, Van Kampen Advisors
Inc., Van Kampen Funds Inc., Van Kampen Investor Services Inc. and Van
Kampen Exchange Corp., as well as current and former individual investors in
Van Kampen mutual funds, unit investment trusts, and related companies.
This Policy is not applicable to partnerships, corporations, trusts or other
non-individual clients or account holders, nor is this Policy applicable to
individuals who are either beneficiaries of a trust for which we serve as
trustee or participants in an employee benefit plan administered or advised
by us. This Policy is, however, applicable to individuals who select us to
be a custodian of securities or assets in individual retirement accounts,
401(k) accounts, 529 Educational Savings Accounts, accounts subject to the
Uniform Gifts to Minors Act, or similar accounts.
Please note that we may amend this Policy at any time, and will inform you
of any changes to this Policy as required by law.
WE RESPECT YOUR PRIVACY
We appreciate that you have provided us with your personal financial
information. We strive to maintain the privacy of such information while we
help you achieve your financial objectives. This Policy describes what
non-public personal information we collect about you, why we collect it, and
when we may share it with others.
We hope this Policy will help you understand how we collect and share
non-public personal information that we gather about you. Throughout this
Policy, we refer to the non-public information that personally identifies
you or your accounts as "personal information."
1. WHAT PERSONAL INFORMATION DO WE COLLECT ABOUT YOU?
To serve you better and manage our business, it is important that we collect
and maintain accurate information about you. We may obtain this information
from applications and other forms you submit to us, from your dealings with
us, from consumer reporting agencies, from our Web sites and from third
parties and other sources.
(continued on next page)
Van Kampen Bond Fund
An Important Notice Concerning Our U.S. Privacy Policy continued
For example:
-- We may collect information such as your name, address, e-mail address,
telephone/fax numbers, assets, income and investment objectives through
applications and other forms you submit to us.
-- We may obtain information about account balances, your use of
account(s) and the types of products and services you prefer to receive
from us through your dealings and transactions with us and other
sources.
-- We may obtain information about your creditworthiness and credit
history from consumer reporting agencies.
-- We may collect background information from and through third-party
vendors to verify representations you have made and to comply with
various regulatory requirements.
-- If you interact with us through our public and private Web sites, we
may collect information that you provide directly through online
communications (such as an e-mail address). We may also collect
information about your Internet service provider, your domain name,
your computer's operating system and Web browser, your use of our Web
sites and your product and service preferences, through the use of
"cookies." "Cookies" recognize your computer each time you return to
one of our sites, and help to improve our sites' content and
personalize your experience on our sites by, for example, suggesting
offerings that may interest you. Please consult the Terms of Use of
these sites for more details on our use of cookies.
2. WHEN DO WE DISCLOSE PERSONAL INFORMATION WE COLLECT ABOUT YOU?
To provide you with the products and services you request, to serve you
better and to manage our business, we may disclose personal information we
collect about you to our affiliated companies and to non-affiliated third
parties as required or permitted by law.
A. INFORMATION WE DISCLOSE TO OUR AFFILIATED COMPANIES. We do not disclose
personal information that we collect about you to our affiliated companies
except to enable them to provide services on our behalf or as otherwise
required or permitted by law.
B. INFORMATION WE DISCLOSE TO THIRD PARTIES. We do not disclose personal
information that we collect about you to non-affiliated third parties except
to enable them to provide services on our behalf, to perform joint marketing
agreements with
(continued on back)
Van Kampen Bond Fund
An Important Notice Concerning Our U.S. Privacy Policy continued
other financial institutions, or as otherwise required or permitted by law.
For example, some instances where we may disclose information about you to
non-affiliated third parties include: for servicing and processing
transactions, to offer our own products and services, to protect against
fraud, for institutional risk control, to respond to judicial process or to
perform services on our behalf. When we share personal information with
these companies, they are required to limit their use of personal
information to the particular purpose for which it was shared and they are
not allowed to share personal information with others except to fulfill that
limited purpose.
3. HOW DO WE PROTECT THE SECURITY AND CONFIDENTIALITY OF PERSONAL
INFORMATION WE COLLECT ABOUT YOU?
We maintain physical, electronic and procedural security measures to help
safeguard the personal information we collect about you. We have internal
policies governing the proper handling of client information. Third parties
that provide support or marketing services on our behalf may also receive
personal information, and we require them to adhere to confidentiality
standards with respect to such information.
Van Kampen Funds Inc.
1 Parkview Plaza, Suite 100
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
www.vankampen.com
Copyright (C)2007 Van Kampen Funds Inc.
All rights reserved. Member NASD/SIPC.
VBFANR 8/07
(VAN KAMPEN INVESTMENTS LOGO) IU07-02709P-Y06/07
Item 2. Code of Ethics.
(a) The Fund has adopted a code of ethics (the "Code of Ethics") that
applies to its principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by the Fund or a
third party.
(b) No information need be disclosed pursuant to this paragraph.
(c) Due to personnel changes at the Adviser, the list of covered officers
set forth in Exhibit B was amended in November 2006 and June 2007 and
the general counsel's designee set forth in Exhibit C was amended in
October and December 2006. All three editions of Exhibit B and all
three editions of Exhibit C are attached.
(d) Not applicable.
(e) Not applicable.
(f)
(1) The Fund's Code of Ethics is attached hereto as Exhibit 12(1).
(2) Not applicable.
(3) Not applicable.
Item 3. Audit Committee Financial Expert.
The Fund's Board of Trustees has determined that it has three "audit committee
financial experts" serving on its audit committee, each of whom are
"independent" Trustees : Rod Dammeyer, Jerry Choate and R. Craig Kennedy. Under
applicable securities laws, a person who is determined to be an audit committee
financial expert will not be deemed an "expert" for any purpose, including
without limitation for the purposes of Section 11 of the Securities Act of 1933,
as a result of being designated or identified as an audit committee financial
expert. The designation or identification of a person as an audit committee
financial expert does not impose on such person any duties, obligations, or
liabilities that are greater than the duties, obligations, and liabilities
imposed on such person as a member of the audit committee and Board of Trustees
in the absence of such designation or identification.
Item 4. Principal Accountant Fees and Services.
(a)(b)(c)(d) and (g). Based on fees billed for the periods shown:
2007
REGISTRANT COVERED ENTITIES(1)
AUDIT FEES...................... $32,875 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES.... $0 $211,000(2)
TAX FEES.............. $1,600(3) $0
ALL OTHER FEES........ $0 $0
TOTAL NON-AUDIT FEES............ $1,600 $211,000
TOTAL........................... $34,475 $211,000
2006
REGISTRANT COVERED ENTITIES(1)
AUDIT FEES...................... $31,800 N/A
NON-AUDIT FEES
AUDIT-RELATED FEES.... $0 $244,200(2)
TAX FEES.............. $1,600(3) $0
ALL OTHER FEES........ $0 $0
TOTAL NON-AUDIT FEES............ $1,600 $244,200
TOTAL........................... $33,400 $244,200
N/A- Not applicable, as not required by Item 4.
(1) Covered Entities include the Adviser (excluding sub-advisors) and any entity
controlling, controlled by or under common control with the Adviser that
provides ongoing services to the Registrant.
(2) Audit-Related Fees represent assurance and related services provided that
are reasonably related to the performance of the audit of the financial
statements of the Covered Entities' and funds advised by the Adviser or its
affiliates, specifically attestation services provided in connection with a
SAS 70 Report.
(3) Tax Fees represent tax advice and compliance services provided in connection
with the review of the Registrant's tax.
(e)(1) The audit committee's pre-approval policies and procedures are as
follows:
JOINT AUDIT COMMITTEE
AUDIT AND NON-AUDIT SERVICES
PRE-APPROVAL POLICY AND PROCEDURES
OF THE
VAN KAMPEN FUNDS
AS ADOPTED JULY 23, 2003 AND AMENDED MAY 26, 2004(1)
1. STATEMENT OF PRINCIPLES
The Audit Committee of the Board is required to review and, in its sole
discretion, pre-approve all Covered Services to be provided by the Independent
Auditors to the Fund and Covered Entities in order to assure that services
performed by the Independent Auditors do not impair the auditor's independence
from the Fund.(2)
The SEC has issued rules specifying the types of services that an
independent auditor may not provide to its audit client, as well as the audit
committee's administration of the engagement of the independent auditor. The
SEC's rules establish two different approaches to pre-approving services, which
the SEC considers to be equally valid. Proposed services either: may be
pre-approved without consideration of specific case-by-case services by the
Audit Committee ("general pre-approval"); or require the specific pre-approval
of the Audit Committee ("specific pre-approval"). The Audit Committee believes
that the combination of these two approaches in this Policy will result in an
effective and efficient procedure to pre-approve services performed by the
Independent Auditors. As set forth in this Policy, unless a type of service has
received general pre-approval, it will require specific pre-approval by the
Audit Committee (or by any member of the Audit Committee to which pre-approval
authority has been delegated) if it is to be provided by the Independent
Auditors. Any proposed services exceeding pre-approved cost levels or budgeted
amounts will also require specific pre-approval by the Audit Committee.
For both types of pre-approval, the Audit Committee will consider
whether such services are consistent with the SEC's rules on auditor
independence. The Audit Committee will also consider whether the Independent
Auditors are best positioned to provide the most effective and efficient
services, for reasons such as its familiarity with the Fund's business, people,
culture, accounting systems, risk profile and other factors, and whether the
service might enhance the Fund's ability to manage or control risk or improve
audit quality. All such factors will be considered as a whole, and no one factor
should necessarily be determinative.
The Audit Committee is also mindful of the relationship between fees
for audit and non-audit services in deciding whether to pre-approve any such
services and may determine for each fiscal year, the appropriate ratio between
the total amount of fees for Audit, Audit-related and Tax services for the Fund
(including any Audit-related or Tax service fees for Covered Entities that were
subject to pre-approval), and the total amount of fees for certain permissible
non-audit services classified as All Other services for the Fund (including any
such services for Covered Entities subject to pre-approval).
The appendices to this Policy describe the Audit, Audit-related, Tax
and All Other services that have the general pre-approval of the Audit
Committee. The term of any general pre-approval is 12 months from the date of
pre-approval, unless the Audit Committee considers and provides a different
period and states otherwise. The Audit Committee will annually review and
pre-approve the services that may be provided by the Independent Auditors
without obtaining specific pre-approval
------------------
(1) This Joint Audit Committee Audit and Non-Audit Services Pre-Approval
Policy and Procedures (the "Policy"), amended as of the date above,
supercedes and replaces all prior versions that may have been
amended from time to time.
(2) Terms used in this Policy and not otherwise defined herein shall have
the meanings as defined in the Joint Audit Committee Charter.
from the Audit Committee. The Audit Committee will add to or subtract from the
list of general pre-approved services from time to time, based on subsequent
determinations.
The purpose of this Policy is to set forth the policy and procedures by
which the Audit Committee intends to fulfill its responsibilities. It does not
delegate the Audit Committee's responsibilities to pre-approve services
performed by the Independent Auditors to management.
The Fund's Independent Auditors have reviewed this Policy and believes
that implementation of the Policy will not adversely affect the Independent
Auditors' independence.
2. DELEGATION
As provided in the Act and the SEC's rules, the Audit Committee may
delegate either type of pre-approval authority to one or more of its members.
The member to whom such authority is delegated must report, for informational
purposes only, any pre-approval decisions to the Audit Committee at its next
scheduled meeting.
3. AUDIT SERVICES
The annual Audit services engagement terms and fees are subject to the
specific pre-approval of the Audit Committee. Audit services include the annual
financial statement audit and other procedures required to be performed by the
Independent Auditors to be able to form an opinion on the Fund's financial
statements. These other procedures include information systems and procedural
reviews and testing performed in order to understand and place reliance on the
systems of internal control, and consultations relating to the audit. The Audit
Committee will monitor the Audit services engagement as necessary, but no less
than on a quarterly basis, and will also approve, if necessary, any changes in
terms, conditions and fees resulting from changes in audit scope, Fund structure
or other items.
In addition to the annual Audit services engagement approved by the
Audit Committee, the Audit Committee may grant general pre-approval to other
Audit services, which are those services that only the Independent Auditors
reasonably can provide. Other Audit services may include statutory audits and
services associated with SEC registration statements (on Forms N-1A, N-2, N-3,
N-4, etc.), periodic reports and other documents filed with the SEC or other
documents issued in connection with securities offerings.
The Audit Committee has pre-approved the Audit services in Appendix
B.1. All other Audit services not listed in Appendix B.1 must be specifically
pre-approved by the Audit Committee (or by any member of the Audit Committee to
which pre-approval has been delegated).
4. AUDIT-RELATED SERVICES
Audit-related services are assurance and related services that are
reasonably related to the performance of the audit or review of the Fund's
financial statements or, to the extent they are Covered Services, the Covered
Entities' financial statements, or that are traditionally performed by the
Independent Auditors. Because the Audit Committee believes that the provision of
Audit-related services does not impair the independence of the auditor and is
consistent with the SEC's rules on auditor independence, the Audit Committee may
grant general pre-approval to Audit-related services. Audit-related services
include, among others, accounting consultations related to accounting, financial
reporting or disclosure matters not classified as "Audit services"; assistance
with understanding and implementing new accounting and financial reporting
guidance from rulemaking authorities; agreed-upon or expanded audit procedures
related to accounting and/or billing records required to respond to or comply
with financial, accounting or regulatory reporting matters; and assistance with
internal control reporting requirements under Forms N-SAR and/or N-CSR.
The Audit Committee has pre-approved the Audit-related services in
Appendix B.2. All other Audit-related services not listed in Appendix B.2 must
be specifically pre-approved by the Audit Committee (or by any member of the
Audit Committee to which pre-approval has been delegated).
5. TAX SERVICES
The Audit Committee believes that the Independent Auditors can provide
Tax services to the Fund and, to the extent they are Covered Services, the
Covered Entities, such as tax compliance, tax planning and tax advice without
impairing the auditor's independence, and the SEC has stated that the
Independent Auditors may provide such services. Hence, the Audit Committee
believes it may grant general pre-approval to those Tax services that have
historically been provided by the Independent Auditors, that the Audit Committee
has reviewed and believes would not impair the independence of the Independent
Auditors, and that are consistent with the SEC's rules on auditor independence.
The Audit Committee will not permit the retention of the Independent Auditors in
connection with a transaction initially recommended by the Independent Auditors,
the sole business purpose of which may be tax avoidance and the tax treatment of
which may not be supported in the Internal Revenue Code and related regulations.
The Audit Committee will consult with Director of Tax or outside counsel to
determine that the tax planning and reporting positions are consistent with this
policy.
Pursuant to the preceding paragraph, the Audit Committee has
pre-approved the Tax Services in Appendix B.3. All Tax services involving large
and complex transactions not listed in Appendix B.3 must be specifically
pre-approved by the Audit Committee (or by any member of the Audit Committee to
which pre-approval has been delegated), including tax services proposed to be
provided by the Independent Auditors to any executive officer or
trustee/director/managing general partner of the Fund, in his or her individual
capacity, where such services are paid for by the Fund (generally applicable
only to internally managed investment companies).
6. ALL OTHER SERVICES
The Audit Committee believes, based on the SEC's rules prohibiting the
Independent Auditors from providing specific non-audit services, that other
types of non-audit services are permitted. Accordingly, the Audit Committee
believes it may grant general pre-approval to those permissible non-audit
services classified as All Other services that it believes are routine and
recurring services, would not impair the independence of the auditor and are
consistent with the SEC's rules on auditor independence.
The Audit Committee has pre-approved the All Other services in Appendix
B.4. Permissible All Other services not listed in Appendix B.4 must be
specifically pre-approved by the Audit Committee (or by any member of the Audit
Committee to which pre-approval has been delegated).
A list of the SEC's prohibited non-audit services is attached to this
policy as Appendix B.5. The SEC's rules and relevant guidance should be
consulted to determine the precise definitions of these services and the
applicability of exceptions to certain of the prohibitions.
7. PRE-APPROVAL FEE LEVELS OR BUDGETED AMOUNTS
Pre-approval fee levels or budgeted amounts for all services to be
provided by the Independent Auditors will be established annually by the Audit
Committee. Any proposed services exceeding these levels or amounts will require
specific pre-approval by the Audit Committee. The Audit Committee is mindful of
the overall relationship of fees for audit and non-audit services in determining
whether to pre-approve any such services. For each fiscal year, the Audit
Committee may determine the appropriate ratio between the total amount of fees
for Audit, Audit-related, and Tax services for the Fund (including any
Audit-related or Tax services fees for Covered Entities subject to
pre-approval), and the total amount of fees for certain permissible non-audit
services classified as All Other services for the Fund (including any such
services for Covered Entities subject to pre-approval).
8. PROCEDURES
All requests or applications for services to be provided by the
Independent Auditors that do not require specific approval by the Audit
Committee will be submitted to the Fund's Chief Financial Officer and must
include a detailed description of the services to be rendered. The Fund's Chief
Financial Officer will determine whether such services are included within the
list of services that have received the general pre-approval of the Audit
Committee. The Audit Committee will be informed on a timely basis of any such
services rendered by the Independent Auditors. Requests or applications to
provide services that require specific approval by the Audit Committee will be
submitted to the Audit Committee by both the Independent Auditors and the Fund's
Chief Financial Officer, and must include a joint statement as to whether, in
their view, the request or application is consistent with the SEC's rules on
auditor independence.
The Audit Committee has designated the Fund's Chief Financial Officer
to monitor the performance of all services provided by the Independent Auditors
and to determine whether such services are in compliance with this Policy. The
Fund's Chief Financial Officer will report to the Audit Committee on a periodic
basis on the results of its monitoring. A sample report is included as Appendix
B.7. Both the Fund's Chief Financial Officer and management will immediately
report to the chairman of the Audit Committee any breach of this Policy that
comes to the attention of the Fund's Chief Financial Officer or any member of
management.
9. ADDITIONAL REQUIREMENTS
The Audit Committee has determined to take additional measures on an
annual basis to meet its responsibility to oversee the work of the Independent
Auditors and to assure the auditor's independence from the Fund, such as
reviewing a formal written statement from the Independent Auditors delineating
all relationships between the Independent Auditors and the Fund, consistent with
Independence Standards Board No. 1, and discussing with the Independent Auditors
its methods and procedures for ensuring independence.
10. COVERED ENTITIES
Covered Entities include the Fund's investment adviser(s) and any
entity controlling, controlled by or under common control with the Fund's
investment adviser(s) that provides ongoing services to the Fund(s). Beginning
with non-audit service contracts entered into on or after May 6, 2003, the
Fund's audit committee must pre-approve non-audit services provided not only to
the Fund but also to the Covered Entities if the engagements relate directly to
the operations and financial reporting of the Fund. This list of Covered
Entities would include:
- Van Kampen Investments Inc.
- Van Kampen Asset Management
- Van Kampen Advisors Inc.
- Van Kampen Funds Inc.
- Van Kampen Investor Services Inc.
- Morgan Stanley Investment Management Inc.
- Morgan Stanley Trust Company
- Morgan Stanley Investment Management Ltd.
- Morgan Stanley Investment Management Company
- Morgan Stanley Asset & Investment Trust Management Company Ltd.
(e)(2) Beginning with non-audit service contracts entered into on or after May
6, 2003, the audit committee also is required to pre-approve services to Covered
Entities to the extent that the services
are determined to have a direct impact on the operations or financial reporting
of the Registrant. 100% of such services were pre-approved by the audit
committee pursuant to the Audit Committee's pre-approval policies and procedures
(included herein).
(f) Not applicable.
(g) See table above.
(h) The audit committee of the Board of Trustees has considered whether the
provision of services other than audit services performed by the auditors to the
Registrant and Covered Entities is compatible with maintaining the auditors'
independence in performing audit services.
Item 5. Audit Committee of Listed Registrants.
(a) The Fund has a separately-designated standing audit committee established in
accordance with Section 3(a)(58)(A) of the Exchange Act whose members are: R.
Craig Kennedy, Jerry Choate and Rod Dammeyer.
(b) Not applicable.
Item 6. Schedule of Investments.
Please refer to Item #1.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
The Fund invests in exclusively non-voting securities and therefore this item is
not applicable to the Fund.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
FUND MANAGEMENT
PORTFOLIO MANAGEMENT. As of the date of this report, the Fund is managed by
members of the Adviser's Taxable Fixed Income team. The Taxable Fixed Income
team consists of portfolio managers and analysts. The current members of the
team jointly and primarily responsible for the day-today management of the
Fund's portfolio are Steven Kreider, a Managing Director of the Adviser, and
Gerhardt P. Herbert, an Executive Director of the Adviser. Mr. Kreider has been
associated with the Adviser in an investment management capacity since 1988 and
joined the team that manages the Fund in June 2007. Mr. Herbert has been
associated with the Adviser in an investment management capacity since 1994 and
joined the team that manages the Fund in June 2005. Mr. Kreider is the lead
manager of the Fund. Each team member is responsible for specific sectors. All
team members are responsible for the execution of the overall strategy of the
Fund.
The composition of the team may change without notice from time to time.
OTHER ACCOUNTS MANAGED BY THE PORTFOLIO MANAGERS
As of June 30, 2007, Mr. Kreider managed 29 mutual funds with a total of
approximately $30.2 billion in assets; no pooled investment vehicles other than
mutual funds; and 72 other accounts (including accounts managed under certain
"wrap fee programs") with a total of approximately $13 billion in assets. Of
these other accounts, three accounts with a total of approximately $963.4
million in assets had performance based fees.
As of June 30, 2006, Mr. Herbert managed eight mutual funds with a total of
approximately $6 billion in assets; no pooled investment vehicles other than
mutual funds; and no other accounts.
Because the portfolio managers manage assets for other investment companies,
pooled investment vehicles, and/or other accounts (including institutional
clients, pension plans and certain high net
worth individuals), there may be an incentive to favor one client over another
resulting in conflicts of interest. For instance, the Adviser may receive fees
from certain accounts that are higher than the fee it receives from the Fund, or
it may receive a performance-based fee on certain accounts. In those instances,
the portfolio managers may have an incentive to favor the higher and/or
performance-based fee accounts over the Fund. In addition, a conflict of
interest could exist to the extent the Adviser has proprietary investments in
certain accounts, where portfolio managers have personal investments in certain
accounts or when certain accounts are investment options in the Adviser's
employee benefits and/or deferred compensation plans. The portfolio manager may
have an incentive to favor these accounts over others. If the Adviser manages
accounts that engage in short sales of securities of the type in which the Fund
invests, the Adviser could be seen as harming the performance of the Fund for
the benefit of the accounts engaged in short sales if the short sales cause the
market value of the securities to fall. The Adviser has adopted trade allocation
and other policies and procedures that it believes are reasonably designed to
address these and other conflicts of interest.
PORTFOLIO MANAGER COMPENSATION STRUCTURE
Portfolio managers receive a combination of base compensation and discretionary
compensation, comprised of a cash bonus and several deferred compensation
programs described below. The methodology used to determine portfolio manager
compensation is applied across all accounts managed by the portfolio manager.
BASE SALARY COMPENSATION. Generally, portfolio managers receive base salary
compensation based on the level of their position with the Adviser.
DISCRETIONARY COMPENSATION. In addition to base compensation, portfolio managers
may receive discretionary compensation.
Discretionary compensation can include:
- Cash Bonus;
- Morgan Stanley's Long-Term Incentive Compensation Program awards - a mandatory
program that defers a portion of discretionary year-end compensation into
restricted stock units or other awards based on Morgan Stanley common stock that
are subject to vesting and other conditions;
- Investment Management Alignment Plan (IMAP) awards - a mandatory program that
defers a portion of discretionary year-end compensation and notionally invests
it in designated funds advised by the Adviser or its affiliates. The award is
subject to vesting and other conditions. Portfolio managers must notionally
invest a minimum of 25% to a maximum of 100% of the IMAP deferral into a
combination of the designated open-end funds they manage that are included in
the IMAP Fund menu;
- Voluntary Deferred Compensation Plans - voluntary programs that permit certain
employees to elect to defer a portion of their discretionary year-end
compensation and directly or notionally invest the deferred amount: (1) across a
range of designated investment funds, including funds advised by the Adviser or
its affiliates; and/or (2) in Morgan Stanley stock units.
Several factors determine discretionary compensation, which can vary by
portfolio management team and circumstances. In order of relative importance,
these factors include:
- Investment performance. A portfolio manager's compensation is linked to the
pre-tax investment performance of the funds/accounts managed by the portfolio
manager. Investment performance is calculated for one-, three- and five-year
periods measured against an appropriate securities market index (or indices) for
the funds/accounts managed by the portfolio manager. In the case of the Fund,
the Fund's investment performance is measured against the Lehman Brothers
Municipal Bond Index and against appropriate rankings or rating prepared by
Lipper Inc., Morningstar Inc. or similar independent services which monitor fund
performance. Other funds/accounts managed by the same portfolio manager may be
measured against this same index and same rankings or ratings, if appropriate,
or against other indices and other rankings or ratings that are deemed more
appropriate given the size and/or style of such funds/accounts as set forth in
such funds'/accounts' disclosure
materials and guidelines. The assets managed by the portfolio managers in funds,
pooled investment vehicles and other accounts are described in "Other Accounts
Managed by the Portfolio Managers" above. Generally, the greatest weight is
placed on the three- and five-year periods.
- Revenues generated by the investment companies, pooled investment vehicles and
other accounts managed by the portfolio manager.
- Contribution to the business objectives of the Adviser.
- The dollar amount of assets managed by the portfolio manager.
- Market compensation survey research by independent third parties.
- Other qualitative factors, such as contributions to client objectives.
- Performance of Morgan Stanley and Morgan Stanley Investment Management Inc.,
and the overall performance of the investment team(s) of which the portfolio is
a member.
SECURITIES OWNERSHIP OF PORTFOLIO MANAGERS
As of June 30, 2007, the portfolio managers did not own any shares of the Fund.
Item 9. Purchase of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not Applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
Not Applicable.
Item 11. Controls and Procedures
(a) The Fund's principal executive officer and principal financial officer have
concluded that the Fund's disclosure controls and procedures are sufficient to
ensure that information required to be disclosed by the Fund in this Form N-CSR
was recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms, based
upon such officers' evaluation of these controls and procedures as of a date
within 90 days of the filing date of the report.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the second fiscal quarter of the period covered
by this report that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting.
Item 12. Exhibits.
(1) The Code of Ethics for Principal Executive and Senior Financial Officers is
attached hereto.
(2)(a) A certification for the Principal Executive Officer of the registrant is
attached hereto as part of EX-99.CERT.
(2)(b) A certification for the Principal Financial Officer of the registrant is
attached hereto as part of EX-99.CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Van Kampen Bond Fund
By: /s/ Ronald E. Robison
---------------------
Name: Ronald E. Robison
Title: Principal Executive Officer
Date: August 9, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
By: /s/ Ronald E. Robison
---------------------
Name: Ronald E. Robison
Title: Principal Executive Officer
Date: August 9, 2007
By: /s/ Stuart N. Schuldt
---------------------
Name: Stuart N. Schuldt
Title: Principal Financial Officer
Date: August 9, 2007