<PAGE>
Table of Contents
<TABLE>
<CAPTION>
<S> <C>
Letter to Shareholders..................................................... 1
Performance Results........................................................ 3
Portfolio of Investments................................................... 4
Statement of Assets and Liabilities........................................ 6
Statement of Operations.................................................... 7
Statement of Changes in Net Assets......................................... 8
Financial Highlights....................................................... 9
Notes to Financial Statements.............................................. 10
</TABLE>
EXCH SAR 8/97
<PAGE>
Letter to Shareholders
July 30, 1997
[PHOTO OF Dennis J. McDonnell and Don G. Powell]
Dear Shareholder,
As you know, Van Kampen American Capital was acquired by Morgan Stanley
Group Inc., a world leader in asset management. On February 5, 1997, Morgan
Stanley Group Inc. and Dean Witter, Discover & Co. agreed to merge; the merger
was completed on May 31, creating the combined company of Morgan Stanley, Dean
Witter, Discover & Co. This preeminent global financial services firm boasts a
market capitalization of $21 billion and leading market positions in securities,
asset management, and credit services. Additionally, I am very pleased to
announce that Philip N. Duff, formerly the chief financial officer of Morgan
Stanley, has joined Van Kampen American Capital as president and chief executive
officer. I will continue as chairman of the firm.
As the financial industry continues to witness unprecedented consolidations
and new partnerships, we believe that those firms who are leaders in all facets
of their business will be able to offer investors the greatest opportunities and
services as we move into the next century. We are confident that these changes
will continue to work to the benefit of our fund shareholders as we move into
the next century.
Economic Review
Stocks rallied dramatically higher during the first half of 1997, lifting
major market indexes once again to record highs. As of June 30, the Standard &
Poor's 500-Stock Index was up 19.5 percent; however, it was a fairly volatile
climb.
At the beginning of the year, continued strong economic growth, rising
corporate earnings, and constant large flows of new money into the market lifted
stock prices higher. But by February, strong growth fueled fears of an interest
rate hike by the Federal Reserve Board, causing stocks and bonds to retreat.
The Fed raised rates a modest quarter percentage point in late March, which the
market viewed as the first of several rounds of credit tightening. As a result,
the downturn continued, and by mid-April, stocks had given back all of their
earlier 1997 gains. The situation reversed itself again in early May after
first-quarter growth was reported to have surged to 5.9 percent with little
sign of renewed inflation. Stocks eventually set new highs following the Fed's
decision not to raise rates again in May. For most of the six-month period,
large-capitalization stocks out performed small-cap and mid-cap stocks, although
the latter staged a comeback in May and June.
Fund Strategy
The Fund is a California limited partnership that is closed to new
investors. Its portfolio of 33 large-capitalization stocks remains heavily
invested in Intel Corp., a manufacturer of semiconductors, which accounts for
about 26 percent of the Fund's long-term investments. Pharmaceutical
1 Continued on page two
<PAGE>
stocks are another large component, accounting for approximately 28 percent of
the Fund's long-term investments. These stocks include Johnson & Johnson, Merck,
Schering-Plough, and Warner-Lambert.
Activity that occurred during the six-month period was limited to exchanges
of stock in order to facilitate the redemption of shares. Because of its size
and recent gain, Intel was sold for this purpose.
Performance Summary
For the six-month period ended June 30, 1997, the Fund generated a total
return at net asset value of 14.57 percent/1/. This return reflects an increase
in net asset value per share from $205.35 on December 31, 1996, to $234.60 on
June 30, 1997. By comparison, the Standard & Poor's 500-Stock Index produced a
total return of 19.5 percent for the same period. Keep in mind that this is a
broad-based, unmanaged index reflecting general stock market performance, and
does not reflect any commissions or fees that would be incurred by an investor
purchasing the securities it represents.
Outlook
We believe the stock market will continue to advance during the second half
of 1997, although the rally may not be as strong as it was during the first
half of the year. We continue to see strength in the economy, but we do not
expect the 5.9 percent growth pace of the first quarter to be repeated in the
remaining quarters of 1997. While labor productivity and manufacturing remained
strong in the second quarter, retail sales fell, and the unemployment rate,
which had slipped in April and May, edged back up in June.
We anticipate that growth will accelerate again during the second half of
the year due to the economy's strong underlying fundamentals, including consumer
confidence, job growth, and moderate inflation. As a result, we believe
corporate earnings will continue to rise. At the same time, we believe there is
a chance that the Fed may raise rates again before year end, which could
potentially pressure stock and bond prices. Despite that possibility, we believe
that the outlook for many of the sectors in which the Fund is invested,
including pharmaceuticals, health care, and technology stocks, remains
favorable.
Thank you for your continued confidence in your investment with Van Kampen
American Capital.
Sincerely,
/s/ Don G. Powell /s/ Dennis J. McDonnell
Don G. Powell Dennis J. McDonnell
Chairman President
Van Kampen American Capital Van Kampen American Capital
Asset Management, Inc. Asset Management, Inc.
2
<PAGE>
Performances Results for the Period Ended June 30, 1997
Van Kampen American Capital Exchange Fund
<TABLE>
<CAPTION>
Total Returns
<S> <C>
Six-month total return/1/............................................ 14.57%
One-year total return/1/............................................. 41.45%
Five-year average annual total return/1/............................. 20.44%
Ten-year average annual total return/1/.............................. 15.23%
Life-of-Fund average annual total return/1/.......................... 14.70%
Commencement Date.................................................... 12/16/76
</TABLE>
/1/Total return based on net asset value (NAV) assumes an investment at the
beginning of the period indicated, reinvestment of all distributions for the
period, and sale of all shares at the end of the period, all at NAV.
See the Prior Performance section of the current prospectus. Past performance
does not guarantee future results. Investment return and net asset value will
fluctuate with market conditions. Fund shares, when redeemed, may be worth more
or less than their original cost.
Market forecasts provided in this report may not necessarily come to pass.
3
<PAGE>
Portfolio of Investments
June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
============================================================================
Number
Description of Shares Market Value
- ----------------------------------------------------------------------------
<S> <C> <C>
Common Stocks 95.0%
Consumer Distribution 4.1%
Ikon Office Solutions, Inc..................... 86,993 $2,169,388
Unisource Worldwide, Inc....................... 43,496 695,936
----------
2,865,324
----------
Consumer Durables 0.7%
Dana Corp...................................... 13,677 519,726
----------
Consumer Non-Durables 5.3%
International Flavours & Fragrances, Inc....... 49,712 2,510,456
McCormick & Co., Inc........................... 48,259 1,218,540
----------
3,728,996
----------
Consumer Services 0.4%
Luby's Cafeterias, Inc......................... 13,367 266,505
----------
Energy 13.3%
Amerada Hess Corp.............................. 21,200 1,177,925
Amoco Corp..................................... 12,800 1,112,800
Apache Corp.................................... 11,406 370,695
Baker Hughes, Inc.............................. 25,634 991,715
Dresser Industries, Inc........................ 30,320 1,129,420
Kerr McGee Corp................................ 10,900 690,788
Mobil Corp..................................... 40,262 2,813,307
Schlumberger, Ltd.............................. 8,040 1,005,000
----------
9,291,650
----------
Finance 3.3%
American International Group, Inc.............. 9,882 1,476,123
Household International, Inc................... 7,124 836,625
----------
2,312,748
----------
Healthcare 26.8%
Allegiance Corp................................ 1,000 27,250
American Home Products Corp.................... 28,000 2,142,000
Baxter International, Inc...................... 5,000 261,250
Johnson & Johnson, Inc......................... 54,432 3,504,060
Merck & Co., Inc............................... 25,188 2,606,958
</TABLE>
4 See Notes to Financial Statements
<PAGE>
Portfolio of Investments (Continued)
June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
==============================================================================
Number
Description of Shares Market Value
- ------------------------------------------------------------------------------
<S> <C> <C>
Healthcare (Continued)
Schering-Plough Corp........................... 102,608 $ 4,912,358
Warner-Lambert Co.............................. 42,430 5,271,927
-----------
18,725,803
-----------
Producer Manufacturing 1.8%
AlliedSignal, Inc.............................. 6,264 526,176
Fluor Corp..................................... 12,831 708,111
-----------
1,234,287
-----------
Raw Materials/Processing Industries 12.2%
Air Products & Chemicals, Inc.................. 54,545 4,431,781
Alcan Aluminum, Ltd............................ 10,774 373,723
Georgia Pacific Corp........................... 18,688 1,595,488
Louisiana Pacific Corp......................... 25,970 548,616
Lubrizol Corp.................................. 37,620 1,577,689
-----------
8,527,297
-----------
Technology 27.1%
General Signal Corp............................ 20,000 872,500
Intel Corp..................................... 122,512 17,373,733
International Business Machines Corp........... 7,508 677,128
-----------
18,923,361
-----------
Total Long-Term Investments
(Cost $7,444,060).............................................. 66,395,697
-----------
Short-Term Investments 5.0%
General Electric Capital Corp. ($1,515,000 par,
yielding 6.05%, 07/01/1997 maturity)........................... 1,514,745
Prudential Funding Corp. ($2,000,000 par, yielding
6.03%, 07/01/1997 maturity).................................... 1,999,665
-----------
Total Short-Term Investments
(Cost $3,514,410).............................................. 3,514,410
-----------
Total Investments 100.0%
(Cost $10,958,470)............................................. 69,910,107
Liabilities in Excess of Other Assets 0.0%....................... (6,930)
-----------
Net Assets 100.0%................................................ $69,903,177
===========
</TABLE>
5 See Notes to Financial Statements
<PAGE>
Statement of Assets and Liabilities
June 30, 1997 (Unaudited)
=============================================================================
<TABLE>
<CAPTION>
<S> <C>
Assets:
Total Investments (Cost $10,958,470)........................... $69,910,107
Cash........................................................... 4,096
Receivables:
Investments Sold............................................. 99,978
Dividends.................................................... 67,525
Other.......................................................... 679
-----------
Total Assets............................................... 70,082,385
-----------
Liabilities:
Payables:
Fund Shares Repurchased...................................... 100,000
Investment Advisory Fee...................................... 28,566
Affiliates................................................... 3,126
Income Distributions......................................... 1,305
Retirement Plan................................................ 30,365
Accrued Expenses............................................... 15,846
-----------
Total Liabilities.......................................... 179,208
-----------
Net Assets..................................................... $69,903,177
===========
Net Assets Were Comprised of:
293,938 units of limited partnership interest.................. $68,958,085
3,534 units of non-managing general partnership interest....... 828,944
495 units of managing general partnership interest............. 116,148
-----------
Net Assets..................................................... $69,903,177
===========
Net Asset Value Per Unit
($69,903,177 divided by 297,967 units of partnership
interest outstanding)...................................... $ 234.60
===========
</TABLE>
6 See Notes to Financial Statements
<PAGE>
Statement of Operations
For the Six Months Ended June 30, 1997 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
<S> <C>
Investment Income:
Dividends......................................................... $ 445,720
Interest.......................................................... 89,675
-----------
Total Income.................................................. 535,395
-----------
Expenses:
Investment Advisory Fee........................................... 164,873
Managing General Partners' Fees and Expenses...................... 38,650
Shareholder Services.............................................. 7,982
Custody........................................................... 6,582
Legal............................................................. 2,494
Other............................................................. 33,037
-----------
Total Expenses................................................ 253,618
-----------
Net Investment Income............................................. $ 281,777
===========
Realized and Unrealized Gain/Loss
Net Realized Gain................................................. $ 3,068,888
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period......................................... 53,335,307
End of the Period............................................... 58,951,637
-----------
Net Unrealized Appreciation During the Period..................... 5,616,330
-----------
Net Realized and Unrealized Gain.................................. $ 8,685,218
===========
Net Increase in Net Assets From Operations........................ $ 8,966,995
===========
</TABLE>
7 See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
For the Six Months Ended June 30, 1997
and the Year Ended December 31, 1996 (Unaudited)
==============================================================================
Six Months Ended Year Ended
June 30, 1997 December 31, 1996
- ------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income..................... $ 281,777 $ 457,374
Net Realized Gain......................... 3,068,888 1,864,174
Net Unrealized Appreciation
During the Period....................... 5,616,330 14,427,053
----------- -----------
Change in Net Assets from Operations...... 8,966,995 16,748,601
Distributions from Net Investment Income.. (192,075) (393,524)
----------- -----------
Net Change in Net Assets from
Investment Activities................... 8,774,920 16,355,077
----------- -----------
From Partnership Unit Transactions:
Proceeds from Units Issued Through
Dividend Reinvestment................... 25,259 52,164
Cost of Units Repurchased................. (663,836) (2,395,079)
----------- -----------
Net Change in Net Assets from
Partnership Unit Transactions........... (638,577) (2,342,915)
----------- -----------
Total Increase in Net Assets.............. 8,136,343 14,012,162
Net Assets:
Beginning of the Period................... 61,766,834 47,754,672
=========== ===========
End of the Period
(Including accumulated undistributed net
investment income of $2,523,120 and
$2,433,418, respectively)............... $69,903,177 $61,766,834
=========== ===========
Change in Partnership Units Outstanding:
Units Issued Through Dividend
Reinvestment............................ 113 313
Units Repurchased......................... (2,936) (13,938)
----------- -----------
Decrease in Partnership Units Outstanding (2,823) (13,625)
----------- -----------
</TABLE>
8 See Notes to Financial Statments
<PAGE>
Financial Highlights
The following schedule presents financial highlights for one unit of partnership
interest outstanding throughout the periods indicated. (Unaudited)
<TABLE>
<CAPTION>
=============================================================================================================
Six Months Ended Year Ended December 31 (a)
June 30, 1997 (a) 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period............ $205.349 $ 151.88 $115.36 $111.32 $104.40
-------- -------- ------- ------- -------
Net Investment Income............................. .940 1.488 1.62 1.62 1.49
Net Realized and Unrealized Gain.................. 28.951 53.261 36.18 3.70 6.71
-------- -------- ------- ------- -------
Total from Investment Operations.................... 29.891 54.749 37.80 5.32 8.20
Less Distributions from Net Investment Income....... .64 1.280 1.28 1.28 1.28
-------- -------- ------- ------- -------
Net Asset Value, End of the Period.................. $234.600 $205.349 $151.88 $115.36 $111.32
======== ======== ======= ======= =======
Total Return........................................ 14.57%* 36.21% 32.89% 4.82% 7.91%
Net Assets at End of the Period (In millions)....... $ 69.9 $ 61.8 $ 47.8 $ 37.7 $ 38.5
Ratio of Expenses to Average Net Assets............. .77% .93% .88% .89% .93%
Ratio of Net Investment Income to
Average Net Assets................................ .85% .87% 1.16% 1.45% 1.38%
Portfolio Turnover.................................. 0%* 0% 0% 0% 0%
</TABLE>
(a) Based on average units outstanding.
* Non-annualized
During the six months ended June 30, 1997, the Fund incurred no brokerage
commissions on equity share trades. This disclosure was not required in fiscal
years prior to 1996.
9 See Notes to Financial Statements
<PAGE>
Notes to Financial Statements
June 30, 1997 (Unaudited)
===============================================================================
1. Significant Accounting Policies
Van Kampen American Capital Exchange Fund (the "Fund"), a California limited
partnership is a partnership registered under the Investment Company Act of
1940, as amended, as a diversified open-end investment management company. The
Fund seeks capital appreciation in a portfolio of common stock. The Fund
commenced investment operations on December 16, 1976.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. Security Valuation-Investments in securities listed on a securities exchange
are valued at their sale price as of the close of such securities exchange.
Fixed income investments are stated at value using market quotations. Unlisted
securities and listed securities for which the last sales price is not
available are valued at the mean between the last reported bid and ask price.
For those securities where quotations or prices are not available, valuations
are determined in accordance with procedures established in good faith by the
Board of Trustees. Short-term securities with remaining maturities of 60 days or
less are valued at amortized cost.
B. Security Transactions-Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements which are short-term
investments whereby the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen American Capital Asset Management, Inc. (the
"Adviser") or its affiliates, the daily aggregate of which is invested in
repurchase agreements. Repurchase agreements are fully collateralized by the
underlying debt security. The Fund will make payment for such securities only
upon physical delivery or evidence of book entry transfer to the account of the
custodian bank. The seller is required to maintain the value of the underlying
security at not less than the repurchase proceeds due the Fund.
C. Investment Income-Dividend income is recorded on the ex-dividend date and
interest income is recorded on an accrual basis. Original issue discount is
amortized over the life of each
10
<PAGE>
Notes to Financial Statements (Continued)
June 30, 1997 (Unaudited)
================================================================================
applicable security. Premiums on debt securities are not amortized. Market
discounts are recognized at the time of sale as realized gains for book purposes
and ordinary income for tax purposes.
D. Federal Income Taxes-The Fund has met the qualifications to be classified as
a partnership for federal income tax purposes and intends to maintain this
qualification in the future. A partnership is not subject to federal income tax.
At June 30, 1997, for federal income tax purposes the cost of long- and
short-term investments is $10,958,470; the aggregate gross unrealized
appreciation is $58,951,637 and the aggregate gross unrealized depreciation is
$0, resulting in net unrealized appreciation of $58,951,637.
E. Distribution of Income and Gains-Quarterly distributions to partners are
recorded on the record date. Net investment income is allocated daily to each
partner, relative to the total number of units held. Capital gains or losses
will be allocated equally among units outstanding on the day recognized.
2. Investment Advisory Agreement and Other Transactions with Affiliates
Under the terms of the Fund's Investment Advisory Agreement, Van Kampen American
Capital Asset Management, Inc., the Adviser, will provide facilities and
investment advice to the Fund for an annual fee payable monthly of .50% based on
the average daily net assets of the Fund.
For the six months ended June 30, 1997, the Fund recognized expenses of
approximately $9,100 representing Van Kampen American Capital, Inc.'s or its
affiliates' (collectively "VKAC") cost of providing accounting services to the
Fund. These services are provided by VKAC at cost.
ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the six months ended
June 30, 1997, the Fund recognized expenses of approximately $7,500,
representing ACCESS' cost of providing transfer agency and shareholder services
plus a profit.
Managing general partners (the "Partners") of the Fund who are not
affiliated with the Adviser are compensated by the Fund at the annual rate of
$5,000 plus a fee of $750 per Board meeting attended.
The Partners of the Fund instituted a Retirement Plan effective April 1,
1996. The Plan is not funded, and obligations under the Plan will be paid solely
out of the Fund's general accounts. The Fund will not reserve or set aside funds
for the payment of its obligations under the Plan by any form of trust or
escrow. For the current Partners not affiliated with the Adviser, the annual
retirement benefit payable per year for a ten year period is based upon the
highest total annual compensation received in any of the three calendar years
preceding retirement. Partners with more than five but less than ten years
service at retirement will receive a prorated reduced benefit. Under the Plan,
for
11
<PAGE>
Notes to Financial Statements (Continued)
June 30, 1997 (Unaudited)
===============================================================================
the Partners retiring with the effectiveness of the Plan, the annual retirement
benefit payable per year for a ten year period is equal to 75% of the total
compensation received from the Fund during the 1995 calendar year.
At June 30, 1997, the Adviser and Van Kampen American Capital Exchange
Corp., as non-managing general partners of the Fund, owned 354 and 3,180 units
of partnership interest, respectively.
3. Investment Transactions
During the period, the cost of purchases and proceeds from sales of
investments, excluding short-term investments, were $-0- and $3,277,221,
respectively.
12
<PAGE>
Funds Distributed by Van Kampen American Capital
GLOBAL AND
INTERNATIONAL
Global Equity Fund
Global Government Securities Fund
Global Managed Assets Fund
Short-Term Global Income Fund
Strategic Income Fund
EQUITY
Growth
Aggressive Growth Fund
Emerging Growth Fund
Enterprise Fund
Growth Fund
Pace Fund
Growth & Income
Comstock Fund
Equity Income Fund
Growth and Income Fund
Harbor Fund
Real Estate Securities Fund
Utility Fund
FIXED INCOME
Corporate Bond Fund
Government Securities Fund
High Income Corporate Bond Fund
High Yield Fund
Limited Maturity Government Fund
Prime Rate Income Trust
Reserve Fund
U.S. Government Fund
U.S. Government Trust for Income
TAX-FREE
California Insured Tax Free Fund
Florida Insured Tax Free Income Fund
High Yield Municipal Fund
Insured Tax Free Income Fund
Intermediate Term Municipal Income Fund
Municipal Income Fund
New Jersey Tax Free Income Fund
New York Tax Free Income Fund
Pennsylvania Tax Free Income Fund
Tax Free High Income Fund
Tax Free Money Fund
MORGAN STANLEY
FUND, INC.
Aggressive Equity Fund
American Value Fund
Asian Growth Fund
Emerging Markets Fund
Global Equity Allocation Fund
Global Fixed Income Fund
High Yield Fund
International Magnum Fund
Latin American Fund
U.S. Real Estate Fund
Value Fund
Worldwide High Income Fund
Ask your investment representative for a prospectus containing more complete
information, including sales charges and expenses. Please read it carefully
before you invest or send money. Or call us weekdays from 7:00 a.m. to 7:00 p.m.
Central time at 1-800-341-2911 for Van Kampen American Capital funds or Morgan
Stanley retail funds.
13
<PAGE>
Van Kampen American Capital Exchange Fund
(California Limited Partnership)
Managing General Partners
Donald M. Carlton
Stephen Randolph Gross
Don G. Powell*
Alan B. Shepard, Jr.
Officers
Don G. Powell*
Chairman and Chief Executive Officer
Dennis J. McDonnell*
Executive Vice President
Alan T. Sachtleben*
Chief Investment Officer
Edward C. Wood, III*
Vice President and Chief Financial Officer
Curtis W. Morell*
Vice President and Chief Accounting Officer
Peter W. Hegel*
Ronald A. Nyberg*
Vice Presidents
John L. Sullivan*
Treasurer
Tanya M. Loden*
Financial Officer
Investment Adviser
Van Kampen American Capital
Asset Management, Inc.
One Parkview Plaza
Oakbrook Terrace, IL 60181
Shareholder Service Agent
ACCESS Investor
Services, Inc.
P.O. Box 418256
Kansas City, Missouri 64141-9256
Custodian
State Street Bank and Trust Co.
225 Franklin Street
Boston, Massachusetts 02105
Non-Managing General Partners
Van Kampen American Capital
Exchange Corp.
One Parkview Plaza
Oakbrook Terrace, IL 60181
Van Kampen American Capital
Asset Management, Inc.
One Parkview Plaza
Oakbrook Terrace, IL 60181
Independent Accountants
KPMG Peat Marwick LLP
NationsBank Center
700 Louisiana
Houston, Texas 77210
Legal Counsel
Sullivan & Worcester LLP
1025 Connecticut Ave., NW
Washington, DC 20036
* "Interested" persons of the Fund, as defined in the Investment Company Act
of 1940.
(C) Van Kampen American Capital Distributors, Inc., 1997 All rights reserved.
(SM) denotes a service mark of Van Kampen American Capital Distributors, Inc.
14
