<PAGE> 1
- ---------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 3
Portfolio Highlights............................. 4
Portfolio Management Review...................... 5
Portfolio of Investments......................... 8
Statement of Assets and Liabilities.............. 11
Statement of Operations.......................... 12
Statement of Changes in Net Assets............... 13
Financial Highlights............................. 14
Notes to Financial Statements.................... 17
</TABLE>
USGF SAR 8/96
<PAGE> 2
LETTER TO SHAREHOLDERS
August 1, 1996
Dear Shareholder,
As you may be aware, an agreement
was reached in late June for VK/AC
Holding, Inc., the parent company of [PHOTO]
Van Kampen American Capital, Inc., to DENNIS J. MCDONNELL AND DON G. POWELL
be acquired by the Morgan Stanley
Group Inc. While this announcement
may appear commonplace in an
ever-changing financial industry, we
believe it represents an exciting
opportunity for shareholders of our investment products.
With Morgan Stanley's global
leadership in investment banking and asset management and Van Kampen American
Capital's reputation for competitive long-term performance and superior investor
services, together we will offer a broader range of investment opportunities and
expertise.
The new ownership will not affect our commitment to pursuing excellence in
all aspects of our business. And, we expect very little change in the way your
mutual fund account is maintained and serviced.
A proxy will be mailed to you shortly explaining the acquisition and asking
for your vote of approval. Please read it carefully and return your response for
inclusion in the shareholder vote. We value our relationship with you and look
forward to communicating more details of this transaction, which is anticipated
to be completed in November.
ECONOMIC REVIEW
The economy demonstrated an acceleration in growth during the six-month
reporting period. After a nominal 0.3 percent growth rate in the last quarter of
1995, GDP (the nation's gross domestic product) rose by 2.0 percent in this
year's first quarter. And, as anticipated the economy grew by 4.2 percent in the
second quarter, partly reflecting a recovery from the effects of labor strikes
earlier in the year and extreme weather conditions across the country. Upward
momentum has been assisted by consumer spending, as indicated by a 5.6 percent
rise in retail sales in the first five months of this year versus the comparable
1995 period.
In the manufacturing sector, economic reports, such as the National
Association of Purchasing Managers Index, suggested a continued rebound in
production from last winter's lower levels. In June, this index reached its
highest level since early 1995. Strong levels of exports and a replenishing of
inventories have helped support this momentum.
Surprisingly healthy economic activity led to concerns that inflation may
rise and the Federal Reserve Board might tighten monetary policy. Inflation
remains modest, however, with consumer prices rising at about a 3 percent annual
rate over the past year. Meanwhile, the closely watched "core" Consumer Price
Index, which excludes volatile food
Continued on page two
1
<PAGE> 3
and energy components, has risen year over year at rates between 2.7 and 3.0
percent per year, with mid-1996 readings at a moderate 2.7 percent. In general,
recent reports have suggested an upward creep in labor-related costs, while
indicating that prices of many commodities have begun to decline.
MARKET REVIEW AND OUTLOOK
During the first half of 1996, interest rates rose sharply, and U.S.
Treasury yields increased by 1.00 to 1.25 percent. Benchmark 10-year U.S.
Treasuries declined in value by 7.8 percent. Signs of increasing economic
momentum, as discussed above, were the major factor contributing to this
decline.
We anticipate that reasonably strong economic growth will continue during
the balance of 1996, albeit at rates more moderate than the second quarter's
swift pace. While we expect rates of inflation to remain near current levels,
the Fed may begin to lean toward greater restraint in its monetary policy in the
coming months. That suggests an upward bias for short-term interest rates and
for yields on long-term bonds to remain steady at current levels. In particular,
we expect 10-year Treasury yields to remain within a trading range of 6.50 and
7.25 percent.
Additional details about your Fund, including a Question and Answer section
with your portfolio management team, is provided in this report. We appreciate
your continued confidence in your investment with Van Kampen American Capital.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen American Capital
Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen American Capital
Investment Advisory Corp.
2
<PAGE> 4
PERFORMANCE RESULTS FOR THE PERIOD ENDED JUNE 30, 1996
VAN KAMPEN AMERICAN CAPITAL U.S. GOVERNMENT FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS
Six-month total return based on
NAV(1)............................... (.87%) (1.30%) (1.30%)
Six-month total return(2).............. (5.60%) (5.12%) (2.25%)
One-year total return(2)............... (.57%) (.35%) 2.55%
Five-year average annual total
return(2)............................ 6.03% N/A N/A
Ten-year average annual total
return(2)............................ 7.47% N/A N/A
Life-of-Fund average annual total
return(2)............................ 9.51% 3.86% 3.04%
Commencement date...................... 05/31/84 08/24/92 08/13/93
DISTRIBUTION RATE AND YIELD
Distribution rate(3)................... 7.20% 6.81% 6.81%
SEC Yield(4)........................... 6.48% 5.96% 5.96%
</TABLE>
N/A = Not Applicable
(1)Assumes reinvestment of all distributions for the period and does not include
payment of the maximum sales charge (4.75% for A shares) or contingent deferred
sales charge for early withdrawal (4% for B shares and 1% for C shares).
(2)Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (A shares) or contingent
deferred sales charge for early withdrawal (B and C shares).
(3)Distribution rate represents the monthly annualized distributions of the Fund
at the end of the period and not the earnings of the Fund.
(4)SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending June 30, 1996.
See the Fund 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.
3
<PAGE> 5
PORTFOLIO HIGHLIGHTS
VAN KAMPEN AMERICAN CAPITAL U.S. GOVERNMENT FUND
COUPON DISTRIBUTION AS OF JUNE 30, 1996
[GRAPH]
<TABLE>
<S> <C>
5 or less........... 0.4%
6-7................. 8.0%
7-8................. 36.2%
8-9................. 17.3%
9-10................ 27.5%
10 or more.......... 10.6%
</TABLE>
PORTFOLIO COMPOSITION
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
<S> <C>
GNMA................ 53.3%
FNMA................ 28.7%
Treasury/Agency..... 4.9%
REMIC/CMO........... 8.9%
FHLMC............... 4.2%
</TABLE>
[Pie Chart]
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1995
<S> <C>
GNMA................ 48.3%
FNMA................ 32.5%
Treasury/Agency..... 7.8%
REMIC/CMO........... 7.7%
FHLMC............... 3.7%
[Pie Chart]
</TABLE>
DURATION
<TABLE>
<CAPTION>
ON JUNE 30, 1996 ON DECEMBER 31, 1995
<S> <C> <C>
Duration 4.67 years 5.43 years
</TABLE>
4
<PAGE> 6
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN AMERICAN CAPITAL U.S. GOVERNMENT FUND
We recently spoke with the management team of the Van Kampen American Capital
U.S. Government Fund about the key events and economic forces that shaped the
markets during the first half of the Fund's fiscal year. The team includes Jack
E. Doyle, portfolio manager, and Peter W. Hegel, executive vice president for
fixed-income investments. The following excerpts reflect their views on the
Fund's performance during the six-month period ended June 30, 1996.
THE FOLLOWING KEY TERMS ARE LISTED IN THE ORDER IN WHICH YOU WILL
FIND THEM IN THIS REPORT.
BASIS POINT: A measure used in quoting yields on bonds. One hundred basis points
is equal to one percent. For example, if a bond's yield changes from 7.00 to
6.65 percent, it would be considered a 35 basis point move.
DURATION: A measure of a bond's price sensitivity to changes in interest rates.
To understand the importance of duration, consider that it has a direct impact
on a fund's net asset value. The higher the duration, the greater the effect of
changes in interest rate movements on net asset value.
MORTGAGE-BACKED SECURITIES: Securities backed by mortgages. These securities
allow investors to receive payments of interest and principal from the
underlying mortgages. These securities are generally issued by U.S. government
agencies such as, Federal Home Loan Mortgage Corporation (FHLMC, "FreddieMac"),
Federal National Mortgage Association (FNMA, "FannieMae"), and Government
National Mortgage Association (GNMA, "GinnieMae").
WHAT EVENTS OR MARKET CONDITIONS HAD THE GREATEST IMPACT ON
Q THE FUND DURING THE FIRST HALF OF THIS YEAR?
The bond market, in general, has been haunted by the specter
A of a strengthening economy. When economic indicators hinted at
stronger growth--in the range of 4 percent or higher--for the second
quarter of 1996, it unsettled the market. The bond market has come to
associate strong economic growth with inflation, which, of course, is always a
concern for fixed-income investors.
Although stronger growth does not assure a return of inflation, interest
rates on long-term Treasuries were driven up by 130 to 140 basis points (or
nearly 1 1/2 percentage points) during the first half of 1996. The market has
been worried that the Federal Reserve Board would decide to raise interest rates
in order to keep the economy's growth rate in check.
5
<PAGE> 7
Q WHAT ACTIONS DID YOU TAKE TO ADJUST THE FUND'S PORTFOLIO?
The most significant change was our reduction in the Fund's
A duration to around 4.7 years at the end of the period from
about 5.4 years at the beginning of the year. By shortening the
duration, we were able to dampen the negative effects of rising interest rates
on the Fund's net asset value.
We had maintained a longer duration throughout most of the rally in 1995, so
we were able to more fully participate in the market's strong performance last
year. We moved decisively to shorten the duration early in 1996, just weeks
before the rally ended and the sell-off began. This defensive posture helped us
sidestep the sell-off and keep the Fund slightly above-average in terms of
relative performance.
In summary, our goal has been to move toward a less volatile positioning of
the Fund's assets. A shorter duration is part of that strategy. Please refer to
page four for Fund portfolio highlights.
Q HOW DID THE FUND PERFORM DURING THE PERIOD?
The Fund's total return (Class A shares at net asset value)
A over the six-month period ended June 30, 1996, was -0.87
percent(1). The Fund ranked 33 out of 60 funds in the U.S. Mortgage
Fund category, as tracked by Lipper Analytical Services, Inc., for the one-year
period ended June 30, 1996. And consistent with our goal of providing
shareholders with favorable long-term results, the Fund ranked 8 out of 23
funds for the five-year period, and 5 out of 15 funds for the ten-year period
ended June 30, 1996.* Please refer to the chart on page three for additional
Fund performance results.
Over the same six-month period, the Merrill Lynch 1- to 10-year Treasury
Index generated a total return of 0.15 percent. This index is a broad-based,
unmanaged index that reflects the general performance of Treasury bonds with
maturities of 1 to 10 years. The Lehman Brothers Mortgage Index returned 0.35
percent. This index is a broad-based, unmanaged index which reflects general
performance of mortgage-backed securities. Neither index reflects any
commissions or fees that would be paid by an investor purchasing the securities
they represent. The Merrill Lynch 1- to 10-year Treasury Index was initially
selected as a benchmark for the Fund's performance; additionally the Lehman
Brothers Mortgage Index is being added as an additional comparison for the Fund.
In terms of current income, the Fund's Class A shares ended the period with
a monthly dividend of $.0900 per share, though the Fund's Board of Trustees
approved a dividend reduction to $.0875 per share, effective July 1, 1996. In
seeking to further diversify the Fund's assets, we have increased the Fund's
position in Treasury securities which has resulted in a decline in the Fund's
earnings potential, as these are lower yielding securities. Based on the Fund's
Class A share maximum offer price as of June 30, 1996, the new dividend level
represents a distribution rate of 7.0 percent. (3)
6
<PAGE> 8
<TABLE>
<S> <C>
Q WHAT IS YOUR OUTLOOK FOR THE MARKET IN THE MONTHS AHEAD?
There are signs that the market could enter a period of
A stabilization in the near term. The federal budget deficit
continues to trend downward, and despite a pick-up in economic growth,
inflation numbers remained constructive through the second quarter. There is no
doubt that news of Alan Greenspan's confirmation for a third term as Federal
Reserve Board chairman was favorably received by the marketplace. This signals
a likely continuation of a conservative, anti-inflationary monetary policy; at
the very least, the market will not have to deal with the uncertainty of a new
Fed chairperson.
</TABLE>
Nonetheless, we will continue to be cautious, as the economic environment
fails to provide a clear signal at this time.
<TABLE>
<S> <C>
HOW HAVE YOU POSITIONED THE PORTFOLIO AS WE MOVE INTO THE LAST
Q HALF OF THE YEAR?
Our goal will continue to be a stabilization of the Fund's
A performance by taking steps to increase portfolio diversity
and reduce risk. We plan to keep the portfolio's duration at the
shorter end of our target range as we seek to reduce the volatility of our net
asset value and maintain consistent performance.
</TABLE>
Going forward, one of our most significant changes could be in our
allocations among the Treasury and mortgage sectors. Traditionally, we've
weighted the portfolio heavily toward the mortgage sector, usually staying
within the range of 90 to 95 percent in mortgage securities. If bond market
prices begin to firm up, we will shift assets into the Treasury sector,
eventually reaching a mix of about 80 percent mortgage-backed securities and 20
percent Treasury securities. We believe this added diversification could provide
greater portfolio stability in what might be a nervous bond market over the last
half
of the year.
[SIG]
Peter W. Hegel
Executive Vice President
Fixed Income Investments
[SIG]
Jack E. Doyle
Portfolio Manager
* Lipper Analytical Services, Inc. calculations are based upon changes in net
asset value with dividends reinvested. Lipper calculations do not include
sales charges and, if they had, results may have been less favorable.
Please see footnotes on page three
7
<PAGE> 9
PORTFOLIO OF INVESTMENTS
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount Market Value
(000) Description Coupon Maturity (000)
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MORTGAGE BACKED SECURITIES 102.7%
$ 1,036 FHLMC............................................ 10.250% 11/01/09 $ 1,102
306 FHLMC............................................ 11.250 09/01/15 339
20,958 FHLMC............................................ 8.000 01/15/21 21,321
45,788 FHLMC............................................ 8.500 Various 46,861
32,376 FHLMC............................................ 10.000 Various 35,002
31,683 FHLMC............................................ 11.000 Various 34,960
5,089 FHLMC (Seasoned)................................. 8.500 01/01/16 5,247
17,373 FHLMC REMIC #14B PAC............................. 9.000 12/15/19 17,903
40,201 FHLMC REMIC #79C PAC............................. 8.600 10/15/05 41,638
12,433 FHLMC REMIC #89D................................. 9.000 02/15/21 13,153
23,277 FHLMC REMIC #92G PAC............................. 7.000 11/15/20 23,237
13,124 FHLMC REMIC #97G PAC............................. 9.250 11/15/05 13,286
15,061 FHLMC REMIC #106G PAC............................ 8.250 12/15/20 15,765
11,001 FHLMC REMIC #127D PAC............................ 6.000 05/15/20 10,821
13,550 FHLMC REMIC #163E PAC............................ 6.000 01/15/21 12,974
30,326 FHLMC REMIC #165K PAC............................ 6.500 09/15/21 28,991
32,376 FHLMC REMIC #181E PAC............................ 7.000 08/15/21 31,429
10,894 FHLMC REMIC #1350G PAC........................... 7.500 08/15/19 10,932
55 FNMA............................................. 12.500 03/01/15 62
2,444 FNMA............................................. 13.000 06/01/15 2,783
6,548 FNMA............................................. 8.500 07/01/19 6,802
3,021 FNMA............................................. 9.500 05/01/20 3,243
199,129 FNMA............................................. 7.000 10/01/25 191,847
200,000 FNMA............................................. 7.500 01/01/99 200,936
235,162 FNMA (b)......................................... 6.500 Various 220,168
208,537 FNMA............................................. 7.000 Various 200,911
40,041 FNMA............................................. 7.500 Various 39,565
57,190 FNMA............................................. 8.000 Various 57,794
10,611 FNMA............................................. 8.500 Various 10,902
6,329 FNMA............................................. 9.000 Various 6,612
9,527 FNMA............................................. 10.500 Various 10,480
9,946 FNMA............................................. 11.000 Various 11,061
1,894 FNMA............................................. 11.500 Various 2,123
10,609 FNMA (Seasoned).................................. 9.000 Various 11,183
</TABLE>
See Notes to Financial Statements
8
<PAGE> 10
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount Market Value
(000) Description Coupon Maturity (000)
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MORTGAGE BACKED SECURITIES (CONTINUED)
$ 903 FNMA REMIC #89-49C PAC........................... 8.900% 11/25/17 $ 901
5,496 FNMA REMIC #89-85D PAC........................... 7.600 05/25/18 5,527
11,900 FNMA REMIC #89-94G PAC........................... 7.500 12/25/19 11,938
3,619 FNMA REMIC #89-97C............................... 9.000 01/25/15 3,628
18,085 FNMA REMIC #90-12G PAC........................... 4.500 02/25/20 14,953
20,517 FNMA REMIC #90-71H PAC........................... 8.500 06/25/20 21,173
7,221 FNMA REMIC #90-97E PAC........................... 7.000 08/25/19 7,234
15,000 FNMA REMIC #93-4HB PAC........................... 11.000 01/25/19 16,453
133,060 GNMA............................................. 7.000 Various 127,652
385,943 GNMA............................................. 7.500 Various 381,064
293,809 GNMA............................................. 8.000 Various 296,561
60,539 GNMA............................................. 8.500 Various 62,598
541,609 GNMA (c)......................................... 9.000 Various 570,883
64,018 GNMA............................................. 9.500 Various 69,019
15,490 GNMA............................................. 10.000 Various 16,971
22,557 GNMA............................................. 10.500 Various 24,869
2,391 GNMA............................................. 11.000 Various 2,671
3,821 GNMA............................................. 11.500 Various 4,318
2,598 GNMA............................................. 12.000 Various 2,967
2,556 GNMA............................................. 12.500 Various 2,945
1,702 GNMA............................................. 13.000 Various 1,971
215,585 GNMA (Seasoned).................................. 9.000 Various 227,507
943 GNMA GPM......................................... 12.250 Various 1,082
229 GNMA II.......................................... 8.500 Various 235
8,237 GNMA II.......................................... 10.500 Various 8,958
5,112 GNMA II.......................................... 11.000 Various 5,621
2,265 GNMA II.......................................... 11.500 Various 2,514
2,235 GNMA II.......................................... 12.000 Various 2,505
1,339 GNMA II.......................................... 12.500 Various 1,512
----------
3,237,663
----------
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount Market Value
(000) Description Coupon Maturity (000)
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
U.S. TREASURY SECURITIES 5.3%
$ 15,000 U.S. T-Bonds..................................... 13.125% 05/15/01 $ 19,132
5,000 U.S. T-Bonds (c)................................. 13.750 08/15/04 7,187
55,000 U.S. T-Bonds..................................... 14.000 11/15/11 83,932
40,000 U.S. T-Bonds..................................... 12.000 08/15/13 56,507
----------
166,758
----------
TOTAL LONG-TERM INVESTMENTS 108.0%
(Cost $3,387,684) (a)......................................................... 3,404,421
REPURCHASE AGREEMENT 0.8%
UBS Securities (U.S. Treasury Note, $24,008,000 par, 7.75% coupon, due
01/31/00, dated 06/28/96, to be sold on 07/01/96 at $25,313,428)............ 25,302
LIABILITIES IN EXCESS OF OTHER ASSETS (8.8%)................................... (277,552)
----------
NET ASSETS 100%................................................................ $3,152,171
==========
</TABLE>
(a) At June 30, 1996, cost for federal income tax purposes is $3,387,683,900;
the aggregate gross unrealized appreciation is $67,464,877 and the aggregate
gross unrealized depreciation is $50,148,414, resulting in net unrealized
appreciation including open option transactions of $17,316,463.
(b) Securities purchased pursuant to a dollar roll transaction.
(c) Assets segregated as collateral for dollar roll and open option
transactions.
See Notes to Financial Statements
10
<PAGE> 12
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996
(Unaudited)
All amounts, except for Maximum Offering Price information, reported in
thousands
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at Market Value (Cost $3,387,684) (Note 1)................... $3,404,421
Short-Term Investments (Note 1)........................................... 25,302
Receivables:
Securities Sold......................................................... 216,194
Interest................................................................ 25,538
Fund Shares Sold........................................................ 932
Options at Market Value (Net premiums paid of $827) (Note 5).............. 1,406
Other..................................................................... 305
----------
Total Assets.......................................................... 3,674,098
----------
LIABILITIES:
Payables:
Securities Purchased (Note 4)........................................... 502,795
Income Distributions.................................................... 10,039
Fund Shares Repurchased................................................. 3,578
Distributors and Affiliates (Notes 2 and 7)............................. 2,323
Investment Advisory Fee (Note 2)........................................ 1,314
Custodian Bank.......................................................... 420
Accrued Expenses.......................................................... 1,391
Deferred Compensation and Retirement Plans (Note 2)....................... 67
----------
Total Liabilities..................................................... 521,927
----------
NET ASSETS................................................................ $3,152,171
==========
NET ASSETS CONSIST OF:
Capital (Note 3).......................................................... $3,616,116
Net Unrealized Appreciation on Securities................................. 17,316
Accumulated Undistributed Net Investment Income........................... 2,377
Accumulated Net Realized Loss on Securities............................... (483,638)
----------
NET ASSETS................................................................ $3,152,171
==========
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on net assets of
$2,700,424,594 and 189,146,785 shares of capital stock issued and
outstanding) (Note 3)................................................. $ 14.28
Maximum sales charge (4.75%* of offering price)....................... .71
----------
Maximum offering price to public...................................... $ 14.99
==========
Class B Shares:
Net asset value and offering price per share (Based on net assets of
$436,579,299 and 30,596,881 shares of capital stock issued and
outstanding) (Note 3)................................................. $ 14.27
==========
Class C Shares:
Net asset value and offering price per share (Based on net assets of
$15,166,777 and 1,062,917 shares of capital stock issued and
outstanding) (Note 3)............................................... $ 14.27
==========
</TABLE>
* On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
11
<PAGE> 13
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1996
(Unaudited)
All amounts reported in thousands
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest................................................................... $ 131,430
Fee Income (Note 4)........................................................ 3,467
---------
Total Income........................................................... 134,897
---------
EXPENSES:
Investment Advisory Fee (Note 2)........................................... 8,327
Distribution (12b-1) and Service Fees (Allocated to Classes A, B and C of
$2,439, $2,242 and $71, respectively) (Note 7)........................... 4,752
Shareholder Services (Note 2).............................................. 2,255
Custody.................................................................... 1,003
Legal (Note 2)............................................................. 148
Trustees Fees and Expenses (Note 2)........................................ 23
Other...................................................................... 523
---------
Total Operating Expenses............................................... 17,031
Interest Expense (Note 4).............................................. 562
---------
Total Expenses......................................................... 17,593
Less Expenses Reimbursed............................................... 5
---------
Net Expenses........................................................... 17,588
---------
NET INVESTMENT INCOME...................................................... $ 117,309
=========
REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:
Realized Gain/Loss on Securities:
Investments.............................................................. $ (22,743)
Options.................................................................. (6,918)
Futures.................................................................. (284)
---------
Net Realized Loss on Securities............................................ (29,945)
---------
Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period.................................................. 137,484
---------
End of the Period:
Investments............................................................ 16,737
Options................................................................ 579
---------
17,316
---------
Net Unrealized Depreciation on Securities During the Period................ (120,168)
---------
NET REALIZED AND UNREALIZED LOSS ON SECURITIES............................. $(150,113)
=========
NET DECREASE IN NET ASSETS FROM OPERATIONS................................. $ (32,804)
=========
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 1996 and
the Year Ended December 31, 1995
(Unaudited)
All amounts reported in thousands
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1996 December 31, 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................. $ 117,309 $ 260,233
Net Realized Loss on Securities....................... (29,945) (3,772)
Net Unrealized Appreciation/Depreciation on
Securities During the Period........................ (120,168) 299,945
---------- ----------
Change in Net Assets from Operations.................. (32,804) 556,406
Distributions from Net Investment Income*............. (120,263) (256,066)
---------- ----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES... (153,067) 300,340
---------- ----------
FROM CAPITAL TRANSACTIONS (NOTE 3):
Proceeds from Shares Sold............................. 58,299 114,233
Net Asset Value of Shares Issued Through Dividend
Reinvestment........................................ 58,973 125,466
Cost of Shares Repurchased............................ (254,841) (469,431)
---------- ----------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.... (137,569) (229,732)
---------- ----------
TOTAL INCREASE/DECREASE IN NET ASSETS................. (290,636) 70,608
NET ASSETS:
Beginning of the Period............................... 3,442,807 3,372,199
---------- ----------
End of the Period (Including undistributed net
investment income of $2,377 and $4,934,
respectively)....................................... $3,152,171 $3,442,807
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended
*Distributions by Class June 30, 1996 December 31, 1995
-------------------------------------------------------------------------
<S> <C> <C>
Distributions from Net Investment
Income:
Class A Shares.................... $(104,712) $(224,640)
Class B Shares.................... (15,076) (30,640)
Class C Shares.................... (475) (786)
--------- ---------
$(120,263) $(256,066)
========= =========
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year Ended December 31
Ended ------------------------------------------
Class A Shares June 30, 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of the
Period........................... $ 14.950 $ 13.698 $ 15.662 $ 15.720 $ 16.130
-------- -------- -------- -------- --------
Net Investment Income.............. .529 1.111 1.177 1.286 1.365
Net Realized and Unrealized
Gain/Loss on Securities.......... (.662) 1.233 (1.965) (.060) (.407)
------ ------ ------ ------ ------
Total from Investment Operations... (.133) 2.344 (.788) 1.226 .958
Less Distributions from and in
Excess of Net Investment
Income........................... .540 1.092 1.176 1.284 1.368
------ ------ ------ ------ ------
Net Asset Value, End of the
Period........................... $ 14.277 $ 14.950 $ 13.698 $ 15.662 $ 15.720
======== ======== ======== ======== ========
Total Return*(a)................... (.87%)** 17.61% (5.10%) 7.95% 6.27%
Net Assets at End of the Period (In
millions)........................ $2,700.4 $2,962.9 $2,924.4 $3,653.6 $3,571.7
Ratio of Operating Expenses to
Average Net Assets*.............. .92% .93% .92% .87% .77%
Ratio of Interest Expense to
Average Net Assets (Note 4)...... .03% .27% .08% N/A N/A
Ratio of Net Investment Income to
Average Net Assets*.............. 7.34% 7.68% 8.13% 8.08% 8.64%
Portfolio Turnover (Excluding
Dollar Rolls and Forward
Transactions).................... 56%** 63% 44% 67% 11%
</TABLE>
* If certain expenses had not been assumed by VKAC, total return would have
been lower and the ratios would have been as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Ratio of Operating Expenses to
Average Net Assets............ .93% .93% -- -- --
Ratio of Net Investment Income
to Average Net Assets......... 7.34% 7.68% -- -- --
</TABLE>
** Non-Annualized
(a) Total return is based upon net asset value which does not include payment of
the maximum sales charge or the contingent deferred sales charge.
N/A = Prior to 1994, interest expense was immaterial and subsequently netted
against interest income.
See Notes to Financial Statements
14
<PAGE> 16
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
August 24, 1992
Six Months Year Ended December 31 (Commencement of
Ended ----------------------------- Distribution) to
Class B Shares June 30, 1996 1995 1994 1993 December 31, 1992
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Period............. $14.948 $13.694 $15.643 $15.709 $15.983
------- ------- ------- ------- -------
Net Investment Income....... .468 .991 1.055 1.149 .425
Net Realized and Unrealized
Gain/Loss on Securities... (.661) 1.241 (1.964) (.063) (.263)
------- ------- ------- ------- -------
Total from Investment
Operations................ (.193) 2.232 (.909) 1.086 .162
Less Distributions from and
in Excess of Net
Investment Income......... .486 .978 1.040 1.152 .436
------- ------- ------- ------- -------
Net Asset Value, End of the
Period.................... $14.269 $14.948 $13.694 $15.643 $15.709
======= ======= ======= ======= =======
Total Return* (a)........... (1.30%)** 16.78% (5.93%) 7.01% 1.64%**
Net Assets at End of the
Period (In millions)...... $ 436.6 $ 466.7 $ 436.3 $ 474.7 $ 103.1
Ratio of Operating Expenses
to Average Net Assets*.... 1.75% 1.75% 1.74% 1.73% 1.61%
Ratio of Interest Expense to
Average Net Assets (Note
4)........................ .03% .27% .09% N/A N/A
Ratio of Net Investment
Income to Average Net
Assets*................... 6.50% 6.85% 7.29% 7.00% 6.16%
Portfolio Turnover
(Excluding Dollar Rolls
and Forward
Transactions)............. 56%** 63% 44% 67% 111%
</TABLE>
* If certain expenses had not been assumed by VKAC, total return would have
been lower and the ratios would have been as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Ratio of Operating
Expenses to Average Net
Assets................. 1.76% 1.75% -- -- --
Ratio of Net Investment
Income to Average Net
Assets................. 6.50% 6.85% -- -- --
</TABLE>
** Non-Annualized
(a) Total return is based upon net asset value which does not include payment
of the maximum sales charge or the contingent deferred sales charge.
N/A = Prior to 1994, interest expense was immaterial and subsequently netted
against interest income.
See Notes to Financial Statements
15
<PAGE> 17
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
August 13, 1993
Six Months (Commencement of
Ended Year Ended Year Ended Distribution) to
Class C Shares June 30, 1996 December 31, 1995 December 31, 1994 December 31, 1993
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period................ $14.948 $13.693 $15.626 $16.000
------- ------- ------- -------
Net Investment
Income.............. .463 .996 1.063 .433
Net Realized and
Unrealized Gain/Loss
on Securities....... (.656) 1.237 (1.956) (.364)
------- ------- ------- -------
Total from Investment
Operations............ (.193) 2.233 (.893) .069
Less Distributions from
and in Excess of Net
Investment Income..... .486 .978 1.040 .443
------- ------- ------- -------
Net Asset Value, End of
the Period............ $14.269 $14.948 $13.693 $15.626
======= ======= ======= =======
Total Return (a)........ (1.30%)* 16.78% (5.86%) .46%*
Net Assets at End of the
Period (In
millions)............. $ 15.2 $ 13.3 $ 11.4 $ 9.6
Ratio of Operating
Expenses to Average
Net Assets............ 1.75%** 1.75%** 1.74% 1.71%
Ratio of Interest
Expense to Average Net
Assets
(Note 4).............. .03% .27% .10% N/A
Ratio of Net Investment
Income to Average Net
Assets................ 6.49%** 6.86%** 7.29% 6.42%
Portfolio Turnover
(Excluding Dollar
Rolls and Forward
Transactions)......... 56%* 63% 44% 67%
</TABLE>
* Non-Annualized
** The Ratios of Expenses to Average Net Assets and Net Investment Income to
Average Net Assets were not affected by the assumption of certain expenses by
VKAC.
(a) Total return is based upon net asset value which does not include payment of
the maximum sales charge or the contingent deferred sales charge.
N/A = Prior to 1994, interest expense was immaterial and subsequently netted
against interest income.
See Notes to Financial Statements
16
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital U.S. Government Fund (the "Fund") is organized as a
series of Van Kampen American Capital U.S. Government Trust (the "Trust"), a
Delaware business trust and is registered as a diversified open-end management
investment company under the Investment Company Act of 1940, as amended. The
Fund's investment objective is to provide a high level of current income, with
liquidity and safety of principal. The Fund commenced investment operations on
May 31, 1984. The distribution of the Fund's Class B and Class C shares
commenced on August 24, 1992 and August 13, 1993, respectively. On May 2, 1995,
all Class D shareholders redeemed their shares and the class was eliminated. The
Fund will no longer offer Class D shares.
The following is a summary of significant accounting policies consistently
followed by the Trust 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 are stated at value using market quotations
or, if such valuations are not available, estimates obtained from yield data
relating to instruments or securities with similar characteristics in accordance
with procedures established in good faith by the Board of Trustees. Short-term
securities with remaining maturities of less than 60 days are valued at
amortized cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made.
A repurchase agreement is a short-term investment 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. Repurchase agreements are 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
17
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
required to maintain the value of the underlying security at not less than the
repurchase proceeds due the Fund.
C. INVESTMENT INCOME--Interest income is recorded on an accrual basis. Original
issue discounts on securities purchased are amortized over the expected life of
each applicable security.
D. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of loss and offset such losses against any future realized capital gains.
At December 31, 1995, the Fund had an accumulated capital loss carryforward for
tax purposes of $453,692,887. Of this amount, $157,069,720, $50,594,575,
$6,272,412, $8,800,432, $45,902,032, $181,281,942 and $3,771,774 will expire on
December 31, 1996, 1997, 1998, 2000, 2001, 2002 and 2003, respectively.
E. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed annually. Distributions from net realized gains for book purposes
may include short-term capital gains, which are included as ordinary income for
tax purposes.
During the period, $396,573, representing the reversal of prior years'
permanent differences related to the recognition of income on certain securities
between book and tax reporting purposes, was reclassified from Class A share
capital to undistributed net investment income.
18
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, Van Kampen American
Capital Investment Advisory Corp. (the "Adviser") will provide investment advice
and facilities to the Fund for an annual fee payable monthly as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
- ---------------------------------------------------------------------
<S> <C>
First $500 million....................................... .550 of 1%
Next $500 million........................................ .525 of 1%
Next $2 billion.......................................... .500 of 1%
Next $2 billion.......................................... .475 of 1%
Next $2 billion.......................................... .450 of 1%
Next $2 billion.......................................... .425 of 1%
Thereafter............................................... .400 of 1%
</TABLE>
Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom,
counsel to the Fund, of which a trustee of the Fund is an affiliated person.
For the six months ended June 30, 1996, the Fund recognized expenses of
approximately $135,000 representing Van Kampen American Capital Distributors,
Inc.'s or its affiliates' (collectively "VKAC") cost of providing accounting,
cash management and legal services to the Fund.
ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser,
serves as the shareholder servicing agent of the Fund. For the six months ended
June 30, 1996, the Fund recognized expenses of approximately $1,757,200,
representing ACCESS' cost of providing transfer agency and shareholder services
plus a profit.
Additionally, for the six months ended June 30, 1996, the Fund reimbursed
VKAC approximately $411,300 related to the cost of consolidating the VKAC
open-end fund complex. The reimbursement represents savings realized by the Fund
as a result of the consolidation.
Certain officers and trustees of the Fund are also officers and directors of
VKAC. The Fund does not compensate its officers or trustees who are officers of
VKAC.
The Fund has implemented deferred compensation and retirement plans for its
trustees. Under the deferred compensation plan, trustees may elect to defer all
or a portion of their compensation to a later date. The retirement plan covers
those trustees who are not officers of VKAC.
At June 30, 1996, VKAC owned 105 and 100 shares of Classes B and C,
respectively.
19
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of common shares, Classes A, B and C,
each with a par value of $.01 per share. There are an unlimited number of shares
of each class authorized. At June 30, 1996, capital aggregated $3,109,810,910,
$489,822,457 and $16,483,111 for Class A, B and C, respectively. For the six
months ended June 30, 1996, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................. 2,001,727 $ 29,179,975
Class B.................................. 1,747,251 25,468,571
Class C.................................. 249,522 3,650,070
----------- -------------
Total Sales................................ 3,998,500 $ 58,298,616
=========== =============
Dividend Reinvestment:
Class A.................................. 3,554,016 $ 51,501,430
Class B.................................. 496,059 7,183,810
Class C.................................. 19,878 287,500
----------- -------------
Total Dividend Reinvestment................ 4,069,953 $ 58,972,740
=========== =============
Repurchases:
Class A.................................. (14,595,647) $(211,877,151)
Class B.................................. (2,864,815) (41,587,691)
Class C.................................. (94,565) (1,375,609)
----------- -------------
Total Repurchases.......................... (17,555,027) $(254,840,451)
=========== =============
</TABLE>
20
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
At December 31, 1995, capital aggregated $3,241,403,229, $498,757,767 and
$13,921,150 for Classes A, B and C, respectively. For the year ended December
31, 1995, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................. 4,450,487 $ 64,561,951
Class B.................................. 3,196,962 46,404,360
Class C.................................. 223,253 3,266,997
Class D.................................. -0- -0-
----------- -------------
Total Sales................................ 7,870,702 $ 114,233,308
=========== =============
Dividend Reinvestment:
Class A.................................. 7,595,317 $ 110,358,313
Class B.................................. 1,006,560 14,629,660
Class C.................................. 32,914 478,345
Class D.................................. -0- 4
----------- -------------
Total Dividend Reinvestment................ 8,634,791 $ 125,466,322
=========== =============
Repurchases:
Class A.................................. (27,345,845) $(396,421,409)
Class B.................................. (4,846,397) (70,074,798)
Class C.................................. (202,889) (2,933,194)
Class D.................................. (114) (1,717)
----------- -------------
Total Repurchases.......................... (32,395,245) $(469,431,118)
=========== =============
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). The CDSC will be imposed
on most redemptions made within six years of the purchase for Class B and one
year of the purchase for Class C as detailed in the following schedule. The
Class B and C shares bear
21
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
the expense of their respective deferred sales arrangements, including higher
distribution and service fees and incremental transfer agency costs.
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE
------------------
YEAR OF REDEMPTION CLASS B CLASS C
- --------------------------------------------------------------------------
<S> <C> <C>
First................................................. 4.00% 1.00%
Second................................................ 3.75% None
Third................................................. 3.50% None
Fourth................................................ 2.50% None
Fifth................................................. 1.50% None
Sixth................................................. 1.00% None
Seventh and Thereafter................................ None None
</TABLE>
For the six months ended June 30, 1996, VKAC, as Distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately
$99,300 and CDSC on redeemed shares of approximately $745,000. Sales charges do
not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales on investments,
including principal paydowns and dollar rolls, excluding short-term investments,
for the six months ended June 30, 1996, were $2,164,916,625 and $3,038,385,283,
respectively.
The Fund utilizes investment techniques called "dollar rolls," "forward
transactions" and reverse repurchase agreements for leverage purposes. In a
dollar roll, the Fund sells securities for delivery in the current month and
simultaneously contracts to repurchase, typically in 30 to 60 days,
substantially similar (same type, coupon and maturity) securities on a specified
future date from the same party at an agreed upon price which is less than the
sales price. The Fund is compensated by the difference between the current sales
price and the forward price for the future purchase.
In a forward transaction, the Fund purchases securities for delivery in the
current month and subsequently agrees to postpone delivery until the next
available delivery date, usually the next month. The Fund receives a fee as
compensation for postponing delivery. Fee income on these transactions is
recognized at the offsetting transaction's trade date for dollar rolls and the
date when settlement is postponed for forward transactions. At June 30, 1996,
the Fund had open dollar roll and/or forward transactions with a market
22
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
value of $93.6 million and related assets segregated for these open purchases of
$568.1 million.
In a reverse repurchase agreement, the Fund sells securities and agrees to
repurchase them at a mutually agreed upon date and price. During the reverse
repurchase agreement period, the Fund continues to receive principal and
interest payments on these securities but pays interest to the counter-party
based upon a short-term interest rate. The average daily balance of reverse
repurchase agreements during the period was approximately $22.9 million with an
average interest rate of 4.93%. At June 30, 1996, there were no reverse
repurchase agreements outstanding.
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 has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio and to manage the portfolio's effective yield, maturity and duration.
All of the Fund's portfolio holdings, including derivative instruments, are
marked to market each day with the change in value reflected in the unrealized
appreciation/depreciation on securities. Upon disposition, a realized gain or
loss is recognized accordingly, except for exercised option contracts where the
recognition of gain or loss is postponed until the disposal of the security
underlying the option contract.
Summarized below are the specific types of derivative financial instruments
used by the Fund.
A. OPTION CONTRACTS--An option contract gives the buyer the right, but not the
obligation to buy (call) or sell (put) an underlying item at a fixed exercise
price during a specified period. These contracts are generally used by the Fund
to manage the portfolio's effective maturity and duration.
Transactions in options for the six months ended June 30, 1996, were as
follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- --------------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1995............... 2,000 $ (1,926,233)
Options Written and Purchased (Net)............ 22,000 (22,604,431)
Options Terminated in Closing Transactions
(Net)........................................ (21,000) 22,687,806
Options Expired (Net).......................... (2,000) 1,016,070
------- ------------
Outstanding at June 30, 1996................... 1,000 $ (826,788)
======= ============
</TABLE>
23
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
The related futures contracts of the outstanding option transactions as of
June 30, 1996, and the description and market value is as follows:
<TABLE>
<CAPTION>
EXPIRATION MONTH/ MARKET VALUE
CONTRACTS EXERCISE PRICE OF OPTIONS
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Sept. 1996 US Treasury Bond
Future-Purchased Calls........ 1,000 Aug/109 $1,406,250
====== ==========
</TABLE>
B. 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
Trust generally invests in futures on U.S. Treasury Bonds and typically closes
the contract prior to the delivery date. These contracts are generally used to
manage the portfolio's effective maturity and duration.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, securities with a value equal to its obligation
under the futures contracts. 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 cost of securities acquired through
delivery under a contract is adjusted by the unrealized gain or loss on the
contract.
Transactions in futures contracts for the six months ended June 30, 1996,
were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- ----------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1995............................. -0-
Futures Opened............................................... 750
Futures Closed............................................... (750)
----
Outstanding at June 30, 1996................................. -0-
====
</TABLE>
6. MORTGAGE BACKED SECURITIES
A Mortgage Backed Security (MBS) is a pass-through security created by pooling
mortgages and selling participations in the principal and interest payments
received from borrowers. Most of these securities are guaranteed by federally
sponsored agencies-- Government National Mortgage Association (GNMA), Federal
National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation
(FHLMC).
A Collateralized Mortgage Obligation (CMO) is a bond which is collateralized
by a pool of MBS's. The Fund also invests in REMIC's (Real Estate Mortgage
Investment Conduit) which are simply another form of CMO. These MBS pools are
divided into classes or
24
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
tranches with each class having its own characteristics. For instance, a PAC
(Planned Amortization Class) is a specific class of mortgages which over its
life will generally have the most stable cash flows and the lowest prepayment
risk. A GPM (Graduated Payment Mortgage) is a negative amortization mortgage
where the payment amount gradually increases over the life of the mortgage. The
early payment amounts are not sufficient to cover the interest due and,
therefore, the unpaid interest is added to the principal, thus increasing the
borrower's mortgage balance.
An Interest Only security is another class of MBS representing ownership in
the cash flows of the interest payments made from a specified pool of MBS. The
cash flow on this instrument decreases as the mortgage principal balance is
repaid by the borrower.
7. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A shares and 1.00% each
of Class B and Class C shares are accrued daily. Included in these fees for the
six months ended June 30, 1996, are payments to VKAC of approximately
$1,734,300.
25
<PAGE> 27
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
Pace Fund
Growth & Income
Balanced Fund
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
Texas Tax Free Income Fund
THE GOVETT FUNDS
Emerging Markets Fund
Global Income Fund
International Equity Fund
Latin America Fund
Pacific Strategy Fund
Smaller Companies 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 direct at 1-800-341-2911 weekdays
from 7:00 a.m. to 7:00 p.m. Central time.
26
<PAGE> 28
VAN KAMPEN AMERICAN CAPITAL U.S. GOVERNMENT FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
LINDA HUTTON HEAGY
ROGER HILSMAN
R. CRAIG KENNEDY
DENNIS J. MCDONNELL*
DONALD C. MILLER - Co-Chairman
JACK E. NELSON
DON G. POWELL*
JEROME L. ROBINSON
FERNANDO SISTO - Co-Chairman
WAYNE W. WHALEN*
WILLIAM S. WOODSIDE
OFFICERS
DON G. POWELL*
President and Chief Executive Officer
DENNIS J. MCDONNELL*
Executive Vice President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
WILLIAM N. BROWN*
PETER W. HEGEL*
ROBERT C. PECK, JR.*
ALAN T. SACHTLEBEN*
PAUL R. WOLKENBERG*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN AMERICAN CAPITAL
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
DISTRIBUTOR
VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
SHAREHOLDER SERVICING AGENT
ACCESS INVESTOR
SERVICES, INC.
P.O. Box 418256
Kansas City, Missouri 64141-9256
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG PEAT MARWICK LLP
Peat Marwick Plaza
303 East Wacker Drive
Chicago, Illinois 60601
* "Interested" persons of the Fund, as defined in the
Investment Company Act of 1940.
(C) Van Kampen American Capital Distributors, Inc., 1996
All rights reserved.
(SM) denotes a service mark of
Van Kampen American Capital Distributors, Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data.
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