<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 3
Performance in Perspective....................... 4
Glossary of Terms................................ 5
Portfolio Management Review...................... 6
Portfolio Highlights............................. 8
Portfolio of Investments......................... 9
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
Report of Independent Accountants................ 25
</TABLE>
USGF ANR 2/98
<PAGE> 2
LETTER TO SHAREHOLDERS
February 3, 1998
Dear Shareholder,
The new year ushers in what
promises to be an exciting and
challenging time for investors. The [PHOTO]
Taxpayer Relief Act of 1997 passed by
President Clinton in August creates
many new opportunities for you and your
family to take a more active role in DENNIS J. MCDONNELL AND DON G. POWELL
achieving your long-term financial
goals.
Most Americans will benefit from
the bill's $95 billion in tax cuts over
five years. The so-called Kiddie Credit
gives parents $400 in immediate tax
relief for every child under age 17,
and families will find it easier to
save for their children's college
expenses through the new Education IRA.
The bill also cuts capital gains tax
rates for the first time in over a decade and loosens restrictions on
tax-deductible IRA contributions. Perhaps the most exciting feature of all is
the new Roth IRA, which allows investment earnings to grow tax free, not just
tax deferred.
This year more than ever, it could be important for you to talk with your
financial adviser about how to make the tax code work to your advantage. At Van
Kampen American Capital, we have prepared a variety of publications to help you
understand your choices under the new tax legislation. And with the help of your
adviser, we'll help you locate the many benefits hidden among the changing tax
landscape.
ECONOMIC OVERVIEW
These continue to be the best of times for the U.S. economy. Growth is
strong, consumers are optimistic, unemployment is low, the budget is headed for
surplus this year, and our nation's currency is rising around the world.
Despite the strength in the economy, there is no indication of
troublesome inflation. In fact, the producer price index fell by 1.2 percent
during the year, the largest annual decline in wholesale prices since 1986.
Inflation at the consumer level was also virtually nonexistent, with the
consumer price index rising by only 1.7 percent during 1997. A strong dollar and
significant productivity gains helped offset inflationary pressures caused by
rising wages.
After increasing short-term interest rates by 0.25 percent in March, the
Federal Reserve Board left monetary policy unchanged for the remainder of the
year. In addition to signs that the economy was slowing modestly from its
breakneck pace of early 1997, Fed policy-makers were concerned about the impact
that higher U.S. interest rates might have on the struggling economies of
Southeast Asia. Generally, higher U.S. interest rates cause the dollar to rise
relative to other currencies. With nearly all Asian currencies already down
significantly, a hike in U.S. rates would force monetary authorities in Asia to
choose between letting their currencies decline further or matching the rate
increase, thereby slowing their already-sluggish economies.
Continued on page two
1
<PAGE> 3
MARKET OVERVIEW
Aided by low inflation and steady Federal Reserve policy, all sectors of
the fixed-income market posted impressive returns during 1997. Gains were
especially strong during the last three months of the period, as the severe
currency crisis in Asia led to increased demand for U.S. Treasury securities and
other fixed-income investments. For the year, the Lehman Brothers Aggregate Bond
Index returned 9.47 percent.
The yield on the Treasury's benchmark 30-year bond began the year at 6.64
percent and climbed to 7.17 percent in April amid fears of increasing inflation
and higher interest rates. When subsequent data showed the economy to be
slowing, bond yields gradually drifted lower. By the end of the reporting
period, the long-term Treasury bond yield had fallen to 5.92 percent, its lowest
level in over four years.
Favorable news about inflation and concerns about Asia helped to make
high-quality long-term bonds the top-performing sector of the fixed-income
market. Long-term Treasury bonds gained 14.3 percent during the year, compared
to 10 percent for investment-grade corporate bonds and 8.90 percent for
intermediate-term Treasury bonds.
OUTLOOK
We believe that reduced demand for American exports to Asia will exert a
mild drag on the U.S. economy in coming months. But while corporate profits
could suffer, slower economic growth should help to mitigate the inflationary
pressures caused by the tight domestic labor market. That scenario is good for
fixed-income investments.
However, if bond yields continue to drift lower, economic growth in the
U.S. could accelerate later in 1998. In recent years, each significant decline
in long-term interest rates has ignited economic growth by making housing,
autos, and other big-ticket consumer goods more affordable. We also expect the
healthy economy to keep credit spreads relatively tight in coming months.
As we noted earlier, the Taxpayer Relief Act of 1997 provides attractive
new vehicles through which investors can save for a variety of goals, including
higher education and retirement. We encourage you to talk with your financial
adviser about how the tax changes can work to the benefit of you and your
family.
Additional details about your Fund, including a question-and-answer
section with your portfolio management team, are provided in this report. As
always, we are pleased to have the opportunity to serve you and your family
through our diverse menu of quality investments.
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 DECEMBER 31, 1997
VAN KAMPEN AMERICAN CAPITAL U.S. GOVERNMENT FUND
<TABLE>
<CAPTION>
A Shares B Shares C Shares
<S> <C> <C> <C>
TOTAL RETURNS
One-year total return based on NAV(1)....................... 8.57% 7.71% 7.71%
One-year total return(2).................................... 3.42% 3.71% 6.71%
Five-year average annual total return(2).................... 5.35% 5.28% N/A
Ten-year average annual total return(2)..................... 7.91% N/A N/A
Life-of-Fund average annual total return(2)................. 9.47% 5.31% 4.79%
Commencement date........................................... 05/31/84 08/24/92 08/13/93
DISTRIBUTION RATE AND YIELD
Distribution rate(3)........................................ 6.58% 6.12% 6.12%
SEC Yield(4)................................................ 6.07% 5.53% 5.53%
</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 December 30, 1997.
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.
U.S. Government securities are backed by the full faith and credit of the U.S.
Government, its agencies or instrumentalities. The government backing applies
only to the timely payment of principal and interest on specific securities in
the Fund's portfolio, not to the shares of the Fund. 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> 5
PUTTING YOUR FUND'S PERFORMANCE IN PERSPECTIVE
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment portfolio's performance at regular intervals.
A good starting point is a comparison of your investment holdings to an
applicable benchmark, such as a broad-based market index. Such a comparison can:
- Illustrate the general market environment in which your investments are
being managed
- Reflect the impact of favorable market trends or difficult market
conditions
- Help you evaluate the extent to which your Fund's management team has
responded to the opportunities and challenges presented to them over the
period measured
For these reasons, you may find it helpful to review the chart below, which
compares your Fund's performance to that of the Merrill Lynch 1 to 10 year
Treasury Index over time. As a broad-based, unmanaged statistical composite,
this index does not reflect any commissions or fees which would be incurred by
an investor purchasing the securities it represents. Similarly, its performance
does not reflect any sales charges or other costs which would be applicable to
an actively managed portfolio, such as that of the Fund.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen American Capital U.S. Government Fund vs. Merrill Lynch 1 to 10
Year Treasury Index
(December 31, 1987 through December 31, 1997)
[INVESTMENT PERFORMANCE CHART]
<TABLE>
<CAPTION> Merrill Lynch
Value at VKAC U.S. 1 to 10 Year
December 31, Government Fund Index
<S> <C> <C>
1987 9525 10000
1988 10239 12968
1989 11660 14602
1990 12781 15990
1991 14801 18226
1992 15728 19491
1993 16979 21085
1994 16114 20726
1995 18952 23750
1996 19729 24675
1997 21419 26589
- --------------------------------
Fund's Total Return
1 Year Avg. Annual = 3.42%
5 Year Avg. Annual = 5.35%
10 Year Avg. Annual = 7.91%
Inception Avg. Annual = 9.47%
- --------------------------------
</TABLE>
The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of other share classes of
the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions and includes payment of the maximum
sales charge (4.75% for A shares).
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.
4
<PAGE> 6
GLOSSARY OF TERMS
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 sensitivity to changes in interest rates,
expressed in years. The longer a fund's duration, the greater the effect of
interest rate movements on net asset value. Typically, funds with shorter
durations have performed better in rising rate environments, while funds with
longer durations have performed better when rates decline.
FEDERAL FUNDS RATE: The interest rate charged by one institution lending federal
funds to another. This overnight rate is used to meet banks' daily reserve
requirements. The Federal Reserve Board uses the federal funds rate to affect
the direction of interest rates.
FEDERAL RESERVE BOARD (THE FED): A seven-member group that directs the
operations of the Federal Reserve System, the central bank system of the United
States. Currently led by Chairman Alan Greenspan, the Fed meets eight times a
year to establish monetary policy and monitor the country's economic pulse.
INFLATION: An economic state in which the amount of money supply and business
activity dramatically increases, accompanied by sharply rising prices. Inflation
is widely measured by the Consumer Price Index, a leading economic indicator
that measures the change in the cost of purchased goods and services.
MORTGAGE-BACKED SECURITIES: Securities backed by pools of similar mortgage.
Investors receive interest payments and partial repayment of the principal
passed through from the underlying mortagages (agencies pass on what they
receive from homeowners paying off their mortgages). These securities are
generally issued by agencies of the U.S. government, such as Government National
Mortgage Association (GNMA, or "Ginnie Mae") and Federal Home Loan Mortgage
Corporation (FHLMC, or "Freddie Mac").
NET ASSET VALUE (NAV): The value of a mutual fund share, calculated by deducting
a fund's liabilities from its total assets and dividing this amount by the
number of shares outstanding. The NAV does not include any initial or contingent
deferred sales charges.
YIELD: A measure of a fund's net investment income per share, expressed as a
percentage of the maximum offering price of the fund's shares at the end of the
day.
YIELD CURVE: A result of viewing the yields of U.S. Treasury securities maturing
in 1, 5, 10, and 30 years, grouped together, will often reflect a pattern of
increasing yield as maturity extends. This pattern creates an upward sloping
"curve." A "flat" yield curve represents little difference between short- and
long-term interest rates. An "inverted" yield curve indicates that short-term
rates are higher than long-term rates.
5
<PAGE> 7
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 Fund's fiscal year. The team includes Jack E. Doyle,
portfolio manager, and Peter W. Hegel, chief investment officer for fixed-income
investments. The following excerpts reflect their views on the Fund's
performance during the 12-month period ended December 31, 1997.
Q HOW WOULD YOU SUMMARIZE THE BOND MARKET IN 1997?
A We entered the year on a somewhat cautious note. At the end of 1996, the
economy was showing signs of strong growth, which sparked new worries over
rising inflation and interest rates. These fears were eventually realized
in late March when the Federal Reserve Board increased rates on federal funds
from 5.25 percent to 5.50 percent.
Since then, though, the environment has been extremely favorable for the
bond market. The low inflation we saw in 1997 overshadowed the economy's growth
and pushed interest rates lower. In fact, the yield on long-term Treasuries,
which was as high as 7.20 percent in mid-1997, finished the year below 6.00
percent.
Q WHAT'S CAUSING THESE FAVORABLE CONDITIONS FOR THE BOND MARKET?
A There are two key factors. First, we've seen a conservative monetary
policy from the Fed and Chairman Alan Greenspan, who has proven to be a
staunch inflation fighter. Second, the federal deficit has been steadily and
dramatically declining since 1992, which has been a positive turn of
events for fixed-income securities.
Another development that arose during the year was the economic turmoil in
Southeast Asia, which, in the long run, should benefit the bond market. In an
effort to increase exports and stimulate their economies, many Asian countries
will seek to become low-cost producers, which should put more downward pressure
on prices and keep inflation in check in the United States and around the globe.
Q HOW DID THESE DEVELOPMENTS INFLUENCE YOUR MANAGEMENT OF THE FUND?
A During the period, we positioned the Fund to take advantage of the ongoing
rally in the Treasury market. At the beginning of the year, we had a
portfolio mix of about 90 percent mortgage-backed securities and 10 percent
Treasuries (percentage of long-term investments), which is about normal for the
Fund. By the end of the year, however, the portfolio consisted of roughly 81
percent mortgages and 19 percent Treasuries (percentage of long-term
investments), which have tended to perform better as yields decline.
This blend of securities helped us pursue our dual goals of high current
income and total return. The mortgage securities continued to offer attractive
yields in 1997, while the prolonged rally in the Treasury market contributed to
the Fund's overall performance.
Q HOW DID THE FUND PERFORM IN 1997?
A The Fund generated a total return of 8.57 percent(1) (Class A shares at
net asset value) for the 12-month period ended December 31, 1997. On the
income side, the Fund continued to offer competitive dividends. As of
December 31, 1997, the distribution rate was 6.58 percent, based on a monthly
dividend of $0.0842 per share and a maximum public offering price of $15.35 per
share on December 31, 1997.
6
<PAGE> 8
Q WHAT IS YOUR OUTLOOK FOR THE FUND IN 1998?
A Barring anything unforeseen, we don't anticipate any conditions that will
significantly push up interest rates in the near future. We expect the Fed
to keep a close eye on unemployment figures, but indications are that low
inflation will once again be the primary driver of the bond market in 1998. If
the opposite proves to be the case, we are well positioned to increase the
Fund's exposure to mortgage-backed securities, thereby shortening the
portfolio's duration and making it less sensitive to interest rate hikes.
If rates do continue to fall, we may see more refinancing in the mortgage
market. Because of our "buy and hold" philosophy, the Fund holds a number of
securities that have been in the portfolio for long periods of time. This well-
seasoned portfolio, combined with our heavier-than-average weighting in
Treasuries, should make the Fund less susceptible to mortgage prepayment risks
that may arise in 1998.
[SIG]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
[SIG]
Jack E. Doyle
Portfolio Manager
Please see footnotes on page three
7
<PAGE> 9
PORTFOLIO HIGHLIGHTS
VAN KAMPEN AMERICAN CAPITAL U.S. GOVERNMENT FUND
COUPON DISTRIBUTION AS OF DECEMBER 31, 1997
[BAR GRAPH]
Percentage of Long-Term Investments
<TABLE>
<CAPTION>
COUPON RATE PERCENTAGE
OF LONG-TERM
INVESTMENTS
<S> <C>
5.9 or less.................. 2.2%
6-6.9........................ 28.0%
7-7.9........................ 32.5%
8-8.9........................ 12.3%
9-9.9........................ 15.7%
10 or more................... 9.3%
</TABLE>
PORTFOLIO COMPOSITION AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997 AS OF JUNE 30, 1997 (1)
<S> <C> <C> <C>
GNMA........................ 34.4% GNMA........................ 53.9%
FNMA........................ 35.1% FNMA........................ 27.0%
Treasury/Agency............. 19.2% [PIE CHART] Treasury/Agency............. 8.2% [PIE CHART]
FHLMC....................... 5.7% FHLMC....................... 6.1%
REMIC/CMO................... 5.6% REMIC/CMO................... 4.8%
</TABLE>
DURATION
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997(1) AS OF JUNE 30, 1997(1)
<S> <C> <C>
Duration 3.62 years 4.68 years
</TABLE>
(1)Unaudited
8
<PAGE> 10
PORTFOLIO OF INVESTMENTS
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MORTGAGE BACKED SECURITIES 64.3%
$ 34,951 FHLMC....................................................... 8.500% 01/01/99 $ 36,272,511
7,749 FHLMC....................................................... 10.000 12/01/08 to 09/01/21 8,477,800
22,029 FHLMC....................................................... 11.000 12/01/01 to 01/01/21 24,768,719
180 FHLMC (Seasoned)............................................ 8.00 01/01/19 186
3,868 FHLMC (Seasoned)............................................ 8.500 01/01/16 3,993,021
612 FHLMC (Seasoned)............................................ 10.250 11/01/09 662,190
134 FHLMC (Seasoned)............................................ 11.250 09/01/15 151,217
29,345 FHLMC Gold.................................................. 6.500 12/01/25 29,189,111
15,001 FHLMC Gold.................................................. 10.000 12/01/08 to 09/01/21 16,449,639
15,061 FHLMC REMIC #106G PAC (a)................................... 8.250 12/15/20 16,080,329
13,242 FHLMC REMIC #170F PAC (a)................................... 8.000 01/15/21 13,491,168
23,163 FHLMC REMIC #79C PAC (a).................................... 8.600 10/15/05 23,932,274
9,179 FHLMC REMIC #89D (a)........................................ 9.000 02/15/21 9,893,213
9,382 FHLMC REMIC #97G PAC (a).................................... 9.250 11/15/05 9,830,576
187,781 FNMA (a).................................................... 6.500 06/01/22 to 01/01/27 186,183,087
359,499 FNMA........................................................ 7.000 05/01/22 to 10/01/25 363,770,844
33,419 FNMA........................................................ 7.500 12/01/22 to 01/01/23 34,244,118
47,531 FNMA........................................................ 8.000 12/01/16 to 12/01/22 49,209,478
8,322 FNMA........................................................ 8.500 04/01/19 to 06/01/21 8,701,877
4,913 FNMA........................................................ 9.000 03/01/08 to 02/01/21 5,226,032
6,571 FNMA........................................................ 10.500 06/01/10 to 09/01/19 7,346,950
6,589 FNMA........................................................ 11.000 05/01/19 to 11/01/19 7,459,734
1,436 FNMA........................................................ 11.500 11/01/09 to 01/01/16 1,638,888
25,150 FNMA (Seasoned)............................................. 6.500 04/01/24 to 5/01/24 25,016,175
4,852 FNMA (Seasoned)............................................. 8.500 07/01/19 5,050,577
7,942 FNMA (Seasoned)............................................. 9.000 03/01/08 to 02/01/21 8,537,318
2,077 FNMA (Seasoned)............................................. 9.500 05/01/20 2,239,567
47 FNMA (Seasoned)............................................. 12.500 03/01/15 54,135
1,769 FNMA (Seasoned)............................................. 13.000 06/01/15 2,058,334
29,000 FNMA Preassign 00891........................................ 6.740 08/25/07 29,809,100
11,576 FNMA REMIC #89-94G PAC (a).................................. 7.500 12/25/19 11,817,387
18,085 FNMA REMIC #90-12G PAC (a).................................. 4.500 02/25/20 16,568,030
15,000 FNMA REMIC #93-4HB PAC (a).................................. 11.000 01/25/19 16,475,400
83,510 GNMA........................................................ 7.000 01/15/27 to 12/15/99 84,240,722
184,432 GNMA........................................................ 7.500 01/15/17 to 01/15/22 189,537,800
49,514 GNMA (a).................................................... 8.000 12/15/00 to 01/15/22 51,457,876
46,834 GNMA........................................................ 8.500 04/15/06 to 01/15/24 49,670,888
62,264 GNMA (a).................................................... 9.000 10/15/01 to 08/15/24 67,342,705
45,293 GNMA........................................................ 9.500 06/15/09 to 11/15/22 48,987,029
10,046 GNMA........................................................ 10.000 09/15/15 to 05/15/19 11,116,551
14,610 GNMA........................................................ 10.500 12/15/18 to 02/15/20 16,422,090
1,873 GNMA........................................................ 11.000 03/15/10 to 12/15/18 2,116,547
2,712 GNMA........................................................ 11.500 10/15/10 to 03/15/18 3,114,907
1,832 GNMA........................................................ 12.000 07/15/11 to 12/15/15 2,126,670
1,904 GNMA........................................................ 12.500 04/15/10 to 08/15/15 2,230,024
1,090 GNMA........................................................ 13.000 01/15/11 to 06/15/15 1,288,354
162,396 GNMA (Seasoned) (a)......................................... 9.000 10/15/01 to 08/15/24 176,758,724
662 GNMA GPM.................................................... 12.250 09/15/13 to 07/15/15 772,347
174 GNMA II..................................................... 8.500 05/20/02 to 02/20/17 183,009
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MORTGAGE BACKED SECURITIES (CONTINUED)
$ 5,848 GNMA II..................................................... 10.500% 01/20/14 to 05/20/19 $ 6,463,898
3,418 GNMA II..................................................... 11.000 07/20/13 to 08/20/19 3,816,102
1,542 GNMA II..................................................... 11.500 08/20/13 to 07/20/19 1,742,154
1,594 GNMA II..................................................... 12.000 08/20/13 to 12/20/15 1,828,210
861 GNMA II..................................................... 12.500 09/20/13 to 09/20/15 996,895
--------------
1,696,812,487
--------------
U.S. TREASURY SECURITIES 15.3%
23,500 U.S. T- Bonds............................................... 10.375 11/15/12 31,243,720
15,000 U.S. T- Bonds............................................... 13.125 05/15/01 18,403,500
5,000 U.S. T- Bonds............................................... 13.750 08/15/04 7,166,750
50,660 U.S. T-Bond Stripped Principal Payment...................... * 08/15/20 12,995,303
60,000 U.S. T-Bond Stripped Principal Payment...................... * 05/15/20 15,626,400
60,000 U.S. T-Notes................................................ 6.250 06/30/02 61,240,800
200,000 U.S. T-Notes................................................ 6.250 08/31/02 204,236,000
50,000 U.S. T-Notes................................................ 6.625 05/15/07 52,947,500
--------------
403,859,973
--------------
TOTAL LONG-TERM INVESTMENTS 79.6%
(Cost $2,019,832,600)................................................................................ 2,100,672,460
--------------
SHORT-TERM INVESTMENTS 15.6%
U.S. GOVERNMENT AGENCY OBLIGATIONS 5.6%
FHLMC - Discount Notes................................................................................. 106,982,910
FNMA................................................................................................... 19,935,833
FNMA................................................................................................... 19,937,000
--------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS............................................................... 146,855,743
--------------
REPURCHASE AGREEMENTS 10.0%
UBS Securities (Collateralized by U.S. T-Note, $101,568,000 par, 13.750% coupon, due 08/15/04, dated
12/31/97, to be sold on 01/02/98 at $101,604,677)...................................................... 101,568,000
UBS Securities (Collateralized by U.S. T-Note, $63,483,000 par, 8.750% coupon, due 08/15/20, dated
12/31/97, to be sold on 01/02/98 at $63,505,924)....................................................... 63,483,000
UBS Securities (Collateralized by U.S. T-Note, $79,656,000 par, 7.875% coupon, due 02/15/21, dated
12/31/97, to be sold on 01/02/98 at $79,684,765)....................................................... 79,656,000
UBS Securities (Collateralized by U.S. T-Note, $18,000,000 par, 7.750% coupon, due 11/30/99, dated
12/31/97, to be sold on 01/02/98 at $18,006,400)....................................................... 18,000,000
--------------
TOTAL REPURCHASE AGREEMENTS............................................................................ 262,707,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $409,562,743).................................................................................. 409,562,743
--------------
TOTAL INVESTMENTS 95.2%
(Cost $2,429,395,343)................................................................................ 2,510,235,203
LIABILITIES IN EXCESS OF OTHER ASSETS 4.8%............................................................ 127,735,752
--------------
NET ASSETS 100.0%...................................................................................... 2,637,970,955
==============
</TABLE>
*Zero coupon bond
(a) All or a portion of these assets are segregated as collateral for forward
purchase commitments and dollar roll transactions.
See Notes to Financial Statements
10
<PAGE> 12
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $2,429,395,343)..................... $2,510,235,203
Cash........................................................ 33,215
Receivables:
Investments Sold.......................................... 157,798,078
Interest.................................................. 17,669,887
Fund Shares Sold.......................................... 1,205,191
Forward Commitments......................................... 1,513,908
Other....................................................... 210,787
--------------
Total Assets.......................................... 2,688,666,269
--------------
LIABILITIES:
Payables:
Income Distributions...................................... 8,813,361
Fund Shares Repurchased................................... 2,704,848
Distributor and Affiliates................................ 1,843,770
Investment Advisory Fee................................... 1,153,256
Investments Purchased..................................... 35,334,323
Accrued Expenses............................................ 698,095
Trustees' Deferred Compensation and Retirement Plans........ 147,661
--------------
Total Liabilities....................................... 50,695,314
--------------
NET ASSETS.................................................. $2,637,970,955
==============
NET ASSETS CONSIST OF:
Capital..................................................... $2,825,965,561
Net Unrealized Appreciation................................. 82,098,885
Accumulated Undistributed Net Investment Income............. 9,233,367
Accumulated Net Realized Loss............................... (279,326,858)
--------------
NET ASSETS.................................................. $2,637,970,955
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $2,264,786,479 and 154,862,967 shares of
beneficial interest issued and outstanding)............. $ 14.62
Maximum sales charge (4.75%* of offering price)......... .73
--------------
Maximum offering price to public........................ $ 15.35
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $358,987,301 and 24,572,368 shares of
beneficial interest issued and outstanding)............. $ 14.61
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $14,197,175 and 971,893 shares of
beneficial interest issued and outstanding)............. $ 14.61
==============
</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 Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $212,945,438
Fee Income.................................................. 15,466,406
------------
Total Income............................................ 228,411,844
------------
EXPENSES:
Investment Advisory Fee..................................... 14,229,642
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $4,353,406, $3,794,423 and $136,916,
respectively)............................................. 8,284,745
Shareholder Services........................................ 3,934,312
Custody..................................................... 665,023
Legal....................................................... 243,650
Trustees' Fees and Expenses................................. 33,311
Other....................................................... 872,786
------------
Total Operating Expenses................................ 28,263,469
Interest Expense........................................ 2,129,020
------------
Total Expenses.......................................... 30,392,489
------------
NET INVESTMENT INCOME....................................... $198,019,355
============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $(10,729,724)
Forward Commitments....................................... 3,436,719
Options................................................... (11,741,729)
Futures................................................... (8,491,095)
------------
Net Realized Loss........................................... (27,525,829)
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 28,985,828
------------
End of the Period:
Investments............................................. 80,839,860
Forward Commitments..................................... 1,259,025
------------
82,098,885
------------
Net Unrealized Appreciation During the Period............... 53,113,057
------------
NET REALIZED AND UNREALIZED GAIN............................ $ 25,587,228
============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $223,606,583
============
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1997 December 31, 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income....................................... $ 198,019,355 $ 230,846,413
Net Realized Loss........................................... (27,525,829) (5,772,435)
Net Unrealized Appreciation/Depreciation During the
Period.................................................... 53,113,057 (108,497,712)
-------------- --------------
Change in Net Assets from Operations........................ 223,606,583 116,576,266
-------------- --------------
Distributions from Net Investment Income:
Class A Shares............................................ (170,044,954) (200,823,586)
Class B Shares............................................ (24,106,451) (28,928,534)
Class C Shares............................................ (869,235) (959,879)
-------------- --------------
Total Distributions......................................... (195,020,640) (230,711,999)
-------------- --------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... 28,585,943 (114,135,733)
-------------- --------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................... 71,425,631 93,779,511
Net Asset Value of Shares Issued Through Dividend
Reinvestment.............................................. 96,486,944 113,310,139
Cost of Shares Repurchased.................................. (547,708,673) (546,579,960)
-------------- --------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.......... (379,796,098) (339,490,310)
-------------- --------------
TOTAL DECREASE IN NET ASSETS................................ (351,210,155) (453,626,043)
NET ASSETS:
Beginning of the Period..................................... 2,989,181,110 3,442,807,153
-------------- --------------
End of the Period (Including accumulated undistributed net
investment income of $9,233,367 and $6,188,375,
respectively)............................................. $2,637,970,955 $2,989,181,110
============== ==============
</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.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
Class A Shares 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.................... $ 14.459 $ 14.950 $ 13.698 $ 15.662 $ 15.720
-------- -------- -------- -------- --------
Net Investment Income..................................... 1.039 1.069 1.111 1.177 1.286
Net Realized and Unrealized Gain/Loss..................... .158 (.495) 1.233 (1.965) (.060)
-------- -------- -------- -------- --------
Total from Investment Operations............................ 1.197 .574 2.344 (.788) 1.226
Less Distributions from and in Excess of Net Investment
Income.................................................... 1.032 1.065 1.092 1.176 1.284
-------- -------- -------- -------- --------
Net Asset Value, End of the Period.......................... $ 14.624 $ 14.459 $ 14.950 $ 13.698 $ 15.662
======== ======== ======== ======== ========
Total Return (a)............................................ 8.57% 4.10% 17.61% (5.10%) 7.95%
Net Assets at End of the Period (In millions)............... $2,264.8 $2,560.1 $2,962.9 $2,924.4 $3,653.6
Ratio of Operating Expenses to Average Net Assets (b)....... .90% .90% .93% .92% .87%
Ratio of Interest Expense to Average Net Assets............. .08% .02% .27% .08% N/A
Ratio of Net Investment Income to Average Net Assets (b).... 7.26% 7.38% 7.68% 8.13% 8.08%
Portfolio Turnover (Excluding Dollar Rolls and Forward
Commitment Transactions).................................. 104% 64% 63% 44% 67%
</TABLE>
(a) Total Return is based upon Net Asset Value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) For the year ended 1996, the impact on the Ratios of Expenses and Net
Investment Income to Average Net Assets due to VKAC's reimbursement of
certain expenses was less than 0.01%.
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.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
Class B Shares 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.................... $14.447 $14.948 $13.694 $15.643 $15.709
------- ------- ------- ------- -------
Net Investment Income..................................... .916 .947 .991 1.055 1.149
Net Realized and Unrealized Gain/Loss..................... .162 (.494) 1.241 (1.964) (.063)
------- ------- ------- ------- -------
Total from Investment Operations............................ 1.078 .453 2.232 (.909) 1.086
Less Distributions from and in Excess of Net Investment
Income.................................................... .916 .954 .978 1.040 1.152
------- ------- ------- ------- -------
Net Asset Value, End of the Period.......................... $14.609 $14.447 $14.948 $13.694 $15.643
======= ======= ======= ======= =======
Total Return (a)............................................ 7.71% 3.24% 16.78% (5.93%) 7.01%
Net Assets at End of the Period (In millions)............... $ 359.0 $ 414.8 $ 466.7 $ 436.3 $ 474.7
Ratio of Operating Expenses to Average Net Assets (b)....... 1.72% 1.73% 1.75% 1.74% 1.73%
Ratio of Interest Expense to Average Net Assets............. .08% .02% .27% .09% N/A
Ratio of Net Investment Income to Average Net Assets (b).... 6.44% 6.55% 6.85% 7.29% 7.00%
Portfolio Turnover (Excluding Dollar Rolls and Forward
Commitment Transactions).................................. 104% 64% 63% 44% 67%
</TABLE>
(a) Total Return is based upon Net Asset Value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) For the year ended 1996, the impact on the Ratios of Expenses and Net
Investment Income to Average Net Assets due to VKAC's reimbursement of
certain expenses was less than 0.01%.
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.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
August 13, 1993
Year Ended December 31, (Commencement of
------------------------------------- Distribution) to
Class C Shares 1997 1996 1995 1994 December 31, 1993
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period................. $14.448 $14.948 $13.693 $15.626 $16.000
------- ------- ------- ------- -------
Net Investment Income.................................. .910 .943 .996 1.063 .433
Net Realized and Unrealized Gain/Loss.................. .166 (.489) 1.237 (1.956) (.364)
------- ------- ------- ------- -------
Total from Investment Operations......................... 1.076 .454 2.233 (.893) .069
Less Distributions from and in Excess of Net Investment
Income................................................. .916 .954 .978 1.040 .443
------- ------- ------- ------- -------
Net Asset Value, End of the Period....................... $14.608 $14.448 $14.948 $13.693 $15.626
======= ======= ======= ======= =======
Total Return (a)......................................... 7.71% 3.24% 16.78% (5.86%) .46%*
Net Assets at End of the Period (In millions)............ $ 14.2 $ 14.3 $ 13.3 $ 11.4 $ 9.6
Ratio of Operating Expenses to Average Net Assets (b).... 1.72% 1.72% 1.75% 1.74% 1.71%
Ratio of Interest Expense to Average Net Assets.......... .08% .02% .27% .10% N/A
Ratio of Net Investment Income to Average Net
Assets (b)............................................. 6.41% 6.55% 6.86% 7.29% 6.42%
Portfolio Turnover (Excluding Dollar Rolls and Forward
Commitment Transactions)............................... 104% 64% 63% 44% 67%
</TABLE>
(a) Total Return is based upon Net Asset Value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) For the year ended 1996, the impact on the Ratios of Expenses and Net
Investment Income to Average Net Assets due to VKAC's reimbursement of
certain expenses was less than 0.01%.
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
December 31, 1997
- --------------------------------------------------------------------------------
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.
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 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 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 American Capital Investment Advisory, 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.
The Fund trades certain securities under the terms of forward
commitments, whereby the settlement for payment and delivery occurs at a
specified future date. Forward commitments are privately negotiated transactions
between the Fund and dealers. Upon executing a forward commitment and during the
period of obligation, the Fund maintains collateral of cash or securities in a
segregated account with its custodian in an amount sufficient to relieve the
obligation. If the intent of the Fund is to accept delivery of a security traded
under a forward purchase commitment, the commitment is recorded as a long-term
purchase. For forward purchase commitments for which security settlement is not
intended by the Fund, changes in the value of the commitment are recognized by
marking the commitment to market on a daily basis. During the term of the
commitment, the Fund may resell the forward commitment and enter into a new
forward commitment, the effect of which is to extend the settlement date. In
connection with this extension, the Fund receives a fee, which is included in
fee income on the date of the extension. In addition, the Fund may occasionally
close such forward commitments prior to delivery.
The Fund may also invest in reverse repurchase agreements. 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 $42.9 million with an average interest rate of
4.97%. At December 31, 1997, there were no reverse repurchase agreements
outstanding.
17
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
C. INCOME AND EXPENSES--Interest income is recorded on an accrual basis.
Original issue discount is amortized over the expected life of each applicable
security. Expenses of the Fund are allocated on a pro rata basis to each class
of shares, except for distribution and service fees and transfer agency costs
which are unique to each class of shares.
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, 1997, the Fund had an accumulated capital loss
carryforward for tax purposes of $279,326,858 which will expire between December
31, 1998 and December 31, 2005. Of this amount, $6,272,412 will expire on
December 31, 1998.
At December 31, 1997, for federal income tax purposes the cost of long-
and short-term investments is $2,429,395,343; the aggregate gross unrealized
appreciation is $85,045,134 and the aggregate gross unrealized depreciation is
$2,946,249, resulting in net unrealized appreciation including open options and
futures transactions, and forward commitments of $82,098,885.
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. Due to inherent differences in the recognition of income,
expenses and realized gains/losses under generally accepted accounting
principles and federal income tax purposes, permanent differences between book
and tax basis reporting for the 1996 fiscal year have been identified and
appropriately reclassified. Permanent book and tax differences relating to the
recognition of certain expenses which are not deductible for tax purposes
totaling $46,277 were reclassified from accumulated undistributed net investment
income to capital. Additionally, during the period, $50,594,574 of the Fund's
capital loss carryforward expired, resulting in a permanent book and tax basis
difference which was reclassified from accumulated net realized loss to capital.
18
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
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:
<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>
For the year ended December 31, 1997, the Fund recognized expenses of
approximately $174,200 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the year ended December 31, 1997, the Fund recognized expenses of
approximately $357,500 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 year ended
December 31, 1997, the Fund recognized expenses of approximately $2,828,100,
representing ACCESS' cost of providing transfer agency and shareholder services
plus a profit.
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 provides deferred compensation and retirement plans for its
trustees who are not officers of VKAC. Under the deferred compensation plan,
trustees may elect to defer all or a portion of their compensation to a later
date. Benefits under the retirement plan are payable 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 equal to $2,500.
19
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of shares of beneficial interest, 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 December 31, 1997, capital aggregated $2,414,852,129, $396,197,222 and
$14,916,210 for Classes A, B and C, respectively. For the year ended December
31, 1997, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A................................................... 3,151,088 $ 45,534,914
Class B................................................... 1,391,041 20,092,618
Class C................................................... 400,545 5,798,099
----------- -------------
Total Sales................................................. 4,942,674 $ 71,425,631
========== ============
Dividend Reinvestment:
Class A................................................... 5,855,818 $ 84,608,875
Class B................................................... 791,434 11,424,371
Class C................................................... 31,439 453,698
----------- -------------
Total Dividend Reinvestment................................. 6,678,691 $ 96,486,944
========== ============
Repurchases:
Class A................................................... (31,205,759) $(450,102,977)
Class B................................................... (6,320,342) (91,072,249)
Class C................................................... (453,300) (6,533,447)
----------- -------------
Total Repurchases........................................... (37,979,401) $(547,708,673)
========== ============
</TABLE>
20
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
At December 31, 1996, capital aggregated $2,778,288,184, $462,643,924 and
$15,470,402 for Classes A, B and C, respectively. For the year ended December
31, 1996, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A................................................... 3,306,701 $ 47,964,099
Class B................................................... 2,702,553 39,213,360
Class C................................................... 454,440 6,602,052
----------- -------------
Total Sales................................................. 6,463,694 $ 93,779,511
=========== =============
Dividend Reinvestment:
Class A................................................... 6,852,774 $ 98,957,199
Class B................................................... 956,499 13,802,832
Class C................................................... 38,150 550,108
----------- -------------
Total Dividend Reinvestment................................. 7,847,423 $ 113,310,139
=========== =============
Repurchases:
Class A................................................... (31,284,344) $(451,949,019)
Class B................................................... (6,167,203) (89,031,089)
Class C................................................... (387,463) (5,599,852)
----------- -------------
Total Repurchases........................................... (37,839,010) $(546,579,960)
=========== =============
</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.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALE 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....................................................... 1.00% None
Sixth....................................................... 1.00% None
Seventh and Thereafter...................................... None None
</TABLE>
For the year ended December 31, 1997, VKAC, as Distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately
$90,200 and CDSC on redeemed shares of approximately $1,163,000. Sales charges
do not represent expenses of the Fund.
21
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales on investments,
including principal paydowns, excluding forward commitment transactions and
short-term investments, for the year ended December 31, 1997, were
$2,724,829,946 and $3,709,338,108, 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 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
unrealized appreciation/depreciation. Upon disposition, a realized gain or loss
is recognized accordingly, except when exercising a call option contract or
taking delivery of a security underlying a futures contract or forward
commitment. In these instances the recognition of gain or loss is postponed
until the disposal of the security underlying the option, futures or forward
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.
Transactions in options for the year ended December 31, 1997, were as
follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1996............................ -0- $ -0-
Options Written and Purchased (Net)......................... 102,450 (51,260,704)
Options Terminated in Closing Transactions (Net)............ (85,750) 47,210,259
Options Expired (Net)....................................... (16,700) 4,050,445
------- ------------
Outstanding at December 31, 1997............................ 0 $ 0
======= ============
</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
Fund generally invests in exchange traded futures on U.S. Treasury Bonds and
typically closes the contract prior to the delivery date.
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).
22
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
Transactions in futures contracts for the year ended December 31, 1997,
were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- -----------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1996............................ -0-
Futures Opened.............................................. 13,545
Futures Closed.............................................. (13,545)
-------
Outstanding at December 31, 1997............................ 0
=======
</TABLE>
6. FORWARD COMMITMENTS
The Fund trades certain securities under the terms of forward commitments, as
described in Note 1. The following forward purchase commitments were outstanding
as of December 31, 1997. The change in value of these items is reflected as a
component of unrealized appreciation/depreciation on forwards commitments. The
Fund has segregated assets for these open commitments totaling $486.4 million.
<TABLE>
<CAPTION>
PAR AMOUNT UNREALIZED
(000) DESCRIPTION EXPIRATION CURRENT VALUE APPRECIATION
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$300,000 FNMA, 7.00% coupon 02/12/98 $302,586,000 $898,500
165,000 FNMA, 6.50% coupon 02/12/98 162,988,650 360,525
------------- -----------
$ 465,574,650 $ 1,259,025
============= ===========
</TABLE>
At December 31, 1997, the Fund had realized gains on closed but unsettled
forward commitments of $254,883.
7. 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 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.
23
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997
- --------------------------------------------------------------------------------
8. 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 net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these fees
for the year ended December 31, 1997, are payments retained by VKAC of
approximately $3,117,636.
24
<PAGE> 26
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen American Capital U.S. Government Fund:
We have audited the accompanying statement of assets and liabilities of Van
Kampen American Capital U.S. Government Fund (the "Fund"), including the
portfolio of investments, as of December 31, 1997, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the periods presented. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Van Kampen American Capital U.S. Government Fund as of December 31,
1997, 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 periods presented, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
January 29, 1998
25
<PAGE> 27
FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL
EQUITY FUNDS
Domestic
MS Aggressive Equity
VKAC Aggressive Growth
MS American Value
VKAC Comstock
VKAC Emerging Growth
VKAC Enterprise
VKAC Equity Income
VKAC Growth
VKAC Growth and Income
VKAC Harbor
VKAC Pace
VKAC Real Estate Securities
MS U.S. Real Estate
VKAC Utility
MS Value
International/Global
MS Asian Growth
MS Emerging Markets
MS Global Equity
VKAC Global Equity
MS Global Equity Allocation
VKAC Global Managed Assets
MS International Magnum
MS Latin American
FIXED-INCOME FUNDS
Income
VKAC Corporate Bond
MS Global Fixed Income
VKAC Global Government Securities
VKAC Government Securities
VKAC High Income Corporate Bond
MS High Yield
VKAC High Yield
VKAC Short-Term Global Income
VKAC Strategic Income
VKAC U.S. Government
VKAC U.S. Government Trust for Income
MS Worldwide High Income
Tax Exempt Income
VKAC California Insured Tax Free
VKAC Florida Insured Tax Free Income
VKAC High Yield Municipal
VKAC Insured Tax Free Income
VKAC Intermediate Term Municipal Income
VKAC Municipal Income
VKAC New York Tax Free Income
VKAC Pennsylvania Tax Free Income
VKAC Tax Free High Income
Capital Preservation
VKAC Limited Maturity Government
VKAC Prime Rate Income Trust
VKAC Reserve
VKAC Senior Floating Rate
VKAC Tax Free Money
To find out more about any of these funds, ask your financial adviser for a
prospectus, which contains more complete information, including sales
charges, risks, and expenses. Please read it carefully before you invest or
send money.
To view a current Van Kampen American Capital or Morgan Stanley fund
prospectus or to receive additional fund information, choose from one of the
following:
- visit our web site at WWW.VKAC.COM -- to view prospectuses, select
Investors' Place, then Download a Prospectus
- call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time
(Telecommunications Device for the Deaf users, call 1-800-421-2833)
- e-mail us by visiting WWW.VKAC.COM and selecting Investors' Place
26
<PAGE> 28
VAN KAMPEN AMERICAN CAPITAL U.S. GOVERNMENT FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
CUSTODIAN AND TRANSFER AGENT
DENNIS J. MCDONNELL*
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
PETER W. HEGEL*
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 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 (ILLINOIS)
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 the Investment Company Act
of 1940.
(C) Van Kampen American Capital Distributors, Inc., 1998 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. After June 30, 1998, the report, if used with prospective
investors, must be accompanied by a quarterly performance update.
27
<PAGE> 29
VAN KAMPEN AMERICAN CAPITAL U.S. GOVERNMENT FUND
THIS PAGE INTENTIONALLY LEFT BLANK
28
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> U.S. GOVT CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 2,429,395,343<F1>
<INVESTMENTS-AT-VALUE> 2,510,235,203<F1>
<RECEIVABLES> 176,673,156<F1>
<ASSETS-OTHER> 1,724,695<F1>
<OTHER-ITEMS-ASSETS> 33,215<F1>
<TOTAL-ASSETS> 2,688,666,269<F1>
<PAYABLE-FOR-SECURITIES> 35,334,323<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 15,360,991<F1>
<TOTAL-LIABILITIES> 50,695,314<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,414,852,129
<SHARES-COMMON-STOCK> 154,862,967
<SHARES-COMMON-PRIOR> 177,061,820
<ACCUMULATED-NII-CURRENT> 9,233,367<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (279,326,858)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 82,098,885<F1>
<NET-ASSETS> 2,264,786,479
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 212,945,438<F1>
<OTHER-INCOME> 15,466,406<F1>
<EXPENSES-NET> (30,392,489)<F1>
<NET-INVESTMENT-INCOME> 198,019,355<F1>
<REALIZED-GAINS-CURRENT> (27,525,829)<F1>
<APPREC-INCREASE-CURRENT> 53,113,057<F1>
<NET-CHANGE-FROM-OPS> 223,606,583<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (170,044,954)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,151,088
<NUMBER-OF-SHARES-REDEEMED> (31,205,759)
<SHARES-REINVESTED> 5,855,818
<NET-CHANGE-IN-ASSETS> (295,272,284)
<ACCUMULATED-NII-PRIOR> 6,188,375<F1>
<ACCUMULATED-GAINS-PRIOR> (302,395,603)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 14,229,642<F1>
<INTEREST-EXPENSE> 2,129,020<F1>
<GROSS-EXPENSE> 30,392,489<F1>
<AVERAGE-NET-ASSETS> 2,378,581,457
<PER-SHARE-NAV-BEGIN> 14.459
<PER-SHARE-NII> 1.039
<PER-SHARE-GAIN-APPREC> 0.158
<PER-SHARE-DIVIDEND> (1.032)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 14.624
<EXPENSE-RATIO> 0.90
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> U.S. GOVT CLASS B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 2,429,395,343<F1>
<INVESTMENTS-AT-VALUE> 2,510,235,203<F1>
<RECEIVABLES> 176,673,156<F1>
<ASSETS-OTHER> 1,724,695<F1>
<OTHER-ITEMS-ASSETS> 33,215<F1>
<TOTAL-ASSETS> 2,688,666,269<F1>
<PAYABLE-FOR-SECURITIES> 35,334,323<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 15,360,991<F1>
<TOTAL-LIABILITIES> 50,695,314<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 396,197,222
<SHARES-COMMON-STOCK> 24,572,368
<SHARES-COMMON-PRIOR> 28,710,235
<ACCUMULATED-NII-CURRENT> 9,233,367<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (279,326,858)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 82,098,885<F1>
<NET-ASSETS> 358,987,301
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 212,945,438<F1>
<OTHER-INCOME> 15,466,406<F1>
<EXPENSES-NET> (30,392,489)<F1>
<NET-INVESTMENT-INCOME> 198,019,355<F1>
<REALIZED-GAINS-CURRENT> (27,525,829)<F1>
<APPREC-INCREASE-CURRENT> 53,113,057<F1>
<NET-CHANGE-FROM-OPS> 223,606,583<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (24,106,451)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,391,041
<NUMBER-OF-SHARES-REDEEMED> (6,320,342)
<SHARES-REINVESTED> 791,434
<NET-CHANGE-IN-ASSETS> (55,785,272)
<ACCUMULATED-NII-PRIOR> 6,188,375<F1>
<ACCUMULATED-GAINS-PRIOR> (302,395,603)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 14,229,642<F1>
<INTEREST-EXPENSE> 2,129,020<F1>
<GROSS-EXPENSE> 30,392,489<F1>
<AVERAGE-NET-ASSETS> 379,588,365
<PER-SHARE-NAV-BEGIN> 14.447
<PER-SHARE-NII> 0.916
<PER-SHARE-GAIN-APPREC> 0.162
<PER-SHARE-DIVIDEND> (0.916)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 14.609
<EXPENSE-RATIO> 1.72
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 013
<NAME> U.S. GOVT CLASS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 2,429,395,343<F1>
<INVESTMENTS-AT-VALUE> 2,510,235,203<F1>
<RECEIVABLES> 176,673,156<F1>
<ASSETS-OTHER> 1,724,695<F1>
<OTHER-ITEMS-ASSETS> 33,215<F1>
<TOTAL-ASSETS> 2,688,666,269<F1>
<PAYABLE-FOR-SECURITIES> 35,334,323<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 15,360,991<F1>
<TOTAL-LIABILITIES> 50,695,314<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14,916,210
<SHARES-COMMON-STOCK> 971,893
<SHARES-COMMON-PRIOR> 993,209
<ACCUMULATED-NII-CURRENT> 9,233,367<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (279,326,858)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 82,098,885<F1>
<NET-ASSETS> 14,197,175
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 212,945,438<F1>
<OTHER-INCOME> 15,466,406<F1>
<EXPENSES-NET> (30,392,489)<F1>
<NET-INVESTMENT-INCOME> 198,019,355<F1>
<REALIZED-GAINS-CURRENT> (27,525,829)<F1>
<APPREC-INCREASE-CURRENT> 53,113,057<F1>
<NET-CHANGE-FROM-OPS> 223,606,583<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (869,235)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 400,545
<NUMBER-OF-SHARES-REDEEMED> (453,300)
<SHARES-REINVESTED> 31,439
<NET-CHANGE-IN-ASSETS> (152,599)
<ACCUMULATED-NII-PRIOR> 6,188,375<F1>
<ACCUMULATED-GAINS-PRIOR> (302,395,603)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 14,229,642<F1>
<INTEREST-EXPENSE> 2,129,020<F1>
<GROSS-EXPENSE> 30,392,489<F1>
<AVERAGE-NET-ASSETS> 13,697,644
<PER-SHARE-NAV-BEGIN> 14.448
<PER-SHARE-NII> 0.910
<PER-SHARE-GAIN-APPREC> 0.166
<PER-SHARE-DIVIDEND> (0.916)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 14.608
<EXPENSE-RATIO> 1.72
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
