<PAGE> 1
AMERICAN CAPITAL
GOVERNMENT
SECURITIES, INC.
ANNUAL REPORT
December 31, 1994
[Photo of Man, Woman and two children outdoors.]
[AMERICAN CAPITAL LOGO]
THIS BROCHURE INCLUDES A PROSPECTUS WHICH DESCRIBES IN DETAIL THE FUND'S
OBJECTIVES, INVESTMENT POLICIES, RISKS, SALES CHARGES, FEES AND OTHER MATTERS
OF INTEREST. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST OR SEND
MONEY.
<PAGE> 2
AMERICAN CAPITAL GOVERNMENT SECURITIES HIGHLIGHTS
[Photo of Man and Woman]
FOR INVESTORS SEEKING HIGH CURRENT RETURN AND PRESERVATION OF CAPITAL FROM
INVESTMENTS IN DEBT SECURITIES ISSUED OR GUARANTEED BY THE U.S. GOVERNMENT OR
ITS AGENCIES.
AMERICAN CAPITAL'S QUALITY COMMITMENT
[Photos of two DALBAR Awards]
American Capital has been recognized for providing the highest
quality service in the mutual fund industry in 1994. For the
second consecutive year, DALBAR Surveys, Inc., an independent
research firm in the mutual fund industry, awarded
American Capital its coveted crystal pyramid for
ranking number one in service. This ranking is based on
evaluations by investment professionals across the
country.
American Capital also has received the DALBAR
Quality Tested Service Seal for outstanding customer
service five years in a row.
Not a part of the Prospectus
<PAGE> 3
SHAREHOLDERS' MESSAGE
February 14, 1995
[Photo of Don G. Powell]
Dear Shareholder,
For more than six decades, American Capital has helped investors achieve
their financial goals. As a shareholder, you know that American Capital's
goal is to provide you with consistent, competitive returns and outstanding
customer service. Those goals will remain unchanged as we embark on a new era
as Van Kampen American Capital.
In December, shareholders of American Capital funds approved new
agreements with the funds' manager that cleared the way for completion of the
merger between American Capital Management & Research, Inc., the company that
owns your Fund's manager, and The Van Kampen Merritt Companies, Inc. on
December 20, 1994. While this merger will have no direct impact on your Fund
shares, it will create a stronger company that will be able to provide
shareholders with a broader range of investment options and nearly 100 years
of combined investment experience.
The strength and experience of Van Kampen American Capital is
enhanced further by the international and emerging markets expertise of John
Govett & Co., Ltd. Last fall, Van Kampen American Capital Distributors, Inc.,
formerly American Capital Marketing, Inc., became the exclusive U.S.
distributor of The Govett Funds, Inc. This relationship will provide six
additional fund options for Van Kampen American Capital shareholders who want
to add an international or global component to their portfolios.
Although 1994 was a year of significant change for American Capital,
one thing has not changed: our belief in investing for the long term. The
past year was extremely challenging for both the stock and bond market, as
concerns about rising inflation prompted repeated increases in short-term
interest rates that made many investors nervous. While the markets did not
perform as well in 1994 as in previous years, investing in a stock mutual
fund still is the one of the best ways to achieve long-term capital
appreciation and bond funds are an excellent option for investors who need
regular income.
We will continue to communicate with you on a regular basis as we go
forward, providing information about both market conditions and new investment
opportunities. We appreciate your continued confidence in your Fund and Van
Kampen American Capital.
Sincerely,
/s/ DON G. POWELL
Don G. Powell
PRESIDENT
Not a part of the Prospectus 1
<PAGE> 4
PORTFOLIO PERSPECTIVE
THE FOLLOWING IS AN INTERVIEW WITH THE MANAGEMENT TEAM OF AMERICAN CAPITAL
GOVERNMENT SECURITIES, INC. THE TEAM IS LED BY PORTFOLIO MANAGER JOHN
REYNOLDSON AND ROBERT PECK, EXECUTIVE VICE PRESIDENT.
Q. INTEREST RATES ROSE STEADILY THROUGHOUT 1994. HOW DID THAT AFFECT THE FUND?
A. The Federal Reserve Board raised short-term interest rates six times in
1994 because it was concerned that the economy was growing too quickly, which
would cause the inflation rate to increase. As rates rose, existing
fixed-income securities became less attractive because they offered a lower
yield than that available from the newer issues. So, 1994 was marked by
steadily increasing yields from new issues and decreasing prices of existing
fixed-income securities.
Q. HOW DID YOU RESPOND TO THE CHANGING INTEREST-RATE ENVIRONMENT?
A. In response to the market, we reduced the Fund's average duration and
increased its exposure to mortgage-backed securities because prepayments had
stopped and expected returns on mortgages looked better than those on
Treasuries. Duration is a measure of the impact of a change in interest rates
on a bond. The lower the duration, the less a bond's value should change as
rates change. Therefore, reducing the Fund's average duration helped to limit
its volatility during 1994. Mortgage-backed securities became more attractive
because as interest rates rose there was less incentive for people to prepay
their mortgages. This meant these securities offered a longer-term yield than
in a period of declining rates, making them more attractive than Treasury
securities.
The Fund's diversification is illustrated by the chart at left.
HOLDINGS BY ISSUERS
Percentage of Net Assets
as of 12/31/94
(PIE CHART)
Federal Home Loan Mortgage Corporation 15%
U.S. Treasury Notes 29%
Governemtn National Mortgage Association 32%
Federal national Mortgage Association 22%
Other 2%
Q. HOW DID THE FUND PERFORM DURING 1994?
A. Class A shares achieved a total return at net asset value (without a sales
charge) of -4.26%, including reinvestment of dividends totalling $.6755 per
share. Class B shares achieved a total return at net asset value of -4.95%,
including reinvestment of dividends totalling $.5925 per share. Class C shares
achieved a total return at net asset value of -5.05%, including reinvestment of
dividends totalling $.5925 per share.
Not a part of the Prospectus 2
<PAGE> 5
Q. HOW DID GOVERNMENT SECURITIES IN GENERAL DO LAST YEAR?
A. The Lehman Brothers Mutual Fund U.S. Government Index achieved a total
return of -3.37%. The Index is a broad-based, unmanaged index that reflects the
general performance of U.S. Government securities. It does not reflect any
commissions or fees that would be paid by an investor purchasing the securities
it represents.
[Photo of 2 People looking at Computer Screen]
Q. WHAT'S AHEAD FOR THE FUND?
A. At the beginning of 1995, interest rates were 2.5% to 3% higher than in
mid-1994. Although the Fed raised short-term rates again in early 1995, we
expect economic growth and inflation to maintain moderate growth rates
throughout the year.
If growth remains moderate, longer-term maturities should do well.
Debt securities with shorter maturities also will remain attractive. Given this
outlook, we will continue to invest much of the Fund's assets in issues with
relatively short or long maturities, while minimizing our investment in
securities with intermediate maturities.
Finally, we have increased the Fund's average duration to take
advantage of the additional yields available from issues with longer
maturities.
/s/ ROBERT C. PECK, JR /s/ JOHN R. REYNOLDSON
Robert C. Peck, Jr. John R. Reynoldson
EXECUTIVE VICE PRESIDENT PORTFOLIO MANAGER
Not a part of the Prospectus 3
<PAGE> 6
AMERICAN CAPITAL GOVERNMENT SECURITIES
SAVVY STRATEGIES TO BUILD YOUR INVESTMENT
[Photo of Woman]
The most important part of any investment plan is simply HAVING a plan in the
first place. If you find that you're not putting away as much as you'd like
toward achieving your financial goals, here are six ways you can start right
now:
- -- Invest regularly. This is the simplest plan of all, and one of the most
effective. Just pick an amount with which you're comfortable and invest it
into your Fund every month, no matter what direction the stock market goes.
This technique is known as DOLLAR-COST AVERAGING. When prices are lower,
you'll be buying more shares; when prices are higher, you'll be buying fewer
shares.
- -- Invest automatically. Call your investment professional or American Capital
to find out how to set up a Pre-Authorized Check plan. You can transfer a
predetermined amount from your checking account into your Fund account
automatically on a regular basis - no checks, no stamps, no hassle.
- -- Extra cash? Stash it. Make it a practice to invest half - or all - of any
tax refund, bonus, or gift of cash that you receive.
- -- Invest money you won't miss. If you receive a raise, or if your net pay
goes up toward the end of the year when you reach the maximum withholding
for Social Security taxes, don't spend the increase - invest it. You're
used to budgeting without it, so you won't miss it.
- -- Take maximum advantage of qualified plans. Tax-deferred plans such as IRAs
and Keoghs allow your money to grow tax-deferred, while many
employer-sponsored plans such as 401(k) plans and profit-sharing plans offer
the added plus of employer contributions.
- -- Get a financial check-up. Goals evolve, family circumstances change. Meet
with your investment professional to make sure your strategy is still on
track.
Programs of regular investing cannot insure a profit or protect against a
loss. Investors should consider their ability to continue investing during
periods of low price levels.
Not a part of the Prospectus 4
<PAGE> 7
AMERICAN CAPITAL GOVERNMENT SECURITIES
THE AMERICAN CAPITAL ADVANTAGE
As a shareholder in an American Capital fund you have the option of
automatically investing your dividends and capital gains into most other
American Capital funds without a sales charge. This fund-to-fund privilege,
which can help you create a diversified portfolio, is just one of the many
shareholder services available to you at no charge.
[Photo of 5 DALBAR Quality Tested Service Seals]
Van Kampen American Capital is extremely proud of its shareholder services,
and is committed to continuing to provide outstanding service. For the fifth
consecutive year, American Capital received the Quality Tested Service Seal
awarded by DALBAR Surveys, Inc., a well-respected independent research firm in
the mutual fund industry. American Capital was one of only five mutual fund
groups in the nation in 1994 to receive this prestigious award for consistent,
quality service, and one of only two fund groups to receive the award every
year since its inception. In addition, our shareholder services agent, ACCESS,
won the 1993 Missouri Quality Award. TO EXPERIENCE OUR AWARD-WINNING CUSTOMER
SERVICE CALL 1-800-421-5666 BETWEEN 7A.M. AND 7P.M. CENTRAL TIME MONDAY
THROUGH FRIDAY.
Service When To help meet the needs of busy shareholders, American
You Want It Capital offers 24-hour account information through ACCESS
PLUS, our automated telephone service. Just call
1-800-847-2424 from a Touch-Tone phone to check your
account balance, obtain current fund prices, exchange
between funds and more.
Variety of Dividends from net investment income for American Capital
Distribution Government Securities, Inc. are paid monthly and capital
Options gains, if any, are distributed at least annually. You may
automatically reinvest these distributions into additional
shares to build your account value, take them in cash, or
have them automatically invested into any other American
Capital fund.
Low Subsequent You can make additional investments in American Capital
Investments Government Securities, Inc. for as little as $25.
Automatic An automatic investment plan can help you carry out a
Investment Plan disciplined financial plan by allowing you to invest
regularly into your mutual fund account through automatic
deductions from your personal bank account. With our Step
Up option, you also can increase your investment amount
on a pre-established schedule.
Not a part of the Prospectus 5
<PAGE> 8
INVESTMENT PORTFOLIO
December 31, 1994
<TABLE>
<CAPTION>
Principal Market
Amount Value
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
United States Agency Obligations61.5%
Federal Home Loan Mortgage Corp.
$ 447,960 6.00% Pools, 6/1/98 . . . . . . . . . . . . . . . . . . . . . $ 421,925
51,434,317 7.00% Pools, 5/1/98 to 2/1/23 . . . . . . . . . . . . . . . . 46,777,445
201,555,350 7.50% Pools, 1/1/22 to 9/1/24 . . . . . . . . . . . . . . . . 188,329,288
**100,658,305 8.00% Pools, 7/1/24 to 10/1/24 . . . . . . . . . . . . . . . 96,537,354
Federal National Mortgage Association
**51,337,482 7.00% Pools, 12/1/99 to 3/1/24 . . . . . . . . . . . . . . . 46,580,191
199,724,086 7.50% Pools, 3/1/22 to 12/1/24 . . . . . . . . . . . . . . . 186,492,306
**302,447,867 8.00% Pools, 4/1/22/ to 12/1/24 . . . . . . . . . . . . . . . 289,687,592
557,688 11.50% Pools, 7/1/13 to 3/1/19 . . . . . . . . . . . . . . . 606,837
8,361,141 12.00% Pools, 3/1/13 to 1/1/16 . . . . . . . . . . . . . . . 9,165,900
Government National Mortgage Association
99,053,295 7.00% Pools, 8/15/22 to 5/15/24 . . . . . . . . . . . . . . . 88,840,438
**412,081,878 7.50% Pools, 4/15/17 to 8/15/24 . . . . . . . . . . . . . . . 382,333,689
**408,030,444 8.00% Pools, 11/15/16 to 6/15/24 . . . . . . . . . . . . . . 390,052,623
33,961,975 8.50% Pools, 9/15/04 to 3/15/23 . . . . . . . . . . . . . . . 33,357,112
484,584 11.00% Pools, 3/15/10 to 11/15/20 . . . . . . . . . . . . . . 524,712
11,126,216 12.00% Pools, 6/15/11 to 8/15/15 . . . . . . . . . . . . . . 12,339,641
4,738,450 12.50% Pools, 4/15/10 to 7/15/18 . . . . . . . . . . . . . . 5,302,609
-----------------
TOTAL UNITED STATES AGENCY OBLIGATIONS
(Cost $1,845,816,492) . . . . . . . . . . . . . . . . . . . . 1,777,349,662
-----------------
United States Government Obligations 29.2%
United States Treasury Notes
**100,000,000 4.25%, 7/31/95 . . . . . . . . . . . . . . . . . . . . . . . 98,547,000
100,000,000 7.75%, 11/30/99 . . . . . . . . . . . . . . . . . . . . . . . 99,578,000
100,000,000 8.50%, 5/15/95 . . . . . . . . . . . . . . . . . . . . . . . 100,703,000
300,000,000 8.50%, 8/15/95 . . . . . . . . . . . . . . . . . . . . . . . 302,625,000
40,000,000 8.875%, 7/15/95 . . . . . . . . . . . . . . . . . . . . . . . 40,412,400
**200,000,000 8.875%, 2/15/96 . . . . . . . . . . . . . . . . . . . . . . . 202,938,000
-----------------
TOTAL UNITED STATES GOVERNMENT OBLIGATIONS
(Cost $867,425,000) . . . . . . . . . . . . . . . . . . . . . 844,803,400
-----------------
Forward Purchase Commitments 6.8%
Federal Home Loan Mortgage Corp.
*100,000,000 8.50%, settling 1/95 . . . . . . . . . . . . . . . . . . . . 98,375,000
Federal National Mortgage Association
*100,000,000 8.50%, settling 1/95 . . . . . . . . . . . . . . . . . . . . 98,156,000
-----------------
TOTAL FORWARD PURCHASE COMMITMENTS
(Cost $197,703,125) . . . . . . . . . . . . . . . . . . . . . 196,531,000
-----------------
</TABLE>
Not a part of the Prospectus 6
<PAGE> 9
INVESTMENT PORTFOLIO CONTINUED
<TABLE>
<CAPTION>
Principal Market
Amount Value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreement 8.6%
$ 247,845,000 Salomon Brothers, Inc., dated 12/30/94,
5.75%, due 1/3/95 (collateralized by U.S.
Government obligations in a pooled cash
account) repurchase proceeds $248,003,345
(Cost $247,845,000) . . . . . . . . . . . . . . . . . . . . . $ 247,845,000
----------------
TOTAL INVESTMENTS (Cost $3,158,789,617) 106.1% . . . . . . . . . 3,066,529,062
----------------
Other assets and liabilities, net (6.1%) . . . . . . . . . . . . (177,094,674)
----------------
NET ASSETS 100% . . . . . . . . . . . . . . . . . . . . . . . . $ 2,889,434,388
================
</TABLE>
* NON=INCOME PRODUCING SECURITIES.
** SECURITIES WITH A MARKET VALUE OF $883.8 MILLION WERE PLACED AS
COLLATERAL FOR FORWARD COMMITMENTS AND FUTURES CONTRACTS (SEE NOTE 1B)
See Notes to Financial Statements.
Not a part of the Prospectus 7
<PAGE> 10
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1994
<TABLE>
<S> <C>
ASSETS
Investments, at market value (Cost $3,158,789,617)..................... $ 3,066,529,062
Receivable for investments sold........................................ 959,439
Interest receivable.................................................... 33,170,848
Receivable for Fund shares sold........................................ 1,207,375
Unrealized appreciation of forward commitments......................... 1,032,869
Receivable from variation margin....................................... 14,976
Other assets........................................................... 86,550
---------------
TOTAL ASSETS......................................................... 3,103,001,119
---------------
LIABILITIES
Payable for investments purchased...................................... 197,703,126
Payable for Fund shares redeemed....................................... 10,775,043
Dividends payable...................................................... 720,020
Due to Distributor..................................................... 2,040,396
Due to Adviser......................................................... 1,249,290
Due to shareholder service agent....................................... 654,063
Accrued expenses and other liabilities................................. 424,793
---------------
TOTAL LIABILITIES.................................................... 213,566,731
---------------
NET ASSETS, equivalent to $9.67 per share for Class A shares, $9.68 per
share for Class B shares and $9.66 per share for Class C shares ..... $ 2,889,434,388
===============
NET ASSETS WERE COMPRISED OF:
Shares of capital stock at par; 266,771,605 Class A, 28,790,405 Class B
and 3,315,539 Class C shares outstanding............................. $ 298,878
Capital surplus........................................................ 4,163,604,190
Accumulated net realized loss on securities............................ (1,187,295,759)
Net unrealized appreciation (depreciation) of securities
Investments.......................................................... (92,260,555)
Forward commitments.................................................. 1,032,869
Futures contracts.................................................... (147,705)
Undistributed net investment income.................................... 4,202,470
---------------
NET ASSETS at December 31, 1994........................................ $ 2,889,434,388
===============
</TABLE>
See Notes to Financial Statements.
Not a part of the Prospectus 8
<PAGE> 11
STATEMENT OF OPERATIONS
Year Ended December 31, 1994
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest................................................................ $ 261,777,014
-------------
EXPENSES
Management fees......................................................... 16,668,177
Service fees-Class A.................................................... 7,223,715
Distribution and service fees-Class B................................... 3,206,280
Distribution and service fees-Class C................................... 386,025
Shareholder service agent's fees and expenses........................... 7,332,206
Accounting services..................................................... 365,416
Reports to shareholders................................................. 287,361
Custodian fees.......................................................... 250,136
Registration and filing fees............................................ 148,525
Directors' fees and expenses............................................ 84,668
Audit fees.............................................................. 43,902
Legal fees.............................................................. 18,790
Miscellaneous........................................................... 289,976
-------------
Total expenses........................................................ 36,305,177
-------------
Net investment income................................................. 225,471,837
-------------
REALIZED AND UNREALIZED LOSS ON SECURITIES
Net realized loss on securities
Investments........................................................... (234,368,203)
Forward commitments................................................... (81,506,031)
Futures contracts..................................................... (24,073,891)
Net unrealized appreciation (depreciation) of securities during the year
Investments........................................................... (48,666,838)
Forward commitments................................................... 3,351,557
Futures contracts..................................................... 794,529
-------------
Net realized and unrealized loss on securities........................ (384,468,877)
-------------
Decrease in net assets resulting from operations...................... $(158,997,040)
=============
</TABLE>
See Notes to Financial Statements.
Not a part of the Prospectus 9
<PAGE> 12
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------
1994 1993
--------------- ---------------
<S> <C> <C>
NET ASSETS, beginning of year................................ $ 3,826,260,982 $ 3,871,925,197
--------------- ---------------
OPERATIONS
Net investment income....................................... 225,471,837 301,303,958
Net realized gain (loss) on securities...................... (339,948,125) 127,492,993
Net unrealized depreciation of securities during the year (44,520,752) (124,411,196)
--------------- ---------------
Increase (decrease) in net assets resulting from
operations................................................ (158,997,040) 304,385,755
--------------- ---------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT
INCOME
Class A.................................................... (196,817,900) (264,237,480)
Class B.................................................... (18,938,944) (19,927,617)
Class C.................................................... (2,253,668) (1,001,232)
--------------- ---------------
(218,010,512) (285,166,329)
--------------- ---------------
NET EQUALIZATION DEBITS...................................... (3,507,799) (809,796)
--------------- ---------------
FUND SHARE TRANSACTIONS
Proceeds from shares sold
Class A.................................................... 553,447,542 269,555,944
Class B.................................................... 61,568,635 190,080,974
Class C.................................................... 24,992,564 41,699,721
--------------- ---------------
640,008,741 501,336,639
--------------- ---------------
Proceeds from shares issued for dividends reinvested
Class A.................................................... 102,123,069 132,837,484
Class B.................................................... 11,182,131 11,339,807
Class C.................................................... 1,324,949 602,280
--------------- ---------------
114,630,149 144,779,571
--------------- ---------------
Cost of shares redeemed
Class A.................................................... (1,157,041,983) (636,992,928)
Class B.................................................... (125,196,156) (70,231,272)
Class C.................................................... (28,711,994) (2,965,855)
--------------- ---------------
(1,310,950,133) (710,190,055)
--------------- ---------------
Decrease in net assets resulting from Fund share
transactions............................................. (556,311,243) (64,073,845)
--------------- ---------------
DECREASE IN NET ASSETS....................................... (936,826,594) (45,664,215)
--------------- ---------------
NET ASSETS, end of year...................................... $ 2,889,434,388 $ 3,826,260,982
=============== ===============
</TABLE>
See Notes to Financial Statements.
Not a part of the Prospectus 10
<PAGE> 13
Shareholder Service Agent. ACCESS, P.O. Box 418256, Kansas City, Missouri
64141-9256, serves as transfer agent, shareholder service agent and dividend
disbursing agent for the Fund. ACCESS, a wholly owned subsidiary of the
Adviser's parent, provides these services at cost plus a profit.
Legal Counsel. O'Melveny & Myers, 400 South Hope Street, Los Angeles,
California 90071, is legal counsel to the Fund.
Independent Accountants. Price Waterhouse, 1201 Louisiana, Suite 2900,
Houston, Texas 77002, are the independent accountants for the Fund.
---------------
Prospectus page 28
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
Note 1-Significant Accounting Policies
American Capital Government Securities, Inc. (the "Fund") is registered under
the Investment Company Act of 1940, as amended, as a diversified open-end
management investment company. The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of its
financial statements.
A. Investment Valuations
U.S. Agency and Government obligations and related forward commitments
are valued at the last reported bid price. Listed options are valued
at the last reported sale price on the exchange on which such option
is traded, or, if no sales are reported, at the mean between the last
reported bid and asked prices. Forward commitments for which market
quotations are not readily available are valued at a fair value under
a method approved by the Board of Directors.
Short-term investments with a maturity of 60 days or less when
purchased are valued at amortized cost, which approximates market
value. Short-term investments with a maturity of more than 60 days
when purchased are valued based on market quotations until the
remaining days to maturity becomes less than 61 days. From such time,
until maturity, the investments are valued at amortized cost.
B. Futures Contracts and Forward Commitments
General-Transactions in futures contracts and forward commitments are
utilized in strategies to manage the market risk of the Fund's
investments. The purchase of a futures contract or forward commitments
increases the impact on net asset value of changes in the market price
of investments. Forward commitments have a risk of loss due to
nonperformance of counterparties. There is also a risk that the market
movement of such instruments may not be in the direction forecasted.
Note 3-Investment activity contains additional information.
Futures Contracts-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. A portion
of these funds is held as collateral in an account in the name of the
broker, the Fund's agent in acquiring the futures position. During the
period the futures contract is open, changes in the value of the
contract ("variation margin") are recognized by marking the contract
to market on a daily basis. As unrealized gains or losses are
incurred, variation margin payments are received from or made to the
broker. Upon the closing or cash settlement of a contract, gains or
losses are realized. The cost of securities acquired through delivery
under a contract is adjusted by the unrealized gain or loss on the
contract.
Forward Commitments-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
which security settlement is not intended by the Fund, and for all
forward sale commitments, changes in the value of the commitment are
recognized by marking the commitment to market on a daily basis.
During the commitment, the Fund may either resell or repurchase the
forward commitment and enter into a new forward commitment, the effect
of which is to extend the settlement date. In addition, the Fund may
occasionally close such forward commitments prior to delivery. Gains
and losses are realized upon the ultimate closing or cash settlement
of forward commitments.
Not a part of the Prospectus 11
<PAGE> 15
C. Repurchase Agreements
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. The Fund
may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other
investment companies advised or subadvised by Van Kampen American
Capital Asset Management, Inc. (the "Adviser"), the daily aggregate
of which is invested in repurchase agreements. 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 required to maintain the value of the underlying security at not
less than the repurchase proceeds due the Fund.
D. Federal Income Taxes
No provision for federal income taxes is required because the Fund has
elected to be taxed as a "regulated investment company" under the
Internal Revenue Code and intends to maintain this qualification by
annually distributing all of its taxable net investment income and
taxable net realized capital gains to its shareholders. It is
anticipated that no distributions of capital gains will be made until
tax basis capital loss carryforwards expire or are offset by net
realized capital gains.
E. Investment Transactions and Related Investment Income
Investment transactions are accounted for on the trade date. Realized
gains and losses on investments are determined on the basis of
identified cost. Interest income is accrued daily.
F. Dividends and Distributions
Dividends and distributions to shareholders are recorded on the record
date. The Fund distributes tax basis earnings in accordance with the
minimum distribution requirements of the Internal Revenue Code, which
may differ from generally accepted accounting principles. Such
dividends or distributions may exceed financial statement earnings.
G. Equalization
At December 31, 1994, the Fund discontinued the accounting practice of
equalization, which it had used since its inception. Equalization is a
practice whereby a portion of the proceeds from sales and costs of
redemptions of Fund shares, equivalent on a per-share basis to the
amount of the undistributed net investment income, is charged or
credited to undistributed net investment income.
The balance of equalization included in undistributed net investment
income at the date of change, which was $8,817,157, was reclassified
to capital surplus. Such reclassification had no effect on net assets,
results of operations, or net asset value per share of the Fund.
H. Debt Discount or Premium
For financial reporting purposes, debt discounts or premiums are
accounted for on the same basis as is followed for federal income tax
reporting. Accordingly, original issue discounts on debt securities
purchased are amortized over the life of the security. Premiums on
debt securities are not amortized. Market discounts are recognized at
the time of sale as realized gains for book purposes and ordinary
income for tax purposes.
Not a part of the Prospectus 12
<PAGE> 16
Note 2-Management Fees and Other Transactions with Affiliates
The Adviser serves as investment manager of the Fund. Management fees are paid
monthly, based on the average daily net assets of the Fund at an annual rate as
determined by the following graduated fee schedule.
<TABLE>
<CAPTION>
Average Daily
Net Assets Annual Rate
---------------- -----------
<S> <C>
First $1 billion .54%
Next $1 billion .515%
Next $1 billion .49%
Next $1 billion .44%
Next $1 billion .39%
Next $1 billion .34%
Next $1 billion .29%
Over $7 billion .24%
</TABLE>
Accounting services include the salaries and overhead expenses of the Fund's
Treasurer and the personnel operating under his direction. Charges are
allocated among all investment companies advised or subadvised by the Adviser.
For the year ended December 31, 1994, these charges included $46,839 as the
Fund's share of the employee costs attributable to the Fund's accounting
officers. A portion of the accounting services expense was paid to the Adviser
in reimbursement of personnel, facilities and equipment costs attributable to
the provision of accounting services to the Fund. The accounting services
provided by the Adviser are at cost.
Van Kampen American Capital Shareholder Services, Inc., an affiliate of the Ad-
viser, serves as the Fund's shareholder service agent. These services are
provided at cost plus a profit. For the year ended December 31, 1994, fees for
these services aggregated $6,179,933.
The Fund was advised that Van Kampen American Capital Distributors, Inc. (the
"Distributor") and Advantage Capital Corp. (the "Retail Dealer"), both
affiliates of the Adviser, received $227,845 and $163,977, respectively, as
their portion of commissions on sales of Fund shares during the year.
The Fund paid brokerage commissions of $142,220 to a company which is deemed an
affiliate of the Adviser's parent because it owns more than 5% of the company's
outstanding voting securities.
Under the Distribution Plans, each class of shares pays up to .25% per annum of
its average net assets to the Distributor for expenses and service fees
incurred. Class B shares and Class C shares pay an additional fee of up to .75%
per annum of their average net assets to reimburse the Distributor for its
distribution expenses. Actual distribution expenses incurred by the Distributor
for Class B shares and Class C shares may exceed the amounts reimbursed to the
Distributor by the Fund. At December 31, 1994, the unreimbursed expenses
incurred by the Distributor under the Class B and Class C plans aggregated
approximately $14.3 million and $697,000, respectively, and may be carried
forward and reimbursed through either the collection of the contingent deferred
sales charges from share redemptions or, subject to the annual renewal of the
plans, future Fund reimbursements of distribution fees.
Legal fees were for services rendered by O'Melveny & Myers, counsel for the
Fund. Lawrence J. Sheehan, of counsel to that firm, is a director of the Fund.
Certain officers and directors of the Fund are officers and directors of the
Adviser, the Distributor, the Retail Dealer and the shareholder service agent.
Not a part of the Prospectus 13
<PAGE> 17
Note 3-Investment Activity
During the year, the cost of purchases and proceeds from sales of investments,
excluding short-term investments and forward commitments, were $9,976,618,437
and $10,766,323,427, respectively.
The identified cost of investments owned at December 31, 1994 for federal
income tax purposes was $3,158,790,741. Net unrealized depreciation was
$92,261,679, gross unrealized appreciation aggregated $2,978,892, and gross
unrealized depreciation aggregated $95,240,571.
The net realized capital loss carryforward of approximately $1.2 billion for
federal income tax purposes at December 31, 1994 may be utilized to offset
future capital gains until expiration in 1995 through 2002, of which
approximately 30% will expire in 1995. Additionally, approximately $10.5
million in realized losses are being deferred for tax purposes to the 1995
fiscal year.
At December 31, 1994, the Fund held the following forward purchase commitments
for which delivery is not intended:
<TABLE>
<CAPTION>
Market Value Unrealized
Principal at December 31, Appreciation
Amount Security 1994 (Depreciation)
-------- -------- --------------- --------------
<S> <C> <C> <C>
Government National Mortgage Association
$200,000,000 8.50%, settling 2/95 . . . . . . . . . . . . $ 195,836,000 $ 859,437
100,000,000 8.50%, settling 1/95 . . . . . . . . . . . . 98,219,000 469,000
291,200,000 9.00%, settling 2/95 . . . . . . . . . . . . 292,906,432 (295,568)
-------------- -------------
$ 586,961,432 $ 1,032,869
============== =============
</TABLE>
At December 31, 1994, the Fund held the following U.S. Treasury Notes futures
contracts expiring in March, 1995:
<TABLE>
<CAPTION>
Market Value Unrealized
at December 31, Appreciation
Contracts 1994 (Depreciation)
--------- --------------- --------------
<S> <C> <C>
500 (long) . . . . . . . . . . . . . . . . . . . . . . . . . . $ 49,968,750 $ (208,853)
500 (short) . . . . . . . . . . . . . . . . . . . . . . . . . . (49,968,750) 61,148
-------------- -------------
$ 0 $ (147,705)
============== =============
</TABLE>
Note 4-Director Compensation
Fund directors who are not affiliated with the Adviser are compensated by the
Fund at the annual rate of $5,620 plus a fee of $140 per day for Board and
Committee meetings attended. The Chairman receives additional fees of $2,110.
During the year, such fees aggregated $69,111.
The directors may participate in a voluntary Deferred Compensation Plan (the
"Plan"). The Plan is not funded, and obligations under the Plan will be paid
solely out of the Fund's general accounts. The Fund will not reserve or set
aside funds for the payment of its obligations under the Plan by any form of
trust or escrow. At December 31, 1994, the liability for the Plan aggregated
$193,620. Each director covered by the Plan elects to be credited with an
earnings component on amounts deferred equal to the income earned by the Fund
on its short-term investments or equal to the total return of the Fund.
Not a part of the Prospectus 14
<PAGE> 18
Note 5-Capital
The Fund offers three classes of shares at their respective net asset values
per share, plus a sales charge which is imposed either at the time of purchase
(the Class A shares) or at the time of redemption on a contingent deferred
basis (the Class B shares and Class C shares). All classes of shares have the
same rights, except that Class B shares and Class C shares bear the cost of
distribution fees and certain other class specific expenses. Realized and
unrealized gains or losses, investment income and expenses (other than class
specific expenses) are allocated daily to each class of shares based upon the
relative proportion of net assets of each class. Class B shares and Class C
shares automatically convert to Class A shares six years and ten years after
purchase, respectively, subject to certain conditions.
The Fund has 1.2 billion Class A shares and 400 million each of Class
B and Class C shares of $.001 par value capital stock authorized. Transactions
in shares of capital stock were:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993
------------ -------------
<S> <C> <C>
Shares sold
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,143,898 24,838,549
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,087,332 17,537,332
Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,433,717 3,833,055
------------ -------------
62,664,947 46,208,936
------------ -------------
Shares issued for dividends reinvested
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,139,455 12,219,296
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,108,892 1,035,088
Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . 131,412 55,357
------------ -------------
11,379,759 13,309,741
------------ -------------
Shares redeemed
Class A . . . . . . . . . . . . . . . . . . . . . . . . . . . (114,111,603) (58,660,077)
Class B . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,508,979) (6,478,949)
Class C . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,864,864) (273,138)
------------ -------------
(129,485,446) (65,412,164)
------------ -------------
Decrease in shares outstanding . . . . . . . . . . . . . . . (55,440,740) (5,893,487)
============ =============
</TABLE>
Note 6-Subsequent Dividends
The Board of Directors of the Fund declared dividends of $.0555 per share for
Class A shares and $.0495 per share for Class B shares and Class C shares from
net investment income, payable January 17, 1995 and February 15, 1995 to
shareholders of record on January 3, 1995 and February 1, 1995, respectively.
Not a part of the Prospectus 15
<PAGE> 19
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each of the
periods indicated.
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
-------------------------------------------------------------------------
1994 1993 1992 1991 1990
----------- ------------ ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year ................. $ 10.80 $ 10.75 $ 10.95 $ 10.27 $ 10.37
----------- ------------ ----------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Investment income .................................. .76 .90587 1.00 1.00 1.04
Expenses ........................................... (.10) (.10212) (.10) (.10) (.09)
----------- ------------ ----------- --------- ---------
Net investment income .............................. .66 .80375 .90 .90 .95
Net realized and unrealized gains or losses
on securities .................................... (1.1145) .05 (.2225) .68 (.12)
----------- ------------ ----------- --------- ---------
Total from investment operations ................... (.4545) .85375 .6775 1.58 .83
----------- ------------ ----------- --------- ---------
DIVIDENDS FROM NET INVESTMENT INCOME ............... (.6755) (.80375) (.8775) (.90) (.93)
----------- ------------ ----------- --------- ---------
Net asset value, end of year ....................... $ 9.67 $ 10.80 $ 10.75 $ 10.95 $ 10.27
=========== ============ =========== ========= =========
TOTAL RETURN(1) .................................... (4.26%) 8.15% 6.56% 16.28% 8.71%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (millions) ................. $2,578.7 $3,418.8 $3,635.3 $3,871.5 $3,887.1
Average net assets (millions) ...................... $2,919.0 $3,580.7 $3,707.6 $3,799.0 $4,126.1
Ratios to average net assets
Expenses ......................................... 1.02% .98% .97% .96% .93%
Net investment income ............................ 6.96% 7.73% 8.42% 8.65% 9.56%
Portfolio turnover rate ............................ 306% 239% 239% 131% 177%
</TABLE>
(1) TOTAL RETURN DOES NOT CONSIDER THE EFFECT OF SALES CHARGES.
SEE NOTES TO FINANCIAL STATEMENTS.
Not a part of the Prospectus 16
<PAGE> 20
FINANCIAL HIGHLIGHTS, CONTINUED
Selected data for a share of capital stock outstanding throughout each of the
periods indicated.
<TABLE>
<CAPTION>
CLASS B(1) CLASS C
---------------------------------------- ---------------------------
MARCH 10,
YEAR 1993(2)
ENDED THROUGH
YEAR ENDED DECEMBER 31 DECEMBER 31 DECEMBER 31
---------------------------------------- ----------- -----------
1994 1993 1992(3) 1994 1993(3)
----------- ------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period ............... $ 10.80 $ 10.75 $ 10.95 $ 10.79 $ 10.94
----------- ------- ------- ----------- ----------
INCOME FROM INVESTMENT OPERATIONS
Investment income .................................. .77 .92 .94 .77 .85
Expenses ........................................... (.17) (.18) (.18) (.17) (.16)
----------- ------- ------- ----------- ----------
Net investment income .............................. .60 .74 .76 .60 .69
Net realized and unrealized gains or losses
on securities .................................... (1.1275) .03 (.165) (1.1275) (.3055)
----------- ------- ------- ----------- ----------
Total from investment operations ................... (.5275) .77 .595 (.5275) .3845
----------- ------- ------- ----------- ----------
DIVIDENDS FROM NET INVESTMENT INCOME ............... (.5925) (.72) (.795) (.5925) (.5345)
----------- ------- ------- ----------- ----------
Net asset value, end of period ..................... $ 9.68 $ 10.80 $ 10.75 $ 9.67 $ 10.79
=========== ======= ======= =========== ==========
TOTAL RETURN(4) .................................... (4.95%) 7.31% 5.74% (5.05%) 3.58%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions) ............... $ 278.7 $368.4 $236.6 $ 32.0 $ 39.0
Average net assets (millions) ...................... $ 320.7 $308.8 $ 92.1 $ 38.6 $ 21.0
Ratios to average net assets
Expenses ......................................... 1.78% 1.74% 1.74% 1.78% 1.72%(5)
Net investment income ............................ 6.20% 7.21% 7.20% 6.24% 7.54%(5)
Portfolio turnover rate ............................ 306% 239% 239% 306% 239%
</TABLE>
(1) CLASS B SHARES COMMENCED SALES ON DECEMBER 20, 1991 AT A NET ASSET VALUE OF
$10.86 PER SHARE. AT DECEMBER 31, 1991, THERE WERE 16,980 SHARES OUTSTANDING
WITH A PER SHARE NET ASSET VALUE OF $10.95. THE INCREASE IN NET ASSET VALUE
WAS DUE PRINCIPALLY TO UNREALIZED APPRECIATION; THERE WERE NO DIVIDENDS OR
DISTRIBUTIONS PAID DURING THE PERIOD.
(2) COMMENCEMENT OF OFFERING OF SALES
(3) BASED ON AVERAGE MONTH=END SHARES OUTSTANDING
(4) TOTAL RETURN FOR PERIODS OF LESS THAN ONE FULL YEAR ARE NOT ANNUALIZED.
TOTAL RETURN DOES NOT CONSIDER THE EFFECT OF SALES CHARGES.
(5) ANNUALIZED
SEE NOTES TO FINANCIAL STATEMENTS.
Not a Part of the Prospectus 17
<PAGE> 21
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
American Capital Government Securities, Inc.
In our opinion, the accompanying statement of assets and liabilities,
including the investment portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in
all material respects, the financial position of American Capital Government
Securities, Inc. at December 31, 1994, 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 selected per share data and ratios for each of
the fiscal periods presented, in conformity with generally accepted accounting
principles. These financial statements and selected per share data and ratios
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1994 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Houston, Texas
February 16, 1995
Not a part of the Prospectus 18
<PAGE> 22
FUND PERFORMANCE DATA
Management Discussion
American Capital Government Securities invests in a combination of U.S.
Treasury securities and mortgage-backed securities. The goal of the Fund is
to provide a high current return consistent with preservation of capital. The
fiscal year ended December 31, 1994 was one of generally rising short-term
interest rates, which had a negative impact on the Fund's performance.
For more information on market conditions and the Fund's performance, see
pages 2-3 of this report.
[Graph indicating Change in Value of a $10,000 Investment]
Past performance is not indicative of future performance. Performance of
other classes of the Fund will be greater or less than the lines shown based
on the differences in loads or fees paid by shareholders investing in the
different classes.
*THE LEHMAN BROTHERS MUTUAL FUND U.S. GOVERNMENT INDEX IS A BROAD-BASED
UNMANAGED INDEX OF U.S. GOVERNMENT SECURITIES. THE INDEX DOES NOT REFLECT ANY
COMMISSIONS OR FEES WHICH WOULD BE INCURRED BY AN INVESTOR PURCHASING THE
SECURITIES IT REPRESENTS. ALL SALES CHARGES AND ALL OTHER FEES AND EXPENSES
ARE INCLUDED IN THE PERFORMANCE SHOWN FOR AMERICAN CAPITAL GOVERNMENT
SECURITIES FUND CLASS A SHARES WITH ENDING VALUE OF $22,200. IN ADDITION,
SINCE INVESTORS PURCHASE SHARES OF THE FUND WITH VARYING SALES CHARGES
DEPENDING PRIMARILY ON VOLUME PURCHASED, THE FUND'S CLASS A PERFORMANCE AT
NET ASSET VALUE IS ALSO SHOWN.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN - CLASS A (AS OF 12/31/94) 1 YEAR 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
At Net Asset Value -4.26% 6.88% 8.14%
With Maximum 4.75% Sales Charge -8.82% 5.84% 7.62%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN - CLASS B (AS OF 12/31/94) 1 YEAR SINCE INCEPTION (12/20/91)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
At Net Asset Value -4.95% 2.81%
With Applicable Contingent Deferred Sales Charge -8.53% 2.11%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN - CLASS C (AS OF 12/31/94) 1 YEAR SINCE INCEPTION (3/10/93)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
At Net Asset Value -5.05% -0.92%
With Applicable Contingent Deferred Sales Charge -5.94% -0.92%
</TABLE>
Not a part of the Prospectus 19
<PAGE> 23
AMERICAN CAPITAL GOVERNMENT SECURITIES, INC.
Board of Directors
J. Miles Branagan
Richard E. Caruso
Roger Hilsman
Don G. Powell
David Rees
Lawrence J. Sheehan
Fernando Sisto*
William S. Woodside
*Chairman of the Board
- -------------------------------------------------------
Officers
Don G. Powell
President
Curtis W. Morell
Vice President
and Treasurer
Robert C. Peck, Jr.
John R. Reynoldson
Paul R. Wolkenberg
Vice Presidents
Tanya M. Loden
Vice President
and Controller
Nori L. Gabert
Vice President and
Secretary
J. David Wise
Vice President and
Assistant Secretary
Perry F. Farrell
M. Robert Sullivan
Assistant Treasurers
Huey P. Falgout
Assistant Secretary
- -------------------------------------------------------
Investment Adviser
Van Kampen American Capital Asset Management Inc.
2800 Post Oak Blvd., Houston,Texas 77056
- -------------------------------------------------------
Distributor
Van Kampen American Capital Distributors, Inc.
2800 Post Oak Blvd., Houston, Texas 77056
- -------------------------------------------------------
Shareholder Service Agent
Van Kampen American Capital Shareholder Services, Inc.
P.O. Box 418256, Kansas City, Missouri 64141-9256
- -------------------------------------------------------
Custodian
State Street Bank and Trust Company
225 Franklin Street, Boston, Massachusetts 02110
- -------------------------------------------------------
Counsel
O'Melveny &Myers
400 South Hope Street, Los Angeles, California 90071
- -------------------------------------------------------
Independent Accountants
Price Waterhouse LLP
1201 Louisiana, Houston, Texas 77002
- ---------------------------------------------------------------------------
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. If used for distribution to
prospective investors after 3/31/95, this annual report must be accompanied by
an American Capital Government Securities performance data update for the most
recent calendar quarter.
- ---------------------------------------------------------------------------
Not a part of the Prospectus 20
<PAGE> 24
AMERICAN CAPITAL FAMILY OF FUNDS
Emerging Growth Fund
American Capital Emerging Growth Fund, Inc.
Midcap Fund
American Capital Enterprise Fund, Inc.
Core Growth Funds
American Capital Pace Fund, Inc.
American Capital Global Equity Fund
Real Estate Fund
American Capital Real Estate Securities Fund, Inc.
Growth-Income Funds
American Capital Comstock Fund, Inc.
American Capital Growth and Income Fund, Inc.
American Capital Equity Income Fund, Inc.
American Capital Global Managed Assets Fund, Inc.
American Capital Harbor Fund, Inc.
Income-Growth Fund
American Capital Utilities Income Fund, Inc.
Corporate Bond Funds
American Capital High Yield Investments, Inc.
American Capital Corporate Bond Fund, Inc.
Government Securities Funds
American Capital Global Government Securities Fund
American Capital U.S. Government Trust for Income
American Capital Government Securities, Inc.
American Capital Federal Mortgage Trust
Tax-Free Funds
American Capital Tax-Exempt Trust
High Yield Municipal Portfolio
American Capital Texas Municipal Securities, Inc.
American Capital Municipal Bond Fund, Inc.
American Capital Tax-Exempt Trust
Insured Municipal Portfolio
Money Market Fund
American Capital Reserve Fund, Inc.
THE GOVETT FUNDS, INC.
Nationally Distributed by Van Kampen American Capital Distributors, Inc.
(Formerly American Capital Marketing, Inc.)
Govett Latin America Fund
Govett Pacific Strategy Fund
Govett Emerging Markets Fund
Govett Smaller Companies Fund
Govett International Equity Fund
Govett Global Government Income Fund
For more complete information about any American Capital or Govett Fund,
including charges and expenses, obtain a prospectus from your investment
professional or write Van Kampen American Capital Distributors, Inc., P.O. Box
1411, Houston, TX 77251-1411. Read the prospectus carefully before you invest
or send money.
American Capital
Government Securities, Inc.
C/O ACCESS
P.O. Box 418256
Kansas City, MO 64141-9256
PRINTED MATTER
Printed in U.S.A./029RPT-001
