<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders...................... 1
Performance Results......................... 3
Portfolio Management Review................. 4
Portfolio of Investments.................... 6
Statement of Assets and Liabilities......... 7
Statement of Operations..................... 8
Statement of Changes in Net Assets.......... 9
Financial Highlights........................ 10
Notes to Financial Statements............... 13
</TABLE>
GOVT SAR 8/95
<PAGE>
LETTER TO SHAREHOLDERS
[PHOTO OF DENNIS J. MCDONNELL AND DON G. POWELL]
August 3, 1995
Dear Shareholder:
The first half of 1995 has been a very positive one for most investors. Both
the fixed-income and stock markets have made considerable gains for the period
ended June 30, 1995. This year has been particularly rewarding for investors
after weathering the difficult markets of 1994.
The first six months of 1995 serve as a reminder of just how quickly markets
can move, and how difficult it can be to predict the timing of those movements.
Moreover, this year reinforces the importance of maintaining a long-term per-
spective, and reaffirms the principle that it is time--not timing--that leads
to investment success.
ECONOMIC OVERVIEW
Due in large part to the Federal Reserve Board's efforts to tighten monetary
supply in 1994, the economy has slowed significantly this year. Evidence of
this guided slowdown was reflected in gross domestic product for the second
quarter, which grew at an annual rate of 0.5 percent, substantially lower than
its first quarter rate of 2.7 percent and fourth quarter 1994 rate of 5.1 per-
cent. While other key economic data, including unemployment rates and housing
starts, have shown mixed signs during recent weeks, the general trend for the
first half of the year suggested a "soft landing" scenario. Subsequently, con-
cern over inflation has subsided, as its annualized rate has run at a modest
pace of 3.2 percent year-to-date.
Financial markets, perceiving the Fed's monetary initiatives had taken hold
without driving the economy into a recession, rallied through the first six
months of the year. With slowing growth, interest rates declined and the value
of fixed-income investments rose. For example, the yield on 30-year Treasury
securities fell from 7.88 percent at the end of December to 6.62 percent at the
end of June, while prices on the "long bond" rose 18 percent. Likewise, the
yield on the Bond Buyer's Municipal Bond Index fell from 7.28 percent to 6.37
percent during the same period.
Corporate earnings remained quite strong during the first half of the year,
helping push stocks to new highs. The Dow Jones Industrial Average and the S&P
500 Index gained nearly 19 percent during the period. The strongest performance
has been in the science & technology sector of the market--and in big "capital-
ization" stocks. As the U.S. dollar plunged against several international cur-
rencies, companies--typically large ones--which had diversified overseas were
able to capture additional earnings, while technology stocks benefited from
booming growth in computers and telecommunications throughout the world.
(Continued on page two)
1
<PAGE>
ECONOMIC OUTLOOK
Comfortable with the economy's rate of growth and level of inflation, the Fed
reversed course and lowered short-term interest rates on July 6. We believe the
Fed will move cautiously before easing again, waiting for further signs that
the economy has settled into a slow growth pattern. We anticipate that the
economy will grow at an annual rate between 2 and 3 percent in the second half
of the year and that inflation will run at an annualized rate between 3.3 and
3.5 percent. Based upon a generally slow growth and low inflation outlook, we
believe fixed-income markets will continue to make positive gains as interest
rates fall. We look for stocks to perform well, but perhaps not as strongly as
in the first half of the year, as some companies may find it difficult to main-
tain their strong earnings momentum.
During recent months, debate over tax reform has dominated the agenda in
Washington. There has been varied speculation about the impact of reform, which
may have caused you to wonder how it might affect your investment goals. At
this point, no one knows for sure what will happen or when it might actually
take place. As various proposals come to the forefront, there may be short-term
market fluctuations, just as we saw during the debate over the U.S. health care
system. We will continue to keep a close watch over any new developments and
evaluate the potential impact that they may have on your investments.
Once again, it is important to remember that financial markets will inevita-
bly experience highs and lows, but by maintaining a long-term investment per-
spective, it may allow you to ride the ups and downs of the markets more easily
as you pursue your investment goals.
On the following pages, you can read about your Fund's performance for the
period, as well as portfolio management's outlook for the Fund in the coming
months. We hope that you will find the information contained in the question-
and-answer section helpful.
CORPORATE NEWS
Along with your Fund's shareholder report, we are pleased to introduce a new
shareholder publication called Your Portfolio. The purpose of this publication
is to provide you with additional information about your mutual fund invest-
ment, as well as offer helpful insights regarding long-term investment strate-
gies and trends in the marketplace. The publication will be mailed twice a year
with your June and December shareholder reports. This premier issue focuses on
our various shareholder services and privileges designed to make mutual fund
investing easier for you.
We appreciate your continued confidence in your investment with Van Kampen
American Capital, and we look forward to communicating with you again regarding
the performance of your Fund.
Sincerely,
/s/ Don G. Powell /s/ Dennis J. McDonnell
- --------------------------- ---------------------------
Don G. Powell Dennis J. McDonnell
Chairman President
Van Kampen American Capital Van Kampen American Capital
Asset Management, Inc. Asset Management, Inc.
2
<PAGE>
PERFORMANCE RESULTS FOR THE PERIOD ENDED JUNE 30, 1995
AMERICAN CAPITAL GOVERNMENT SECURITIES, INC.
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
TOTAL RETURNS
<S> <C> <C> <C>
Six-month total return based on NAV/1/............... 10.33% 9.92% 9.94%
Six-month total return/2/............................ 5.11% 5.92% 8.94%
One-year total return/2/............................. 5.62% 6.16% 9.07%
Five-year average annual total return/2/............. 7.69% N/A N/A
Ten-year average annual total return/2/.............. 7.82% N/A N/A
Life-of-Fund average annual total return/2/.......... 8.52% 4.59% 3.44%
Commencement Date.................................... 07/16/84 12/20/91 03/10/93
DISTRIBUTION RATE AND YIELD
Distribution Rate/3/................................. 6.43% 6.05% 6.06%
SEC Yield/4/......................................... 5.42% 4.91% 4.92%
</TABLE>
N/A = Not Applicable
/1/Assumes reinvestment of all distributions for the period and does not in-
clude payment of the maximum sales charge (4.75% for A shares) or contingent
deferred sales charge (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 (4.75% for A
shares) or contingent deferred sales charge (4% for B shares and 1% for 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 as shown above.
See the Prior Performance section of the current prospectus. Past performance
does not guarantee future results. Investment return and net asset value will
fluctuate with market conditions. Fund shares, when redeemed, may be worth
more or less than their original cost.
3
<PAGE>
PORTFOLIO MANAGEMENT REVIEW
AMERICAN CAPITAL GOVERNMENT SECURITIES, INC.
The following is an interview with the management team of American Capital
Government Securities, Inc. The team is lead by John R. Reynoldson, portfolio
manager, and Robert C. Peck, Jr., executive vice president for fixed-income
investments. This interview covers the Fund's six-month period ended June 30,
1995.
Q WHAT WERE THE SIGNIFICANT MARKET EVENTS OVER THE PERIOD?
A As we entered 1995, sentiment in the fixed-income markets was extremely
bearish. It was expected that economic growth would remain strong and
there was concern about the decline in the U.S. dollar and the prospects for
higher inflation. However, when economic numbers came in weaker than expected,
the market rallied (interest rates declined and bond prices increased). In
general, existing bonds increased in value as interest rates declined, because
they offered a higher yield than that which was available on new bonds in the
marketplace.
Many securities which were earlier priced according to expectations for a
bear market were readjusted throughout the first and second quarter to reflect
the market's more positive outlook. For example, over the first six months of
1995, the yield on the 2-year and 10-year Treasury notes declined approxi-
mately 190 and 160 basis points, respectively.
Q WHAT ACTIONS DID YOU TAKE IN RESPONSE TO THESE EVENTS?
A Because the market's outlook was positive, we were more aggressive with
the Fund's duration. Generally, the Fund's duration was increased to
levels we considered to be above-average. Duration is a measure of the poten-
tial impact interest rate changes have on a bond's value. Therefore, a higher
duration may cause the portfolio to be more sensitive to interest rate
changes.
Entering 1995, we overweighted the portfolio's holding of mortgage-backed
securities, as we felt they were more attractive on a total-return basis when
compared to U.S. Treasuries. The Fund's mortgage-backed securities consisted
of 30-year mortgage-backed collateral issues, such as GNMAs, FNMAs, and
FHLMCs, with coupon rates between 8 1/2 and 9 percent.
[PIE CHART OF PORTFOLIO COMPOSITION APPEARS HERE.]
U.S. Treasury Notes - 43%
Government National Mortgage Association (GNMA) - 32%
Federal National Mortgage Association (FNMA) - 11%
Federal Home Loan Mortgage Corporation (FHLMC) - 12%
Other - 2%
4
<PAGE>
However, as the market rallied and interest rates declined, we consistently
"rolled-down" in coupon to reduce our exposure to prepayment risk. As interest
rates decline, higher coupon rate mortgage-backed securities become more vul-
nerable to homeowner refinancing. Therefore, we increased the portfolio's
holding of 7 and 8 percent coupons, which should reduce this risk.
Finally, believing that the yield curve would steepen, we increased the
Fund's position in 2- and 3- year Treasury notes (the yield curve steepens
when the difference in yield between short- and long-term debt increases). We
felt this action would benefit the Fund, as shorter term investments would be
expected to perform well in this environment.
Q WHAT WERE THE RESULTS?
A The mortgage-backed securities, plus our position in short-term Treasury
notes, served the Fund very well. The Fund's six-month total return at
NAV, Class A shares, was 10.33 percent/1/. Additionally, Fund shareholders en-
joy a current distribution rate of 6.43 percent/3/ following a one-quarter
cent increase in the monthly distribution rate per share. In contrast, yields
on 2- and 10-year Treasuries were at about 5.8 percent and 6.3 percent respec-
tively.
The Fund's comparative index, the Lehman Brothers Mutual Fund U.S. Govern-
ment Index, had a six-month total return of 11.20 percent. 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. (Please refer
to the chart on page three for additional Fund performance.)
Q WHAT IS YOUR APPROACH IN MANAGING THE FUND?
A Our approach is one that emphasizes the avoidance of risk and the main-
tenance of a stable income distribution stream. As such, we will alter
the duration of the portfolio in response to changes in our market outlook,
invest in what we perceive to be undervalued market sectors and attempt to add
value by positioning assets to benefit from shifts in the shape of the yield
curve--but, all in moderation and through the use of highest quality securi-
ties.
Q WHAT IS YOUR OUTLOOK FOR THE FUND?
A Flexibility will continue to remain an important element of the Fund. We
feel it is unlikely that the market will continue its rally with the
same vigor seen in the first half of the year. In fact, the market could turn
bearish with an increase in economic growth or a sudden spike in inflation.
Therefore, as we enter the next two quarters, we are cautiously optimistic.
/s/ Robert C. Peck /s/ John R. Reynoldson
- ------------------------ ------------------------
Robert C. Peck John R. Reynoldson
Executive Vice President Portfolio Manager
Fixed Income Investments
Please see footnotes on page three.
5
<PAGE>
PORTFOLIO OF INVESTMENTS
June 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
UNITED STATES AGENCY
OBLIGATIONS 54.6%
$*50,489 Federal Home Loan
Mortgage Corp. Pools.... 7.000% 02/01/23 to 09/01/24 $ 49,605,972
*197,752 Federal Home Loan
Mortgage Corp. Pools.... 7.500 01/01/22 to 12/01/24 198,432,588
*99,313 Federal Home Loan
Mortgage Corp. Pools.... 8.000 07/01/24 to 10/01/24 101,175,132
*99,901 Federal National
Mortgage Association
Pools................... 7.000 12/01/99 to 05/01/25 98,152,615
96,266 Federal National
Mortgage Association
Pools................... 7.500 03/01/22 to 01/01/25 96,536,417
100,560 Federal National
Mortgage Association
Pools................... 8.000 11/01/22 to 12/01/24 102,414,775
515 Federal National
Mortgage Association
Pools................... 11.500 02/01/13 to 05/01/19 573,850
7,614 Federal National
Mortgage Association
Pools................... 12.000 03/01/13 to 01/01/16 8,551,932
*314,280 Government National
Mortgage Association
Pools................... 7.000 02/15/22 to 10/15/24 309,173,562
*400,327 Government National
Mortgage Association
Pools................... 7.500 02/15/07 to 11/15/24 402,204,507
*175,322 Government National
Mortgage Association
Pools................... 8.000 07/15/07 to 11/15/23 179,485,781
*32,144 Government National
Mortgage Association
Pools................... 8.500 09/15/04 to 03/15/23 33,369,839
431 Government National
Mortgage Association
Pools................... 11.000 01/15/10 to 11/15/20 474,120
10,133 Government National
Mortgage Association
Pools................... 12.000 06/15/11 to 01/15/16 11,468,910
4,327 Government National
Mortgage Association
Pools................... 12.500 04/15/10 to 11/15/15 4,953,751
--------------
TOTAL UNITED STATES AGENCY OBLIGATIONS
(Cost $1,564,681,711)................................ 1,596,573,751
--------------
UNITED STATES GOVERNMENT OBLIGATIONS 43.1%
200,000 Treasury Notes.......... 6.500 08/15/97 202,500,000
100,000 Treasury Notes.......... 7.250 11/15/96 101,859,000
100,000 Treasury Notes.......... 7.500 12/31/96 102,359,000
200,000 Treasury Notes.......... 7.875 07/31/96 204,312,000
*200,000 Treasury Notes.......... 7.875 01/15/98 209,312,000
*235,000 Treasury Notes.......... 8.500 08/15/95 235,697,950
*200,000 Treasury Notes.......... 8.875 02/15/96 203,656,000
--------------
TOTAL UNITED STATES GOVERNMENT OBLIGATIONS
(Cost $1,263,824,219)................................ 1,259,695,950
--------------
REPURCHASE AGREEMENTS 0.6%
10,350 Lehman Government
Securities, Inc., dated
6/30/95 (collateralized
by U.S. Government
obligations in a pooled
cash account) repurchase
proceeds $10,355,330.... 6.180 07/03/95 10,350,000
6,010 SBC Capital Markets,
Inc., dated 6/30/95
(collateralized by U.S.
Government obligations
in a pooled cash
account) repurchase
proceeds $6,013,068..... 6.125 07/03/95 6,010,000
--------------
TOTAL REPURCHASE AGREEMENTS (Cost $16,360,000)....... 16,360,000
--------------
TOTAL INVESTMENTS (Cost $2,844,865,930) 98.3%.................. 2,872,629,701
OTHER ASSETS AND LIABILITIES, NET 1.7%......................... 49,515,683
--------------
NET ASSETS 100%................................................ $2,922,145,384
--------------
</TABLE>
*Securities with a market value of $1.4 billion were placed as collateral for
forward commitments and futures contracts (see Note 1B).
See Notes to Financial Statements
6
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at market value (Cost $2,844,865,930)............. $2,872,629,701
Receivable for investments sold................................ 310,406,250
Interest receivable............................................ 43,248,622
Unrealized appreciation of forward commitments................. 19,364,540
Receivable for Fund shares sold................................ 942,539
Other assets................................................... 86,277
--------------
Total Assets.................................................. 3,246,677,929
--------------
LIABILITIES
Payable for investments purchased.............................. 307,908,591
Payable for Fund shares redeemed............................... 5,953,265
Unrealized depreciation of forward commitments................. 2,035,000
Due to Distributor............................................. 1,977,396
Due to Adviser................................................. 1,265,330
Dividends payable.............................................. 822,129
Due to broker-variation margin................................. 782,548
Due to shareholder service agent............................... 707,854
Deferred Directors' compensation............................... 195,197
Accrued expenses and other liabilities......................... 2,885,235
--------------
Total Liabilities............................................. 324,532,545
--------------
NET ASSETS, equivalent to $10.31 per share for Class A, $10.32
per share for Class B and $10.30 per share for Class C shares. $2,922,145,384
--------------
NET ASSETS WERE COMPRISED OF:
Shares of capital stock at par: 253,062,393 Class A, 27,592,190
Class B and 2,799,204 Class C shares outstanding.............. $ 283,454
Capital surplus................................................ 4,009,315,180
Accumulated net realized loss on securities.................... (1,133,941,932)
Net unrealized appreciation (depreciation) of securities
Investments................................................... 27,763,771
Forward commitments........................................... 17,329,540
Futures contracts............................................. (4,621)
Undistributed net investment income............................ 1,399,992
--------------
NET ASSETS..................................................... $2,922,145,384
--------------
</TABLE>
See Notes to Financial Statements
7
<PAGE>
STATEMENT OF OPERATIONS
Six Months Ended June 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest......................................................... $111,853,561
------------
EXPENSES
Management fees.................................................. 7,512,062
Shareholder service agent's fees and expenses.................... 3,584,766
Accounting services.............................................. 214,166
Service fees--Class A............................................ 3,121,231
Distribution and service fees--Class B........................... 1,408,016
Distribution and service fees--Class C........................... 152,243
Directors' fees and expenses..................................... 37,005
Audit fees....................................................... 21,816
Custodian fees................................................... 83,528
Legal fees....................................................... 13,933
Reports to shareholders.......................................... 168,185
Registration and filing fees..................................... 74,265
Miscellaneous.................................................... 69,432
------------
Total expenses.................................................. 16,460,648
------------
NET INVESTMENT INCOME............................................ 95,392,913
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITIES
Net realized gain (loss) on securities
Investments..................................................... 27,423,650
Forward commitments............................................. 45,669,778
Futures contracts............................................... (19,739,601)
Net unrealized appreciation of securities during the period
Investments..................................................... 120,024,326
Forward commitments............................................. 16,296,671
Futures contracts............................................... 143,084
------------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES................... 189,817,908
------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................. $285,210,821
------------
</TABLE>
See Notes to Financial Statements
8
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1995 December 31, 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
NET ASSETS, beginning of period.......... $2,889,434,388 $3,826,260,982
-------------- --------------
Operations
Net investment income................... 95,392,913 225,471,837
Net realized gain (loss) on securities.. 53,353,827 (339,948,125)
Net unrealized appreciation
(depreciation) of securities during the
period................................. 136,464,081 (44,520,752)
-------------- --------------
Increase (decrease) in net assets
resulting from operations............... 285,210,821 (158,997,040)
-------------- --------------
Distributions to shareholders from net
investment income
Class A................................. (88,691,568) (196,817,900)
Class B................................. (8,563,457) (18,938,944)
Class C................................. (940,366) (2,253,668)
-------------- --------------
(98,195,391) (218,010,512)
-------------- --------------
Net equalization debits.................. -- (3,507,799)
-------------- --------------
Capital transactions
Proceeds from shares sold
Class A................................. 174,717,136 553,447,542
Class B................................. 16,792,537 61,568,635
Class C................................. 2,237,164 24,992,564
-------------- --------------
193,746,837 640,008,741
-------------- --------------
Proceeds from shares issued for
distributions reinvested
Class A................................. 47,299,193 102,123,069
Class B................................. 5,168,995 11,182,131
Class C................................. 568,117 1,324,949
-------------- --------------
53,036,305 114,630,149
-------------- --------------
Cost of shares redeemed
Class A................................. (359,235,355) (1,157,041,983)
Class B................................. (33,889,887) (125,196,156)
Class C................................. (7,962,334) (28,711,994)
-------------- --------------
(401,087,576) (1,310,950,133)
-------------- --------------
Decrease in net assets resulting from
capital transactions.................... (154,304,434) (556,311,243)
-------------- --------------
INCREASE (DECREASE) IN NET ASSETS........ 32,710,996 (936,826,594)
-------------- --------------
NET ASSETS, end of period................ $2,922,145,384 $2,889,434,388
-------------- --------------
</TABLE>
See Notes to Financial Statements
9
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each of the
periods indicated (Unaudited).
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
-----------------------------------------------------------
Six Months
Ended Year Ended December 31
June 30, ------------------------------------------------
1995 1994 1993 1992 1991 1990
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net asset value,
beginning of period.... $ 9.67 $ 10.80 $ 10.75 $ 10.95 $ 10.27 $ 10.37
-------- -------- -------- -------- -------- --------
Income from investment
operations
Investment income...... .38 .76 .90587 1.00 1.00 1.04
Expenses............... (.05) (.10) (.10212) (.10) (.10) (.09)
-------- -------- -------- -------- -------- --------
Net investment income... .33 .66 .80375 .90 .90 .95
Net realized and
unrealized gains or
losses on securities... .6505 (1.1145) .05 (.2225) .68 (.12)
-------- -------- -------- -------- -------- --------
Total from investment
operations............. .9805 (.4545) .85375 .6775 1.58 .83
-------- -------- -------- -------- -------- --------
Distributions from net
investment income...... (.3405) (.6755) (.80375) (.8775) (.90) (.93)
-------- -------- -------- -------- -------- --------
Net asset value, end of
period................. $ 10.31 $ 9.67 $ 10.80 $ 10.75 $ 10.95 $ 10.27
-------- -------- -------- -------- -------- --------
TOTAL RETURN (/1/)...... 10.33% (4.26%) 8.15% 6.56% 16.28% 8.71%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (millions)...... $2,608.6 $2,578.7 $3,418.8 $3,635.3 $3,871.5 $3,887.1
Average net assets
(millions).............. $2,601.0 $2,919.0 $3,580.7 $3,707.6 $3,799.0 $4,126.1
Ratios to average net
assets (annualized)
Expenses............... 1.05% 1.02% .98% .97% .96% .93%
Net investment income.. 6.63% 6.96% 7.73% 8.42% 8.65% 9.56%
Portfolio turnover rate. 114% 306% 239% 239% 131% 177%
</TABLE>
(1) Total return for periods less than one full year are not annualized. Total
return does not consider the effect of sales charges.
See Notes to Financial Statements
10
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share of capital stock outstanding throughout each of the
periods indicated (Unaudited).
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B(/1/)
--------------------------------------
Six Months
Ended Year Ended December 31
June 30, --------------------------
1995 1994 1993 1992(/2/)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of peri-
od................................ $ 9.68 $ 10.80 $10.75 $10.95
------ ------- ------ ------
Income from investment operations
Investment income................. .39 .77 .92 .94
Expenses.......................... (.09) (.17) (.18) (.18)
------ ------- ------ ------
Net investment income.............. .30 .60 .74 .76
Net realized and unrealized gains
or losses on securities........... .6445 (1.1275) .03 (.165)
------ ------- ------ ------
Total from investment operations... .9445 (.5275) .77 .595
------ ------- ------ ------
Distributions from net investment
income............................ (.3045) (.5925) (.72) (.795)
------ ------- ------ ------
Net asset value, end of period..... $10.32 $ 9.68 $10.80 $10.75
------ ------- ------ ------
TOTAL RETURN (/3/)................. 9.92% (4.95%) 7.31% 5.74%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(millions)........................ $284.7 $278.7 $368.4 $236.6
Average net assets (millions)...... $281.6 $320.7 $308.8 $92.1
Ratios to average net assets
(annualized)
Expenses.......................... 1.81% 1.78% 1.74% 1.74%
Net investment income............. 5.87% 6.20% 7.21% 7.20%
Portfolio turnover rate............ 114% 306% 239% 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) Based on average month-end shares outstanding.
(3) Total return for periods of less than one full year are not annualized.
Total return does not consider the effect of sales charges.
See Notes to Financial Statements
11
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share of capital stock outstanding throughout each of the
periods indicated (Unaudited).
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
--------------------------------------
March 10,
Six Months 1993(/1/)
Ended Year Ended through
June 30, December 31, December 31,
1995 1994 1993(/2/)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of peri-
od................................ $ 9.66 $ 10.79 $10.94
------ ------- ------
Income from investment operations
Investment income................. .39 .77 .85
Expenses.......................... (.09) (.17) (.16)
------ ------- ------
Net investment income.............. .30 .60 .69
Net realized and unrealized gains
or losses on securities........... .6445 (1.1375) (.3055)
------ ------- ------
Total from investment operations... .9445 (.5375) .3845
------ ------- ------
Distributions from net investment
income............................ (.3045) (.5925) (.5345)
------ ------- ------
Net asset value, end of period..... $10.30 $ 9.66 $10.79
------ ------- ------
TOTAL RETURN (/3/)................. 9.94% (5.05%) 3.58%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(millions)........................ $28.8 $32.0 $39.0
Average net assets (millions)...... $30.4 $38.6 $21.0
Ratios to average net assets
(annualized)
Expenses.......................... 1.81% 1.78% 1.72%
Net investment income............. 5.87% 6.24% 7.54%
Portfolio turnover rate............ 114% 306% 239%
</TABLE>
(1) Commencement of offering of sales.
(2) Based on average month-end shares outstanding.
(3) Total return for periods of less than one full year are not annualized.
Total return does not consider the effect of sales charges.
See Notes to Financial Statements
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
- -------------------------------------------------------------------------------
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 man-
agement investment company. The following is a summary of significant account-
ing 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 op-
tion is traded, or, if no sales are reported, at the mean between the last re-
ported 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 invest-
ments 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
costs.
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 commitment 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 counter-parties. There is also a risk that the market move-
ment 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 ac-
quiring 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 bro-
ker. 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
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
- --------------------------------------------------------------------------------
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 pur-
chase. For forward purchase and sale commitments 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 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 set-
tlement of forward commitments.
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 in-
vest independently in repurchase agreements, or transfer uninvested cash bal-
ances into a pooled cash account along with other investment companies advised
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 re-
quired 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 be-
cause the Fund has elected to be taxed as a "regulated investment company" un-
der 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 distribu-
tions of capital gains will be made until tax basis capital loss carryforwards
expire or are offset by net realized capital gains.
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 cur-
rent or future capital gains until expiration in 1995 through 2002, of which
approximately 30% will expire in 1995. Additionally, approximately $6.6 million
of post October losses are being deferred for tax purposes to the 1995 fiscal
year.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
- --------------------------------------------------------------------------------
E. INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME-Investment transac-
tions are accounted for on the trade date. Realized gains and losses on invest-
ments 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 accor-
dance 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 redemp-
tions of Fund shares, equivalent on a per-share basis to the amount of the un-
distributed net investment income, is charged or credited to undistributed net
investment income.
H. DEBT DISCOUNT OR PREMIUM-The Fund accounts for discounts and premiums on the
same basis as is used 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.
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 .540%
Next $1 billion .515
Next $1 billion .490
Next $1 billion .440
Next $1 billion .390
Next $1 billion .340
Next $1 billion .290
Over $7 billion .240
</TABLE>
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
- --------------------------------------------------------------------------------
Accounting services include the salaries and overhead expenses of the Fund's
Treasurer and the personnel operating under his direction. Charges are allo-
cated among investment companies advised by the Adviser. For the period, these
charges included $31,436 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 ac-
counting services provided by the Adviser are at cost.
ACCESS Investor Services, Inc., an affiliate of the Adviser, serves as the
Fund's shareholder service agent. These services are provided at cost plus a
profit. For the period, fees for these services aggregated $3,002,763.
The Fund was advised that Van Kampen American Capital Distributors, Inc. (the
"Distributor") and Advantage Capital Corp. (the "Retail Dealer"), both affili-
ates of the Adviser, received $43,644 and $65,645, respectively, as their por-
tion of commissions charged on sales of Fund shares during the period.
Under the Distribution Plans, each class of shares pays up to .25% per annum
of its average net assets to reimburse 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 the end of the period, the unreimbursed expenses
incurred by the Distributor under the Class B and Class C plans aggregated ap-
proximately $13.8 million and $602,000, respectively, and may be carried for-
ward 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 of $13,906 were for services rendered by O'Melveny & Myers, coun-
sel 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.
NOTE 3--INVESTMENT ACTIVITY
During the period, the cost of purchases and proceeds from sales of invest-
ments, excluding short-term investments and forward commitments, were
$3,209,392,505 and $3,807,706,842, respectively.
The identified cost of investments owned at the end of the period for federal
income tax purposes was $2,844,867,054. Net unrealized appreciation was
$27,762,647, gross unrealized appreciation aggregated $59,822,125, and gross
unrealized depreciation aggregated $32,059,478.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
- --------------------------------------------------------------------------------
At the end of the period, the Fund held the following forward purchase com-
mitments for which delivery is not intended:
<TABLE>
<CAPTION>
Principal Unrealized
Amount Appreciation
(000) Security Market Value (Depreciation)
- -------------------------------------------------------------------------------
<C> <S> <C> <C>
Federal National Mortgage
Association
$100,000 7.50%, settling 9/95................ $ 99,957,000 $ 300,750
200,000 8.00%, settling 7/95................ 203,688,000 5,688,000
Government National Mortgage
Association
200,000 7.00%, settling 7/95................ 196,750,000 (1,375,000)
100,000 7.00%, settling 9/95................ 98,168,000 (207,000)
191,000 7.50%, settling 7/95................ 191,895,790 6,625,790
225,000 8.00%, settling 7/95................ 230,343,750 6,750,000
100,000 8.00%, settling 9/95................ 102,047,000 (453,000)
-------------- -----------
$1,122,849,540 $17,329,540
-------------- -----------
</TABLE>
At the end of the period, the Fund held the following U.S. Treasury Notes
futures contracts expiring in September, 1995.
<TABLE>
<CAPTION>
Unrealized
Appreciation
Contracts Market Value (Depreciation)
- --------------------------------------------------------------------------------
<S> <C> <C>
300 (long)........................................ $ 34,059,375 $(630,086)
2,000 (short)..................................... (220,187,500) 625,465
------------- ---------
$(186,128,125) $ (4,621)
------------- ---------
</TABLE>
NOTE 4--DIRECTOR COMPENSATION
Fund directors who are not affiliated with the Adviser are compensated by the
Fund at the annual rate of $5,440 plus a fee of $135 per day for Board and Com-
mittee meetings attended. The Chairman receives additional fees of $2,040. Dur-
ing the period, such fees aggregated $33,674.
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. 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.
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
- --------------------------------------------------------------------------------
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 ba-
sis (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
shares and Class C shares of $.001 par value capital stock authorized. Transac-
tions in shares of capital stock were:
<TABLE>
<CAPTION>
Six Months Year Ended
Ended December 31,
June 30, 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Shares sold
Class A........................................... 17,352,321 54,143,898
Class B........................................... 1,673,099 6,087,332
Class C........................................... 223,884 2,433,717
----------- ------------
19,249,304 62,664,947
----------- ------------
Shares issued for distributions reinvested
Class A........................................... 4,763,698 10,139,455
Class B........................................... 519,784 1,108,892
Class C........................................... 57,247 131,412
----------- ------------
5,340,729 11,379,759
----------- ------------
Shares redeemed
Class A........................................... (35,825,231) (114,111,603)
Class B........................................... (3,391,098) (12,508,979)
Class C........................................... (797,466) (2,864,864)
----------- ------------
(40,013,795) (129,485,446)
----------- ------------
Decrease in shares outstanding................... (15,423,762) (55,440,740)
----------- ------------
</TABLE>
NOTE 6--SUBSEQUENT DIVIDENDS
The Board of Directors of the Fund declared dividends of $.058 per share for
Class A shares and $.052 per share for Class B and Class C shares from net in-
vestment income, payable July 17, 1995 and August 15, 1995 to shareholders of
record on July 3, 1995 and August 1, 1995, respectively.
NOTE 7--FUND REORGANIZATION
On July 21, 1995, the shareholders approved the reorganization of the Fund to a
Delaware Business Trust and the election of fourteen trustees.
18
<PAGE>
FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL
GLOBAL AND INTERNATIONAL
Global Equity Fund
Global Government Securities Fund
Global Managed Assets Fund
Short-Term Global Income Fund
Strategic Income Fund
EQUITY
Growth
Emerging Growth Fund
Enterprise Fund
Pace Fund
Growth & Income
Balanced Fund
Comstock Fund
Equity Income Fund
Growth and Income Fund
Harbor Fund
Real Estate Securities Fund
Utility Fund
FIXED INCOME
Corporate Bond Fund
Government Securities Fund
High Income Corporate Bond Fund
High Yield Fund
Limited Maturity Government Fund
Prime Rate Income Trust
Reserve Fund
U.S. Government Fund
U.S. Government Trust for Income
TAX-FREE
California Insured Tax Free Fund
Florida Insured Tax Free Income Fund
High Yield Municipal Fund
Insured Tax Free Income Fund
Limited Term Municipal Income Fund
Municipal Income Fund
New Jersey Tax Free Income Fund
New York Tax Free Income Fund
Pennsylvania Tax Free Income Fund
Tax Free High Income Fund
Tax Free Money Fund
Texas Tax Free Income Fund
THE GOVETT FUNDS
Emerging Markets Fund
Global Income Fund
International Equity Fund
Latin America Fund
Pacific Strategy Fund
Smaller Companies Fund
Ask your investment representative for a prospectus containing more complete
information, including sales charges and expenses. Please read it carefully
before you invest or send money. Or call us direct at 1-800-421-5666 weekdays
from 7:00 a.m. to 7:00 p.m. Central time.
19
<PAGE>
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
DENNIS J. MCDONNELL
RONALD A. NYBERG
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, JR.
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.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
SHAREHOLDER SERVICE AGENT
ACCESS INVESTOR 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
(C) Van Kampen American Capital Distributors, Inc., 1995 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.
20
