<PAGE>
Van Kampen American Capital
GOVERNMENT
SECURITIES FUND
Semi-Annual Report
June 30, 1997
[ART APPEARS HERE]
[VAN KAMPEN AMERICAN CAPITAL LOGO]
<PAGE>
Table of Contents
Letter to Shareholders .......................... 1
Performance Results ............................. 3
Portfolio Highlights ............................ 4
Portfolio Management Review ..................... 5
Portfolio of Investments ........................ 7
Statement of Assets and Liabilities ............. 9
Statement of Operations ......................... 10
Statement of Changes in Net Assets .............. 11
Financial Highlights ............................ 12
Notes to Financial Statements ................... 15
GOVT SAR 8/97
<PAGE>
Letter to Shareholders
[LOGO APPEARS HERE]
Dennis J. McDonnell and Don G. Powell
July 24, 1997
Dear Shareholder,
As you know, Van Kampen American Capital was acquired by Morgan Stanley
Group Inc., a world leader in asset management. Earlier this year, Morgan
Stanley Group Inc. and Dean Witter, Discover & Co. agreed to merge. The merger
was completed on May 31, creating the combined company of Morgan Stanley, Dean
Witter, Discover & Co. Additionally, we are very pleased to announce that Philip
N. Duff, formerly the chief financial officer of Morgan Stanley Group Inc., has
joined Van Kampen American Capital as president and chief executive officer. I
will continue as chairman of the firm. We are confident that the partnership of
Van Kampen American Capital and Morgan Stanley will continue to work to the
benefit of our fund shareholders.
One of the immediate privileges that we can offer fund shareholders is the
ability to make exchanges between Van Kampen American Capital and Morgan
Stanley retail funds at no charge. In our view, the rapid appreciation of U.S.
stock prices in recent years has created a need for investors to examine their
portfolios carefully to ensure proper diversification among domestic and foreign
investments. The Morgan Stanley retail funds, with their emphasis on global
markets, can be valuable tools for accomplishing this diversification.
We also urge investors to consider how their fund holdings are currently
allocated among the three major asset classes of stocks, bonds, and cash
reserves. Uneven movements in the various markets can distort a carefully
planned investment program. And, with stock prices near record highs, it is
likely that some rebalancing of your portfolio allocations may be necessary.
Once again, the exchangeability feature with the Morgan Stanley retail funds
provides additional choices and opportunities to make the necessary adjustments
to your portfolio's asset allocation.
Economic Overview
Growth, stability, and confidence continued to characterize the U.S.
economic environment during the past six months. In the first quarter, the
economy grew at its fastest pace since 1987. Meanwhile, consumer confidence
soared to its highest reading in 27 years, while unemployment fell as low as
4.8 percent, the lowest level since 1973.
Despite the robust pace of economic activity, there was little evidence of
troublesome inflation. Wholesale prices actually fell during each of the first
five months of 1997, the longest stretch of consecutive monthly declines in 45
years. At the consumer level, prices rose by a mere 2.2 percent during the 12
months through May. A strong rally in the U.S. dollar helped dampen inflationary
pressures resulting from the vigorous domestic economy by making imported goods
less expensive. At the same time, continued moderation in the cost of employee
benefit packages offset mild upward pressure on wages.
In March, the inflationary implications of a tight labor market caused the
Federal Reserve Board to raise its target for a key lending rate by one-quarter
of a percentage point, the first hike in
1 Continued on page two
<PAGE>
short-term interest rates in two years. Signs that economic growth slowed
markedly in the second quarter, however, led Fed policymakers to leave rates
unchanged at subsequent meetings.
Market Overview
The strong economy and tight labor market combined to put mild upward
pressure on bond yields during the first half of 1997. For several weeks during
the spring, it appeared that economic growth was too robust and that inflation
could reemerge. The Fed's quarter-point increase in short-term interest rates,
as well as worries about inflation, pushed yields on long-term government bonds
up to 7.17 percent in April. When subsequent data showed the economy to be
decelerating during the second quarter, bond yields gradually fell back to 6.78
percent at the end of June, slightly above where they stood at the beginning of
the year.
Reflecting the strong economy, corporate bonds outperformed Treasuries by
about three-quarters of a percentage point over the past six months. Overall,
the Merrill Lynch Domestic Master Bond Index gained about 3.1 percent during
the same period. High-yield corporate bonds were the best-performing sector of
the fixed-income market, as the healthy economic environment increased investor
confidence in the creditworthiness of lower-rated debt.
The rate of bond issuance continued to be moderate as many corporations
used the equity market to raise capital. The relative shortage of new debt
issues contributed to a general narrowing of yield spreads between the various
sectors of the fixed-income market.
Outlook
We expect the pace of economic activity during the remainder of 1997 to
accelerate modestly from the sluggish rate that prevailed during the second
quarter. While we do not believe that economic growth will be rapid enough to
reignite inflation, some warning signs a represent, including a tight labor
market and high consumer confidence. In this environment, at least one
additional Federal Reserve interest rate hike remains a possibility. We
anticipate that long-term interest rates will remain within a relatively narrow
range for the remainder of the year.
We are fortunate to be experiencing a rare combination of sustained
economic growth, low inflation, and highly favorable performance in the
financial market. Along with our shareholders, we celebrate the seemingly best
of economic times. Once again, we encourage you to review your portfolio with an
eye toward correcting allocation imbalances.
Additional details about your Fund, including a question-and-answer section
with your portfolio management team, are provided in this report. We appreciate
your continued confidence in your investment with Van Kampen American Capital.
Sincerely,
/s/ Don G. Powell /s/ Dennis J. McDonnell
Don G. Powell Dennis J. McDonnell
Chairman President
Van Kampen American Capital Van Kampen American Capital
Asset Management, Inc. Asset Management, Inc.
2
<PAGE>
Performance Results for the Period Ended June 30, 1997
Van Kampen American Capital Government Securities Fund
<TABLE>
<CAPTION>
A Shares B Shares C Shares
<S> <C> <C> <C>
Total Returns
Six-month total return based on NAV/1/...... 2.67% 2.19% 2.19%
Six-month total return/2/................... (2.20%) (1.78%) 1.20%
One-year total return/2/.................... 1.98% 2.22% 5.23%
Five-year average annual total return/2/.... 4.69% 4.68% N/A
Ten-year average annual total return/2/..... 7.16% N/A N/A
Life-of-Fund average annual total return/2/. 8.00% 4.91% 3.90%
Commencement Date........................... 07/16/84 12/20/91 03/10/93
Distribution Rate and Yield
Distribution Rate/3/........................ 6.30% 5.90% 5.91%
SEC Yield/4/................................ 5.52% 5.14% 5.15%
</TABLE>
N/A = Not Applicable
/1/ Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge (4.75% for A shares) or contingent
deferred sales charge for early withdrawal (4% for B shares and 1% for C
shares).
/2/ Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (A shares) or
contingent deferred sales charge for early withdrawal (B and C shares).
/3/ Distribution rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.
/4/ SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending June 30, 1997.
See the Prior Performance section of the current prospectus. Past performance
does not guarantee future results. Investment return and net asset value will
fluctuate with market conditions. Fund shares, when redeemed, may be worth more
or less than their original cost.
Market forecasts provided in this report may not necessarily come to pass.
3
<PAGE>
Portfolio Highlights
Van Kampen American Capital Government Securities Fund
Coupon Distribution as of June 30, 1997
[GRAPH APPEARS HERE]
Percentage of Long-Term Investments
12.2% 31.4% 31.4% 19.0% 6.0%
6-6.9 7-7.9 8-8.9 9-9.9 10 or more
Portfolio Composition by Sector as a Percentage of Total Investments
[PIE CHART APPEARS HERE]
As of June 30, 1997
U.S. Treasuries........... 40%
GNMAs..................... 35%
FNMAs..................... 20%
FHLMCs.................... 5%
Duration
As of June 30, 1997 As of December 31, 1996
Duration 5.2 years 5.3 years
4
<PAGE>
Portfolio Management Review
Van Kampen American Capital Government Securities Fund
We recently spoke with the management team of the Van Kampen American Capital
Government Securities Fund about the key events and economic forces that shaped
the markets during the past six months. The team includes John R. Reynoldson,
portfolio manager, and Peter W. Hegel, chief investment officer for the fixed-
income investments. The following excerpts reflect their views on the Fund's
performance during the six-month period ended June 30, 1997.
Q What has been happening in the fixed-income market over the past six
months?
A The period began with the market in a defensive posture. Economic growth
was strong through the end of the fourth quarter of 1996, and many
investors expected the economy to carry this momentum into 1997. As it turns
out, that's exactly what happened. In the early months of 1997, we saw consumer
spending and business inventories rise sharply, which fueled fears over the
threat of inflation and interest rate hikes. These fears were ultimately
realized in late March when the Federal Reserve Board raised the federal funds
rate from 5.25 percent to 5.50 percent.
Since then, however, we've seen the economy reverse its course. After two
consecutive quarters of strong GDP growth, the second quarter GDP growth was a
moderate 2.2 percent. As the economy showed it could not sustain its fast pace,
the market enjoyed a rally in bond prices that continued through the end of the
period.
Q How did you adjust the portfolio to keep pace with these market
developments?
A One of the key factors we monitor is the Fund's duration, which is a
measure of its sensitivity to interest rate changes. Through the end of
April, our duration stood at roughly 4.3 years, about one-half year shorter than
our target figure. By keeping duration short, we had the Fund well positioned
for the sell-off that took place through the first half of the year. Since late
April, we've lengthened duration to an above-average 5.2 years, which proved to
be timely in light of the rally that ensued.
Q How are the Fund's assets allocated?
A Throughout the period, the Fund maintained a portfolio allocation of
roughly 58 percent in mortgage-backed securities and 42 percent in U.S.
Treasuries. We have underweighted the Fund's position in Treasuries in favor of
mortgage issues to take advantage of areas of value in the fixed-income market.
We also maintained our "barbell" structure, which means we invested in both
long- and short-term securities. Investing at both ends of the maturity spectrum
helps balance the portfolio's volatility to interest rate movements, and should
benefit the Fund if the yield curve continues to flatten. For additional Fund
portfolio highlights, please refer to page four.
5
<PAGE>
Q How did the Fund perform during the six-month period?
A The Fund generated a six-month return of 2.67 percent/1/ (Class A shares at
net asset value) for the period ended June 30, 1997. By comparison, the average
performance of similar funds was 2.47 percent, according to the Lipper
Analytical Services General U.S. Government Funds category. Over the same
period, the total return of the Lehman Brothers Mutual Fund U.S.
Government/Mortgage Index was 3.10 percent. Please keep in mind this index is a
broad-based, unmanaged index that reflects the general performance of U.S.
government and mortgage-backed securities. It does not reflect any commissions
or fees that would be paid by an investor purchasing the securities it
represents.
In addition, the Fund continued to meet its goal of providing shareholders
with regular dividend income. As of June 30, 1997, the Class A share
distribution rate was 6.30 percent/3/, based on a monthly dividend of $.0550 per
share and a maximum public offering price of $10.47 per share. Please refer to
the chart on page three for additional Fund performance results.
Q What do you see in the near future for the fixed-income market and your
Fund?
A We believe that interest rates have the potential to drop in the near
future for several reasons. First, inflation continues to remain low at about
2.5 percent annually. Second, we've seen the Producer Price Index decline for
five straight months now. Third, interest rates around the globe are currently
low, and foreign demand for U.S. bonds is high. And finally, our fiscal and
monetary policies appear sound, and the U.S. deficit has been dramatically
reduced. This tandem of low inflation and a declining deficit should bring
about lower interest rates and a bullish environment for the fixed-income
market.
We will continue to track these indicators and adjust the Fund's portfolio
accordingly. One area we will pay special attention to is the mortgage market.
If interest rates fall further and refinancing risk increases, we may reduce our
exposure to those mortgage-backed issues that are particularly susceptible to
refinancing.
/s/ Peter W. Hegel /s/ John R. Reynoldson
Peter W. Hegel John R. Reynoldson
Chief Investment Officer Portfolio Manager
Fixed Income Investments
6 Please see footnotes on page three
<PAGE>
Portfolio of Investments
June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
=====================================================================================================
Par
Amount Market Value
(000) Description Coupon Maturity (000)
- -----------------------------------------------------------------------------------------------------
United States Government Agency Obligations 57.4%
<S> <C> <C> <C> <C>
$ 43,801 Federal Home Loan Mortgage Corp.
Gold 30 Year, Pools......................... 7.000% 02/01/23 to 09/01/24 $ 43,155
73,694 Federal Home Loan Mortgage Corp.
Gold 30 Year, Pools......................... 7.500 01/01/22 to 07/01/24 74,150
2,787 Federal Home Loan Mortgage Corp.
Gold 30 Year, Pools......................... 8.000 07/01/24 to 09/01/24 2,851
43,882 Federal National Mortgage Association
15 Year Dwarf, Pools........................ 6.000 01/01/09 to 01/01/10 42,580
56,517 Federal National Mortgage Association
15 Year Dwarf, Pools........................ 6.500 12/01/07 to 06/01/12 55,387
97,691 Federal National Mortgage
Association, Pools.......................... 6.500 01/01/26 to 06/01/26 93,448
86,196 Federal National Mortgage
Association, Pools.......................... 7.000 10/01/23 to 05/01/25 84,812
81,505 Federal National Mortgage
Association, Pools.......................... 7.500 01/01/23 to 01/01/25 81,923
371 Federal National Mortgage
Association, Pools.......................... 8.000 09/01/24 to 11/01/24 379
225 Federal National Mortgage
Association, Pools.......................... 11.500 02/01/13 to 05/01/19 254
4,518 Federal National Mortgage
Association, Pools.......................... 12.000 03/01/13 to 01/01/16 5,134
96,708 Government National Mortgage
Association, Pools.......................... 6.500 07/15/24 to 08/15/26 92,477
191,922 Government National Mortgage
Association, Pools.......................... 7.000 01/15/23 to 08/15/26 188,807
64,157 Government National Mortgage
Association, Pools.......................... 7.500 02/15/07 to 11/15/24 64,609
71,208 Government National Mortgage
Association, Pools.......................... 8.000 07/15/07 to 10/15/25 73,460
212,115 Government National Mortgage
Association, Pools.......................... 8.500 09/15/04 to 03/15/23 223,256
131,806 Government National Mortgage
Association, Pools.......................... 9.000 11/15/17 to 12/15/22 141,309
257 Government National Mortgage
Association, Pools.......................... 11.000 01/15/10 to 11/15/20 285
</TABLE>
7 See Notes to Financial Statements
<PAGE>
Portfolio of Investments (Continued)
June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
====================================================================================================
Par
Amount Market Value
(000) Description Coupon Maturity (000)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
United States Government Agency Obligations (Continued)
$ 6,331 Government National Mortgage
Association, Pools................... 12.000% 06/15/11 to 08/15/15 $ 7,194
2,731 Government National Mortgage
Association, Pools................... 12.500 04/15/10 to 07/15/18 3,157
----------
Total United States Government Agency Obligations............... 1,278,627
----------
United States Treasury Obligations 42.0%
100,000 United States Treasury Bonds......... 7.500 05/15/02 104,672
100,000 United States Treasury Bonds (a)..... 8.125 08/15/19 114,078
100,000 United States Treasury Bonds (a)..... 11.125 08/15/03 123,359
300,000 United States Treasury Notes (a)..... 8.500 02/15/00 to 11/15/00 317,547
90,000 United States Treasury Notes......... 9.000 05/15/98 92,390
175,000 United States Treasury Notes......... 9.125 05/15/99 184,270
----------
Total United States Treasury Obligations........................ 936,316
----------
Forward Purchase Commitments 5.1%
50,000 Federal National Mortgage Association
15 Year Dwarf, August Forward........ 7.000 TBA 49,837
40,000 Federal National Mortgage Association
15 Year Dwarf, August Forward........ 7.500 TBA 40,503
22,000 Government National Mortgage
Association, July Forward............ 9.000 TBA 23,629
----------
Total Forward Purchase Commitments.............................. 113,969
----------
Total Long-Term Investments 104.5%
(Cost $2,306,103,027)........................................................ 2,328,912
Repurchase Agreement 0.1%
BankAmerica, Corp. ($1,235,000 par collateralized by U.S. Government
obligations in a pooled cash account, dated 06/30/97, to be sold on
07/01/97 at $1,235,209)........................................................ 1,235
----------
Total Investments 104.6%
(Cost $2,307,338,027)........................................................ 2,330,147
Liabilities in Excess of Other Assets (4.6%)................................... (102,365)
----------
Net Assets 100.0%.............................................................. $2,227,782
==========
</TABLE>
(a) Assets segregated as collateral for open forward purchase commitments and
open futures transactions.
TBA--To be announced, maturity date has not been established. Upon settlement
and delivery of the mortgage pools, maturity dates will be assigned.
8 See Notes to Financial Statements
<PAGE>
Statement of Assets and Liabilities
June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
All amounts, except for Maximum Offering Price information, reported in thousands
=======================================================================================
<S> <C>
Assets:
Total Investments (Cost $2,307,338)....................................... $2,330,147
Receivables:
Interest................................................................ 26,693
Fund Shares Sold........................................................ 898
Forward Commitments....................................................... 62
Other..................................................................... 86
----------
Total Assets............................................................ 2,357,886
----------
Liabilities:
Payables:
Investments Purchased................................................... 113,227
Fund Shares Repurchased................................................. 11,371
Variation Margin on Futures............................................. 1,768
Distributor and Affiliates.............................................. 1,376
Investment Advisory Fee................................................. 967
Income Distributions.................................................... 906
Deferred Compensation and Retirement Plans................................ 259
Accrued Expenses.......................................................... 230
----------
Total Liabilities....................................................... 130,104
----------
Net Assets................................................................ $2,227,782
==========
Net Assets Consist of:
Capital................................................................... $2,906,722
Net Unrealized Appreciation............................................... 27,998
Accumulated Undistributed Net Investment Income........................... 2,471
Accumulated Net Realized Loss............................................. (709,409)
----------
Net Assets................................................................ $2,227,782
==========
Maximum Offering Price Per Share:
Class A Shares:
Net asset value and redemption price per share (Based on net assets of
$1,995,390,049 and 200,177,219 shares of beneficial interest issued
and outstanding)...................................................... $ 9.97
Maximum sales charge (4.75%* of offering price)....................... .50
----------
Maximum offering price to public...................................... $ 10.47
==========
Class B Shares:
Net asset value and offering price per share (Based on net assets of
$214,058,763 and 21,464,612 shares of beneficial interest
issued and outstanding)............................................... $ 9.97
==========
Class C Shares:
Net asset value and offering price per share (Based on net assets of
$18,333,331 and 1,841,910 shares of beneficial interest issued
and outstanding)...................................................... $ 9.95
==========
</TABLE>
*On sales of $100,000 or more, the sales charge will be reduced.
9 See Notes to Financial Statements
<PAGE>
Statement of Operations
For the Six Months Ended June 30, 1997 (Unaudited)
All amounts reported in thousands
<TABLE>
<CAPTION>
==================================================================================
<S> <C>
Investment Income:
Interest............................................................. $ 90,359
--------
Expenses:
Investment Advisory Fee.............................................. 5,974
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $2,632, $1,108 and $98, respectively)................ 3,838
Shareholder Services................................................. 1,986
Legal................................................................ 38
Trustees Fees and Expenses........................................... 35
Custody.............................................................. 20
Other................................................................ 573
--------
Total Expenses..................................................... 12,464
--------
Net Investment Income.............................................. $ 77,895
========
Realized and Unrealized Gain/Loss:
Realized Gain/Loss:
Investments........................................................ $(26,634)
Futures............................................................ (27,047)
Forward Commitments................................................ 373
--------
Net Realized Loss.................................................... (53,308)
--------
Unrealized Appreciation/Depreciation:
Beginning of the Period.......................................... (4,302)
--------
End of the Period:
Investments................................................... 22,809
Futures....................................................... 5,127
Forward Commitments........................................... 62
--------
27,998
--------
Net Unrealized Appreciation During the Period........................ 32,300
--------
Net Realized and Unrealized Loss..................................... $(21,008)
========
Net Increase in Net Assets From Operations........................... $ 56,887
========
</TABLE>
10 See Notes to Financial Statements
<PAGE>
Statement of Changes in Net Assets
For the Six Months Ended June 30, 1997 and the
Year Ended December 31, 1996 (Unaudited)
All amounts reported in thousands
<TABLE>
<CAPTION>
=========================================================================================================
Six Months Ended Year Ended
June 30, 1997 December 31, 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income............................................... $ 77,895 $ 176,470
Net Realized Loss................................................... (53,308) (36,088)
Net Unrealized Appreciation/Depreciation
During the Period................................................. 32,300 (101,139)
--------- ----------
Change in Net Assets from Operations................................ 56,887 39,243
--------- ----------
Distributions from Net Investment Income:
Class A Shares................................................. (68,923) (159,011)
Class B Shares................................................. (6,677) (15,893)
Class C Shares................................................. (596) (1,480)
--------- ----------
Total Distributions................................................. (76,196) (176,384)
--------- ----------
Net Change in Net Assets from
Investment Activities............................................. (19,309) (137,141)
--------- ----------
From Capital Transactions:
Proceeds from Shares Sold........................................... 54,430 236,825
Net Asset Value of Shares Issued Through
Dividend Reinvestment............................................. 42,361 97,997
Cost of Shares Repurchased.......................................... (264,426) (639,804)
--------- ----------
Net Change in Net Assets from
Capital Transactions.............................................. (167,635) (304,982)
--------- ----------
Total Decrease in Net Assets........................................ (186,944) (442,123)
Net Assets:
Beginning of the Period............................................. 2,414,726 2,856,849
--------- ----------
End of the Period (Including accumulated undistributed net
investment income of $2,471 and $1,350, respectively)............. $2,227,782 $2,414,726
========== ==========
</TABLE>
11 See Notes to Financial Statements
<PAGE>
Financial Highlights
The following schedule presents financial highlights for one share of the
Fund outstanding throughout the periods indicated. (Unaudited)
<TABLE>
<CAPTION>
====================================================================================================================
Year Ended December 31,
Six Months Ended ----------------------------------------
Class A Shares June 30, 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.............. $ 10.045 $ 10.55 $ 9.67 $ 10.80 $ 10.75
-------- -------- -------- -------- --------
Net Investment Income................................ .339 .689 .67 .66 .80375
Net Realized and Unrealized Gain/Loss................ (.086) (.504) .8985 (1.1145) .05
-------- -------- -------- -------- --------
Total from Investment Operations...................... .253 .185 1.5685 (.4545) .85375
Less Distributions from Net Investment Income......... .330 .690 .6885 .6755 .80375
-------- -------- -------- -------- --------
Net Asset Value, End of the Period.................... $ 9.968 $ 10.045 $ 10.55 $ 9.67 $ 10.80
======== ======== ======== ======== ========
Total Return (a)...................................... 2.67%* 1.90% 16.77% (4.26%) 8.15%
Net Assets at End of the Period (In millions)......... $1,995.4 $2,156.4 $2,544.5 $2,578.7 $3,418.8
Ratio of Expenses to Average Net Assets (b)........... 1.01% 1.06% 1.01% 1.02% .98%
Ratio of Net Investment Income to Average
Net Assets (b)...................................... 6.90% 6.88% 6.62% 6.96% 7.73%
Portfolio Turnover.................................... 54%* 271% 231% 306% 239%
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) The impact on the Ratios of Expenses and Net Investment Income to Average
Net Assets due to VKAC's reimbursement of certain expenses was less than
0.01%.
* Non-Annualized
12 See Notes to Financial Statements
<PAGE>
Financial Highlights (Continued)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated. (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Year Ended December 31,
Six Months Ended --------------------------------------
Class B Shares June 30, 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.................... $ 10.050 $ 10.56 $ 9.68 $ 10.80 $ 10.75
--------- -------- ------- -------- --------
Net Investment Income..................................... .302 .635 .60 .60 .74
Net Realized and Unrealized Gain/Loss..................... (.085) (.527) .8965 (1.1275) .03
--------- -------- ------- -------- --------
Total from Investment Operations............................ .217 .108 1.4965 (.5275) .77
Less Distributions from Net Investment Income............... .294 .618 .6165 .5925 .72
--------- -------- ------- -------- --------
Net Asset Value, End of the Period.......................... $ 9.973 $ 10.050 $ 10.56 $ 9.68 $ 10.80
========= ======== ======= ======== ========
Total Return (a)............................................ 2.19%* 1.17% 15.93% (4.95%) 7.31%
Net Assets at End of the Period (In millions)............... $ 214.1 $ 236.7 $ 285.5 $ 278.7 $ 368.4
Ratio of Expenses to Average Net Assets (b)................. 1.76% 1.82% 1.77% 1.78% 1.74%
Ratio of Net Investment Income to
Average Net Assets (b).................................... 6.15% 6.13% 5.86% 6.20% 7.21%
Portfolio Turnover.......................................... 54%* 271% 231% 306% 239%
</TABLE>
(a) Total Return is based upon net asset value which does not include payment
of the maximum sales charge or contingent deferred sales charge.
(b) The impact on the Ratios of Expenses and Net Investment Income to Average
Net Assets due to VKAC's reimbursement of certain expenses was less than
0.01%.
* Non-Annualized
13 See Notes to Financial Statements
<PAGE>
Financial Highlights (Continued)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated. (Unaudited)
==============================================================================
<TABLE>
<CAPTION>
March 10, 1993
(Commencement
Year Ended December 31, of Distribution) to
Six Months Ended ---------------------------- December 31,
Class C Shares June 30, 1997 1996 1995 1994 1993 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Period............................................. $10.031 $ 10.54 $ 9.66 $ 10.79 $ 10.94
------- ------- ------- ------- -------
Net Investment Income..................................... .302 .623 .60 .60 .69
Net Realized and Unrealized
Gain/Loss............................................... (.086) (.514) .8965 (1.1375) (.3055)
------- ------- ------- ------- -------
Total from Investment Operations............................ .216 .109 1.4965 (.5375) .3845
Less Distributions from
Net Investment Income..................................... .294 .618 .6165 .5925 .5345
------- ------- ------- ------- -------
Net Asset Value, End of the Period.......................... $ 9.953 $10.031 $ 10.54 $ 9.66 $ 10.79
======= ======= ======= ======= =======
Total Return (b)............................................ 2.19%* 1.18% 15.96% (5.05%) 3.58%*
Net Assets at End of the Period
(In millions)............................................. $ 18.3 $ 21.6 $ 26.8 $ 32.0 $ 39.0
Ratio of Expenses to Average
Net Assets (c)............................................ 1.76% 1.82% 1.77% 1.78% 1.72%
Ratio of Net Investment Income
to Average Net Assets (c)................................. 6.14% 6.12% 5.86% 6.24% 7.54%
Portfolio Turnover.......................................... 54%* 271% 231% 306% 239%
</TABLE>
(a) Based on average month-end shares outstanding.
(b) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(c) The impact on the Ratios of Expenses and Net Investment Income to Average
Net Assets due to VKAC's reimbursement of certain expenses was less than
0.01%.
* Non-Annualized
14 See Notes to Financial Statements
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
June 30, 1997 (Unaudited)
================================================================================
1. Significant Accounting Policies
Van Kampen American Capital Government Securities Fund (the "Fund") is organized
as a Delaware business trust, and is registered as a diversified open-end
management investment company under the Investment Company Act of 1940, as
amended. The Fund's investment objective is to seek a high level of income by
primarily investing in debt securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. The Fund commenced investment
operations on July 16, 1984. The distribution of the Fund's Class B and C shares
commenced on December 20, 1991 and March 10, 1993, respectively.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. Security Valuation-Investments are stated at value using market quotations.
For those securities where quotations or prices are not available, valuations
are determined in accordance with procedures established in good faith by the
Board of Trustees. Short-term securities with remaining maturities of 60 days
or less are valued at amortized cost.
B. Security Transactions-Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen American Capital Asset Management, Inc. (the
"Adviser") or its affiliates, the daily aggregate of which is invested in
repurchase agreements. Repurchase agreements are fully collateralized by the
underlying debt security. The Fund will make payment for such securities only
upon physical delivery or evidence of book entry transfer to the account of the
custodian bank. The seller is required to maintain the value of the underlying
security at not less than the repurchase proceeds due the Fund.
C. Investment Income-Interest income is recorded on an accrual basis. Original
issue discount is amortized over the expected life of each applicable security.
Premiums on debt securities
15
<PAGE>
Notes to Financial Statements (Continued)
June 30, 1997 (Unaudited)
are not amortized. Market discounts are recognized at the time of sale as
realized gains for book purposes and ordinary income for tax purposes.
D. Federal Income Taxes-It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
At June 30, 1997, for federal income tax purposes, cost of long- and short-
term investments is $2,307,338,027; the gross unrealized appreciation is
$39,710,793 and the gross unrealized depreciation is $11,712,449, resulting in
net unrealized appreciation including open future transactions of $27,998,344.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset these losses against any future realized capital
gains. At December 31, 1996, the Fund had an accumulated capital loss
carryforward for tax purposes of $664,420,190 which will expire between December
31, 1997 and December 31, 2002. Of this amount, $34,785,440, will expire on
December 31, 1997.
Due to inherent differences in the recognition of income, expenses and
realized gains/losses under generally accepted accounting principles and
federal income tax purposes, permanent differences between book and tax basis
reporting have been indentified and appropriately reclassified. Permanent book
and tax basis differences relating to the recognition of net realized losses on
paydowns of mortgage pool obligations totaling $577,964 were reclassified from
accumulated net realized loss on securities to accumulated undistributed net
investment income.
E. Distribution of Income and Gains-The Fund declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed annually. Distributions from net realized gains for book purposes
may include short-term capital gains and gains on futures transactions. All
short-term capital gains and a portion of futures gains are included in ordinary
income for tax purposes.
2. Investment Advisory Agreement and Other Transactions with Affiliates
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee, payable
monthly, as follows:
16
<PAGE>
Notes to Financial Statements (Continued)
June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Average Net Assets % Per Annum
- --------------------------------------------------------------------------------
<S> <C>
First $1 billion.................................................... .540 of 1%
Next $1 billion..................................................... .515 of 1%
Next $1 billion..................................................... .490 of 1%
Next $1 billion..................................................... .440 of 1%
Next $1 billion..................................................... .390 of 1%
Next $1 billion..................................................... .340 of 1%
Next $1 billion..................................................... .290 of 1%
Over $7 billion..................................................... .240 of 1%
</TABLE>
For the six months ended June 30, 1997, the Fund recognized expenses of
approximately $38,100 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the six months ended June 30, 1997, the Fund recognized expenses of
approximately $158,900 representing VKAC's cost of providing accounting services
to the Fund. These services are provided by VKAC at cost.
ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the six months
ended June 30, 1997, the Fund recognized expenses of approximately $1,424,100,
representing ACCESS' cost of providing transfer agency and shareholder services
plus a profit.
Certain officers and trustees of the Fund are also officers and directors
of VKAC. The Fund does not compensate its officers or trustees who are officers
of VKAC.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of VKAC. Under the deferred compensation plan,
trustees may elect to defer all or a portion of their compensation to a later
date. Benefits under the retirement plan a repayable for a ten-year period and
are based upon each trustee's years of service to the Fund. The maximum annual
benefit per trustee under the plan is equal to $2,500.
At June 30, 1997, VKAC owned 15,675 shares of Class A.
17
<PAGE>
Notes to Financial Statements (Continued)
June 30, 1997 (Unaudited)
===============================================================================
3. Capital Transactions
The Fund has outstanding three classes of shares of beneficial interest,
Classes A, B and C, each with a par value of $.01 per share. There are an
unlimited number of shares of each class authorized.
At June 30, 1997, capital aggregated $2,721,635,314, $169,997,966 and
$15,089,072 for Classes A, B and C, respectively. For the six months ended June
30, 1997, transactions were as follows:
<TABLE>
<CAPTION>
Shares Value
==============================================================================
<S> <C> <C>
Sales:
Class A.......................................... 4,299,154 $ 42,484,367
Class B.......................................... 1,075,587 10,633,587
Class C.......................................... 132,549 1,311,668
----------- -------------
Total Sales........................................ 5,507,290 $ 54,429,622
=========== =============
Dividend Reinvestment:
Class A.......................................... 3,845,009 $ 38,002,217
Class B.......................................... 405,207 4,008,227
Class C.......................................... 35,554 351,161
----------- -------------
Total Dividend Reinvestment........................ 4,285,770 $ 42,361,605
=========== =============
Repurchases:
Class A.......................................... (22,637,912) $(224,282,586)
Class B.......................................... (3,569,922) (35,376,734)
Class C.......................................... (481,562) (4,766,944)
----------- -------------
Total Repurchases.................................. (26,689,396) $(264,426,264)
=========== =============
At December 31, 1996, capital aggregated $2,865,431,316, $190,732,886 and
$18,193,187 for Classes A, B and C, respectively. For the year ended December
31, 1996, transactions were as follows:
Shares Value
==============================================================================
Sales:
Class A.......................................... 19,916,758 $202,339,730
Class B.......................................... 2,958,853 29,869,622
Class C.......................................... 457,510 4,615,495
---------- ------------
Total Sales........................................ 23,333,121 $236,824,847
========== ============
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Notes to Financial Statements (Continued)
June 30, 1997 (Unaudited)
===============================================================================
<S> <C> <C>
Dividend Reinvestment:
Class A..................................... 8,692,189 $ 87,523,376
Class B..................................... 948,561 9,565,633
Class C..................................... 90,225 908,298
----------- -------------
Total Dividend Reinvestment................... 9,730,975 $ 97,997,307
=========== =============
Repurchases:
Class A..................................... (55,118,215) $(556,059,402)
Class B..................................... (7,388,783) (74,318,737)
Class C..................................... (939,225) (9,425,881)
----------- -------------
Total Repurchases............................. (63,446,223) $(639,804,020)
=========== =============
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). The CDSC will be imposed
on most redemptions made within five years of the purchase for Class B and one
year of the purchase for Class C as detailed in the following schedule. The
Class B and C shares bear the expense of their respective deferred sales
arrangements, including higher distribution and service fees and incremental
transfer agency costs.
<TABLE>
<CAPTION>
Contingent Deferred
Sales Charge
-----------------------
Year of Redemption Class B Class C
===============================================================================
<S> <C> <C>
First......................................... 4.00% 1.00%
Second........................................ 4.00% None
Third......................................... 3.00% None
Fourth........................................ 2.50% None
Fifth......................................... 1.50% None
Sixth and Thereafter.......................... None None
</TABLE>
For the six months ended June 30, 1997, VKAC, as Distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately
$38,600 and CDSC on redeemed shares of approximately $293,700. Sales charges do
not represent expenses of the Fund.
4. Investment Transactions
During the period, the cost of purchases and proceeds from sales of government
securities, including paydowns on mortgage-backed securities and excluding
short-term investments and forward purchase commitments, were $1,254,651,076
and $1,642,734,857, respectively.
19
<PAGE>
Notes to Financial Statements (Continued)
June 30, 1997 (Unaudited)
================================================================================
5. Derivative Financial Instruments
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio or generate potential gain. All of the Fund's portfolio holdings,
including derivative instruments, are marked to market each day with the change
in value reflected in the unrealized appreciation/depreciation. Upon
disposition, a realized gain or loss is recognized accordingly, except when
taking delivery of a security underlying a futures contract or forward. In this
instance, the recognition of gain or loss is postponed until the disposal of the
security underlying the futures contract or forward.
Summarized below are the specific types of derivative financial instruments
used by the Fund.
A. Futures Contracts--A futures contract is an agreement involving the
delivery of a particular asset on a specified future date at an agreed upon
price. The Fund generally invests in exchange traded futures contracts on U.S.
Treasury Bonds and typically closes the contract prior to the delivery date.
These contracts are generally used to manage the portfolio's effective maturity
and duration.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, securities with a value equal to its obligation
under the futures contracts. During the period the futures contract is open,
payments are received from or made to the broker based upon changes in the
value of the contract (the variation margin).
Transactions in futures contracts for the six months ended June 30, 1997,
were as follows:
<TABLE>
<CAPTION>
Contracts
================================================================================
<S> <C>
Outstanding at December 31, 1996.................................. 4,946
Futures Opened.................................................... 25,294
Futures Closed.................................................... (27,590)
--------
Outstanding at June 30, 1997...................................... 2,650
========
</TABLE>
20
<PAGE>
Notes to Financial Statements (Continued)
June 30, 1997 (Unaudited)
===============================================================================
The futures contracts outstanding as of June 30, 1997, and the descriptions
and unrealized appreciation/depreciation are as follows:
<TABLE>
<CAPTION>
Unrealized
Appreciation/
Contracts Depreciation
=================================================================================================
<S> <C> <C>
U.S. Treasury Long Bond Future, Long Contract
Sept. 1997 (Current Notional Value of $111,063 per contract) 2,400 $5,177,058
10-Year U.S. Treasury Note Future, Short Contract
Sept. 1997 (Current Notional Value of $107,875 per contract) 250 (50,020)
----- ----------
2,650 $5,127,038
===== ==========
</TABLE>
B. Forward Commitments-The Fund trades certain securities under the terms of
forward commitments, whereby the settlement occurs at a specific future date.
Forward commitments are privately negotiated transactions between the Fund and
dealers. While forward commitments are outstanding, the Fund maintains
sufficient collateral of cash or securities in a segregated account with its
custodian. Forward commitments are marked-to-market on a daily basis with
changes in value reflected as a component of unrealized appreciation/
depreciation.
The following forward sale commitments were outstanding as of June 30,
1997:
<TABLE>
<CAPTION>
Par
Amount Current Unrealized
(000) Description Value Appreciation
===============================================================================
<S> <C> <C> <C>
$100,000 GNMA August Forward, 8.00%............. $102,125,000 $62,500
============ =======
</TABLE>
6. Distribution and Service Plans
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these
fees for the six months ended June 30, 1997, are payments to VKAC of
approximately $978,900.
21
<PAGE>
Van Kampen American Capital Government Securities Fund
Board of Trustees
J. Miles Branagan
Richard M. DeMartini*
Linda Hutton Heagy
R. Craig Kennedy
Jack E. Nelson
Jerome L. Robinson
Phillip B. Rooney
Fernando Sisto
Wayne W. Whalen* - Chairman
Officers
Dennis J. McDonnell*
President
Ronald A. Nyberg*
Vice President and Secretary
Edward C. Wood, III*
Vice President and Chief Financial Officer
Curtis W. Morell*
Vice President and Chief Accounting Officer
John L. Sullivan*
Treasurer
Tanya M. Loden*
Controller
Peter W. Hegel*
Alan T. Sachtleben*
Paul R. Wolkenberg*
Vice Presidents
Investment Adviser
Van Kampen American Capital
Asset Management, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Distributor
Van Kampen American Capital
Distributors, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Shareholder Servicing Agent
ACCESS Investor
Services, Inc.
P.O. Box 418256
Kansas City, Missouri 64141-9256
Custodian
State Street Bank
and Trust Company
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
Legal Counsel
Skadden, Arps, Slate,
Meagher & Flom (Illinois)
333 West Wacker Drive
Chicago, Illinois 60606
Independent Accountants
Price Waterhouse LLP
1201 Louisiana
Houston, Texas 77002
* "Interested" persons of the Fund, as defined in the Investment Company Act
of 1940.
(C) Van Kampen American Capital Distributors, Inc., 1997 All rights reserved.
(SM) denotes a service mark of
Van Kampen American Capital Distributors, Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge,
and other pertinent data. After December 31, 1997, the report must be
accompanied by a quarterly performance update, if applicable.
22
<PAGE>
Result of Shareholder Votes
A Special Meeting of Shareholders of the Fund was held on May 28, 1997
where shareholders voted on a new investment advisory agreement, the election of
Trustees and the ratification of Price Waterhouse LLP as independent public
accountants. With regard to the approval of a new investment advisory agreement
between Van Kampen American Capital Asset Management, Inc. and the Fund,
132,119,885 shares voted for the proposal, 3,088,653 shares voted against and
7,886,863 shares abstained. With regard to the election of J. Miles Branagan as
elected trustee of the Fund, 139,428,889 shares voted in his favor and 3,666,511
shares withheld. With regard to the election of Richard M. DeMartini as elected
trustee of the Fund, 139,415,460 shares voted in his favor and 3,679,941 shares
withheld. With regard to the election of Linda Hutton Heagy as elected trustee
of the Fund, 139,428,475 shares voted in her favor and 3,666,926 shares
withheld. With regard to the election of R. Craig Kennedy as elected trustee of
the Fund, 139,439,607 shares voted in his favor and 3,655,794 shares withheld.
With regard to the election of Jack E. Nelson as elected trustee of the Fund,
139,421,360 shares voted in his favor and 3,674,040 shares withheld. With regard
to the election of Jerome L. Robinson as elected trustee of the Fund,
139,344,574 shares voted in his favor and 3,750,827 shares withheld. With regard
to the election of Phillip B. Rooney as elected trustee of the Fund, 139,465,825
shares voted in his favor and 3,629,576 shares withheld. With regard to the
election of Fernando Sisto as elected trustee of the Fund, 139,321,534 shares
voted in his favor and 3,773,866 shares withheld. With regard to the election of
Wayne W. Whalen as elected trustee of the Fund, 139,425,072 shares voted in his
favor and 3,670,328 shares withheld. With regard to the ratification of Price
Waterhouse LLP as independent public accountants for the Fund, 134,777,478
shares voted for the proposal, 1,622,100 shares voted against and 6,695,822
shares abstained.
23
<PAGE>
Van Kampen American Capital Distributors, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
- ----------------
Bulk Rate
U.S. Postage
PAID
VAN KAMPEN
AMERICAN CAPITAL
- ----------------
