<PAGE>
Van Kampen American Capital
Government Securities Fund
Annual Report
December 31, 1997
[PHOTO]
sm
--A Wealth of Knowledge * A Knowledge of Wealth--
Van Kampen American Capital
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
<S> <C>
Letter to Shareholders............................ 1
Performance Results............................... 3
Performance in Perspective........................ 4
Glossary of Terms................................. 5
Portfolio Management Review....................... 6
Portfolio Highlights.............................. 8
Portfolio of Investments.......................... 9
Statement of Assets and Liabilities............... 10
Statement of Operations........................... 11
Statement of Changes in Net Assets................ 12
Financial Highlights.............................. 13
Notes to Financial Statements..................... 16
Report of Independent Accountants................. 22
</TABLE>
<PAGE>
Letter to Shareholders
Dennis J. McDonnell and Don G. Powell [PHOTO]
February 3, 1998
Dear Shareholder,
The new year ushers in what promises to be an exciting and challenging time
for investors. The Taxpayer Relief Act of 1997 passed by President Clinton in
August creates many new opportunities for you and your family to take a more
active role in achieving your long-term financial goals.
Most Americans will benefit from the bill's $95 billion in tax cuts over
five years. The so-called Kiddie Credit gives parents $400 in immediate tax
relief for every child under age 17, and families will find it easier to save
for their children's college expenses through the new Education IRA. The bill
also cuts capital gains tax rates for the first time in over a decade and
loosens restrictions on tax-deductible IRA contributions. Perhaps the most
exciting feature of all is the new Roth IRA, which allows investment earnings to
grow tax free, not just tax deferred.
This year more than ever, it could be important for you to talk with your
financial adviser about how to make the tax code work to your advantage. At Van
Kampen American Capital, we have prepared a variety of publications to help you
understand your choices under the new tax legislation. And with the help of your
adviser, we'll help you locate the many benefits hidden among the changing tax
landscape.
Economic Overview
These continue to be the best of times for the U.S. economy. Growth is
strong, consumers are optimistic, unemployment is low, the budget is headed for
surplus this year, and our nation's currency is rising around the world.
Despite the strength in the economy, there is no indication of troublesome
inflation. In fact, the producer price index fell by 1.2 percent during the
year, the largest annual decline in wholesale prices since 1986. Inflation at
the consumer level was also virtually nonexistent, with the consumer price index
rising by only 1.7 percent during 1997. A strong dollar and significant
productivity gains helped offset inflationary pressures caused by rising wages.
After increasing short-term interest rates by 0.25 percent in March, the
Federal Reserve Board left monetary policy unchanged over the remainder of the
year. In addition to signs that the economy was slowing modestly from its
breakneck pace of early 1997, Fed policy-makers were concerned about the impact
that higher U.S. interest rates might have on the struggling economies of
Southeast Asia. Generally, higher U.S. interest rates cause the dollar to rise
relative to other currencies. With nearly all Asian currencies already down
significantly, a hike in U.S. rates would force monetary authorities in Asia to
choose between letting their currencies decline further or matching the rate
increase, thereby slowing their already-sluggish economies.
Market Overview
Aided by low inflation and steady Federal Reserve policy, all sectors of
the fixed-income market posted impressive returns during 1997. Gains were
especially strong during the last three months of the period, as the severe
currency crisis in
Continued on page two
1
<PAGE>
Asia led to increased demand for U.S. Treasury securities and other fixed-income
investments. For the year, the Lehman Brothers Aggregate Bond Index returned
9.40 percent.
The yield on the Treasury's benchmark 30-year bond began the year at 6.64
percent and climbed to 7.17 percent in April amid fears of increasing inflation
and higher interest rates. When subsequent data showed the economy to be
slowing, bond yields drifted gradually lower. By the end of the reporting
period, the long-term Treasury bond yield had fallen to 5.92 percent, its lowest
level in over four years.
Favorable news about inflation and concerns about Asia helped to make high-
quality long-term bonds the top-performing sector of the fixed-income market.
Long-term Treasury bonds gained 14.3 percent during the year, compared to 10
percent for investment-grade corporate bonds and 8.90 percent for intermediate-
term Treasury bonds.
Outlook
We believe that reduced demand for American exports to Asia will exert a
mild drag on the U.S. economy in coming months. But while corporate profits
could suffer, slower economic growth should help to mitigate the inflationary
pressures caused by the tight domestic labor market. That scenario is good for
fixed-income investments.
However, if bond yields continue to drift lower, economic growth in the
U.S. could accelerate later in 1998. In recent years, each significant decline
in long-term interest rates has ignited economic growth by making housing,
autos, and other big-ticket consumer goods more affordable. We also expect the
healthy economy to keep credit spreads relatively tight in coming months.
As we noted earlier, the Taxpayer Relief Act of 1997 provides attractive
new vehicles through which investors can save for a variety of goals, including
higher education and retirement. We encourage you to work with your financial
adviser to consider how the tax changes can work to your benefit.
Additional details about your Fund, including a question-and-answer section
with your portfolio management team, are provided in this report. As always, we
are pleased to have the opportunity to serve you and your family through our
diverse menu of quality investments.
Sincerely,
/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 December 31, 1997
Van Kampen American Capital Government Securities Fund
<TABLE>
<CAPTION>
A Shares B Shares C Shares
<S> <C> <C> <C>
Total Returns
One-year total return based on NAV/1/ 9.16% 8.27% 8.28%
One-year total return/2/ 3.98% 4.27% 7.28%
Five-year average annual total return/2/ 5.07% 5.08% N/A
Ten-year average annual total return/2/ 7.81% N/A N/A
Life-of-Fund average annual total return/2/ 8.19% 5.50% 4.74%
Commencement Date 07/16/84 12/20/91 03/10/93
Distribution Rate and Yield
Distribution Rate/3/ 6.13% 5.73% 5.74%
SEC Yield/4/ 5.29% 4.75% 4.73%
</TABLE>
N/A = Not Applicable
/1/ Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge (4.75% for A shares) or contingent
deferred sales charge for early withdrawal (4% for B shares and 1% for C
shares).
/2/ Standardized total return. Assumes reinvestment of all distributions for
the period and includes payment of the maximum sales charge (A shares) or
contingent deferred sales charge for early withdrawal (B and C shares).
/3/ Distribution rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.
/4/ SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending December 31, 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>
Putting Your Fund's Performance in Perspective
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment portfolio's performance at regular intervals.
A good starting point is a comparison of your investment holdings to an
applicable benchmark, such as a broad-based market index. Such a comparison can:
. Illustrate the general market environment in which your investments are
being managed
. Reflect the impact of favorable market trends or difficult market
conditions
. Help you evaluate the extent to which your Fund's management team has
responded to the opportunities and challenges presented to them over the
period measured
For these reasons, you may find it helpful to review the chart below, which
compares your Fund's performance to that of the Lehman Brothers Mutual Fund
Government/Mortgage Index over time. As a broad-based, unmanaged statistical
composite, this index does not reflect any commissions or fees which would be
incurred by an investor purchasing the securities it represents. Similarly, its
performance does not reflect any sales charges or other costs which would be
applicable to an actively managed portfolio, such as that of the Fund.
Growth of a Hypothetical $10,000 Investment
Van Kampen American Capital Government Securities Fund vs. Lehman Brothers
Mutual Fund Government/Mortgage Index (December 31, 1987 through December
31, 1997)
[GRAPH APPEARS HERE]
Fund's Total Return
1 Year Avg. Annual = 3.98%
5 Year Avg. Annual = 5.07%
10 Year Avg. Annual = 7.81%
Inception Avg. Annual = 8.19%
<TABLE>
<CAPTION>
VKAC Government Lehman Brothers Mutual Fund
Securities Fund Government/Mortgage Index
--------------- ---------------------------
<S> <C> <C>
12/31/87 $ 9,529 10000.00
12/31/88 10,190 10757.94
12/31/89 11,709 12329.25
12/31/90 12,729 13488.47
12/31/91 14,800 15574.05
12/31/92 15,772 16685.49
12/31/93 17,057 18233.94
12/31/94 16,331 17731.26
12/31/95 19,701 20889.41
12/31/96 19,432 21657.12
12/31/97 21,213 23723.35
</TABLE>
The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of other share classes of
the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions and includes payment of the maximum
sales charge (4.75% for A shares).
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.
4
<PAGE>
Glossary of Terms
Basis point:
A measure used in quoting yields on bonds. One hundred basis points is equal
to one percent. For example, if a bond's yield changes from 7.00 to 6.65
percent, it would be a 35 basis point move.
Duration:
A measure of a bond's sensitivity to changes in interest rates, expressed in
years. The longer a fund's duration, the greater the effect of interest rate
movements on net asset value. Typically, funds with shorter durations have
performed better in rising rate environments, while funds with longer
durations have performed better when rates decline.
Federal funds rate:
The interest rate charged by one institution lending federal funds to another.
This overnight rate is used to meet banks' daily reserve requirements. The
Federal Reserve Board uses the federal funds rate to affect the direction of
interest rates.
Federal Reserve Board (Fed):
A seven-member group that oversees the operations of the Federal Reserve
System, the central bank system of the United States. Currently led by
Chairman Alan Greenspan, the Fed meets eight times a year to establish
monetary policy and monitor the country's economic pulse.
Inflation:
An economic state in which the amount of money supply and business activity
dramatically increases, accompanied by sharply rising prices. Inflation is
widely measured by the Consumer Price Index, a leading economic indicator that
measures the change in the cost of purchased goods and services.
Mortgage-backed securities:
Securities backed by pools of similar mortgages. Investors receive interest
payments and partial repayment of the principal passed through from the
underlying mortgages (agencies pass on what they receive from homeowners
paying off their mortgages). These securities are generally issued by agencies
of the U.S. government, such as Government National Mortgage Association
(GNMA, or "Ginnie Mae") and Federal Home Loan Mortgage Corporation (FHLMC, or
"Freddie Mac").
Net asset value (NAV):
The value of a mutual fund share, calculated by deducting a fund's liabilities
from its total assets and dividing this amount by the number of shares
outstanding. The NAV does not include any initial or contingent deferred sales
charge.
Yield:
A measure of a fund's net investment income per share, expressed as a
percentage of the maximum offering price of the fund's shares at the end of
the day.
Yield curve:
A result of viewing the yields of U.S. Treasury securities maturing in 1, 5,
10, and 30 years, grouped together, which often reflects a pattern of
increasing yield as maturity extends. This pattern creates an upward sloping
"curve." A "flat" yield curve represents little difference between short- and
long-term interest rates.
5
<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 Fund's fiscal year. The team includes John R. Reynoldson,
portfolio manager, and Peter W. Hegel, chief investment officer for fixed-income
investments. The following excerpts reflect their views on the Fund's
performance during the 12-month period ended December 31, 1997.
Q How would you describe the market in which the Fund operated during its
past fiscal year?
A Over the last 12 months, domestic interest rates continued to fluctuate in
a relatively narrow range. As measured by the five-year Treasury note, this
range reached a low of 5.68 percent and a high of 6.86 percent. This environment
of reduced volatility against a backdrop of strong economic growth, low
inflation rates, and a strong dollar benefited the mortgage securities sector.
Investors were willing to pay higher prices for mortgage-backed securities,
which were favored by a boom in homeowner refinancing.
In the first part of 1997, investors kept watch for a second-quarter
economic slowdown in the wake of a robust first quarter. This perspective
preceded a bond market rally that was cut short toward the end of February by
mounting concerns of an interest rate increase. After the Federal Reserve Board
took action at the end of March with a 25 basis point increase, the rate for
two-year Treasury securities rose from 6.1 percent to 6.5 percent. With
expectations of a constructive period for the market, shareholders watched rates
fall from 6.54 percent at the end of April to 5.73 percent at the end of July.
The third quarter of 1997 was marked by several shocks from overseas
sectors, upsetting complacent market attitudes. Turmoil in the Asian markets
caused currencies to depreciate and roiled stock markets abroad, creating
negative ripple effects in the U.S. stock markets. The ensuing "flight to
quality" offset investor concerns of a potential tightening in Fed monetary
policy, thus boosting prices for Treasury securities.
The calendar year ended with questions lingering about the length and
severity of Asia's crisis, and the potential impact on the U.S. economy. As
economic experts pondered if domestic growth would slow to the point of
precluding further Fed intervention into early 1998, the yield on the five-year
Treasury ended the period near its lows for the year, at 5.71 percent.
Q How did you position the Fund in reaction to market conditions?
A For the first nine months of 1997, we overweighted mortgage security
holdings relative to Treasury holdings. While the mortgage sector benefited from
low volatility levels during this time, prices in September had been bid up to
levels we thought to be expensive. As a result, mortgage holdings in the
portfolio were pared back to 45 percent of assets in the early fall, down from
their high of 64 percent for the year. Those mortgage securities held tended to
be either low coupon issues or issues that tended to be older, more "seasoned"
securities. In both cases, it was thought that such holdings would be somewhat
immune from increased rates of homeowner refinancings.
Among our Treasury holdings, we sought to capitalize on a flattening yield
curve by overweighting Treasuries with longer durations. We shifted holdings
from two- and five-year Treasuries to 30-year Treasury securities during the
second and third quarters. We have recently moved toward a more neutral position
as we question how much further the yield curve can flatten.
During the course of the year, we adjusted the Fund's duration in prudent
increments, seeking to capitalize on the movement of interest rates. Under
normal conditions, we make adjustments when we feel there is value to be
captured; however, our goal of a consistent risk profile and a competitive
dividend stream is always paramount. The Fund's duration as of December 31, 1997
is 4.9 years, which we feel provides an appropriate level of exposure to changes
in interest rates. Please refer to page eight for additional Fund portfolio
highlights.
Q How did the Fund perform during the reporting period?
A For the 12-month period ended December 31, 1997, the Government Securities
Fund generated a total return of 9.16 percent/1/ (Class A shares at net asset
value). Additionally, the Fund's Class A shares provided shareholders with a
competitive distribution rate of 6.13 percent/3/, based upon the maximum
offering price as of December 31, 1997, and a monthly div-
6
<PAGE>
idend of $0.055 per share. By comparison, the Lehman Brothers Mutual Fund U.S.
Government/Mortgage Index posted a total return of 10.60 percent for the same
period. This broad-based index attempts to measure the market performance of
government securities with maturities between one and 10 years. Please keep in
mind that this unmanaged index does not reflect any commissions or fees that
would be paid by an investor purchasing the securities it represents. For
additional Fund performance results, please refer to the chart on page three.
Q What is your outlook for the months ahead?
A Our expectations for the next several months will be guided largely by the
health of our economy and the impact of global events. Domestically, the current
combination of positive economic growth, job growth, and wage gains provides a
supportive environment for the consumer. Furthermore, continuing low interest
rates may stimulate increased automobile and housing demand. Globally, there is
little doubt that economies in Asia will slow in the new year. The extent to
which this diminishes U.S. exports and floods our markets with cheap imports is
unclear. We will continue to monitor these trends and adjust accordingly.
/s/ Peter W. Hegel /s/ John R. Reynoldson
- --------------------------- -------------------------------
Peter W. Hegel John R. Reynoldson
Chief Investment Officer Portfolio Manager
Fixed Income Investments
7
<PAGE>
Portfolio Highlights
Van Kampen American Capital Government Securities Fund
Coupon Distribution as of December 31, 1997
6-6.9 12.9
7-7.9 41.3
[BAR CHART APPEARS HERE] 8-8.9 32.6
9-9.9 6.7
10 or more 6.5
Portfolio Composition by Sector as a Percentage of Long-Term Investments
As of December 31, 1997
[_] U.S. Treasuries................. 42%
[_] GNMAs........................... 31%
[_] FNMAs........................... 22%
[_] FHLMCs.......................... 5%
[PIE CHART APPEARS HERE]
Duration
As of December 31, 1997 As of June 30, 1997
Duration 4.9 years 5.2 years
8
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments
December 31, 1997
- --------------------------------------------------------------------------------------------------------------------------
Par
Amount Market Value
(000) Description Coupon Maturity (000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
United States Government Agency Obligations 54.8%
$ 41,830 Federal Home Loan Mortgage Corp. Gold 30 Year Pools.......... 7.000% 02/01/23 to 09/01/24 $ 42,350
68,699 Federal Home Loan Mortgage Corp. Gold 30 Year Pools.......... 7.500 01/01/22 to 07/01/24 70,464
2,564 Federal Home Loan Mortgage Corp. Gold 30 Year Pools.......... 8.000 07/01/24 to 09/01/24 2,654
40,649 Federal National Mortgage Association 15 Year Dwarf Pools.... 6.000 01/01/09 to 01/01/10 40,116
53,563 Federal National Mortgage Association 15 Year Dwarf Pools.... 6.500 06/01/08 to 06/01/12 53,793
38,163 Federal National Mortgage Association 15 Year Dwarf Pools.... 7.500 03/01/02 to 09/01/12 39,185
93,449 Federal National Mortgage Association Pools.................. 6.500 01/01/26 to 06/01/26 92,281
81,545 Federal National Mortgage Association Pools.................. 7.000 10/01/23 to 05/01/25 82,428
76,742 Federal National Mortgage Association Pools.................. 7.500 03/01/22 to 01/01/25 78,676
328 Federal National Mortgage Association Pools.................. 8.000 09/01/24 to 11/01/24 340
208 Federal National Mortgage Association Pools.................. 11.500 02/01/13 to 03/01/19 234
3,911 Federal National Mortgage Association Pools.................. 12.000 03/01/13 to 01/01/16 4,445
93,863 Government National Mortgage Association Pools............... 6.500 07/15/24 to 08/15/26 92,895
87,631 Government National Mortgage Association Pools............... 7.000 01/15/23 to 03/15/26 88,560
59,815 Government National Mortgage Association Pools............... 7.500 02/15/07 to 11/15/24 61,447
65,302 Government National Mortgage Association Pools............... 8.000 07/15/07 to 10/15/25 68,252
192,545 Government National Mortgage Association Pools............... 8.500 09/15/04 to 02/15/23 204,630
132,864 Government National Mortgage Association Pools............... 9.000 11/15/17 to 12/15/22 144,263
220 Government National Mortgage Association Pools............... 11.000 01/15/10 to 11/15/20 244
5,670 Government National Mortgage Association Pools............... 12.000 06/15/11 to 08/15/15 6,434
2,429 Government National Mortgage Association Pools............... 12.500 04/15/10 to 07/15/18 2,810
----------
Total United States Government Agency Obligations 1,176,501
----------
United States Treasury Obligations 42.1%
100,000 United States Treasury Bonds (a)............................. 8.125 08/15/19 125,172
100,000 United States Treasury Bonds (a)............................. 11.125 08/15/03 125,469
175,000 United States Treasury Notes (a)............................. 7.000 07/15/06 188,918
150,000 United States Treasury Notes (a)............................. 7.500 05/15/02 160,101
285,000 United States Treasury Notes (a)............................. 8.500 02/15/00 to 11/15/00 302,529
----------
Total United States Treasury Obligations.................................................... 902,189
----------
Forward Purchase Commitments 3.7%
79,000 Federal National Mortgage Association, February Forward...... 7.000 TBA 79,790
----------
Total Long-Term Investments 100.6%
(Cost $2,095,793)......................................................................................... 2,158,480
----------
Repurchase Agreement 2.1%
BA Securities ($44,930 par collateralized by U.S. Government obligations in a pooled cash account,
dated 12/31/97, to be sold on 01/02/98 at $44,946)
(Cost $44,930)............................................................................................ 44,930
----------
Total Investments 102.7%
(Cost $2,140,723)......................................................................................... 2,203,410
Liabilities in Excess of Other Assets (2.7%)............................................................... (57,460)
----------
Net Assets 100.0%.......................................................................................... $2,145,950
----------
</TABLE>
(a) Assets segregated as collateral for open forward 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.
9
<PAGE>
Statement of Assets and Liabilities
December 31, 1997
All amounts, except for Maximum Offering Price information, reported
in thousands
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets:
<S> <C>
Total Investments (Cost $2,140,723)........................................... $2,203,410
Receivables:
Interest.................................................................... 28,634
Variation Margin on Futures................................................. 2,112
Fund Shares Sold............................................................ 1,106
Other......................................................................... 132
----------
Total Assets................................................................ 2,235,394
----------
Liabilities:
Payables:
Investments Purchased....................................................... 79,790
Fund Shares Repurchased..................................................... 5,311
Distributor and Affiliates.................................................. 1,269
Investment Advisory Fee..................................................... 958
Income Distributions........................................................ 955
Custodian Bank.............................................................. 1
Accrued Expenses.............................................................. 427
Forward Commitments........................................................... 407
Trustees' Deferred Compensation and Retirement Plans.......................... 326
----------
Total Liabilities........................................................... 89,444
----------
Net Assets.................................................................... $2,145,950
==========
Net Assets Consist of:
Capital....................................................................... $2,727,137
Net Unrealized Appreciation................................................... 67,300
Accumulated Undistributed Net Investment Income............................... 276
Accumulated Net Realized Loss................................................. (648,763)
----------
Net Assets.................................................................... $2,145,950
==========
Maximum Offering Price Per Share:
Class A Shares:
Net asset value and redemption price per share (Based on net assets of
$1,930,427,086 and 188,164,401 shares of beneficial interest issued
and outstanding)......................................................... $ 10.26
Maximum sales charge (4.75%* of offering price).......................... .51
----------
Maximum offering price to public......................................... $ 10.77
==========
Class B Shares:
Net asset value and offering price per share (Based on net assets of
$199,153,006 and 19,408,832 shares of beneficial interest
issued and outstanding).................................................. $ 10.26
==========
Class C Shares:
Net asset value and offering price per share (Based on net assets of
$16,370,104 and 1,598,797 shares of beneficial interest issued
and outstanding)......................................................... $ 10.24
==========
</TABLE>
*On sales of $100,000 or more, the sales charge will be reduced.
10 See Notes to Financial Statements
<PAGE>
Statement of Operations
For the Year Ended December 31, 1997
All amounts reported in thousands
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Investment Income:
Interest....................................................................... $171,732
--------
Expenses:
Investment Advisory Fee........................................................ 11,754
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $5,006, $2,148 and $184, respectively)........................ 7,338
Shareholder Services........................................................... 4,355
Custody........................................................................ 193
Legal.......................................................................... 96
Trustees' Fees and Expenses.................................................... 56
Other.......................................................................... 1,055
--------
Total Expenses.............................................................. 24,847
--------
Net Investment Income....................................................... $146,885
========
Realized and Unrealized Gain/Loss:
Realized Gain/Loss:
Investments................................................................. $(30,197)
Futures..................................................................... 1,117
Forward Commitments......................................................... 1,201
--------
Net Realized Loss.............................................................. (27,879)
--------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................................... (4,302)
--------
End of the Period:
Investments............................................................ 62,687
Futures................................................................ 5,020
Forward Commitments.................................................... (407)
--------
67,300
--------
Net Unrealized Appreciation During the Period.................................. 71,602
--------
Net Realized and Unrealized Gain............................................... $ 43,723
========
Net Increase in Net Assets From Operations..................................... $190,608
========
</TABLE>
11 See Notes to Financial Statements
<PAGE>
Statement of Changes in Net Assets
For the Years Ended December 31, 1997 and 1996
All amounts reported in thousands
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1997 December 31, 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income............................................. $ 146,885 $ 176,470
Net Realized Loss................................................. (27,879) (36,088)
Net Unrealized Appreciation/Depreciation During the Period........ 71,602 (101,139)
---------- ---------
Change in Net Assets from Operations.............................. 190,608 39,243
---------- ---------
Distributions from Net Investment Income:
Class A Shares................................................ (133,144) (159,011)
Class B Shares................................................ (12,711) (15,893)
Class C Shares................................................ (1,094) (1,480)
---------- ---------
Total Distributions............................................... (146,949) (176,384)
---------- ---------
Net Change in Net Assets from Investment Activities............... 43,659 (137,141)
---------- ---------
From Capital Transactions:
Proceeds from Shares Sold......................................... 132,259 236,825
Net Asset Value of Shares Issued Through Dividend Reinvestment.... 82,010 97,997
Cost of Shares Repurchased........................................ (526,704) (639,804)
---------- ---------
Net Change in Net Assets from Capital Transactions................ (312,435) (304,982)
---------- ---------
Total Decrease in Net Assets...................................... (268,776) (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 $276 and $1,350, respectively)............. $2,145,950 $2,414,726
========== ==========
</TABLE>
12 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.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
Class A Shares 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period................ $ 10.045 $ 10.55 $ 9.67 $ 10.80 $ 10.75
-------- ------- ------- -------- -------
Net Investment Income................................. .659 .689 .67 .66 .80375
Net Realized and Unrealized Gain/Loss................. .215 (.504) .8985 (1.1145) .05
-------- ------- ------- -------- -------
Total from Investment Operations........................ .874 .185 1.5685 (.4545) .85375
Less Distributions from Net Investment Income........... .660 .690 .6885 .6755 .80375
-------- ------- ------- -------- -------
Net Asset Value, End of the Period...................... $ 10.259 $10.045 $ 10.55 $ 9.67 $ 10.80
======== ======= ======= ======== =======
Total Return (a)........................................ 9.16% 1.90% 16.77% (4.26%) 8.15%
Net Assets at End of the Period (In millions)........... $1,930.4 $2,156.4 $2,544.5 $2,578.7 $3,418.8
Ratio of Expenses to Average Net Assets (b)............. 1.03% 1.06% 1.01% 1.02% .98%
Ratio of Net Investment Income to Average
Net Assets (b)........................................ 6.62% 6.88% 6.62% 6.96% 7.73%
Portfolio Turnover...................................... 114% 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) For the year ended December 31, 1996, the impact on the Ratios of Expenses
and Net Investment Income to Average Net Assets due to VKAC's reimbursement
of certain expenses was less than 0.01%.
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.
================================================================================
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------
Class B Shares 1997(a) 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.......................................... .588 .635 .60 .60 .74
Net Realized and Unrealized Gain/Loss.......................... .211 (.527) .8965 (1.1275) .03
-------- -------- ------- --------- -------
Total from Investment Operations................................. .799 .108 1.4965 (.5275) .77
Less Distributions from Net Investment Income.................... .588 .618 .6165 .5925 .72
-------- -------- ------- --------- -------
Net Asset Value, End of the Period............................... $ 10.261 $ 10.050 $ 10.56 $ 9.68 $ 10.80
======== ======== ======= ========= =======
Total Return (b)................................................. 8.27% 1.17% 15.93% (4.95%) 7.31%
Net Assets at End of the Period (In millions).................... $ 199.2 $ 236.7 $ 285.5 $ 278.7 $ 368.4
Ratio of Expenses to Average Net Assets (c)...................... 1.78% 1.82% 1.77% 1.78% 1.74%
Ratio of Net Investment Income to Average Net Assets (c)......... 5.87% 6.13% 5.86% 6.20% 7.21%
Portfolio Turnover............................................... 114% 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) For the year ended December 31, 1996, the impact on the Ratios of Expenses
and Net Investment Income to Average Net Assets due to VKAC's
reimbursement of certain expenses was less than 0.01%.
14 See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights (Continued)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated.
- ---------------------------------------------------------------------------------------------------------------
March 10, 1993
(Commencement
Year Ended December 31, of Distribution) to
--------------------------------- December 31,
Class C Shares 1997(a) 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 .587 .623 .60 .60 .69
Net Realized and Unrealized Gain/Loss .209 (.514) .8965 (1.1375) (.3055)
------- ------- ------ ------ ------
Total from Investment Operations .796 .109 1.4965 (.5375) .3845
Less Distributions from Net Investment Income .588 .618 .6165 .5925 .5345
------- ------- ------ ------ ------
Net Asset Value, End of the Period $10.239 $10.031 $10.54 $ 9.66 $10.79
------- ------- ------ ------ ------
Total Return (b) 8.28% 1.18% 15.96% (5.05%) 3.58%*
Net Assets at End of the Period (In millions) $ 16.4 $ 21.6 $ 26.8 $ 32.0 $ 39.0
Ratio of Expenses to Average Net Assets (c) 1.79% 1.82% 1.77% 1.78% 1.72%
Ratio of Net Investment Income
to Average Net Assets (c) 5.87% 6.12% 5.86% 6.24% 7.54%
Portfolio Turnover 114% 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) For the period ending December 31, 1993 and the year ending December 31,
1996, the impact on the Ratios of Expenses and Net Investment Income to
Average Net Assets due to VKAC's reimbursement of certain expenses was less
than 0.01%.
* Non-Annualized
15
<PAGE>
Notes to Financial Statements
December 31, 1997
- --------------------------------------------------------------------------------
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. Income and Expenses--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 are not amortized. Expenses of the Fund
are allocated on a pro rata basis to each class of shares, except for
distribution and service fees and transfer agency costs which are unique to each
class of shares.
D. Federal Income Taxes--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
At December 31, 1997, for federal income tax purposes, cost of long- and
short-term investments is $2,142,459,426; the gross unrealized appreciation is
$65,354,465 and the gross unrealized depreciation is $4,403,986, resulting in
net unrealized appreciation of $60,950,479.
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, 1997, the Fund had an accumulated capital loss
carryforward for tax purposes of $641,024,045 which will expire between December
31, 1998 and December 31, 2005. Of this amount, $211,266,437 will expire on
December 31, 1998.
16
<PAGE>
Notes to Financial Statements (Continued)
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 identified and appropriately reclassified. Permanent book and tax
basis differences relating to the recognition of net realized losses on paydowns
of mortgage pool obligations totaling $1,009,745 were reclassified from
accumulated net realized loss to accumulated undistributed net investment
income. Additionally, $34,785,440 of the capital loss carryforward for tax
purposes expired during 1997 and was reclassified from accumulated net realized
loss to capital.
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:
<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 year ended December 31, 1997, the Fund recognized expenses of
approximately $95,200 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the year ended December 31, 1997, the Fund recognized expenses of
approximately $292,500 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 year ended
December 31, 1997, the Fund recognized expenses of approximately $3,027,300,
representing ACCESS' cost of providing transfer agency and shareholder services
plus a profit.
Certain officers and trustees of the Fund are also officers and directors
of VKAC. The Fund does not compensate its officers or trustees who are officers
of VKAC.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of VKAC. Under the deferred compensation plan,
trustees may elect to defer all or a portion of their compensation to a later
date. Benefits under the retirement plan are payable for a ten-year period and
are based upon each trustee's years of service to the Fund. The maximum annual
benefit per trustee under the plan is equal to $2,500.
17
<PAGE>
Notes to Financial Statements (Continued)
December 31, 1997
- ---------------------------------------------------------------------------
3. Capital Transactions
The Fund has outstanding three classes of shares of beneficial interest,
Classes A, B and C, each with a par value of $.01 per share. There are an
unlimited number of shares of each class authorized.
At December 31, 1997, capital aggregated $2,568,785,271, $145,979,134 and
$12,372,383 for Classes A, B and C, respectively. For the year ended December
31, 1997, transactions were as follows:
<TABLE>
<CAPTION>
Shares Value
===========================================================================
<S> <C> <C>
Sales:
Class A...................................... 11,053,580 $ 111,167,157
Class B...................................... 1,797,284 17,946,215
Class C...................................... 314,437 3,145,887
----------- -------------
Total Sales.................................... 13,165,301 $ 132,259,259
=========== =============
Dividend Reinvestment:
Class A...................................... 7,387,982 $ 73,655,314
Class B...................................... 769,452 7,676,933
Class C...................................... 68,029 677,650
----------- -------------
Total Dividend Reinvestment 8,225,463 $ 82,009,897
=========== =============
Repurchases:
Class A...................................... (44,948,129) $(450,176,664)
Class B...................................... (6,711,644) (67,148,668)
Class C...................................... (939,038) (9,378,985)
----------- -------------
Total Repurchases (52,598,811) $(526,704,317)
=========== =============
</TABLE>
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:
<TABLE>
<CAPTION>
Shares Value
===========================================================================
<S> <C> <C>
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
=========== =============
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
=========== =============
</TABLE>
18
<PAGE>
Notes to Financial Statements (Continued)
December 31, 1997
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Repurchases:
<S> <C> <C>
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.
<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 year ended December 31, 1997, VKAC, as Distributor for the Fund,
received net commissions on sales of the Fund's Class A shares of approximately
$72,800 and CDSC on redeemed shares of approximately $493,100. 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, were $2,552,779,772 and $3,114,172,761, respectively.
5. Derivative Financial Instruments
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio 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 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.
19
<PAGE>
Notes to Financial Statements (Continued)
December 31, 1997
- --------------------------------------------------------------------------------
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). The risk of loss associated with a
futures contract is in excess of the variation margin reflected on the Statement
of Assets and Liabilities.
Transactions in futures contracts for the year ended December 31, 1997,
were as follows:
<TABLE>
<CAPTION>
Contracts
- -------------------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1996 ................................... 4,946
Futures Opened ..................................................... 51,719
Futures Closed ..................................................... (52,665)
-------
Outstanding at December 31, 1997 ................................... 4,000
=======
</TABLE>
The futures contracts outstanding as of December 31, 1997, and the
descriptions and unrealized appreciation are as follows:
<TABLE>
<CAPTION>
Unrealized
Contracts Appreciation
- -------------------------------------------------------------------------------
<S> <C> <C>
Long Contracts:
U.S. Treasury Bond Future
Mar. 1998 (Current notional value of
$120,469 per contract) ........................ 3,250 $4,816,928
10-Year U.S. Treasury Note Future
Mar. 1998 (Current notional value of
$112,156 per contract) ........................ 750 203,066
----- ----------
4,000 $5,019,994
===== ==========
</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. Purchasing securities on a forward commitment involves a risk that
the market value at the time of delivery may be lower than the agreed upon
purchase price resulting in an unrealized loss. Selling securities on a forward
commitment involves different risks and can result in losses more significant
than those arising from the purchase of such securities.
20
<PAGE>
Notes to Financial Statements (Continued)
December 31, 1997
- --------------------------------------------------------------------------------
The following forward commitments were outstanding as of December 31, 1997:
<TABLE>
<CAPTION>
Par Unrealized
Amount Current Appreciation/
(000) Description Value Depreciation
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Long Contracts
$ 50,000 FNMA January 15-year Dwarf Forward, 7.00% .... $ 50,734,500 $ 250,125
Short Contracts
79,000 FNMA January Forward, 7.00% .................. 79,864,260 (197)
100,000 GNMA January Forward, 7.50% .................. 102,438,000 (438,000)
100,000 GNMA January Forward, 8.00% .................. 103,656,000 (218,500)
---------
$(406,572)
=========
</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 year ended December 31, 1997, are payments retained by VKAC of
approximately $1,879,000.
21
<PAGE>
Report of Independent Accountants
To the Shareholders and Board of Trustees of
Van Kampen American Capital Government Securities Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen American Capital
Government Securities Fund (the "Fund") at December 31, 1997, and the results of
its operations, the changes in its net assets and the financial highlights for
each of the periods presented, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1997 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Chicago, Illinois
January 29, 1998
22
<PAGE>
Funds Distributed by Van Kampen American Capital
EQUITY FUNDS
Domestic
MS Aggressive Equity
VKAC Aggressive Growth
MS American Value
VKAC Comstock
VKAC Emerging Growth
VKAC Enterprise
VKAC Equity Income
VKAC Growth
VKAC Growth and Income
VKAC Harbor
VKAC Pace
VKAC Real Estate Securities
MS U.S. Real Estate
VKAC Utility
MS Value
International/Global
MS Asian Growth
MS Emerging Markets
MS Global Equity
VKAC Global Equity
MS Global Equity Allocation
VKAC Global Managed Assets
MS International Magnum
MS Latin American
FIXED-INCOME FUNDS
Income
VKAC Corporate Bond
MS Global Fixed Income
VKAC Global Government Securities
VKAC Government Securities
VKAC High Income Corporate Bond
MS High Yield
VKAC High Yield
VKAC Short-Term Global Income
VKAC Strategic Income
VKAC U.S. Government
VKAC U.S. Government Trust for Income
MS Worldwide High Income
Tax Exempt Income
VKAC California Insured Tax Free
VKAC Florida Insured Tax Free Income
VKAC High Yield Municipal
VKAC Insured Tax Free Income
VKAC Intermediate Term Municipal Income
VKAC Municipal Income
VKAC New York Tax Free Income
VKAC Pennsylvania Tax Free Income
VKAC Tax Free High Income
Capital Preservation
VKAC Limited Maturity Government
VKAC Prime Rate Income Trust
VKAC Reserve
VKAC Senior Floating Rate
VKAC Tax Free Money
To find out more about any of these funds, ask your financial adviser for a
prospectus, which contains more complete information, including sales charges,
risks, and expenses. Please read it carefully before you invest or send money.
To view a current Van Kampen American Capital or Morgan Stanley fund
prospectus or to receive additional fund information, choose from one of the
following:
. Visit our web site at www.vkac.com -- to view prospectuses, select Investors'
Place, then Download a Prospectus
. call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time
(Telecommunications Device for the Deaf users, call 1-800-421-2833)
. e-mail us by visiting www.vkac.com and selecting Investors' Place
23
<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
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
200 East Randolph
Chicago, Illinois 60601
* "Interested" persons of the Fund, as defined in the Investment Company Act
of 1940.
(C) Van Kampen American Capital Distributors, Inc., 1998 All rights reserved.
SM denotes a service mark of Van Kampen American Capital Distributors, Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless
it has been preceded or is accompanied by an effective prospectus of the Fund
which contains additional information on how to purchase shares, the
sales charge, and other pertinent data. After June 30, 1998, the report, if used
with prospective investors, must be accompanied by a quarterly performance
update.
24
<PAGE>
----------------
Van Kampen American Capital Distributors, Inc. Bulk Rate
One Parkview Plaza U.S. Postage
Oakbrook Terrace, Illinois 60181 PAID
VAN KAMPEN
AMERICAN CAPITAL
----------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> Gov't Secs A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 2,140,723<F1>
<INVESTMENTS-AT-VALUE> 2,203,410<F1>
<RECEIVABLES> 31,852<F1>
<ASSETS-OTHER> 132<F1>
<OTHER-ITEMS-ASSETS> 0<F1>
<TOTAL-ASSETS> 2,235,394<F1>
<PAYABLE-FOR-SECURITIES> 79,790<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 9,654<F1>
<TOTAL-LIABILITIES> 89,444<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,568,785
<SHARES-COMMON-STOCK> 188,164
<SHARES-COMMON-PRIOR> 214,671
<ACCUMULATED-NII-CURRENT> 276<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (648,763)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 67,300<F1>
<NET-ASSETS> 1,930,427
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 171,732<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (24,847)<F1>
<NET-INVESTMENT-INCOME> 146,885<F1>
<REALIZED-GAINS-CURRENT> (27,879)<F1>
<APPREC-INCREASE-CURRENT> 71,602<F1>
<NET-CHANGE-FROM-OPS> 190,608<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (133,144)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,053
<NUMBER-OF-SHARES-REDEEMED> (44,948)
<SHARES-REINVESTED> 7,388
<NET-CHANGE-IN-ASSETS> (225,965)
<ACCUMULATED-NII-PRIOR> 1,350<F1>
<ACCUMULATED-GAINS-PRIOR> (656,679)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 11,754<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 24,847<F1>
<AVERAGE-NET-ASSETS> 2,011,638
<PER-SHARE-NAV-BEGIN> 10.045
<PER-SHARE-NII> 0.659
<PER-SHARE-GAIN-APPREC> 0.215
<PER-SHARE-DIVIDEND> (0.660)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.259
<EXPENSE-RATIO> 1.03
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1> This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> Gov't Secs B
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 2,140,723<F1>
<INVESTMENTS-AT-VALUE> 2,203,410<F1>
<RECEIVABLES> 31,852<F1>
<ASSETS-OTHER> 132<F1>
<OTHER-ITEMS-ASSETS> 0<F1>
<TOTAL-ASSETS> 2,235,394<F1>
<PAYABLE-FOR-SECURITIES> 79,790<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 9,654<F1>
<TOTAL-LIABILITIES> 89,444<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 145,979
<SHARES-COMMON-STOCK> 19,408
<SHARES-COMMON-PRIOR> 23,554
<ACCUMULATED-NII-CURRENT> 276<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> 648,763<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 67,300<F1>
<NET-ASSETS> 199,153
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 171,732<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (24,847)<F1>
<NET-INVESTMENT-INCOME> 146,885<F1>
<REALIZED-GAINS-CURRENT> 27,879<F1>
<APPREC-INCREASE-CURRENT> 71,602<F1>
<NET-CHANGE-FROM-OPS> 190,608<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (12,711)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,797
<NUMBER-OF-SHARES-REDEEMED> (6,712)
<SHARES-REINVESTED> 769
<NET-CHANGE-IN-ASSETS> (37,560)
<ACCUMULATED-NII-PRIOR> 1,350<F1>
<ACCUMULATED-GAINS-PRIOR> (656,679)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 11,754<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 24,847<F1>
<AVERAGE-NET-ASSETS> 215,032
<PER-SHARE-NAV-BEGIN> 10.050
<PER-SHARE-NII> 0.588
<PER-SHARE-GAIN-APPREC> 0.211
<PER-SHARE-DIVIDEND> (0.588)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.261
<EXPENSE-RATIO> 1.78
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1> This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 13
<NAME> Gov't Secs C
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 2,140,723<F1>
<INVESTMENTS-AT-VALUE> 2,203,410<F1>
<RECEIVABLES> 31,852<F1>
<ASSETS-OTHER> 132<F1>
<OTHER-ITEMS-ASSETS> 0<F1>
<TOTAL-ASSETS> 2,235,394<F1>
<PAYABLE-FOR-SECURITIES> 79,790<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 9,654<F1>
<TOTAL-LIABILITIES> 89,444<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12,373
<SHARES-COMMON-STOCK> 1,599
<SHARES-COMMON-PRIOR> 2,155
<ACCUMULATED-NII-CURRENT> 276<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (648,763)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 67,300<F1>
<NET-ASSETS> 16,370
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 171,732<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (24,847)<F1>
<NET-INVESTMENT-INCOME> 146,885<F1>
<REALIZED-GAINS-CURRENT> (27,879)<F1>
<APPREC-INCREASE-CURRENT> 71,602<F1>
<NET-CHANGE-FROM-OPS> 190,608<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (1,094)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 315
<NUMBER-OF-SHARES-REDEEMED> (939)
<SHARES-REINVESTED> 68
<NET-CHANGE-IN-ASSETS> (5,251)
<ACCUMULATED-NII-PRIOR> 1,350<F1>
<ACCUMULATED-GAINS-PRIOR> (656,679)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 11,754<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 24,847<F1>
<AVERAGE-NET-ASSETS> 18,386
<PER-SHARE-NAV-BEGIN> 10.031
<PER-SHARE-NII> 0.587
<PER-SHARE-GAIN-APPREC> 0.209
<PER-SHARE-DIVIDEND> (0.588)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.239
<EXPENSE-RATIO> 1.79
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1> This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
