<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders...................... 1
Performance Results......................... 3
Portfolio Management Review................. 4
Portfolio of Investments.................... 6
Statement of Assets and Liabilities......... 8
Statement of Operations..................... 9
Statement of Changes in Net Assets.......... 10
Financial Highlights........................ 11
Notes to Financial Statements............... 14
</TABLE>
FMT SAR 8/95
<PAGE>
LETTER TO SHAREHOLDERS
[PHOTO OF DENNIS J. MCDONNELL AND DON G. POWELL]
August 3, 1995
Dear Shareholder:
The first half of 1995 has been a very positive one for most investors. Both
the fixed-income and stock markets have made considerable gains for the period
ended June 30, 1995. This year has been particularly rewarding for investors
after weathering the difficult markets of 1994.
The first six months of 1995 serve as a reminder of just how quickly markets
can move, and how difficult it can be to predict the timing of those movements.
Moreover, this year reinforces the importance of maintaining a long-term per-
spective, and reaffirms the principle that it is time--not timing--that leads
to investment success.
ECONOMIC OVERVIEW
Due in large part to the Federal Reserve Board's efforts to tighten monetary
supply in 1994, the economy has slowed significantly this year. Evidence of
this guided slowdown was reflected in gross domestic product for the second
quarter, which grew at an annual rate of 0.5 percent, substantially lower than
its first quarter rate of 2.7 percent and fourth quarter 1994 rate of 5.1 per-
cent. While other key economic data, including unemployment rates and housing
starts, have shown mixed signs during recent weeks, the general trend for the
first half of the year suggested a "soft landing" scenario. Subsequently, con-
cern over inflation has subsided, as its annualized rate has run at a modest
pace of 3.2 percent year-to-date.
Financial markets, perceiving the Fed's monetary initiatives had taken hold
without driving the economy into a recession, rallied through the first six
months of the year. With slowing growth, interest rates declined and the value
of fixed-income investments rose. For example, the yield on 30-year Treasury
securities fell from 7.88 percent at the end of December to 6.62 percent at the
end of June, while prices on the "long bond" rose 18 percent. Likewise, the
yield on the Bond Buyer's Municipal Bond Index fell from 7.28 percent to 6.37
percent during the same period.
Corporate earnings remained quite strong during the first half of the year,
helping push stocks to new highs. The Dow Jones Industrial Average and the S&P
500 Index gained nearly 19 percent during the period. The strongest performance
has been in the science & technology sector of the market--and in big "capital-
ization" stocks. As the U.S. dollar plunged against several international cur-
rencies, companies--typically large ones--which had diversified overseas were
able to capture additional earnings, while technology stocks benefited from
booming growth in computers and telecommunications throughout the world.
(Continued on page two)
1
<PAGE>
ECONOMIC OUTLOOK
Comfortable with the economy's rate of growth and level of inflation, the Fed
reversed course and lowered short-term interest rates on July 6. We believe the
Fed will move cautiously before easing again, waiting for further signs that
the economy has settled into a slow growth pattern. We anticipate that the
economy will grow at an annual rate between 2 and 3 percent in the second half
of the year and that inflation will run at an annualized rate between 3.3 and
3.5 percent. Based upon a generally slow growth and low inflation outlook, we
believe fixed-income markets will continue to make positive gains as interest
rates fall. We look for stocks to perform well, but perhaps not as strongly as
in the first half of the year, as some companies may find it difficult to main-
tain their strong earnings momentum.
During recent months, debate over tax reform has dominated the agenda in
Washington. There has been varied speculation about the impact of reform, which
may have caused you to wonder how it might affect your investment goals. At
this point, no one knows for sure what will happen or when it might actually
take place. As various proposals come to the forefront, there may be short-term
market fluctuations, just as we saw during the debate over the U.S. health care
system. We will continue to keep a close watch over any new developments and
evaluate the potential impact that they may have on your investments.
Once again, it is important to remember that financial markets will inevita-
bly experience highs and lows, but by maintaining a long-term investment per-
spective, it may allow you to ride the ups and downs of the markets more easily
as you pursue your investment goals.
On the following pages, you can read about your Fund's performance for the
period, as well as portfolio management's outlook for the Fund in the coming
months. We hope that you will find the information contained in the question-
and-answer section helpful.
CORPORATE NEWS
Along with your Fund's shareholder report, we are pleased to introduce a new
shareholder publication called Your Portfolio. The purpose of this publication
is to provide you with additional information about your mutual fund invest-
ment, as well as offer helpful insights regarding long-term investment strate-
gies and trends in the marketplace. The publication will be mailed twice a year
with your June and December shareholder reports. This premier issue focuses on
our various shareholder services and privileges designed to make mutual fund
investing easier for you.
We appreciate your continued confidence in your investment with Van Kampen
American Capital, and we look forward to communicating with you again regarding
the performance of your Fund.
Sincerely,
/s/ Don G. Powell /s/ Dennis J. McDonnell
- --------------------------- ---------------------------
Dennis J. McDonnell
Don G. Powell President
Chairman Van Kampen American Capital
Van Kampen American Capital Asset Management Inc.
Asset Management Inc.
2
<PAGE>
PERFORMANCE RESULTS FOR THE PERIOD ENDED JUNE 30, 1995
AMERICAN CAPITAL FEDERAL MORTGAGE TRUST
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
TOTAL RETURNS
<S> <C> <C> <C>
Six-month total return based on NAV/1/............... 5.93% 5.59% 5.52%
Six-month total return/2/............................ 2.49% 2.59% 4.52%
One-year total return/2/............................. 3.32% 2.97% 4.98%
Five-year average annual total return/2/............. 5.12% N/A N/A
Life-of-Fund average annual total return/2/.......... 5.61% 2.73% 2.77%
Commencement Date.................................... 06/16/86 11/05/91 05/10/93
DISTRIBUTION RATE AND YIELD
Distribution Rate/3/................................. 5.20% 4.59% 4.59%
SEC Yield/4/......................................... 5.17% 4.56% 4.57%
</TABLE>
N/A = Not Applicable
/1/Assumes reinvestment of all distributions for the period and does not in-
clude payment of the maximum sales charge (3.25% for A shares) or contingent
deferred sales charge for early withdrawal (3% 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 (3.25% for A
shares) or contingent deferred sales charge for early withdrawal (3% for B
shares and 1% for C shares).
/3/Distribution Rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.
/4/SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio
should theoretically generate for the 30-day period ending as shown above.
See the Prior Performance section of the current prospectus. Past performance
does not guarantee future results. Investment return and net asset value will
fluctuate with market conditions. Fund shares, when redeemed, may be worth
more or less than their original cost.
3
<PAGE>
PORTFOLIO MANAGEMENT REVIEW
AMERICAN CAPITAL FEDERAL MORTGAGE TRUST
The following are excerpts from a recent interview with the management team of
American Capital Federal Mortgage Trust. The team is led by Ted V. Mundy,
portfolio manager, and Robert C. Peck, Jr., executive vice president for fixed-
income investments.
Q. WHAT WERE THE KEY EVENTS OR MARKET CONDITIONS WHICH SIGNIFICANTLY AFFECTED
THE FUND DURING THE SIX-MONTH PERIOD ENDED JUNE 30, 1995?
A. The psychology of the marketplace is always a driving force behind the
performance of the financial markets. During the first half of 1995, we
saw market sentiment shift a full 180 degrees, as expectations of continued
strong economic growth gave way to concerns that we were slipping into reces-
sion.
During the last quarter of 1994 and into early 1995, signs of strength in a
wide range of economic indicators suggested that the Federal Reserve Board
might have to provide further restraint--in the form of raising key short-term
interest rates--to prevent the economy from overheating and reviving inflation-
ary pressures. Over time, however, economic indicators began to show signs of a
marked weakening, leading many to believe that the Fed would have to lower
rates to head off a recession.
This psychological whipsaw had a dramatic impact on interest rates. The
yield on 5-year Treasuries, for example, dropped 179 basis points--from 7.83
percent at the end of 1994 to 6.04 percent by the end of the second quarter,
1995. As a result, valuations in the fixed- and adjustable-rate mortgage markets
shifted dramatically.
Q. WHAT WAS YOUR APPROACH TO MANAGING THE FUND UNDER THESE CONDITIONS?
A. We came into 1995 with an increased weighting in adjustable-rate mortgage
securities (ARMs) of approximately 33 percent of the Fund's net assets,
which turned out to be a favorable position. At the time, the spread between
the yields available on Treasuries and adjustable-rate mortgage securities was
historically very wide, and subsequently began to tighten as the market ral-
lied.
[PIE CHART OF PORTFOLIO ALLOCATION AS A PERCENTAGE OF NET ASSETS AS OF
JUNE 30, 1995]
Fixed-Rate Mortage-Backed Securities 17%
Treasury Notes 21%
Adjustable-Rate Mortgages/Floating Rate CMOs 17%
Collateralized Mortgage Obligations (CMOs) 38%
Asset-Backed Securities 6%
Other 1%
4
<PAGE>
We took the opportunity to gradually reduce our ARM holdings and shift as-
sets into Treasury securities, which ended the period at 21 percent of net as-
sets (up from 11 percent at the end of 1994). We see this emphasis on
Treasuries as a key factor in the Fund's performance as the rally progressed
and ARMs started to lag the market.
The Fund's duration (a measure of a bond's sensitivity to a change in inter-
est rates) was reduced to 1.9 years as of June 30, down from 2.1 years at the
start of the year. In general, the lower the duration, the less a bond's price
will change when interest rates change.
Q. HOW DID THE FUND PERFORM DURING THIS PERIOD?
A. The Fund's distribution rate (Class A shares) stood at 5.20 percent/3/
as of June 30, 1995, while the Class A shares of the Fund posted a total
return at net asset value of 5.93 percent/1/ for the six-month reporting pe-
riod ended June 30, 1995.
During the same period, the Lehman Brothers Mutual Fund U.S. Government In-
dex--1&2 Year, an unmanaged, broad-based index of U.S. Government agency and
Treasury securities, achieved a total return of 11.20 percent. The index does
not reflect any commissions or fees that would be incurred by an investor pur-
chasing the bonds it represents. (Please refer to the chart on page three for
additional Fund performance.)
Q. WHAT IS YOUR OUTLOOK FOR THE FUND?
A. We believe the market is at a turning point. Under present conditions,
it is likely that the market may have rallied as far as it can without
further impetus, such as additional easing by the Fed. The economy has slowed
significantly and--unless it shows indications of a strong rebound--will
likely lead the Fed to pursue an easier monetary policy down the road.
In this case, our increased holdings of Treasury securities should continue
to be beneficial. Nevertheless, we will watch for signs of renewed economic
activity, which would indicate that an increased emphasis on mortgage-backed
securities might be the more prudent course.
/s/ Robert C. Peck, Jr. /s/ Ted V. Mundy
Robert C. Peck, Jr. Ted V. Mundy
Executive Vice President Portfolio Manager
Fixed Income Investments
Please see footnotes on page three.
5
<PAGE>
See Notes to Financial Statements
PORTFOLIO OF INVESTMENTS
June 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
UNITED STATES AGENCY AND GOVERNMENT
OBLIGATIONS 92.8%
ADJUSTABLE RATE MORTGAGE-BACKED SECURITIES 16.5%
$ 308 Federal Home Loan
Mortgage Corp., Pool.... 7.500% 09/01/18 $ 315,379
3,680 Federal Home Loan
Mortgage Corp., Pool.... 7.570 06/01/24 3,736,273
193 Federal Home Loan
Mortgage Corp., Pool.... 9.093 02/01/18 197,607
919 Federal National
Mortgage Association,
Pool.................... 7.282 02/01/15 938,189
897 Federal National
Mortgage Association,
Pool.................... 7.394 08/01/19 916,888
3,593 Federal National
Mortgage Association,
Pool.................... 7.404 09/01/19 3,682,981
446 Federal National
Mortgage Association,
Pool.................... 7.837 10/01/19 454,126
--------------
TOTAL ADJUSTABLE RATE
MORTGAGE-BACKED
SECURITIES
(Cost $10,304,110)...... 10,241,443
--------------
COLLATERALIZED MORTGAGE OBLIGATIONS 38.2%
*5,000 Federal Home Loan
Mortgage Corp. (PAC).... 6.500 06/15/97 4,999,200
3,661 Federal Home Loan
Mortgage Corp........... 6.625 04/15/20 3,660,508
2,242 Federal Home Loan
Mortgage Corp........... 6.925 02/15/16 2,250,416
3,136 Federal National
Mortgage Association
(PAC)................... 5.500 03/25/03 3,065,440
852 Federal National
Mortgage Association.... 6.514 02/25/16 851,034
783 Federal National
Mortgage Association.... 6.544 03/25/22 783,224
607 Federal National
Mortgage Association.... 6.750 08/25/20 598,120
5,000 Federal National
Mortgage Association.... 6.794 06/25/18 5,003,150
2,461 Federal National
Mortgage Association.... 6.794 02/25/21 2,468,889
--------------
TOTAL COLLATERALIZED
MORTGAGE OBLIGATIONS
(Cost $23,687,601)...... 23,679,981
--------------
FIXED-RATE MORTGAGE-BACKED SECURITIES 16.9%
6,020 Federal Home Loan
Mortgage Corp., Pools... 8.000 10/01/24 to 02/01/25 6,133,366
848 Federal National
Mortgage Association,
Pools................... 9.500 07/01/11 to 08/01/21 890,533
*734 Federal National
Mortgage Association,
Pool.................... 10.000 05/01/21 797,113
188 Government National
Mortgage Association,
Pools................... 8.500 06/15/16 to 01/15/17 195,493
*502 Government National
Mortgage Association,
Pools................... 9.500 03/15/16 to 01/15/19 531,855
*896 Government National
Mortgage Association,
Pools................... 10.000 03/15/16 to 04/15/19 975,284
*465 Government National
Mortgage Association,
Pools................... 10.500 05/15/13 to 02/15/18 511,207
*379 Government National
Mortgage Association,
Pool.................... 11.000 11/15/18 416,629
--------------
TOTAL FIXED-RATE
MORTGAGE-BACKED
SECURITIES
(Cost $10,132,285)...... 10,451,480
--------------
</TABLE>
6
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
UNITED STATES TREASURY OBLIGATIONS 21.2%
$ 2,000 Treasury Notes.................... 6.250% 05/31/00 $ 2,020,940
*1,500 Treasury Notes.................... 7.250 02/15/98 1,548,990
*2,000 Treasury Notes.................... 7.250 05/15/04 2,135,620
*1,500 Treasury Notes.................... 7.375 05/15/96 1,519,455
*2,000 Treasury Notes.................... 7.500 01/31/97 2,049,380
*3,500 Treasury Notes.................... 8.875 02/15/99 3,827,040
-----------
TOTAL UNITED STATES TREASURY
OBLIGATIONS (Cost $12,740,421).. 13,101,425
-----------
TOTAL UNITED STATES AGENCY AND
GOVERNMENT OBLIGATIONS
(Cost $56,864,417).............. 57,474,329
-----------
ASSET BACKED SECURITIES 6.5%
4,000 ITT (Cost $4,003,125)............. 6.263 02/15/01 4,000,000
-----------
REPURCHASE AGREEMENT 0.8%
500 Lehman Government Securities,
Inc., dated 6/30/95
(Collateralized by U.S.
Government obligations in a
pooled cash account) repurchase
proceeds $500,258 (Cost
$500,000)........................ 6.180 07/03/95 500,000
-----------
TOTAL INVESTMENTS (Cost $61,367,542) 100.1%.................... 61,974,329
OTHER ASSETS AND LIABILITIES, NET (0.1%)....................... (50,931)
-----------
NET ASSETS 100%................................................ $61,923,398
-----------
</TABLE>
*Securities with a market value of approximately $16.0 million were placed as
collateral for forward commitments and futures contracts (see Note 1B).
PAC-Planned Amortization Class
See Notes to Financial Statements
7
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
ASSETS
<TABLE>
<S> <C>
Investments at market value (Cost $61,367,542)............... $ 61,974,329
Receivable for investments sold.............................. 1,732,720
Interest receivable.......................................... 790,466
Receivable for Fund shares sold.............................. 62,685
Unrealized appreciation on forward commitments............... 1,091
Other assets................................................. 1,139
----------------
TOTAL ASSETS................................................ 64,562,430
----------------
LIABILITIES
Payable for investments purchased............................ 1,924,237
Payable for Fund shares purchased............................ 377,832
Dividends payable............................................ 90,241
Due to Distributor........................................... 50,863
Due to Adviser............................................... 26,321
Due to shareholder service agent............................. 18,635
Deferred Trustees' compensation.............................. 17,102
Unrealized depreciation on forward commitments............... 7,487
Accrued expenses and other liabilities....................... 126,314
----------------
TOTAL LIABILITIES........................................... 2,639,032
----------------
NET ASSETS, equivalent to $12.28 per share for Class A
shares, $12.29 per share
for Class B shares, and $12.28 per share for Class C shares. $ 61,923,398
----------------
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, at par; 3,429,522 Class A,
1,199,762 Class B, and
413,059 Class C shares outstanding.......................... $ 50,423
Capital surplus.............................................. 77,070,618
Accumulated net realized loss on securities.................. (15,928,071)
Net unrealized appreciation (depreciation) of securities
Investments................................................. 606,787
Forward purchase commitments................................ (6,396)
Futures contracts........................................... (16,595)
Undistributed net investment income.......................... 146,632
----------------
NET ASSETS................................................... $ 61,923,398
----------------
</TABLE>
See Notes to Financial Statements
8
<PAGE>
STATEMENT OF OPERATIONS
Six Months Ended June 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest..................................................... $ 2,272,288
----------------
EXPENSES
Management fees.............................................. 161,952
Shareholder service agent's fees and expenses................ 88,917
Accounting services.......................................... 36,689
Service fees--Class A........................................ 50,979
Distribution and service fees--Class B....................... 82,833
Distribution and service fees--Class C....................... 29,540
Trustees' fees and expenses.................................. 5,296
Audit fees................................................... 17,100
Custodian fees............................................... 1,873
Legal fees................................................... 6,363
Reports to shareholders...................................... 17,827
Registration and filing fees................................. 55,585
Miscellaneous................................................ 1,208
----------------
Total expenses.............................................. 556,162
----------------
NET INVESTMENT INCOME...................................... 1,716,126
----------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITIES
Net realized gain (loss) on securities
Investments................................................. 306,076
Forward commitments......................................... 156,250
Futures contracts........................................... (17,479)
Net unrealized appreciation (depreciation) of securities
during the period
Investments................................................. 1,513,017
Forward commitments......................................... 6,114
Futures contracts........................................... (16,595)
----------------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES............. 1,947,383
----------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........... $ 3,663,509
----------------
</TABLE>
See Notes to Financial Statements
9
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Six Months Ended December 31,
June 30, 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
NET ASSETS, beginning of period................ $ 65,433,019 $ 98,293,251
------------ ------------
Operations
Net investment income......................... 1,716,126 3,768,774
Net realized gain (loss) on securities........ 444,847 (2,511,545)
Net unrealized appreciation (depreciation) of
securities during the period................. 1,502,536 (1,405,244)
------------ ------------
Increase (decrease) in net assets resulting
from operations.............................. 3,663,509 (148,015)
------------ ------------
Distributions to shareholders from net
investment income
Class A....................................... (1,116,987) (2,394,001)
Class B....................................... (369,313) (806,734)
Class C....................................... (132,700) (276,067)
------------ ------------
(1,619,000) (3,476,802)
------------ ------------
Net equalization debits........................ -- (169,962)
------------ ------------
Capital transactions
Proceeds from shares sold
Class A....................................... 8,046,981 19,201,023
Class B....................................... 1,023,442 4,104,254
Class C....................................... 875,099 5,694,179
------------ ------------
9,945,522 28,999,456
------------ ------------
Proceeds from shares issued for distributions
reinvested
Class A....................................... 796,111 1,576,391
Class B....................................... 251,108 547,208
Class C....................................... 57,406 122,460
------------ ------------
1,104,625 2,246,059
------------ ------------
Cost of shares redeemed
Class A....................................... (9,283,312) (41,385,868)
Class B....................................... (5,424,121) (12,217,467)
Class C....................................... (1,896,844) (6,707,633)
------------ ------------
(16,604,277) (60,310,968)
------------ ------------
Decrease in net assets resulting from capital
transactions................................... (5,554,130) (29,065,453)
------------ ------------
DECREASE IN NET ASSETS......................... (3,509,621) (32,860,232)
------------ ------------
NET ASSETS, end of period...................... $ 61,923,398 $ 65,433,019
------------ ------------
</TABLE>
See Notes to Financial Statements
10
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated (Unaudited).
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
------------------------------------------------------
Six Months
Ended Year Ended December 31
June 30, -------------------------------------------
1995(/4/) 1994 1993 1992 1991 1990
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net asset value,
beginning of period..... $11.90 $12.42 $12.63 $12.99 $12.85 $12.88
------ ------ ------ ------ ------ ------
Income from operations
Investment income...... .43 .62 .64 .93 1.15 1.32
Expenses............... (.09) (.14) (.11) (.14) (.17) (.173)
Expense waiver(/2/).... -- .02 .01 .025 .025 --
------ ------ ------ ------ ------ ------
Net investment income... .34 .50 .54 .815 1.005 1.147
Net realized and
unrealized gains or
losses on securities... .3588 (.4817) (.1485)(/1/) (.417) .206 (.004)
------ ------ ------ ------ ------ ------
Total from investment
operations.............. .6988 .0183 .3915 .398 1.211 1.143
------ ------ ------ ------ ------ ------
Distributions from net
investment income....... (.3188) (.5383) (.6015) (.758) (1.071) (1.173)
------ ------ ------ ------ ------ ------
Net asset value, end of
period.................. $12.28 $11.90 $12.42 $12.63 $12.99 $12.85
------ ------ ------ ------ ------ ------
TOTAL RETURN (/3/)...... 5.93% .16% 3.15%(/1/) 3.15% 9.78% 9.50%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (millions)....... $ 42.1 $ 41.2 $ 64.3 $103.7 $ 95.8 $ 32.3
Average net assets
(millions).............. $ 42.3 $ 54.3 $ 85.7 $112.7 $ 47.5 $ 33.4
Ratios to average net
assets (annualized)(/2/)
Expenses............... 1.45% 1.15% 1.03% .91% 1.16% 1.38%
Expenses, without
waiver................. -- 1.31% 1.15% 1.12% 1.36% --
Net investment income.. 5.57% 4.75% 5.49% 6.36% 7.96% 9.11%
Net investment income,
without waiver......... -- 4.58% 5.37% 6.15% 7.66% --
Portfolio turnover rate. 94% 161% 102% 254% 293% 341%
</TABLE>
(1) Net of reimbursement--see Note 2.
(2) See Note 2.
(3) Total return for periods of less than one full year are not annualized.
Total return does not consider the effect of sales charges.
(4) Based on average month-end shares outstanding.
See Notes to Financial Statements
11
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated (Unaudited).
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
-------------------------------------------------------
November 5,
Six Months 1991(/2/)
Ended June Year Ended December 31 through
30, ----------------------------- December 31,
1995(/3/) 1994 1993 1992 1991(/3/)
- ----------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $11.91 $ 12.43 $ 12.64 $12.99 $12.99
------ ------- ------- ------ ------
Income from operations
Investment income...... .43 .62 .67 .935 .12
Expenses............... (.14) (.22) (.20) (.24) (.03)
Expense waiver(/5/).... -- .02 .01 .03 .02
------ ------- ------- ------ ------
Net investment income... .29 .42 .48 .725 .11
Net realized and
unrealized gains or
losses on securities... .3608 (.4977) (.1845)(/1/) (.413) .036
------ ------- ------- ------ ------
Total from investment
operations............. .6508 (.0777) .2955 .312 .146
------ ------- ------- ------ ------
Distributions from net
investment income...... (.2708) (.4423) (.5055) (.662) (.146)
------ ------- ------- ------ ------
Net asset value, end of
period................. $12.29 $ 11.91 $ 12.43 $12.64 $12.99
------ ------- ------- ------ ------
TOTAL RETURN(/4/)....... 5.59% (.62%) 2.37%(/1/) 2.46% 1.13%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (millions)...... $ 14.8 $18.4 $26.9 $38.4 $9.4
Average net assets
(millions)............. $ 16.6 $22.2 $33.3 $32.3 $4.1
Ratios to average net
assets
(annualized)(/5/)
Expenses............... 2.22% 1.91% 1.79% 1.60% .59%
Expenses, without
waiver................ -- 2.08% 1.91% 1.81% 1.84%
Net investment income.. 4.78% 3.99% 4.70% 5.44% 5.73%
Net investment income,
without waiver........ -- 3.82% 4.58% 5.23% 4.48%
Portfolio turnover rate. 94% 161% 102% 254% 293%
</TABLE>
(1) Net of reimbursement--see Note 2.
(2) Commencement of offering of sales.
(3) Based on average month-end shares outstanding.
(4) Total return for periods of less than one full year are not annualized.
Total return does not consider the effect of sales charges.
(5) See Note 2.
See Notes to Financial Statements
12
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated (Unaudited).
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
---------------------------------------
May 10,
Six Months 1993(/2/)
Ended Year Ended through
June 30, December 31, December 31,
1995(/3/) 1994 1993(/3/)
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
<S> <C> <C> <C>
Net asset value, beginning of
period.......................... $ 11.90 $ 12.41 $ 12.60
------- ------- -------
Income from operations
Investment income............... .43 .67 .44
Expenses........................ (.14) (.24) (.14)
Expense waiver(/5/)............. -- .02 .02
------- ------- -------
Net investment income............ .29 .45 .32
Net realized and unrealized gains
or losses on securities......... .3608 (.5177) (.1914)(/1/)
------- ------- -------
Total from investment operations. .6508 (.0677) .1286
------- ------- -------
Distributions from net investment
income.......................... (.2708) (.4423) (.3186)
------- ------- -------
Net asset value, end of period... $ 12.28 $ 11.90 $ 12.41
------- ------- -------
TOTAL RETURN(/4/)................ 5.52% (.55%) 1.03%(/1/)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(millions)...................... $ 5.1 $ 5.8 $ 7.1
Average net assets (millions).... $ 5.9 $ 7.6 $ 4.0
Ratios to average net assets
(annualized)(/5/)
Expenses........................ 2.22% 1.90% 1.47%
Expenses, without waiver........ -- 2.07% 1.64%
Net investment income........... 4.81% 3.98% 3.79%
Net investment income, without
waiver......................... -- 3.81% 3.62%
Portfolio turnover rate.......... 94% 161% 102%
</TABLE>
(1) Net of reimbursement--see Note 2.
(2) Commencement of offering of sales.
(3) Based on average month-end shares outstanding.
(4) Total return for periods of less than one full year are not annualized.
Total return does not consider the effect of sales charges.
(5) See Note 2.
See Notes to Financial Statements
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS
June 30, 1995 (Unaudited)
- -------------------------------------------------------------------------------
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
American Capital Federal Mortgage Trust (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end manage-
ment investment company. The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of its financial
statements.
A. INVESTMENT VALUATIONS-U.S. Agency and Government obligations and related
forward commitments are valued at the last reported bid price. Listed options
are valued at the last reported sale price on the exchange on which such op-
tion is traded, or, if no sales are reported, at the mean between the last re-
ported bid and asked prices. Securities for which market quotations are not
readily available are valued at a fair value under a method approved by the
Board of Trustees.
Short-term investments with a maturity of 60 days or less when purchased are
valued at amortized cost, which approximates market value. Short-term invest-
ments with a maturity of more than 60 days when purchased are valued based on
market quotations, until the remaining days to maturity becomes less than 61
days. From such time, until maturity, such investments are valued at amortized
cost.
B. FUTURES CONTRACTS AND FORWARD COMMITMENTS-General--Transactions in futures
contracts and forward commitments are utilized in strategies to manage the
market risk of the Fund's investments. The purchase of a futures contract or
forward commitment increases the impact on net asset value of changes in the
market price of investments. Forward commitments have a risk of loss due to
nonperformance of counter-parties. There is also a risk that the market move-
ment of such instruments may not be in the direction forecasted. Note 3-- In-
vestment Activity contains additional information.
Futures Contracts--Upon entering into futures contracts, the Fund maintains,
in a segregated account with its custodian, securities with a value equal to
its obligation under the futures contracts. A portion of these funds is held
as collateral in an account in the name of the broker, the Fund's agent in ac-
quiring the futures position. During the period the futures contract is open,
changes in the value of the contract ("variation margin") are recognized by
marking the contract to market on a daily basis. As unrealized gains or losses
are incurred, variation margin payments are received from or made to the bro-
ker. Upon the closing or cash settlement of a contract, gains or losses are
realized. The cost of securities acquired through delivery under a contract is
adjusted by the unrealized gain or loss on the contract.
Forward Commitments--The Fund trades certain securities under the terms of
forward commitments, whereby the settlement for payment and delivery occurs at
a specified future date. Forward commitments are privately negotiated transac-
tions between the Fund and dealers. Upon executing a forward commitment and
during the period of obligation, the Fund
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1995 (Unaudited)
- -------------------------------------------------------------------------------
maintains collateral of cash or securities in a segregated account with its
custodian in an amount sufficient to relieve the obligation. If the intent of
the Fund is to accept delivery of a security traded under a forward purchase
commitment, the commitment is recorded as a long-term purchase. For forward
purchase and sale commitments which security settlement is not intended by the
Fund, changes in the value of the commitment are recognized by marking the
commitment to market on a daily basis. During the commitment, the Fund may ei-
ther resell or repurchase the forward commitment and enter into a new forward
commitment, the effect of which is to extend the settlement date. In addition,
the Fund may occasionally close such forward commitments prior to delivery.
Gains and losses are realized upon the ultimate closing or cash settlement of
forward commitments.
C. REPURCHASE AGREEMENTS-A repurchase agreement is a short-term investment in
which the Fund acquires ownership of a debt security and the seller agrees to
repurchase the security at a future time and specified price. The Fund may in-
vest independently in repurchase agreements, or transfer uninvested cash bal-
ances into a pooled cash account along with other investment companies advised
by the Van Kampen American Capital Asset Management, Inc. (the "Adviser"), the
daily aggregate of which is invested in repurchase agreements. Repurchase
agreements are collateralized by the underlying debt security. The Fund will
make payment for such securities only upon physical delivery or evidence of
book entry transfer to the account of the custodian bank. The seller is re-
quired to maintain the value of the underlying security at not less than the
repurchase proceeds due the Fund.
D. FEDERAL INCOME TAXES-No provision for federal income taxes is required be-
cause the Fund has elected to be taxed as a "regulated investment company" un-
der the Internal Revenue Code and intends to maintain this qualification by
annually distributing all of its taxable net investment income and taxable net
realized capital gains to its shareholders. It is anticipated that no distri-
butions of capital gains will be made until tax-basis capital loss
carryforwards expire or are offset by net realized capital gains.
The net realized capital loss carryforward of approximately $15.4 million
for federal income tax purposes at December 31, 1994 may be utilized to offset
current or future capital gains until expiration in 1995 through 2002, of
which approximately 21% will expire in 1995. Additionally, approximately
$900,000 of post October losses are being deferred for tax purposes to the
1995 fiscal year.
E. INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME-Investment transac-
tions are accounted for on the trade date. Realized gains and losses on in-
vestments are determined on the basis of identified cost. Interest income is
accrued daily.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1995 (Unaudited)
- -------------------------------------------------------------------------------
F. DIVIDENDS AND DISTRIBUTIONS-The Fund declares dividends on each business
day. Dividends and distributions are recorded on the record dates. The Fund
distributes tax basis earnings in accordance with the minimum distribution re-
quirements of the Internal Revenue Code, which may differ from generally ac-
cepted accounting principles. Such dividends or distributions may exceed
financial statement earnings.
G. EQUALIZATION-At December 31, 1994, the Fund discontinued the accounting
practice of equalization, which it had used since its inception. Equalization
is a practice whereby a portion of the proceeds from sales and costs of re-
demptions of Fund shares, equivalent on a per-share basis to the amount of the
undistributed net investment income, is charged or credited to undistributed
net investment income.
H. DEBT DISCOUNT AND PREMIUM-The Fund accounts for discounts and premiums on
the same basis as is used for federal income tax reporting. Accordingly, orig-
inal issue discounts on debt securities purchased are amortized over the life
of the security. Premiums on debt securities are not amortized. Market dis-
counts are recognized at the time of sale as realized gains for book purposes
and ordinary income for tax purposes.
NOTE 2--MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Adviser serves as investment manager of the Fund. Management fees are paid
monthly, based on the average daily net assets of the Fund at an annual rate
of .50% of the first $1 billion, .475% of the next $1 billion, .45% of the
next $1 billion, .40% of the next $1 billion and .35% of the amount in excess
of $4 billion. From time to time, the Adviser may elect to waive a portion of
its management fee. The waiver is voluntary and may be discontinued at any
time without prior notice.
Accounting services include the salaries and overhead expenses of the Fund's
Treasurer and the personnel operating under his direction. Charges are allo-
cated among investment companies advised by the Adviser. For the period, these
charges included $4,587 as the Fund's share of the employee costs attributable
to the Fund's accounting officers. A portion of the accounting services ex-
pense was paid to the Adviser in reimbursement of personnel, facilities and
equipment costs attributable to the provision of accounting services to the
Fund. The services provided by the Adviser are at cost.
ACCESS Investor Services, Inc., an affiliate of the Adviser, serves as the
Fund's shareholder service agent. These services are provided at cost plus a
profit. For the period, the fees for such services aggregated $69,706.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1995 (Unaudited)
- -------------------------------------------------------------------------------
The Fund was advised that Van Kampen American Capital Distributors, Inc.
(the "Distributor") and Advantage Capital Corp. (the "Retail Dealer"), both
affiliates of the Adviser, received $200 and $735, respectively, as their por-
tion of the commission charged on sales of Fund shares during the period.
Under the Distribution Plans, each class of shares pays up to .25% per annum
of its average net assets to reimburse the Distributor for expenses and serv-
ice fees incurred. Class B and Class C shares pay an additional fee of up to
.75% per annum of their average net assets to reimburse the Distributor for
its distribution expenses. Actual distribution expenses incurred by the Dis-
tributor for Class B and Class C shares may exceed the amounts reimbursed to
the Distributor by the Fund. At the end of the period, the unreimbursed ex-
penses incurred by the Distributor under the Class B and Class C plans aggre-
gated approximately $1.1 million and $112,000, respectively, and may be
carried forward and reimbursed through either the collection of the contingent
deferred sales charges from share redemptions or, subject to the annual re-
newal of the plans, further Fund reimbursements of distribution fees.
Legal fees were for services rendered by O'Melveny & Myers, counsel for the
Fund. Lawrence J. Sheehan, of counsel to that firm, is a director of the Fund.
Certain officers and trustees of the Fund are officers and trustees or di-
rectors of the Adviser, the Distributor, the Retail Dealer, and the share-
holder service agent.
During 1993, certain securities held by the Fund were mispriced. The Adviser
reimbursed the Fund approximately $6.9 million to eliminate any loss to share-
holders incurred during the year of mispricing of such securities. The reim-
bursement was recorded as a reduction of the realized loss recognized on the
sale of the related securities. Without the reimbursement, the Adviser esti-
mates that the total return for the year ended December 31, 1993 would have
been lower by approximately 6.25 percentage points.
NOTE 3--INVESTMENT ACTIVITY
During the period, the cost of purchases and proceeds from sales of invest-
ments, excluding short-term investments and forward commitments, were
$63,579,742 and $75,067,026, respectively.
The identified cost of investments owned at the end of the period was the
same for federal income tax and financial reporting purposes. Net unrealized
depreciation of investments aggregated $606,787, gross unrealized appreciation
of investments aggregated $756,276 and gross unrealized depreciation of in-
vestments aggregated $149,489.
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1995 (Unaudited)
- -------------------------------------------------------------------------------
At the end of the period, the Fund held the following forward purchase com-
mitments settling July 1995.
<TABLE>
<CAPTION>
Principal Unrealized
Amount Market appreciation
(000) Security Value (depreciation)
- ----------------------------------------------------------------------------
<C> <S> <C> <C>
$2,000 United States Treasury Notes, 4.375% $ 1,967,820 $(1,711)
4,000 United States Treasury Notes, 6.500 4,045,600 (1,431)
2,000 United States Treasury Notes, 7.250 2,064,680 1,091
4,000 United States Treasury Notes, 7.750 4,271,280 (4,345)
----------- -------
$12,349,380 $(6,396)
----------- -------
</TABLE>
At the end of the period, the Fund held 3,000 U.S. Treasury Notes Future con-
tracts expiring in September 1995 with a market value of $1,610,156 and
unrealized depreciation of $16,595.
NOTE 4--TRUSTEE COMPENSATION
Trustees who are not affiliated with the Adviser are compensated by the Fund
at the annual rate of $800 plus a fee of $20 per day for Board and Committee
meetings attended. The Chairman receives additional fees from the Fund at an
annual rate of $300. During the period, such fees aggregated $3,137.
The Trustees may participate in a voluntary Deferred Compensation Plan (the
"Plan"). The Plan is not funded, and obligations under the Plan will be paid
solely out of the Fund's general accounts. The Fund will not reserve or set
aside funds for the payment of its obligations under the Plan by any form of
trust or escrow. Each trustee covered under the Plan elects to be credited
with an earning component on amounts deferred equal to the income earned by
the Fund on its short-term investments or equal to the total return of the
Fund.
NOTE 5--CAPITAL
The Fund offers three classes of shares at their respective net asset values
per share, plus a sales charge which is imposed either at the time of purchase
(the Class A shares) or at the time of redemption on a contingent deferred ba-
sis (the Class B and Class C shares). All classes of shares have the same
rights, except that Class B and Class C shares bear the cost of distribution
fees and certain other class specific expenses. Realized and unrealized gains
or losses, investment income and expenses (other than class specific expenses)
are allocated daily to each class of shares based upon the relative proportion
of net assets or paid shares of each class. Class B and Class C shares auto-
matically convert to Class A shares six years and ten years after purchase,
respectively, subject to certain conditions. The Fund has suspended sales of
Class B shares to the public, and these shares are now available only to a
limited group of investors.
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1995 (Unaudited)
- -------------------------------------------------------------------------------
The Fund has an unlimited number of shares of $.01 par value beneficial in-
terest authorized. Transactions in shares of beneficial interest were as fol-
lows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1995 December 31, 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Shares sold
Class A.................................... 665,698 1,589,204
Class B.................................... 85,169 340,243
Class C.................................... 72,674 469,667
---------- ----------
823,541 2,399,114
---------- ----------
Shares issued for distributions reinvested
Class A.................................... 65,529 130,048
Class B.................................... 20,650 45,121
Class C.................................... 4,727 10,116
---------- ----------
90,906 185,285
---------- ----------
Shares redeemed
Class A.................................... (767,325) (3,431,958)
Class B.................................... (447,585) (1,010,900)
Class C.................................... (155,750) (556,549)
---------- ----------
(1,370,660) (4,999,407)
---------- ----------
Decrease in shares outstanding.............. (456,213) (2,415,008)
---------- ----------
</TABLE>
NOTE 6--FUND REORGANIZATION
On July 21, 1995, the shareholders approved the reorganization of the Fund to
a Delaware Business Trust and the election of fourteen trustees.
19
<PAGE>
FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL
GLOBAL AND INTERNATIONAL
Global Equity Fund
Global Government Securities Fund
Global Managed Assets Fund
Short-Term Global Income Fund
Strategic Income Fund
EQUITY
Growth
Emerging Growth Fund
Enterprise Fund
Pace Fund
Growth & Income
Balanced Fund
Comstock Fund
Equity Income Fund
Growth and Income Fund
Harbor Fund
Real Estate Securities Fund
Utility Fund
FIXED INCOME
Corporate Bond Fund
Government Securities Fund
High Income Corporate Bond Fund
High Yield Fund
Limited Maturity Government Fund
Prime Rate Income Trust
Reserve Fund
U.S. Government Fund
U.S. Government Trust for Income
TAX-FREE
California Insured Tax Free Fund
Florida Insured Tax Free Income Fund
High Yield Municipal Fund
Insured Tax Free Income Fund
Limited Term Municipal Income Fund
Municipal Income Fund
New Jersey Tax Free Income Fund
New York Tax Free Income Fund
Pennsylvania Tax Free Income Fund
Tax Free High Income Fund
Tax Free Money Fund
Texas Tax Free Income Fund
THE GOVETT FUNDS
Emerging Markets Fund
Global Income Fund
International Equity Fund
Latin America Fund
Pacific Strategy Fund
Smaller Companies Fund
Ask your investment representative for a prospectus containing more complete
information, including sales charges and expenses. Please read it carefully
before you invest or send money. Or call us direct at 1-800-421-5666 weekdays
from 7:00 a.m. to 7:00 p.m. Central time.
20
<PAGE>
AMERICAN CAPITAL FEDERAL MORTGAGE TRUST
BOARD OF DIRECTORS
J. MILES BRANAGAN
RICHARD E. CARUSO
ROGER HILSMAN
DON G. POWELL
DAVID REES
LAWRENCE J. SHEEHAN
FERNANDO SISTO*
WILLIAM S. WOODSIDE
*Chairman of the Board
OFFICERS
DON G. POWELL
President
CURTIS W. MORELL
Vice President and Treasurer
DENNIS J. MCDONNELL
TED MUNDY
RONALD A. NYBERG
ROBERT C. PECK, JR.
JOHN R. REYNOLDSON
PAUL R. WOLKENBERG
Vice Presidents
TANYA M. LODEN
Vice President and Controller
NORI L. GABERT
Vice President and Secretary
J. DAVID WISE
Vice President and Assistant Secretary
PERRY F. FARRELL
M. ROBERT SULLIVAN
Assistant Treasurers
HUEY P. FALGOUT, JR.
Assistant Secretary
INVESTMENT ADVISER
VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC.
2800 Post Oak Blvd. Houston, Texas 77056
DISTRIBUTOR
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
SHAREHOLDER SERVICE AGENT
ACCESS INVESTOR SERVICES, INC.
P.O. Box 418256 Kansas City, Missouri 64141-9256
CUSTODIAN
STATE STREET BANK AND TRUST CO.
225 Franklin Street Boston, Massachusetts 02110
COUNSEL
O'MELVENY & MYERS
400 South Hope Street Los Angeles, California 90071
This report is submitted for the general information of the shareholders of
the Fund. It is not authorized for distribution to prospective investors un-
less 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.
(C) Van Kampen American Capital Distributors, Inc., 1995 All rights reserved.
/SM/ denotes a service mark of Van Kampen American Capital Distributors, Inc.
21
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22
<PAGE>
AMERICAN CAPITAL FEDERAL MORTGAGE TRUST
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23
<PAGE>
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24
