<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders...................... 1
Performance Results......................... 3
Portfolio Manager Comments.................. 4
Portfolio of Investments.................... 6
Statement of Assets and Liabilities......... 7
Statement of Operations..................... 8
Statement of Changes in Net Assets.......... 9
Financial Highlights........................ 10
Notes to Financial Statements............... 11
</TABLE>
11-GTS-SAR-4/95
<PAGE>
LETTER TO SHAREHOLDERS
[PHOTO OF DON G. POWELL]
DON G. POWELL
March 27, 1995
Dear Shareholder:
During the six-month period covered by this report, September 1, 1994 through
February 28, 1995, we saw the close of a challenging and difficult year in the
financial markets--and the beginning of a new year, with renewed optimism and
strength on many fronts.
MARKET OVERVIEW
In an effort to moderate economic growth and keep inflation under control,
the Federal
Reserve Board (the "Fed") raised the federal funds rate (the rate banks charge
each other for overnight loans) seven times over a 12-month period. As a re-
sult, the fed funds rate doubled from 3 percent to 6 percent, its highest level
in three years. Intermediate and long-term interest rates quickly followed the
Fed's lead and moved significantly higher as well. The yield on 30-year Trea-
sury securities, for example, began 1994 at 6.35 percent and increased to a
high of 8.16 percent, before retreating to 7.89 percent at the end of the year.
However, since yields and prices move in opposite directions, this had a nega-
tive impact on prices of fixed-income securities.
Stock market investors did not fare much better during this rising interest
rate environment, despite the robust economy and stronger corporate earnings.
Concerned that higher interest rates and the prospect for continued rate hikes
might altogether extinguish the
economic expansion, the equity market sputtered for most of 1994. The S&P 500
Index, for example, produced a 1.36 percent total return for 1994, while the
average price change for the year for all stocks listed on the New York Stock
Exchange was down 20 percent.
In contrast, 1995 began more positively, as the bond market got a boost from
growing sentiment that the Fed appeared to have stabilized economic growth
while keeping inflation under control, and that it may be near the end of its
tightening cycle. Subsequently, the yield on 30-year Treasury securities fell
to 7.44 percent by the end of February--down nearly three quarters of a per-
centage point--from its high of 8.16 percent in November.
The stock market responded in late February with the Dow Jones Industrial Av-
erage breaking through the 4000 mark, setting a new record high and raising ex-
pectations for a stronger market in 1995. At the same time, almost all other
major stock indexes rose, including the S&P 500 Index, the New York Stock Ex-
change Composite Index, and the Nasdaq Composite Index.
Additionally, the Van Kampen American Capital Index of Investor Intentions
for February reached 233--an increase of 17 percent over January's level of
200--its largest monthly increase since February 1994. The index, computed from
an independently conducted survey and published by Van Kampen American Capital,
measures the investment climate (investors' confidence) by asking 1,000 invest-
ors about what they intend to do with their money over the next 60-90 days. A
total of 45.6 percent of investors said the next 60-90 days would be a "good"
time to invest.
(Continued on page two)
1
<PAGE>
On the following pages, you can read about your Fund's performance during
the past six months, as well as portfolio management's outlook for 1995. We
hope that you will find the information contained in the question-and-answer
section helpful.
CORPORATE NEWS
As you may have already noticed, we have adopted a new design for our share-
holder reports that begins to reflect our new identity as Van Kampen American
Capital. Going forward, we will continue to look for new ways to improve upon
the presentation of information in your Fund's report.
In addition, we have developed a new corporate ad campaign introducing Van
Kampen American Capital to investors and the investment community. Full page
ads appeared in The Wall Street Journal in February--watch for more advertis-
ing throughout the year.
We look forward to communicating with you on a regular basis, providing in-
formation about your Fund's performance, new investment opportunities, and our
newly created company. We appreciate your continued confidence in your Fund
and Van Kampen American Capital.
Sincerely,
LOGO
Don G. Powell
President
Van Kampen American Capital
Asset Management, Inc.
2
<PAGE>
PERFORMANCE RESULTS FOR THE PERIOD ENDED FEBRUARY 28, 1995
AMERICAN CAPITAL GOVERNMENT TARGET SERIES
TOTAL RETURNS
<TABLE>
<S> <C>
Six-month total return based on NAV/1/............................... 1.49%
Six-month total return/2/............................................ (1.54%)
One-year total return/2/............................................. (3.37%)
Three-year average annual total return/2/............................ 4.23%
Life of Fund average annual total return/2/.......................... 6.79%
Commencement Date.................................................... 09/11/90
</TABLE>
/1/Assumes reinvestment of all distributions for the period ended February 28,
1995, and does not include payment of the maximum sales charge of 4.75%.
/2/Standardized total return for the period ended February 28, 1995.
See the Fund Performance section of the current prospectus. Past performance
does not guarantee future results. Investment return and net asset value will
fluctuate with market conditions. Investor's shares, when redeemed, may be
worth more or less than their original cost.
3
<PAGE>
PORTFOLIO MANAGER COMMENTS
AMERICAN CAPITAL GOVERNMENT TARGET SERIES
The following is an interview with the management team of American Capital Gov-
ernment Target Series. The team is lead by John R. Reynoldson, portfolio manag-
er, and Robert C. Peck, Jr., executive vice president for fixed-income
investments.
Q WHAT MARKET EVENTS INFLUENCED THE FUND OVER THE SIX-MONTH PERIOD ENDED
FEBRUARY 28, 1995?
A As interest rates increased throughout 1994, the bond market declined in
value. Seeking to calm inflation fears, the Federal Reserve Board (the
"Fed") continued to increase interest rates over the past six months. We feel
this action shows the Fed's desire to control money growth and maintain a de-
fensive stance against inflation, which should help to create a favorable envi-
ronment for fixed-income products.
Because the Fund's policy is to maintain a duration that does not exceed the
time remaining until its liquidation, as the Fund approaches maturity, it has
progressively become less sensitive to interest rate changes. (Duration is a
measure used to evaluate bond risk. Therefore, keeping duration shorter should
help reduce the portfolio's risk exposure.) As of February 28, the Fund had an
approximate maturity date of 3.5 years and a duration of 3.06 years.
Q WHAT IS YOUR INVESTMENT STRATEGY AND HOW HAS IT AFFECTED THE FUND'S
PERFORMANCE?
A With the Fund reaching maturity, we are maintaining a steady, conservative
investment approach. The portfolio predominately consists of Treasury
holdings and may from time to time include mortgage-backed securities. We will
continue to maintain a shorter duration, which should help to minimize risk.
Over the six-month period, the Fund achieved a total return, at net asset val-
ue, of 1.49 percent.1
Q HOW DID THE FUND PERFORM RELATIVE TO A COMPARATIVE INDEX?
A The Lehman Brothers Mutual Fund Short (1-5 years) U.S. Government Index
achieved a six-month total return of 2.53 percent. This is a broad-based
index which reflects the performance of all U.S. Government agency and Treasury
securities with maturities of one
[PERFORMANCE GRAPH APPEARS HERE]
PORTFOLIO HOLDINGS AS OF FEBRUARY 28, 1995
Cash & Equivalents=25.9%
Treasury Notes=74.1%
Please see footnotes on page three.
4
<PAGE>
to five years. The index is unmanaged and does not reflect any commissions or
fees that would be paid by an investor purchasing the securities it repre-
sents.
Q WHAT IS YOUR MARKET OUTLOOK FOR 1995?
A Aggressive Fed interest rate tightening during 1994 should produce mod-
erating economic growth during 1995 and into the following year. Longer-
term evidence suggests that inflation should increase, but still within a
range of tolerance. Over the long run, we believe significant value exists in
the fixed-income marketplace.
LOGO LOGO
Robert C. Peck, Jr. John R. Reynoldson
Executive Vice President Portfolio Manager
Fixed Income Investments
5
<PAGE>
See Notes to Financial Statements
PORTFOLIO OF INVESTMENTS
February 28, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount Market Value
................................................................................
<C> <S> <C>
UNITED STATES TREASURY NOTES* 74.1%
$13,000,000 5.875%, 5/15/95 (Cost $ 13,190,938)............ $ 12,993,890
----------------
SHORT-TERM INVESTMENTS 24.2%
735,000 Federal Farm Credit Banks, 5.99%, 4/20/95...... 728,825
2,000,000 Federal National Mortgage Association, 6.03%,
5/22/95........................................ 1,972,780
1,545,000 Repurchase agreement with Salomon Brothers,
Inc, dated 2/28/95, 6.125%, due 3/1/95
(collateralized by U.S. Government obligations
in a pooled cash account) repurchase proceeds
$ 1,545,263................................... 1,545,000
----------------
Total Short-Term Investments (Cost $
4,246,435)..................................... 4,246,605
----------------
TOTAL INVESTMENTS (Cost $ 17,437,373) 98.3%.... 17,240,495
Other assets and liabilities, net 1.7%......... 290,304
----------------
NET ASSETS 100%................................ $ 17,530,799
----------------
</TABLE>
*A portion of this security, with a market value of approximately $ 9.9 million
was placed in a segregated account and held as collateral for a forward
commitment (see Note 2).
6
<PAGE>
See Notes to Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
February 28, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at market value (Cost $17,437,373).............. $ 17,240,495
Cash......................................................... 4,318
Unrealized appreciation of forward commitment................ 266,950
Interest receivable.......................................... 221,530
Other assets................................................. 2,802
----------------
Total Assets................................................ 17,736,095
----------------
LIABILITIES
Payable for Fund shares redeemed............................. 148,522
Accrued expenses............................................. 35,253
Due to Distributor........................................... 7,472
Due to Adviser............................................... 6,574
Deferred trustee compensation................................ 4,537
Due to shareholder service agent............................. 2,938
----------------
Total Liabilities........................................... 205,296
----------------
Net Assets, equivalent to $13.48 per share................... $ 17,530,799
----------------
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, par value $.001 per share;
unlimited number of shares authorized; 1,300,165 shares
outstanding................................................. $ 1,300
Capital surplus.............................................. 18,848,559
Accumulated net realized loss on securities.................. (1,621,264)
Net unrealized appreciation (depreciation) of securities
Investments................................................. (196,878)
Forward commitments......................................... 266,950
Undistributed net investment income.......................... 232,132
----------------
NET ASSETS at February 28, 1995.............................. $ 17,530,799
----------------
</TABLE>
7
<PAGE>
See Notes to Financial Statements
STATEMENT OF OPERATIONS
Six Months Ended February 28, 1995 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest..................................................... $ 496,991
----------------
EXPENSES
Management fees.............................................. 44,008
Accounting services.......................................... 23,155
Service fees................................................. 21,943
Shareholder service agent's fees and expenses................ 15,484
Audit fees................................................... 13,200
Reports to shareholders...................................... 8,979
Registration and filing fees................................. 8,425
Trustees' fees and expenses.................................. 4,531
Organization expenses........................................ 2,654
Legal fees................................................... 2,064
Custodian fees............................................... 1,910
Miscellaneous................................................ 161
Management fee reduction (see Note 3)........................ (4,401)
----------------
Total expenses.............................................. 142,113
----------------
NET INVESTMENT INCOME........................................ 354,878
----------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITIES
Net realized gain (loss) on securities
Investments................................................. 820
Forward commitments......................................... (73,125)
Net unrealized appreciation (depreciation) of securities
during the period
Investments................................................. (50,661)
Forward commitments......................................... 34,480
----------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITIES........ (88,486)
----------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............. $ 266,392
----------------
</TABLE>
8
<PAGE>
See Notes to Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
February 28, August 31,
1995 1994
................................................................................
<S> <C> <C>
NET ASSETS, beginning of period.................... $17,990,012 $23,011,938
----------- -----------
Operations:
Net investment income.............................. 354,878 973,845
Net realized loss on securities.................... (72,305) (1,545,944)
Net unrealized appreciation (depreciation) of
securities during the period....................... (16,181) 351,385
----------- -----------
Increase (decrease) in net assets resulting from
operations........................................ 266,392 (220,714)
----------- -----------
Dividends and distributions to shareholders:
From net investment income......................... (695,962) (950,401)
In excess of book-basis net realized gain on
securities (see Note 2)............................ -- (313,029)
----------- -----------
Total dividends and distributions to shareholders. (695,962) (1,263,430)
----------- -----------
FUND SHARE TRANSACTIONS
Proceeds from shares issued for dividends and
distributions reinvested........................... 686,289 1,254,342
Cost of shares redeemed............................ (715,932) (4,792,124)
----------- -----------
Decrease in net assets from Fund share
transactions...................................... (29,643) (3,537,782)
----------- -----------
Decrease in Net Assets............................. (459,213) (5,021,926)
----------- -----------
NET ASSETS, end of period.......................... $17,530,799 $17,990,012
----------- -----------
CHANGE IN FUND SHARES OUTSTANDING
Shares issued for dividends and distributions
reinvested......................................... 54,554 99,156
Reverse share splits (see Note 4).................. (55,292) (99,809)
Shares redeemed.................................... (54,205) (356,749)
----------- -----------
Decrease in Fund shares outstanding............... (54,943) (357,402)
----------- -----------
</TABLE>
9
<PAGE>
See Notes to Financial Statements
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated (Unaudited).
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months September 11,
Ended Year Ended August 31 1990(2) to
February 28, ------------------------- August 31,
1995 1994 1993(1) 1992(1) 1991(1)
................................................................................
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE(3)
Net asset value, beginning
of period................. $13.83 $14.93 $16.96 $16.17 $14.68
------ ------ ------ ------ ------
Income from investment
operations
Investment income........ .39 1.01 1.09 1.05 1.15
Expenses................. (.11) (.25) (.24) (.28) (.30)
------ ------ ------ ------ ------
Net investment income.... .28 .76 .85 .77 .85
Net realized and
unrealized gains or
losses on securities.... (.105) (.98) .15 1.71 .79
------ ------ ------ ------ ------
Total from investment
operations................ .175 (.22) 1.00 2.48 1.64
------ ------ ------ ------ ------
Less distributions
Dividends from net
investment income........ (.525) (.66) (1.01) (.91) (.15)
Distributions from net
realized gains on
securities.............. -- -- (2.02) (.78) --
Distributions in excess
of book-basis net
realized capital gains.. -- (.22) -- -- --
------ ------ ------ ------ ------
Total distributions....... (.525) (.88) (3.03) (1.69) (.15)
------ ------ ------ ------ ------
Net asset value, end of
period.................... $13.48 $13.83 $14.93 $16.96 $16.17
------ ------ ------ ------ ------
TOTAL RETURN(5)........... 1.49% (1.64)% 6.87% 16.48% 11.34%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(millions)................ $17.5 $18.0 $23.0 $15.0 $15.0
Average net assets
(millions)................ $17.6 $19.9 $17.6 $14.6 $12.6
Ratios to average net
assets(6)
Expenses................. 1.63%(4) 1.58% 1.62% 1.72% 1.95%(4)
Expenses, without waiver. 1.68%(4) 1.63% 1.63% -- --
Net investment income.... 4.07%(4) 4.91% 5.62% 4.82% 5.37%(4)
Net investment income,
without waiver........... 4.02%(4) 4.86% 5.60% -- --
Portfolio turnover rate... 0% 82% 283% 321% 418%
</TABLE>
(1) Based on average month-end shares outstanding.
(2) Commencement of operations. Beginning net asset value, without adjustments
for reverse share splits, was $9.70.
(3) Computations with regard to per share information have been adjusted to
reflect reverse share splits (see Note 4).
(4) Annualized.
(5) Total return for periods of less than one year are not annualized. Total
return does not consider the effect of sales charges.
(6) See Note 3.
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS
February 28, 1995 (Unaudited)
- --------------------------------------------------------------------------------
NOTE 1--ORGANIZATION
American Capital Government Target Series (the "Fund") is organized as a Massa-
chusetts business trust, and is comprised of one portfolio: Portfolio '97. The
Fund plans to liquidate on December 16, 1997 and distribute the proceeds pro
rata to shareholders.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
The Fund is registered under the Investment Company Act of 1940, as amended, as
a diversified, open-end management investment company. The following is a sum-
mary of significant accounting policies consistently followed by the Fund in
the preparation of its financial statements.
A. INVESTMENT VALUATIONS-All debt securities are valued at the last reported
bid price. Securities for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the direction of
the Board of Trustees of the Fund.
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 become less than 61
days. From such time, until maturity, the investments are valued at amortized
cost.
B. FORWARD COMMITMENTS-Transactions in forward commitments are utilized in
strategies to manage the market risk of the Fund's investments. The purchase of
a 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 counterparties. There is also a risk that the market movement
of such instruments may not be in the direction forecasted. Note 5--Investment
Activity contains additional information.
The Fund trades certain securities under the terms of forward commitments,
whereby the settlement for payment and delivery occurs at a specified future
date. Forward commitments are privately negotiated transactions between the
Fund and dealers. Upon executing a forward commitment and during the period of
obligation, the Fund maintains collateral of cash or securities in a segregated
account with its custodian in an amount sufficient to relieve the obligation.
If the intent of the Fund is to accept delivery of a security traded under a
forward purchase commitment, the commitment is recorded as a long-term pur-
chase. For forward purchase commitments and for forward sale commitments which
security settlement is not intended by the Fund, changes in the value of the
commitment are recognized by marking the commitment to market on a daily basis.
During the commitment, the Fund may either resell or
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
February 28, 1995 (Unaudited)
- -------------------------------------------------------------------------------
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. REPURCHASING AGREEMENTS-A repurchase agreement is a short-term investment
in which the Fund acquires ownership of a debt security and the seller agrees
to repurchase the security at a future time and specified price. The Fund may
invest independently in repurchase agreements, or transfer uninvested cash
balances into a pooled cash account along with other investment companies ad-
vised or sub-advised by Van Kampen American Capital Asset Management, Inc.
(the "Adviser"), the daily aggregate of which is invested in repurchase agree-
ments. Repurchase agreements are collateralized by the underlying debt securi-
ty. The Fund makes payment for such securities only upon physical delivery or
evidence of book entry transfer to the account of the custodian bank. The
seller is required to maintain the value of the underlying security at not
less than the repurchase proceeds due the Fund.
D. FEDERAL INCOME TAXES-No provision for federal income taxes is required 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 gains.
At August 31, 1994, the Fund carried forward approximately $122,000 in capi-
tal losses for federal income tax purposes, which may be utilized to offset
current or future capital gains until the liquidation of the Fund. Addition-
ally, approximately $1.4 million in realized 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.
F. DIVIDENDS AND DISTRIBUTIONS-Dividends and distributions to shareholders are
recorded on the record date. The Fund distributes tax basis earnings in accor-
dance with the minimum distribution requirements of the Internal Revenue Code
which may result in dividends or distributions in excess of financial state-
ment earnings.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
February 28, 1995 (Unaudited)
- -------------------------------------------------------------------------------
G. DEBT DISCOUNT AND PREMIUM-The Fund accounts for original issue discounts
and premiums on the same basis as is used for federal income tax reporting.
Accordingly, original issue discounts on long-term debt securities purchased
are amortized over the life of the security. Premiums on debt securities are
not amortized. Market discounts are recognized at the time of sale as realized
gains for book purposes and ordinary income for tax purposes.
H. ORGANIZATION COSTS-Organization expenses of $33,000 were deferred and are
being amortized over a five year period ending October, 1995.
NOTE 3--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%. The Adviser has voluntarily agreed to waive all management fees in
excess of .45% of the Fund's average daily net assets.
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 or sub-advised by the Adviser. For
the period ended February 28, 1995, these charges included $3,153 as the
Fund's share of the employee costs attributable to the Fund's accounting offi-
cers. A portion of accounting services expense was paid to the Adviser in re-
imbursement of personnel, facilities and equipment costs attributable to the
provision of accounting services to the Adviser. 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 ended February 28, 1995, such fees aggregated $12,853.
Under a Distribution Plan, up to .25% per annum of the average net assets of
the Fund is paid to Van Kampen American Capital Distributors, Inc. (the "Dis-
tributor") for expenses and service fees incurred.
Legal fees were for services rendered by O'Melveny & Myers, counsel for the
Fund. Lawrence J. Sheehan, of counsel to that firm, is a trustee of the Fund.
Certain officers and trustees of the Fund are officers and directors of the
Adviser, the Distributor, and the shareholder service agent.
NOTE 4--REVERSE SHARE SPLITS
The Fund, at the discretion of the Board of Trustees, intends to declare a re-
verse share split immediately after the payment of each annual dividend and
any other distribution. The purpose is to maintain in the account of each
shareholder who reinvests dividends and distributions the
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
February 28, 1995 (Unaudited)
- -------------------------------------------------------------------------------
same number of shares as immediately preceding the dividend or distribution.
The effect of this reverse share split is intended to exactly offset the
shares issued for reinvestment. Although the dividends and distributions are
taxable to shareholders, a reverse share split will not give rise to a gain or
loss for federal income tax purposes. On December 16, 1994, the shares of the
Fund were split .9599 of a share for each 1 share outstanding.
NOTE 5--INVESTMENT ACTIVITY
During the period, the Fund only had transactions in short-term investments
and forward commitments.
The cost of investments owned at February 28, 1995, was the same for federal
income tax and financial reporting purposes. Gross unrealized appreciation of
investments aggregated $170 and gross unrealized depreciation of investments
aggregated $197,048.
At February 28, 1995, the Fund held the following forward purchase commit-
ment with an April 1995 settlement date.
<TABLE>
<CAPTION>
VALUE AT
PRINCIPAL FEBRUARY 28, UNREALIZED
AMOUNT SECURITY 1995 APPRECIATION
- -------------------------------------------------------------------------------
<C> <S> <C> <C>
$10,000,000 Federal National Mortgage Association,
8.00%................................. $10,060,700 $266,950
----------- --------
</TABLE>
NOTE 6--TRUSTEE COMPENSATION
Trustees who are not affiliated with the Adviser are compensated by the Fund
at the annual rate of $720 plus a fee of $20 per day for Board and Committee
meetings attended. The Chairman receives additional fees at an annual rate of
$270. During the period, such fees aggregated $3,757.
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 obligations under the Plan by any form of trust
or escrow. Each trustee covered under the Plan elects to be credited with an
earnings component on amounts deferred equal to the income earned by the Fund
on its short-term investments or equal to the total return of the Fund.
14
<PAGE>
FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL
GLOBAL AND INTERNATIONAL
Govett Emerging Markets Fund
AC Global Equity Fund
Govett Global Government Income Fund
AC Global Government Securities
AC Global Managed Assets Fund
Govett International Equity Fund
Govett Latin America Fund
Govett Pacific Strategy Fund
EQUITY
GROWTH
AC Emerging Growth Fund
AC Enterprise Fund
AC Pace Fund
Govett Smaller Companies Fund
GROWTH & INCOME
VKM Balanced Fund
AC Comstock Fund
AC Equity Income Fund
AC Growth and Income Fund
VKM Growth and Income Fund
AC Harbor Fund
AC Real Estate Securities Fund
VKM Utility Fund
AC Utilities Income Fund
FIXED INCOME
VKM Adjustable Rate U.S. Government Fund
AC Corporate Bond Fund
AC Federal Mortgage Trust
AC Government Securities
VKM High Yield Fund
AC High Yield Investments
VKM Money Market Fund
VKM Prime Rate Income Trust
AC Reserve Fund
VKM Short-Term Global Income Fund
VKM Strategic Income Fund
VKM U.S. Government Fund
AC U.S. Government Trust for Income
TAX-FREE
VKM California Insured Tax Free Fund
VKM Florida Insured Tax Free Income Fund
VKM Insured Tax Free Income Fund
VKM Limited Term Municipal Income Fund
AC Municipal Bond Fund
VKM Municipal Income Fund
VKM New Jersey Tax Free Income Fund
VKM New York Tax Free Income Fund
VKM Pennsylvania Tax Free Income Fund
AC Tax-Exempt Trust
--High Yield Municipal Portfolio
--Insured Municipal Portfolio
VKM Tax Free High Income Fund
VKM Tax Free Money Fund
AC Texas Municipal Securities
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.
15
<PAGE>
AMERICAN CAPITAL GOVERNMENT TARGET SERIES
BOARD OF TRUSTEES
J. MILES BRANAGAN
RICHARD E. CARUSO
ROGER HILSMAN
DON G. POWELL
DAVID REES
LAWRENCE J. SHEEHAN
FERNANDO SISTO*
WILLIAM S. WOODSIDE
*Chairman of the Board
OFFICERS
DON G. POWELL
President
CURTIS W. MORELL
Vice President and Treasurer
DENNIS J. MCDONNELL
RONALD A. NYBERG
ROBERT C. PECK, JR.
JOHN R. REYNOLDSON
PAUL R. WOLKENBERG
Vice Presidents
TANYA M. LODEN
Vice President and Controller
NORI L. GABERT
Vice President and Secretary
J. DAVID WISE
Vice President and Assistant Secretary
PERRY F. FARRELL
M. ROBERT SULLIVAN
Assistant Treasurers
HUEY P. FALGOUT, JR.
Assistant Secretary
INVESTMENT ADVISER
VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC.
2800 Post Oak Blvd. Houston, Texas 77056
DISTRIBUTOR
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
2800 Post Oak Blvd. Houston, Texas 77056
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
(C) Van Kampen American Capital Distributors, Inc., 1995
All rights reserved.
SM denotes a service mark of
Van Kampen American Capital Distributors, Inc.
This report is submitted for the general information of the shareholders of
the Fund. It is not authorized for distribution to prospective investors 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.
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