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008 D010001 HOUSTON
008 D020001 TX
008 D030001 77056
011 A000001 VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC
011 B000001 8-19903
011 C010001 HOUSTON
011 C020001 TX
011 C030001 77056
012 A000001 ACCESS INVESTOR SERVICES, INC.
012 B000001 84-01621
012 C010001 KANSAS CITY
012 C020001 MO
012 C030001 64141
012 C040001 9256
013 A000001 PRICE WATERHOUSE, LLP
013 B010001 HOUSTON
<PAGE> PAGE 2
013 B020001 TX
013 B030001 77002
015 A000001 STATE STREET BANK & TRUST CO.
015 B000001 C
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015 C020001 MA
015 C030001 02110
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022 B000003 04-1867445
022 C000003 58990
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022 C000004 22569
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022 C000007 3957
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<PAGE> PAGE 3
022 A000008 BANKAMERICA CORP.
022 B000008 94-1687665
022 C000008 5723
022 D000008 0
022 A000009 FIRST BOSTON CORP.
022 B000009 13-5659485
022 C000009 2585
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022 C000010 2550
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<PAGE> PAGE 4
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<PAGE> PAGE 5
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SIGNATURE TANYA LODEN
TITLE CONTROLLER
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000865441
<NAME> AC GOVT TARGET 97
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-1-1994
<PERIOD-END> FEB-28-1995
<INVESTMENTS-AT-COST> 17,437,373
<INVESTMENTS-AT-VALUE> 17,240,495
<RECEIVABLES> 492,798
<ASSETS-OTHER> 2,802
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 17,736,095
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 205,296
<TOTAL-LIABILITIES> 205,296
<SENIOR-EQUITY> 1,300
<PAID-IN-CAPITAL-COMMON> 18,848,559
<SHARES-COMMON-STOCK> 1,300,165
<SHARES-COMMON-PRIOR> 1,355,108
<ACCUMULATED-NII-CURRENT> 232,132
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,621,264)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 70,072
<NET-ASSETS> 17,530,799
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 496,991
<OTHER-INCOME> 0
<EXPENSES-NET> 142,113
<NET-INVESTMENT-INCOME> 354,878
<REALIZED-GAINS-CURRENT> (72,305)
<APPREC-INCREASE-CURRENT> (16,181)
<NET-CHANGE-FROM-OPS> 266,392
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (695,962)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 109,497
<SHARES-REINVESTED> 54,554
<NET-CHANGE-IN-ASSETS> (459,213)
<ACCUMULATED-NII-PRIOR> 573,216
<ACCUMULATED-GAINS-PRIOR> (1,548,959)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 44,008
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 146,514
<AVERAGE-NET-ASSETS> 17,603,031
<PER-SHARE-NAV-BEGIN> 13.83
<PER-SHARE-NII> .28
<PER-SHARE-GAIN-APPREC> (.105)
<PER-SHARE-DIVIDEND> (.525)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.48
<EXPENSE-RATIO> 1.63
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
[DESCRIPTION] N-SAR Item 77C
<PAGE> 1
N-SAR ITEM 77C
a) A Special Meeting of Shareholders was held on December 16, 1994.
b) Inapplicable
c) The following was voted on at the meeting:
1) Approval of a new investment advisory agreement between the Registrant
and American Capital Asset Management, Inc. to take effect upon the
closing of the proposed acquisition of American Capital Management &
Research, Inc. by The Van Kampen Merritt Companies, Inc.
For 1,022,309.952 Against 9,758.249
d) Inapplicable
[DESCRIPTION] NSAR item 77Q
<PAGE> 1
INVESTMENT ADVISORY AGREEMENT
AGREEMENT (herein so called) made this 20th day of December, 1994, by and
between AMERICAN CAPITAL GOVERNMENT TARGET SERIES -- PORTFOLIO '97, a
Massachusetts Business Trust (hereinafter referred to as the "FUND"), and
AMERICAN CAPITAL ASSET MANAGEMENT, INC., a Delaware corporation (hereinafter
referred to as the "ADVISER").
The FUND and the ADVISER agree as follows:
(1) Services Rendered and Expenses Paid by ADVISER
The ADVISER, subject to the control, direction and supervision of the FUND's
Trustees and in conformity with applicable laws, the FUND's Agreement and
Declaration of Trust ("Declaration of Trust"), By-laws, registration
statements, prospectus and stated investment objectives, policies and
restrictions, shall:
a. manage the investment and reinvestment of the FUND's assets including, by
way of illustration, the evaluation of pertinent economic, statistical,
financial and other data, determination of the industries and companies to be
represented in the FUND's portfolio, and formulation and implementation of
investment programs;
b. maintain a trading desk and place all orders for the purchase and sale of
portfolio investments for the FUND's account with brokers or dealers selected
by the ADVISER;
c. conduct and manage the day-to-day operations of the FUND including, by way
of illustration, the preparation of registration statements, prospectuses,
reports, proxy solicitation materials and amendments thereto, the furnishing
of routine legal services except for services provided by outside counsel to
the FUND selected by the Trustees, and the supervision of the FUND's Treasurer
and the personnel working under his direction; and
d. furnish to the FUND office space, facilities, equipment and personnel
adequate to provide the services described in paragraphs a., b., and c. above
and pay the compensation of each FUND trustee and FUND officer who is an
affiliated person of the ADVISER, except the compensation of the FUND's
Treasurer and related expenses as provided below.
In performing the services described in paragraph b. above, the ADVISER shall
use its best efforts to obtain for the FUND the most favorable price and
execution available and shall maintain records adequate to demonstrate
compliance with this requirement. Subject to prior authorization by the FUND's
Trustees of appropriate policies and procedures, the ADVISER may, to the extent
authorized by law, cause the FUND to pay a broker or dealer that provides
brokerage and research services to the ADVISER an amount of
<PAGE> 2
commission for effecting a portfolio investment transaction in excess of the
amount of commission another broker or dealer would have charged for effecting
that transaction. In the event of such authorization and to the extent
authorized by law, the ADVISER shall not be deemed to have acted unlawfully or
to have breached any duty created by this Agreement or otherwise solely by
reason of such action.
Except as otherwise agreed, or as otherwise provided herein, the FUND shall
pay, or arrange for others to pay, all its expenses other than those expressly
stated to be payable by the ADVISER hereunder, which expenses payable by the
FUND shall include (i) interest and taxes; (ii) brokerage commissions and other
costs in connection with the purchase and sale of portfolio investments; (iii)
compensation of its trustees and officers other than those who are affiliated
persons of the ADVISER; (iv) compensation of its Treasurer, compensation of
personnel working under the Treasurer's direction, and expenses of office
space, facilities, and equipment used by the Treasurer and such personnel in
the performance of their normal duties for the FUND which consist of
maintenance of the accounts, books and other documents which constitute the
record forming the basis for the FUND's financial statements, preparation of
such financial statements and other FUND documents and reports of a financial
nature required by federal and state laws, and participation in the production
of the FUND's registration statement, prospectuses, proxy solicitation
materials and reports to shareholders; (v) fees of outside counsel to and of
independent accountants of the FUND selected by the Trustees; (vi) custodian,
registrar and shareholder service agent fees and expenses; (vii) expenses
related to the repurchase or redemption of its shares including expenses
related to a program of periodic repurchases or redemptions; (viii) expenses
related to the issuance of its shares against payment therefor by or on behalf
of the subscribers thereto; (ix) fees and related expenses of registering and
qualifying the FUND and its shares for distribution under state and federal
securities laws; (x) expenses of printing and mailing of registration
statements, prospectuses, reports, notices and proxy solicitation materials of
the FUND; (xi) all other expenses incidental to holding meetings of the FUND's
shareholders including proxy solicitations therefor; (xii) expenses for
servicing shareholder accounts; (xiii) insurance premiums for fidelity coverage
and errors and omissions insurance; (xiv) dues for the FUND's membership in
trade associations approved by the Trustees; and (xv) such nonrecurring
expenses as may arise, including those associated with actions, suits or
proceedings to which the FUND is a party and the legal obligation which the
FUND may have to indemnify its officers and trustees with respect thereto. To
the extent that any of the foregoing expenses are allocated between the FUND
and any other party, such allocations shall be pursuant to methods approved by
the Trustees.
2
<PAGE> 3
(2) Role of ADVISER
The ADVISER, and any person controlled by or under common control with the
ADVISER, shall be free to render similar services to others and engage in other
activities, so long as the services rendered to the FUND are not impaired.
Except as otherwise required by the Investment Company Act of 1940 (the "1940
Act"), any of the shareholders, trustees, officers and employees of the FUND
may be a shareholder, trustee, director, officer or employee of, or be
otherwise interested in, the ADVISER, and in any person controlled by or under
common control with the ADVISER, and the ADVISER, and any person controlled by
or under common control with the ADVISER, may have an interest in the FUND.
Except as otherwise agreed, in the absence of willful misfeasance, bad faith,
negligence or reckless disregard of obligations or duties hereunder on the part
of the ADVISER, the ADVISER shall not be subject to liability to the FUND, or
to any shareholder of the FUND, for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any security.
(3) Compensation Payable to ADVISER
The FUND shall pay to the ADVISER, as compensation for the services rendered,
facilities furnished and expenses paid by the ADVISER, a monthly fee computed
at the following annual rate:
.50% of the Portfolio's average daily net assets.
Average daily net assets shall be determined by taking the average calendar
month calculated in the manner provided in the FUND's Declaration of Trust.
Such fee shall be payable for each calendar month as soon as practicable after
the end of that month.
The fees payable to the ADVISER by the FUND pursuant to this Section 3 shall be
reduced by any commissions, tender solicitation and other fees, brokerage or
similar payments received by the ADVISER, or any other direct or indirect
majority owned subsidiary of American Capital Management & Research, Inc., or
its successor, in connection with the purchase and sale of portfolio
investments of the FUND, less any direct expenses incurred by such person, in
connection with obtaining such commissions, fees, brokerage or similar
payments. The ADVISER shall use its best efforts to recapture all available
tender offer solicitation fees and exchange offer fees in connection with the
FUND's portfolio transactions and shall advise the Trustees of any other
commissions, fees, brokerage or similar payments which may be possible for the
ADVISER or any other direct or indirect majority owned subsidiary of American
Capital Management & Research, Inc., or its successor, to receive in connection
with the FUND's portfolio transactions or other
3
<PAGE> 4
arrangements which may benefit the FUND.
In the event that the ordinary business expenses of the FUND for any fiscal
year should exceed the most restrictive expense limitation applicable in the
states where the FUND's shares are qualified for sale, the compensation due the
ADVISER for such fiscal year shall be reduced by the amount of such excess. The
ADVISER's compensation shall be so reduced by a reduction or a refund thereof,
at the time such compensation is payable after the end of each calendar month
during such fiscal year of the FUND, and if such amount should exceed such
monthly compensation, the ADVISER shall pay the FUND an amount sufficient to
make up the deficiency, subject to readjustment during the FUND's fiscal year.
For purposes of this paragraph, all ordinary business expenses of the FUND
shall include the investment advisory fee and other operating expenses paid by
the FUND except (i) for interest and taxes; (ii) brokerage commissions; (iii)
as a result of litigation in connection with a suit involving a claim for
recovery by the FUND; (iv) as a result of litigation involving a defense
against a liability asserted against the FUND, provided that, if the ADVISER
made the decision or took the actions which resulted in such claim, it acted in
good faith without negligence or misconduct; (v) any indemnification paid by
the FUND to its officers and trustees and the ADVISER in accordance with
applicable state and federal laws as a result of such litigation; and (vi)
amounts paid to American Capital Marketing, Inc., the distributor of the FUND's
shares, in connection with a distribution plan adopted by the FUND's Trustees
pursuant to Rule 12b-1 under the Investment Company Act of 1940.
If the ADVISER shall serve for less than the whole of any month, the foregoing
compensation shall be prorated.
(4) Books and Records
In compliance with the requirements of Rule 31a-3 under the 1940 Act, the
ADVISER hereby agrees that all records which it maintains for the FUND are the
property of the FUND and further agrees to surrender promptly to the FUND any
of such records upon the FUND's request. The ADVISER further agrees to preserve
for the periods prescribed by Rule 31a-2 under the 1940 Act the records
required to be maintained by Rule 31a-1 under the Act.
(5) Duration of Agreement
This Agreement shall have an initial term of 2 years from the date hereof, and
shall continue in force from year to year thereafter, but only so long as such
continuance is approved at least annually by the vote of a majority of the
FUND's Trustees who are not parties to this Agreement or interested persons of
any such parties, cast in person at a meeting called for the purpose of voting
on such approval, and by a vote of a majority of the FUND's Trustees or a
majority of the FUND's outstanding voting securities.
4
<PAGE> 5
This Agreement shall terminate automatically in the event of its assignment.
The Agreement may be terminated at any time by the FUND's Trustees, by vote of
a majority of the FUND's outstanding voting securities, or by the ADVISER, on
60 days' written notice, or upon such shorter notice as may be mutually agreed
upon. Such termination shall be without payment of any penalty.
(6) Miscellaneous Provisions
For the purposes of this Agreement, the terms "affiliated person,"
"assignment," "interested person," and "majority of the outstanding voting
securities" shall have their respective meanings defined in the 1940 Act and
the Rules and Regulations thereunder, subject, however, to such exemptions as
may be granted to either the ADVISER or the FUND by the Securities and Exchange
Commission (the "Commission"), or such interpretive positions as may be taken
by the Commission or its staff, under the 1940 Act, and the term "brokerage and
research services" shall have the meaning given in the Securities Exchange Act
of 1934 and the Rules and Regulations thereunder.
The execution of this Agreement has been authorized by the FUND's Trustees and
shareholders. A copy of the Agreement and Declaration of Trust of the FUND is
on file with the Secretary of State of The Commonwealth of Massachusetts, and
it is hereby agreed that this Agreement is executed on behalf of the Trustees
of the FUND as Trustees and not individually and that the obligations of this
Agreement are not binding upon any of the Trustees, officers or shareholders of
the FUND individually but are binding only upon the assets and property of the
FUND.
The parties hereto each have caused this Agreement to be signed in duplicate on
its behalf by its duly authorized officer on the above date.
AMERICAN CAPITAL GOVERNMENT TARGET SERIES -- PORTFOLIO '97
By:/s/ CURTIS W. MORELL
Name: Curtis W. Morell
Its: Vice President
AMERICAN CAPITAL ASSET MANAGEMENT, INC.
By: /s/ NORI L. GABERT
Name: Nori L. Gabert
Its: Vice President
5
