<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>
UTI SAR 5/95
<PAGE>
LETTER TO SHAREHOLDERS
[PHOTO APPEARS HERE]
DON G. POWELL
May 5, 1995
Dear Shareholder:
During the six-month period covered by this report, October 1, 1994 through
March 31, 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 since February 1994.
As a result, the fed funds rate doubled from 3 percent to 6 percent, its high-
est 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 Treasury securities, for example, began 1994 at 6.35 percent and in-
creased 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 negative impact on prices of fixed-income securities, including mu-
nicipal bonds.
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 sput-
tered for most of 1994. The S&P 500 Index, for example, produced a 1.36 per-
cent total return for 1994, while the average share price change for the year
for all stocks listed on the New York Stock Exchange was down 9.22 percent.
In contrast, 1995 began more positively as the bond market got a boost from
growing sentiment that the Fed had stabilized economic growth while keeping
inflation under control, and that it may be near the end of its tightening cy-
cle. Subsequently, the yield on 30-year Treasury securities fell to 7.43 per-
cent at the end of March--down nearly three quarters of a percentage point--
from its November 1994 high of 8.16 percent. The stock market responded in
late February with the Dow Jones Industrial Average breaking through the 4000
mark, setting a new record high and raising expectations for a stronger market
in 1995. At the same time, almost all other major stock indexes rose, includ-
ing the S&P 500 Index, the New York Stock Exchange Composite Index, and the
Nasdaq Composite Index. The first quarter ended with the Dow Jones Industrial
Average up 8.4 percent year-to-date, and the S&P 500 and Nasdaq Composite In-
dexes gaining 9 percent and 8.7 percent, respectively.
Additionally, at the end of March, the Van Kampen American Capital Index of
Investor Intentions reached 431 among self-described "knowledgeable" invest-
ors, an increase of 5
percent over the previous month of 411. The index, computed from an indepen-
dently conducted survey and published by Van Kampen American Capital, measures
the investment climate (investors' confidence) by asking 1,000 investors about
what they intend to do with
(Continued on page two)
1
<PAGE>
their money over the next 60-90 days. Among "knowledgeable" investors, a total
of 56.6 percent said the next 60-90 days would be a "good" time to invest.
"Knowledgeable" investors are those respondents who rate their investment
knowledge at five or higher on a seven-point scale, and who own stocks, bonds,
or mutual funds.
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 reflects our new identity as Van Kampen American Capital.
Going forward, we will continue to look for new ways to improve upon the pre-
sentation of information in your Fund's report.
In addition, we have developed a new corporate ad campaign introducing Van
Kampen American Capital. Full page ads appeared in The Wall Street Journal in
the first quarter of 1995--watch for more advertising 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 SIGNATURE APPEARS HERE]
Don G. Powell
President
Van Kampen American Capital
Asset Management, Inc.
2
<PAGE>
PERFORMANCE RESULTS FOR THE PERIOD ENDED MARCH 31, 1995
AMERICAN CAPITAL UTILITIES INCOME FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
TOTAL RETURNS
<S> <C> <C> <C>
Six-month total return based on NAV/1/............... 6.70% 6.30% 6.30%
Six-month total return/2/............................ 0.58% 2.30% 5.30%
One-year total return/2/............................. (1.51%) (0.14%) 2.72%
Life-of-Fund average annual total return/2/.......... (5.13%) (4.24%) (1.52%)
Commencement Date.................................... 12/01/93 12/01/93 12/01/93
</TABLE>
/1/Assumes reinvestment of all distributions for the period ended March 31,
1995, and does not include payment of the maximum sales charge (4.75% for A
shares) or contingent deferred sales charge (4% for B shares and 1% for C
shares).
/2/Standardized total return for the period ended March 31, 1995.
If the adviser had not voluntarily waived management fees and certain other
expenses, the total returns on the Fund would have been lower. The expense
waiver may be discontinued at any time, at which time total return will de-
crease.
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 MANAGEMENT REVIEW
AMERICAN CAPITAL UTILITIES INCOME FUND
The following is an interview with the management team of American Capital
Utilities Income Fund. The team is led by Mary Jayne Byrne, portfolio manager,
and Alan T. Sachtleben, executive vice president for equity investments.
Q. WHAT MARKET CONDITIONS HAD THE GREATEST IMPACT ON THE FUND'S PERFORMANCE
DURING THE SIX MONTHS ENDED MARCH 31, 1995?
A. The bond market had the most impact on the performance of utility funds
during the past six months. After bottoming in November, the bond market
enjoyed a steady rebound through the end of March because of falling interest
rates. Prior to this period, the Federal Reserve Board (the "Fed") had been
raising interest rates to combat the threat of inflation. As a result, many
investors who were worried about the impact of rising interest rates on the
economy and corporate earnings put more money into utilities as a defensive
move. Finally, the price of utility stocks had dropped significantly during
the previous year, making many issues relatively inexpensive and, therefore,
attractive to investors.
Q. HOW DID THE INVESTMENT TEAM RESPOND TO THE CHANGING MARKET CONDITIONS?
A. Because utility stocks were relatively inexpensive during much of the re-
porting period, we increased the portfolio's holdings of utility stocks.
As a result, we eliminated many of the non-utility holdings in the portfolio,
including real estate investment trusts and some energy stocks. At the end of
March, nearly 57 percent of the portfolio was invested in stocks, compared
with 45 percent at the end of September, while bonds dropped from about 48
percent to around 40 percent. Among the stocks added to the portfolio during
the past six months were:
. General Public Utilities, an electric utility in Pennsylvania whose stock we
believe was undervalued;
. Eastern Utilities, a Massachusetts firm that owns an attractive, non-regu-
lated business which has provided an attractive boost to earnings; and,
. U.S. West, an international telecommunications company that has made sub-
stantial investments in new technologies that we believe may provide attrac-
tive returns in the future.
<TABLE>
<CAPTION>
PORTFOLIO HOLDINGS BY INDUSTRY AS OF MARCH 31, 1995
<S> <C>
ELECTRIC UTILITIES 50%
TELEPHONE UTILITIES 23%
GAS UTILITIES 17%
OTHER 10%
</TABLE>
4
<PAGE>
The top five stocks in the portfolio at the end of March were: FPL Group,
General Public Utilities, Nynex, Western Resources and Pacific Enterprises. The
top five bonds in the portfolio on March 31 were: Iowa Electric Light & Power,
United Telecommunications, MCI Corp., AT&T Corp. and Colorado Interstate Gas.
The diversification of the portfolio can be seen in the chart on page four.
Q. HOW DID THE FUND PERFORM DURING THE SIX MONTHS ENDED MARCH 31, 1995?
A. Class A Shares achieved a total return at net asset value of 6.70 per-
cent/1/, including reinvestment of dividends totalling $.234 per share.
During the period covered by this report, Van Kampen American Capital Asset
Management, Inc., the Adviser, subsidized a portion of the Fund's expenses.
Without this subsidy, the total return would have been lower.
By comparison, the Standard & Poor's 40 Utilities Index, which reflects the
performance of utilities stocks, achieved a total return of 7.1 percent. The
Lehman Brothers Utility Bond Index, which reflects the performance of utility
bonds, achieved a total return of 7.4 percent. Additionally, the average total
return for the 81 utility funds tracked by Lipper Analytical Services was 3.1
percent. The Lipper average is the benchmark against which many utility funds
are compared. Neither the indexes nor the average reflect commissions or fees
that would be paid by an investor purchasing the securities they represent.
Q. WHAT'S AHEAD FOR THE FUND?
A. If the Fed's efforts to restrain inflation are successful, then interest
rates may not increase much more in the near future. Stable interest
rates would be good for the Fund, because of our emphasis on interest-sensitive
utility stocks and bonds. On the other hand, if the Fed raises rates again, ei-
ther because of its concern about inflation or to prop up the weak U.S. dollar,
the higher rates could hamper the Fund's performance. However, the Fund's di-
versified investment strategy means we have the flexibility to take advantage
of whatever economic conditions develop, so that the Fund can continue to pro-
vide shareholders with a competitive level of income and the potential for cap-
ital appreciation.
[LOGO SIGNATURE APPEARS HERE] [LOGO SIGNATURE APPEARS HERE]
Alan T. Sachtleben Mary Jayne Byrne
Executive Vice President Portfolio Manager
Equity Investments
Please see footnotes on page three.
5
<PAGE>
PORTFOLIO OF INVESTMENTS
March 31, 1995 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount/
Number of Shares
(000) Description Coupon Maturity Market Value
-----------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE OBLIGATIONS 40.0%
CONSUMER SERVICES 2.1%
$600 Tele-Communications, Inc....................... 7.750% 08/01/05 $ 541,800
----------------
ENERGY 13.7%
500 Colorado Interstate Gas Co..................... 10.000% 06/15/05 559,250
595 Enron Corp..................................... 6.750% 07/01/05 543,949
400 ENSEARCH Corp.................................. 6.375% 02/01/04 356,360
330 Laclede Gas Co................................. 8.500% 11/15/04 346,731
75 Occidental Petroleum Corp...................... 10.125% 09/15/09 85,087
500 Panhandle Eastern Corp......................... 7.875% 08/15/04 497,180
400 Southern Union Co.............................. 7.600% 02/01/24 354,800
400 Southwest Gas Co............................... 9.750% 06/15/02 433,320
100 Texas Eastern Transmission Corp................ 8.000% 07/15/02 101,080
100 Union Oil of California........................ 6.375% 02/01/04 89,820
85 Union Oil of California........................ 8.750% 08/15/01 89,190
----------------
TOTAL ENERGY............................... 3,456,767
----------------
TECHNOLOGY 1.9%
485 Motorola, Inc.................................. 7.600% 01/01/07 479,714
----------------
UTILITIES 22.3%
600 A T & T Corp................................... 7.500% 06/01/06 591,480
100 Baltimore Gas & Electric Co.................... 7.500% 01/15/07 97,400
200 Cincinnati Gas & Electric Co................... 6.450% 02/15/04 183,060
500 Florida Power & Light Co....................... 6.875% 04/01/04 471,050
355 GTE Corp....................................... 9.375% 12/01/00 381,803
500 Idaho Power Co................................. 8.000% 03/15/04 508,250
700 Iowa Electric Light & Power Co................. 8.625% 05/15/01 734,440
635 MCI Communications Corp........................ 7.500% 08/20/04 625,285
80 Northwestern Bell Telephone Co................. 9.500% 05/01/00 86,640
200 San Diego Gas & Electric Co.................... 7.625% 06/15/02 199,460
250 Texas Utilities Electric Co.................... 6.250% 10/01/04 223,590
500 Union Electric Co.............................. 7.375% 12/15/04 490,300
617 United Telecommunications, Inc................. 9.750% 04/01/00 665,928
200 Virginia Electric & Power Co................... 6.000% 08/01/01 184,120
200 Virginia Electric & Power Co................... 8.875% 06/01/99 209,800
----------------
TOTAL UTILITIES............................ 5,652,606
----------------
TOTAL CORPORATE OBLIGATIONS (Cost $10,455,626). 10,130,887
----------------
COMMON STOCK 56.8%
ENERGY 4.7%
25 Pacific Enterprises.............................................. 618,750
25 Panhandle Eastern Corp........................................... 575,000
----------------
TOTAL ENERGY................................................. 1,193,750
----------------
</TABLE>
6 See Notes to Financial Statements
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1995 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Amount/
Number of Shares
(000) Description Market Value
-------------------------------------------------------------------------------
<C> <S> <C>
UTILITIES 52.1%
14 Ameritech Corp............................ $ 577,500
26 Baltimore Gas & Electric Co............... 614,250
10 Bellsouth Corp............................ 595,000
25 CMS Energy Corp........................... 584,375
29 DPL, Inc.................................. 605,375
25 Eastern Utilities Association............. 596,875
20 FPL Group, Inc............................ 727,500
22 General Public Utilities Corp............. 640,750
12 GTE Corp.................................. 399,000
7 National Power ADR........................ 75,250
19 NIPSCO Industries, Inc.................... 591,375
16 NYNEX Corp................................ 634,000
19 Pacific Telesis Group..................... 574,750
30 Pacificorp................................ 581,250
24 Peco Energy Co............................ 603,000
27 Pinnacle West Capital Corp................ 563,625
5.2 Powergen Power & Light ADR................ 63,050
19 Public Service Co. of Colorado............ 584,250
22 Public Service Enterprise Group........... 602,250
29 Southern Co............................... 590,875
18 Texas Utilities Electric Co............... 571,500
24 Unicom Corp............................... 570,000
15 U. S. West, Inc........................... 600,000
20 Western Resources, Inc.................... 625,000
----------------
TOTAL UTILITIES........................... 13,170,800
----------------
TOTAL COMMON STOCK (Cost $13,991,594)..... 14,364,550
----------------
REPURCHASE AGREEMENT 2.1%
$ 535 Salomon Brothers, Inc, dated 3/31/95,
6.27% due 4/3/95 (collateralized by
U. S. Government obligations in a pooled
cash account) repurchase
proceeds $535,279 (Cost $535,000)......... 535,000
----------------
TOTAL INVESTMENTS (Cost $24,982,220) 98.9% ................. 25,030,437
OTHER ASSETS AND LIABILITIES, NET 1.1%...................... 267,674
----------------
NET ASSETS 100%............................................. $ 25,298,111
----------------
</TABLE>
7 See Notes to Financial Statements
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1995 (Unaudited)
--------------------------------------------------------------------------------
ASSETS
<TABLE>
<S> <C>
Investment, at market value (Cost $24,982,220)............... $ 25,030,437
Cash......................................................... 2,984
Interest and dividends receivable............................ 318,764
Receivable for Fund shares sold.............................. 70,581
Other assets................................................. 35,396
----------------
Total Assets................................................ 25,458,162
----------------
LIABILITIES
Due to Distributor........................................... 21,862
Due to shareholder service agent............................. 29,242
Deferred Directors' compensation............................. 1,374
Dividends payable............................................ 18,270
Payable for Fund shares redeemed............................. 17,281
Accrued expenses and other payables.......................... 72,022
----------------
Total Liabilities........................................... 160,051
----------------
NET ASSETS, equivalent to $8.72 per share for Class A, $8.71
per share Class B and $8.70 per share for Class C shares.... $ 25,298,111
----------------
NET ASSETS WERE COMPRISED OF:
Capital stock, at par; 995,792 Class A, 1,638,873 Class B and
269,483 Class C shares outstanding.......................... $ 29,041
Capital surplus.............................................. 25,669,373
Accumulated net realized loss on securities.................. (456,783)
Net unrealized appreciation of securities.................... 48,217
Undistributed net investment income.......................... 8,263
----------------
NET ASSETS at March 31, 1995................................. $ 25,298,111
----------------
</TABLE>
8 See Notes to Financial Statements
<PAGE>
STATEMENT OF OPERATIONS
Six Months Ended March 31, 1995 (Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest..................................................... $ 445,920
Dividends.................................................... 314,116
----------------
Investment income........................................... 760,036
----------------
EXPENSES:
Management fees.............................................. 72,767
Registration and filing fees................................. 62,865
Service fees--Class A........................................ 5,980
Distribution and service fees--Class B....................... 61,001
Distribution and service fees--Class C....................... 10,143
Accounting services.......................................... 26,816
Shareholder service agent's fees and expenses................ 44,609
Audit fees................................................... 14,400
Reports to shareholders...................................... 9,919
Director's fees and expenses................................. 5,510
Legal fees................................................... 3,199
Miscellaneous................................................ 1,772
Expense reimbursement........................................ (99,662)
----------------
Total expenses.............................................. 219,319
----------------
NET INVESTMENT INCOME...................................... 540,717
----------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITIES
Net realized loss on securities.............................. (130,520)
Net unrealized appreciation of securities during the period.. 1,044,548
----------------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES............. 914,028
----------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........... $ 1,454,745
----------------
</TABLE>
9 See Notes to Financial Statements
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
(Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
November 23, 1993*
Six Months Ended through
March 31, 1995 September 30, 1994
--------------------------------------------------------------------------------
<S> <C> <C>
NET ASSETS, beginning of period.......... $19,982,633 $ 101,000
----------- -----------
Operations
Net investment income................... 540,717 516,812
Net realized loss on securities......... (130,520) (326,081)
Net unrealized appreciation (deprecia-
tion) of securities during the period.. 1,044,548 (996,331)
----------- -----------
Increase (decrease) in net assets re-
sulting from operations................ 1,454,745 (805,600)
----------- -----------
Distributions to shareholders from net
investment income
Class A................................. (225,289) (225,591)
Class B................................. (290,220) (226,800)
Class C................................. (48,143) (33,691)
----------- -----------
(563,652) (486,082)
----------- -----------
Capital transactions
Proceeds from shares sold
Class A................................ 2,321,151 9,870,409
Class B................................ 4,053,715 12,813,610
Class C................................ 576,648 2,166,085
----------- -----------
6,951,514 24,850,104
----------- -----------
Proceeds from shares issued for distri-
butions reinvested
Class A................................ 204,839 210,220
Class B................................ 238,579 187,883
Class C................................ 32,346 24,750
----------- -----------
475,764 422,853
----------- -----------
Cost of shares redeemed
Class A................................ (1,660,741) (2,139,284)
Class B................................ (1,237,109) (1,610,501)
Class C................................ (105,043) (349,857)
----------- -----------
(3,002,893) (4,099,642)
----------- -----------
Increase in net assets resulting from
capital transactions..................... 4,424,385 21,173,315
----------- -----------
INCREASE IN NET ASSETS................... 5,315,478 19,881,633
----------- -----------
NET ASSETS, end of period................ $25,298,111 $19,982,633
----------- -----------
</TABLE>
*Commencement of operations
10 See Notes to Financial Statements
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each of the
periods indicated (Unaudited).
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
-------------------------
November 23,
Six Months 1993(/1/)
Ended through
March 31, September 30,
1995 1994(/4/)
-------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
<S> <C> <C>
Net asset value, beginning of period............... $ 8.39 $ 9.44
------ ------
Income from investment operations
Investment income................................. .29 .53
Expenses.......................................... (.06) (.09)
------ ------
Net investment income.............................. .23 .44
Net realized and unrealized gains or losses on
securities........................................ .334 (1.10)
------ ------
Total from investment operations................... .564 (.66)
------ ------
Distributions from net investment income........... (.234) (.39)
------ ------
Net asset value, end of period..................... $ 8.72 $ 8.39
------ ------
TOTAL RETURN (/3/)................................. 6.70% (7.24%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)............... $8.7 $7.5
Average net assets (millions)...................... $8.2 $5.2
Ratios to average net assets (/2/)
Expenses.......................................... 1.42% 1.06%
Expenses, without expense reimbursement........... 2.31% 2.43%
Net investment income............................. 5.41% 5.48%
Net investment income, without expense
reimbursement.................................... 4.52% 4.11%
Portfolio turnover rate............................ 29% 72%
</TABLE>
(1) Commencement of operations.
(2) Annualized; see Note 3.
(3) Total return not annualized. Total return calculated from December 1, 1993
(date the Fund began meeting its investment objective) through September
30, 1994. Total return does not consider the effect of sales charges.
(4) Based on average month-end shares outstanding.
11 See Notes to Financial Statements
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each of the
periods indicated (Unaudited).
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
-------------------------
November 23,
Six Months 1993(/1/)
Ended through
March 31, September 30,
1995 1994(/4/)
-------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
<S> <C> <C>
Net asset value, beginning of period............... $ 8.39 $ 9.44
------ -------
Income from investment operations
Investment income................................. .29 .52
Expenses.......................................... (.10) (.14)
------ -------
Net investment income.............................. .19 .38
Net realized and unrealized gains or losses on
securities........................................ .332 (1.096)
------ -------
Total from investment operations................... .522 (.716)
------ -------
Distributions from net investment income........... (.202) (.334)
------ -------
Net asset value, end of period..................... $ 8.71 $ 8.39
------ -------
TOTAL RETURN (/3/)................................. 6.30% (7.72%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)............... $14.3 $10.7
Average net assets (millions)...................... $12.2 $6.0
Ratios to average net assets (/2/)
Expenses.......................................... 2.28% 1.82%
Expenses, without expense reimbursement........... 3.17% 3.19%
Net investment income............................. 4.52% 4.66%
Net investment income, without expense
reimbursement.................................... 3.63% 3.29%
Portfolio turnover rate............................ 29% 72%
</TABLE>
(1) Commencement of operations.
(2) Annualized; see Note 3.
(3) Total return not annualized. Total return calculated from December 1, 1993
(date the Fund began meeting its investment objective) through September
30, 1994. Total return does not consider the effect of sales charges.
(4) Based on average month-end shares outstanding.
12 See Notes to Financial Statements
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each of the
periods indicated (Unaudited).
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
-------------------------
November 23,
Six Months 1993(/1/)
Ended through
March 31, September 30,
1995 1994(/4/)
-------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period............... $ 8.38 $ 9.44
------ -------
Income from investment operations
Investment income................................. .29 .53
Expenses.......................................... (.10) (.15)
------ -------
Net investment income.............................. .19 .38
Net realized and unrealized gains or losses on
securities........................................ .332 (1.106)
------ -------
Total from investment operations................... .522 (.726)
------ -------
Distributions from net investment income........... (.202) (.334)
------ -------
Net asset value, end of period..................... $ 8.70 $ 8.38
------ -------
TOTAL RETURN (/3/)................................. 6.30% (7.82%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)............... $2.3 $1.8
Average net assets (millions)...................... $2.0 $0.9
Ratios to average net assets (/2/)
Expenses.......................................... 2.27% 1.79%
Expenses, without expense reimbursement........... 3.16% 3.16%
Net investment income............................. 4.51% 4.65%
Net investment income, without expense
reimbursement.................................... 3.62% 3.28%
Portfolio turnover rate............................ 29% 72%
</TABLE>
(1) Commencement of operations.
(2) Annualized; see Note 3.
(3) Total return not annualized. Total return calculated from December 1, 1993
(date the Fund began meeting its investment objective) through September
30, 1994. Total return does not consider the effect of sales charges.
(4) Based on average month-end shares outstanding.
13 See Notes to Financial Statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
March 31, 1995 (Unaudited)
--------------------------------------------------------------------------------
NOTE 1--ORGANIZATION
American Capital Utilities Income Fund, Inc. (the "Fund") was organized as an
open-end, diversified management investment company in Maryland on August 31,
1993. The Fund's investment manager, Van Kampen American Capital Asset Manage-
ment, Inc. (the "Adviser") contributed the initial capital of $101,000 on No-
vember 8, 1993 and an additional $1,899,000 on November 30, 1993. The Fund
began offering shares on November 23, 1993.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
The Fund is registered under the Investment Company Act of 1940, as amended, as
an open-end, diversified 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-Securities listed or traded on a national securities
exchange are valued at the last sale price. Unlisted securities and listed se-
curities for which the last sale price is not available are valued at the last
reported bid price.
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, the investments are valued at amortized
cost.
B. FEDERAL INCOME TAXES-No provision for federal income taxes is required be-
cause the Fund intends to elect to be taxed as a "regulated investment company"
under 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 distribu-
tions of capital gains will be made until tax-basis capital loss carryforwards,
if any, expire or are offset by net realized capital gains.
Approximately $323,500 in financial statement losses are deferred for tax
purposes until the 1995 fiscal year.
C. INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME-Investment transac-
tions are accounted for on the trade date. Realized gains and losses on invest-
ments are determined on the basis of identified cost. Dividend income is
recorded on the ex-dividend date. Interest income is accrued daily.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1995 (Unaudited)
--------------------------------------------------------------------------------
D. 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 differ from generally accepted accounting principles. Such dividends
or distributions may exceed financial statement earnings.
E. DEBT DISCOUNT OR PREMIUM-The Fund accounts for original issue discounts and
premiums on the same basis as is followed for federal income tax reporting. Ac-
cordingly, originally 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 accounted for at the time of sale as real-
ized gains for book purposes and ordinary income for tax purposes.
F. ORGANIZATION COSTS-Organization expenses of approximately $15,000 were de-
ferred and are being amortized over a five year period ending November, 1998.
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
.65%. From time to time, the Adviser may voluntarily elect to reimburse the
Fund a portion of the Fund's expenses. Such reimbursement may be discontinued
at any time without prior notice. For the period ended March 31, 1995, such re-
imbursement amounted to $99,662.
Accounting services include the salaries and overhead expenses of the Fund's
Treasurer and the personnel operating under his discretion. Charges are allo-
cated among investment companies advised or sub-advised by the Adviser. For the
period ended March 31, 1995, these charges included $3,130 as the Fund's share
of the employee costs attributable to the Fund's accounting officers. A portion
of the accounting services expense was paid to the Adviser in reimbursement of
personnel, facilities, and equipment costs attributable to the provision of ac-
counting 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 ended March 31, 1995, such fees aggregated $30,900.
The Fund has been advised that Van Kampen American Capital Distributors, Inc.
(the "Distributor") and Advantage Capital Corp. (the "Retail Dealer"), both af-
filiates of the Adviser, received $3,383 and $10,323, respectively, as their
portion of the commission charged on sales of Fund shares during the period.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1995 (Unaudited)
--------------------------------------------------------------------------------
Under the Distribution Plans, the Fund pays up to .25% per annum of its aver-
age daily net assets to the Distributor for expenses and service fees incurred.
Class B shares 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 Distributor for Class B
shares and Class C shares may exceed the amounts reimbursed to the Distributor
by the Fund. At March 31, 1995, the unreimbursed expenses incurred by the Dis-
tributor under the Class B plan and Class C plan aggregated approximately
$529,000 and $31,000, 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 renewal of the plans, future 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 directors of the Fund are officers and directors of the
Adviser, the Distributor, the Retail Dealer and the shareholder service agent.
NOTE 4--DIRECTOR COMPENSATION
Fund directors who are not affiliated with the Adviser are compensated by the
Fund at the annual rate of $730 plus a fee of $20 per day for Board and Commit-
tee meetings attended. The Chairman receives additional fees from the Fund at
an annual rate of $270. During the period, such fees aggregated $2,849.
The directors 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 director 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.
NOTE 5--INVESTMENT ACTIVITY
During the period, the cost of purchases and proceeds from sales of invest-
ments, excluding short-term investments, were $11,020,452 and $6,356,147, re-
spectively.
The cost of investments owned at March 31, 1995 was the same for federal in-
come tax and financial reporting purposes. Gross unrealized appreciation of in-
vestments aggregated $649,418 and gross unrealized depreciation of investments
aggregated $601,201.
NOTE 6--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
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1995 (Unaudited)
--------------------------------------------------------------------------------
time of redemption on a contingent deferred basis (the Class B shares and Class
C shares). All classes of shares have the same rights, except that Class B
shares 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 of each
class. Class B shares and Class C shares automatically convert to Class A
shares six years and ten years after purchase, respectively, subject to certain
conditions.
The Fund has 200 million of each class of shares of $.01 par value capital
stock authorized. Transactions in shares of capital stock during the period
were as follows:
<TABLE>
<CAPTION>
NOVEMBER 23, 1993*
SIX MONTHS ENDED THROUGH
MARCH 31, 1995 SEPTEMBER 30, 1994
-------------------------------------------------------------------------------
<S> <C> <C>
Shares sold
Class A................................... 273,477 1,116,081
Class B................................... 476,363 1,446,604
Class C................................... 68,131 248,296
-------- ---------
817,971 2,810,981
-------- ---------
Shares issued for distributions reinvested
Class A................................... 24,018 24,273
Class B................................... 27,959 21,860
Class C................................... 3,791 2,888
-------- ---------
55,768 49,021
-------- ---------
Shares redeemed
Class A................................... (193,947) (248,110)
Class B................................... (145,212) (188,701)
Class C................................... (12,378) (41,245)
-------- ---------
(351,537) (478,056)
-------- ---------
Increase in shares outstanding............. 522,202 2,381,946
-------- ---------
</TABLE>
*Commencement of operations
17
<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.
18
<PAGE>
AMERICAN CAPITAL UTILITIES INCOME FUND, INC.
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
MARY JANE BYRNE
JAMES A. GILLIGAN
DENNIS J. MCDONNELL
RONALD A. NYBERG
ROBERT C. PECK, JR.
ALAN T. SACHTLEBEN
DAVID R. TROTH
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 unless it
has been preceded or is accompanied by an effective prospectus of the Fund
which contains additional information on how to purchase shares, the sales
charge, and other pertinent data.
19
<PAGE>
AMERICAN CAPITAL UTILITIES INCOME FUND, INC.
THIS PAGE INTENTIONALLY LEFT BLANK
20
