-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ahlc9F/Gp2WAAjcoRXdj9W4AzuKSRRoiafmEgrXrK7W1lIAYwH/Q7VPtRnuQLdqf uKsUDiqCObp4kfLKpB93EQ== 0000950131-96-001909.txt : 19960506 0000950131-96-001909.hdr.sgml : 19960506 ACCESSION NUMBER: 0000950131-96-001909 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960229 FILED AS OF DATE: 19960503 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: VAN KAMPEN AMERICAN CAPITAL GOVERNMENT TARGET FUND CENTRAL INDEX KEY: 0000865441 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 760315855 STATE OF INCORPORATION: MA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-06127 FILM NUMBER: 96556125 BUSINESS ADDRESS: STREET 1: 2800 POST OAK BLVD STREET 2: 46TH FL CITY: HOUSTON STATE: TX ZIP: 77056 BUSINESS PHONE: 7139930500 MAIL ADDRESS: STREET 1: 2800 POST OAK BLVD STREET 2: 46TH FL CITY: HOUSTON STATE: TX ZIP: 77056 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN CAPITAL GOVERNMENT TARGET SERIES DATE OF NAME CHANGE: 19920703 N-30D 1 GOVERNMENT TARGET FUND / SAR TABLE OF CONTENTS Letter to Shareholders...................... 1 Performance Results......................... 3 Portfolio Management Review................. 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
GTS SAR 4/96 LETTER TO SHAREHOLDERS [PHOTO APPEARS HERE] DENNIS J. MCDONNELL AND DON G. POWELL April 15, 1996 Dear Shareholder, We are pleased to report continued positive results for the Van Kampen Amer- ican Capital Government Target Fund. For the six months ended February 29, 1996, shareholders of the Fund achieved a total return at net asset value of 2.36 percent/1/. Longer term, the Fund's one-year total return at net asset value was 6.22 percent/1/ for the same ending period. With experience in money management dating back to 1926, Van Kampen American Capital has weathered widely ranging market conditions and emerged with a successful investment record. Today, we manage over $6.8 billion in government securities. A central part of our in- vestment philosophy has always been a disciplined, value-oriented approach that includes in-depth research, both qualitative and quantitative. We believe this approach serves our investors well, as we seek to provide a high level of current income and superior long-term performance in our fixed-income portfo- lios. You can read more about your Fund's performance on the following pages, in- cluding a recent interview with the portfolio management team. ECONOMIC OVERVIEW The slowdown in the economy continued through the end of 1995, reflected in weak consumer demand and disappointing retail sales during the holiday season. Severe winter weather in many parts of the country further dampened retail ac- tivity and hindered distribution and manufacturing. These conditions helped to keep inflation in check, prompting the Federal Reserve Board to continue eas- ing short-term interest rates. In turn, long-term interest rates declined, causing the price of bonds to increase. The beginning of 1996 was marked by an increase in market volatility, which effectively ended the decline in bond yields. This volatility was triggered in part by three factors: fiscal uncertainty caused by two unprecedented shut- downs of the federal government, presidential primary debates about impending tax reform, and an unexpected reversal in a number of key economic indicators, which consequently sent the market mixed signals on the direction of the econ- omy. Still, due to the government shutdowns and the unusually harsh weather, the market remained skeptical of the predictive value of economic statistics issued for January and February. Interest rates have fluctuated as the market attempts to determine whether the economy will remain slow throughout 1996. Continued on page two 1 ECONOMIC OUTLOOK In general, we anticipate a pickup in economic activity during the first half of the year, with possibilities of an increase in inflation and an economic slowdown toward the end of the year. We believe the Federal Reserve Board will be cautious in its monetary policy toward short-term interest rates, as mixed economic news continues to be reported. The Fed is expected to maintain its focus on growing the economy at an annual rate of 2 to 3 percent, while striving to keep inflation at bay. Interest rates are expected to remain within the range experienced over the past several years, with a continuation of historically low rates. LONG-TERM PERFORMANCE Throughout the life of the Fund, the support of our shareholders and our com- mitment to a disciplined investment approach have been important to our long- term performance record. Thank you for your continued confidence in Van Kampen American Capital and in your Fund's management team. Sincerely, /s/ Don G. Powell /s/ Dennis J. McDonnell Don G. Powell Dennis J. McDonnell Chairman President Van Kampen American Capital Van Kampen American Capital Asset Management, Inc. Asset Management, Inc. 2 PERFORMANCE RESULTS FOR THE PERIOD ENDED FEBRUARY 29, 1996 VAN KAMPEN AMERICAN CAPITAL GOVERNMENT TARGET FUND TOTAL RETURNS Six-month total return based on NAV/1/............................... 2.36% Six-month total return/2/............................................ (.70%) One-year total return/2/............................................. 3.02% Five-year average annual total return/2/............................. 6.28% Life-of-Fund average annual total return/2/.......................... 6.69% Commencement Date.................................................... 09/11/90
/1/Assumes reinvestment of all distributions for the period. /2/Standardized total return. Assumes reinvestment of all distributions for the period and includes payment of the maximum sales charge of 3.00% when the Fund was offered for sale. See the Prior Performance section of the current prospectus. Past performance does not guarantee future results. Investment return and net asset value will fluctuate with market conditions. Fund shares, when redeemed, may be worth more or less than their original cost. 3 PORTFOLIO MANAGEMENT REVIEW VAN KAMPEN AMERICAN CAPITAL GOVERNMENT TARGET FUND We recently spoke with the management team of the Van Kampen American Capital Government Target Fund about the key events and economic forces which shaped the markets during the first half of the Fund's fiscal year. The team includes John R. Reynoldson, portfolio manager, and Robert C. Peck, Jr., executive vice president for fixed-income investments. The following excerpts reflect their views on the Fund's performance during the six-month period ended February 29, 1996. Q WHAT MARKET EVENTS INFLUENCED THE FUND OVER THE SIX-MONTH PERIOD ENDED FEBRUARY 29, 1996? A Overall, the fixed-income environment throughout this reporting period was constructive. Interest rates fell throughout the first five months of the period. For example, from September through January, the yield on 5-year Treasury notes fell from 6.10 percent to 5.20 percent. As bond prices rose and the economy continued to grow at a slow rate, the Federal Reserve Board cut its key lending rate (the federal funds rate) twice, for a total of one-half of one percent. In February, however, the market experienced a sharp reversal, as key indicators suggested the economy was gaining strength. Further easing by the fed appeared unlikely. As market direction shifted, the yield on 5-year Treasury notes rose to 5.70 percent as of February 1996. Because your Fund maintains a strict policy of not extending its duration beyond the Fund's maturity, it has progressively become less sensitive to in- terest rate changes, such as those we experienced during this period. As of February 29, the Fund had an approximate remaining life to maturity of 27 months and a duration of 2.0 years. Duration is a measure used to evaluate a bond's sensitivity to changes in interest rates. (Please refer to the chart on page three for additional Fund performance results.) Q WHAT IS YOUR INVESTMENT STRATEGY AND HOW HAS IT AFFECTED THE FUND'S PERFORMANCE? A We continually strive to add incremental return to the portfolio's value by actively managing the assets and reducing the Fund's duration as it approaches its maturity date. To do this, we have taken a relatively conserva- tive approach by limiting our investments to predominately U.S. Treasury obli- gations, while also including some fixed-rate mortgage-backed securities. For the six-month period, the Fund achieved a total return of 2.36 per- cent/1/, based on net asset value. The Fund's average annual total return since inception (September 11, 1990) through February 29, 1996, was 7.29 per- cent/1/, based on net asset value. 4 [PIE CHART PORTFOLIO HOLDINGS AS A PERCENTAGE OF NET ASSETS AS OF FEBRUARY 29, 1996 APPEARS HERE] Federal National Mortgage Securities 53% U.S. Treasury Notes 32% Other 15% Q HOW DID THE FUND PERFORM RELATIVE TO A COMPARATIVE INDEX? A The Lehman Brothers Short U.S. Government Index achieved a total return of 3.68 percent, for the six-months ended February 29, 1996. This is a broad- based index which attempts to measure the performance of all U.S. Government agency and Treasury securities with maturities of one to five years. This in- dex, which is unmanaged, does not reflect any commissions or fees that would be paid by an investor purchasing the securities it represents. Q WHAT IS YOUR OUTLOOK FOR THE MONTHS AHEAD? A We believe there will be moderate economic growth and inflation will re- main under control for the remainder of 1996. This environment should prove constructive for bonds--with long-term bonds continuing to yield between 6 and 7 percent, and short-term instruments, as measured by the 2-year Treasury note, yielding between 4.5 and 6 percent. Overall, we will manage the Fund within the duration constraints previously described, while seeking securities we believe represent value. /s/ Robert C. Peck, Jr. /s/ John R. Reynoldson Robert C. Peck, Jr. John R. Reynoldson Executive Vice President Portfolio Manager Fixed Income Investments Please see footnotes on page three. 5 PORTFOLIO OF INVESTMENTS February 29, 1996 (Unaudited) - --------------------------------------------------------------------------------
Par Amount (000) Description Coupon Maturity Market Value - ------------------------------------------------------------------------------- UNITED STATES GOVERNMENT OBLIGATIONS 84.6% $8,721 Federal National Mortgage Association, Pools................................... 8.00% various $ 9,001,646 5,500 United States Treasury Notes............ 5.50 12/31/00 5,445,000 ----------- TOTAL UNITED STATES GOVERNMENT OBLIGATIONS (Cost $14,070,699)...................... 14,446,646 ----------- REPURCHASE AGREEMENT 15.2% 2,600 SBC Capital Markets, Inc., dated 02/29/96 (collateralized by U.S. Government obligations in a pooled cash account) repurchase proceeds $2,600,394 (Cost $2,600,000)....................... 5.45 03/01/96 2,600,000 ----------- TOTAL INVESTMENTS (Cost $16,670,699) 99.8%...................... 17,046,646 OTHER ASSETS AND LIABILITIES, NET 0.2%.......................... 34,430 ----------- NET ASSETS 100%................................................. $17,081,076 -----------
See Notes to Financial Statements 6 STATEMENT OF ASSETS AND LIABILITIES February 29, 1996 (Unaudited) - -------------------------------------------------------------------------------- ASSETS Investments, at market value (Cost $16,670,699)................... $17,046,646 Interest receivable............................................... 104,335 Other assets...................................................... 16,973 ----------- Total Assets..................................................... 17,167,954 ----------- LIABILITIES Payable for fund shares redeemed.................................. 26,477 Due to Distributor................................................ 9,011 Due to Adviser.................................................... 6,462 Deferred Trustees' compensation................................... 6,312 Due to shareholder service agent.................................. 1,971 Due to Trustees................................................... 1,680 Accrued expenses.................................................. 34,965 ----------- Total Liabilities................................................ 86,878 ----------- Net Assets, equivalent to $14.33 per share........................ $17,081,076 ----------- NET ASSETS WERE COMPRISED OF: Shares of beneficial interest, par value $.01 per share; unlimited number of shares authorized; 1,191,820 shares outstanding........ $ 11,918 Capital surplus................................................... 18,227,496 Accumulated net realized loss on investments...................... (1,789,593) Net unrealized appreciation of investments........................ 375,947 Undistributed net investment income............................... 255,308 ----------- NET ASSETS........................................................ $17,081,076 -----------
See Notes to Financial Statements 7 STATEMENT OF OPERATIONS Six Months Ended February 29, 1996 (Unaudited) - -------------------------------------------------------------------------------- INVESTMENT INCOME Interest............................................................. $578,695 -------- EXPENSES Management fees...................................................... 42,939 Shareholder service agent's fees and expenses........................ 8,799 Accounting services.................................................. 20,614 Service fees......................................................... 21,469 Trustees' fees and expenses.......................................... 6,405 Audit fees........................................................... 13,353 Custodian fees....................................................... 1,344 Legal fees........................................................... 1,556 Reports to shareholders.............................................. 7,200 Registration and filing fees......................................... 1,360 Organization expenses................................................ 119 Miscellaneous........................................................ 698 Management fee waiver (see Note 3)................................... (4,294) -------- Total expenses...................................................... 121,562 -------- NET INVESTMENT INCOME................................................ 457,133 -------- REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITIES Net realized gain on investments..................................... 19,576 Net unrealized depreciation of investments during the period......... (86,032) -------- NET REALIZED AND UNREALIZED LOSS ON SECURITIES....................... (66,456) -------- INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..................... $390,677 --------
See Notes to Financial Statements 8 STATEMENT OF CHANGES IN NET ASSETS (Unaudited) - --------------------------------------------------------------------------------
Six Months Year Ended Ended February 29, August 31, 1996 1995 - ------------------------------------------------------------------------------- NET ASSETS, beginning of period.................... $17,109,406 $17,990,012 ----------- ----------- OPERATIONS Net investment income............................. 457,133 804,785 Net realized gain (loss) on securities............ 19,576 (256,496) Net unrealized appreciation (depreciation) of securities during the period...................... (86,032) 375,726 ----------- ----------- Increase in net assets resulting from operations.. 390,677 924,015 ----------- ----------- DISTRIBUTIONS TO SHAREHOLDERS FROM (see Note 2F) Net investment income............................. (887,813) (695,962) ----------- ----------- CAPITAL TRANSACTIONS Proceeds from shares issued for distributions reinvested........................................ 873,599 686,289 Cost of shares redeemed........................... (404,793) (1,794,948) ----------- ----------- Increase (decrease) in net assets from capital transactions...................................... 468,806 (1,108,659) ----------- ----------- DECREASE IN NET ASSETS............................. (28,330) (880,606) ----------- ----------- NET ASSETS, end of period (including undistributed net investment income of $255,308 and $685,988, respectively)...................................... $17,081,076 $17,109,406 ----------- ----------- CHANGE IN SHARES OUTSTANDING Shares issued for distributions reinvested........ 64,542 54,554 Reverse share splits (see Note 4)................. (65,536) (55,292) Shares redeemed................................... (28,450) (133,106) ----------- ----------- Decrease in shares outstanding.................... (29,444) (133,844) ----------- -----------
See Notes to Financial Statements 9 FINANCIAL HIGHLIGHTS Selected data for a share of beneficial interest outstanding throughout each of the periods indicated. (Unaudited) - --------------------------------------------------------------------------------
Six Months September 11, Ended Year Ended August 31 1990(/2/) to February 29, ------------------------------------ August 31, 1996 1995 1994 1993(/1/) 1992(/1/) 1991(/1/) - ----------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE(/3/) Net asset value, beginning of period..... $14.78 $14.59 $15.75 $17.89 $17.06 $15.48 ------ ------ ------ ------ ------ ------ INCOME FROM INVESTMENT OPERATIONS Investment income...... .50 .93 1.06 1.15 1.11 1.21 Expenses............... (.11) (.23) (.26) (.25) (.30) (.31) ------ ------ ------ ------ ------ ------ Net investment income... .39 .70 .80 .90 .81 .90 Net realized and unrealized gain (loss) on securities.......... (.10) .045 (1.03) .155 1.80 .84 ------ ------ ------ ------ ------ ------ Total from investment operations.............. .29 .745 (.23) 1.055 2.61 1.74 ------ ------ ------ ------ ------ ------ LESS DISTRIBUTIONS FROM (see Note 2F) Net investment income.. (.74) (.555) (.70) (1.065) (.96) (.16) Net realized gain on securities............ -- -- -- (2.13) (.82) -- Excess of book-basis net realized gain..... -- -- (.23) -- -- -- ------ ------ ------ ------ ------ ------ Total distributions..... (.74) (.555) (.93) (3.195) (1.78) (.16) ------ ------ ------ ------ ------ ------ Net asset value, end of period.................. $14.33 $14.78 $14.59 $15.75 $17.89 $17.06 ------ ------ ------ ------ ------ ------ TOTAL RETURN(/4/)....... 2.36% 5.40% (1.64%) 6.87% 16.48% 11.34% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (millions)....... $17.1 $17.1 $18.0 $23.0 $15.0 $15.0 Average net assets (millions).............. $17.2 $17.4 $19.9 $17.6 $14.6 $12.6 Ratios to average net assets (annualized)(/5/) Expenses............... 1.42% 1.56% 1.58% 1.62% 1.72% 1.95% Expenses, without waiver................. 1.47% 1.61% 1.63% 1.63% -- -- Net investment income.. 5.32% 4.63% 4.91% 5.62% 4.82% 5.37% Net investment income, without waiver......... 5.27% 4.58% 4.86% 5.60% -- -- Portfolio turnover rate. 8% 51% 82% 283% 321% 418%
(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) Total return for a period of less than one year is not annualized. Total return does not consider the effect of sales charges. (5) See Note 3. See Notes to Financial Statements 10 NOTES TO FINANCIAL STATEMENTS (Unaudited) - -------------------------------------------------------------------------------- NOTE 1--ORGANIZATION Van Kampen American Capital Government Target Fund (the "Fund," ) is registered under the Investment Company Act of 1940, as amended, as a diversified, open- end management investment company. The Fund seeks to provide the highest rate of return consistent with safety and liquidity. The Fund plans to liquidate on December 16, 1997 and distribute the proceeds pro rata to shareholders. NOTE 2--SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently fol- lowed by the Fund in the preparation of its financial statements. The prepara- tion of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the amounts reported. Actual amounts may differ from the estimates. 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. 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 11 NOTES TO FINANCIAL STATEMENTS (CONTINUED) (Unaudited) - ------------------------------------------------------------------------------- purchase commitments for which security settlement is not intended by the Fund and all forward sale commitments, 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 repurchase the forward commitment and enter into a new forward commitment, the effect of which is to extend the settlement date. In addition, the Fund may occasionally close such forward commitments prior to delivery. Gains and losses are realized upon the ultimate closing or cash settlement of forward commitments. C. REPURCHASE AGREEMENTS-A repurchase agreement is a short-term investment in which the Fund acquires ownership of a debt security and the seller agrees to repurchase the security at a future time and specified price. The Fund may in- vest independently in repurchase agreements, or transfer uninvested cash bal- ances into a pooled cash account along with other investment companies advised by Van Kampen American Capital Asset Management, Inc. (the "Adviser"), the daily aggregate of which is invested in repurchase agreements. Repurchase agreements are collateralized by the underlying debt security. The Fund 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, 1995, the Fund carried forward approximately $1.5 million in capital losses for federal income tax purposes, which may be utilized to off- set current or future capital gains until the liquidation of the Fund. Addi- tionally, approximately $356,000 in post October losses are being deferred for tax purposes to the 1996 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 12 NOTES TO FINANCIAL STATEMENTS (CONTINUED) (Unaudited) - ------------------------------------------------------------------------------- minimum distribution requirements of the Internal Revenue Code which may dif- fer from generally accepted accounting principles. Such dividends or distribu- tions may exceed financial statement earnings. G. DEBT DISCOUNT AND PREMIUM-The Fund accounts for discounts and premiums on the same basis as is used for federal income tax reporting. Accordingly, orig- inal issue discounts on debt securities purchased are amortized over the life of the security. Premiums on debt securities are not amortized. Market dis- counts are recognized at the time of sale as realized gains for book purposes and ordinary income for tax purposes. H. ORGANIZATION COSTS-Organization expenses were deferred and amortized over a five year period that ended 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 Chief Accounting Officer and the personnel operating under his direction. Charges are allocated among investment companies advised by the Adviser. For the period these charges included $2,419 as the Fund's share of the employee costs attributable to the Fund's accounting officers. A portion of accounting services expense was paid to the Adviser in reimbursement of personnel, facil- ities and equipment costs attributable to the provision of accounting services to the Fund. The services provided by the Adviser are at cost. ACCESS Investor Services, Inc., an affiliate of the Adviser, serves as the Fund's shareholder service agent. These services are provided at cost plus a profit. For the period, such fees aggregated $6,886. 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 during the period were for services rendered by former counsel of the Fund, O'Melveny & Myers. A former trustee was of counsel to that firm. Certain officers and trustees of the Fund are officers and trustees of the Adviser, the Distributor, and the shareholder service agent. 13 NOTES TO FINANCIAL STATEMENTS (CONTINUED) (Unaudited) - ------------------------------------------------------------------------------- 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 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 share- holders, a reverse share split will not give rise to a gain or loss for fed- eral income tax purposes. On December 15, 1995, the shares of the Fund were split .9481 of a share for each 1 share outstanding. NOTE 5--INVESTMENT ACTIVITY During the period, the cost of purchases and proceeds from sales of invest- ments, excluding short-term investments and forward commitments, were $5,529,649 and $931,639, respectively. The cost of investments owned at the end of the period was the same for fed- eral income tax and financial reporting purposes. Gross unrealized apprecia- tion of investments aggregated $460,595 and gross unrealized depreciation of investments aggregated $84,648. NOTE 6--TRUSTEE COMPENSATION Trustees who are not affiliated with the Adviser are compensated by the Fund at the annual rate of $625 plus a fee of $18 per day for Board and Committee meetings attended. During the period, such fees aggregated $6,122. The Fund has in effect a deferred compensation plan for its trustees not af- filiated with the Adviser. The plan is not funded and its obligation 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 obligation under the plan by any form of trust or escrow. Under the plan, trustees may elect to defer all or a portion of their compensation to a later date. Each trustee covered under the plan elects to earn on the deferred balances an amount equal to the total return of the Fund or equal to the income earned by the Fund on its short-term investments. 14 FUNDS DISTRIBUTED BY VAN KAMPEN AMERICAN CAPITAL GLOBAL AND INTERNATIONAL Global Equity Fund Global Government Securities Fund Global Managed Assets Fund Short-Term Global Income Fund Strategic Income Fund EQUITY Growth Emerging Growth Fund Enterprise Fund Pace Fund Growth & Income Balanced Fund Comstock Fund Equity Income Fund Growth and Income Fund Harbor Fund Real Estate Securities Fund Utility Fund FIXED INCOME Corporate Bond Fund Government Securities Fund High Income Corporate Bond Fund High Yield Fund Limited Maturity Government Fund Prime Rate Income Trust Reserve Fund U.S. Government Fund U.S. Government Trust for Income TAX-FREE California Insured Tax Free Fund Florida Insured Tax Free Income Fund High Yield Municipal Fund Insured Tax Free Income Fund Limited Term Municipal Income Fund Municipal Income Fund New Jersey Tax Free Income Fund New York Tax Free Income Fund Pennsylvania Tax Free Income Fund Tax Free High Income Fund Tax Free Money Fund Texas Tax Free Income Fund THE GOVETT FUNDS Emerging Markets Fund Global Income Fund International Equity Fund Latin America Fund Pacific Strategy Fund Smaller Companies Fund Ask your investment representative for a prospectus containing more complete information, including sales charges and expenses. Please read it carefully before you invest or send money. Or call us direct at 1-800-421-5666 weekdays from 7:00 a.m. to 7:00 p.m. Central time. 15 VAN KAMPEN AMERICAN CAPITAL GOVERNMENT TARGET FUND BOARD OF TRUSTEES J. MILES BRANAGAN LINDA HUTTON HEAGY ROGER HILSMAN R. CRAIG KENNEDY DENNIS J. MCDONNELL DONALD C. MILLER JACK E. NELSON DON G. POWELL JEROME L. ROBINSON FERNANDO SISTO* WAYNE W. WHALEN WILLIAM S. WOODSIDE *Chairman of the Board OFFICERS DON G. POWELL President and Chief Executive Officer DENNIS J. MCDONNELL Executive Vice President RONALD A. NYBERG Vice President and Secretary EDWARD C. WOOD, III Vice President and Chief Financial Officer CURTIS W. MORELL Vice President and Chief Accounting Officer JOHN L. SULLIVAN Treasurer TANYA M. LODEN Controller WILLIAM N. BROWN PETER W. HEGEL ROBERT C. PECK, JR. ALAN T. SACHLIEBEN PAUL R. WOLKENBERG Vice Presidents INVESTMENT ADVISER VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC. One Parkview Plaza Oakbrook Terrace, Illinois 60181 DISTRIBUTOR VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC. One Parkview Plaza Oakbrook Terrace, Illinois 60181 SHAREHOLDER 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 LEGAL COUNSEL SKADDEN, ARPS, SLATE, MEAGHER & FLOM 333 West Wacker Drive Chicago, Illinois 60606 (C) Van Kampen American Capital Distributors, Inc., 1996 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. 16 -----END PRIVACY-ENHANCED MESSAGE-----