<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders...................... 1
Performance Results......................... 3
Portfolio Highlights........................ 4
Portfolio Management Review................. 5
Portfolio of Investments.................... 7
Statement of Assets and Liabilities......... 9
Statement of Operations..................... 10
Statement of Changes in Net Assets.......... 11
Financial Highlights........................ 12
Notes to Financial Statements............... 15
</TABLE>
LTMG SAR 8/96
<PAGE>
LETTER TO SHAREHOLDERS
[PHOTO OF DENNIS J. MCDONNELL AND DON G. POWELL APPEARS HERE]
DENNIS J. MCDONNELL AND
DON G. POWELL
August 1, 1996
Dear Shareholder,
As you may be aware, an agreement was reached in late June for VK/AC Hold-
ing, Inc., the parent company of Van Kampen American Capital, Inc., to be ac-
quired by the Morgan Stanley Group Inc. While this announcement may appear
commonplace in an ever-changing financial industry, we believe it represents
an exciting opportunity for shareholders of our investment products.
With Morgan Stanley's global leadership in investment banking and asset man-
agement and Van Kampen American Capital's reputation for competitive long-term
performance and superior investor services, together we will offer a broader
range of investment opportunities and expertise.
The new ownership will not affect our commitment to pursuing excellence in
all aspects of our business. And, we expect very little change in the way your
mutual fund account is maintained and serviced.
A proxy will be mailed to you shortly explaining the acquisition and asking
for your vote of approval. Please read it carefully and return your response
for inclusion in the shareholder vote. We value our relationship with you and
look forward to communicating more details of this transaction, which is an-
ticipated to be completed in November.
ECONOMIC REVIEW
The economy demonstrated an acceleration in growth during the six-month re-
porting period. After a nominal 0.3 percent growth rate in the last quarter of
1995, GDP (the nation's gross domestic product) rose by 2.0 percent in this
year's first quarter. And, as anticipated, the economy grew 4.2 percent in the
second quarter, partly reflecting a recovery from the effects of labor strikes
earlier in the year and extreme weather conditions across the country. Upward
momentum has been assisted by consumer spending, as indicated by a 5.6 percent
rise in retail sales in the first five months of this year versus the compara-
ble 1995 period.
In the manufacturing sector, economic reports, such as the National Associa-
tion of Purchasing Managers Index, suggested a continued rebound in production
from last winter's lower levels. In June, this index reached its highest level
since early 1995. Strong levels of exports and a replenishing of inventories
have helped support this momentum.
Surprisingly healthy economic activity led to concerns that inflation may
rise and the Federal Reserve Board might tighten monetary policy. Inflation
remains modest, however, with consumer prices rising at about a 3 percent an-
nual rate over the past year. Meanwhile, the closely watched "core" Consumer
Price Index, which excludes volatile food and energy components, has risen year
over year at rates between 2.7 and 3.0 percent per year, with mid-1996 readings
at a moderate 2.7 percent. In general, recent reports have suggested an upward
creep in labor-related costs, while indicating that prices of many commodities
have begun to decline.
Continued on page two
1
<PAGE>
MARKET REVIEW AND OUTLOOK
During the first half of 1996, interest rates rose sharply, and U.S. Trea-
sury yields increased by 1.00 to 1.25 percent. Benchmark 10-year U.S. Treasur-
ies declined in value by 7.8 percent. Signs of increasing economic momentum,
as discussed above, were the major factor contributing to this decline.
We anticipate that reasonably strong economic growth will continue during
the balance of 1996, albeit at more moderate rates than the second quarter's
swift pace. While we expect rates of inflation to remain near current levels,
the Fed may begin to lean toward greater restraint in its monetary policy in
the coming months. That suggests an upward bias for short-term interest rates
and for yields on long-term bonds to remain steady at current levels. In par-
ticular, we expect 10-year Treasury yields to remain within a trading range of
6.50 and 7.25 percent.
Additional details about your Fund, including a question and answer section
with your portfolio management team, is provided in this report. We appreciate
your continued confidence in your investment with Van Kampen American Capital.
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
<PAGE>
PERFORMANCE RESULTS FOR THE PERIOD ENDED JUNE 30, 1996
VAN KAMPEN AMERICAN CAPITAL LIMITED MATURITY GOVERNMENT FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
TOTAL RETURNS
<S> <C> <C> <C>
Six-month total return based on NAV/1/............... .33% .02% .02%
Six-month total return/2/............................ (2.96%) (2.92%) (.96%)
One-year total return/2/............................. .77% .37% 2.43%
Five-year average annual total return/2/............. 3.54% N/A N/A
Life-of-Fund average annual total return/2/.......... 5.47% 3.05% 2.97%
Commencement Date.................................... 06/16/86 11/05/91 05/10/93
DISTRIBUTION RATE AND YIELD
Distribution Rate/3/................................. 5.27% 4.65% 4.65%
SEC Yield/4/......................................... 4.51% 3.89% 3.89%
</TABLE>
N/A = Not Applicable
/1/Assumes reinvestment of all distributions for the period and does not in-
clude payment of the maximum sales charge (3.25% for A shares) or contingent
deferred sales charge for early withdrawal (3% for B and 1% for C shares).
/2/Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (A shares) or contin-
gent deferred sales charge for early withdrawal (B and C shares).
/3/Distribution Rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.
/4/SEC Yield is a standardized calculation prescribed by the Securities and Ex-
change Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending as shown above.
See the Prior Performance section of the current prospectus. Past performance
does not guarantee future results. Investment return and net asset value will
fluctuate with market conditions. Fund shares, when redeemed, may be worth more
or less than their original cost.
3
<PAGE>
PORTFOLIO HIGHLIGHTS
VAN KAMPEN AMERICAN CAPITAL LIMITED MATURITY GOVERNMENT FUND
COUPON DISTRIBUTION AS OF JUNE 30, 1996
[BAR CHART OF COUPON DISTRIBUTION AS OF JUNE 30, 1996 APPEARS HERE]
PERCENTAGE OF LONG-TERM INVESTMENTS
5-6 6-7 7-8 8-9 10 or More
----- ----- ----- ---- ----------
61.8% 14.8% 14.2% 5.6% 3.6%
Coupon Rate
PORTFOLIO COMPOSITION BY SECTOR
[PIE CHART OF PORTFOLIO COMPOSITION BY SECTOR AS OF JUNE 30, 1996 APPEARS HERE]
Treasury Notes..................... 3%
CMOs............................... 65%
ARMs & Floating Rate CMOs.......... 8%
Asset-Backed Securities............ 11%
Fixed-Mortgage Backed Securities... 13%
[PIE CHART OF PORTFOLIO COMPOSITION BY SECTOR AS OF DECEMBER 31, 1995
APPEARS HERE]
Treasury Notes..................... 7%
CMOs............................... 40%
ARMs & Floating Rate CMOs.......... 24%
Asset-Backed Securities............ 12%
Fixed-Mortgage Backed Securities... 12%
Other.............................. 5%
DURATION
ON JUNE 30, 1996 ON DECEMBER 31, 1995
Duration 2.0 years 2.6 years
4
<PAGE>
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN AMERICAN CAPITAL LIMITED MATURITY GOVERNMENT FUND
We recently spoke with the management team of the Van Kampen American Capital
Limited Maturity Government Fund about the key events and economic forces that
shaped the markets during the past six months. The team includes Ted V. Mundy,
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 June 30, 1996.
THE FOLLOWING KEY TERMS ARE LISTED IN THE ORDER IN WHICH YOU WILL FIND THEM IN
THIS REPORT.
BASIS POINT: A measure used in quoting yields on bonds. One hundred basis
points is equal to one percent. For example, if a bond's yield changes from
7.00 to 6.65 percent, it would be considered a 35 basis point move.
FEDERAL FUNDS RATE: The rate that banks charge each other for overnight loans.
The Federal Reserve uses this short-term rate to affect the direction of in-
terest rates.
DURATION: A measure of a bond's price sensitivity to changes in interest
rates, measured in years. The longer a bond's duration, the more sensitive it
is to interest rates, and vice versa.
FLOATING-RATE SECURITIES: Bonds that adjust their yield according to changes
in interest rates.
Q WHAT KEY EVENTS AND MARKET CONDITIONS OVER THE PAST SIX MONTHS AFFECTED
THE FUND'S PERFORMANCE, AND HOW WAS THE FUND POSITIONED IN RESPONSE?
A The period began on a positive note. The fixed-income market reflected
expectations for a weakening economy and accommodative monetary policy,
which resulted in lower interest rates. These expectations were further mani-
fested in the yield spread between 2-year Treasury notes and the federal funds
rate, which is often regarded as a snapshot of the market's expectations. In
anticipation of slower economic growth and possible easing by the Federal Re-
serve, 2-year Treasury notes began yielding 50 basis points lower than the
federal funds rate, whereas they typically have averaged 75 basis points
higher than fed funds.
In late January, the market's expectations were rewarded as the Fed did re-
duce the federal funds rate by 25 basis points from 5.50 to 5.25 percent. Be-
cause lower interest rates create a favorable environment for fixed-income
securities, we positioned the Fund to take advantage by increasing its dura-
tion to approximately 2.6 years--a relatively long position for this type of
fund. To understand the importance of this, consider that the higher the dura-
tion, the greater the affect of interest rate movements on net asset value.
Interest rates remained low until mid-February. Based on a strong February
employment report, however, the market reversed course and the yield on 2-year
Treasury notes began to drift higher, reflecting the bond market's fear of in-
flation in a stronger economy. In response, we became defensive and reduced
the Fund's duration to 2.0 years.
Throughout the remainder of the period, interest rates continued to in-
crease, and by June, 2-year Treasury notes were yielding over 100 basis points
more than the federal funds rate.
5
<PAGE>
This swing reflected the market's expectation of stronger economic growth and
the potential for a tighter monetary policy going forward. We reduced the
Fund's duration to a low of 1.7 years during the second quarter. While short-
ening the Fund's duration was beneficial as interest rates rose, the Fund's
net asset value still eased lower. The Fund's Class A share net asset value
declined by about 2.3 percent over the period--the high was $12.48 in February
and the low was $12.07 in June.
Q IN KEEPING WITH THE FUND'S OBJECTIVE OF SEEKING A HIGH LEVEL OF CURRENT
RETURN WITH A RELATIVE SAFETY OF CAPITAL, HOW WAS THE PORTFOLIO
STRUCTURED?
A Typically, the Fund's largest holdings are U.S. Treasury securities,
which offer a competitive yield. As of June 30, Treasuries represented
approximately 40 percent of holdings. And, while Treasuries will decline in
value during a rising interest rate environment, we seek to manage this by re-
ducing the Fund's duration.
Throughout the period, the Fund's position in floating-rate securities re-
mained between 32 and 40 percent of total assets. These securities were impor-
tant to the Fund's performance as they benefited the most from rising short-
term interest rates. Please refer to page four for Fund portfolio highlights.
Q HOW DID THE FUND PERFORM FOR THE SIX MONTHS ENDED JUNE 30, 1996?
A The Fund's six-month total return was 0.33 percent/1/ (Class A shares at
net asset value). By comparison, the six-month return for the Lehman
Brothers Mutual Fund 1- to 3-year Government Index was 1.44 percent. The Index
is a broad-based, unmanaged index that reflects the general performance of
U.S. government securities. Keep in mind that it does not reflect any commis-
sions or fees that would be paid by an investor purchasing the securities it
represents.
During the reporting period, the Fund maintained its current dividend of
$.055 per share (Class A shares), providing shareholders with a distribution
rate of 5.27 percent/3/. Please refer to the chart on page three for addi-
tional Fund performance results.
Q WHAT IS YOUR OUTLOOK FOR THE FIXED-INCOME MARKET AND, MORE SPECIFICALLY,
THE FUND FOR THE REMAINDER OF 1996?
A Going forward, we expect reasonably stable inflation and relatively
strong economic growth through the rest of 1996. We believe that fixed-
income market yields will remain in a trading range centered around current
levels. For the Fund, we will continue to analyze the market carefully, making
incremental portfolio adjustments as needed to take advantage of-- or defend
against--economic conditions that affect the fixed-income market. More
immediately, we will keep the Fund's duration close to a neutral position of
about 2 years, with the possibility of extending it later in the year if rates
appear to be declining.
/s/ Robert C. Peck, Jr. /s/ Ted V. Mundy
Robert C. Peck, Jr. Ted V. Mundy
Executive Vice President Portfolio Manager
Fixed Income Investments
Please see footnotes on page three.
6
<PAGE>
PORTFOLIO OF INVESTMENTS
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
COLLATERALIZED MORTGAGE
OBLIGATIONS 65.1%
$*6,039 Federal Home Loan Mortgage Corp
(Floater)............................. 5.838% 04/15/99 $6,058,899
3,572 Federal Home Loan Mortgage Corp
(Floater)............................. 5.938 04/15/20 3,574,081
1,159 Federal Home Loan Mortgage Corp
(Floater)............................. 6.238 02/15/16 1,162,163
*3,136 Federal National Mortgage Association
(PAC)................................. 5.500 03/25/03 3,098,776
*5,000 Federal National Mortgage Association
(PAC)................................. 5.650 02/25/14 4,950,800
*8,403 Federal National Mortgage Association
(PAC)................................. 5.750 07/25/07 8,295,357
*6,042 Federal National Mortgage Association
(Floater)............................. 5.838 09/25/00 6,057,948
*5,000 Federal National Mortgage Association
(Floater)............................. 6.138 06/25/18 5,018,750
1,736 Federal National Mortgage Association
(Floater)............................. 6.138 02/25/21 1,744,144
254 Federal National Mortgage Association. 6.750 08/25/20 251,440
1,260 Sears Mortgage Securities (Floater)... 6.420 05/25/21 1,262,935
----------
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS
(Cost $41,381,230)................ 41,475,293
----------
FIXED-RATE MORTGAGE-BACKED
SECURITIES 13.0%
4,723 Federal National Mortgage Association,
Pool.................................. 7.000 10/01/09 4,640,001
629 Federal National Mortgage Association,
Pools................................. 9.500 various 669,732
725 Federal National Mortgage Association,
Pool.................................. 10.000 05/01/21 785,403
174 Government National Mortgage
Association, Pools.................... 8.500 various 179,047
423 Government National Mortgage
Association, Pools.................... 9.500 various 451,173
679 Government National Mortgage
Association, Pools.................... 10.000 various 740,212
393 Government National Mortgage
Association, Pools.................... 10.500 various 432,113
331 Government National Mortgage
Association, Pool..................... 11.000 11/15/18 368,375
----------
TOTAL FIXED-RATE MORTGAGE-BACKED
SECURITIES
(Cost $8,273,582)................. 8,266,056
----------
ASSET BACKED SECURITIES 11.0 %
4,000 Deutsche Floorplan Master Trust....... 5.630 02/15/01 4,008,120
3,000 First USA Credit Card Master Trust.... 5.608 04/15/03 3,000,930
----------
TOTAL ASSET BACKED SECURITIES (Cost
$7,003,594)....................... 7,009,050
----------
</TABLE>
See Notes to Financial Statements
7
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ADJUSTABLE RATE MORTGAGE-BACKED
SECURITIES** 7.3%
$ 189 Federal Home Loan Mortgage Corp, Pool. 8.931% 02/01/18 $ 188,223
1,400 Federal National Mortgage Association,
Pool.................................. 7.568 03/01/19 1,417,928
2,996 Federal National Mortgage Association,
Pool.................................. 7.715 09/01/19 3,027,890
-----------
TOTAL ADJUSTABLE RATE MORTGAGE-BACKED
SECURITIES (Cost $4,731,958)...... 4,634,041
-----------
UNITED STATES TREASURY
OBLIGATIONS 3.2%
*2,000 Treasury Notes (Cost $2,074,063)...... 8.750 10/15/97 2,068,760
-----------
REPURCHASE AGREEMENT 0.8%
525 SBC Capital Markets, Inc, dated
6/28/96 (collateralized by U.S.
Government obligations in a pooled
cash account) repurchase proceeds
$525,237 (Cost $525,000).............. 5.420 07/01/96 525,000
-----------
TOTAL INVESTMENTS (Cost $63,989,427) 100.4%............ 63,978,200
OTHER ASSETS AND LIABILITIES, NET (0.4%)............... (282,299)
-----------
NET ASSETS 100%........................................ $63,695,901
-----------
</TABLE>
*Securities with a market value of approximately $33.6 million were placed as
collateral for forward commitments and futures contracts (see Note 1B)
**Coupon rate as of June 30, 1996
PAC-Planned Amortization Class
See Notes to Financial Statements
8
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
ASSETS
<TABLE>
<S> <C>
Investments at market value (Cost $63,989,427).................. $ 63,978,200
Cash............................................................ 4,741
Interest receivable............................................. 851,291
Unrealized appreciation on forward purchase commitments......... 75,555
Receivable from broker--variation margin........................ 21,884
Receivable for Fund shares sold................................. 7,673
Other assets and receivables.................................... 40,138
------------
TOTAL ASSETS.................................................. 64,979,482
------------
LIABILITIES
Payable for investments purchased............................... 561,676
Payable for Fund shares purchased............................... 338,079
Dividends payable............................................... 104,763
Due to Distributor.............................................. 47,911
Deferred Trustees' compensation................................. 30,054
Due to Adviser.................................................. 26,933
Due to shareholder service agent................................ 16,360
Accrued expenses and other liabilities.......................... 157,805
------------
TOTAL LIABILITIES............................................. 1,283,581
------------
NET ASSETS, equivalent to $12.12 per share for Class A shares,
$12.14 per share
for Class B shares, and $12.13 per share for Class C shares..... $ 63,695,901
------------
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, at par; 2,701,324 Class A,
2,145,224 Class B, and
404,559 Class C shares outstanding.............................. $ 52,511
Capital surplus................................................. 77,889,894
Accumulated net realized loss on securities..................... (14,535,477)
Net unrealized appreciation (depreciation) of securities
Investments.................................................... (11,227)
Forward purchase commitments................................... 75,555
Futures contracts.............................................. 41,644
Undistributed net investment income............................. 183,001
------------
NET ASSETS....................................................... $ 63,695,901
------------
</TABLE>
See Notes to Financial Statements
9
<PAGE>
STATEMENT OF OPERATIONS
Six Months Ended June 30, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest........................................................... $ 2,448,875
-----------
EXPENSES
Management fees.................................................... 180,652
Shareholder service agent's fees and expenses...................... 92,569
Accounting services................................................ 46,385
Service fees--Class A.............................................. 46,797
Distribution and service fees--Class B............................. 140,672
Distribution and service fees--Class C............................. 26,453
Trustees' fees and expenses........................................ 18,336
Audit fees......................................................... 15,407
Custodian fees..................................................... 3,082
Legal fees......................................................... 2,204
Reports to shareholders............................................ 9,570
Registration and filing fees....................................... 37,023
Miscellaneous...................................................... 4,701
Retirement plan expense reimbursement (see Note 4)................. (8,500)
-----------
Total expenses.................................................. 615,351
-----------
NET INVESTMENT INCOME.............................................. 1,833,524
-----------
REALIZED AND UNREALIZED LOSS ON SECURITIES
Net realized loss on securities
Investments...................................................... (93,472)
Forward commitments.............................................. (140,394)
Futures contracts................................................ (342,773)
Net unrealized depreciation of securities during the period
Investments...................................................... (1,015,797)
Forward commitments.............................................. (74,178)
Futures contracts................................................ (117,662)
-----------
NET REALIZED AND UNREALIZED LOSS ON SECURITIES..................... (1,784,276)
-----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................... $ 49,248
-----------
</TABLE>
See Notes to Financial Statements
10
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year Ended
Ended December 31,
June 30, 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
NET ASSETS, beginning of period.................. $ 81,939,911 $ 65,433,019
------------ ------------
OPERATIONS
Net investment income........................... 1,833,524 3,531,415
Net realized gain (loss) on securities.......... (576,639) 439,863
Net unrealized appreciation (depreciation) of
securities during the period................... (1,207,637) 2,232,349
------------ ------------
Increase in net assets resulting from opera-
tions.......................................... 49,248 6,203,627
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT
INCOME
Class A......................................... (1,047,363) (2,270,538)
Class B......................................... (647,946) (908,376)
Class C......................................... (122,004) (262,703)
------------ ------------
(1,817,313) (3,441,617)
------------ ------------
CAPITAL TRANSACTIONS
Proceeds from shares sold
Class A......................................... 3,059,312 14,091,234
Class B......................................... 1,257,988 2,863,289
Class C......................................... 496,043 2,277,094
------------ ------------
4,813,343 19,231,617
------------ ------------
Value received for shares in business combina-
tion (see Note 6)
Class A......................................... -- 5,290,296
Class B......................................... -- 17,508,065
Class C......................................... -- 2,214,491
------------ ------------
-- 25,012,852
------------ ------------
Proceeds from shares issued for distributions
reinvested
Class A......................................... 721,546 1,606,024
Class B......................................... 384,398 590,069
Class C......................................... 92,313 145,534
------------ ------------
1,198,257 2,341,627
------------ ------------
Cost of shares redeemed
Class A......................................... (15,515,181) (18,508,603)
Class B......................................... (5,214,318) (9,824,995)
Class C......................................... (1,758,046) (4,507,616)
------------ ------------
(22,487,545) (32,841,214)
------------ ------------
Increase (decrease) in net assets resulting from
capital transactions............................. (16,475,945) 13,744,882
------------ ------------
INCREASE (DECREASE) IN NET ASSETS................ (18,244,010) 16,506,892
------------ ------------
NET ASSETS, end of period (including
undistributed net investment income of $183,001
and $166,790, respectively)..................... $ 63,695,901 $ 81,939,911
------------ ------------
</TABLE>
See Notes to Financial Statements
11
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
------------------------------------------------------
Six Months
Ended Year Ended December 31
June 30, -------------------------------------------
1996/(1)/ 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net asset value,
beginning of period.... $12.41 $11.90 $12.42 $12.63 $12.99 $12.85
------ ------ ------ ------ ------ ------
INCOME FROM OPERATIONS
Investment income..... .41 .85 .62 .64 .93 1.15
Expenses.............. (.08) (.19) (.14) (.11) (.14) (.17)
Expense waiver/(2)/... -- .01 .02 .01 .025 .025
------ ------ ------ ------ ------ ------
Net investment income.. .33 .67 .50 .54 .815 1.005
Net realized and
unrealized gain (loss)
on securities.......... (.29) .4888 (.4817) (.1485)(/4/) (.417) .206
------ ------ ------ ------ ------ ------
Total from investment
operations............. .04 1.1588 .0183 .3915 .398 1.211
------ ------ ------ ------ ------ ------
DISTRIBUTIONS FROM NET
INVESTMENT INCOME...... (.33) (.6488) (.5383) (.6015) (.758) (1.071)
------ ------ ------ ------ ------ ------
Net asset value, end of
period................. $12.12 $12.41 $11.90 $12.42 $12.63 $12.99
------ ------ ------ ------ ------ ------
TOTAL RETURN /(3)/..... .33% 9.96% .16% 3.15%(/4/) 3.15% 9.78%
RATIOS/SUPPLEMENTAL
DATA
Net assets, end of
period (millions)...... $32.7 $45.4 $41.2 $64.3 $103.7 $95.8
Average net assets
(millions)............. $38.9 $42.6 $54.3 $85.7 $112.7 $47.5
Ratios to average net
assets
(annualized)/(2)/
Expenses.............. 1.35% 1.45% 1.15% 1.03% .91% 1.16%
Expenses, without
reimbursement/waiver.. 1.37% 1.50% 1.31% 1.15% 1.12% 1.36%
Net investment income. 5.41% 5.47% 4.75% 5.49% 6.36% 7.96%
Net investment income,
without
reimbursement/waiver.. 5.39% 5.42% 4.58% 5.37% 6.15% 7.66%
Portfolio turnover
rate................... 126% 187% 161% 102% 254% 293%
</TABLE>
(1) Based on average shares outstanding.
(2) See Notes 2 and 4.
(3) Total return for a period of less than one year is not annualized. Total
return does not consider the effect of sales charges.
(4) Net of reimbursement--see Note 2.
See Notes to Financial Statements
12
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
---------------------------------------------------------------
Nov. 5,
Six Months 1991(/5/)
Ended Year Ended December 31 through
June 30, ---------------------------------------- Dec. 31,
1996(/1/) 1995(/1/) 1994 1993 1992 1991(/1/)
- ------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $12.43 $11.91 $ 12.43 $ 12.64 $12.99 $12.99
------ ------ ------- ------- ------ ------
INCOME FROM OPERATIONS
Investment income...... .42 .84 .62 .67 .935 .12
Expenses............... (.13) (.28) (.22) (.20) (.24) (.03)
Expense waiver(/2/).... -- .01 .02 .01 .03 .02
------ ------ ------- ------- ------ ------
Net investment income... .29 .57 .42 .48 .725 .11
Net realized and
unrealized gain (loss)
on securities.......... (.298) .5028 (.4977) (.1845)(/4/) (.413) .036
------ ------ ------- ------- ------ ------
Total from investment
operations............. (.008) 1.0728 (.0777) .2955 .312 .146
------ ------ ------- ------- ------ ------
DISTRIBUTIONS FROM NET
INVESTMENT INCOME...... (.282) (.5528) (.4423) (.5055) (.662) (.146)
------ ------ ------- ------- ------ ------
Net asset value, end of
period................. $12.14 $12.43 $ 11.91 $ 12.43 $12.64 $12.99
------ ------ ------- ------- ------ ------
TOTAL RETURN(/3/)....... .02% 9.09% (.62%) 2.37%(/4/) 2.46% 1.13%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (millions)...... $26.1 $30.3 $18.4 $26.9 $38.4 $9.4
Average net assets
(millions)............. $28.1 $20.0 $22.2 $33.3 $32.3 $4.1
Ratios to average net
assets
(annualized)(/2/)
Expenses............... 2.11% 2.24% 1.91% 1.79% 1.60% .59%
Expenses, without
reimbursement/waiver.. 2.13% 2.29% 2.08% 1.91% 1.81% 1.84%
Net investment income.. 4.68% 4.63% 3.99% 4.70% 5.44% 5.73%
Net investment income,
without
reimbursement/waiver.. 4.66% 4.59% 3.82% 4.58% 5.23% 4.48%
Portfolio turnover rate. 126% 187% 161% 102% 254% 293%
</TABLE>
(1) Based on average shares outstanding.
(2) See Notes 2 and 4.
(3) Total return for a period of less than one year is not annualized. Total
return does not consider the effect of sales charges.
(4) Net of reimbursement--see Note 2.
(5) Commencement of offering of sales.
See Notes to Financial Statements
13
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share of beneficial interest outstanding throughout each of
the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
---------------------------------------------
May 10,
Six Months Year Ended 1993(/5/)
Ended December 31 through
June 30, ------------------ December 31,
1996(/1/) 1995(/1/) 1994 1993(/1/)
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
<S> <C> <C> <C> <C>
Net asset value, beginning
of period................. $12.42 $ 11.90 $ 12.41 $ 12.60
------ ------- ------- -------
INCOME FROM OPERATIONS
Investment income......... .42 .84 .67 .44
Expenses.................. (.13) (.28) (.24) (.14)
Expense waiver(/2/)....... -- .01 .02 .02
------ ------- ------- -------
Net investment income...... .29 .57 .45 .32
Net realized and unrealized
gain (loss) on securities. (.298) .5028 (.5177) (.1914)(/4/)
------ ------- ------- -------
Total from investment
operations................ (.008) 1.0728 (.0677) .1286
------ ------- ------- -------
DISTRIBUTIONS FROM NET
INVESTMENT INCOME......... (.282) (.5528) (.4423) (.3186)
------ ------- ------- -------
Net asset value, end of
period.................... $12.13 $ 12.42 $ 11.90 $ 12.41
------ ------- ------- -------
TOTAL RETURN(/3/).......... .02% 9.10% (.55%) 1.03%(/4/)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(millions)................ $4.9 $6.2 $5.8 $7.1
Average net assets
(millions)................ $5.3 $5.8 $7.6 $4.0
Ratios to average net
assets (annualized)(/2/)
Expenses.................. 2.11% 2.23% 1.90% 1.47%
Expenses, without
reimbursement/waiver..... 2.13% 2.27% 2.07% 1.64%
Net investment income..... 4.67% 4.71% 3.98% 3.79%
Net investment income,
without
reimbursement/waiver..... 4.65% 4.67% 3.81% 3.62%
Portfolio turnover rate.... 126% 187% 161% 102%
</TABLE>
(1) Based on average shares outstanding.
(2) See Notes 2 and 4.
(3) Total return for a period of less than one year is not annualized. Total
return does not consider the effect of sales charges.
(4) Net of reimbursement--see Note 2.
(5) Commencement of offering of sales.
See Notes to Financial Statements
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Limited Maturity Government Fund (the "Fund") is
registered under the Investment Company Act of 1940, as amended, as a diversi-
fied, open-end management investment company. The Fund seeks a high current re-
turn and relative safety of capital.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The prepa-
ration of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the amounts reported. Actual amounts may differ from the estimates.
A. INVESTMENT VALUATIONS-U.S. Agency and Government obligations and related
forward commitments are valued at the last reported bid price. Listed options
are valued at the last reported sale price on the exchange on which such option
is traded, or, if no sales are reported, at the mean between the last reported
bid and asked prices. Securities for which market quotations are not readily
available are valued at a fair value under a method approved by the Board of
Trustees.
Short-term investments with a maturity of 60 days or less when purchased are
valued at amortized cost, which approximates market value. Short-term invest-
ments with a maturity of more than 60 days when purchased are valued based on
market quotations, until the remaining days to maturity becomes less than 61
days. From such time, until maturity, such investments are valued at amortized
cost.
B. FUTURES CONTRACTS AND FORWARD COMMITMENTS-General--Transactions in futures
contracts and forward commitments are utilized in strategies to manage the mar-
ket risk of the Fund's investments. The purchase of a futures contract or for-
ward commitment increases the impact on net asset value of changes in the
market price of investments. Forward commitments have a risk of loss due to
nonperformance of counter-parties. There is also a risk that the market move-
ment of such instruments may not be in the direction forecasted. Note 3-- In-
vestment Activity contains additional information.
Futures Contracts--Upon entering into futures contracts, the Fund maintains,
in a segregated account with its custodian, securities with a value equal to
its obligation under the futures contracts. A portion of these funds is held as
collateral in an account in the name of the broker, the Fund's agent in acquir-
ing the futures position. During the period the futures contract is open,
changes in the value of the contract ("variation margin") are recognized by
marking the contract to market on a daily basis. As unrealized gains or losses
are incurred, variation margin payments are received from or made to the bro-
ker. Upon the closing or cash
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
- --------------------------------------------------------------------------------
settlement of a contract, gains or losses are realized. The cost of securities
acquired through delivery under a contract is adjusted by the unrealized gain
or loss on the contract.
Forward Commitments--The Fund trades certain securities under the terms of
forward commitments, whereby the settlement for payment and delivery occurs at
a specified future date. Forward commitments are privately negotiated transac-
tions between the Fund and dealers. Upon executing a forward commitment and
during the period of obligation, the Fund maintains collateral of cash or secu-
rities in a segregated account with its custodian in an amount sufficient to
relieve the obligation. If the intent of the Fund is to accept delivery of a
security traded under a forward purchase commitment, the commitment is recorded
as a long-term purchase. For forward purchase 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 commit-
ments.
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 will
make payment for such securities only upon physical delivery or evidence of
book entry transfer to the account of the custodian bank. The seller is re-
quired to maintain the value of the underlying security at not less than the
repurchase proceeds due the Fund.
D. FEDERAL INCOME TAXES-No provision for federal income taxes is required be-
cause the Fund has elected to be taxed as a "regulated investment company" un-
der the Internal Revenue Code and intends to maintain this qualification by
annually distributing all of its taxable net investment income and taxable net
realized capital gains to its shareholders. It is anticipated that no distribu-
tions of capital gains will be made until tax-basis capital loss carryforwards
expire or are offset by net realized capital gains.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
- --------------------------------------------------------------------------------
The net realized capital loss carryforward of approximately $13.7 million
(includes $1.3 million from the business combination--see Note 6) for federal
income tax purposes at December 31, 1995 may be utilized to offset current or
future capital gains until expiration in 1996 through 2003. Approximately 35%
of the capital loss carryforward may expire in 1996.
E. 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. Interest income is
accrued daily.
F. DIVIDENDS AND DISTRIBUTIONS-The Fund declares dividends on each business
day. Dividends and distributions are recorded on the record dates. The Fund
distributes tax basis earnings in accordance with the minimum distribution re-
quirements of the Internal Revenue Code, which may differ from generally ac-
cepted accounting principles. Such dividends or distributions may exceed
financial statement earnings.
G. DEBT DISCOUNT AND PREMIUM-The Fund accounts for discounts and premiums on
the same basis as is used for federal income tax reporting. Accordingly, origi-
nal issue discounts on debt securities purchased are amortized over the life of
the security. Premiums on debt securities are not amortized. Market discounts
are recognized at the time of sale as realized gains for book purposes and or-
dinary income for tax purposes.
NOTE 2--MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Adviser serves as investment manager of the Fund. Management fees are paid
monthly, based on the average daily net assets of the Fund at an annual rate of
.50% of the first $1 billion, .475% of the next $1 billion, .45% of the next $1
billion, .40% of the next $1 billion and .35% of the amount in excess of $4
billion. From time to time, the Adviser may elect to waive a portion of its
management fee. The waiver is voluntary and may be discontinued at any time
without prior notice.
Accounting services include the salaries and overhead expenses of the Fund's
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 $2,286 as the Fund's share of the employee
costs attributable to the Fund's accounting officers. A portion of the account-
ing services expense was paid to the Adviser in reimbursement of personnel, fa-
cilities and equipment costs attributable to the provision of accounting
services to the Fund. The services provided by the Adviser are at cost.
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
- --------------------------------------------------------------------------------
ACCESS Investor Services, Inc., an affiliate of the Adviser, serves as the
Fund's shareholder service agent. These services are provided at cost plus a
profit. For the period, the fees for such services aggregated $71,333.
The Fund was advised that Van Kampen American Capital Distributors, Inc. (the
"Distributor"), an affiliate of the Adviser, received $15,889, as its portion
of the commissions charged on sales of Fund shares during the period.
Under the Distribution Plans, each class of shares pays up to .25% per annum
of its average net assets to reimburse the Distributor for expenses and service
fees incurred. Class B and C shares pay an additional fee of up to .75% per an-
num of their average net assets to reimburse the Distributor for its distribu-
tion expenses. Actual distribution expenses incurred by the Distributor for
Class B and C shares may exceed the amounts reimbursed to the Distributor by
the Fund. At the end of the period, the unreimbursed expenses incurred by the
Distributor under the Class B and C plans aggregated approximately $1.3 million
and $87,000, respectively, and may be carried forward and reimbursed through
either the collection of the contingent deferred sales charges from share re-
demptions or, subject to the annual renewal of the plans, further Fund reim-
bursements of distribution fees.
Certain officers and trustees of the Fund are officers and trustees of the
Adviser, the Distributor, and the shareholder service agent.
During 1993, certain securities held by the Fund were mispriced. The Adviser
reimbursed the Fund approximately $6.9 million to eliminate any loss to share-
holders incurred during the year of mispricing of such securities. The reim-
bursement was recorded as a reduction of the realized loss recognized on the
sale of the related securities. Without the reimbursement, the Adviser esti-
mates that the total return for the year ended December 31, 1993 would have
been lower by approximately 6.25 percentage points.
NOTE 3--INVESTMENT ACTIVITY
During the period, the cost of purchases and proceeds from sales of invest-
ments, excluding short-term investments and forward commitments, were
$90,826,623 and $130,236,767, respectively.
The identified cost of investments owned at the end of the period was the
same for federal income tax and financial reporting purposes. Net unrealized
depreciation of investments aggregated $11,227, gross unrealized appreciation
of investments aggregated $320,555 and gross unrealized depreciation of invest-
ments aggregated $331,782.
At the end of the period, the Fund held the following forward purchase com-
mitment settling July 1996 and long futures contracts expiring in September
1996:
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
- --------------------------------------------------------------------------------
FORWARD PURCHASE COMMITMENT
<TABLE>
<CAPTION>
Par
Amount Unrealized
(000) Security Market Value Appreciation
- --------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
$24,000 United States Treasury Notes, 5.875%, 08/15/98 $23,854,800 $75,555
----------- -------
FUTURES CONTRACTS
<CAPTION>
Unrealized
Contracts Security Market Value Appreciation
- --------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
68 United States Treasury Notes $ 7,191,000 $41,644
----------- -------
</TABLE>
NOTE 4--TRUSTEE COMPENSATION
Trustees who are not affiliated with the Adviser are compensated by the Fund at
the annual rate of $703 plus a fee of $40 per day for Board and Committee meet-
ings attended. During the period, such fees aggregated $8,522.
The fund has a deferred compensation plan and a defined benefits retirement
plan for its trustees not affiliated with the Adviser. These plans are not
funded, and obligations under the plans 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 plans by any form of trust or escrow.
Under the deferred compensation 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 re-
turn of the Fund or equal to the income earned by the Fund on its short-term
investments.
Under the retirement plan which became effective in January 1996, benefits
which are based on years of service will be received by the trustee for a ten-
year period. The maximum annual benefit for each trustee is $2,500. Retirement
plan expenses for the period aggregated $8,500. During the calendar year 1996,
the Adviser has agreed to reimburse the Fund for these plan expenses.
NOTE 5--CAPITAL
The Fund offers three classes of shares at their respective net asset values
per share, plus a sales charge which is imposed either at the time of purchase
(Class A) or at the time of redemption on a contingent deferred basis (Class B
and C). All classes of shares have the same rights, except that Class B and C
shares bear the cost of distribution fees and certain other class specific ex-
penses. Realized and unrealized gains or losses, investment income and expenses
(other than class specific expenses) are allocated daily to each class of
shares based upon the relative proportion of net assets or paid shares of each
class. Class B and C shares
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
- --------------------------------------------------------------------------------
automatically convert to Class A shares six years and ten years after purchase,
respectively, subject to certain conditions.
The Fund has an unlimited number of shares of $.01 par value beneficial in-
terest authorized. Transactions in shares of beneficial interest were as fol-
lows:
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
June 30, 1996 December 31, 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Shares sold
Class A...................................... 248,960 1,149,166
Class B...................................... 101,919 224,944
Class C...................................... 40,691 183,672
---------- ----------
391,570 1,557,782
---------- ----------
Shares issued in business combination (see
Note 6)
Class A...................................... -- 432,048
Class B...................................... -- 1,427,512
Class C...................................... -- 180,706
---------- ----------
-- 2,040,266
---------- ----------
Shares issued for distributions reinvested
Class A...................................... 58,963 131,352
Class B...................................... 31,383 48,136
Class C...................................... 7,545 11,880
---------- ----------
97,891 191,368
---------- ----------
Shares redeemed
Class A...................................... (1,266,789) (1,517,996)
Class B...................................... (425,272) (804,926)
Class C...................................... (143,200) (368,143)
---------- ----------
(1,835,261) (2,691,065)
---------- ----------
Increase (decrease) in shares outstanding..... (1,345,800) 1,098,351
---------- ----------
</TABLE>
NOTE 6--BUSINESS COMBINATION
On September 22, 1995, the Fund acquired the net assets of Van Kampen American
Capital Adjustable Rate U.S. Government Fund ("VKACAR") pursuant to a plan of
reorganization approved by VKACAR's shareholders on September 21, 1995. The ac-
quisition resulted in a tax-free exchange of 2,040,266 shares of the Fund for
the 2,675,901 shares of VKACAR outstanding on September 22, 1995. VKACAR's net
assets at that date were $25,012,852 which included $231,635 of net unrealized
depreciation of investments; the Fund's net assets were $58,972,538. After the
acquisition, the combined net assets of the Fund were $83,985,390.
20
<PAGE>
VAN KAMPEN AMERICAN CAPITAL LIMITED MATURITY GOVERNMENT 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
*Co-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. SACHTLEBEN
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 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.
21
