<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders...................... 1
Performance Results......................... 3
Performance Perspective..................... 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
Report of Independent Accountants........... 22
</TABLE>
LTMF ANR 2/96
<PAGE>
LETTER TO SHAREHOLDERS
[PHOTO OF DENNIS J. MCDONNELL AND DON G. POWELL]
January 24, 1996
Dear Shareholder,
For most investors, it would be hard to surpass the success enjoyed during
1995. The stock and bond markets achieved substantial gains, driven by a
combination of continuing economic growth and low inflation. The strength of
equity and fixed-income securities in 1995 was particularly impressive because
it followed a year in which both markets declined. People who remained
invested during 1995 generally shared in the growth of the markets, while
investors who retreated after 1994's downturn may have missed out on the
double-digit returns.
The rebound in the markets last year reinforces the importance of maintain-
ing a long-term perspective for your investments. While the environment for
stocks and bonds remains positive, it is unlikely that 1996 will see a repeat
of the markets' strong 1995 performance. However, over the long-term, stocks
have outperformed virtually all other types of investments, and bonds have met
the needs of investors who seek capital preservation and regular income.
ECONOMIC OVERVIEW
The U.S. economy grew throughout 1995, though the rate of growth slowed to-
ward year-end. The gross domestic product (the value of all goods and services
produced in the United States) grew at an annual rate of more than 4.2 percent
in the third quarter of 1995, but slowed to an estimated 2 to 3 percent in the
fourth quarter, with retail and auto sales particularly sluggish. The slower
growth rate eased concerns about a rise in inflation and allowed the Federal
Reserve Board to lower short-term interest rates by a quarter-percentage point
in late December. The reduction in rates during the latter half of 1995 is ex-
pected to help generate moderate economic growth in 1996, just as the Fed's
raising of short-term rates in 1994 helped slow economic growth in 1995.
The cut in short-term rates, combined with modest growth forecasts, was
viewed by the financial markets as a positive event, pushing up both stock and
bond prices. For the year ended December 31, 1995, the Standard & Poor's 500-
Stock Index achieved a total return of 37.45 percent. The yield on 10-year
Treasury notes was 5.57 percent on December 31, compared to 7.83 percent at
the beginning of the year. Because bond prices and yields move in opposite di-
rections, bond prices rose. Many observers expect the Fed to cut rates further
if Congress and the President are able to reach an agreement on the federal
budget, provided economic conditions justify further easing.
With a low inflation, low interest rate environment, corporate earnings re-
mained quite strong during the year, helping to push stocks to new highs. The
strongest sectors were technology and finance, as these stocks benefited from
the impact of the Internet, telecommunications deregulation and bank mergers.
U.S. companies with global operations also did well, aided by a declining U.S.
dollar.
Continued on page two
1
<PAGE>
ECONOMIC OUTLOOK
Looking ahead, we are cautiously optimistic. We expect the economy to grow at
a rate of 2 to 3 percent throughout 1996, with growth stronger in the second
half of the year as the full impact of the Fed's rate cuts take effect. Lower
rates will have the greatest impact on interest-sensitive industries, such as
housing. Although inflation appears to be under control, there probably will be
some cyclical upward pressure in 1996.
The current economic conditions are ideal for stocks, especially those of
smaller companies, because they tend to be affected less by economic cycles.
The outlook for the fixed-income market--including municipal bonds--is
positive, too. In the near-term, we believe domestic markets will benefit from
a stable U.S. dollar and increased business activity driven in part by a number
of recently announced strategic reorganizations of some of the nation's blue
chip industry leaders.
During recent months, debate over tax reform and the federal deficit has dom-
inated the agenda in Washington. Now that we are in a presidential election
year, tax reform likely will replace the budget battle as the top issue in
Washington. There has been varied speculation about the impact tax reform could
have on the economy and on various types of investments. We are following the
tax reform debate very closely, and we will keep you updated on this issue
throughout the year. See the winter issue of Your Portfolio for a detailed dis-
cussion of tax reform.
On the following pages, you can read about your Fund's performance in 1995,
as well as the portfolio management team's outlook for the Fund in the coming
months. We hope that you will find this information helpful.
CORPORATE NEWS
As part of our commitment to helping you achieve your investment goals, Van
Kampen American Capital strives to provide shareholders with the best service
in the mutual fund industry. That is why we are especially pleased to have re-
ceived the 1995 Quality Tested Service Seal, which is awarded annually by
DALBAR, Inc., an independent research firm.The Seal, which symbolizes the
achievement of the highest tier of service in the mutual fund industry, was
awarded to American Capital annually from 1990 to 1994 and we are honored
that the service provided by Van Kampen American Capital has achieved the same
level of excellence.
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 DECEMBER 31, 1995
VAN KAMPEN AMERICAN CAPITAL LIMITED MATURITY GOVERNMENT FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
TOTAL RETURNS
<S> <C> <C> <C>
One-year total return based on NAV/1/................ 9.96% 9.09% 9.10%
One-year total return/2/............................. 6.38% 6.08% 8.10%
Five-year average annual total return/2/............. 4.48% N/A N/A
Life-of-Fund average annual total return/2/.......... 5.72% 3.41% 3.54%
Commencement Date.................................... 06/16/86 11/05/91 05/10/93
DISTRIBUTION RATE AND YIELD
Distribution Rate/3/................................. 5.14% 4.54% 4.54%
SEC Yield/4/......................................... 4.41% 3.75% 3.75%
</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 shares 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 con-
tingent 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
Exchange 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>
PUTTING YOUR FUND'S PERFORMANCE IN PERSPECTIVE
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment portfolio's performance at regular inter-
vals. A good starting point is a comparison of your investment holdings to an
applicable benchmark, such as a broad-based market index. Such a comparison
can:
. Illustrate the general market environment in which your investments are
being managed
. Reflect the impact of favorable market trends or difficult market condi-
tions
. Help you evaluate the extent to which your Fund's management team has
responded to the opportunities and challenges presented to them over the
period measured
For these reasons, you may find it helpful to review the chart below, which
compares your Fund's performance to that of the Lehman Brothers Mutual Fund 1
to 2 year U.S. Government Index over time. As a broad-based, unmanaged statis-
tical composite, this index does not reflect any commissions or fees which
would be incurred by an investor purchasing the securities it represents. Simi-
larly, its performance does not reflect any sales charges or other costs which
would be applicable to an actively managed portfolio, such as that of the Fund.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen American Capital Limited Maturity Government Fund vs. Lehman
Brothers Mutual Fund 1 to 2 Year U.S. Government Index* (June 1986 through
December 1995).
<TABLE>
[GRAPH APPEARS HERE]
Fund's Total Return
1 Year Avg. Annual = 6.38%
3 Year Avg. Annual = 3.21%
5 Year Avg. Annual = 4.48%
Inception Avg. Annual = 5.72%
<CAPTION>
VKAC Limited Maturity Lehman Bros.
Measurement Period Government Fund Mutual Fund 1 to 2
- ------------------ --------------------- ------------------
<S> <C> <C>
Aug. 1986 $ 9,678 $10,000
Dec. 1986 $10,211 $10,154
Dec. 1987 $10,100 $10,757
Dec. 1988 $10,619 $11,435
Dec. 1989 $12,077 $12,581
Dec. 1990 $13,221 $13,785
Dec. 1991 $14,514 $15,281
Dec. 1992 $14,972 $16,200
Dec. 1993 $15,444 $16,998
Dec. 1994 $15,468 $17,235
Dec. 1995 $17,008 $18,921
</TABLE>
The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of other share classes of
the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions for the period ended December 31,
1995, and includes payment of the maximum sales charge (3.25% for A shares).
While past performance is not indicative of future performance, the above in-
formation provides a broader vantage point from which to evaluate the discus-
sion of the Fund's performance found in the following pages.
*The Lehman Brothers Mutual Fund 1 to 2 year U.S. Government Index was not in
existence until September 30, 1986.
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
which shaped the markets during the past fiscal year. The team includes Ted V.
Mundy, portfolio manager, and Robert C. Peck, Jr., executive vice president
for fixed-income investments, Van Kampen American Capital Asset Management
Inc. The following excerpts reflect their views on the Fund's performance
during the twelve-month period ended December 31, 1995.
Q WHAT WERE SOME OF THE KEY EVENTS AND MARKET CONDITIONS THAT AFFECTED THE
FUND'S PERFORMANCE THIS PAST YEAR?
A The bond market began experiencing an abrupt turnaround in terms of in-
vestor expectations late in 1994, which ultimately set the stage for
strong performance in the fixed-income sector during 1995.
The early part of 1995 was dominated by concerns that interest rates could
go higher, especially after the Federal Reserve Board initiated what would
turn out to be the last in a series of increases in short-term interest rates
in February. Many investors saw this as a continuation of a trend by the Fed,
a belief that was reinforced by strong gross domestic product growth in the
fourth quarter of 1994 and the resulting fear of increased inflation. Never-
theless, the market was discounting much of the potential bad news and a shift
in the market environment was beginning. As a result, bond prices, which hit
lows in November 1994, began to trend cautiously higher.
Later in the first quarter as the economy showed signs of slowing, and the
inflation rate remained low, the market began to rally. When the economic data
continued to indicate a slowdown in economic growth and inflation, more and
more investors came to the conclusion that the Fed would not need to boost in-
terest rates (the Fed uses the federal funds rate as a means to influence the
rate of economic growth and inflation).
As these conditions persisted, investor sentiment came full circle, and ex-
pectations of slow economic growth and lower interest rates drove the markets
sharply higher in the second quarter (bond prices move in the opposite direc-
tion of interest rates) and the markets trended upward for the remainder of
the year.
As it turns out, the Fed lowered the fed funds rate in July 1995 and again
in December, further fueling the rally. Over the course of the year, the yield
on the 2-year Treasury dropped by more than two-and-one-half percentage
points, while the fed funds rate fell by one-half percent to 5.50 percent.
Q IN TERMS OF PERFORMANCE, HOW DID THE FUND RESPOND TO THESE CONDITIONS?
A Reflecting higher market interest rates early in the year, the Fund's
dividend was raised three times during 1995, from $.050 per share to
$.055 per share (Class A shares), which resulted in a distribution rate of
5.14 percent. Class A shares achieved a competitive total return at net asset
value of 9.96 percent/1/ for the twelve-month period ended December 31, 1995.
Over the course of the year, the Fund's net asset value increased to $12.41
per share (as of December 31, 1995) from $11.90 per share at the beginning of
1995.
To put this performance in perspective, the total return of the Lehman
Brothers Mutual Fund 1 to 2 year Government Index was 9.78 percent through the
twelve months of 1995. The Index is a broad-based, unmanaged index that re-
flects the general performance of U.S. Govern-
5
<PAGE>
ment securities. It does not reflect any commissions or fees that would be paid
by an investor purchasing the securities it represents. (Please refer to the
chart on page three for additional Fund performance results.)
Q WHAT WERE SOME OF THE ADJUSTMENTS YOU MADE TO THE PORTFOLIO DURING THE
YEAR?
A We believed that the Fed would ease its monetary policy and interest rates
would trend lower. Throughout 1995 and into 1996, we have steered the
portfolio with this in mind, emphasizing securities which should benefit most
from a falling interest rate environment. This strategy helped boost perfor-
mance throughout the past fiscal year.
For example, we reduced our holdings in adjustable rate mortgage securities
(ARMs) in favor of U.S. Treasury securities. The duration of the portfolio (a
measure of its sensitivity to changes in interest rates) remained relatively
high for a fund of this type, at about 2.6 years as of December 31, 1995, up
from 2.1 years at the beginning of 1995.
Van Kampen American Capital Adjustable Rate U.S. Government Fund was merged
into Van Kampen American Capital Limited Maturity Government Fund earlier this
year. The merger of the two Funds went smoothly and our management philosophy
has not changed. We continue to analyze markets carefully and move the portfo-
lio by incremental steps toward the positioning we feel is most effective. We
do not make big bets or abrupt swings in direction; instead, we take a mea-
sured, conservative approach in seeking to achieve the Fund's stated objec-
tives.
[PIE CHART PORTFOLIO HOLDINGS BY SECTOR AS OF DECEMBER 31, 1995 APPEARS HERE]
U.S. Treasury Notes 7%
CMO 40%
Asset Backed Securities 12%
Fixed Rate 12%
ARM 24%
Other 5%
Q WHAT IS YOUR OUTLOOK FOR THE FUND AND THE MARKET IN THE MONTHS AHEAD?
A The outlook for the fixed-income market in 1996 is generally positive, but
we don't expect the market to match its 1995 performance. Inflation seems
to be under control, the numbers suggest that low to moderate growth is ahead
for the economy, and the market has been anticipating a federal budget resolu-
tion and further easing by the Fed. All of these factors should have a positive
impact on fixed-income securities in the near term. The fundamentals are con-
structive, and we feel the portfolio is well positioned for what looks to be a
favorable climate for fixed-income investing.
/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
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ADJUSTABLE RATE MORTGAGE-BACKED SECURITIES** 24.4%
*$2,928 Federal Home Loan Mortgage
Corp., Pool............... 5.875% 08/01/25 $ 2,990,461
684 Federal Home Loan Mortgage
Corp., Pool............... 7.375 07/01/14 688,207
37 Federal Home Loan Mortgage
Corp., Pool............... 7.638 03/01/18 37,676
1,043 Federal Home Loan Mortgage
Corp., Pool............... 7.642 10/01/23 1,066,762
26 Federal Home Loan Mortgage
Corp., Pool............... 7.948 07/01/22 26,919
191 Federal Home Loan Mortgage
Corp., Pool............... 9.093 02/01/18 195,317
*1,817 Federal National Mortgage
Association, Pool......... 5.945 10/01/25 1,853,839
*1,471 Federal National Mortgage
Association, Pool......... 6.136 10/01/25 1,509,111
*1,497 Federal National Mortgage
Association, Pool......... 6.370 02/01/21 1,498,637
835 Federal National Mortgage
Association, Pool......... 7.349 02/01/15 853,159
*1,472 Federal National Mortgage
Association, Pool......... 7.620 03/01/19 1,509,638
789 Federal National Mortgage
Association, Pool......... 7.664 03/01/19 811,760
*3,282 Federal National Mortgage
Association, Pool......... 7.738 09/01/19 3,356,020
*1,325 Federal National Mortgage
Association, Pool......... 7.771 10/01/23 1,350,518
291 Federal National Mortgage
Association, Pool......... 7.892 10/01/19 295,994
*1,957 Government National
Mortgage Association,
Pools..................... 6.000 10/20/25 to 11/20/25 1,975,618
-----------
TOTAL ADJUSTABLE RATE
MORTGAGE-BACKED SECURITIES
(Cost $20,083,142)........ 20,019,636
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS 39.6%
3,232 Federal Home Loan Mortgage
Corp...................... 6.500 04/15/20 3,231,707
1,809 Federal Home Loan Mortgage
Corp...................... 6.800 02/15/16 1,812,425
3,136 Federal National Mortgage
Association (PAC)......... 5.500 03/25/03 3,112,480
5,000 Federal National Mortgage
Association (PAC)......... 5.650 02/25/14 4,981,250
*8,403 Federal National Mortgage
Association (PAC)......... 5.750 07/25/07 8,396,110
723 Federal National Mortgage
Association............... 6.264 02/25/16 721,914
700 Federal National Mortgage
Association............... 6.294 03/25/22 698,071
5,000 Federal National Mortgage
Association............... 6.544 06/25/18 5,015,650
2,142 Federal National Mortgage
Association............... 6.544 02/25/21 2,151,982
433 Federal National Mortgage
Association............... 6.750 08/25/20 434,502
1,849 Sears Mortgage Securities. 7.045 05/25/21 1,854,464
-----------
TOTAL COLLATERALIZED
MORTGAGE OBLIGATIONS
(Cost $32,176,024)........ 32,410,555
-----------
</TABLE>
See Notes to Financial Statements
7
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FIXED-RATE MORTGAGE-BACKED SECURITIES 11.9%
*$5,518 Federal Home Loan Mortgage
Corp., Pools.............. 8.000% 10/01/24 to 05/01/25 $ 5,714,805
754 Federal National Mortgage
Association, Pools........ 9.500 07/01/11 to 08/01/21 803,079
730 Federal National Mortgage
Association, Pool......... 10.000 05/01/21 801,882
183 Government National
Mortgage Association,
Pools..................... 8.500 06/15/16 to 01/15/17 191,842
455 Government National
Mortgage Association,
Pools..................... 9.500 03/15/16 to 01/15/19 487,572
751 Government National
Mortgage Association,
Pools..................... 10.000 03/15/16 to 04/15/19 825,199
452 Government National
Mortgage Association,
Pools..................... 10.500 05/15/13 to 02/15/18 499,022
376 Government National
Mortgage Association,
Pool...................... 11.000 11/15/18 420,795
-----------
TOTAL FIXED-RATE MORTGAGE-
BACKED SECURITIES
(Cost $9,308,782)......... 9,744,196
-----------
ASSET BACKED
SECURITIES 12.2%
First USA Credit Card
3,000 Master Trust.............. 6.170 04/15/03 3,000,930
First USA Credit Card
3,000 Master Trust.............. 6.240 10/15/04 3,002,820
4,000 ITT Master Trust.......... 6.013 02/15/01 4,005,000
-----------
TOTAL ASSET BACKED
SECURITIES
(Cost $10,008,750)........ 10,008,750
-----------
UNITED STATES TREASURY OBLIGATIONS 6.7%
* 2,000 Treasury Notes............ 7.250 05/15/04 2,221,260
* 3,000 Treasury Notes............ 8.875 02/15/99 3,306,090
-----------
TOTAL UNITED STATES
TREASURY OBLIGATIONS
(Cost $5,129,219)....... 5,527,350
-----------
REPURCHASE AGREEMENT 5.8%
* 4,725 SBC Capital Markets, Inc.,
dated 12/29/95
(Collateralized by U.S.
Government obligations in
a pooled cash
account) repurchase
proceeds $4,728,071
(Cost $4,725,000)......... 5.850 01/02/96 4,725,000
-----------
TOTAL INVESTMENTS (Cost $81,430,917) 100.6%.................... 82,435,487
OTHER ASSETS AND LIABILITIES, NET (0.6%)....................... (495,576)
-----------
NET ASSETS 100%................................................ $81,939,911
-----------
</TABLE>
*Securities with a market value of approximately $40.5 million were placed as
collateral for forward commitments and futures contracts (see Note 1B).
**Coupon rate as of December 31, 1995.
PAC-Planned Amortization Class
See Notes to Financial Statements
8
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
- --------------------------------------------------------------------------------
ASSETS
<TABLE>
<S> <C>
Investments at market value (Cost $81,430,917).................... $82,435,487
Cash.............................................................. 3,383
Interest receivable............................................... 910,369
Unrealized appreciation on forward purchase commitments........... 149,733
Receivable from broker--variation margin.......................... 26,171
Receivable for Fund shares sold................................... 9,112
Other assets...................................................... 22,972
-----------
TOTAL ASSETS..................................................... 83,557,227
-----------
LIABILITIES
Payable for Fund shares purchased................................. 634,636
Payable for investments purchased................................. 467,093
Dividends payable................................................. 114,124
Accrued business combination expenses............................. 104,000
Due to Distributor................................................ 82,793
Due to shareholder service agent.................................. 30,571
Due to Adviser.................................................... 22,541
Deferred Trustees' compensation................................... 19,494
Accrued expenses and other liabilities............................ 142,064
-----------
TOTAL LIABILITIES................................................ 1,617,316
-----------
NET ASSETS, equivalent to $12.41 per share for Class A shares,
$12.43 per share
for Class B shares, and $12.42 per share for Class C shares...... $81,939,911
-----------
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, at par; 3,660,190 Class A,
2,437,194 Class B, and
499,523 Class C shares outstanding............................... $ 65,969
Capital surplus................................................... 94,352,381
Accumulated net realized loss on securities....................... (13,958,838)
Net unrealized appreciation of securities
Investments...................................................... 1,004,570
Forward purchase commitments..................................... 149,733
Futures contracts................................................ 159,306
Undistributed net investment income............................... 166,790
-----------
NET ASSETS........................................................ $81,939,911
-----------
</TABLE>
See Notes to Financial Statements
9
<PAGE>
STATEMENT OF OPERATIONS
Year Ended December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest........................................................... $4,729,295
----------
EXPENSES
Management fees.................................................... 342,251
Shareholder service agent's fees and expenses...................... 163,088
Accounting services................................................ 65,703
Service fees--Class A.............................................. 101,758
Distribution and service fees--Class B............................. 200,377
Distribution and service fees--Class C............................. 57,744
Trustees' fees and expenses........................................ 11,795
Audit fees......................................................... 35,704
Custodian fees..................................................... 8,615
Legal fees......................................................... 7,463
Reports to shareholders............................................ 63,696
Registration and filing fees....................................... 59,395
Business combination (see Note 7).................................. 104,000
Miscellaneous...................................................... 5,984
Management fee waiver (see Note 2)................................. (29,693)
----------
Total expenses.................................................... 1,197,880
----------
NET INVESTMENT INCOME.............................................. 3,531,415
----------
REALIZED AND UNREALIZED GAIN ON SECURITIES
Net realized gain on securities
Investments....................................................... 171,828
Forward commitments............................................... 195,685
Futures contracts................................................. 72,350
Net unrealized appreciation of securities during the period
Investments....................................................... 1,910,800
Forward commitments............................................... 162,243
Futures contracts................................................. 159,306
----------
NET REALIZED AND UNREALIZED GAIN ON SECURITIES..................... 2,672,212
----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................... $6,203,627
----------
</TABLE>
See Notes to Financial Statements
10
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------
1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
NET ASSETS, beginning of period................... $ 65,433,019 $ 98,293,251
------------ ------------
OPERATIONS
Net investment income............................ 3,531,415 3,768,774
Net realized gain (loss) on securities........... 439,863 (2,511,545)
Net unrealized appreciation (depreciation) of se-
curities during the period...................... 2,232,349 (1,405,244)
------------ ------------
Increase (decrease) in net assets resulting from
operations...................................... 6,203,627 (148,015)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT
INCOME
Class A.......................................... (2,270,538) (2,394,001)
Class B.......................................... (908,376) (806,734)
Class C.......................................... (262,703) (276,067)
------------ ------------
(3,441,617) (3,476,802)
------------ ------------
NET EQUALIZATION DEBITS........................... -- (169,962)
------------ ------------
CAPITAL TRANSACTIONS
Proceeds from shares sold
Class A.......................................... 14,091,234 19,201,023
Class B.......................................... 2,863,289 4,104,254
Class C.......................................... 2,277,094 5,694,179
------------ ------------
19,231,617 28,999,456
------------ ------------
Value received for shares in business combination
(see Note 7)
Class A.......................................... 5,290,296 --
Class B.......................................... 17,508,065 --
Class C.......................................... 2,214,491 --
------------ ------------
25,012,852 --
------------ ------------
Proceeds from shares issued for distributions re-
invested
Class A.......................................... 1,606,024 1,576,391
Class B.......................................... 590,069 547,208
Class C.......................................... 145,534 122,460
------------ ------------
2,341,627 2,246,059
------------ ------------
Cost of shares redeemed
Class A.......................................... (18,508,603) (41,385,868)
Class B.......................................... (9,824,995) (12,217,467)
Class C.......................................... (4,507,616) (6,707,633)
------------ ------------
(32,841,214) (60,310,968)
------------ ------------
Increase (decrease) in net assets resulting from
capital transactions.............................. 13,744,882 (29,065,453)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS................. 16,506,892 (32,860,232)
------------ ------------
NET ASSETS, end of period (including undistributed
net investment income of $166,790 and $49,506,
respectively).................................... $ 81,939,911 $ 65,433,019
------------ ------------
</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.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
------------------------------------------------
Year Ended December 31
-------------------------------------------
1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning of
period........................ $11.90 $12.42 $12.63 $12.99 $12.85
------ ------ ------ ------ ------
INCOME FROM OPERATIONS
Investment income............ .85 .62 .64 .93 1.15
Expenses..................... (.19) (.14) (.11) (.14) (.17)
Expense waiver(/2/).......... .01 .02 .01 .025 .025
------ ------ ------ ------ ------
Net investment income......... .67 .50 .54 .815 1.005
Net realized and unrealized
gain (loss) on securities.... .4888 (.4817) (.1485)(/1/) (.417) .206
------ ------ ------ ------ ------
Total from investment
operations.................... 1.1588 .0183 .3915 .398 1.211
------ ------ ------ ------ ------
DISTRIBUTIONS FROM NET
INVESTMENT INCOME............. (.6488) (.5383) (.6015) (.758) (1.071)
------ ------ ------ ------ ------
Net asset value, end of
period........................ $12.41 $11.90 $12.42 $12.63 $12.99
------ ------ ------ ------ ------
TOTAL RETURN (/3/)............ 9.96% .16% 3.15%(/1/) 3.15% 9.78%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(millions).................... $45.4 $41.2 $64.3 $103.7 $95.8
Average net assets (millions). $42.6 $54.3 $85.7 $112.7 $47.5
Ratios to average net
assets(/2/)
Expenses..................... 1.45% 1.15% 1.03% .91% 1.16%
Expenses, without waiver..... 1.50% 1.31% 1.15% 1.12% 1.36%
Net investment income........ 5.47% 4.75% 5.49% 6.36% 7.96%
Net investment income,
without waiver............... 5.42% 4.58% 5.37% 6.15% 7.66%
Portfolio turnover rate....... 187% 161% 102% 254% 293%
</TABLE>
(1) Net of reimbursement--see Note 2.
(2) See Note 2.
(3) Total return does not consider the effect of sales charges.
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.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
------------------------------------------------------
November 5,
1991(/2/)
Year Ended December 31 through
---------------------------------------- December 31,
1995(/3/) 1994 1993 1992 1991(/3/)
- ---------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $11.91 $ 12.43 $ 12.64 $12.99 $12.99
------ ------- ------- ------ ------
INCOME FROM OPERATIONS
Investment income...... .84 .62 .67 .935 .12
Expenses............... (.28) (.22) (.20) (.24) (.03)
Expense waiver(/5/).... .01 .02 .01 .03 .02
------ ------- ------- ------ ------
Net investment income... .57 .42 .48 .725 .11
Net realized and
unrealized gain (loss)
on securities.......... .5028 (.4977) (.1845)(/1/) (.413) .036
------ ------- ------- ------ ------
Total from investment
operations............. 1.0728 (.0777) .2955 .312 .146
------ ------- ------- ------ ------
DISTRIBUTIONS FROM NET
INVESTMENT INCOME...... (.5528) (.4423) (.5055) (.662) (.146)
------ ------- ------- ------ ------
Net asset value, end of
period................. $12.43 $ 11.91 $ 12.43 $12.64 $12.99
------ ------- ------- ------ ------
TOTAL RETURN(/4/)....... 9.09% (.62%) 2.37%(/1/) 2.46% 1.13%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (millions)...... $30.3 $18.4 $26.9 $38.4 $9.4
Average net assets
(millions)............. $20.0 $22.2 $33.3 $32.3 $4.1
Ratios to average net
assets
(annualized)(/5/)
Expenses............... 2.24% 1.91% 1.79% 1.60% .59%
Expenses, without
waiver................ 2.29% 2.08% 1.91% 1.81% 1.84%
Net investment income.. 4.63% 3.99% 4.70% 5.44% 5.73%
Net investment income,
without waiver........ 4.59% 3.82% 4.58% 5.23% 4.48%
Portfolio turnover rate. 187% 161% 102% 254% 293%
</TABLE>
(1) Net of reimbursement--see Note 2.
(2) Commencement of offering of sales.
(3) Based on average shares outstanding.
(4) Total return for a period of less than one full year is not annualized.
Total return does not consider the effect of sales charges.
(5) See Note 2.
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.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
---------------------------------
May 10,
Year Ended 1993(/2/)
December 31 through
------------------ December 31,
1995(/3/) 1994 1993(/3/)
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
<S> <C> <C> <C>
Net asset value, beginning of period... $ 11.90 $ 12.41 $ 12.60
------- ------- -------
INCOME FROM OPERATIONS
Investment income..................... .84 .67 .44
Expenses.............................. (.28) (.24) (.14)
Expense waiver(/5/)................... .01 .02 .02
------- ------- -------
Net investment income.................. .57 .45 .32
Net realized and unrealized gain (loss)
on securities......................... .5028 (.5177) (.1914)(/1/)
------- ------- -------
Total from investment operations....... 1.0728 (.0677) .1286
------- ------- -------
DISTRIBUTIONS FROM NET INVESTMENT
INCOME................................ (.5528) (.4423) (.3186)
------- ------- -------
Net asset value, end of period......... $ 12.42 $ 11.90 $ 12.41
------- ------- -------
TOTAL RETURN(/4/)...................... 9.10% (.55%) 1.03%(/1/)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (millions)... $6.2 $5.8 $7.1
Average net assets (millions).......... $5.8 $7.6 $4.0
Ratios to average net assets
(annualized)(/5/)
Expenses.............................. 2.23% 1.90% 1.47%
Expenses, without waiver.............. 2.27% 2.07% 1.64%
Net investment income................. 4.71% 3.98% 3.79%
Net investment income, without waiver. 4.67% 3.81% 3.62%
Portfolio turnover rate................ 187% 161% 102%
</TABLE>
(1) Net of reimbursement--see Note 2.
(2) Commencement of offering of sales.
(3) Based on average shares outstanding.
(4) Total return for a period of less than one full year is not annualized.
Total return does not consider the effect of sales charges.
(5) See Note 2.
See Notes to Financial Statements
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Limited Maturity Government Fund (the "Fund", for-
merly American Capital Federal Mortgage Trust) is registered under the Invest-
ment Company Act of 1940, as amended, as a diversified, open-end management
investment company. The Fund seeks a high current return 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
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
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 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 se-
curities 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 re-
corded as a long-term purchase. For forward purchase commitments for which se-
curity 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 for-
ward commitment, the effect of which is to extend the settlement date. In ad-
dition, the Fund may occasionally close such forward commitments prior to
delivery. Gains and losses are realized upon the ultimate closing or cash set-
tlement 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 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 distri-
butions 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)
- -------------------------------------------------------------------------------
The net realized capital loss carryforward of approximately $13.7 million
(includes $1.3 million from the business combination--see Note 7) for federal
income tax purposes at the end of the period may be utilized to offset 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 in-
vestments 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. EQUALIZATION-At December 31, 1994, the Fund discontinued the accounting
practice of equalization, which it had used since its inception. Equalization
is a practice whereby a portion of the proceeds from sales and costs of re-
demptions of Fund shares, equivalent on a per-share basis to the amount of the
undistributed net investment income, is charged or credited to undistributed
net investment income.
The balance of equalization included in undistributed net investment income
at the date of change, which was $311,791, was reclassified to capital sur-
plus. Such reclassification had no effect on net assets, results of opera-
tions, or net asset value per share of the Fund.
H. 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.
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.
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
Accounting services include the salaries and overhead expenses of the Fund's
Treasurer and the personnel operating under his direction. Charges are allo-
cated among investment companies advised by the Adviser. For the period, these
charges included $7,278 as the Fund's share of the employee costs attributable
to the Fund's accounting officers. A portion of the accounting services ex-
pense was paid to the Adviser in reimbursement of personnel, facilities 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, the fees for such services aggregated $128,882.
The Fund was advised that Van Kampen American Capital Distributors, Inc.
(the "Distributor") and Advantage Capital Corp. (the "Retail Dealer"), both
affiliates of the Adviser, received $19,320 and $1,818, respectively, as their
portion of the commission 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 serv-
ice fees incurred. Class B and 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 Distribu-
tor for Class B and C shares may exceed the amounts reimbursed to the Distrib-
utor 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 $1.4
million and $113,000, 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, further Fund
reimbursements of distribution fees.
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, the Retail Dealer, 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.
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
NOTE 3--INVESTMENT ACTIVITY
During the period, the cost of purchases and proceeds from sales of invest-
ments, excluding the cost of purchases due to the business combination
($17,913,141 in long-term investments), short-term investments, and forward
commitments, were $127,640,498 and $141,140,778, 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
appreciation of investments aggregated $1,004,570, gross unrealized apprecia-
tion of investments aggregated $1,147,055 and gross unrealized depreciation of
investments aggregated $142,485.
At the end of the period, the Fund held the following forward purchase com-
mitments settling January 1996 and long futures contracts expiring in March
1996:
FORWARD PURCHASE COMMITMENTS
<TABLE>
<CAPTION>
Par
Amount Unrealized
(000) Security Market Value Appreciation
- -------------------------------------------------------------------------------------
<C> <S> <C> <C>
$16,000 United States Treasury Notes, 5.750%, 09/30/97 $16,147,520 $ 63,770
10,000 United States Treasury Notes, 5.875%, 08/15/98 10,159,400 85,963
----------- --------
$26,306,920 $149,733
----------- --------
FUTURES CONTRACTS
<CAPTION>
Unrealized
Contracts Security Market Value Appreciation
- -------------------------------------------------------------------------------------
<C> <S> <C> <C>
71 U.S. Treasury Notes (five years) $ 7,838,844 $ 91,185
50 U.S. Treasury Notes (ten years) 5,729,688 68,121
----------- --------
$13,568,532 $159,306
----------- --------
</TABLE>
NOTE 4--TRUSTEE COMPENSATION
Trustees who are not affiliated with the Adviser are compensated by the Fund
at the annual rate of $682 plus a fee of $19 per day for Board and Committee
meetings attended. During the period, such fees aggregated $9,176.
The Trustees may participate in a voluntary Deferred Compensation Plan (the
"Plan"). The Plan is not funded, and obligations under the Plan will be paid
solely out of the Fund's general accounts. The Fund will not reserve or set
aside funds for the payment of its obligations under the Plan by any form of
trust or escrow. Each trustee covered under the Plan elects to be credited
with an earning 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.
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
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
(the Class A shares) or at the time of redemption on a contingent deferred ba-
sis (the Class B and C shares). All classes of shares have the same rights, ex-
cept that Class B and C shares bear the cost of distribution fees and certain
other class specific expenses. Realized and unrealized gains or losses, invest-
ment 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 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>
Year Ended December 31
------------------------
1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Shares sold
Class A............................................. 1,149,166 1,589,204
Class B............................................. 224,944 340,243
Class C............................................. 183,672 469,667
----------- -----------
1,557,782 2,399,114
----------- -----------
Shares issued in business combination (see Note 7)
Class A............................................. 432,048 --
Class B............................................. 1,427,512 --
Class C............................................. 180,706 --
----------- -----------
2,040,266 --
----------- -----------
Shares issued for distributions reinvested
Class A............................................. 131,352 130,048
Class B............................................. 48,136 45,121
Class C............................................. 11,880 10,116
----------- -----------
191,368 185,285
----------- -----------
Shares redeemed
Class A............................................. (1,517,996) (3,431,958)
Class B............................................. (804,926) (1,010,900)
Class C............................................. (368,143) (556,549)
----------- -----------
(2,691,065) (4,999,407)
----------- -----------
Increase (decrease) in shares outstanding............ 1,098,351 (2,415,008)
----------- -----------
</TABLE>
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 6--FUND REORGANIZATION
On July 21, 1995, the shareholders approved the reorganization of the Fund to a
Delaware Business Trust and the election of additional trustees. On August 7,
1995, the reorganization became effective.
NOTE 7--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.
21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
VAN KAMPEN AMERICAN CAPITAL LIMITED MATURITY GOVERNMENT FUND
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all mate-
rial respects, the financial position of Van Kampen American Capital Limited
Maturity Government Fund (the "Fund") at December 31, 1995, and the results of
its operations, the changes in its net assets and the financial highlights for
each of the fiscal periods presented, in conformity with generally accepted ac-
counting principles. These financial statements and financial highlights (here-
after referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these finan-
cial statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which re-
quire that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and dis-
closures in the financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall finan-
cial statement presentation. We believe that our audits, which included confir-
mation of securities at December 31, 1995 by correspondence with the custodian
and the application of alternative auditing procedures where confirmations from
brokers were not received, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Houston, Texas
February 7, 1996
22
<PAGE>
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 adviser 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.
23
<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
*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.
2800 Post Oak Blvd. Houston, Texas 77056
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 60806
INDEPENDENT ACCOUNTANTS
PRICE WATERHOUSE LLP
1201 LouisianaHouston, Texas 77002
(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. If used for distribution to prospec-
tive investors after 03/31/96, this annual report must be accompanied by a Van
Kampen American Capital Limited Maturity Government Fund performance data up-
date for the most recent quarter.
24
