<PAGE>
Van Kampen American Capital
LIMITED MATURITY
GOVERNMENT FUND
Semi-Annual Report
June 30, 1997
[ARTWORK APPEARS HERE]
--- A Wealth of Knowledge . A Knowledge of Wealth(SM) ---
VAN KAMPEN AMERICAN CAPITAL
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
<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 8/97
<PAGE>
Letter to Shareholders
[PHOTO]
Dennis J. McDonnell and Don G. Powell
July 24, 1997
Dear Shareholder,
As you know, Van Kampen American Capital was acquired by Morgan Stanley
Group Inc., a world leader in asset management. Earlier this year, Morgan
Stanley Group Inc. and Dean Witter, Discover & Co. agreed to merge. The merger
was completed on May 31, creating the combined company of Morgan Stanley, Dean
Witter, Discover & Co. Additionally, we are very pleased to announce that Philip
N. Duff, formerly the chief financial officer of Morgan Stanley Group Inc., has
joined Van Kampen American Capital as president and chief executive officer. I
will continue as chairman of the firm. We are confident that the partnership of
Van Kampen American Capital and Morgan Stanley will continue to work to the
benefit of our fund shareholders.
One of the immediate privileges that we can offer fund shareholders is the
ability to make exchanges between Van Kampen American Capital and Morgan Stanley
retail funds at no charge. In our view, the rapid appreciation of U.S. stock
prices in recent years has created a need for investors to examine their
portfolios carefully to ensure proper diversification among domestic and foreign
investments. The Morgan Stanley retail funds, with their emphasis on global
markets, can be valuable tools for accomplishing this diversification.
We also urge investors to consider how their fund holdings are currently
allocated among the three major asset classes of stocks, bonds, and cash
reserves. Uneven movements in the various markets can distort a carefully
planned investment program. And, with stock prices near record highs, it is
likely that some rebalancing of your portfolio allocations may be necessary.
Once again, the exchangeability feature with the Morgan Stanley retail funds
provides additional choices and opportunities to make the necessary adjustments
to your portfolio's asset allocation.
Economic Overview
Growth, stability, and confidence continued to characterize the U.S.
economic environment during the past six months. In the first quarter, the
economy grew at its fastest pace since 1987. Meanwhile, consumer confidence
soared to its highest reading in 27 years, while unemployment fell as low as 4.8
percent, the lowest level since 1973.
Despite the robust pace of economic activity, there was little evidence of
troublesome inflation. Wholesale prices actually fell during each of the first
five months of 1997, the longest stretch of consecutive monthly declines in 45
years. At the consumer level, prices rose by a mere 2.2 percent during the 12
months through May. A strong rally in the U.S. dollar helped dampen inflationary
pressures resulting from the vigorous domestic economy by making imported goods
less expensive. At the same time, continued moderation in the cost of employee
benefit packages offset mild upward pressure on wages.
1 Continued on page two
<PAGE>
In March, the inflationary implications of a tight labor market caused the
Federal Reserve Board to raise its target for a key lending rate by one-quarter
of a percentage point, the first hike in short-term interest rates in two years.
Signs that economic growth slowed markedly in the second quarter, however, led
Fed policymakers to leave rates unchanged at subsequent meetings.
Market Overview
The strong economy and tight labor market combined to put mild upward
pressure on bond yields during the first half of 1997. For several weeks during
the spring, it appeared that economic growth was too robust and that inflation
could reemerge. The Fed's quarter-point increase in short-term interest rates,
as well as worries about inflation, pushed yields on long-term government bonds
up to 7.17 percent in April. When subsequent data showed the economy to be
decelerating during the second quarter, bond yields gradually fell back to 6.78
percent at the end of June, slightly above where they stood at the beginning of
the year.
Reflecting the strong economy, corporate bonds outperformed Treasuries by
about three-quarters of a percentage point over the past six months. Overall,
the Merrill Lynch Domestic Master Bond Index gained about 3.1 percent during the
same period. High-yield corporate bonds were the best-performing sector of the
fixed-income market, as the healthy economic environment increased investor
confidence in the creditworthiness of lower-rated debt.
The rate of bond issuance continued to be moderate as many corporations
used the equity market to raise capital. The relative shortage of new debt
issues contributed to a general narrowing of yield spreads between the various
sectors of the fixed-income market.
Outlook
We expect the pace of economic activity during the remainder of 1997 to
accelerate modestly from the sluggish rate that prevailed during the second
quarter. While we do not believe that economic growth will be rapid enough to
reignite inflation, some warning signs are present, including a tight labor
market and high consumer confidence. In this environment, at least one
additional Federal Reserve interest rate hike remains a possibility. We
anticipate that long-term interest rates will remain within a relatively narrow
range for the remainder of the year.
We are fortunate to be experiencing a rare combination of sustained
economic growth, low inflation, and highly favorable performance in the
financial market. Along with our shareholders, we celebrate the seemingly best
of economic times. Once again, we encourage you to review your portfolio with an
eye toward correcting allocation imbalances.
Additional details about your Fund, including a question-and-answer section
with your portfolio management team, are 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, 1997
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/.......... 2.59% 2.09% 2.19%
Six-month total return/2/....................... (0.76%) (0.90%) 1.19%
One-year total return/2/........................ 2.21% 1.83% 3.83%
Five-year average annual total return/2/........ 3.33% 3.21% N/A
Ten-year average annual total return/2/......... 5.77% N/A N/A
Life-of-Fund average annual total return/2/..... 5.48% 3.37% 3.42%
Commencement Date............................... 06/16/86 11/05/91 05/10/93
Distribution Rate and Yield
Distribution Rate/3/............................ 5.26% 4.64% 4.65%
SEC Yield/4/.................................... 4.70% 4.00% 3.98%
</TABLE>
N/A = Not Applicable
/1/ Assumes reinvestment of all distributions for the period and does not
include 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
contingent 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 June 30, 1997.
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.
The value of debt securities will fluctuate with changes in market conditions
and interest rates, and the principal value and investment return of Fund shares
will vary. Securities which are issued by private issuers may involve greater
risk than those issued directly by the U.S. Government, its agencies, or its
instrumentalities.
Market forecasts provided in this report may not necessarily come to pass.
3
<PAGE>
Portfolio Highlights
Van Kampen American Capital Limited Maturity Government Fund
Coupon Distribution as of June 30, 1997
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Coupon Rate Percentage of Long-Term Investments
<S> <C>
5-5.99 18.1%
6-6.99 35.9%
7-7.99 14.5%
8-8.99 4.3%
9-9.99 23.6%
10 or more 3.6%
</TABLE>
Portfolio Composition by Sector as a Percentage of Long-Term Investments
[PIE CHART APPEARS HERE]
<TABLE>
<CAPTION>
As of June 30, 1997
<S> <C>
Treasury Notes............ 10%
CMOs...................... 29%
ARMs...................... 8%
Asset-Backed Securities... 13%
FNMA...................... 13%
GNMA...................... 12%
FHLMC..................... 15%
As of December 31, 1996
Treasury Notes............ 14%
CMOs...................... 22%
ARMs...................... 7%
Asset-Backed Securities... 11%
FNMA...................... 36%
GNMA...................... 3%
FHLMC..................... 7%
</TABLE>
Duration
<TABLE>
<CAPTION>
As of June 30, 1997 As of December 31, 1996
<S> <C> <C>
Duration 1.7 years 1.8 years
</TABLE>
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 Peter W. Hegel, chief investment officer for fixed-income
investments. The following excerpts reflect their views on the Fund's
performance during the six-month period ended June 30, 1997.
Q What were some of the major economic conditions affecting the Fund over the
past six months?
A We entered 1997 with the fixed-income market in a defensive mode. Fueled by a
fast-paced economy, interest rates were on the rise through December of 1996
and continued to climb higher during the early months of 1997. In response to
strong first quarter growth, the Federal Reserve Board raised the federal funds
rate in late March from 5.25 percent to 5.50 percent as a preemptive measure to
slow down the surging economy.
Subsequently, we saw the economy slow considerably, which sparked a
prolonged rally in the bond market. For example, the yield on the two-year
Treasury rose to 6.35 percent on the day after the Fed's announcement, and later
jumped to as high as 6.54 percent. By late-June, however, yields had dropped to
6.04 percent as bond prices pushed higher.
Q Were there any other key factors besides the economy?
A Politics had a positive influence on the fixed-income market. The
government's steady progress toward a balanced budget, combined with the
ongoing reduction of our federal deficit, provided a good environment for strong
demand and a favorable bond market.
Q How did you manage the Fund in light of these circumstances?
A Through the early part of the six-month period, our approach was to add yield
and reduce the impact of rising interest rates to the Fund. We accomplished
these goals in two ways: decreasing duration and increasing the Fund's mortgage-
backed holdings.
First, we entered the year with a duration of 1.8 years and trimmed it down
to 1.3 years during the market sell-off. Duration is a measure of the Fund's
sensitivity to interest rate changes. As duration declines, the Fund tends to be
less sensitive to interest rate increases. When the economy cooled and rates
went down later in the period, we gradually lengthened the Fund's duration.
Second, the portfolio was overweighted in mortgage-backed securities, which
tend to perform well in low-volatility markets, such as that experienced in the
first six months of 1997. We began the year with a portfolio blend of about 36
percent U.S. Treasuries and 64 percent mortgages (a percent of long-term
investments and includes forward commitments). As we moved forward, the Treasury
portion, including forward commitments, of the Fund was cut back to just 24
percent of long-term investments, as we continued to focus on promising
securities in the mortgage market. For additional Fund portfolio highlights,
please refer to page four.
5
<PAGE>
Q How did the Fund perform over the past six months?
A The objective of the Fund is to seek to provide investors with a high
current return and relative safety of capital. In light of these goals, the
Fund produced a total return for the six-month period ended June 30, 1997 of
2.59 percent/1/ (Class A shares at net asset value). By comparison, the Lehman
Brothers Mutual Fund one- to two-year Government Index total return was 2.88
percent. Please keep in mind that this index is a broad-based, unmanaged index
that reflects the general performance of U.S. government securities. It does not
reflect any commissions or fees that would be paid by an investor purchasing the
securities it represents.
Also, the Fund's dividend remained consistent over the period. The Fund's
Class A distribution rate was 5.26 percent/3/ as of June 30, 1997, based on a
monthly dividend of $.0550 per share and a maximum public offering price of
$12.54 per share. Please refer to the chart on page three for additional Fund
performance results.
Q What is your outlook for the Fund over the next six months?
A We are optimistic about the near term. Economic growth, which was weak during
the second quarter, is expected to remain moderate as we move into the third
quarter. Looking further ahead, though, we believe the economy may once again
pick up speed later in the year. Employment levels remain high and wage gains
are on the upswing, which may provide the impetus for renewed economic strength
and further intervention by the Fed.
The performance of international economies, especially Japan and western
Europe, will also bear watching. Japan, for example, has been experiencing
deflation and a fairly severe recession, while western Europe has been battling
to manage economic growth under the constraints imposed by the upcoming European
Monetary Union in 1999. If these economies heat up, we may see faster growth
rates around the world, which could jeopardize the modest inflation we've been
enjoying here in the United States.
With these considerations in mind, we will continue to ride the current
bond rally by further increasing the Fund's duration. At the same time, we will
closely monitor the economy for signs of renewed strength. If these indicators
appear, we'll move quickly to lower the Fund's duration.
/s/ Peter W. Hegel /s/ Ted V. Mundy
Peter W. Hegel Ted V. Mundy
Chief Investment Officer Portfolio Manager
Fixed Income Investments
6 Please see footnotes on page three
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments
June 30, 1997 (Unaudited)
=========================================================================================
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Adjustable Rate Mortgage-Backed
Securities 7.0%
$ 186 Federal Home Loan Mortgage Corp. Pool... 8.929% 02/01/18 $ 186,055
1,316 Federal National Mortgage
Association Pool........................ 7.433 03/01/19 1,361,252
2,636 Federal National Mortgage
Association Pool........................ 7.478 09/01/19 2,726,331
-----------
Total Adjustable Rate Mortgage-Backed Securities................. 4,273,638
-----------
Asset-Backed Securities 11.4%
4,000 Deutsche Floorplan Master Trust (a)..... 5.888 02/15/01 4,007,520
3,000 First USA Credit Card Master Trust...... 5.858 04/15/03 3,003,750
-----------
Total Asset-Backed Securities.................................... 7,011,270
-----------
Collateralized Mortgage
Obligations 25.9%
3,087 Federal Home Loan Mortgage Corp.
(Floater)............................... 6.150 04/15/99 3,097,860
2,688 Federal Home Loan Mortgage Corp.
(Floater)............................... 6.250 04/15/20 2,692,871
84 Federal Home Loan Mortgage Corp.
(Floater)............................... 6.550 02/15/16 83,510
6,237 Federal National Mortgage Association
(Floater) (a)........................... 6.419 06/25/18 to 02/25/21 6,271,256
2 Federal National Mortgage Association... 6.750 08/25/20 2,280
3,158 Saxon Mortgage Securities Corp.......... 5.680 11/25/23 2,965,489
713 Sears Mortgage Securities (Floater)..... 6.670 05/25/21 714,980
-----------
Total Collateralized Mortgage Obligations........................ 15,828,246
-----------
U.S. Government Agency
Obligations 36.6%
5,000 Federal Home Loan Mortgage Corp. (PAC).. 6.250 07/15/18 4,926,550
1,743 Federal Home Loan Mortgage Corp.
30 Year................................. 9.250 12/01/15 1,825,346
1,484 Federal Home Loan Mortgage Corp.
30 Year Pool............................ 9.500 12/01/01 1,537,005
3,921 Federal National Mortgage Association
15 Year Pool............................ 7.000 10/01/09 3,920,704
</TABLE>
7 See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments (Continued)
June 30, 1997 (Unaudited)
==========================================================================================
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Government Agency
Obligations (Continued)
$1,909 Federal National Mortgage
Association 30 Year Pool........... 8.500% 05/01/21 to 04/01/25 $ 1,980,076
472 Federal National Mortgage
Association 30 Year Pool........... 9.500 07/01/11 to 08/01/21 506,371
714 Federal National Mortgage
Association 30 Year Pool........... 10.000 05/01/21 778,135
166 Government National Mortgage
Association 30 Year Pool........... 8.500 06/15/16 to 01/15/17 173,127
4,944 Government National Mortgage
Association 30 Year Pool........... 9.000 11/15/26 to 02/15/27 5,227,163
263 Government National Mortgage
Association 30 Year Pool........... 9.500 03/15/16 to 01/15/19 283,334
577 Government National Mortgage
Association 30 Year Pool........... 10.000 03/15/16 to 04/15/19 631,816
301 Government National Mortgage
Association 30 Year Pool........... 10.500 05/15/13 to 02/15/18 331,497
233 Government National Mortgage
Association 30 Year Pool........... 11.000 11/15/18 258,527
-----------
Total U.S. Government Agency Obligations........................... 22,379,651
-----------
U.S. Government Obligations 9.2%
2,000 United States Treasury Notes....... 6.000 08/15/99 1,995,320
3,500 United States Treasury Notes (a)... 9.250 08/15/98 3,623,585
-----------
Total U.S. Government Obligations.................................. 5,618,905
-----------
Total Long-Term Investments 90.1%
(Cost $55,019,988)...................................................... 55,111,710
Repurchase Agreement 6.4%
Lehman Brothers ($3,960,000 par, collateralized by
U.S. Government obligations in a pooled cash account,
dated 06/30/97, to be sold on 07/01/97 at $3,960,655)........................ 3,960,000
-----------
Total Investments 96.5%
(Cost $58,979,988)...................................................... 59,071,710
Other Assets in Excess of Liabilities 3.5%................................... 2,121,489
-----------
Net Assets 100.0%............................................................ $61,193,199
===========
</TABLE>
(a) Assets segregated as collateral for open forward commitments and open
futures transactions.
8 See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
June 30, 1997 (Unaudited)
===============================================================================
<S> <C>
Assets:
Total Investments (Cost $58,979,988)............................ $ 59,071,710
Cash............................................................ 3,618
Receivables:
Fund Shares Sold.............................................. 2,138,716
Interest...................................................... 427,022
Variation Margin on Futures................................... 3,405
Forward Commitments............................................. 40,387
Other........................................................... 39,703
-------------
Total Assets............................................... 61,724,561
-------------
Liabilities:
Payables:
Fund Shares Repurchased....................................... 238,645
Income Distributions.......................................... 101,771
Distributor and Affiliates.................................... 50,208
Investment Advisory Fee....................................... 24,331
Deferred Compensation and Retirement Plans...................... 73,610
Accrued Expenses................................................ 42,797
-------------
Total Liabilities.......................................... 531,362
-------------
Net Assets...................................................... $ 61,193,199
=============
Net Assets Consist of:
Capital......................................................... $ 70,556,220
Net Unrealized Appreciation..................................... 134,952
Accumulated Undistributed Net Investment Income................. 7,609
Accumulated Net Realized Loss................................... (9,505,582)
-------------
Net Assets...................................................... $ 61,193,199
=============
Maximum Offering Price Per Share:
Class A Shares:
Net asset value and redemption price per share
(Based on net assets of $38,510,469 and 3,176,078
shares of beneficial interest issued and outstanding)...... $ 12.13
Maximum sales charge (3.25%* of offering price)............ .41
-------------
Maximum offering price to public........................... $ 12.54
=============
Class B Shares:
Net asset value and offering price per share (Based
on net assets of $18,629,605 and 1,533,088 shares of
beneficial interest issued and outstanding)................ $ 12.15
=============
Class C Shares:
Net asset value and offering price per share (Based
on net assets of $4,053,125 and 333,891 shares of
beneficial interest issued and outstanding)................ $ 12.14
=============
</TABLE>
*On sales of $25,000 or more, the sales charge will be reduced.
9 See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations
For the Six Months Ended June 30, 1997 (Unaudited)
================================================================================
<S> <C>
Investment Income:
Interest........................................................ $ 2,037,102
Fee Income...................................................... 58,594
-----------
Total Income................................................ 2,095,696
-----------
Expenses:
Distribution (12b-1) and Service Fees (Attributed
to Classes A, B and C of $38,709, $99,800 and
$20,330, respectively)........................................ 158,839
Investment Advisory Fee......................................... 146,859
Shareholder Services............................................ 54,602
Registration and Filing Fees.................................... 35,917
Shareholder Reports............................................. 31,608
Accounting...................................................... 15,412
Custody......................................................... 11,928
Trustees Fees and Expenses...................................... 5,454
Legal........................................................... 4,494
Other........................................................... 26,390
-----------
Total Expenses.............................................. 491,503
-----------
Net Investment Income........................................... $ 1,604,193
===========
Realized and Unrealized Gain/Loss:
Realized Gain/Loss:
Investments................................................. $ (41,029)
Futures..................................................... 41,391
Forwards.................................................... (96,167)
-----------
Net Realized Loss............................................... (95,805)
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period....................................... 269,239
-----------
End of the Period:
Investments................................................. 91,722
Futures..................................................... 2,843
Forward Commitments......................................... 40,387
-----------
134,952
-----------
Net Unrealized Depreciation During the Period................... (134,287)
-----------
Net Realized and Unrealized Loss................................ $ (230,092)
===========
Net Increase in Net Assets From Operations...................... $ 1,374,101
===========
</TABLE>
10 See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
For the Six Months Ended June 30, 1997
and the Year Ended December 31, 1996 (Unaudited)
===========================================================================================
Six Months Ended Year Ended
June 30, 1997 December 31, 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income........................... $ 1,604,193 $ 3,456,385
Net Realized Loss............................... (95,805) (446,862)
Net Unrealized Depreciation During the Period... (134,287) (1,044,370)
---------------- -----------------
Change in Net Assets from Operations............ 1,374,101 1,965,153
---------------- -----------------
Distributions from Net Investment Income:
Class A Shares................................ (948,568) (2,116,087)
Class B Shares................................ (468,768) (1,217,044)
Class C Shares................................ (95,549) (233,369)
---------------- -----------------
Total Distributions............................. (1,512,885) (3,566,500)
---------------- -----------------
Net Change in Net Assets from
Investment Activities......................... (138,784) (1,601,347)
---------------- -----------------
From Capital Transactions:
Proceeds from Shares Sold....................... 22,916,556 25,986,720
Net Asset Value of Shares Issued Through
Dividend Reinvestment......................... 973,947 2,395,460
Cost of Shares Repurchased...................... (29,960,159) (41,319,105)
---------------- -----------------
Net Change in Net Assets from
Capital Transactions.......................... (6,069,656) (12,936,925)
---------------- -----------------
Total Decrease in Net Assets.................... (6,208,440) (14,538,272)
Net Assets:
Beginning of the Period......................... 67,401,639 81,939,911
---------------- -----------------
End of the Period (Including accumulated
undistributed net investment income of
$7,609 and $(47,240), respectively)........... $ 61,193,199 $ 67,401,639
================ =================
</TABLE>
11 See Notes to Financial Statements
<PAGE>
Financial Highlights
The following schedule presents financial highlights for one share of the
Fund outstanding throughout the periods indicated. (Unaudited)
<TABLE>
==========================================================================================================
Year Ended December 31,
Six Months Ended -------------------------------------
Class A Shares June 30, 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period........... $12.151 $ 12.41 $ 11.90 $ 12.42 $ 12.63
------- ------- ------- ------- -------
Net Investment Income............................ .339 .627 .67 .50 .54
Net Realized and Unrealized Gain/Loss............ (.035) (.226) .4888 (.4817) (.1485)
------- ------- ------- ------- -------
Total from Investment Operations................... .304 .401 1.1588 .0183 .3915
Less Distributions from Net Investment Income...... .330 .660 .6488 .5383 .6015
------- ------- ------- ------- -------
Net Asset Value, End of the Period................. $12.125 $12.151 $ 12.41 $ 11.90 $ 12.42
======= ======= ======= ======= =======
Total Return* (a).................................. 2.59%** 3.34% 9.96% .16% 3.15%(b)
Net Assets at End of the Period (In millions)...... $ 38.5 $ 40.2 $ 45.4 $ 41.2 $ 64.3
Ratio of Expenses to Average Net Assets*........... 1.35% 1.45% 1.45% 1.15% 1.03%
Ratio of Net Investment Income to Average
Net Assets*...................................... 5.78% 5.23% 5.47% 4.75% 5.49%
Portfolio Turnover................................. 57%** 260% 187% 161% 102%
*If certain expenses had not been reimbursed by
VKAC, Total Return would have been lower and the
ratios would have been as follows:
Ratio of Expenses to Average Net Assets............ N/A 1.47% 1.50% 1.31% 1.15%
Ratio of Net Investment Income to Average
Net Assets....................................... N/A 5.21% 5.42% 4.58% 5.37%
</TABLE>
** Non-Annualized
(a) Total Return is based upon net asset value which does not include payment
of the maximum sales charge or contingent deferred sales charge.
(b) During 1993, the Adviser reimbursed the Fund for a loss realized on the
sale of certain securities. Without the reimbursement, the Total Return for
1993 would have been lower by approximately 6.25 percentage points.
N/A = Not Applicable
12 See Notes to Financial Statements
<PAGE>
Financial Highlights (Continued)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated. (Unaudited)
<TABLE>
==========================================================================================================
Year Ended December 31,
Six Months Ended -------------------------------------
Class B Shares June 30, 1997(a) 1996(a) 1995(a) 1994 1993
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period........... $12.174 $ 12.43 $ 11.91 $ 12.43 $ 12.64
------- ------- ------- ------- -------
Net Investment Income............................ .303 .550 .57 .42 .48
Net Realized and Unrealized Gain/Loss............ (.043) (.242) .5028 (.4977) (.1845)
------- ------- ------- ------- -------
Total from Investment Operations................... .260 .308 1.0728 (.0777) .2955
Less Distributions from Net Investment Income...... .282 .564 .5528 .4423 .5055
------- ------- ------- ------- -------
Net Asset Value, End of the Period................. $12.152 $12.174 $ 12.43 $ 11.91 $ 12.43
======= ======= ======= ======= =======
Total Return* (b).................................. 2.09%** 2.69% 9.09% (.62%) 2.37%(c)
Net Assets at End of the Period (In millions)...... $ 18.6 $ 22.5 $ 30.3 $ 18.4 $ 26.9
Ratio of Expenses to Average Net Assets*........... 2.14% 2.19% 2.24% 1.91% 1.79%
Ratio of Net Investment Income to Average
Net Assets*...................................... 5.03% 4.50% 4.63% 3.99% 4.70%
Portfolio Turnover................................. 57%** 260% 187% 161% 102%
*If certain expenses had not been reimbursed by
VKAC, Total Return would have been lower and the
ratios would have been as follows:
Ratio of Expenses to Average Net Assets............ N/A 2.22% 2.29% 2.08% 1.91%
Ratio of Net Investment Income to Average
Net Assets....................................... N/A 4.47% 4.59% 3.82% 4.58%
</TABLE>
** Non-Annualized
(a) Based on average month-end shares outstanding.
(b) Total Return is based upon net asset value which does not include payment
of the maximum sales charge or contingent deferred sales charge.
(c) During 1993, the Adviser reimbursed the Fund for a loss realized on the
sale of certain securities. Without the reimbursement, the Total Return for
1993 would have been lower by approximately 6.25 percentage points.
N/A = Not Applicable
13 See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights (Continued)
The following schedule presents financial highlights for one share of the
Fund outstanding throughout the periods indicated. (Unaudited)
==========================================================================================================
May 10, 1993
(Commencement
Six Months Ended Year Ended December 31, of Distribution) to
-----------------------
Class C Shares June 30, 1997 1996 1995(a) 1994 December 31, 1993 (a)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period...... $ 12.162 $ 12.42 $ 11.90 $ 12.41 $ 12.60
-------- -------- ------- ------- -------
Net Investment Income....................... .302 .554 .57 .45 .32
Net Realized and Unrealized Gain/Loss....... (.043) (.248) .5028 (.5177) (.1914)
-------- -------- ------- ------- -------
Total from Investment Operations.............. .259 .306 1.0728 (.0677) .1286
Less Distributions from Net
Investment Income........................... .282 .564 .5528 .4423 .3186
-------- -------- ------- ------- -------
Net Asset Value, End of the Period............ $ 12.139 $ 12.162 $ 12.42 $ 11.90 $ 12.41
======== ======== ======= ======= =======
Total Return* (b)............................. 2.19%** 2.62% 9.10% (.55%) 1.03%**(c)
Net Assets at End of the Period
(In millions)............................... $ 4.1 $ 4.7 $ 6.2 $ 5.8 $ 7.1
Ratio of Expenses to Average
Net Assets*................................. 2.14% 2.20% 2.23% 1.90% 1.47%
Ratio of Net Investment Income to
Average Net Assets*......................... 5.03% 4.48% 4.71% 3.98% 3.79%
Portfolio Turnover............................ 57%** 260% 187% 161% 102%
*If certain expenses had not been reimbursed by VKAC,
Total Return would have been lower and the ratios would
have been as follows:
Ratio of Expenses to Average
Net Assets.................................. N/A 2.22% 2.27% 2.07% 1.64%
Ratio of Net Investment Income to
Average Net Assets.......................... N/A 4.45% 4.67% 3.81% 3.62%
**Non-Annualized
(a) Based on average month-end shares outstanding.
(b) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(c) During 1993, the Adviser reimbursed the Fund for a loss realized on the sale
of certain securities. Without the reimbursement, the Total Return for 1993
would have been lower by approximately 6.25 percentage points.
N/A = Not Applicable
14 See Notes to Financial Statements
</TABLE>
<PAGE>
Notes to Financial Statements
June 30, 1997 (Unaudited)
================================================================================
1. Significant Accounting Policies
Van Kampen American Capital Limited Maturity Government Fund (the "Fund")
is organized as a Delaware business trust, and is registered as a diversified
open-end management investment company under the Investment Company Act of 1940,
as amended. The Fund's investment objective is to seek to provide a high current
return and relative safety of capital by primarily investing in mortgage-related
securities issued or guaranteed by an agency or instrumentality of the U.S.
Government. The Fund commenced investment operations on June 16, 1986. The
distribution of the Fund's Class B and Class C shares commenced on November 5,
1991 and May 10, 1993, respectively.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. Security Valuation--Investments are stated at value using market
quotations. For those securities where quotations or prices are not available,
valuations are determined in accordance with procedures established in good
faith by the Board of Trustees. Short-term securities with remaining maturities
of 60 days or less are valued at amortized cost.
B. Security Transactions--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term
investments 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 invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen American Capital Asset Management, Inc. (the
"Adviser") or its affiliates, the daily aggregate of which is invested in
repurchase agreements. Repurchase agreements are fully 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 required to maintain the value of the underlying
security at not less than the repurchase proceeds due the Fund.
The Fund trades certain securities under the terms of forward commitments,
whereby the settlement for payment and delivery occurs at a specified future
date. Forward commitments are privately negotiated transactions between the Fund
and dealers. Upon executing a forward commit-
15
<PAGE>
Notes to Financial Statements (Continued)
June 30, 1997 (Unaudited)
================================================================================
ment and during the period of obligation, the Fund maintains collateral of cash
or securities in a segregated account with its custodian in an amount sufficient
to relieve the obligation. If the intent of the Fund is to accept delivery of a
security traded under a forward purchase commitment, the commitment is recorded
as a long-term purchase and is included in the portfolio of investments. For
forward purchase commitments for which security settlement is not intended by
the Fund, changes in the value of the commitment are recognized by marking the
commitment to market on a daily basis. During the term of the commitment, the
Fund may resell the forward commitment and enter into a new forward commitment,
the effect of which is to extend the settlement date. In connection with this
extension, the Fund receives a fee, which is included in fee income at the end
of the extension period. In addition, the Fund may occasionally close such
forward commitments prior to delivery.
C. Investment Income--Interest income is recorded on an accrual basis. Original
issue discount is amortized over the expected life of each applicable security.
Premiums on debt securities are not amortized. Market discounts are recognized
at the time of sale as realized gains for book purposes and ordinary income for
tax purposes.
D. Federal Income Taxes--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset these losses against any future realized capital
gains. At December 31, 1996, the Fund had an accumulated capital loss
carryforward for tax purposes of $9,318,844 which will expire between December
31, 1997 and December 31, 2004. Of this amount, $388,613 will expire at December
31, 1997. Net realized loss differs for financial and tax reporting purposes
primarily as a result of post October 31 losses which are not recognized for tax
purposes until the first day of the following fiscal year and the deferral of
the recognition of losses on futures contracts.
At June 30, 1997, for federal income tax purposes, cost of long- and
short-term investments is $58,984,330; the aggregate gross unrealized
appreciation is $349,548 and the aggregate gross unrealized depreciation is
$218,938, resulting in unrealized appreciation including open future and
forward transactions of $130,610.
E. Distribution of Income and Gains--The Fund declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed annually. Due to inherent dif-
16
<PAGE>
Notes to Financial Statements (Continued)
June 30, 1997 (Unaudited)
===============================================================================
ferences in the recognition of income, expenses and realized gains/losses under
generally accepted accounting principles and for federal income tax purposes,
permanent book and tax differences relating to the recognition of losses on
paydowns of mortgage pool obligations totaling $36,459 were reclassified from
accumulated net realized loss to accumulated undistributed net investment
income.
2. Investment Advisory Agreement and Other Transactions with Affiliates
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee, payable
monthly as follows:
<TABLE>
<CAPTION>
% Per
Average Daily Net Assets Annum
- -------------------------------------------------------------------------------
<S> <C>
First $1 billion................................................... .500 of 1%
Next $1 billion.................................................... .475 of 1%
Next $1 billion.................................................... .450 of 1%
Next $1 billion.................................................... .400 of 1%
Over $4 billion.................................................... .350 of 1%
</TABLE>
For the six months ended June 30, 1997, the Fund recognized expenses of
approximately $4,500 representing legal services provided by Skadden, Arps,
Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the Fund
is an affiliated person.
For the six months ended June 30, 1997, the Fund recognized expenses of
approximately $15,400 representing Van Kampen American Capital Distributors,
Inc. or its affiliates' (collectively "VKAC") cost of providing accounting
services to the Fund. These services are provided by VKAC at cost.
ACCESS Investor Services, Inc. ("ACCESS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the six months
ended June 30, 1997, the Fund recognized expenses of approximately $37,800,
representing ACCESS' cost of providing transfer agency and shareholder services
plus a profit.
Certain officers and trustees of the Fund are also officers and directors
of VKAC. The Fund does not compensate its officers or trustees who are officers
of VKAC.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of VKAC. Under the deferred compensation plan,
trustees may elect to defer all or a portion of their compensation to a later
date. Benefits under the retirement plan are payable for a ten-year period and
are based upon each trustee's years of service to the Fund. The maximum annual
benefit per trustee under the plan is $2,500.
At June 30, 1997, VKAC owned 27,870 Class A shares of the Fund.
17
<PAGE>
Notes to Financial Statements (Continued)
June 30, 1997 (Unaudited)
================================================================================
3. Capital Transactions
The Fund has outstanding three classes of shares of beneficial interest, Classes
A, B and C, each with a par value of $.01 per share. There are an unlimited
number of shares of each class authorized.
At June 30, 1997, capital aggregated $49,261,039, $17,611,571 and
$3,683,610 for Classes A, B and C, respectively. For the six months ended June
30, 1997, transactions were as follows:
<TABLE>
<CAPTION>
Shares Value
- -------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A...................................... 1,571,139 $ 19,021,045
Class B...................................... 129,085 1,562,520
Class C...................................... 192,764 2,332,991
----------- -------------
Total Sales.................................... 1,892,988 $ 22,916,556
=========== =============
Dividend Reinvestment:
Class A...................................... 51,831 $ 627,083
Class B...................................... 22,317 270,578
Class C...................................... 6,298 76,286
----------- -------------
Total Dividend Reinvestment.................... 80,446 $ 973,947
=========== =============
Repurchases:
Class A...................................... (1,757,175) $ (21,282,874)
Class B...................................... (466,761) (5,655,474)
Class C...................................... (249,446) (3,021,811)
----------- -------------
Total Repurchases.............................. (2,473,382) $ (29,960,159)
=========== =============
</TABLE>
18
<PAGE>
Notes to Financial Statements (Continued)
June 30, 1997 (Unaudited)
================================================================================
At December 31, 1996, capital aggregated $50,895,785, $21,433,947 and
$4,296,144 for Classes A, B and C, respectively. For the year ended December 31,
1996, transactions were as follows:
<TABLE>
<CAPTION>
Shares Value
- -------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A...................................... 1,745,532 $ 21,268,631
Class B...................................... 218,677 2,675,608
Class C...................................... 159,792 2,042,481
----------- -------------
Total Sales.................................... 2,124,001 $ 25,986,720
=========== =============
Dividend Reinvestment:
Class A...................................... 123,622 $ 1,507,203
Class B...................................... 58,725 717,146
Class C...................................... 14,026 171,111
----------- -------------
Total Dividend Reinvestment.................... 196,373 $ 2,395,460
=========== =============
Repurchases:
Class A...................................... (2,219,061) $ (27,103,938)
Class B...................................... (866,149) (10,582,683)
Class C...................................... (289,066) (3,632,484)
----------- -------------
Total Repurchases.............................. (3,374,276) $ (41,319,105)
=========== =============
</TABLE>
19
<PAGE>
Notes to Financial Statements (Continued)
June 30, 1997 (Unaudited)
================================================================================
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). The CDSC will be imposed
on most redemptions made within four years of the purchase for Class B and one
year of the purchase for Class C as detailed in the following schedule. The
Class B and C shares bear the expense of their respective deferred sales
arrangements, including higher distribution and service fees and incremental
transfer agency costs.
Contingent Deferred
Sales Charge
-------------------
Year of Redemption Class B Class C
- ------------------------------------------------------------------------------
First.................................................... 3.00% 1.00%
Second................................................... 2.50% None
Third.................................................... 2.00% None
Fourth................................................... 1.00% None
Fifth and Thereafter...................................... None None
For the six months ended June 30, 1997, VKAC, as Distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately
$2,800 and CDSC on redeemed shares of approximately $15,700. Sales charges do
not represent expenses of the Fund.
4. Investment Transactions
During the period, the cost of purchases and proceeds from sales of investments,
excluding forward commitment transactions and short-term investments, were
$33,648,511 and $57,943,021, respectively.
5. Derivative Financial Instruments
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio or generate potential gain. All of the Fund's portfolio holdings,
including derivative instruments, are marked to market each day with the change
in value reflected in unrealized appreciation/depreciation. Upon disposition, a
realized gain or loss is recognized accordingly, except in instances where the
Fund accepts delivery of a security underlying a futures contract. In these
situations, the recognition of gain or loss is postponed until the disposal of
this underlying security.
20
<PAGE>
Notes to Financial Statements (Continued)
June 30, 1997 (Unaudited)
================================================================================
During the six months ended June 30, 1997, the Fund entered into futures
contracts, a type of derivative. A futures contract is an agreement involving
the delivery of a particular asset on a specified future date at an agreed upon
price. The Fund generally invests in exchange traded futures contracts on U.S.
Treasury Bonds and typically closes the contract prior to the delivery date.
These contracts are generally used to manage the portfolio's effective maturity
and duration.
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. During the period the futures contract is open,
payments are received from or made to the broker based upon changes in the value
of the contract (the variation margin).
Transactions in futures contracts for the six months ended June 30, 1997,
were as follows:
<TABLE>
<CAPTION>
Contracts
- --------------------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1996................................... 8
Futures Opened..................................................... 433
Futures Closed..................................................... (431)
-----
Outstanding at June 30, 1997....................................... 10
=====
</TABLE>
The futures contracts outstanding as of June 30, 1997, and the description
and unrealized appreciation are as follows:
<TABLE>
<CAPTION>
Unrealized
Contracts Appreciation
- --------------------------------------------------------------------------------
<S> <C> <C>
Short Contracts--5 Year U.S. Treasury Note Futures
Sept 1997 (Current notional
value $105,891 per contract)..................... 10 $2,843
== ======
</TABLE>
6. Mortgage Backed Securities
A Mortgage Backed Security (MBS) is a pass-through security created by pooling
mortgages and selling participations in the principal and interest payments
received from borrowers. Most of these securities are guaranteed by federally
sponsored agencies--Government National Mortgage Association (GNMA), Federal
National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation
(FHLMC).
A Collateralized Mortgage Obligation (CMO) is a bond which is
collateralized by a pool of MBS's. These MBS pools are divided into classes or
tranches with each class having its own characteristics. For instance, a PAC
(Planned Amortization Class) is a specific class of mortgages which over its
life will generally have the most stable cash flows and the lowest prepayment
risk.
21
<PAGE>
Notes to Financial Statements (Continued)
June 30, 1997 (Unaudited)
================================================================================
7. Forward Commitments
The Fund trades certain securities under the terms of forward commitments, as
described in Note 1B. The following forward commitments, for which settlement is
not intended, were outstanding as of June 30, 1997. The change in value of this
item is reflected as a component of unrealized appreciation/depreciation on
forward commitments.
<TABLE>
<CAPTION>
Par Unrealized
Amount Current Appreciation/
(000) Description Expiration Value Depreciation
- -----------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Long Contracts:
$ 5,000 FNMA Aug 7-year Balloon Forward,
6.500% coupon, 12/31/23 maturity... 08/21/97 $4,934,400 $ (7,007)
5,000 FNMA Aug 7-year Balloon Forward,
6.000% coupon, 12/31/23 maturity... 08/21/97 4,851,300 47,394
--------
$ 40,387
========
</TABLE>
8. Distribution and Service Plans
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these fees
for the six months ended June 30, 1997, are payments to VKAC of approximately
$99,900.
22
<PAGE>
Results of Shareholder Votes
A Special Meeting of Shareholders of the Fund was held on May 28, 1997
where shareholders voted on a new investment advisory agreement, the election of
Trustees and the ratification of Price Waterhouse LLP as independent public
accountants. With regard to the approval of a new investment advisory agreement
between Van Kampen American Capital Asset Management, Inc. and the Fund,
2,710,372 shares voted for the proposal, 72,991 shares voted against and 116,387
shares abstained. With regard to the election of J. Miles Branagan as elected
trustee of the Fund, 2,857,511 shares voted in his favor and 42,239 shares
withheld. With regard to the election of Richard M. DeMartini as elected trustee
of the Fund, 2,857,507 shares voted in his favor and 42,243 shares withheld.
With regard to the election of Linda Hutton Heagy as elected trustee of the
Fund, 2,856,732 shares voted in her favor and 43,018 shares withheld. With
regard to the election of R. Craig Kennedy as elected trustee of the Fund,
2,857,507 shares voted in his favor and 42,243 shares withheld. With regard to
the election of Jack E. Nelson as elected trustee of the Fund, 2,857,511 shares
voted in his favor and 42,239 shares withheld. With regard to the election of
Jerome L. Robinson as elected trustee of the Fund, 2,856,628 shares voted in his
favor and 43,122 shares withheld. With regard to the election of Phillip B.
Rooney as elected trustee of the Fund, 2,857,511 shares voted in his favor and
42,239 shares withheld. With regard to the election of Fernando Sisto as elected
trustee of the Fund 2,856,585 shares voted in his favor and 43,165 shares
withheld. With regard to the election of Wayne W. Whalen as elected trustee of
the Fund, 2,857,511 shares voted in his favor and 42,239 shares withheld. With
regard to the ratification of Price Waterhouse LLP as independent public
accountants for the Fund, 2,763,115 shares voted for the proposal, 21,394 shares
voted against and 115,240 shares abstained.
23
<PAGE>
Van Kampen American Capital Limited Maturity Government Fund
Board of Trustees
J. Miles Branagan
Richard M. DeMartini*
Linda Hutton Heagy
R. Craig Kennedy
Jack E. Nelson
Jerome L. Robinson
Phillip B. Rooney
Fernando Sisto
Wayne W. Whalen* - Chairman
Officers
Dennis J. McDonnell*
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
Peter W. Hegel*
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 Servicing Agent
ACCESS Investor
Services, Inc.
P.O. Box 418256
Kansas City, Missouri 64141-9256
Custodian
State Street Bank
and Trust Company
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
Legal Counsel
Skadden, Arps, Slate,
Meagher & Flom (Illinois)
333 West Wacker Drive
Chicago, Illinois 60606
Independent Accountants
Price Waterhouse LLP
1201 Louisiana
Houston, Texas 77002
* "Interested" persons of the Fund, as defined in the Investment Company Act
of 1940.
/C/ Van Kampen American Capital Distributors, Inc., 1997 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. After December 31, 1997, this report must be accompanied
by a quarterly performance update, if applicable.
24
<PAGE>
Van Kampen American Capital Distributors, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Bulk Rate
U.S. Postage
PAID
VAN KAMPEN
AMERICAN CAPITAL
