<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders...................... 1
Performance Results......................... 4
Portfolio Highlights........................ 5
Performance in Perspective.................. 6
Portfolio Management Review................. 7
Portfolio of Investments.................... 10
Statement of Assets and Liabilities......... 12
Statement of Operations..................... 13
Statement of Changes in Net Assets.......... 14
Financial Highlights........................ 15
Notes to Financial Statements............... 18
Report of Independent Accountants........... 26
</TABLE>
LTMG ANR 2/97
<PAGE>
LETTER TO SHAREHOLDERS
DENNIS J. MCDONNELL AND DON G. POWELL
January 31, 1997
Dear Shareholder,
We are pleased to report that the Van Kampen American Capital Limited Matu-
rity Government Fund has continued to generate solid investment performance.
As noted in earlier reports, VK/AC Holding Inc., the parent company of Van
Kampen American Capital, Inc., was acquired by Morgan Stanley Group Inc., a
world leader in asset management and investment banking. The transaction was
completed in October, and we are excited about the opportunities it creates
for investors. As part of the acquisition, Van Kampen American Capital became
the distributor of Morgan Stanley retail funds on January 2, 1997.
ECONOMIC REVIEW
The U.S. economy experienced moderate growth and low inflation during the
reporting period. At the beginning of 1996, economists were concerned that the
tepid economic pace of late 1995 might continue, possibly leading to a reces-
sion by year end. That assumption soon came into question, however, when non-
farm payrolls increased by a stunning 705,000 in February, the biggest one-
month jump in 13 years. Then, a larger-than-expected 4.7 percent rate in real
GDP (the nation's gross domestic product, adjusted for inflation) during the
second quarter confirmed that the economy was back in a strong-growth mode. By
summer, the earlier talk of recession and rate cuts had changed to concerns
about economic overheating and the possibility of interest rate hikes.
Despite mounting evidence of inflation, the Federal Reserve held to a stable
monetary policy, believing the supply-and-demand imbalances in the commodity
markets were temporary and that burdensome consumer debt loans would eventu-
ally slow the economy without the need for higher interest rates. Events dur-
ing the second half of 1996 proved the wisdom of Federal Reserve policy; real
GDP growth moderated to 2.0 percent in the third quarter while commodity
prices receded. For the year, core producer prices rose by 0.6 percent, the
second-lowest annual increase on record. Including the volatile food and en-
ergy sectors, however, prices at the retail level rose by 3.3 percent.
MARKET REVIEW
Shifting expectations and modest returns characterized the fixed-income mar-
kets in 1996. The year began with long-term interest rates near their lowest
level since the 1960s, reflecting the view that the U.S. economy was weakening
and that a series of rate cuts by the Fed would be forthcoming. But the Fed's
quarter-percentage point reduction in the federal funds rate on January 31
would be the only monetary easing during 1996, and long-term rates soon began
Continued on page two
1
<PAGE>
rising amid signs of a tightening labor market and stronger-than-expected eco-
nomic growth. Fears that the Fed would reverse course and raise short-term
rates became widespread after the economy experienced strong growth in the sec-
ond quarter. By July, the yield on the Treasury's benchmark 30-year bond had
reached 7.2 percent, up from 5.95 percent at the beginning of the year.
The last half of 1996 was spent recovering some of the ground lost over the
first six months. Economic growth moderated, commodity prices declined, and in-
flation remained tame. As the Fed held short-term rates steady, long-term
yields gradually fell back to 6.64 percent by year end.
Compared to 1995, when most sectors of the taxable fixed-income market gener-
ated double-digit gains, 1996 was a year of generally lackluster performance.
The Lehman Brothers Aggregate Bond Index returned just 4.16 percent for the 12-
month period ended December 31, 1996, with short- and intermediate-term bonds
outperforming longer-term issues. Lower-rated corporate bonds also
outperformed, as investors felt comfortable enough to stretch for yield given
the better-than-expected economy. For the year, 30-year Treasury bonds lost ap-
proximately one percent on a total-return basis. Treasury bond losses might
have been larger, but heavy foreign buying, especially among Japanese invest-
ors, where low interest rates and a falling yen made high-quality American
bonds an attractive option, helped control losses.
OUTLOOK
We expect interest rates during 1997 to repeat last year's moderate up and
down pattern. Stronger-than-expected U.S. economic growth and faint rumblings
of inflationary pressures over the first half of the year could prompt a series
of modest credit tightenings by the Fed. We anticipate that by the fourth quar-
ter the economy will moderate enough to discourage any lingering concerns about
inflation and allow interest rates to begin to decline across the maturity
spectrum. Although economic growth could be accompanied by short-term market
fluctuation, we do not believe it will be strong enough to reignite price pres-
sures. The results of the November elections reinforce this view--the combina-
tion of a Democratic president and a Republican Congress should help restrain
potential spending increases and large tax cuts, and therefore, keep the budget
deficit under control.
While domestic economic fundamentals may keep bond prices relatively stable,
the risk of external shocks to the market is growing. We cannot look at the
U.S. economy in isolation. Monetary policy has been unusually accommodative in
many foreign countries. If these economies gain significant strength in 1997,
the resulting demand for capital could divert buying power from the U.S. credit
market. Since foreign investors have become the marginal buyers of U.S. bonds,
we believe that increased competition for the global fixed-income dollar could
exert mild upward pressure on domestic interest rates over the year.
Continued on page three
2
<PAGE>
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,
LOGO LOGO
Don G. Powell Dennis J. McDonnell
Chairman President
Van Kampen American Capital Van Kampen American Capital
Asset Management, Inc. Asset Management, Inc.
3
<PAGE>
PERFORMANCE RESULTS FOR THE PERIOD ENDED DECEMBER 31, 1996
VAN KAMPEN AMERICAN CAPITAL LIMITED MATURITY GOVERNMENT FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS
One-year total return based on NAV/1/............. 3.34% 2.69% 2.62%
One-year total return2............................ (0.05%) (0.25%) 1.64%
Five-year average annual total return2............ 3.21% 3.15% N/A
Ten-year average annual total return2............. 5.23% N/A N/A
Life-of-Fund average annual total return2......... 5.49% 3.28% 3.27%
Commencement Date................................. 06/16/86 11/05/91 05/10/93
DISTRIBUTION RATE AND YIELD
Distribution Rate3................................ 5.25% 4.63% 4.64%
SEC Yield4........................................ 4.34% 3.70% 3.70%
</TABLE>
N/A = Not Applicable
1Assumes 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).
2Standardized 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).
3Distribution rate represents the monthly annualized distributions of the Fund
at the end of the period and not the earnings of the Fund.
4SEC 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 December 31, 1996.
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.
4
<PAGE>
PORTFOLIO HIGHLIGHTS
VAN KAMPEN AMERICAN CAPITAL LIMITED MATURITY GOVERNMENT FUND
COUPON DISTRIBUTION AS OF DECEMBER 31, 1996
LOGO
<TABLE>
<CAPTION>
Coupon Rate Percentage Long-Term Investments
<S> <C>
5-6 35.3%
6-7 33.5%
7-8 12.7%
8-9 4.6%
9-10 10.7%
10 or more 3.2%
</TABLE>
PORTFOLIO COMPOSITION BY SECTOR AS A PERCENTAGE OF LONG-TERM INVESTMENTS
LOGO
AS OF DECEMBER 31, 1996
[_] Treasury Notes............ 14%
[_] CMOs...................... 22%
[_] ARMs...................... 7%
[_] Asset-Backed Securities... 11%
[_] FNMA...................... 36%
[_] GNMA...................... 3%
[_] FHLMC..................... 7%
AS OF JUNE 30, 1996
[_] Treasury Notes............ 3%
[_] CMOs...................... 66%
[_] ARMs...................... 7%
[_] Asset-Backed Securities... 11%
[_] FNMA...................... 10%
[_] GNMA...................... 3%
DURATION
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996 AS OF JUNE 30, 1996
<S> <C> <C>
Duration 1.8 years 2.0 years
</TABLE>
5
<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 and the Merrill Lynch 1 to 3 year U.S. Treasury
Index over time. As broad-based, unmanaged statistical composites, these indi-
ces do not reflect any commissions or fees which would be incurred by an in-
vestor purchasing the securities it represents. Similarly, their 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* and the Merrill
Lynch 1 to 3 year U.S. Treasury Index (December 31, 1986 through December
31, 1996)
<TABLE>
<CAPTION>
VKAC Limited
Maturity Merrill Lynch
Government Lehman Bros. 1 to 3 Year
Fund Mutual Fund U.S. Treasury
---------- ----------- -------------
<S> <C> <C> <C>
Dec 1986 9,673 10,000
Dec 1987 9,567 10,565
Dec 1988 10,059 10,218 11,222
Dec 1989 11,440 11,288 12,442
Dec 1990 12,524 12,374 13,652
Dec 1991 13,748 13,724 15,246
Dec 1992 14,182 14,551 16,207
Dec 1993 14,629 15,255 17,084
Dec 1994 14,653 15,467 17,181
Dec 1995 16,112 16,978 19,071
Dec 1996 16,650 17,881 20,020
</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 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 August 1, 1988.
6
<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 fiscal year. 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 12-month period ended December 31, 1996.
WHAT WERE SOME OF THE MAJOR MARKET FACTORS THAT AFFECTED THE FUND'S PER-
Q FORMANCE DURING THE PAST FISCAL YEAR?
1996 was a year of shifting expectations, which generated a fair amount
of market volatility. Going into the year, the fixed-income market an-
ticipated lower interest rates, based on low inflation and sluggish economic
growth. However, the economy showed signs of strength, which caused interest
rates to rise rapidly, beginning in February and continuing through the second
quarter. This reflected the fear that increased growth would spur the Federal
Reserve Board to raise short-term interest rates.
A
It was not until late in the third quarter that we saw signs of a slowing
economy. One of the primary indicators moving the market down in the first half
of the year was job growth. Conversely, it was an upward spike in unemployment
figures in August and September, followed by a report of much slower economic
growth for the third quarter, that fueled the rally we saw at the start of the
fourth quarter.
Overall, interest rates moved higher over the course of the year. The yield
on the two-year Treasury ended the year approximately three-quarters of a per-
centage point above where it had been 12 months earlier. This rising interest
rate environment limited the Fund's opportunities for achieving significant
gains on a total return basis.
Q
HOW DID YOU RESPOND TO THESE CONDITIONS?
Our primary responsibility is to the shareholders of the Fund, and we do
our best to structure the portfolio in a way that will allow us to de-
liver what they expect. In a fund, such as this, a certain degree of predict-
ability is important, so we do not make big bets on the direction of interest
rates. We attempt to provide a competitive level of income to our shareholders,
while trying to manage the Fund's sensitivity to changes in interest rates. The
key to this approach is managing the duration of the portfolio. Duration is a
statistical figure, measured in years, which estimates a security's sensitivity
to interest rate fluctuations. The longer the duration, the more sensitive a
bond price is to interest rate changes (as interest rates go up, bond prices go
down, and vice versa).
A
Throughout 1996, we took steps to adjust the Fund's duration according to
changes in interest rate conditions and the resulting market price fluctua-
tions, primarily by shifting our allocation among securities that tend to
lengthen duration, such as Treasuries, and those that tend to shorten duration,
such as adjustable rate mortgage securities.
7
<PAGE>
CAN YOU GIVE US AN EXAMPLE OF THE ADJUSTMENTS YOU MADE TO THE PORTFOLIO
Q DURING THE YEAR?
At the beginning of the year, we anticipated lower interest rates, so
the Fund had a higher-than-average duration of 2.6 years. When interest
rates increased in February, we shortened the duration to approximately 2 years
in order to minimize the negative effect of rising interest rates. We were cau-
tious during the market's more volatile periods, keeping duration close to neu-
tral and overweighting the portfolio in higher-yielding, mortgage-backed
securities. During the summer, we believed that the market would remain within
a comfortable trading range, so we focused on the income side of the total re-
turn equation.
A
By year end, we shifted our allocation in favor of U.S. Treasury and govern-
ment agency securities, and shortened the Fund's duration to approximately 1.8
years. The portion of the Fund's long-term investments allocated to these sec-
tors was roughly 88 percent as of December 31, 1996, up slightly from 85 per-
cent at the beginning of the year. For additional Fund portfolio highlights,
please refer to page five.
Q
HOW DID THE FUND PERFORM DURING THE REPORTING PERIOD?
It was a challenging year, particularly in February when fixed-income
security prices began to drop sharply. We would have fared better if we
had shortened the portfolio's duration sooner and more sharply than we did.
However, despite the rising rate environment, which tends to drive down the net
asset value (NAV) of bond funds, we were able to generate a positive total re-
turn of 3.34 percent/1/ (Class A shares at NAV) for the 12-month period.
A
The Fund continues to provide shareholders with a very competitive level of
current income. Its distribution rate of 5.25 percent/3/ as of December 31,
1996 was based on a monthly dividend of $.055 per share and a maximum public
offering price of $12.56 per share (Class A shares).
During the same reporting period, the Lehman Brothers Mutual Fund one- to
two-year Government Index total return was 5.2 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 repre-
sents.
In our opinion, investors taking steps to establish a short-term component
within their fixed-income investment portfolio would do well to consider the
Fund as a viable alternative. With its short-term structure, we position the
Fund to pursue a blend of yield and stability, as we seek to avoid some of the
volatility that we see in the bond market. Please refer to the chart on page
four for additional Fund performance results.
8
<PAGE>
WHAT IS YOUR OUTLOOK FOR THE FUND AND THE MARKET IN THE MONTHS AHEAD?
Q
At this time, we remain cautious. The slight acceleration in economic
growth we saw in the fourth quarter may be an indicator of stronger eco-
nomic activity in the near term. The market may push yields higher as investors
remain wary of a possible tightening by the Fed, so we plan to maintain the
Fund's current duration while market expectations remain in flux.
A
While several factors could positively impact the market, we believe in the
short term that it is more likely that interest rates will rise rather than de-
cline. Until the market finds a more certain footing, we will continue to focus
our attention on key economic indicators, including job growth, consumer spend-
ing, housing sales and starts, and production activity. Foreign economies could
introduce another important variable: if economic growth in Europe and/or Japan
picks up, we could see an increase in the amount of goods we export to foreign
markets, adding momentum to our own growth rate. This, in turn, may drive job
growth in this country as companies gear up to meet increased demand. Under
these circumstances, wage growth could trigger higher inflation, which the mar-
ket would read as a signal of higher interest rates to come.
Moving into 1997, we expect to trim the Fund's exposure to the Treasury mar-
ket, effectively shortening the duration of the portfolio. This would help
buffer the Fund's NAV in the case of rising interest rates. We hope to add
value for our shareholders by limiting the risk we take, while still allowing
the Fund to pursue opportunities for an attractive level of current income.
LOGO
Peter W. Hegel Ted V. Mundy
LOGO
Chief Investment Officer Portfolio Manager
Fixed Income Investments
9
Please see footnotes on page four
<PAGE>
See Notes to Financial Statements
PORTFOLIO OF INVESTMENTS
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ADJUSTABLE RATE MORTGAGE-
BACKED SECURITIES 6.6%
$ 187 Federal Home Loan Mortgage
Corp. Pool................ 8.930% 02/01/18 $ 185,444
1,374 Federal National Mortgage
Association Pool.......... 7.434 03/01/19 1,407,607
2,761 Federal National Mortgage
Association Pool.......... 7.550 09/01/19 2,827,933
-----------
TOTAL ADJUSTABLE RATE MORTGAGE-BACKED SECURITIES....... 4,420,984
-----------
ASSET-BACKED
SECURITIES 10.4%
4,000 Deutsche Floorplan Master
Trust..................... 5.805 02/15/01 4,010,640
3,000 First USA Credit Card
Master Trust.............. 5.795 04/15/03 3,000,000
-----------
TOTAL ASSET-BACKED SECURITIES.......................... 7,010,640
-----------
COLLATERALIZED MORTGAGE
OBLIGATIONS 21.9%
3,391 Federal Home Loan Mortgage
Corp. (Floater)........... 6.088 04/15/99 3,400,658
3,079 Federal Home Loan Mortgage
Corp. (Floater)........... 6.188 04/15/20 3,085,220
610 Federal Home Loan Mortgage
Corp. (Floater)........... 6.488 02/15/16 611,190
6,474 Federal National Mortgage
Association
(Floater) (b)............. 6.419 06/25/18 to 02/25/21 6,504,735
114 Federal National Mortgage
Association (Floater)..... 6.750 08/25/20 112,981
1,027 Sears Mortgage Securities
(Floater)................. 6.358 05/25/21 1,030,539
-----------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS.............. 14,745,323
-----------
U.S. GOVERNMENT AGENCY
OBLIGATIONS 46.0%
5,000 Federal Home Loan Mortgage
Corp. (PAC)............... 6.500 02/25/19 5,003,150
3,136 Federal National Mortgage
Association (PAC)......... 5.500 03/25/03 3,119,818
5,000 Federal National Mortgage
Association (PAC)......... 5.650 02/25/14 4,984,400
8,403 Federal National Mortgage
Association
(PAC) (b)................. 5.750 07/25/07 8,371,068
4,227 Federal National Mortgage
Association
15 Year Pool (b).......... 7.000 10/01/09 4,235,342
2,085 Federal National Mortgage
Association
30 Year Pool.............. 8.500 5/01/21 to 04/01/25 2,159,744
503 Federal National Mortgage
Association
30 Year Pool.............. 9.500 03/01/16 to 08/01/21 543,216
720 Federal National Mortgage
Association
30 Year Pool.............. 10.000 05/01/21 788,105
169 Government National
Mortgage Association Pool. 8.500 06/15/16 to 01/15/17 175,215
318 Government National
Mortgage Association Pool. 9.500 03/15/16 to 01/15/19 343,163
603 Government National
Mortgage Association Pool. 10.000 03/15/16 to 04/15/19 661,402
</TABLE>
10
<PAGE>
See Notes to Financial Statements
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT AGENCY
OBLIGATIONS (CONTINUED)
$ 307 Government National
Mortgage Association Pool. 10.500% 05/15/13 to 02/15/18 $ 339,697
277 Government National
Mortgage Association Pool. 11.000 11/15/18 309,331
-----------
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS............................................ 31,033,651
-----------
U.S. GOVERNMENT
OBLIGATIONS 13.7%
2,500 U.S. Treasury Notes (b).... 6.000 08/15/99 2,500,000
500 U.S. Treasury Notes........ 8.750 10/15/97 512,030
5,900 U.S. Treasury Notes (b).... 9.250 08/15/98 6,206,977
-----------
TOTAL U.S. GOVERNMENT OBLIGATIONS...................... 9,219,007
-----------
TOTAL LONG-TERM INVESTMENTS 98.6%
(Cost $66,119,199) (a)........................................ 66,429,605
REPURCHASE AGREEMENT 2.7%
Bank of America Securities ($1,835,000 par, collateralized by
U.S. Government obligations in a pooled cash account, 6.93%
coupon, dated 12/31/96, to be sold on 01/02/97 at $1,835,706).. 1,835,000
LIABILITIES IN EXCESS OF OTHER ASSETS (1.3%)................... (862,966)
-----------
NET ASSETS 100.0%.............................................. $67,401,639
-----------
</TABLE>
(a) At December 31, 1996, for federal income tax purposes, cost is $66,123,968,
the gross unrealized appreciation is $492,016 and the gross unrealized
depreciation is $228,946, resulting in net unrealized appreciation
including open forward commitments of $263,070.
(b) Assets segregated as collateral for open forward and open futures
transactions.
11
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Long-Term Investments, at Market Value (Cost $66,119,199) (Note
1)................................................................ $66,429,605
Short-Term Investments (Note 1)................................... 1,835,000
Cash.............................................................. 2,190
Receivables:
Interest......................................................... 546,410
Fund Shares Sold................................................. 114,199
Other............................................................. 2,787
-----------
Total Assets..................................................... 68,930,191
-----------
LIABILITIES:
Payables:
Fund Shares Repurchased.......................................... 1,182,353
Income Distributions............................................. 95,908
Distributor and Affiliates (Notes 2 and 7)....................... 58,121
Investment Advisory Fee (Note 2)................................. 28,460
Variation Margin on Futures (Note 5)............................. 1,539
Deferred Compensation and Retirement Plans (Note 2)............... 66,239
Accrued Expenses.................................................. 53,365
Forward Commitments (Note 6)...................................... 42,567
-----------
Total Liabilities................................................ 1,528,552
-----------
NET ASSETS........................................................ $67,401,639
-----------
NET ASSETS CONSIST OF:
Capital (Note 3).................................................. $76,625,876
Net Unrealized Appreciation on Securities......................... 269,239
Accumulated Distributions in Excess of Net Investment Income...... (47,240)
Accumulated Net Realized Loss on Securities....................... (9,446,236)
-----------
NET ASSETS........................................................ $67,401,639
-----------
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on net
assets of $40,223,719 and 3,310,283 shares of beneficial interest
issued and outstanding).......................................... $ 12.15
Maximum sales charge (3.25%* of offering price).................. .41
-----------
Maximum offering price to public................................. $ 12.56
-----------
Class B Shares:
Net asset value and offering price per share (Based on net assets
of $22,504,442 and 1,848,447 shares of beneficial interest issued
and outstanding)................................................. $ 12.17
-----------
Class C Shares:
Net asset value and offering price per share (Based on net assets
of $4,673,478 and 384,275 shares of beneficial interest issued
and outstanding)................................................. $ 12.16
-----------
</TABLE>
*On sales of $25,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
12
<PAGE>
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.......................................................... $ 4,570,349
Fee Income (Note 1)............................................... 139,937
-----------
Total Income..................................................... 4,710,286
-----------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to Classes A, B
and C of $94,232, $263,247 and $50,509, respectively) (Note 7)... 407,988
Investment Advisory Fee (Note 2).................................. 352,304
Shareholder Services (Note 2)..................................... 180,683
Printing.......................................................... 68,354
Registration and Filing Fees...................................... 68,270
Accounting (Note 2)............................................... 67,058
Trustees Fees and Expenses (Note 2)............................... 16,256
Legal (Note 2).................................................... 13,238
Custody........................................................... 12,532
Other ............................................................ 86,218
-----------
Total Expenses................................................... 1,272,901
Less Expenses Reimbursed (Note 2)................................ 19,000
-----------
Net Expenses..................................................... 1,253,901
-----------
NET INVESTMENT INCOME............................................. $ 3,456,385
-----------
REALIZED AND UNREALIZED GAIN/LOSS ON SECURITIES:
Realized Gain/Loss on Securities:
Investments ..................................................... $ (150,440)
Futures.......................................................... (392,009)
Forwards......................................................... 95,587
-----------
Net Realized Loss on Securities................................... (446,862)
-----------
Unrealized Appreciation/Depreciation on Securities:
Beginning of the Period.......................................... 1,313,609
-----------
End of the Period:
Investments...................................................... 310,406
Futures.......................................................... 1,400
Forward Commitments.............................................. (42,567)
-----------
269,239
-----------
Net Unrealized Depreciation on Securities During the Period....... (1,044,370)
-----------
NET REALIZED AND UNREALIZED LOSS ON SECURITIES.................... $(1,491,232)
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS........................ $ 1,965,153
-----------
</TABLE>
See Notes to Financial Statements
13
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1996 December 31, 1995
- ---------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income..................... $ 3,456,385 $ 3,531,415
Net Realized Gain/Loss on Securities...... (446,862) 439,863
Net Unrealized Appreciation/Depreciation
on Securities During the Period.......... (1,044,370) 2,232,349
------------ ------------
Change in Net Assets from Operations...... 1,965,153 6,203,627
------------ ------------
Distributions from Net Investment Income:
Class A Shares........................... (2,116,087) (2,270,538)
Class B Shares........................... (1,217,044) (908,376)
Class C Shares........................... (233,369) (262,703)
------------ ------------
Total Distributions....................... (3,566,500) (3,441,617)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES................................ (1,601,347) 2,762,010
------------ ------------
FROM CAPITAL TRANSACTIONS (NOTE 3):
Proceeds from Shares Sold................. 25,986,720 19,231,617
Value Received for Shares Issued in Merger
(Note 8).................................. -- 25,012,852
Net Asset Value of Shares Issued Through
Dividend Reinvestment..................... 2,395,460 2,341,627
Cost of Shares Repurchased................ (41,319,105) (32,841,214)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS.............................. (12,936,925) 13,744,882
------------ ------------
TOTAL INCREASE/DECREASE IN NET ASSETS..... (14,538,272) 16,506,892
NET ASSETS:
Beginning of the Period................... 81,939,911 65,433,019
------------ ------------
End of the Period (Including accumulated
undistributed net investment income of
$(47,240) and $166,790, respectively).... $ 67,401,639 $ 81,939,911
------------ ------------
</TABLE>
See Notes to Financial Statements
14
<PAGE>
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
Class A Shares 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................... $12.41 $11.90 $12.42 $12.63 $12.99
------- ------ ------ ------ ------
Net Investment Income............... .627 .67 .50 .54 .815
Net Realized and Unrealized
Gain/Loss on Securities............ (.226) .4888 (.4817) (.1485) (.417)
------- ------ ------ ------ ------
Total from Investment Operations..... .401 1.1588 .0183 .3915 .398
Less Distributions from Net
Investment Income................... .660 .6488 .5383 .6015 .758
------- ------ ------ ------ ------
Net Asset Value, End of the Period... $12.151 $12.41 $11.90 $12.42 $12.63
------- ------ ------ ------ ------
Total Return* (a).................... 3.34% 9.96% .16% 3.15%(b) 3.15%
Net Assets at End of the Period (In
millions)............................ $40.2 $45.4 $41.2 $64.3 $103.7
Ratio of Expenses to Average Net
Assets*.............................. 1.45% 1.45% 1.15% 1.03% .91%
Ratio of Net Investment Income to
Average Net Assets*.................. 5.23% 5.47% 4.75% 5.49% 6.36%
Portfolio Turnover................... 260% 187% 161% 102% 254%
*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............................... 1.47% 1.50% 1.31% 1.15% 1.12%
Ratio of Net Investment Income to
Average Net Assets................... 5.21% 5.42% 4.58% 5.37% 6.15%
</TABLE>
(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.
See Notes to Financial Statements
15
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
Class B Shares 1996(a) 1995(a) 1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period.............................. $12.43 $11.91 $12.43 $12.64 $12.99
------- ------ ------ ------- ------
Net Investment Income.............. .550 .57 .42 .48 .725
Net Realized and Unrealized
Gain/Loss on Securities........... (.242) .5028 (.4977) (.1845) (.413)
------- ------ ------ ------- ------
Total from Investment Operations.... .308 1.0728 (.0777) .2955 .312
Less Distributions from Net
Investment Income................... .564 .5528 .4423 .5055 .662
------- ------ ------ ------- ------
Net Asset Value, End of the Period.. $12.174 $12.43 $11.91 $12.43 $12.64
------- ------ ------ ------- ------
Total Return* (b)................... 2.69% 9.09% (.62%) 2.37%(c) 2.46%
Net Assets at End of the Period (In
millions)........................... $22.5 $30.3 $18.4 $26.9 $38.4
Ratio of Expenses to Average Net
Assets*............................. 2.19% 2.24% 1.91% 1.79% 1.60%
Ratio of Net Investment Income to
Average Net Assets*................. 4.50% 4.63% 3.99% 4.70% 5.44%
Portfolio Turnover.................. 260% 187% 161% 102% 254%
*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.............................. 2.22% 2.29% 2.08% 1.91% 1.81%
Ratio of Net Investment Income to
Average Net Assets.................. 4.47% 4.59% 3.82% 4.58% 5.23%
</TABLE>
(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.
See Notes to Financial Statements
16
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
May 10, 1993
Year Ended December 31, (Commencement
------------------------ of Distribution) to
Class C Shares 1996 1995 (a) 1994 December 31, 1993 (a)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of the Period. $12.42 $11.90 $12.41 $12.60
------- ------ ------ ------
Net Investment Income.. .554 .57 .45 .32
Net Realized and
Unrealized Gain/Loss
on Securities......... (.248) .5028 (.5177) (.1914)
------- ------ ------ ------
Total from Investment
Operations.............. .306 1.0728 (.0677) .1286
Less Distributions from
Net Investment Income... .564 .5528 .4423 .3186
------- ------ ------ ------
Net Asset Value, End of
the Period.............. $12.162 $12.42 $11.90 $12.41
------- ------ ------ ------
Total Return* (b)....... 2.62% 9.10% (.55%) 1.03%**(c)
Net Assets at End of the
Period (In millions).... $4.7 $6.2 $5.8 $7.1
Ratio of Expenses to
Average Net Assets*..... 2.20% 2.23% 1.90% 1.47%
Ratio of Net Investment
Income to Average Net
Assets*................. 4.48% 4.71% 3.98% 3.79%
Portfolio Turnover...... 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...... 2.22% 2.27% 2.07% 1.64%
Ratio of Net Investment
Income to Average Net
Assets.................. 4.45% 4.67% 3.81% 3.62%
</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.
See Notes to Financial Statements
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
- --------------------------------------------------------------------------------
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 mort-
gage-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 prepa-
ration 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 as-
sets 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 ba-
sis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term invest-
ments 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 physi-
cal 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
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996
- --------------------------------------------------------------------------------
commitment and during the period of obligation, the Fund maintains collateral
of cash or securities in a segregated account with its custodian in an amount
sufficient to relieve the obligation. If the intent of the Fund is to accept
delivery of a security traded under a forward purchase commitment, the commit-
ment 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 occa-
sionally 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 Decem-
ber 31, 1997. Additionally, during the year, $4,838,080 of the Fund's capital
loss carryforward expired, resulting in a permanent difference which was re-
classified from accumulated net realized loss on securities to capital. Net re-
alized loss differs for financial and tax reporting purposes primarily as a
result of post October 31 losses which are not recognized for tax purposes un-
til the first day of the following fiscal year and the deferral of the recogni-
tion of losses on futures contracts.
E. DISTRIBUTION OF INCOME AND GAINS-The Fund declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are distrib-
uted annually.
Due to inherent differences in the recognition of income, expenses and real-
ized gains/losses under generally accepted accounting principles and for fed-
eral income tax purpos-
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996
- --------------------------------------------------------------------------------
es, permanent book and tax differences relating to the recognition of losses on
paydowns of mortgage pool obligations totaling $121,384 were reclassified from
accumulated net realized loss on securities to accumulated undistributed net
investment income. Permanent differences relating to the recognition of certain
expenses which are not deductible for tax purposes totaling $17,469 were re-
classified from accumulated undistributed net investment income to capital.
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>
Certain legal expenses are paid to Skadden, Arps, Slate, Meagher & Flom,
counsel to the Fund, of which a trustee of the Fund is an affiliated person.
For the year ended December 31, 1996, the Fund recognized expenses of approx-
imately $67,100 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 year ended De-
cember 31, 1996, the Fund recognized expenses of approximately $140,000, repre-
senting 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 has implemented deferred compensation and retirement plans for its
trustees. Under the deferred compensation plan, trustees may elect to defer all
or a portion of their compensation to a later date. The retirement plan covers
those trustees who are not officers of VKAC. For the year ended December 31,
1996, VKAC reimbursed the Fund for all expenses related to the retirement plan.
At December 31, 1996, VKAC owned 2,191 Class A shares of the Fund.
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996
- --------------------------------------------------------------------------------
3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of shares of beneficial interest, Clas-
ses 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 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>
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996
- --------------------------------------------------------------------------------
At December 31, 1995, capital aggregated $58,120,832, $30,245,769 and
$6,051,749 for Classes A, B and C, respectively. For the year ended December
31, 1995, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A............................................. 1,149,166 $ 14,091,234
Class B............................................. 224,944 2,863,289
Class C............................................. 183,672 2,277,094
---------- ------------
Total Sales.......................................... 1,557,782 $ 19,231,617
---------- ------------
Shares Issued in Merger (Note 8):
Class A............................................. 432,048 $ 5,290,296
Class B............................................. 1,427,512 17,508,065
Class C............................................. 180,706 2,214,491
---------- ------------
Total Shares Issued in Merger........................ 2,040,266 $ 25,012,852
---------- ------------
Dividend Reinvestment:
Class A............................................. 131,352 $ 1,606,024
Class B............................................. 48,136 590,069
Class C............................................. 11,880 145,534
---------- ------------
Total Dividend Reinvestment.......................... 191,368 $ 2,341,627
---------- ------------
Repurchases:
Class A............................................. (1,517,996) $(18,508,603)
Class B............................................. (804,926) (9,824,995)
Class C............................................. (368,143) (4,507,616)
---------- ------------
Total Repurchases.................................... (2,691,065) $(32,841,214)
---------- ------------
</TABLE>
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996
- --------------------------------------------------------------------------------
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 ar-
rangements, including higher distribution and service fees and incremental
transfer agency costs.
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED SALES
CHARGE
YEAR OF REDEMPTION CLASS B CLASS C
- --------------------------------------------------------------------------------
<S> <C> <C>
First........................................................... 3.00% 1.00%
Second.......................................................... 2.50% None
Third........................................................... 2.00% None
Fourth.......................................................... 1.00% None
Fifth and Thereafter............................................ None None
</TABLE>
For the year ended December 31, 1996, VKAC, as Distributor for the Fund, re-
ceived commissions on sales of the Fund's Class A shares of approximately
$3,000 and CDSC on redeemed shares of approximately $39,100. Sales charges do
not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of invest-
ments, excluding forward commitment transactions and short-term investments,
were $178,958,019 and $215,691,422, 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, in-
cluding derivative instruments, are marked to market each day with the change
in value reflected in the unrealized appreciation/depreciation on securities.
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 un-
til the disposal of this underlying security.
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996
- --------------------------------------------------------------------------------
During the year ended December 31, 1996, the Fund entered into futures con-
tracts, 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 ac-
count 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 year ended December 31, 1996, were
as follows:
<TABLE>
<CAPTION>
CONTRACTS
- --------------------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1995..................................... 121
Futures Opened....................................................... 1,494
Futures Closed....................................................... (1,607)
------
Outstanding at December 31, 1996..................................... 8
------
</TABLE>
The futures contracts outstanding as of December 31, 1996, and the descrip-
tion and unrealized appreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS APPRECIATION
- -----------------------------------------------------------------------------
<S> <C> <C>
5-Year U.S. Treasury Note Future
Mar 1997--Sells to Open (Current Notional Value
$106,594 per contract).............................. 8 $1,400
--- ------
</TABLE>
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996
- --------------------------------------------------------------------------------
6. FORWARD COMMITMENTS
The Fund trades certain securities under the terms of forward commitments, as
described in Note 1B. The following forward purchase commitment, for which set-
tlement is not intended, was outstanding as of December 31, 1996. The change in
value of this item is reflected as a component of unrealized appreciation/ de-
preciation on forward commitments.
<TABLE>
<CAPTION>
PAR
AMOUNT PURCHASE CURRENT UNREALIZED
(000) DESCRIPTION EXPIRATION PRICE VALUE DEPRECIATION
- -------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
$22,500 United States
Treasury Notes,
6.500% coupon....... 01/16/97 $22,807,617 $22,765,050 $42,567
----------- ----------- -------
</TABLE>
7. 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 year ended December 31, 1996, are payments to VKAC of approxi-
mately $257,600.
8. FUND MERGER
On September 22, 1995, the Fund acquired the assets of Van Kampen American Cap-
ital Adjustable Rate U.S. Government Fund ("VKACAR") pursuant to a plan of re-
organization approved by VKACAR's shareholders on September 21, 1995. The
acquisition 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.
25
<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, 1996, and the results of
its operations, the changes in its net assets and the financial highlights for
each of the periods presented, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter re-
ferred to as "financial statements") are the responsibility of the Fund's man-
agement; our responsibility is to express an opinion on these financial
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, 1996 by correspondence with the custodian
and brokers, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Houston, Texas
February 7, 1997
26
<PAGE>
RESULTS OF SHAREHOLDER VOTES
A Special Meeting of Shareholders of the Fund was held on October 25, 1996
where shareholders voted on a new investment advisory agreement, changes to in-
vestment policies 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, 4,044,834 shares voted for the proposal, 67,252 shares voted against and
270,377 shares abstained. With regard to the approval of certain changes to the
Fund's fundamental investment policies with respect to investment in other in-
vestment companies, 3,167,367 shares voted for the proposal, 94,774 shares
voted against and 266,540 shares abstained. With regard to the ratification of
Price Waterhouse LLP as independent public accountants for the Fund, 4,095,254
shares voted for the proposal, 24,491 shares voted against and 262,719 shares
abstained.
27
<PAGE>
VAN KAMPEN AMERICAN CAPITAL LIMITED MATURITY GOVERNMENT FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
DENNIS J. MCDONNELL*
JACK E. NELSON
JEROME L. ROBINSON
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 Dis-
tributors, Inc., 1997
All rights reserved.
SMdenotes a service mark of
Van Kampen American Capital Dis-
tributors, 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.
28
