<PAGE>
VAN KAMPEN
LIMITED MATURITY
GOVERNMENT FUND
Semi-Annual Report
June 30, 1998
[PHOTOGRAPH APPEARS HERE]
VAN KAMPEN
FUNDS
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
<S> <C>
Letter to Shareholders.............................................. 1
Performance Results................................................. 3
Glossary of Terms................................................... 4
Portfolio Management Review......................................... 5
Portfolio Highlights................................................ 7
Portfolio of Investments............................................ 8
Statement of Assets and Liabilities.................................10
Statement of Operations.............................................11
Statement of Changes in Net Assets..................................12
Financial Highlights................................................13
Notes to Financial Statements.......................................16
</TABLE>
LTMG SAR 8/98
<PAGE>
Letter to Shareholders
July 16, 1998
Dear Shareholder,
[PHOTO APPEARS HERE]
DENNIS J. MCDONNELL AND DON G. POWELL
As you may know, Van Kampen American Capital is consolidating all of the
retail mutual funds that we distribute under the single name of Van Kampen
Funds. This move accompanies the change in our legal name to Van Kampen Funds
Inc.
You can be assured that the change in your fund's name will not affect its
management or daily operations. You will begin seeing the application of this
change with this report. In addition, as of August 31, your fund will be listed
in the daily newspapers by share class under the heading "Van Kampen Funds." For
your convenience, we have enclosed a separate brochure that covers additional
details related to these changes.
Economic Review
The U.S. economy continued to expand at a robust pace despite a deepening
recession in Asia. The nation's inflation-adjusted output of goods and services
ran at 5.4 percent during the first quarter, an annualized rate considered by
many economists to be virtually unsustainable without leading to inflation. As
the reporting period ended, however, there were indications that the Asian
financial crisis was finally having a moderating impact on the economy. Also,
the Conference Board's index of leading indicators has forecasted a slowdown in
economic growth for later this year.
Despite the generally solid pace of economic activity, inflation remained
benign. Consumer prices rose by 1.7 percent during the 12 months through June,
while producer prices actually declined during the same period. Falling
commodity prices and the impact of the strong dollar helped to offset the
inflationary implications of a tight labor market and strong consumer spending.
While the Federal Reserve kept short-term interest rates steady at 5.5
percent during the reporting period, minutes from the central bank's May policy
meeting indicated growing sentiment for tightening monetary policy if the drag
from Asia does not slow the American economy on its own.
Market Review
Domestic fixed-income securities benefited from a global flight to quality
by investors--caused by turmoil in Asia and by the growing perception that the
domestic economy was slowing. After starting the year at 5.92 percent, the yield
on the 30-year Treasury benchmark bond rose to over 6.00 percent during the
spring amid signs that some Asian economies were beginning to recover. When
weakness in the Japanese yen undercut that recovery, U.S. bond prices surged,
causing long-term government yields to fall to 5.62 percent by the end of the
reporting period.
1 Continued on page two
<PAGE>
While all sectors of the domestic fixed-income market posted positive
returns, strength was concentrated among longer-term, higher-quality issues. For
the six months of 1998, long-term government bonds gained 6.27 percent, compared
to 4.51 percent for high-yield corporate bonds.
Outlook
We believe economic growth is likely to moderate in coming months as the
impact of the Asian crisis becomes more evident. A return to the "Goldilocks"
economy--not too hot, not too cold--should allow long-term interest rates to
fall modestly from current levels. If fallout from Asia does not slow economic
activity enough to counteract the inflationary pressures building in the
economy, we would expect the Federal Reserve to raise short-term interest rates
by the end of the year.
Additional details about your fund, including a question-and-answer section
with your portfolio management team, are provided in this report. As always, we
are pleased to have the opportunity to serve you and your family through our
diverse menu of quality investments.
Sincerely,
/s/ Don G. Powell /s/ Dennis J. McDonnell
Don G. Powell Dennis J. McDonnell
Chairman President
Van Kampen Asset Management Inc. Van Kampen Asset Management Inc.
2
<PAGE>
Performance Results for the Period Ended June 30, 1998
Van Kampen Limited Maturity Government Fund
<TABLE>
<CAPTION>
A Shares B Shares C Shares
<S> <C> <C> <C>
Total Returns
Six-month total return based on NAV/1/...... 2.48% 2.08% 2.08%
Six-month total return/2/................... (.85%) (.91%) 1.08%
One-year total return/2/.................... 2.36% 2.06% 4.07%
Five-year average annual total return/2/.... 3.85% 3.74% 3.75%
Ten-year average annual total return/2/..... 5.69% N/A N/A
Life-of-Fund average annual total return/2/. 5.51% 3.62% 3.74%
Commencement date........................... 06/16/86 11/05/91 5/10/93
Distribution Rate and Yield
Distribution Rate/3/........................ 5.25% 4.63% 4.63%
SEC Yield/4/................................ 4.81% 4.12% 4.09%
</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, 1998.
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>
Glossary of Terms
Basis point: A measure used in quoting bond yields. One hundred basis points is
equal to 1 percent. For example, if a bond's yield changes from 7.00 to 6.65
percent, it is a 35 basis-point move.
Duration: A measure of a bond's sensitivity to changes in interest rates,
expressed in years. The longer a fund's duration, the greater the effect of
interest rate movements on net asset value. Typically, funds with shorter
durations have performed better in rising rate environments, while funds with
longer durations have performed better when rates decline.
Federal funds rate: The interest rate charged by one institution lending federal
funds to another. This overnight rate is used to meet banks' daily reserve
requirements. The Federal Reserve Board uses the federal funds rate to affect
the direction of interest rates.
Federal Reserve Board (the Fed): The governing body of the Federal Reserve
System, which is the central bank system of the United States. Its policy-
making committee, called the Federal Open Market Committee, meets eight times
a year to establish monetary policy and monitor the economic pulse of the U.S.
Inflation: An economic state in which the money supply and business activity
dramatically increase, accompanied by sharply rising prices. Inflation is
widely measured by the Consumer Price Index, an economic indicator that
measures the change in the cost of purchased goods and services.
Mortgage-backed securities: Securities backed by pools of similar mortgages.
These securities are generally issued by agencies of the U.S. government, such
as Government National Mortgage Association (GNMA, or "Ginnie Mae") and
Federal Home Loan Mortgage Corporation (FHLMC, or "Freddie Mac").
Net asset value (NAV): The value of a mutual fund share, calculated by deducting
a fund's liabilities from its total assets and dividing this amount by the
number of shares outstanding. The NAV does not include any initial or
contingent deferred sales charge.
Yield: The annual rate of return on an investment, usually expressed as a
percentage. For bonds and notes, the yield is the annual interest divided by
the market price.
Yield curve: A result of viewing the yields of U.S. Treasury securities maturing
in 1, 5, 10, and 30 years. When grouped together and graphed, a pattern of
increasing yield is often reflected as the time to maturity extends. This
pattern creates an upward sloping "curve." A "flat" yield curve represents
little differences between short- and long-term interest rates.
4
<PAGE>
Portfolio Management Review
Van Kampen Limited Maturity Government Fund
We recently spoke with the management team of the Van Kampen 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
reporting period ended June 30, 1998.
Q How would you describe the market in which the Fund operated during the
reporting period?
A During the first six months of 1998, we witnessed a continuation of the
late-1997 dual scenario of strong domestic economic growth and the looming Asian
currency crisis. Despite rapid economic growth, the impact from Asia tempered
inflation and largely kept the Federal Reserve Board at bay. Although Fed
meetings during the period resulted in no change to the federal funds rate,
members intermittently appeared ready and willing to increase rates if
necessary. At the same time, a strong employment rate and solid wage gains
contributed to strength in consumer consumption and spending, although faltering
production and excess inventories due to a strong dollar and decreased Asian
demand for exports indicate a potential moderation in economic growth.
In the fixed-income market, the first quarter bore witness to a bond rally
as the five-year yield fell from 5.75 to 5.22 percent. As investors sought
investments that were safe from international volatility, they rushed to U.S.
Treasury bonds, which placed downward pressure on the yields that lasted for
most of the period. As Treasury yields fell and consumer spending rose, the
mortgage-backed sector operated in an environment of increased prepayments,
which nearly reached historically high levels. Even so, mortgages were able to
perform respectably well, thanks to ever-present demand from government
agencies.
Q How did you position the Fund in reaction to market conditions?
A Early in the year, we increased the Fund's mortgage exposure from 45
percent to as high as 52 percent based on indications of rising interest rates
and indications of value in the mortgage market. After the move to higher
yields, however, we revised our perspective to a more constructive market
outlook and subsequently lowered the allocation in mortgage--backed securities
to approximately 40 percent of the portfolio. Among the Fund's mortgage-backed
securities, we maintained a focus on minimizing the portfolio's exposure to
prepayment risk. Securities with high coupons--generally at or above eight
percent--were especially at risk in the first few months of the year.
Consequently, we structured the portfolio with lower-coupon mortgages.
The remainder of the Fund's assets were invested in Treasuries and cash. At
the beginning of the reporting period, the Fund's Treasury allocation was
predominantly in two- and five-year securities. However, as the yield curve
continued to flatten, we moved toward the two-year sector because we felt there
was little value to be found in the middle part of the curve.
As rates began to rise following the bond rally in January, we reduced the
portfolio's duration to more neutral levels, but extended it somewhat in mid-
April. Adjustments in the duration are instituted when we feel there is value to
be captured; however, our management objective of a consistent
5
<PAGE>
risk profile and a competitive dividend stream is always our priority. At the
end of the period, the Fund's duration was 2.1 years. Please refer to page seven
for additional Fund portfolio highlights.
Q How did the Fund perform during the reporting period?
A For the six-month period ended June 30, 1998, the Limited Maturity
Government Fund generated a total return of 2.48 percent/1/ (Class A shares at
net asset value). Additionally, the Fund's Class A shares provided shareholders
with a competitive distribution rate of 5.25 percent/3/, based upon the maximum
offering price as of June 30, 1998, and a monthly dividend of $0.055 per Class A
shares. By comparison, the Lehman Brothers Mutual Fund One- to Two-Year U.S.
Government Index posted a total return of 2.93 percent for the same period. This
broad-based, unmanaged index reflects the general performance of U.S. government
securities. This index does not reflect any commissions or fees that would be
paid by an investor purchasing the securities it represents. For additional Fund
performance results, please refer to the chart on page three.
Q What is your outlook for the months ahead?
A By the end of the second quarter, economic growth was showing signs of
slowing down. We look for this trend to continue, particularly in light of a
buildup in manufacturing inventories resulting from decreased demand for exports
from Asia. We expect the bond market to be biased toward lower yields, at least
in the near term. It is possible that long-term interest rates, as measured by
30-year Treasuries, could move back up to 6.0 percent, assuming that the Asian
crisis eventually takes a back seat to the positive U.S. picture. If this
happens, we would expect some movement from the Fed, although today's economic
conditions make it difficult to imagine a rate hike before the third quarter.
With strong consumer confidence, insignificant inflation, and low interest
rates, the housing sector continues to forge ahead. Additionally, high
employment rates and solid wage gains make housing affordable. With this in
mind, we expect to operate the Fund in a constructive environment near term. As
such, we will continue to judiciously monitor the portfolio's exposure to
mortgage-backed securities with an eye toward the risk of increased
prepayments.
/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>
PORTFOLIO HIGHLIGHTS
VAN KAMPEN LIMITED MATURITY GOVERNMENT FUND
COUPON DISTRIBUTION AS OF JUNE 30, 1998
[GRAPH APPEARS HERE]
Percentage of
Long-Term Investments Coupon Rate
29.7% 5-5.9
23.7% 6-6.9
19.0% 7-7.9
16.8% 8-8.9
7.0% 9-9.9
3.8% 10 or more
PORTFOLIO COMPOSITION BY SECTOR AS A PERCENTAGE OF LONG-TERM INVESTMENTS
[PIE CHART APPEARS HERE]
As of June 30, 1998
Asset-Backed Securities....24%
CMOs.......................18%
FNMA.......................18%
FHLMC......................17%
Treasury Notes.............13%
ARMs....................... 7%
GNMA....................... 3%
[PIE CHART APPEARS HERE]
As of December 31, 1997
Treasury Notes.............23%
CMOs.......................23%
Asset-Backed Securities....19%
FHLMC......................14%
FNMA.......................11%
ARMs....................... 7%
GNMA....................... 3%
DURATION
As of June 30, 1998 As of December 31, 1997
Duration 2.1 years 2.0 years
7
<PAGE>
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
===================================================================================================================
Par
Amount
(000) Description Coupon Maturity Market Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Adjustable Rate Mortgage-Backed Securities 6.8%
$ 45 Federal Home Loan Mortgage
Corp. Pools...................................... 9.925% 02/01/18 $ 45,457
1,051 Federal National Mortgage Association
Pools (a)........................................ 7.546 03/01/19 1,085,882
1,957 Federal National Mortgage Association
Pools (a)........................................ 7.599 09/01/19 2,012,493
-----------
Total Adjustable Rate Mortgage-Backed Securities............................ 3,143,832
-----------
Asset Backed Securities 23.4%
4,000 Deutsche Floorplan Master Trust (a).............. 5.856 02/15/01 4,002,240
3,000 First USA Credit Card Master Trust............... 5.858 04/15/03 3,008,670
3,748 PacificAmerica Home Equity Loan.................. 5.916 12/25/27 3,745,417
-----------
Total Asset Backed Securities............................................... 10,756,327
-----------
Collateralized Mortgage Obligations 17.3%
1,768 Federal Home Loan Mortgage Corp.
(Floater) (a).................................... 6.088 04/15/99 1,768,846
1,910 Federal Home Loan Mortgage Corp.
(Floater) (a).................................... 6.188 04/15/20 1,916,551
1,819 Federal National Mortgage Association
(Floater) (a).................................... 6.388 06/25/18 to 02/25/21 1,821,883
2,537 Saxon Mortgage Securities Corp................... 5.680 11/25/23 2,451,830
-----------
Total Collateralized Mortgage Obligations................................... 7,959,110
-----------
U.S. Government Agency Obligations 36.7%
5,000 Federal Home Loan Mortgage Corp.
(PAC) (a)........................................ 6.250 07/15/18 5,034,750
864 Federal Home Loan Mortgage Corp.
15 Year Pools.................................... 9.500 12/01/01 906,194
1,483 Federal Home Loan Mortgage Corp.
30 Year Pools.................................... 9.250 12/01/15 1,585,396
2,077 Federal National Mortgage Association
(PAC) (a)........................................ 7.000 01/25/03 2,130,640
3,161 Federal National Mortgage Association
15 Year Pools (a)................................ 7.000 10/01/09 3,226,729
1,527 Federal National Mortgage Association
30 Year Pools.................................... 8.500 05/01/21 to 04/01/25 1,594,678
</TABLE>
8 See Notes to Financial Statements
<PAGE>
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
===================================================================================================
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Government Agency Obligations (Continued)
$ 335 Federal National Mortgage Association
30 Year Pools.................................. 9.500% 07/01/11 to 08/01/21 $ 361,201
637 Federal National Mortgage Association
30 Year Pools.................................. 10.000 05/01/21 697,168
101 Government National Mortgage
Association 30 Year Pools...................... 8.500 06/15/16 to 01/15/17 106,898
204 Government National Mortgage
Association 30 Year Pools...................... 9.500 03/15/16 to 01/15/19 222,893
442 Government National Mortgage
Association 30 Year Pools...................... 10.000 03/15/16 to 04/15/19 489,032
243 Government National Mortgage
Association 30 Year Pools...................... 10.500 05/15/13 to 02/15/18 271,211
197 Government National Mortgage
Association 30 Year Pools...................... 11.000 11/15/18 223,238
-----------
Total U.S. Government Agency Obligations............................ 16,850,028
-----------
U.S. Government Obligations 12.5%
5,500 United States Treasury Notes (a)............... 8.500 02/15/00 5,754,210
-----------
Total Long-Term Investments 96.7%
(Cost $44,057,374)................................................................... 44,463,507
Repurchase Agreement 3.0%
BA Securities ($1,380,000 par, collateralized by U.S.
Government obligations in a pooled cash account,
dated 06/30/98, to be sold on 07/01/98 at $1,380,232) (Cost $1,380,000).............. 1,380,000
-----------
Total Investments 99.7%
(Cost $45,437,374)................................................................... 45,843,507
Other Assets in Excess of Liabilities 0.3%.......................................... 141,948
-----------
Net Assets 100.0%................................................................... $45,985,455
===========
</TABLE>
PAC -- Planned Amortization Classes
(a) Assets segregated as collateral for open forward commitments and open
futures transactions.
9 See Notes to Financial Statements
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
==================================================================================================
Assets:
<S> <C>
Total Investments (Cost $45,437,374)............................................... $45,843,507
Cash............................................................................... 997
Receivables:
Interest......................................................................... 632,142
Fund Shares Sold................................................................. 51,837
Variation Margin on Futures...................................................... 3,417
Forward Commitments................................................................ 16,282
Other.............................................................................. 45,230
-----------
Total Assets.................................................................. 46,593,412
-----------
Liabilities:
Payables:
Investments Purchased............................................................ 287,835
Income Distributions............................................................. 81,368
Distributor and Affiliates....................................................... 46,059
Investment Advisory Fee.......................................................... 19,040
Trustees' Deferred Compensation and Retirement Plans............................... 123,616
Accrued Expenses................................................................... 50,039
-----------
Total Liabilities............................................................. 607,957
-----------
Net Assets......................................................................... $45,985,455
===========
Net Assets Consist of:
Capital............................................................................ $54,839,032
Net Unrealized Appreciation........................................................ 425,542
Accumulated Distributions in Excess of Net Investment Income....................... (83,169)
Accumulated Net Realized Loss...................................................... (9,195,950)
-----------
Net Assets......................................................................... $45,985,455
===========
Maximum Offering Price Per Share:
Class A Shares:
Net asset value and redemption price per share (Based on net assets of
$31,309,595 and 2,574,529 shares of beneficial interest issued and outstanding) $ 12.16
Maximum sales charge (3.25%* of offering price)................................ .41
-----------
Maximum offering price to public............................................... $ 12.57
===========
Class B Shares:
Net asset value and offering price per share (Based on net assets of
$12,039,019 and 987,308 shares of beneficial interest issued and outstanding).. $ 12.19
===========
Class C Shares:
Net asset value and offering price per share (Based on net assets of
$2,636,841 and 216,474 shares of beneficial interest issued and outstanding)... $ 12.18
===========
</TABLE>
*On sales of $25,000 or more, the sales charge will be reduced.
10 See Notes to Financial Statements
<PAGE>
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
========================================================================================
Investment Income:
<S> <C>
Interest.................................................................... $1,581,490
----------
Expenses:
Distribution (12b-1) and Service Fees (Attributed to Classes A, B and C of
$37,656, $69,798 and $18,751, respectively)............................... 126,205
Investment Advisory Fee..................................................... 121,758
Shareholder Services........................................................ 46,814
Registration and Filing Fees................................................ 36,245
Accounting.................................................................. 29,637
Shareholder Reports......................................................... 21,834
Trustees' Fees and Expenses................................................. 14,223
Custody..................................................................... 2,432
Legal....................................................................... 1,810
Other....................................................................... 25,616
----------
Total Expenses......................................................... 426,574
----------
Net Investment Income....................................................... $1,154,916
==========
Realized and Unrealized Gain/Loss:
Realized Gain/Loss:
Investments............................................................... $ (7,533)
Futures................................................................... (36,967)
Forwards.................................................................. 117,910
----------
Net Realized Gain........................................................... 73,410
----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................................... 453,759
----------
End of the Period:
Investments............................................................. 406,133
Futures................................................................. 3,127
Forwards................................................................ 16,282
----------
425,542
----------
Net Unrealized Depreciation During the Period............................... (28,217)
----------
Net Realized and Unrealized Gain............................................ $ 45,193
==========
Net Increase in Net Assets From Operations.................................. $1,200,109
==========
</TABLE>
11 See Notes to Financial Statements
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 1998 and
the Year Ended December 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
======================================================================================================================
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
From Investment Activities:
Operations:
Net Investment Income........................................... $ 1,154,916 $ 3,271,677
Net Realized Gain/Loss.......................................... 73,410 (147,652)
Net Unrealized Appreciation/Depreciation During the Period...... (28,217) 184,520
------------ ------------
Change in Net Assets from Operations............................ 1,200,109 3,308,545
------------ ------------
Distributions from Net Investment Income........................ (1,175,117) (3,115,620)
Distribution in Excess of Net Investment Income................. (83,169) -0-
------------ ------------
Distributions from and in Excess of
Net Investment Income*........................................ (1,258,286) (3,115,620)
------------ ------------
Net Change in Net Assets from
Investment Activities......................................... (58,177) 192,925
------------ ------------
From Capital Transactions:
Proceeds from Shares Sold....................................... 12,836,569 40,769,266
Net Asset Value of Shares Issued Through
Dividend Reinvestment......................................... 765,152 1,972,876
Cost of Shares Repurchased...................................... (27,318,127) (50,576,668)
------------ ------------
Net Change in Net Assets from
Capital Transactions.......................................... (13,716,406) (7,834,526)
------------ ------------
Total Decrease in Net Assets.................................... (13,774,583) (7,641,601)
Net Assets:
Beginning of the Period......................................... 59,760,038 67,401,639
------------ ------------
End of the Period (Including accumulated undistributed
net investment income of $(83,169) and
$20,201, respectively)........................................ $ 45,985,455 $ 59,760,038
============ ============
Six Months Ended Year Ended
*Distributions by Class June 30, 1998 December 31, 1997
- ----------------------------------------------------------------------------------------------------------------------
Distributions from and in Excess of Net Investment Income:
Class A Shares................................................ $ (846,127) $ (2,049,150)
Class B Shares................................................ (324,529) (875,834)
Class C Shares................................................ (87,630) (190,636)
------------ ------------
$ (1,258,286) $ (3,115,620)
============ ============
</TABLE>
12 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>
<CAPTION>
==================================================================================================================
Year Ended December 31,
Six Months Ended -----------------------------------------
Class A Shares June 30, 1998 (a) 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the Period........................ $12.191 $12.151 $ 12.41 $ 11.90 $ 12.42
------- ------- ------- ------- -------
Net Investment Income.......................... .304 .685 .627 .67 .50
Net Realized and Unrealized
Gain/Loss.................................... (.004) .015 (.226) .4888 (.4817)
------- ------- ------- ------- -------
Total from Investment Operations................. .300 .700 .401 1.1588 .0183
Less Distributions from and in Excess of
Net Investment Income.......................... .330 .660 .660 .6488 .5383
------- ------- ------- ------- -------
Net Asset Value, End of the Period............... $12.161 $12.191 $12.151 $ 12.41 $ 11.90
======= ======= ======= ======= =======
Total Return* (b)................................ 2.48%** 5.92% 3.34% 9.96% .16%
Net Assets at End of the Period
(In millions).................................. $ 31.3 $ 39.4 $ 40.2 $ 45.4 $ 41.2
Ratio of Expenses to
Average Net Assets*............................ 1.48% 1.32% 1.45% 1.45% 1.15%
Ratio of Net Investment Income to Average
Net Assets*.................................... 5.02% 5.68% 5.23% 5.47% 4.75%
Portfolio Turnover............................... 131%** 175% 260% 187% 161%
*If certain expenses had not been reimbursed by
Van Kampen, Total Return would have been lower
and the ratios would have been as follows:
Ratio of Expenses to Average Net Assets.......... N/A N/A 1.47% 1.50% 1.31%
Ratio of Net Investment Income to Average
Net Assets..................................... N/A N/A 5.21% 5.42% 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.
N/A= Not Applicable
13 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>
<CAPTION>
=================================================================================================================
Year Ended December 31,
Six Months Ended ----------------------------------------
Class B Shares June 30, 1998 (a) 1997(a) 1996(a) 1995(a) 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the Period.......................... $12.220 $12.174 $ 12.43 $ 11.91 $ 12.43
------- ------- ------- ------- -------
Net Investment Income.......................... .260 .598 .550 .57 .42
Net Realized and
Unrealized Gain/Loss......................... (.004) .012 (.242) .5028 (.4977)
------- ------- ------- ------- -------
Total from Investment Operations................. .256 .610 .308 1.0728 (.0777)
Less Distributions from and in
Excess of Net Investment Income................ .282 .564 .564 .5528 .4423
------- ------- ------- ------- -------
Net Asset Value, End of the Period............... $12.194 $12.220 $12.174 $ 12.43 $ 11.91
======= ======= ======= ======= =======
Total Return* (b)................................ 2.08%** 5.08% 2.69% 9.09% (.62%)
Net Assets at End of the
Period (In millions)........................... $ 12.0 $ 16.2 $ 22.5 $ 30.3 $ 18.4
Ratio of Expenses to
Average Net Assets*............................ 2.24% 2.11% 2.19% 2.24% 1.91%
Ratio of Net Investment Income to Average
Net Assets*.................................... 4.28% 4.92% 4.50% 4.63% 3.99%
Portfolio Turnover............................... 131%** 175% 260% 187% 161%
*If certain expenses had not been reimbursed by
Van Kampen, Total Return would have been lower
and the ratios would have been as follows:
Ratio of Expenses to Average Net Assets.......... N/A N/A 2.22% 2.29% 2.08%
Ratio of Net Investment Income to Average
Net Assets....................................... N/A N/A 4.47% 4.59% 3.82%
</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.
N/A= Not Applicable
See Notes to Financial Statements
14
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated. (Unaudited)
================================================================================
<TABLE>
<CAPTION>
Six Months Ended Year Ended December 31,
------------------------------------
Class C Shares June 30, 1998 (a) 1997 1996 1995(a) 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Period................................... $ 12.206 $12.162 $ 12.42 $ 11.90 $ 12.41
-------- ------- ------- ------- -------
Net Investment Income........................... .258 .597 .554 .57 .45
Net Realized and Unrealized
Gain/Loss..................................... (.001) .011 (.248) .5028 (.5177)
-------- ------- ------- ------- -------
Total from Investment Operations.................. .257 .608 .306 1.0728 (.0677)
Less Distributions from and in Excess
of Net Investment Income........................ .282 .564 .564 .5528 .4423
-------- ------- ------- ------- -------
Net Asset Value, End of the Period................ $ 12.181 $12.206 $12.162 $ 12.42 $ 11.90
======== ======= ======= ======= =======
Total Return* (b)................................. 2.08%** 5.17% 2.62% 9.10% (.55%)
Net Assets at End of the Period
(In millions)................................... $ 2.6 $ 4.2 $ 4.7 $ 6.2 $ 5.8
Ratio of Expenses to Average
Net Assets*..................................... 2.24% 2.10% 2.20% 2.23% 1.90%
Ratio of Net Investment Income to
Average Net Assets*............................. 4.26% 4.92% 4.48% 4.71% 3.98%
Portfolio Turnover................................ 131%** 175% 260% 187% 161%
*If certain expenses had not been reimbursed by
Van Kampen, Total Return would have been lower
and the ratios would have been as follows:
Ratio of Expenses to Average
Net Assets...................................... N/A N/A 2.22% 2.27% 2.07%
Ratio of Net Investment Income to
Average Net Assets.............................. N/A N/A 4.45% 4.67% 3.81%
</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.
N/A= Not Applicable
15 See Notes to Financial Statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (Unaudited)
================================================================================
1. Significant Accounting Policies
Van Kampen Limited Maturity Government Fund, formerly known as 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 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.
C. Income and Expenses--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
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
================================================================================
are not amortized. Expenses of the Fund are allocated on a pro rata basis to
each class of shares, except for distribution and service fees and transfer
agency costs which are unique to each class of shares.
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, 1997, the Fund had an accumulated capital loss
carryforward for tax purposes of $8,930,231 which will expire between December
31, 1999 and December 31, 2004. 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, 1998, for federal income tax purposes, cost of long- and short-
term investments is $45,441,070; the aggregate gross unrealized appreciation is
$473,405 and the aggregate gross unrealized depreciation is $51,559, resulting
in unrealized appreciation including open future transactions and forward
commitments of $421,846.
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.
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>
% 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>
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
================================================================================
For the six months ended June 30, 1998, the Fund recognized expenses of
approximately $1,800 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, 1998, the Fund recognized expenses of
approximately $29,600 representing Van Kampen Funds Inc.'s or its affiliates'
(collectively "Van Kampen") cost of providing accounting services to the Fund.
Van Kampen Investor Services Inc. ("VKIS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the six months ended
June 30, 1998, the Fund recognized expenses of approximately $37,300. Beginning
in 1998, the transfer agency fees are determined through negotiations with the
Fund's Board of Trustees and are based on competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its trustees
who are not officers of Van Kampen. 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.
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (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, 1998, capital aggregated $41,716,010, $10,884,642 and $2,238,380
for Classes A, B and C, respectively. For the six months ended June 30, 1998,
transactions were as follows:
<TABLE>
<CAPTION>
Shares Value
======================================================================
<S> <C> <C>
Sales:
Class A......................... 606,554 $ 7,393,657
Class B......................... 80,357 982,876
Class C......................... 365,039 4,460,036
----------- ------------
Total Sales....................... 1,051,950 $ 12,836,569
=========== ============
Dividend Reinvestment:
Class A......................... 43,555 $ 530,531
Class B......................... 14,808 180,895
Class C......................... 4,400 53,726
----------- ------------
Total Dividend Reinvestment....... 62,763 $ 765,152
=========== ============
Repurchases:
Class A......................... (1,305,066) $(15,965,708)
Class B......................... (431,140) (5,266,905)
Class C......................... (498,569) (6,085,514)
----------- ------------
Total Repurchases................. (2,234,775) $(27,318,127)
=========== ============
</TABLE>
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
June 30, 1998 (Unaudited)
================================================================================
At December 31, 1997, capital aggregated $49,757,530, $14,987,776 and
$3,810,132 for Classes A, B and C, respectively. For the year ended December 31,
1997, transactions were as follows:
<TABLE>
<CAPTION>
Shares Value
================================================================================
<S> <C> <C>
Sales:
Class A........................................... 2,697,413 $ 32,731,390
Class B........................................... 186,057 2,257,587
Class C........................................... 475,531 5,780,289
---------- ------------
Total Sales......................................... 3,359,001 $ 40,769,266
========== ============
Dividend Reinvestment:
Class A........................................... 108,340 $ 1,315,537
Class B........................................... 41,662 506,808
Class C........................................... 12,383 150,531
---------- ------------
Total Dividend Reinvestment......................... 162,385 $ 1,972,876
========== ============
Repurchases:
Class A........................................... (2,886,550) $(35,029,758)
Class B........................................... (752,883) (9,146,731)
Class C........................................... (526,585) (6,400,179)
---------- ------------
Total Repurchases................................... (4,166,018) $(50,576,668)
========== ============
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B shares will
automatically convert to Class A shares after the eighth year following
purchase. 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.
<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>
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
================================================================================
For the six months ended June 30, 1998, Van Kampen, as Distributor for the
Fund, received net commissions on sales of the Fund's Class A shares of
approximately $4,000 and CDSC on redeemed shares of approximately $5,900. 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 short-term investments, were $65,773,203 and $89,110,875,
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 or forward contract. In
these situations, the recognition of gain or loss is postponed until the
disposal of the security underlying the futures or forward contract.
A. Futures Contracts--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). The potential risk of loss associated
with a futures contract could be in excess of the variation margin reflected on
the Statement of Assets and Liabilities.
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
================================================================================
Transactions in futures contracts for the six months ended June 30, 1998,
were as follows:
<TABLE>
<CAPTION>
Contracts
================================================================================
<S> <C>
Outstanding at December 31, 1997................................. 10
Futures Opened................................................... 340
Futures Closed................................................... (303)
-------
Outstanding at June 30, 1998..................................... 47
=======
</TABLE>
The futures contracts outstanding as of June 30, 1998, and the description
and unrealized appreciation are as follows:
<TABLE>
<CAPTION>
Unrealized
Contracts Appreciation
================================================================================
<S> <C> <C>
Long Contracts--5 Year U.S. Treasury Note Futures
September 1998 (Current notional
value $109,688 per contract).............................. 47 $3,127
== ========
</TABLE>
B. Forward Commitments--The Fund trades certain securities under the terms of
forward commitments, whereby the settlement for payment and delivery occurs at a
specified future date. Forward commitments are privately negotiated transactions
between the Fund and dealers. Upon executing a forward commitment and during the
period of obligation, the Fund maintains collateral of cash or securities in a
segregated account with its custodian in an amount sufficient to relieve the
obligation. If the intent of the Fund is to accept delivery of a security traded
under a forward purchase commitment, the commitment is recorded as a long-term
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 with changes in value reflected as a component of
unrealized appreciation/depreciation. 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. Purchasing securities on a forward
commitment involves a risk that the market value at the time of delivery may be
lower than the agreed upon purchase price resulting in an unrealized loss.
Selling securities on a forward commitment involves different risks and can
result in losses more significant than those arising from the purchase of such
securities.
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
================================================================================
The forward commitments outstanding as of June 30, 1998, for which settlement is
not intended, and the descriptions and unrealized appreciation are as follows:
<TABLE>
<CAPTION>
Par
Amount Current Unrealized
(000) Description Expiration Value Appreciation
================================================================================
Long Contracts:
<C> <S> <C> <C> <C>
$ 15,500 U.S. Treasury Note July
Forward, 8.875%.................. 07/31/98 $16,383,965 $13,487
1,500 FNMA August 15-Year Dwarf
Forward, 6.00%................... 08/18/98 1,483,538 1,350
Short Contracts:
3,100 FNMA July 15-Year Dwarf
Forward, 7.00%................... 07/20/98 3,157,164 1,445
--------
$ 16,282
========
</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.
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 six months ended June 30, 1998, are payments retained by Van Kampen of
approximately $67,200.
23
<PAGE>
VAN KAMPEN FUNDS
EQUITY FUNDS
Domestic
Aggressive Equity
Aggressive Growth
American Value
Comstock
Emerging Growth
Enterprise
Equity Growth
Equity Income
Growth
Growth and Income
Harbor
Pace
Real Estate Securities
U.S. Real Estate
Utility
Value
International/Global
Asian Growth
Emerging Markets
Global Equity
Global Equity Allocation
Global Managed Assets
International Magnum
Latin American
FIXED-INCOME FUNDS
Income
Corporate Bond
Global Fixed Income
Global Government Securities
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
Short-Term Global Income
Strategic Income
U.S. Government
U.S. Government Trust for Income
Worldwide High Income
Tax Exempt Income
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal
Insured Tax Free Income
Intermediate Term Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
Capital Preservation and
Senior Loan Funds
Prime Rate Income Trust
Reserve
Senior Floating Rate
Tax Free Money
To find out more about any of these funds, ask your financial adviser for a
prospectus, which contains more complete information, including sales charges,
risks, and expenses. Please read it carefully before you invest or send money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
. visit our web site at
www.van-kampen.com -- to view prospectuses, select Investors' Place, then
Download a Prospectus
. call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time
(Telecommunications Device for the Deaf users, call 1-800-421-2833)
. e-mail us by visiting
www.van-kampen.com and selecting Investors' Place
24
<PAGE>
VAN KAMPEN LIMITED MATURITY GOVERNMENT FUND
Board of Trustees
J. Miles Branagan
Richard M. DeMartini*
Linda Hutton Heagy
R. Craig Kennedy
Jack E. Nelson
Don G. Powell*
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*
Paul R. Wolkenberg*
Vice Presidents
Investment Adviser
Van Kampen Asset Management Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Distributor
Van Kampen Funds Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Shareholder Servicing Agent
Van Kampen 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
PricewaterhouseCoopers LLP
200 E. Randolph Drive
Chicago, Illinois 60601
* "Interested" persons of the Fund, as defined in the Investment Company Act
of 1940.
(C) Van Kampen Funds Inc., 1998
All rights reserved.
SM denotes a service mark of Van Kampen Funds 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, 1998, the report, if used with
prospective investors, must be accompanied by a quarterly performance update.
25
<PAGE>
Van Kampen Funds Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> LTD MAT GOVT A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 45,437,374<F1>
<INVESTMENTS-AT-VALUE> 45,843,507<F1>
<RECEIVABLES> 687,396<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 62,509<F1>
<TOTAL-ASSETS> 46,593,412<F1>
<PAYABLE-FOR-SECURITIES> 287,835<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 320,122<F1>
<TOTAL-LIABILITIES> 607,957<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 41,716,010
<SHARES-COMMON-STOCK> 2,574,529
<SHARES-COMMON-PRIOR> 3,229,486
<ACCUMULATED-NII-CURRENT> (83,169)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (9,195,950)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 425,542<F1>
<NET-ASSETS> 31,309,595
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 1,581,490<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (426,574)<F1>
<NET-INVESTMENT-INCOME> 1,154,916<F1>
<REALIZED-GAINS-CURRENT> 73,410<F1>
<APPREC-INCREASE-CURRENT> (28,217)<F1>
<NET-CHANGE-FROM-OPS> 1,200,109<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (846,127)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 606,554
<NUMBER-OF-SHARES-REDEEMED> (1,305,066)
<SHARES-REINVESTED> 43,555
<NET-CHANGE-IN-ASSETS> (8,061,625)
<ACCUMULATED-NII-PRIOR> 20,201<F1>
<ACCUMULATED-GAINS-PRIOR> (9,269,360)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 121,758<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 426,574<F1>
<AVERAGE-NET-ASSETS> 31,190,643
<PER-SHARE-NAV-BEGIN> 12.191
<PER-SHARE-NII> 0.304
<PER-SHARE-GAIN-APPREC> (0.004)
<PER-SHARE-DIVIDEND> (0.330)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 12.161
<EXPENSE-RATIO> 1.48
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1> This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> LTD MAT GOVT B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 45,437,374<F1>
<INVESTMENTS-AT-VALUE> 45,843,507<F1>
<RECEIVABLES> 687,396<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 62,509<F1>
<TOTAL-ASSETS> 46,593,412<F1>
<PAYABLE-FOR-SECURITIES> 287,835<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 320,122<F1>
<TOTAL-LIABILITIES> 607,957<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10,884,642
<SHARES-COMMON-STOCK> 987,308
<SHARES-COMMON-PRIOR> 1,323,283
<ACCUMULATED-NII-CURRENT> (83,169)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (9,195,950)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 425,542<F1>
<NET-ASSETS> 12,039,019
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 1,581,490<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (426,574)<F1>
<NET-INVESTMENT-INCOME> 1,154,916<F1>
<REALIZED-GAINS-CURRENT> 73,410<F1>
<APPREC-INCREASE-CURRENT> (28,217)<F1>
<NET-CHANGE-FROM-OPS> 1,200,109<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (324,529)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 80,357
<NUMBER-OF-SHARES-REDEEMED> (431,140)
<SHARES-REINVESTED> 14,808
<NET-CHANGE-IN-ASSETS> (4,131,294)
<ACCUMULATED-NII-PRIOR> 20,201<F1>
<ACCUMULATED-GAINS-PRIOR> (9,269,360)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 121,758<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 426,574<F1>
<AVERAGE-NET-ASSETS> 14,059,755
<PER-SHARE-NAV-BEGIN> 12.220
<PER-SHARE-NII> 0.260
<PER-SHARE-GAIN-APPREC> (0.004)
<PER-SHARE-DIVIDEND> (0.282)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 12.194
<EXPENSE-RATIO> 2.24
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1> This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 13
<NAME> LTD MAT GOVT C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 45,437,374<F1>
<INVESTMENTS-AT-VALUE> 45,843,507<F1>
<RECEIVABLES> 687,396<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 62,509<F1>
<TOTAL-ASSETS> 46,593,412<F1>
<PAYABLE-FOR-SECURITIES> 287,835<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 320,122<F1>
<TOTAL-LIABILITIES> 607,957<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,238,380
<SHARES-COMMON-STOCK> 216,474
<SHARES-COMMON-PRIOR> 345,604
<ACCUMULATED-NII-CURRENT> (83,169)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (9,195,950)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 425,542<F1>
<NET-ASSETS> 2,636,841
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 1,581,490<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (426,574)<F1>
<NET-INVESTMENT-INCOME> 1,154,916<F1>
<REALIZED-GAINS-CURRENT> 73,410<F1>
<APPREC-INCREASE-CURRENT> (28,217)<F1>
<NET-CHANGE-FROM-OPS> 1,200,109<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (87,630)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 365,039
<NUMBER-OF-SHARES-REDEEMED> (498,569)
<SHARES-REINVESTED> 4,400
<NET-CHANGE-IN-ASSETS> (1,581,664)
<ACCUMULATED-NII-PRIOR> 20,201<F1>
<ACCUMULATED-GAINS-PRIOR> (9,269,360)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 121,758<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 426,574<F1>
<AVERAGE-NET-ASSETS> 3,775,780
<PER-SHARE-NAV-BEGIN> 12.206
<PER-SHARE-NII> 0.258
<PER-SHARE-GAIN-APPREC> (0.001)
<PER-SHARE-DIVIDEND> (0.282)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 12.181
<EXPENSE-RATIO> 2.24
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1> This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
