<PAGE>
V A N K A M P E N A M E R I C A N C A P I T A L
LIMITED MATURITY
GOVERNMENT FUNDS
ANNUAL REPORT
DECEMBER 31,1997
[PICTURE APPEARS HERE.]
________ A Wealth of Knowledge of Wealth _______
VAN KAMPEN AMERICAN CAPITAL
<PAGE>
Table of Contents
<TABLE>
<S> <C>
Letter to Shareholders 1
Performance Results 3
Performance in Perspective 4
Glossary of Terms 5
Portfolio Management Review 6
Portfolio Highlights 8
Portfolio of Investments 9
Statement of Assets and Liabilities 11
Statement of Operations 12
Statement of Changes in Net Assets 13
Financial Highlights 14
Notes to Financial Statements 17
Report of Independent Accountants 25
</TABLE>
<PAGE>
Letter to Shareholders
[PHOTO OF DENNIS J. MCDONNELL AND DON G. POWELL APPEARS HERE]
February 3, 1998
Dear Shareholder,
The new year ushers in what promises to be an exciting and challenging time
for investors. The Taxpayer Relief Act of 1997 passed by President Clinton in
August creates many new opportunities for you and your family to take a more
active role in achieving your long-term financial goals.
Most Americans will benefit from the bill's $95 billion in tax cuts over
five years. The so-called Kiddie Credit gives parents $400 in immediate tax
relief for every child under age 17, and families will find it easier to save
for their children's college expenses through the new Education IRA. The bill
also cuts capital gains tax rates for the first time in over a decade and
loosens restrictions on tax-deductible IRA contributions. Perhaps the most
exciting feature of all is the new Roth IRA, which allows investment earnings to
grow tax free, not just tax deferred.
This year more than ever, it could be important for you to talk with your
financial adviser about how to make the tax code work to your advantage. At Van
Kampen American Capital, we have prepared a variety of publications to help you
understand your choices under the new tax legislation. And with the help of your
adviser, we'll help you locate the many benefits hidden among the changing tax
landscape.
ECONOMIC OVERVIEW
These continue to be the best of times for the U.S. economy. Growth is
strong, consumers are optimistic, unemployment is low, the budget is headed for
surplus this year, and our nation's currency is rising around the world.
Despite the strength in the economy, there is no indication of troublesome
inflation. In fact, the producer price index fell by 1.2 percent during the
year, the largest annual decline in wholesale prices since 1986. Inflation at
the consumer level was also virtually nonexistent, with the consumer price index
rising by only 1.7 percent during 1997. A strong dollar and significant
productivity gains helped offset inflationary pressures caused by rising wages.
After increasing short-term interest rates by 0.25 percent in March, the
Federal Reserve Board left monetary policy unchanged over the remainder of the
year. In addition to signs that the economy was slowing modestly from its
breakneck pace of early 1997, Fed policy-makers were concerned about the impact
that higher U.S. interest rates might have on the struggling economies of
Southeast Asia. Generally, higher U.S. interest rates cause the dollar to rise
relative to other currencies. With nearly all Asian currencies already down
significantly, a hike in U.S. rates would force monetary authorities in Asia to
choose between letting their currencies decline further or matching the rate
increase, thereby slowing their already-sluggish economies.
Continued on page two
1
<PAGE>
MARKET OVERVIEW
Aided by low inflation and steady Federal Reserve policy, all sectors of
the fixed-income market posted impressive returns during 1997. Gains were
especially strong during the last three months of the period, as the severe
currency crisis in Asia led to increased demand for U.S. Treasury securities and
other fixed-income investments. For the year, the Lehman Brothers Aggregate Bond
Index returned 9.40 percent.
The yield on the Treasury's benchmark 30-year bond began the year at 6.64
percent and climbed to 7.17 percent in April amid fears of increasing inflation
and higher interest rates. When subsequent data showed the economy to be
slowing, bond yields drifted gradually lower. By the end of the reporting
period, the long-term Treasury bond yield had fallen to 5.92 percent, its lowest
level in over four years.
Favorable news about inflation and concerns about Asia helped to make high-
quality long-term bonds the top-performing sector of the fixed-income market.
Long-term Treasury bonds gained 14.3 percent during the year, compared to 10
percent for investment-grade corporate bonds and 8.90 percent for intermediate-
term Treasury bonds.
OUTLOOK
We believe that reduced demand for American exports to Asia will exert a
mild drag on the U.S. economy in coming months. But while corporate profits
could suffer, slower economic growth should help to mitigate the inflationary
pressures caused by the tight domestic labor market. That scenario is good for
fixed-income investments.
However, if bond yields continue to drift lower, economic growth in the
U.S. could accelerate later in 1998. In recent years, each significant decline
in long-term interest rates has ignited economic growth by making housing,
autos, and other big-ticket consumer goods more affordable. We also expect the
healthy economy to keep credit spreads relatively tight in coming months.
As we noted earlier, the Taxpayer Relief Act of 1997 provides attractive
new vehicles through which investors can save for a variety of goals, including
higher education and retirement. We encourage you to work with your financial
adviser to consider how the tax changes can work to your benefit.
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 American Capital Van Kampen American Capital
Asset Management, Inc. Asset Management, Inc.
2
<PAGE>
Performance Results for the period Ended December 31, 1997
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/.......... 5.92% 5.08% 5.17%
One-year total return/2/....................... 2.46% 2.08% 4.17%
Five-year average annual total return/2/....... 3.77% 3.67% N/A
Ten-year average annual total return/2/........ 5.96% N/A N/A
Life-of-Fund average annual total return/2/.... 5.53% 3.57% 3.68%
Commencement Date.............................. 06/16/86 11/05/91 05/10/93
DISTRIBUTION RATE AND YIELD
Distribution Rate/3/ 5.24% 4.62% 4.62%
SEC Yield/4/ 4.89% 4.24% 4.25%
</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 December 31,
1997.
See the Prior Performance section of the current prospectus. Past performance
does not guarantee future results. Investment return and net asset value will
fluctuate with market conditions. Fund shares, when redeemed, may be worth more
or less than their original cost.
The value of debt securities will fluctuate with changes in market conditions
and interest rates, and the principal value and investment return of Fund shares
will vary. Securities which are issued by private issuers may involve greater
risk than those issued directly by the U.S. Government, its agencies, or its
instrumentalities.
Market forecasts provided in this report may not necessarily come to pass.
3
<PAGE>
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 intervals.
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:
(Yen) Illustrate the general market environment in which your investments
are being managed
(Yen) Reflect the impact of favorable market trends or difficult market
conditions
(Yen) 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 indices
do not reflect any commissions or fees which would be incurred by an investor
purchasing the securities they represent. 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, 1987 through December
31, 1997)
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
limited Lehman Merrill Lynch
<S> <C> <C> <C>
Dec 1997 $ 9,675 $ 10,000 $ 10,000
Dec 1998 $ 10,173 $ 10,399 $ 10,620
Dec 1989 $ 11,570 $ 11,323 $ 11,772
Dec 1990 $ 12,666 $ 12,173 $ 12,923
Dec 1991 $ 13,904 $ 13,767 $ 14,432
Dec 1992 $ 14,343 $ 14,825 $ 15,341
Dec 1993 $ 14,795 $ 15,300 $ 16,171
Dec 1994 $ 14,819 $ 15,513 $ 16,260
Dec 1995 $ 16,294 $ 17,028 $ 18,046
Dec 1996 $ 16,839 $ 17,933 $ 18,951
Dec 1997 $ 17,836 $ 19,077 $ 20,075
</TABLE>
Fund's Total Return
1 Year Avg. Annual = 2.46%
5 Year Avg. Annual = 3.77%
10 Year Avg. Annual = 5.96%
Inception Avg. Annual = 5.53%
VKAC Limited Maturity Government Fund
Lehman Bothers Mutual Fund 1 to 2 Years u.s. Government index
Merrill Lynch 1 to 3 year u.s. Treasury Index
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
information provides a broader vantage point from which to evaluate the
discussion 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.
4
<PAGE>
Glossary of Terms
BASIS POINT:
A measure used in quoting yields on bonds. One hundred basis points is
equal to one percent. For example, if a bond's yield changes from 7.00 to
6.65 percent, it would be 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 (FED):
A seven-member group that oversees the operations of the Federal Reserve
System, the central bank system of the United States. Currently led by
Chairman Alan Greenspan, the Fed meets eight times a year to establish
monetary policy and monitor the country's economic pulse.
INFLATION:
An economic state in which the amount of money supply and business activity
dramatically increases, accompanied by sharply rising prices. Inflation is
widely measured by the Consumer Price Index, a leading economic indicator
that measures the change in the cost of purchased goods and services.
MORTGAGE-BACKED SECURITIES:
Securities backed by pools of similar mortgages. Investors receive interest
payments and partial repayment of the principal passed through from the
underlying mortgages (agencies pass on what they receive from homeowners
paying off their 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:
A measure of a fund's net investment income per share, expressed as a
percentage of the maximum offering price of the fund's shares at the end of
the day.
YIELD CURVE:
A result of viewing the yields of U.S. Treasury securities maturing in 1,
5, 10, and 30 years, grouped together, which often reflects a pattern of
increasing yield as maturity extends. This pattern creates an upward
sloping "curve." A "flat" yield curve represents little differences between
short- and long-term interest rates.
5
<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 Fund's 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, 1997.
[Q] HOW WOULD YOU DESCRIBE THE MARKET IN WHICH THE FUND OPERATED DURING ITS
PAST FISCAL YEAR?
[A] Overall, economic conditions created a favorable environment for fixed-
income investments in 1997, although the first quarter provided a rocky
start. As the year opened, a wave of strong economic growth carried over from
late 1996 and caused interest rates to rise. In response to the strength of the
economy, the Federal Reserve Board increased the federal funds target rate by 25
basis points in late March. Market reaction to these early events culminated in
the two-year Treasury rising 34 basis points by mid-April. In the wake of the
robust economic performance in the first quarter and the Fed tightening,
investors subsequently turned their attention to a potential second-quarter
pause. This shift in sentiment proved accurate, as economic activity slowed and
interest rates began to fall.
The third quarter of 1997 was marked by several shocks from overseas
sectors, upsetting complacent market attitudes. The economic crisis in Asia
caused some currencies to depreciate and roiled stock markets abroad, creating
negative ripple effects in the United States. The ensuing "flight to quality"
provided further fuel to the rally, pushing Treasury interest rates lower.
Additionally, the Asian crisis supported the benign inflation environment.
Limiting the rally were fears of further action by the Fed to control a still-
robust domestic economy.
The calendar year ended with lingering questions about the length and
severity of Asia's crisis, and the potential impact on the U.S. economy. As
economic experts pondered whether domestic growth would slow to the point of
precluding further Fed intervention into early 1998, the yield on the two-year
Treasury ended the period near its lows for the year, at 5.65 percent.
Throughout the reporting period, domestic interest rates continued to
fluctuate in the relatively narrow range that emerged in 1996. As measured by
the two-year Treasury note, this range touched a low of 5.53 percent and a high
of 6.54 percent. This environment of reduced volatility proved to be quite
beneficial to the mortgage securities sector, because homeowner refinancing
risks remained benign.
[Q] HOW DID YOU POSITION THE FUND IN REACTION TO MARKET CONDITIONS?
[A] An overriding theme for our asset allocation decisions during the period
was the attractiveness of the mortgage sector in light of the reduced volatility
in the marketplace. We predominately overweighted the Fund's holdings in
mortgage-backed investments throughout the fiscal year. As of July, the
portfolio held as much as 76 percent of its assets in the mortgage sector. In
the face of increasingly narrow yield spreads, we feel that mortgages now
present a higher risk than Treasuries and that it is prudent to reduce our
exposure. Currently, the portfolio is approximately 48 percent invested in
mortgage-backed investments, reflecting a greater emphasis on Treasury
securities.
6
<PAGE>
Among our Treasury holdings, we sought to capitalize on a flattening yield
curve by overweighting longer-term Treasuries within the portfolio. We shifted
holdings from two-year Treasuries to five-year Treasury securities during the
second and third quarters. We have recently moved toward a more neutral position
as we question how much further the yield curve can flatten.
Over the course of the fiscal year, we adjusted the Fund's duration in
prudent increments, seeking to capitalize on the movement of interest rates.
These adjustments are instituted when we feel there is value to be captured;
however, our management objective of a consistent risk profile and a competitive
dividend stream is always paramount. The Fund's duration is currently 2.0 years,
which we feel provides an above-average level of exposure to changes in interest
rates but is still consistent with the profile that investors generally seek in
this type of fund. Please refer to page eight for additional Fund portfolio
highlights.
Q. HOW DID THE FUND PERFORM DURING THE REPORTING PERIOD?
A. For the 12-month period ended December 31, 1997, the Limited Maturity
Government Fund generated a total return of 5.92 percent/1/ (Class A shares
at net asset value). Additionally, the Fund's Class A shares provided
shareholders with a competitive distribution rate of 5.24 percent, based upon
the maximum offering price as of December 31, 1997, and a monthly dividend of
$0.055 per share. By comparison, the Lehman Brothers Mutual Fund 1- to 2-Year
U.S. Government Index posted a total return of 6.40 percent for the same period.
This broad-based, unmanaged index reflects the general performance of U.S.
government securities. Please keep in mind that it 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. We anticipate that the economy will remain strong for the first part of
1998, although the growth rate is likely to slow from current levels. The
financial crisis in Southeast Asia is expected to slow U.S. exports to the
region, which could trim the earnings of many U.S. companies and reduce overall
U.S. growth. As a result of these factors, we believe there is little chance
that the Fed will raise interest rates in the near term, although a rate hike
remains a possibility if inflation picks up or if growth continues at its brisk
pace. We will continue to monitor for changes on the horizon and adjust
accordingly.
Our expectations for the Fund include positive price performance. As yields
trickle downward, we believe mortgage-backed investments will have difficulty
maintaining their competitive edge. As a result, we are moving the Fund toward a
slightly longer duration and a neutral position in the mortgage-backed sector.
Within this sector, we will focus on securities that we believe will perform
well in a falling rate environment.
/s/ Peter W. Hegel /s/ Ted V. Mundy
- ------------------------- -------------------
Peter W. Hegel Ted V. Mundy
Chief Investment Officer Portfolio Manager
Fixed Income Investments
7
<PAGE>
Portfolio Highlights
Van Kampen American Capital Limited Maturity Government Fund
Coupon Distribution as of December 31, 1997
[BAR CHART APPEARS HERE]
<TABLE>
<CAPTION>
Percentage
Coupon of Long-Term
Rate Investment
<S> <C>
5-5.99 40.2%
6-6.99 34.0%
7-7.99 12.7%
8-8.99 3.7%
9-9.99 6.3%
10 or more 3.1%
</TABLE>
Portfolio Composition by Sector as a Percentage of Long-Term Investments
[PIE CHART APPEARS HERE]
As of December 31, 1997
Treasury Notes....................23%
CMOs..............................23%
ARMs.............................. 7%
Asset-Backed Securities...........19%
FNMA..............................11%
GNMA.............................. 3%
FHLMC.............................14%
[PIE CHART APPEARS HERE]
As of June 30, 1997
Treasury Notes....................10%
CMOs..............................29%
ARMs.............................. 8%
Asset-Backed Securities...........13%
FNMA..............................13%
GNMA..............................12%
FHLMC.............................15%
Duration
As of December 31, 1997 As of June 30, 1997
Duration 2.0 years 1.7 years
8
<PAGE>
Portfolio of Investments
December 31, 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ADJUSTABLE RATE MORTGAGE-BACKED
SECURITIES 6.6%
$ 184 Federal Home Loan Mortgage Corp. Pools.. 8.925% 02/01/18 $ 185,593
1,176 Federal National Mortgage
Association Pools....................... 7.556 03/01/19 1,223,216
2,430 Federal National Mortgage
Association Pools....................... 7.663 09/01/19 2,528,314
-------------
TOTAL ADJUSTABLE RATE MORTGAGE-BACKED SECURITIES............. 3,937,123
-------------
ASSET BACKED SECURITIES 18.4%
4,000 Deutsche Floorplan Master Trust (a)..... 5.888 02/15/01 4,005,640
3,000 First USA Credit Card Master Trust...... 5.920 04/15/03 3,002,340
4,000 PacificAmerica Home Equity Loan......... 6.221 12/25/27 4,000,000
-------------
TOTAL ASSET BACKED SECURITIES 11,007,980
-------------
COLLATERALIZED MORTGAGE
OBLIGATIONS 31.1%
2,635 Federal Home Loan Mortgage Corp.
(Floater)............................... 6.150 04/15/99 2,640,279
2,262 Federal Home Loan Mortgage Corp.
(Floater) (a)........................... 6.625 04/15/20 2,271,111
5,000 Federal Home Loan Mortgage Corp. (PAC).. 6.250 07/15/18 5,020,300
5,580 Federal National Mortgage Association
(Floater) (a)........................... 6.419 06/25/18 to 02/25/21 5,618,350
2,958 Saxon Mortgage Securities Corp.......... 5.680 11/25/23 2,839,498
221 Sears Mortgage Securities (Floater)..... 6.670 05/25/21 221,047
-------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS.................... 18,610,585
-------------
U.S. GOVERNMENT AGENCY
OBLIGATIONS 18.5%
1,167 Federal Home Loan Mortgage Corp.
15 Year Pools........................... 9.500 12/01/01 1,207,745
1,632 Federal Home Loan Mortgage Corp.
30 Year Pools........................... 9.250 12/01/15 1,725,488
3,582 Federal National Mortgage Association
15 Year Pools........................... 7.000 10/01/09 3,634,455
1,773 Federal National Mortgage Association
30 Year Pools........................... 8.500 05/01/21 to 04/01/25 1,851,129
</TABLE>
See Notes to Financial Statements
9
<PAGE>
Portfolio of Investments (Continued)
December 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY
OBLIGATIONS (CONTINUED)
$ 443 Federal National Mortgage Association
30 Year Pools............................. 9.500% 07/01/11 to 08/01/21 $ 473,753
644 Federal National Mortgage Association
30 Year Pools............................. 10.000 05/01/21 698,927
105 Government National Mortgage Association
30 Year Pools............................. 8.500 06/15/16 to 01/15/17 110,738
255 Government National Mortgage Association
30 Year Pools............................. 9.500 03/15/16 to 01/15/19 275,619
531 Government National Mortgage Association
30 Year Pools............................. 10.000 03/15/16 to 04/15/19 578,866
266 Government National Mortgage Association
30 Year Pools............................. 10.500 05/15/13 to 02/15/18 292,326
199 Government National Mortgage Association
30 Year Pools............................. 11.000 11/15/18 220,802
------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS............................. 11,069,848
------------
U.S. GOVERNMENT OBLIGATIONS 22.6%
13,500 United States Treasury Notes (a).......... 5.625 10/31/99 13,487,310
------------
TOTAL LONG-TERM INVESTMENTS 97.2%
(Cost $57,687,904)............................................................ 58,112,846
Repurchase Agreement 2.6%
BA Securities ($1,530,000 par, collateralized by U.S. Government obligations in
a pooled cash account, dated 12/31/97, to be sold on 01/02/98 at $1,530,553)
(Cost $1,530,000)............................................................. 1,530,000
------------
TOTAL INVESTMENTS 99.8%
(Cost $59,217,904)............................................................ 59,642,846
OTHER ASSETS IN EXCESS OF LIABILITIES 0.2%........................................ 117,192
------------
NET ASSETS 100.0%................................................................. $59,760,038
============
</TABLE>
PAC-Planned Amortization Classes
(a) Assets segregated as collateral for open forward commitments and open
futures transactions.
See Notes to Financial Statements
10
<PAGE>
Statement of Assets and Liabilities
December 31, 1997
<TABLE>
- --------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Total Investments (Cost $59,217,904)........................................... $59,642,846
Receivables:
Interest.................................................................. 370,836
Investments Sold.......................................................... 75,991
Fund Shares Sold.......................................................... 25,919
Variation Margin on Futures............................................... 2,344
Forward Commitments............................................................ 30,349
Other.......................................................................... 45,970
------------
Total Assets............................................................ 60,194,255
------------
LIABILITIES:
Payables:
Income Distributions...................................................... 109,396
Fund Shares Repurchased................................................... 68,719
Distributor and Affiliates................................................ 53,140
Investment Advisory Fee................................................... 26,648
Custodian Bank............................................................ 414
Trustees' Deferred Compensation and Retirement Plans........................... 120,080
Accrued Expenses............................................................... 55,820
------------
Total Liabilities....................................................... 434,217
------------
NET ASSETS..................................................................... $59,760,038
============
NET ASSETS CONSIST OF:
Capital........................................................................ $68,555,438
Net Unrealized Appreciation.................................................... 453,759
Accumulated Undistributed Net Investment Income................................ 20,201
Accumulated Net Realized Loss.................................................. (9,269,360)
------------
NET ASSETS..................................................................... $59,760,038
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on net assets
of $39,371,220 and 3,229,486 shares of beneficial interest issued
and outstanding)........................................................ $ 12.19
Maximum sales charge (3.25%* of offering price)......................... .41
------------
Maximum offering price to public........................................ $ 12.60
============
Class B Shares:
Net asset value and offering price per share (Based on net assets
of $16,170,313 and 1,323,283 shares of beneficial interest issued
and outstanding)........................................................ $ 12.22
============
Class C Shares:
Net asset value and offering price per share (Based on net assets
of $4,218,505 and 345,604 shares of beneficial interest issued
and outstanding)........................................................ $ 12.21
============
</TABLE>
*On sales of $25,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
11
<PAGE>
Statement of Operations
For the Year Ended December 31, 1997
<TABLE>
- ---------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest......................................................................... $4,173,792
Fee Income....................................................................... 81,585
----------
Total Income................................................................ 4,255,377
----------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to Classes A, B and C of
$88,681, $188,589 and $40,995, respectively).................................. 318,265
Investment Advisory Fee.......................................................... 303,812
Shareholder Services............................................................. 131,693
Shareholder Reports.............................................................. 62,235
Registration and Filing Fees..................................................... 53,617
Accounting....................................................................... 30,075
Custody.......................................................................... 15,767
Trustees' Fees and Expenses...................................................... 11,637
Legal............................................................................ 4,314
Other............................................................................ 52,285
----------
Total Expenses.............................................................. 983,700
----------
NET INVESTMENT INCOME............................................................ $3,271,677
==========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments................................................................. $ (108,549)
Futures..................................................................... (22,334)
Forwards.................................................................... (16,769)
----------
Net Realized Loss................................................................ (147,652)
----------
Unrealized Appreciation/Depreciation:
Beginning of the Period..................................................... 269,239
----------
End of the Period:
Investments................................................................. 424,942
Futures..................................................................... (1,532)
Forwards.................................................................... 30,349
----------
453,759
----------
Net Unrealized Appreciation During the Period.................................... 184,520
----------
NET REALIZED AND UNREALIZED GAIN................................................. $ 36,868
==========
NET INCREASE IN NET ASSETS FROM OPERATIONS....................................... $3,308,545
==========
</TABLE>
See Notes to Financial Statements
12
<PAGE>
Statement of Changes in Net Assets
For the Years Ended December 31, 1997 and 1996
================================================================================
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1997 December 31, 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income........................................... $ 3,271,677 $ 3,456,385
Net Realized Loss............................................... (147,652) (446,862)
Net Unrealized Appreciation/Depreciation During the Period...... 184,520 (1,044,370)
---------- ----------
Change in Net Assets from Operations............................ 3,308,545 1,965,153
---------- ----------
Distributions from Net Investment Income:
Class A Shares............................................. (2,049,150) (2,116,087)
Class B Shares............................................. (875,834) (1,217,044)
Class C Shares............................................. (190,636) (233,369)
---------- ----------
Total Distributions............................................. (3,115,620) (3,566,500)
---------- ----------
NET CHANGE IN NET ASSETS FROM
INVESTMENT ACTIVITIES......................................... 192,925 (1,601,347)
---------- ----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold....................................... 40,769,266 25,986,720
Net Asset Value of Shares Issued Through
Dividend Reinvestment........................................... 1,972,876 2,395,460
Cost of Shares Repurchased...................................... (50,576,668) (41,319,105)
---------- ----------
NET CHANGE IN NET ASSETS FROM
CAPITAL TRANSACTIONS.......................................... (7,834,526) (12,936,925)
---------- ----------
TOTAL DECREASE IN NET ASSETS.................................... (7,641,601) (14,538,272)
NET ASSETS:
Beginning of the Period......................................... 67,401,639 81,939,911
---------- ----------
End of the Period (Including accumulated undistributed
net investment income of $20,201 and
$(47,240), respectively)...................................... $ 59,760,038 $ 67,401,639
========== ==========
</TABLE>
See Notes to Financial Statements
13
<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 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period................. $12.151 $ 12.41 $ 11.90 $ 12.42 $ 12.63
------- ------- ------- ------- -------
Net Investment Income............................... .685 .627 .67 .50 .54
Net Realized and Unrealized Gain/Loss............... .015 (.226) .4888 (.4817) (.1485)
------- ------- ------- ------- -------
Total from Investment Operations......................... .700 .401 1.1588 .0183 .3915
Less Distributions from Net Investment Income............ .660 .660 .6488 .5383 .6015
------- ------- ------- ------- -------
Net Asset Value, End of the Period....................... $12.191 $12.151 $ 12.41 $ 11.90 $ 12.42
======= ======= ======= ======= =======
Total Return* (a)........................................ 5.92% 3.34% 9.96% .16% 3.15%(b)
Net Assets at End of the Period (In millions)............ $ 39.4 $ 40.2 $ 45.4 $ 41.2 $ 64.3
Ratio of Expenses to Average Net Assets*................. 1.32% 1.45% 1.45% 1.15% 1.03%
Ratio of Net Investment Income to Average
Net Assets*......................................... 5.68% 5.23% 5.47% 4.75% 5.49%
Portfolio Turnover....................................... 175% 260% 187% 161% 102%
*If certain expenses had not been reimbursed by VKAC,
Total Return would have been lower and the ratios would
have been as follows:
Ratio of Expenses to Average Net Assets.................. N/A 1.47% 1.50% 1.31% 1.15%
Ratio of Net Investment Income to Average
Net Assets.......................................... N/A 5.21% 5.42% 4.58% 5.37%
</TABLE>
(a) Total Return is based upon net asset value which does not include payment
of the maximum sales charge or contingent deferred sales charge.
(b) During 1993, the Adviser reimbursed the Fund for a loss realized on the
sale of certain securities. Without the reimbursement, the Total Return for
1993 would have been lower by approximately 6.25 percentage points.
N/A = Not Applicable
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.
================================================================================
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
Class B Shares 1997(a) 1996(a) 1995(a) 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.................. $12.174 $ 12.43 $ 11.91 $ 12.43 $ 12.64
------- ------- ------- ------- -------
Net Investment Income................................ .598 .550 .57 .42 .48
Net Realized and Unrealized Gain/Loss................ .012 (.242) .5028 (.4977) (.1845)
------- ------- ------- ------- -------
Total from Investment Operations.......................... .610 .308 1.0728 (.0777) .2955
Less Distributions from Net Investment Income............. .564 .564 .5528 .4423 .5055
------- ------- ------- ------- -------
Net Asset Value, End of the Period........................ $12.220 $12.174 $ 12.43 $ 11.91 $ 12.43
======= ======= ======= ======= =======
Total Return* (b)......................................... 5.08% 2.69% 9.09% (.62%) 2.37%(c)
Net Assets at End of the Period (In millions)............. $ 16.2 $ 22.5 $ 30.3 $ 18.4 $ 26.9
Ratio of Expenses to Average Net Assets*.................. 2.11% 2.19% 2.24% 1.91% 1.79%
Ratio of Net Investment Income to Average
Net Assets*.......................................... 4.92% 4.50% 4.63% 3.99% 4.70%
Portfolio Turnover........................................ 175% 260% 187% 161% 102%
*If certain expenses had not been reimbursed by VKAC,
Total Return would have been lower and the ratios would
have been as follows:
Ratio of Expenses to Average Net Assets................... N/A 2.22% 2.29% 2.08% 1.91%
Ratio of Net Investment Income to Average
Net Assets........................................... N/A 4.47% 4.59% 3.82% 4.58%
</TABLE>
(a) Based on average month-end shares outstanding.
(b) Total Return is based upon net asset value which does not include payment
of the maximum sales charge or contingent deferred sales charge.
(c) During 1993, the Adviser reimbursed the Fund for a loss realized on the
sale of certain securities. Without the reimbursement, the Total Return for
1993 would have been lower by approximately 6.25 percentage points.
N/A = Not Applicable
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>
May 10, 1993
(Commencement
Year Ended December 31, of Distribution) to
--------------------------------------------
Class C Shares 1997 1996 1995(a) 1994 December 31, 1993 (a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period.................. $12.162 $ 12.42 $ 11.90 $ 12.41 $ 12.60
------- ------- ------- ------- -------
Net Investment Income................................ .597 .554 .57 .45 .32
Net Realized and Unrealized Gain/Loss................ .011 (.248) .5028 (.5177) (.1914)
------- ------- ------- ------- -------
Total from Investment Operations.......................... .608 .306 1.0728 (.0677) .1286
Less Distributions from Net
Investment Income......................................... .564 .564 .5528 .4423 .3186
------- ------- ------- ------- -------
Net Asset Value, End of the Period........................ $12.206 $12.162 $ 12.42 $ 11.90 $ 12.41
======= ======= ======= ======= =======
Total Return* (b)......................................... 5.17% 2.62% 9.10% (.55%) 1.03%**(c)
Net Assets at End of the Period
(In millions)..................................... $ 4.2 $ 4.7 $ 6.2 $ 5.8 $ 7.1
Ratio of Expenses to Average
Net Assets*....................................... 2.10% 2.20% 2.23% 1.90% 1.47%
Ratio of Net Investment Income to
Average Net Assets*............................... 4.92% 4.48% 4.71% 3.98% 3.79%
Portfolio Turnover........................................ 175% 260% 187% 161% 102%
*If certain expenses had not been reimbursed by VKAC,
Total Return would have been lower and the ratios would
have been as follows:
Ratio of Expenses to Average
Net Assets........................................ N/A 2.22% 2.27% 2.07% 1.64%
Ratio of Net Investment Income to
Average Net Assets................................ N/A 4.45% 4.67% 3.81% 3.62%
</TABLE>
**Non-Annualized
(a) Based on average month-end shares outstanding.
(b) Total Return is based upon net asset value which does not include payment
of the maximum sales charge or contingent deferred sales charge.
(c) During 1993, the Adviser reimbursed the Fund for a loss realized on the
sale of certain securities. Without the reimbursement, the Total Return for
1993 would have been lower by approximately 6.25 percentage points.
N/A = Not Applicable
See Notes to Financial Statements
16
<PAGE>
Notes to Financial Statements
December 31, 1997
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen American Capital Limited Maturity Government Fund (the "Fund") is
organized as a Delaware business trust, and is registered as a diversified open-
end management investment company under the Investment Company Act of 1940, as
amended. The Fund's investment objective is to seek to provide a high current
return and relative safety of capital by primarily investing in mortgage-related
securities issued or guaranteed by an agency or instrumentality of the U.S.
Government. The Fund commenced investment operations on June 16, 1986. The
distribution of the Fund's Class B and Class C shares commenced on November 5,
1991 and May 10, 1993, respectively.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION--Investments are stated at value using market
quotations. For those securities where quotations or prices are not available,
valuations are determined in accordance with procedures established in good
faith by the Board of Trustees. Short-term securities with remaining maturities
of 60 days or less are valued at amortized cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen American Capital Asset Management, Inc. (the
"Adviser") or its affiliates, the daily aggregate of which is invested in
repurchase agreements. Repurchase agreements are fully collateralized by the
underlying debt security. The Fund will make payment for such securities only
upon physical delivery or evidence of book entry transfer to the account of the
custodian bank. The seller is required to maintain the value of the underlying
security at not less than the repurchase proceeds due the Fund.
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
17
<PAGE>
Notes to Financial Statements (Continued)
December 31, 1997
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 December 31, 1997, for federal income tax purposes, cost of long- and
short-term investments is $59,221,600; the aggregate gross unrealized
appreciation is $463,590 and the aggregate gross unrealized depreciation is
$42,344, resulting in unrealized appreciation of $421,246.
E. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed annually. Due to inherent differences in the recognition of income,
expenses and realized gains/losses under generally accepted accounting
principles and for federal income tax purposes, permanent book and tax
differences relating to the recognition of losses on paydowns of mortgage pool
obligations totaling $88,616 were reclassified from accumulated net realized
loss to accumulated undistributed net investment income. Additionally, $235,912
of the capital loss carryforward for tax purposes expired during 1997 and was
reclassified from accumulated net realized loss to capital.
18
<PAGE>
Notes to Financial Statements (Continued)
December 31, 1997
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee, payable
monthly as follows:
<TABLE>
<CAPTION>
% PER
AVERAGE DAILY NET ASSETS ANNUM
- ---------------------------------------------------------------------------
<S> <C>
First $1 billion.............................................. .500 of 1%
Next $1 billion............................................... .475 of 1%
Next $1 billion............................................... .450 of 1%
Next $1 billion............................................... .400 of 1%
Over $4 billion............................................... .350 of 1%
</TABLE>
For the year ended December 31, 1997, the Fund recognized expenses of
approximately $3,600 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 year ended December 31, 1997, the Fund recognized expenses of
approximately $30,100 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
December 31, 1997, the Fund recognized expenses of approximately $84,500,
representing ACCESS' cost of providing transfer agency and shareholder services
plus a profit.
Certain officers and trustees of the Fund are also officers and directors
of VKAC. The Fund does not compensate its officers or trustees who are officers
of VKAC.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of VKAC. Under the deferred compensation plan,
trustees may elect to defer all or a portion of their compensation to a later
date. Benefits under the retirement plan are payable for a ten-year period and
are based upon each trustee's years of service to the Fund. The maximum annual
benefit per trustee under the plan is $2,500.
At December 31, 1997, VKAC owned 23,235 Class A shares of the Fund.
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.
19
<PAGE>
Notes to Financial Statements (Continued)
December 31, 1997
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>
20
<PAGE>
Notes to Financial Statements (Continued)
December 31, 1997
- --------------------------------------------------------------------------------
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>
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.
<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>
21
<PAGE>
Notes to Financial Statements (Continued)
December 31, 1997
- --------------------------------------------------------------------------------
For the year ended December 31, 1997, VKAC, as Distributor for the Fund,
received net commissions on sales of the Fund's Class A shares of approximately
$4,900 and CDSC on redeemed shares of approximately $20,400. 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 $102,473,124 and $124,056,731,
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 risk of loss associated with a
futures contract is in excess of the variation margin reflected on the Statement
of Assets and Liabilities.
22
<PAGE>
Notes to Financial Statements (Continued)
December 31, 1997
- --------------------------------------------------------------------------------
Transactions in futures contracts for the year ended December 31, 1997,
were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- ----------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1996................... 8
Futures Opened..................................... 1,189
Futures Closed..................................... (1,187)
---------
Outstanding at December 31, 1997................... 10
=========
</TABLE>
The futures contracts outstanding as of December 31, 1997, and the
description and unrealized depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS DEPRECIATION
- ----------------------------------------------------------------------------------
<S> <C> <C>
Long Contracts--5 Year U.S. Treasury Note Futures
March 1998 (Current notional
value $108,625 per contract)....................... 10 $1,532
== =======
</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.
23
<PAGE>
Notes to Financial Statements (Continued)
December 31, 1997
- --------------------------------------------------------------------------------
The forward commitments outstanding as of December 31, 1997, for which
settlement is not intended, and the descriptions and unrealized
appreciation/depreciation are as follows:
<TABLE>
<CAPTION>
PAR UNREALIZED
AMOUNT CURRENT APPRECIATION/
(000) DESCRIPTION EXPIRATION VALUE DEPRECIATION
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG CONTRACTS:
$ 8,500 U.S. Treasury Note Jan Forward,
5.625% coupon, 11/30/99 maturity........... 01/16/98 $8,492,010 $ (2,345)
9,500 U.S. Treasury Note Jan Forward,
6.750% coupon, 04/30/00 maturity........... 01/16/98 9,713,655 4,265
3,500 FNMA Jan 7-year Balloon Forward,
6.500% coupon, 12/31/23 maturity........... 01/26/98 3,509,835 28,429
--------
$ 30,349
========
</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 MBSOs. 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 year ended December 31, 1997, are payments retained by VKAC of
approximately $182,000.
24
<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
material respects, the financial position of Van Kampen American Capital Limited
Maturity Government Fund (the "Fund") at December 31, 1997, 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
referred to as "financial statement") are the responsibility of the Fund's
management; 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
require 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
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1997 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Chicago, Illinois
February 6, 1998
25
<PAGE>
Funds Distributed by Van Kampen American Capital
EQUITY FUNDS
Domestic
MS Aggressive Equity
VKAC Aggressive Growth
MS American Value
VKAC Comstock
VKAC Emerging Growth
VKAC Enterprise
VKAC Equity Income
VKAC Growth
VKAC Growth and Income
VKAC Harbor
VKAC Pace
VKAC Real Estate Securities
MS U.S. Real Estate
VKAC Utility
MS Value
International /Global
MS Asian Growth
MS Emerging Markets
MS Global Equity
VKAC Global Equity
MS Global Equity Allocation
VKAC Global Managed Assets
MS International Magnum
MS Latin American
FIXED-INCOME FUNDS
Income
VKAC Corporate Bond
MS Global Fixed Income
VKAC Global Government Securities
VKAC Government Securities
VKAC High Income Corporate Bond
MS High Yield
VKAC High Yield
VKAC Short-Term Global Income
VKAC Strategic Income
VKAC U.S. Government
VKAC U.S. Government Trust for Income
MS Worldwide High Income
Tax Exempt Income
VKAC California Insured Tax Free
VKAC Florida Insured Tax Free Income
VKAC High Yield Municipal
VKAC Insured Tax Free Income
VKAC Intermediate Term
Municipal Income
VKAC Municipal Income
VKAC New York Tax Free Income
VKAC Pennsylvania Tax Free Income
VKAC Tax Free High Income
Capital Preservation
VKAC Limited Maturity Government
VKAC Prime Rate Income Trust
VKAC Reserve
VKAC Senior Floating Rate
VKAC 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 American Capital or Morgan Stanley fund prospectus
or to receive additional fund information, choose from one of the following:
. visit our web site at www.vkac.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.VKAC.COM and selecting Investors' Place
26
<PAGE>
Van Kampen American Capital Limited Maturity Government Fund
Board of Trustees
J. MILES BRANAGAN
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* -- CHAIRMAN
Officers
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
ALAN T. SACHTLEBEN*
PAUL R. WOLKENBERG*
Vice Presidents
Investment Adviser
VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Distributor
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Shareholder Servicing Agent
ACCESS INVESTOR SERVICES, INC.
P.O. Box 418256
Kansas City, Missouri 64141-9256
Custodian
STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
Legal Counsel
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
Independent Accountants
PRICE WATERHOUSE LLP
200 E. Randolph
Chicago, Illinois 60601
* "Interested" persons of the Fund, as defined in the Investment Company Act
of 1940.
(C) Van Kampen American Capital Distributors, Inc., 1998 All rights reserved.
SM denotes a service mark of Van Kampen American Capital Distributors, Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After June 30, 1998, the report, if used with prospective
investors, must be accompanied by a quarterly performance update.
27
<PAGE>
Van Kampen American Capital Distributors, 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> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 59,217,904<F1>
<INVESTMENTS-AT-VALUE> 59,642,846<F1>
<RECEIVABLES> 475,090<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 76,319<F1>
<TOTAL-ASSETS> 60,194,255<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 434,217<F1>
<TOTAL-LIABILITIES> 434,217<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 49,757,530
<SHARES-COMMON-STOCK> 3,229,486
<SHARES-COMMON-PRIOR> 3,310,283
<ACCUMULATED-NII-CURRENT> 20,201<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (9,269,360)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 453,759<F1>
<NET-ASSETS> 39,371,220
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 4,173,792<F1>
<OTHER-INCOME> 81,585<F1>
<EXPENSES-NET> (983,700)<F1>
<NET-INVESTMENT-INCOME> 3,271,677<F1>
<REALIZED-GAINS-CURRENT> (147,652)<F1>
<APPREC-INCREASE-CURRENT> 184,520<F1>
<NET-CHANGE-FROM-OPS> 3,308,545<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (2,049,150)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,697,413
<NUMBER-OF-SHARES-REDEEMED> (2,886,550)
<SHARES-REINVESTED> 108,340
<NET-CHANGE-IN-ASSETS> (852,499)
<ACCUMULATED-NII-PRIOR> (47,240)<F1>
<ACCUMULATED-GAINS-PRIOR> (9,446,236)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 303,812<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 983,700<F1>
<AVERAGE-NET-ASSETS> 37,731,242
<PER-SHARE-NAV-BEGIN> 12.151
<PER-SHARE-NII> 0.685
<PER-SHARE-GAIN-APPREC> 0.015
<PER-SHARE-DIVIDEND> (0.660)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 12.191
<EXPENSE-RATIO> 1.32
<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> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 59,217,904<F1>
<INVESTMENTS-AT-VALUE> 59,642,846<F1>
<RECEIVABLES> 475,090<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 76,319<F1>
<TOTAL-ASSETS> 60,194,255<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 434,217<F1>
<TOTAL-LIABILITIES> 434,217<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14,987,776
<SHARES-COMMON-STOCK> 1,323,283
<SHARES-COMMON-PRIOR> 1,848,447
<ACCUMULATED-NII-CURRENT> 20,201<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (9,269,360)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 453,759<F1>
<NET-ASSETS> 16,170,313
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 4,173,792<F1>
<OTHER-INCOME> 81,585<F1>
<EXPENSES-NET> (983,700)<F1>
<NET-INVESTMENT-INCOME> 3,271,677<F1>
<REALIZED-GAINS-CURRENT> (147,652)<F1>
<APPREC-INCREASE-CURRENT> 184,520<F1>
<NET-CHANGE-FROM-OPS> 3,308,545<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (875,834)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 186,057
<NUMBER-OF-SHARES-REDEEMED> (752,883)
<SHARES-REINVESTED> 41,662
<NET-CHANGE-IN-ASSETS> (6,334,129)
<ACCUMULATED-NII-PRIOR> (47,240)<F1>
<ACCUMULATED-GAINS-PRIOR> (9,446,236)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 303,812<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 983,700<F1>
<AVERAGE-NET-ASSETS> 18,851,418
<PER-SHARE-NAV-BEGIN> 12.174
<PER-SHARE-NII> 0.598
<PER-SHARE-GAIN-APPREC> 0.012
<PER-SHARE-DIVIDEND> (0.564)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 12.220
<EXPENSE-RATIO> 2.11
<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> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 59,217,904<F1>
<INVESTMENTS-AT-VALUE> 59,642,846<F1>
<RECEIVABLES> 475,090<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 76,319<F1>
<TOTAL-ASSETS> 60,194,255<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 434,217<F1>
<TOTAL-LIABILITIES> 434,217<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,810,132
<SHARES-COMMON-STOCK> 345,604
<SHARES-COMMON-PRIOR> 384,275
<ACCUMULATED-NII-CURRENT> 20,201<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (9,269,360)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 453,759<F1>
<NET-ASSETS> 4,218,505
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 4,173,792<F1>
<OTHER-INCOME> 81,585<F1>
<EXPENSES-NET> (983,700)<F1>
<NET-INVESTMENT-INCOME> 3,271,677<F1>
<REALIZED-GAINS-CURRENT> (147,652)<F1>
<APPREC-INCREASE-CURRENT> 184,520<F1>
<NET-CHANGE-FROM-OPS> 3,308,545<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (190,636)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 475,531
<NUMBER-OF-SHARES-REDEEMED> (526,585)
<SHARES-REINVESTED> 12,383
<NET-CHANGE-IN-ASSETS> (454,973)
<ACCUMULATED-NII-PRIOR> (47,240)<F1>
<ACCUMULATED-GAINS-PRIOR> (9,446,236)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 303,812<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 983,700<F1>
<AVERAGE-NET-ASSETS> 4,102,327
<PER-SHARE-NAV-BEGIN> 12.162
<PER-SHARE-NII> 0.597
<PER-SHARE-GAIN-APPREC> 0.011
<PER-SHARE-DIVIDEND> (0.564)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 12.206
<EXPENSE-RATIO> 2.10
<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>
