<PAGE> 1
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............................. 9
Portfolio of Investments......................... 10
Statement of Assets and Liabilities.............. 12
Statement of Operations.......................... 13
Statement of Changes in Net Assets............... 14
Financial Highlights............................. 15
Notes to Financial Statements.................... 18
Report of Independent Accountants................ 26
</TABLE>
LTMG ANR 2/99
<PAGE> 2
LETTER TO SHAREHOLDERS
January 20, 1999
Dear Shareholder,
The past decade has been a remarkable time for investors. Together, we've
witnessed one of the greatest bull markets in investment history, unprecedented
growth in mutual fund investing, and a surge in personal retirement planning.
The coming millennium promises to hold even more opportunities.
To lead us into this new era of investing, Richard F. Powers III has joined
Van Kampen as Chairman and Chief Executive Officer. He comes to us from our
parent company, Morgan Stanley Dean Witter & Co., where he served as Executive
Vice President and Director of Marketing. He brings 27 years of experience in
the financial services industry, including an extensive background in product
management, strategic planning and brand development.
Although former Chairman Don G. Powell retired on January 1, he will remain
active in the industry and the community. Mr. Powell plans to continue his
service as a member of the board of directors of the Investment Company
Institute, the leading mutual fund industry association, and he will remain a
trustee of your fund.
ECONOMIC OVERVIEW
Despite a stormy year in the global economy, the United States ended 1998
with only a moderate slowdown in growth. The nation's gross domestic product, a
measure of economic health, grew 3.9 percent during the year, matching 1997's
growth rate and indicating that our nation's economy remains strong. A
continuation of low inflation--only a 1.6 percent increase in the consumer price
index over the last 12 months--also helped sustain the domestic economy and kept
inflation-adjusted interest rates attractive.
Although the year ended on a positive note, the economic environment was
quite unsettled in the third quarter, with the Asian financial crisis
contributing to slowing corporate profits in the United States. Given the
uncertainty surrounding emerging market nations and the near-collapse of a major
U.S. hedge fund, the stock and bond markets experienced significant volatility
during this period. With instability as a backdrop, American and foreign
investors alike pursued a flight to quality--seeking the relative safety of
large-company stocks and government bonds.
In the last few months of the year the global financial situation improved
in conjunction with the Federal Reserve's interest rate decreases. In response
to declining corporate profits and mounting international concerns, the Fed
lowered interest rates three times, with 0.25 percent cuts in September,
October, and November. These rate cuts, coupled with a wave of corporate mergers
and cost-cutting measures, lent the support needed to keep the economy growing.
Dozens of foreign central banks also reduced interest rates in an effort to
stimulate their economies. These actions gave a boost to investor confidence and
encouraged a return to a more diversified range of investments in the last few
months of the year.
Continued on page 2
1
<PAGE> 3
MARKET REVIEW
The bond market continued to rally as interest rates fell during the year,
with U.S. Treasury securities outpacing corporate and municipal bonds in price
appreciation. Investors' desire for safer investments amid the global economic
storm led to strong demand for high-quality bonds. In fact, the U.S. Treasury
bond was considered one of the most attractive places to invest by both domestic
and international investors, propelling the 30-year Treasury yield to 4.71
percent in October--its lowest yield since the federal government began selling
these bonds in 1977. However, higher-yielding bonds suffered--primarily during
the third quarter--as investors' demand for quality increased. Corporate bond
prices, especially among lower-rated issues, fell in conjunction with concerns
about declining corporate profits.
OUTLOOK
Our outlook for the domestic economy is positive, and we anticipate
continued low inflation and healthy economic growth. However, the aftereffects
of the global economic slowdown may continue to put pressure on corporate
earnings in the first half of the year. Internationally, we anticipate that low
interest rates and declining inflation will lead to improvements in troubled
areas such as Asia and Latin America. With the successful launch of the euro,
the new European transnational currency, we believe that many foreign markets
will become increasingly attractive in 1999.
In the long term, we are optimistic that the stock market will continue its
record growth, although we could experience additional volatility in the months
ahead if concerns about high stock valuations and increasing earnings pressure
become more pronounced. Combined with growing questions about corporate and
government reactions to the Year 2000 computer problem, we could see an
increasingly cautious market by mid-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 share with you the progress of your
investment.
Sincerely,
[SIG]
Richard F. Powers III
Chairman
Van Kampen Asset Management Inc.
[SIG]
Dennis J. McDonnell
President
Van Kampen Asset Management Inc.
2
<PAGE> 4
PERFORMANCE RESULTS FOR THE PERIOD ENDED DECEMBER 31, 1998
VAN KAMPEN 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)...... 5.40% 4.65% 4.57%
One-year total return(2)................... 1.97% 1.65% 3.57%
Five-year average annual total return(2)... 4.21% 4.13% 4.13%
Ten-year average annual total return(2).... 5.98% N/A N/A
Life-of-Fund average annual total
return(2)................................ 5.52% 3.72% 3.84%
Commencement date.......................... 06/16/86 11/05/91 05/10/93
DISTRIBUTION RATE AND YIELD
Distribution rate(3)....................... 5.25% 4.62% 4.63%
SEC Yield(4)............................... 4.42% 3.75% 3.75%
</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, 1998.
See the Prior Performance section of the current prospectus. Past performance
does not guarantee future results. U.S. Government securities are backed by the
full faith and credit of the U.S. Government, its agencies or instrumentalities.
The government backing applies only to the timely payment of principal and
interest when due, on specific securities in the Fund's portfolio, not to shares
of the Fund. 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, which will effect the value of Fund
shares. Securities which are issued by private issuers involve greater risk than
those issued directly by the U.S. Government.
Market forecasts provided in this report may not necessarily come to pass.
3
<PAGE> 5
PUTTING YOUR FUND'S PERFORMANCE IN PERSPECTIVE
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment performance at regular intervals. A
comparison of your Fund's performance to an applicable benchmark can:
- Illustrate the market environment in which your Fund is being managed.
- Reflect the impact of favorable market trends or difficult market
conditions.
- Help you evaluate how your Fund's management team has responded to
opportunities and challenges.
The following graph 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. These indices are broad-based,
statistical composites that do not include any commissions or sales charges that
would be paid by an investor purchasing the securities they represent.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen Limited Maturity Government Fund vs. 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 (December 31, 1988 through December 31, 1998)
[INVESTMENT PERFORMANCE GRAPH]
- ------------------------------
Fund's Total Return
1 Year Avg. Annual = 1.97%
5 Year Avg. Annual = 4.21%
10 Year Avg. Annual = 5.98%
- ------------------------------
<TABLE>
<CAPTION>
LEHMAN BROTHERS MUTUAL
VAN KAMPEN LIMITED FUND 1- TO 2-YEAR U.S. MERRILL LYNCH 1- TO 3-YEAR
MATURITY GOVERNMENT FUND GOVERNMENT INDEX U.S. TREASURY INDEX
------------------------ ---------------------- --------------------------
<S> <C> <C> <C>
Dec 1988 9672.00 10000.00 10000.00
9797.00 10076.00 10081.00
9726.00 10087.10 10081.00
9750.00 10134.50 10127.00
9894.00 10286.50 10286.00
10175.00 10419.20 10435.00
10504.00 10590.10 10630.00
10706.00 10730.90 10788.00
10505.00 10691.20 10721.00
10577.00 10757.50 10782.00
10833.00 10907.00 10948.00
10948.00 11001.90 11046.00
Dec 1989 11000.00 11047.00 11064.00
10843.00 11078.00 11099.00
10909.00 11140.00 11151.00
10915.00 11182.30 11186.00
10833.00 11222.60 11210.00
11120.00 11377.50 11382.00
11250.00 11486.70 11499.00
11444.00 11615.30 11645.00
11369.00 11667.60 11680.00
11456.00 11754.00 11771.00
11591.00 11876.20 11905.00
11836.00 11978.30 12022.00
Dec 1990 12042.00 12110.10 12168.00
12226.00 12221.50 12280.00
12308.00 12303.40 12353.00
12381.00 12389.50 12427.00
12521.00 12502.20 12554.00
12590.00 12573.50 12629.00
12638.00 12630.10 12675.00
12753.00 12729.90 12791.00
12817.00 12882.60 12964.00
12931.00 13001.10 13107.00
13056.00 13131.20 13248.00
13148.00 13257.20 13383.00
Dec 1991 13219.00 13430.90 13589.00
13164.00 13434.90 13569.00
13238.00 13475.20 13613.00
13269.00 13492.80 13611.00
13390.00 13611.50 13735.00
13428.00 13717.60 13855.00
13493.00 13834.20 14002.00
13493.00 13974.00 14159.00
13546.00 14070.40 14283.00
13523.00 14187.20 14419.00
13529.00 14126.20 14330.00
13568.00 14117.70 14310.00
Dec 1992 13636.00 14240.50 14445.00
13725.00 14365.80 14590.00
13771.00 14457.80 14715.00
13796.00 14499.70 14765.00
13831.00 14579.50 14856.00
13889.00 14553.20 14814.00
13925.00 14643.50 14924.00
13972.00 14678.60 14958.00
13984.00 14776.90 15089.00
14006.00 14824.20 15138.00
14035.00 14856.80 15162.00
14017.00 14874.70 15171.00
Dec 1993 14066.00 14929.70 15227.00
14149.00 15016.30 15325.00
14073.00 14954.70 15227.00
13973.00 14917.30 15151.00
13941.00 14880.00 15095.00
13944.00 14906.80 15119.00
13971.00 14948.60 15164.00
14070.00 15068.20 15289.00
14075.00 15119.40 15348.00
14058.00 15107.30 15313.00
14089.00 15149.60 15347.00
14065.00 15101.10 15279.00
Dec 1994 14089.00 15137.40 15311.00
14243.00 15322.00 15527.00
14446.00 15504.40 15740.00
14509.00 15592.70 15826.00
14611.00 15719.00 15963.00
14858.00 15937.50 16248.00
14924.00 16022.00 16335.00
14930.00 16097.30 16403.00
15022.00 16185.90 16501.00
15114.00 16258.70 16578.00
15219.00 16379.00 16721.00
15361.00 16500.20 16869.00
Dec 1995 15491.00 16615.70 16992.00
15598.00 16747.00 17143.00
15491.00 16710.10 17070.00
15472.00 16720.20 17049.00
15453.00 16751.90 17069.00
15447.00 16802.20 17104.00
15542.00 16914.80 17221.00
15600.00 16982.40 17295.00
15632.00 17052.00 17351.00
15768.00 17188.50 17512.00
15931.00 17360.30 17709.00
16029.00 17471.40 17841.00
Dec 1996 16009.00 17499.40 17844.00
16068.00 17561.60 17928.00
16101.00 17632.60 17969.00
16081.00 17764.90 17962.00
16208.00 17883.90 18109.00
16296.00 17691.00 18230.00
16424.00 18003.80 18358.00
16579.00 18167.60 18560.00
16586.00 18203.90 18571.00
16716.00 18327.70 18718.00
16833.00 18448.70 18857.00
16867.00 18498.50 18903.00
Dec 1997 16957.00 18615.00 19032.00
17117.00 18773.30 19217.00
17110.00 18803.30 19233.00
17159.00 18880.40 19312.00
17208.00 18969.10 19402.00
17315.00 19065.90 19506.00
17379.00 19161.20 19607.00
17443.00 19251.30 19699.00
17637.00 19449.50 19946.00
17875.00 19671.30 20211.00
17882.00 19773.60 20310.00
17831.00 19767.60 20292.00
Dec 1998 17872.00 19842.80 20363.00
</TABLE>
The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of other share classes of
the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions, and includes payment of the maximum
sales charge (3.25% for A shares).
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.
4
<PAGE> 6
GLOSSARY OF TERMS
COUPON RATE: The stated rate of interest the bond pays on an annual basis,
expressed as a percentage of the face value.
DURATION: A measure of the sensitivity of a bond's price to changes in interest
rates, expressed in years. Each year of duration represents an expected 1
percent change in the price of a bond for every 1 percent change in interest
rates. The longer a bond's duration, the greater the effect of interest rate
movements on net asset value. Typically, funds with shorter durations
perform better in rising rate environments, while funds with longer
durations perform better when rates decline.
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 United States.
INFLATION: A persistent and measurable rise in the general level of 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.
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").
YIELD: The annual rate of return on an investment, 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 difference between short- and long-term interest rates.
YIELD SPREAD: The additional yield investors can earn by either investing in
bonds with longer maturities or by investing in bonds with lower ratings.
The spread is the difference in yield between bonds with short versus long
maturities or the difference in yield between high-quality bonds and
lower-quality bonds.
5
<PAGE> 7
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 12 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 December 31, 1998.
Q HOW WOULD YOU DESCRIBE THE MARKET IN WHICH THE FUND OPERATED DURING THE
REPORTING PERIOD?
A A lingering cloud of global volatility was the primary background for the
domestic fixed-income market. Economic weakness in Asia spilled into other
economies, including Russia and South America, during the third quarter.
This environment further fueled the flight to quality that emerged in the first
half of the year. As investors flocked to the relative safety of U.S. Treasury
securities, the yield for the benchmark 10-year Treasury dropped below the
trading range floor of 5.40 percent from the first half of the year.
The biggest boost for the bond market came late in the third quarter and
early in the fourth quarter, when the market was inspired by a string of
interest rate cuts by the Federal Reserve Board. By year end, the yield for the
10-year Treasury bond--which, like all bond yields, moves in the opposite
direction of its price--had fallen to 4.16 percent, near record lows.
The Treasury bond rally worked to the disadvantage of risk-sensitive
securities, including corporate bonds, high-yield securities, and
mortgage-backed securities. In contrast to the first half of 1998, investors
largely steered clear of this group despite the lure of higher yields. In
addition, the falling interest rate environment made mortgage-backed securities
especially vulnerable to rising prepayment rates. As investor skepticism about
mortgage-backed securities mounted, the yield spread between Treasury securities
and mortgage-backed securities widened dramatically.
Q BASED ON THESE FACTORS, HOW DID YOU MANAGE THE FUND?
A Despite the negative effects of prepayments, we found that the return
earned on mortgage-backed securities was attractive during the first five
months of the period when compared to U.S. Treasuries. As a result, we
maintained above-average exposure to higher-yielding sectors (approximately 65
percent mortgage- and asset-backed securities and 35 percent Treasuries). In the
early summer, concerns about tight spread levels induced us to increase Treasury
exposure. Near the middle of the third quarter, we shifted back toward
mortgage-backed securities because we felt the wider yield spreads would present
an opportunity to help boost the Fund's yield. When the large Treasury rally
began to unfold in late July in reaction to the global turmoil mentioned above,
we added to Treasury positions; unfortunately, we had already missed part of the
Treasury rally,
6
<PAGE> 8
which ended in early October. In the fourth quarter, however, we reduced
Treasury holdings as evidence of continued economic strength unfolded and yields
subsequently rose. At the end of the year, approximately 69 percent of the
Fund's net assets were allocated in mortgage- and asset-backed securities, with
the remainder invested in Treasuries and cash.
At the beginning of the year, 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 there was
little value to be found in the middle part of the curve.
The Fund's duration was held at higher levels throughout the summer months
as market turmoil increased. However, we reduced the duration to more neutral
levels in the fourth quarter. At the end of the period, the Fund's duration was
1.72 years, which compares favorably to the benchmark duration of 1.4 years.
Please refer to page 9 for additional Fund portfolio highlights.
Q HOW DID THE FUND PERFORM DURING THE REPORTING PERIOD?
A For the 12-month period ended December 31, 1998, the Limited Maturity
Government Fund generated a total return of 5.40 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,
based upon the maximum offering price as of December 31, 1998, and a monthly
dividend of $.055 per share. By comparison, the Lehman Brothers Mutual Fund One-
to Two-Year Government Index posted a total return of 6.59 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 3.
Q WHAT IS YOUR OUTLOOK FOR THE MONTHS AHEAD?
A We expect to see a resilient economy in the early part of 1999. Strong
employment growth and a large homeowner refinancing cycle should be
supportive of consumer activity. Later in the year, the U.S. economy may
slow as a combination of factors start to weigh in. Difficulties in many foreign
economies, a slowdown in consumer spending, dwindling corporate profits, and the
Year 2000 computer problem number among the concerns. We expect inflation to
remain low--in the 1.5 percent range. However, a full-fledged recession seems
unlikely at this time. The fundamentals underpinning the U.S. bond market are as
healthy as at any time in recent memory, and we expect the market to remain
strong in the months ahead.
7
<PAGE> 9
With this in mind, we start the new year on a cautious note. We will
judiciously monitor the portfolio's exposure to mortgage-backed securities with
an eye toward the risk of increased prepayments, should a Treasury market rally
emerge later in the year. Given the current flat yield curve, the focus of
Treasury holdings will center on the value to be found in the short end of the
curve. We will also make adjustments to the portfolio duration when
opportunities permit.
[SIG]
Ted. V. Mundy
Portfolio Manager
[SIG]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
Please see footnotes on page 3
8
<PAGE> 10
PORTFOLIO HIGHLIGHTS
VAN KAMPEN LIMITED MATURITY GOVERNMENT FUND
COUPON DISTRIBUTION AS OF DECEMBER 31, 1998
[BAR GRAPH]
<TABLE>
<CAPTION>
under 5.0 5-5.9 6-6.9 7-7.9 8-8.9 9-9.9 10 or more
--------- ----- ----- ----- ----- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Percentage of Long-Term Investments 28.4 25.10 18.20 17.70 2.50 5.20 2.90
</TABLE>
PORTFOLIO COMPOSITION BY SECTOR AS A PERCENTAGE OF LONG TERM INVESTMENTS
<TABLE>
<CAPTION>
TREASURY ASSET-BACKED
NOTES SECURITIES FHLMC FNMA GNMA CMOS ARMS
-------- ------------ ----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/98 28.00 21.00 15.00 12.00 10.00 9.00 5.00
</TABLE>
[PIE CHART]
<TABLE>
<CAPTION>
TREASURY ASSET-BACKED
NOTES SECURITIES FHLMC FNMA GNMA CMOS ARMS
-------- ------------ ----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/97 23.00 19.00 14.00 11.00 3.00 23.00 7.00
</TABLE>
[PIE CHART]
DURATION
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998 AS OF DECEMBER 31, 1997
<S> <C>
1.72 years 2.00 years
</TABLE>
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ADJUSTABLE RATE MORTGAGE-BACKED
SECURITIES 5.1%
$ 44 Federal Home Loan Mortgage Corp.
Pools.................................. 9.925% 02/01/18 $ 44,470
910 Federal National Mortgage Association
Pools.................................. 7.532 03/01/19 924,622
1,608 Federal National Mortgage Association
Pools.................................. 7.561 09/01/19 1,635,879
-----------
TOTAL ADJUSTABLE RATE MORTGAGE-BACKED SECURITIES....................... 2,604,971
-----------
ASSET BACKED SECURITIES 19.9%
4,000 Deutsche Floorplan Master Trust........ 5.856 02/15/01 4,002,280
3,000 First USA Credit Card Master Trust..... 5.733 04/15/03 3,001,170
3,188 PacificAmerica Home Equity Loan........ 5.916 12/25/27 3,150,175
-----------
TOTAL ASSET BACKED SECURITIES.......................................... 10,153,625
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS 8.7%
623 Federal Home Loan Mortgage Corp.
(Variable Rate Coupon)................. 6.088 04/15/99 623,458
1,523 Federal Home Loan Mortgage Corp.
(Variable Rate Coupon)................. 6.188 04/15/20 1,527,334
172 Federal National Mortgage Association
(Variable Rate Coupon)................. 6.388 02/25/21 172,259
2,100 Saxon Mortgage Securities Corp......... 5.680 11/25/23 2,094,473
-----------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS.............................. 4,417,524
-----------
U.S. GOVERNMENT AGENCY OBLIGATIONS 35.0%
5,000 Federal Home Loan Mortgage Corp.
(PAC).................................. 6.250 07/15/18 5,069,900
676 Federal Home Loan Mortgage Corp. 15
Year Pools............................. 9.500 12/01/01 706,760
1,211 Federal Home Loan Mortgage Corp. 30
Year Pools............................. 9.250 12/01/15 1,292,092
1,465 Federal National Mortgage Association
30 Year Pools (15 Year Dwarf).......... 6.500 11/01/09 to 01/01/13 1,485,413
2,077 Federal National Mortgage Association
(PAC).................................. 7.000 01/25/03 2,142,208
1,094 Federal National Mortgage Association
30 Year Pools.......................... 8.500 05/01/21 to 04/01/25 1,147,854
294 Federal National Mortgage Association
30 Year Pools.......................... 9.500 07/01/11 to 08/01/21 314,554
573 Federal National Mortgage Association
30 Year Pools.......................... 10.000 05/01/21 624,247
3,849 Government National Mortgage
Association
30 Year Pools.......................... 7.500 06/15/28 to 09/15/28 3,970,344
94 Government National Mortgage
Association
30 Year Pools.......................... 8.500 06/15/16 to 01/15/17 100,387
159 Government National Mortgage
Association
30 Year Pools.......................... 9.500 03/15/16 to 01/15/19 171,771
376 Government National Mortgage
Association
30 Year Pools.......................... 10.000 03/15/16 to 04/15/19 412,555
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS (CONTINUED)
$ 199 Government National Mortgage
Association
30 Year Pools.......................... 10.500% 05/15/13 to 02/15/18 $ 221,145
156 Government National Mortgage
Association
30 Year Pools.......................... 11.000 11/15/18 176,268
-----------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS 35.0%........................ 17,835,498
----- -----------
U.S. GOVERNMENT OBLIGATIONS 27.2%
14,000 United States Treasury Notes (a)....... 4.000 10/31/00 13,863,920
-----------
TOTAL LONG-TERM INVESTMENTS 95.9%
(Cost $48,485,872)............................................................. 48,875,538
REPURCHASE AGREEMENT 4.1%
SBC Warburg ($2,075,000 par, collateralized by U.S. Government obligations in a
pooled cash account, dated 12/31/98, to be sold on 01/04/99 at $2,076,095)
(Cost $2,075,000).............................................................. 2,075,000
-----------
TOTAL INVESTMENTS 100.0%
(Cost $50,560,872)............................................................. 50,950,538
OTHER ASSETS IN EXCESS OF LIABILITIES 0.0%...................................... 15,938
-----------
NET ASSETS 100.0%............................................................... $50,966,476
===========
</TABLE>
PAC--Planned Amortization Class
(a) Assets segregated as collateral for open futures transactions.
See Notes to Financial Statements
11
<PAGE> 13
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $50,560,872)........................ $50,950,538
Cash........................................................ 4,660
Receivables:
Fund Shares Sold.......................................... 346,185
Interest.................................................. 272,441
Investments Sold.......................................... 30,955
Other....................................................... 47,149
-----------
Total Assets.......................................... 51,651,928
-----------
LIABILITIES:
Payables:
Fund Shares Repurchased................................... 301,155
Income Distributions...................................... 120,105
Distributor and Affiliates................................ 57,782
Investment Advisory Fee................................... 21,809
Variation Margin on Futures............................... 688
Trustees' Deferred Compensation and Retirement Plans........ 135,511
Accrued Expenses............................................ 48,402
-----------
Total Liabilities..................................... 685,452
-----------
NET ASSETS.................................................. $50,966,476
===========
NET ASSETS CONSIST OF:
Capital..................................................... $59,874,146
Net Unrealized Appreciation................................. 411,092
Accumulated Distributions in Excess of Net Investment
Income.................................................... (46,250)
Accumulated Net Realized Loss............................... (9,272,512)
-----------
NET ASSETS.................................................. $50,966,476
===========
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $35,219,022 and 2,896,387 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 $12,439,045 and 1,019,808 shares of
beneficial interest issued and outstanding)............. $ 12.20
===========
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $3,308,409 and 271,571 shares of
beneficial interest issued and outstanding)............. $ 12.18
===========
</TABLE>
*On sales of $25,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
12
<PAGE> 14
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $3,199,339
Fee Income.................................................. 243,844
----------
Total Income............................................ 3,443,183
----------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $78,771, $132,921 and $33,967,
respectively)............................................. 245,659
Investment Advisory Fee..................................... 245,261
Shareholder Services........................................ 100,792
Accounting.................................................. 64,929
Registration and Filing Fees................................ 53,965
Trustees' Fees and Expenses................................. 18,166
Custody..................................................... 12,896
Legal....................................................... 2,264
Other....................................................... 81,044
----------
Total Expenses.......................................... 824,976
----------
NET INVESTMENT INCOME....................................... $2,618,207
==========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ (242,488)
Futures................................................... 44,705
Forward Commitments....................................... 85,762
----------
Net Realized Loss........................................... (112,021)
----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 453,759
----------
End of the Period:
Investments............................................. 389,666
Futures................................................. 21,426
----------
411,092
----------
Net Unrealized Depreciation During the Period............... (42,667)
----------
NET REALIZED AND UNREALIZED LOSS............................ $ (154,688)
==========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $2,463,519
==========
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................. $ 2,618,207 $ 3,271,677
Net Realized Loss..................................... (112,021) (147,652)
Net Unrealized Appreciation/Depreciation
During the Period................................... (42,667) 184,520
----------- -----------
Change in Net Assets from Operations.................. 2,463,519 3,308,545
Distributions from Net Investment Income*............. (2,577,038) (3,115,620)
----------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES... (113,519) 192,925
----------- -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold............................. 33,962,320 40,769,266
Net Asset Value of Shares Issued Through Dividend
Reinvestment........................................ 1,577,636 1,972,876
Cost of Shares Repurchased............................ (44,219,999) (50,576,668)
----------- -----------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.... (8,680,043) (7,834,526)
----------- -----------
TOTAL DECREASE IN NET ASSETS.......................... (8,793,562) (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 $(46,250) and $20,201,
respectively)....................................... $50,966,476 $59,760,038
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Year Ended Year Ended
*Distributions by Class December 31, 1998 December 31, 1997
- --------------------------------------------------------------------------
<S> <C> <C>
Distributions from Net Investment
Income:
Class A Shares.................... $(1,789,709) $(2,049,150)
Class B Shares.................... (626,148) (875,834)
Class C Shares.................... (161,181) (190,636)
----------- -----------
$(2,577,038) $(3,115,620)
=========== ===========
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
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 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...................... .685 .685 .627 .67 .50
Net Realized and Unrealized Gain/Loss...... (.043) .015 (.226) .4888 (.4817)
------- ------- ------- ------- -------
Total from Investment Operations........... .642 .700 .401 1.1588 .0183
Less Distributions from and in Excess of
Net Investment Income.................... .673 .660 .660 .6488 .5383
------- ------- ------- ------- -------
Net Asset Value, End of the Period......... $12.160 $12.191 $12.151 $ 12.41 $ 11.90
======= ======= ======= ======= =======
Total Return* (b).......................... 5.40% 5.92% 3.34% 9.96% .16%
Net Assets at End of the Period (In
millions)................................ $ 35.2 $ 39.4 $ 40.2 $ 45.4 $ 41.2
Ratio of Expenses to Average Net Assets*... 1.42% 1.32% 1.45% 1.45% 1.15%
Ratio of Net Investment Income to Average
Net Assets*.............................. 5.61% 5.68% 5.23% 5.47% 4.75%
Portfolio Turnover......................... 249% 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>
(a) Based on average 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
15
<PAGE> 17
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 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....................... .590 .598 .550 .57 .42
Net Realized and Unrealized Gain/Loss....... (.036) .012 (.242) .5028 (.4977)
------- ------- ------- ------- -------
Total from Investment Operations............ .554 .610 .308 1.0728 (.0777)
Less Distributions from and in Excess of
Net Investment Income..................... .577 .564 .564 .5528 .4423
------- ------- ------- ------- -------
Net Asset Value, End of the Period.......... $12.197 $12.220 $12.174 $ 12.43 $ 11.91
======= ======= ======= ======= =======
Total Return* (b)........................... 4.65% 5.08% 2.69% 9.09% (.62%)
Net Assets at End of the Period (In
millions)................................. $ 12.4 $ 16.2 $ 22.5 $ 30.3 $ 18.4
Ratio of Expenses to Average Net Assets*.... 2.19% 2.11% 2.19% 2.24% 1.91%
Ratio of Net Investment Income to Average
Net Assets*............................... 4.82% 4.92% 4.50% 4.63% 3.99%
Portfolio Turnover.......................... 249% 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>
(a) Based on average 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
16
<PAGE> 18
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 C Shares 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...................... .582 .597 .554 .57 .45
Net Realized and Unrealized Gain/Loss...... (.029) .011 (.248) .5028 (.5177)
------- ------- ------- ------- -------
Total from Investment Operations........... .553 .608 .306 1.0728 (.0677)
Less Distributions from and in Excess of
Net Investment Income.................... .577 .564 .564 .5528 .4423
------- ------- ------- ------- -------
Net Asset Value, End of the Period......... $12.182 $12.206 $12.162 $ 12.42 $ 11.90
======= ======= ======= ======= =======
Total Return* (b).......................... 4.57% 5.17% 2.62% 9.10% (.55%)
Net Assets at End of the Period (In
millions)................................ $ 3.3 $ 4.2 $ 4.7 $ 6.2 $ 5.8
Ratio of Expenses to Average Net Assets*... 2.19% 2.10% 2.20% 2.23% 1.90%
Ratio of Net Investment Income to Average
Net Assets*.............................. 4.76% 4.92% 4.48% 4.71% 3.98%
Portfolio Turnover......................... 249% 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>
(a) Based on average 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
17
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen 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
or indications of value obtained from an independent pricing service. 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. The Fund's security valuation methodology was changed in 1998 from
bid side pricing to the mean of the bid and asked prices. The impact of the
change, which was not material, is included as a component of the change in
unrealized appreciation/depreciation for the year ended December 31, 1998.
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 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
18
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
security traded under a forward purchase commitment, the commitment is recorded
as a long-term purchase. 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. Certain
forward commitments are entered into with the intent of recognizing fee income
which results from the difference between the price of a forward settlement
security versus the current cash settlement price of the same security. Upon the
closing of these forward commitments, this income is recognized and is shown as
fee income on the Statement of Operations.
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.
Discounts are amortized over the expected life of each applicable security.
Premiums on debt securities 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, 1998, the Fund had an accumulated capital loss
carryforward for tax purposes of $8,815,097 which will expire between December
31, 1999 and December 31, 2004. Of this amount, $12,348 will expire on December
31, 1999. Net realized loss may differ for financial and
19
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
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, the deferral of losses for tax purposes resulting from wash sales and
gains recognized for tax purposes on open futures positions at December 31,
1998.
At December 31, 1998, for federal income tax purposes the cost of long- and
short-term investments is $50,561,704, the aggregate gross unrealized
appreciation is $496,447 and the aggregate gross unrealized depreciation is
$107,613, resulting in unrealized appreciation on long- and short-term
investments of $388,834.
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 the inherent differences in the recognition of
income, expenses and realized gains/losses under generally accepted accounting
principles and for federal income tax purposes, permanent differences relating
to the recognition of certain expenses which are not deductible for tax purposes
totaling $1,249 were reclassified from accumulated distributions in excess of
net investment income to capital. Permanent book and tax differences related to
paydown losses on mortgage-backed securities totaling $108,869 have been
reclassified from accumulated net realized loss to accumulated distributions in
excess of net investment income.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee, payable
monthly as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER 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, 1998, the Fund recognized expenses of
approximately $2,300 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the year ended December 31, 1998, the Fund recognized expenses of
approximately $64,900 representing Van Kampen Funds Inc.'s or its affiliates'
(collectively "Van Kampen") cost of providing accounting services to the Fund.
20
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
Van Kampen Investor Services Inc. ("VKIS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the year ended
December 31, 1998, the Fund recognized expenses of approximately $73,600.
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.
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.
21
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
At December 31, 1998, capital aggregated $45,665,493, $11,294,002 and
$2,914,651 for Classes A, B and C, respectively. For the year ended December 31,
1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A...................................... 1,449,715 $ 17,709,670
Class B...................................... 521,188 6,401,373
Class C...................................... 805,325 9,851,277
---------- ------------
Total Sales.................................... 2,776,228 $ 33,962,320
========== ============
Dividend Reinvestment:
Class A...................................... 92,435 $ 1,128,107
Class B...................................... 27,879 341,146
Class C...................................... 8,863 108,383
---------- ------------
Total Dividend Reinvestment.................... 129,177 $ 1,577,636
========== ============
Repurchases:
Class A...................................... (1,875,249) $(22,928,861)
Class B...................................... (852,542) (10,436,057)
Class C...................................... (888,221) (10,855,081)
---------- ------------
Total Repurchases.............................. (3,616,012) $(44,219,999)
========== ============
</TABLE>
22
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
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>
23
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
For the year ended December 31, 1998, Van Kampen, as Distributor for the
Fund, received net commissions on sales of the Fund's Class A shares of
approximately $11,400 and CDSC on redeemed shares of approximately $22,400.
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 $112,690,824 and $131,510,542,
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 to generate potential gain. All of the Fund's portfolio holdings,
including derivative instruments, are marked to market each day with the change
in value reflected in unrealized appreciation/depreciation. Upon disposition, a
realized gain or loss is recognized accordingly, except in instances where the
Fund accepts delivery of a security underlying a futures contract. In these
situations, the recognition of gain or loss is postponed until the disposal of
the security underlying the futures contract.
During the period, the Fund invested in futures contracts, a type of
derivative. A futures contract is an agreement involving the delivery of a
particular asset on a specified future date at an agreed upon price. The Fund
generally invests in exchange traded futures contracts on U.S. Treasury Bonds
and typically closes the contract prior to the delivery date. These contracts
are generally used to manage the portfolio's effective maturity and duration.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, securities with a value equal to its obligation
under the futures contracts. During the period the futures contract is open,
payments are received from or made to the broker based upon changes in the value
of the contract (the variation margin). The risk of loss associated with a
futures contract is in excess of the variation margin reflected on the Statement
of Assets and Liabilities.
24
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
Transactions in futures contracts for the year ended December 31, 1998, were
as follows:
<TABLE>
<CAPTION>
CONTRACTS
- ----------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1997............................ 10
Futures Opened.............................................. 1,176
Futures Closed.............................................. (1,142)
------
Outstanding at December 31, 1998............................ 44
======
</TABLE>
The futures contracts outstanding as of December 31, 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 March 1999 (Current notional value
$113,344 per contract)....................... 44 $21,426
== =======
</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 year ended December 31, 1998, are payments retained by Van Kampen of
approximately $126,900.
25
<PAGE> 27
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Van Kampen 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 Limited Maturity
Government Fund (the "Fund") at December 31, 1998, 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 statements") 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, 1998 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
February 8, 1999
26
<PAGE> 28
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
Utility
Value
Global/International
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
Global Franchise
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
Reserve
Tax Free Money
Senior Loan
Prime Rate Income Trust
Senior Floating Rate
To find out more about any of these funds, ask your financial advisor 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.VANKAMPEN.COM--to view a prospectus, select Download
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.VANKAMPEN.COM and selecting Contact Us
27
<PAGE> 29
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
PAUL G. YOVOVICH
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
PAUL R. WOLKENBERG*
EDWARD C. WOOD, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN
ASSET MANAGEMENT INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
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., 1999 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 June 30, 1999, the report, if used with prospective
investors, must be accompanied by a quarterly performance update.
28
<PAGE> 30
YEAR 2000 READINESS DISCLOSURE
Like other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by the Fund's investment adviser and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Fund's
investment adviser is taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to computer systems that it uses and
to obtain reasonable assurances that comparable steps are being taken by the
Fund's other major service providers. At this time, there can be no assurances
that these steps will be sufficient to avoid any adverse impact to the Fund. In
addition, the Year 2000 Problem may adversely affect the markets and the issuers
of securities in which the Fund may invest that, in turn, may adversely affect
the net asset value of the Fund. Improperly functioning trading systems may
result in settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Fund's investments may be adversely affected. The
statements above are subject to the Year 2000 Information and Readiness
Disclosure Act, which may limit the legal rights regarding the use of such
statements in the case of dispute.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> LTD MAT GOVT A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 50,560,872<F1>
<INVESTMENTS-AT-VALUE> 50,950,538<F1>
<RECEIVABLES> 649,581<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 51,809<F1>
<TOTAL-ASSETS> 51,651,928<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 685,452<F1>
<TOTAL-LIABILITIES> 685,452<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 45,665,493
<SHARES-COMMON-STOCK> 2,896,387
<SHARES-COMMON-PRIOR> 3,229,486
<ACCUMULATED-NII-CURRENT> (46,250)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (9,272,512)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 411,092<F1>
<NET-ASSETS> 35,219,022
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 3,199,339<F1>
<OTHER-INCOME> 243,844<F1>
<EXPENSES-NET> (824,976)<F1>
<NET-INVESTMENT-INCOME> 2,618,207<F1>
<REALIZED-GAINS-CURRENT> (112,021)<F1>
<APPREC-INCREASE-CURRENT> (42,667)<F1>
<NET-CHANGE-FROM-OPS> 2,463,519<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (1,789,709)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,449,715
<NUMBER-OF-SHARES-REDEEMED> (1,875,249)
<SHARES-REINVESTED> 92,435
<NET-CHANGE-IN-ASSETS> (4,152,198)
<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> 245,261<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 824,976<F1>
<AVERAGE-NET-ASSETS> 32,359,803
<PER-SHARE-NAV-BEGIN> 12.191
<PER-SHARE-NII> 0.685
<PER-SHARE-GAIN-APPREC> (0.043)
<PER-SHARE-DIVIDEND> (0.673)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 12.160
<EXPENSE-RATIO> 1.42
<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>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> LTD MAT GOVT B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 50,560,872<F1>
<INVESTMENTS-AT-VALUE> 50,950,538<F1>
<RECEIVABLES> 649,581<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 51,809<F1>
<TOTAL-ASSETS> 51,651,928<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 685,452<F1>
<TOTAL-LIABILITIES> 685,452<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,294,002
<SHARES-COMMON-STOCK> 1,019,808
<SHARES-COMMON-PRIOR> 1,323,283
<ACCUMULATED-NII-CURRENT> (46,250)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (9,272,512)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 411,092<F1>
<NET-ASSETS> 12,439,045
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 3,199,339<F1>
<OTHER-INCOME> 243,844<F1>
<EXPENSES-NET> (824,976)<F1>
<NET-INVESTMENT-INCOME> 2,618,207<F1>
<REALIZED-GAINS-CURRENT> (112,021)<F1>
<APPREC-INCREASE-CURRENT> (42,667)<F1>
<NET-CHANGE-FROM-OPS> 2,463,519<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (626,148)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 521,188
<NUMBER-OF-SHARES-REDEEMED> (852,542)
<SHARES-REINVESTED> 27,879
<NET-CHANGE-IN-ASSETS> (3,731,268)
<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> 245,261<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 824,976<F1>
<AVERAGE-NET-ASSETS> 13,284,610
<PER-SHARE-NAV-BEGIN> 12.220
<PER-SHARE-NII> 0.590
<PER-SHARE-GAIN-APPREC> (0.036)
<PER-SHARE-DIVIDEND> (0.577)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 12.197
<EXPENSE-RATIO> 2.19
<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>
<ARTICLE> 6
<SERIES>
<NUMBER> 13
<NAME> LTD MAT GOVT C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 50,560,872<F1>
<INVESTMENTS-AT-VALUE> 50,950,538<F1>
<RECEIVABLES> 649,581<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 51,809<F1>
<TOTAL-ASSETS> 51,651,928<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 685,452<F1>
<TOTAL-LIABILITIES> 685,452<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,914,651
<SHARES-COMMON-STOCK> 271,571
<SHARES-COMMON-PRIOR> 345,604
<ACCUMULATED-NII-CURRENT> (46,250)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (9,272,512)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 411,092<F1>
<NET-ASSETS> 3,308,409
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 3,199,339<F1>
<OTHER-INCOME> 243,844<F1>
<EXPENSES-NET> (824,976)<F1>
<NET-INVESTMENT-INCOME> 2,618,207<F1>
<REALIZED-GAINS-CURRENT> (112,021)<F1>
<APPREC-INCREASE-CURRENT> (42,667)<F1>
<NET-CHANGE-FROM-OPS> 2,463,519<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (161,181)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 805,325
<NUMBER-OF-SHARES-REDEEMED> (888,221)
<SHARES-REINVESTED> 8,863
<NET-CHANGE-IN-ASSETS> (910,096)
<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> 245,261<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 824,976<F1>
<AVERAGE-NET-ASSETS> 3,398,698
<PER-SHARE-NAV-BEGIN> 12,206
<PER-SHARE-NII> 0.582
<PER-SHARE-GAIN-APPREC> (0.029)
<PER-SHARE-DIVIDEND> (0.577)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 12.182
<EXPENSE-RATIO> 2.19
<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>
