<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Economic Snapshot................................ 2
Performance Results.............................. 3
Performance in Perspective....................... 4
Portfolio Management Review...................... 5
Glossary of Terms................................ 8
Portfolio Highlights............................. 9
Portfolio of Investments......................... 10
Statement of Assets and Liabilities.............. 13
Statement of Operations.......................... 14
Statement of Changes in Net Assets............... 15
Financial Highlights............................. 16
Notes to Financial Statements.................... 19
Report of Independent Accountants................ 29
</TABLE>
LTMG ANR 2/00
NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE.
<PAGE> 2
LETTER TO SHAREHOLDERS
January 20, 2000
Dear Shareholder:
As we enter a new century--and millennium--it seems appropriate to take a
look back at the progress that's been made over the last 100 years and how the
world of investing has changed over the generations. Although rapid advances in
technology and science have dramatically altered the world that we live in
today, one of the greatest shifts we've seen is the increasing importance of
investing for many Americans.
Once considered primarily for the wealthy, investing in the stock market is
now available to most people. In fact, almost 79 million individuals--who
represent almost half of all U.S. households--own stocks either directly or
through mutual funds. This is even more impressive when considering that just 16
years earlier, only 19 percent of households owned stocks. Another important
shift has been the need for retirement planning beyond a pension plan or Social
Security. The Investment Company Institute, the leading mutual fund industry
association, reports that 77 percent of all mutual fund shareholders earmarked
retirement as their primary financial goal in 1998.
Through all the changes in the investment environment over the past century,
the general principles that have made generations of investors successful remain
the same. Some that have stood the test of time include:
- INVESTING FOR THE LONG-TERM
- BASING INVESTMENT DECISIONS ON SOUND RESEARCH
- BUILDING A DIVERSIFIED PORTFOLIO
- BELIEVING IN THE VALUE OF PROFESSIONAL INVESTMENT ADVICE
While no one can predict the future, at Van Kampen we believe that these
ideas will remain important tenets for investors well into this century. As we
continue to focus on these principles, we hope that our decades of investment
experience can help bring you closer to your financial goals as we welcome the
new millennium.
Sincerely,
<TABLE>
<S> <C>
/s/ Richard F. Powers, III /s/ Dennis J. McDonnell
Richard F. Powers, III Dennis J. McDonnell
Chairman President
Van Kampen Asset Management Inc. Van Kampen Asset Management Inc.
</TABLE>
1
<PAGE> 3
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
The nation's brisk rate of economic growth continued throughout 1999,
bringing the United States to the verge of its longest economic expansion on
record. High levels of consumer spending, a host of new jobs, and increasing
productivity kept the economy strong. Gross domestic product, the primary
measure of economic growth, increased 4.2 percent for the year, including an
impressive annualized rate of 5.7 percent for the third quarter and 5.8 percent
in the fourth quarter.
EMPLOYMENT
The job market remained vibrant throughout the year, with more than 2.7
million U.S. jobs created in 1999. In addition, unemployment dropped to 4.1
percent in October--its lowest rate in three decades. With jobs plentiful and
wages on the rise, most Americans were optimistic about the future. At the end
of the year the consumer confidence index hit its highest level since 1968.
Although wage pressures caused some concerns about the potential erosion of
corporate profits, productivity gains helped keep those concerns muted through
the end of the year.
INFLATION AND INTEREST RATES
Although the Consumer Price Index continued to reflect historically low
inflation--rising only 2.7 percent during 1999--concerns about future increases
in inflation were prevalent throughout the reporting period. The Federal Reserve
Board remained active in guarding against inflation and trying to temper
economic growth. The Fed reversed its three interest-rate cuts from the fall of
1998 by raising rates in June, August, and November 1999.
U.S. GROSS DOMESTIC PRODUCT
Seasonally Adjusted Annualized Rates
Third Quarter 1997 through Fourth Quarter 1999
[BAR GRAPH]
<TABLE>
<S> <C>
97Q3 4
97Q4 3.1
98Q1 6.7
98Q2 2.1
98Q3 3.8
98Q4 5.9
99Q1 3.7
99Q2 1.9
99Q3 5.7
99Q4 5.8
</TABLE>
Source: Bureau of Economic Analysis
2
<PAGE> 4
PERFORMANCE RESULTS FOR THE PERIOD ENDED DECEMBER 31, 1999
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)..... 2.22% 1.42% 1.54%
One-year total return(2).................. (0.08%) (0.51%) 0.81%
Five-year average annual total
return(2)................................. 4.86% 4.55% 4.57%
Ten-year average annual total return(2)... 4.96% N/A N/A
Life-of-Fund average annual total
return(2)................................. 5.35% 3.43% 3.49%
Commencement date......................... 06/16/86 11/05/91 05/10/93
DISTRIBUTION RATE AND YIELD
Distribution rate(3)...................... 5.43% 4.78% 5.13%
SEC Yield(4).............................. 6.49% 5.61% 5.70%
</TABLE>
N/A = Not Applicable
(1)Assumes reinvestment of all distributions for the period and does not include
payment of the maximum sales charge (2.25% for A shares) or contingent deferred
sales charge for early withdrawal (2% for B shares and .75% for C shares). If
the sales charge was included, total return would be lower.
(2)Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (2.25% for A shares) or
contingent deferred sales charge for early withdrawal (2% for B shares and .75%
for C shares). Effective October 1, 1999, the Fund established a new maximum
sales charge and contingent deferred sales charge for Class A and B Shares,
respectively. Returns shown are based on the current sales charge structure.
(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 ended December 31, 1999. Had
Certain Expenses of the Fund not been assumed by Van Kampen Asset Management
Inc., total returns would have been lower and the SEC Yield would have been
6.14%, 5.40% and 5.50% for Classes A, B, and C, respectively.
See the Comparative 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. Past performance does not
guarantee future results.
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 fees that would be
paid by an investor purchasing the securities they represent. Such costs would
lower the performance of these indices. An investment cannot be made directly in
an index.
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, 1989, through December 31, 1999)
[INVESTMENT PERFORMANCE GRAPH]
<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>
Dec1989 9772.00 10000.00 10000.00
9633.00 10028.00 10013.00
9692.00 10084.00 10060.00
9697.00 10122.00 10091.00
9624.00 10159.00 10113.00
9880.00 10299.00 10268.00
9995.00 10398.00 10374.00
10167.00 10514.00 10506.00
10100.00 10562.00 10537.00
10178.00 10640.00 10619.00
10297.00 10751.00 10740.00
10515.00 10843.00 10846.00
Dec1990 10698.00 10962.00 10978.00
10862.00 11063.00 11078.00
10934.00 11137.00 11144.00
10999.00 11215.00 11212.00
11124.00 11317.00 11325.00
11185.00 11382.00 11394.00
11228.00 11433.00 11435.00
11330.00 11523.00 11540.00
11387.00 11662.00 11696.00
11488.00 11769.00 11825.00
11599.00 11887.00 11952.00
11681.00 12001.00 12073.00
Dec1991 11744.00 12158.00 12260.00
11695.00 12162.00 12241.00
11760.00 12198.00 12281.00
11788.00 12214.00 12279.00
11896.00 12321.00 12391.00
11929.00 12417.00 12499.00
11988.00 12523.00 12632.00
11988.00 12650.00 12774.00
12035.00 12737.00 12866.00
12014.00 12843.00 13008.00
12020.00 12787.00 12928.00
12054.00 12780.00 12910.00
Dec1992 12114.00 12891.00 13032.00
12194.00 13004.00 13163.00
12235.00 13087.00 13275.00
12256.00 13125.00 13320.00
12288.00 13198.00 13403.00
12339.00 13174.00 13365.00
12371.00 13256.00 13464.00
12413.00 13287.00 13495.00
12424.00 13376.00 13613.00
12443.00 13419.00 13657.00
12469.00 13449.00 13679.00
12453.00 13465.00 13687.00
Dec1993 12496.00 13515.00 13737.00
12570.00 13593.00 13626.00
12502.00 13537.00 13737.00
12414.00 13503.00 13669.00
12386.00 13470.00 13618.00
12388.00 13494.00 13640.00
12412.00 13532.00 13680.00
12500.00 13640.00 13793.00
12505.00 13686.00 13846.00
12489.00 13675.00 13815.00
12516.00 13714.00 13846.00
12496.00 13670.00 13784.00
Dec1994 12517.00 13703.00 13813.00
12653.00 13870.00 14008.00
12834.00 14035.00 14200.00
12890.00 14115.00 14279.00
12980.00 14229.00 14401.00
13200.00 14427.00 14658.00
13259.00 14503.00 14737.00
13264.00 14572.00 14798.00
13346.00 14652.00 14866.00
13427.00 14718.00 14956.00
13520.00 14827.00 15095.00
13647.00 14936.00 15218.00
Dec1995 13763.00 15041.00 15330.00
13857.00 15160.00 15465.00
13762.00 15126.00 15400.00
13745.00 15135.00 15381.00
13729.00 15164.00 15399.00
13723.00 15210.00 15431.00
13808.00 15312.00 15536.00
13859.00 15373.00 15603.00
13888.00 15436.00 15654.00
14009.00 15559.00 15798.00
14153.00 15715.00 15976.00
14240.00 15816.00 16096.00
Dec1996 14222.00 15841.00 16099.00
14275.00 15915.00 16174.00
14305.00 15961.00 16211.00
14287.00 16081.00 16205.00
14400.00 16189.00 16338.00
14477.00 16195.00 16446.00
14591.00 16297.00 16562.00
14729.00 16446.00 16744.00
14735.00 16479.00 16754.00
14850.00 16591.00 16887.00
14954.00 16700.00 17012.00
14985.00 16745.00 17054.00
Dec1997 15065.00 16851.00 17170.00
15207.00 16994.00 17337.00
15201.00 17021.00 17352.00
15244.00 17091.00 17423.00
15288.00 17171.00 17504.00
15382.00 17259.00 17597.00
15439.00 17345.00 17689.00
15496.00 17427.00 17771.00
15669.00 17607.00 17995.00
15880.00 17807.00 18233.00
15886.00 17899.00 18323.00
15841.00 17894.00 18307.00
Dec1998 15878.00 17962.00 18371.00
15924.00 18027.00 18444.00
15864.00 17983.00 18354.00
15963.00 18102.00 18482.00
15996.00 18162.00 18541.00
15963.00 18173.00 18529.00
15997.00 18227.00 18587.00
15999.00 18293.00 18646.00
16028.00 18340.00 18700.00
16138.00 18449.00 18821.00
16181.00 18506.00 18871.00
16183.00 18547.00 18907.00
Dec1999 16230.00 18576.00 18934.00
</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 (2.25% for A shares) and Rule 12b-1 fee of .25%.
Past performance does not guarantee future results. 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
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN LIMITED MATURITY GOVERNMENT FUND
We recently spoke with representatives of the adviser of the Van Kampen Limited
Maturity Government Fund about the key events and economic forces that shaped
the markets during the Fund's fiscal year. Ted V. Mundy, portfolio manager, has
managed the Fund since June 1994 and worked in the investment industry since
1987. He is joined by Peter W. Hegel, chief investment officer for fixed-income
investments. The following discussion reflects their views on the Fund's
performance for the 12 months ended December 31, 1999.
Q HOW WOULD YOU DESCRIBE THE MARKET IN WHICH THE FUND OPERATED DURING THE
REPORTING PERIOD?
A In the first days of 1999, the fixed-income market appeared to be poised
for a recovery from the volatility it had experienced in late 1998. A
positive economic environment led to a year of steadily rising interest
rates. For example, the yield for two-year Treasuries rose from a low level of
approximately 4.53 percent in early January to approximately 6.21 percent by
year-end.
Early in the year, as investors gained confidence in the strength of the
economy and the low-inflation environment, yield spreads narrowed between
Treasuries and other types of bonds, including mortgage-backed securities.
However, a robust domestic economy soon threatened to fuel inflationary
pressures, which drew the attention and intervention of the Federal Reserve
Board. Yield spreads widened late in the spring, and continued as the Fed
implemented two rate hikes of 0.25 percent each. These increases seemed to
soothe investors, but spreads remained under pressure as investors grew
concerned about the potential effects of year 2000 problems. A third Fed hike
and a smooth transition into the new year ushered in a relatively calm ending to
a volatile and difficult year for the fixed-income market.
Q HOW DID THESE CONDITIONS AFFECT THE FUND'S EXPOSURE TO MORTGAGE-BACKED
SECURITIES?
A As interest rates rose and the fixed-income market became more volatile,
mortgage-backed securities fluctuated in value and performance. However,
yield-spread fluctuations were contained to a defined range, indicating that the
volatility within the mortgage sector was somewhat limited. Spreads narrowed
from approximately 175 basis points at the beginning of the year to less than
115 basis points in December.
At the same time, rising interest rates translated into lower mortgage
prepayment rates and less prepayment risk for mortgage-backed securities. After
maintaining a fairly steady weighting in mortgage-backed securities during the
first half of the year, we increased the Fund's allocation in the second half in
order to take advantage of the sector's value. This strategy generally benefited
the Fund during the period, with the exception of November, when mortgage-backed
securities lagged Treasuries. Within the
5
<PAGE> 7
mortgage sector, we maintained the Fund's emphasis on structured agency mortgage
securities, which tend to incur less risk in a rising rate environment than
other mortgage-backed securities. The Fund also held private-label and
asset-backed securities, which performed well and contributed to the Fund's
income stream.
Q WHAT OTHER STRATEGIES DID YOU USE TO MANAGE THE FUND?
A Early in the year, a flat Treasury curve led us to focus the Fund's
Treasury allocation on shorter-term securities--primarily two- to
five-year Treasury securities. As interest rates rose during the period,
concerns about additional flattening led us to reduce two-year securities in
favor of five-year Treasuries, which was beneficial for the Fund.
The portfolio's high allocation to mortgage-backed securities gave the Fund
a slightly higher portfolio duration than its benchmark. As interest rates
started to rise, this longer duration hindered the Fund's return. However,
duration was reduced to neutral levels late in the period, which reflected our
belief that interest rates might continue to rise.
Q HOW DID THE FUND PERFORM DURING THE REPORTING PERIOD?
A Rising interest rates and challenging market conditions were the most
significant factors affecting the Fund's return. For the 12-month period
ended December 31, 1999, the Limited Maturity Government Fund generated a
total return of 2.22 percent(1) (Class A shares at net asset value).
Additionally, the Fund's Class A shares provided shareholders with a competitive
distribution rate of 5.43 percent, based upon the maximum offering price as of
December 31, 1999. The Fund also provided a monthly dividend of $0.0545 per
share at year end, following a dividend increase in December.
By comparison, the Lehman Brothers Mutual Fund One- to Two-Year U.S.
Government Index posted a total return of 3.41 percent for the same period. This
broad-based, unmanaged index, which reflects the general performance of U.S.
government securities, does not reflect any commissions or fees that would be
paid by an investor purchasing the securities it represents. Such costs would
lower the performance of the index. An investment cannot be made directly in an
index. Of course, past performance is no guarantee of comparable future results.
For additional Fund performance results, please refer to the chart and footnotes
on page 3.
Q WHAT IS YOUR OUTLOOK FOR THE FUND IN THE MONTHS AHEAD?
A We still see value in the mortgage market and believe it will be buoyed by
increased demand in the coming months. Given this perspective, we'll
continue to emphasize the Fund's allocation to mortgages with reliable
structures in order to support the Fund's income stream without limiting its
ability to participate in market rallies. Assuming that further interest rate
increases are on the horizon, we'll also continue our efforts to maintain the
Fund's neutral duration.
6
<PAGE> 8
Of course, we will continue to keep a close eye on the changing yield
spreads between Treasuries and other fixed-income securities, but we expect the
trend in yield spreads to be favorable. Our ongoing evaluation of the
relationship between mortgages and Treasuries should help us maintain an optimal
balance between the two sectors in the Fund's portfolio.
7
<PAGE> 9
GLOSSARY OF TERMS
BASIS POINT: A measure used in quoting bond yields. One hundred basis points is
equal to 1 percent. For example, if a bond's yield changes from 7.00 to 6.65
percent, it is a 35 basis-point move.
DURATION: A measure of 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 (i.e., a 5-year duration means the bond will fall about 5 percent in
value if interest rates rise by 1 percent). The longer a bond's duration,
the greater the effect of interest rate movements on its price. 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.
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.
8
<PAGE> 10
PORTFOLIO HIGHLIGHTS
VAN KAMPEN LIMITED MATURITY GOVERNMENT FUND
DIVIDEND HISTORY
FOR THE PERIOD ENDED DECEMBER 31, 1999
[BAR GRAPH]
<TABLE>
<CAPTION>
DISTRIBUTION PER CLASS A SHARE
------------------------------
<S> <C>
Jan 1999 0.055
Feb 1999 0.055
Mar 1999 0.055
Apr 1999 0.055
May 1999 0.055
Jun 1999 0.055
Jul 1999 0.0515
Aug 1999 0.0515
Sep 1999 0.0515
Oct 1999 0.0515
Nov 1999 0.0515
Dec 1999 0.0545
</TABLE>
The dividend history represents past performance of the Fund and does not
predict the Fund's future distributions.
ASSET ALLOCATION AS A PERCENTAGE OF LONG-TERM INVESTMENTS
[BAR GRAPH]
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
CMOs 38.8 9
Asset-Backed Securities 22.6 20.8
Treasury Notes 16.3 28.4
GNMA 8.7 10.3
FNMA 6.2 11.7
ARMs 4.5 5.3
FHLMC 2.9 14.5
</TABLE>
COUPON DISTRIBUTION AS A PERCENTAGE OF LONG-TERM INVESTMENTS
[BAR GRAPH]
<TABLE>
<S> <C>
5.9 OR LESS 23.7
6-6.9 13.90
7-7.9 45.90
8-8.9 10.20
9-9.9 3.90
10 or more 2.40
</TABLE>
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ADJUSTABLE RATE MORTGAGE-BACKED SECURITIES 3.8%
$ 43 Federal Home Loan Mortgage Corp.
Pools............................ 9.925% 02/01/18 $ 42,806
597 Federal National Mortgage
Association Pools................ 7.532 03/01/19 612,241
1,280 Federal National Mortgage
Association Pools................ 7.561 09/01/19 1,310,085
-----------
TOTAL ADJUSTABLE RATE MORTGAGE-BACKED SECURITIES................ 1,965,132
-----------
ASSET BACKED SECURITIES 19.3%
3,000 First USA Credit Card Master
Trust (Variable Rate Coupon)..... 5.732 04/15/03 3,001,620
2,500 GE Capital Mortgage Funding
Corp............................. 7.110 07/25/14 2,489,075
1,954 PacificAmerica Home Equity Loan
(Variable Rate Coupon)........... 5.668 12/25/27 1,948,627
2,500 New Century Home Equity Loan
Trust............................ 7.190 03/25/26 2,477,350
-----------
TOTAL ASSET BACKED SECURITIES................................... 9,916,672
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS 33.0%
5,000 Federal Home Loan Mortgage Corp.
(PAC)............................ 6.250 07/15/18 4,952,550
416 Federal Home Loan Mortgage Corp.
(PAC -- Variable Rate Coupon).... 5.500 04/15/20 417,314
4,547 Federal National Mortgage
Association (REMIC).............. 7.000 03/25/04 4,532,593
2,077 Federal National Mortgage
Association (REMIC, PAC)......... 7.000 01/25/03 2,066,152
3,753 Government National Mortgage
Association (REMIC -- Variable
Rate Coupon)..................... 5.780 09/16/19 3,749,908
1,292 Saxon Mortgage Securities
Corp............................. 5.680 11/25/23 1,256,346
-----------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS....................... 16,974,863
-----------
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS 15.2%
$ 904 Federal Home Loan Mortgage Corp.
30 Year Pools (a)................ 9.250% 12/01/15 $ 951,162
327 Federal Home Loan Mortgage Corp.
15 Year Pools.................... 9.500 12/01/01 339,607
1,180 Federal National Mortgage
Association 30 Year Pools (15
Year Dwarf) (a).................. 6.500 11/01/09 to 01/01/13 1,149,295
848 Federal National Mortgage
Association 30 Year Pools (a).... 8.500 05/01/21 to 04/01/25 871,876
208 Federal National Mortgage
Association 30 Year Pools (a).... 9.500 07/01/11 to 09/01/20 220,189
425 Federal National Mortgage
Association 30 Year Pools........ 10.000 05/01/21 457,525
3,039 Government National Mortgage
Association 30 Year Pools (a).... 7.500 06/15/28 to 09/15/28 3,005,439
52 Government National Mortgage
Association 30 Year Pools (a).... 8.500 06/15/16 to 01/15/17 54,122
124 Government National Mortgage
Association 30 Year Pools (a).... 9.500 03/15/16 to 01/15/19 132,822
293 Government National Mortgage
Association 30 Year Pools (a).... 10.000 03/15/16 to 04/15/19 318,802
101 Government National Mortgage
Association 30 Year Pools (a).... 10.500 05/15/13 to 02/15/18 110,036
154 Government National Mortgage
Association 30 Year Pools (a).... 11.000 11/15/18 170,363
-----------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS........................ 7,781,238
-----------
U.S. GOVERNMENT OBLIGATIONS 13.9%
3,500 United States Treasury Notes
(a).............................. 7.875 08/15/01 3,587,080
3,500 United States Treasury Notes..... 8.750 08/15/00 3,560,480
-----------
TOTAL U.S. GOVERNMENT OBLIGATIONS............................... 7,147,560
-----------
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Market Value
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
TOTAL LONG-TERM INVESTMENTS 85.2%
(Cost $44,174,684).......................................................... $43,785,465
SHORT-TERM INVESTMENTS 13.4%
Federal Home Loan Bank Discount Note ($6,917,000 par, yielding .933%, 01/03/00
maturity)
(Cost $6,916,462)........................................................... 6,916,462
-----------
TOTAL INVESTMENTS 98.6%
(Cost $51,091,146).......................................................... 50,701,927
OTHER ASSETS IN EXCESS OF LIABILITIES 1.4%................................... 707,661
-----------
NET ASSETS 100.0%............................................................ $51,409,588
===========
</TABLE>
(a) Assets segregated as collateral for open futures transactions and
investments sold short.
PAC--Planned Amortization Class.
REMIC--Real Estate Mortgage Investment Conduits.
See Notes to Financial Statements
12
<PAGE> 14
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $51,091,146)........................ $50,701,927
Cash........................................................ 489,204
Receivables:
Investments Sold.......................................... 1,562,102
Interest.................................................. 433,419
Fund Shares Sold.......................................... 103,156
Expense Reimbursement from Advisor........................ 17,167
Other....................................................... 46,301
-----------
Total Assets.......................................... 53,353,276
-----------
LIABILITIES:
Payables:
Investments Sold Short (Proceeds $1,487,344).............. 1,483,590
Income Distributions...................................... 66,562
Fund Shares Repurchased................................... 53,403
Distributor and Affiliates................................ 45,069
Investment Advisory Fee................................... 25,901
Trustees' Deferred Compensation and Retirement Plans........ 161,717
Accrued Expenses............................................ 98,071
Variation Margin on Futures................................. 9,375
-----------
Total Liabilities..................................... 1,943,688
-----------
NET ASSETS.................................................. $51,409,588
===========
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $61,903,225
Net Unrealized Depreciation................................. (396,018)
Accumulated Distributions in Excess of Net Investment
Income.................................................... (68,295)
Accumulated Net Realized Loss............................... (10,029,324)
-----------
NET ASSETS.................................................. $51,409,588
===========
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $36,957,260 and 3,136,760 shares of
beneficial interest issued
and outstanding)........................................ $ 11.78
Maximum sales charge (2.25% of offering price).......... .27
-----------
Maximum offering price to public........................ $ 12.05
===========
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $9,877,956 and 835,444 shares of
beneficial interest issued and outstanding)............. $ 11.82
===========
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $4,574,372 and 387,240 shares of
beneficial interest issued and outstanding)............. $ 11.81
===========
</TABLE>
*On sales of $25,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
13
<PAGE> 15
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 3,461,746
-----------
EXPENSES:
Investment Advisory Fee..................................... 241,515
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $91,713, $112,399 and $32,933,
respectively)............................................. 237,045
Shareholder Services........................................ 96,640
Shareholder Reports......................................... 72,636
Accounting.................................................. 55,102
Registration and Filing Fees................................ 53,208
Trustees' Fees and Related Expenses......................... 45,996
Custody..................................................... 25,495
Legal....................................................... 6,939
Other....................................................... 18,000
-----------
Total Expenses.......................................... 852,576
Investment Advisory Fee Reduction....................... 26,006
Less Credits Earned on Cash Balances.................... 4,420
-----------
Net Expenses............................................ 822,150
-----------
NET INVESTMENT INCOME....................................... $ 2,639,596
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ (545,024)
Futures................................................... (249,187)
Forward Commitments....................................... (1,875)
-----------
Net Realized Loss........................................... (796,086)
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 411,092
-----------
End of the Period:
Investments............................................. (385,465)
Futures................................................. (10,553)
-----------
(396,018)
-----------
Net Unrealized Depreciation During the Period............... (807,110)
-----------
NET REALIZED AND UNREALIZED LOSS............................ $(1,603,196)
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 1,036,400
===========
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
- -------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.......................... $ 2,639,596 $ 2,618,207
Net Realized Loss.............................. (796,086) (112,021)
Net Unrealized Depreciation During the
Period....................................... (807,110) (42,667)
----------- -----------
Change in Net Assets from Operations........... 1,036,400 2,463,519
----------- -----------
Distributions from Net Investment Income....... (2,593,346) (2,577,038)
Distributions in Excess of Net Investment
Income....................................... (29,021) -0-
----------- -----------
Distributions from and in Excess of Net
Investment Income*........................... (2,622,367) (2,577,038)
----------- -----------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES................................... (1,585,967) (113,519)
----------- -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold...................... 54,166,511 33,962,320
Net Asset Value of Shares Issued Through
Dividend Reinvestment........................ 1,636,980 1,577,636
Cost of Shares Repurchased..................... (53,774,412) (44,219,999)
----------- -----------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS................................. 2,029,079 (8,680,043)
----------- -----------
TOTAL INCREASE/DECREASE IN NET ASSETS.......... 443,112 (8,793,562)
NET ASSETS:
Beginning of the Period........................ 50,966,476 59,760,038
----------- -----------
End of the Period (Including accumulated
distributions in excess of net investment
income of $68,295 and $46,250,
respectively)................................ $51,409,588 $50,966,476
=========== ===========
*Distribution by Class
- -------------------------------------------------------------------------------------
Distributions from and in Excess of Net
Investment Income:
Class A Shares............................... $(1,954,418) $(1,789,709)
Class B Shares............................... (506,678) (626,148)
Class C Shares............................... (161,271) (161,181)
----------- -----------
$(2,622,367) $(2,577,038)
=========== ===========
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
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 1999(a) 1998(a) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period................... $12.160 $12.191 $12.151 $ 12.41 $ 11.90
------- ------- ------- ------- -------
Net Investment Income........ .645 .685 .685 .627 .67
Net Realized and Unrealized
Gain/ Loss................. (.381) (.043) .015 (.226) .4888
------- ------- ------- ------- -------
Total from Investment
Operations................... .264 .642 .700 .401 1.1588
Less Distributions from and in
Excess of Net Investment
Income....................... .642 .673 .660 .660 .6488
------- ------- ------- ------- -------
Net Asset Value, End of the
Period....................... $11.782 $12.160 $12.191 $12.151 $ 12.41
======= ======= ======= ======= =======
Total Return* (b).............. 2.22% 5.40% 5.92% 3.34% 9.96%
Net Assets at End of the Period
(In millions)................ $ 37.0 $ 35.2 $ 39.4 $ 40.2 $ 45.4
Ratio of Expenses to Average
Net Assets* (c).............. 1.42% 1.42% 1.32% 1.45% 1.45%
Ratio of Net Investment Income
to Average Net Assets*....... 5.40% 5.61% 5.68% 5.23% 5.47%
Portfolio Turnover............. 153% 249% 175% 260% 187%
* 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 (c)............... 1.47% N/A N/A 1.47% 1.50%
Ratio of Net Investment Income
to Average Net Assets........ 5.35% N/A N/A 5.21% 5.42%
</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.
(c) The Ratio of Expenses to Average Net Assets does not reflect credits earned
on overnight cash balances. If these credits were reflected as a reduction
of expenses, the ratio would decrease by .01% for the year ended December
31, 1999.
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 B Shares 1999(a) 1998(a) 1997(a) 1996(a) 1995(a)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period................... $12.197 $12.220 $12.174 $ 12.43 $ 11.91
------- ------- ------- ------- -------
Net Investment Income........ .557 .590 .598 .550 .57
Net Realized and Unrealized
Gain/ Loss................. (.381) (.036) .012 (.242) .5028
------- ------- ------- ------- -------
Total from Investment
Operations................... .176 .554 .610 .308 1.0728
Less Distributions from and in
Excess of Net Investment
Income....................... .549 .577 .564 .564 .5528
------- ------- ------- ------- -------
Net Asset Value, End of the
Period....................... $11.824 $12.197 $12.220 $12.174 $ 12.43
======= ======= ======= ======= =======
Total Return* (b).............. 1.42% 4.65% 5.08% 2.69% 9.09%
Net Assets at End of the Period
(In millions)................ $ 9.9 $ 12.4 $ 16.2 $ 22.5 $ 30.3
Ratio of Expenses to Average
Net Assets* (c).............. 2.18% 2.19% 2.11% 2.19% 2.24%
Ratio of Net Investment Income
to Average Net Assets*....... 4.64% 4.82% 4.92% 4.50% 4.63%
Portfolio Turnover............. 153% 249% 175% 260% 187%
* 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 (c)............... 2.23% N/A N/A 2.22% 2.29%
Ratio of Net Investment Income
to Average Net Assets........ 4.59% N/A N/A 4.47% 4.59%
</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.
(c) The Ratio of Expenses to Average Net Assets does not reflect credits earned
on overnight cash balances. If these credits were reflected as a reduction
of expenses, the ratio would decrease by .01% for the year ended December
31, 1999.
N/A--Not Applicable
See Notes to Financial Statements
17
<PAGE> 19
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 1999(a) 1998(a) 1997 1996 1995(a)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period................... $12.182 $12.206 $12.162 $ 12.42 $ 11.90
------- ------- ------- ------- -------
Net Investment Income........ .556 .582 .597 .554 .57
Net Realized and Unrealized
Gain/Loss.................. (.372) (.029) .011 (.248) .5028
------- ------- ------- ------- -------
Total from Investment
Operations................... .184 .553 .608 .306 1.0728
Less Distributions from and in
Excess of Net Investment
Income....................... .553 .577 .564 .564 .5528
------- ------- ------- ------- -------
Net Asset Value, End of the
Period....................... $11.813 $12.182 $12.206 $12.162 $ 12.42
======= ======= ======= ======= =======
Total Return* (b).............. 1.54% 4.57% 5.17% 2.62% 9.10%
Net Assets at End of the Period
(In millions)................ $ 4.6 $ 3.3 $ 4.2 $ 4.7 $ 6.2
Ratio of Expenses to Average
Net Assets* (c).............. 2.17% 2.19% 2.10% 2.20% 2.23%
Ratio of Net Investment Income
to Average Net Assets*....... 4.65% 4.76% 4.92% 4.48% 4.71%
Portfolio Turnover............. 153% 249% 175% 260% 187%
* 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 (c)............... 2.23% N/A N/A 2.22% 2.27%
Ratio of Net Investment Income
to Average Net Assets........ 4.60% N/A N/A 4.45% 4.67%
</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.
(c) The Ratio of Expenses to Average Net Assets does not reflect credits earned
on overnight cash balances. If these credits were reflected as a reduction
of expenses, the ratio would decrease by .01% for the year ended December
31, 1999.
N/A--Not Applicable
See Notes to Financial Statements
18
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
- --------------------------------------------------------------------------------
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 investing primarily in securities (including
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 based upon
the mean of the bid and asked prices. 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, which approximates market value.
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 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
19
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
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. Income and 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, 1999, the Fund had an accumulated capital loss
carryforward for tax purposes of $9,866,156 which will expire between December
31, 2000 and December 31, 2007. Of this amount, $3,525,503 will expire on
December 31, 2000. Net realized loss may differ 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,
the deferral of
20
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
losses for tax purposes resulting from wash sale transactions and losses
recognized for tax purposes on open futures positions at December 31, 1999.
At December 31, 1999, for federal income tax purposes the cost of long- and
short-term investments is $51,091,146, the aggregate gross unrealized
appreciation is $209,146 and the aggregate gross unrealized depreciation is
$598,365, resulting in unrealized depreciation on long- and short-term
investments of $389,219.
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 related to
paydown losses on mortgage-backed securities totaling $39,274 have been
reclassified from accumulated net realized loss to accumulated distributions in
excess of net investment income.
F. EXPENSE REDUCTIONS--During the year ended December 31, 1999, the Fund's
custody fee was reduced by $4,420 as a result of credits earned on overnight
cash balances.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, effective October
1, 1999, 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 $500 million...................................... .400 of 1%
Next $500 million....................................... .375 of 1%
Over $1 billion......................................... .350 of 1%
</TABLE>
21
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
Prior to October 1, 1999, the advisor provided 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, 1999, the Fund recognized expenses of
approximately $6,900 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, 1999, the Fund recognized expenses of
approximately $55,100 representing Van Kampen Funds Inc.'s or its affiliates'
(collectively "Van Kampen") cost of providing accounting services to the Fund.
Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as
the shareholder servicing agent for the Fund. For the year ended December 31,
1999, the Fund recognized expenses of approximately $59,100. 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.
22
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
3. CAPITAL TRANSACTIONS
At December 31, 1999, capital aggregated $48,543,405, $9,074,359 and
$4,285,461 for Classes A, B and C, respectively. For the year ended December 31,
1999, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A...................................... 3,643,907 $ 43,561,372
Class B...................................... 603,782 7,229,806
Class C...................................... 283,607 3,375,333
---------- ------------
Total Sales.................................... 4,531,296 $ 54,166,511
========== ============
Dividend Reinvestment:
Class A...................................... 105,709 $ 1,260,568
Class B...................................... 21,635 259,089
Class C...................................... 9,815 117,323
---------- ------------
Total Dividend Reinvestment.................... 137,159 $ 1,636,980
========== ============
Repurchases:
Class A...................................... (3,509,243) $(41,944,028)
Class B...................................... (809,781) (9,708,538)
Class C...................................... (177,753) (2,121,846)
---------- ------------
Total Repurchases.............................. (4,496,777) $(53,774,412)
========== ============
</TABLE>
23
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
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>
Effective October 1, 1999, the Fund reduced the maximum sales charge from
3.25% to 2.25% for A shares.
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 purchased
on or after June 1, 1996, and any dividend reinvestment plan Class B shares
received on such shares, automatically convert to Class A shares eight years
after the end of the calendar month in which the shares were purchased. Class B
shares purchased before June 1, 1996, and any dividend reinvestment plan Class B
shares received on such shares, automatically convert to Class A shares six
years after the end of the calendar month in which the shares were purchased.
For the year ended December 31, 1999, 254,197 Class B shares automatically
converted to Class A shares and are shown in the above table as sales of Class A
shares and repurchases of Class B shares. Class C shares purchased before
January 1, 1997, and any dividend reinvestment plan Class C shares received on
such shares, automatically convert to Class A shares ten years after the end of
the calendar month in which such shares were purchased. Class C shares purchased
on or after
24
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
January 1, 1997 do not possess a conversion feature. For the year ended December
31, 1999, no Class C shares converted to Class A shares. The CDSC for Class B
and C shares will be imposed on most redemptions made within five years of the
purchase for Class B and one year of the purchase for Class C as detailed in the
following schedule, which was changed effective October 1, 1999.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
-------------------------
YEAR OF REDEMPTION CLASS B CLASS C
- --------------------------------------------------------------------------
<S> <C> <C>
First........................................... 2.00% .75%
Second.......................................... 1.50% None
Third........................................... 1.00% None
Fourth.......................................... 0.5% None
Fifth and Thereafter............................ None None
</TABLE>
Prior to October 1, 1999, the CDSC schedule was as follows:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
-------------------------
YEAR OF REDEMPTION CLASS B CLASS C
- --------------------------------------------------------------------------
<S> <C> <C>
First........................................... 3.00% 1.00%
Second.......................................... 2.50% None
Third........................................... 2.00% None
Fourth.......................................... 1.00% None
Fifth and Thereafter............................ None None
</TABLE>
For the year ended December 31, 1999, Van Kampen, as Distributor for the
Fund, received CDSC on redeemed shares of approximately $32,200. 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 $71,948,722 and $80,938,045,
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.
25
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
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 or forward
commitment. In these situations, the recognition of gain or loss is postponed
until the disposal of the security underlying the futures contract or forward
commitment.
Summarized below are the specific types of derivative financial instruments
used by the Fund.
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, cash or liquid 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.
Transactions in futures contracts for the year ended December 31, 1999, were
as follows:
<TABLE>
<CAPTION>
CONTRACTS
- ----------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1998............................ 44
Futures Opened............................................ 395
Futures Closed............................................ (409)
------
Outstanding at December 31, 1999............................ 30
======
</TABLE>
26
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
The futures contracts outstanding as of December 31, 1999, and the
description and unrealized appreciation/depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
- --------------------------------------------------------------------------
<S> <C> <C>
Long Contracts--5 Year U.S. Treasury Note
Futures March 2000 (Current notional value
$98,000 per contract)........................ 30 $(10,553)
== ========
</TABLE>
B. FORWARD COMMITMENTS--The Fund trades certain securities under the terms of
forward commitments, whereby the settlement occurs at a specific future date.
Forward commitments are privately negotiated transactions between the Fund and
dealers. While forward commitments are outstanding, the Fund maintains
sufficient collateral of cash or securities in a segregated account with its
custodian. Forward commitments are marked-to-market on a daily basis with
changes in value reflected as a component of unrealized
appreciation/depreciation. 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. This potential
for loss may be greater than the amount shown on the Statement of Assets and
Liabilities for forwards that do not intend to settle. 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.
There were no forward commitments outstanding at December 31, 1999.
C. SHORT SALES--At December 31, 1999 the fund had the following investment sold
short:
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY PROCEEDS VALUE
- -----------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
$1,500 Government National
Mortgage Association To Be
30 Year Pools......... 7.500% Announced $(1,487,344) $(1,483,590)
</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).
27
<PAGE> 29
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999
- --------------------------------------------------------------------------------
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.
Class A Shares purchased prior to October 1, 1999 are subject to an annual
service fee of 0.25% of the average daily net assets attributable to such class
of shares. Class A Shares purchased on or after October 1, 1999 are subject to
an annual service fee of up to 0.15% of the average daily net assets
attributable to such class of shares. Class B Shares purchased prior to October
1, 1999 are subject to a combined annual distribution and service fee of up to
1.00% of the average daily net assets attributable to such class of shares. All
Class C Shares and Class B Shares purchased on or after October 1, 1999 are each
subject to a combined annual distribution and service fee of up to 0.65% of the
average daily net assets attributable to such class of shares. Included in these
fees for the year ended December 31, 1999, are payments retained by Van Kampen
of approximately $105,400.
8. BORROWINGS
In accordance with its investment policies, the Fund may borrow from banks for
temporary purposes and is subject to certain other customary restrictions.
Effective November 30, 1999, the Fund, in conjunction with certain other funds
of Van Kampen, has entered into a $650 million committed line of credit facility
with a group of banks which expires on November 28, 2000, but is renewable with
the consent of the participating banks. Each Fund is permitted to utilize the
facility in accordance with the restrictions of its prospectus. In the event the
demand for the credit facility meets or exceeds $650 million on a complex-wide
basis, each Fund will be limited to its pro-rata percentage based on the net
assets of each participating Fund. Interest on borrowings is charged under the
agreement at a rate of 0.50% above the federal funds rate per annum. An annual
commitment fee of 0.09% per annum is charged on the unused portion of the credit
facility, which each Fund incurs based on its pro-rata percentage of quarterly
net assets. The Fund has not borrowed against the credit facility during the
period.
28
<PAGE> 30
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, 1999, 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 accounting principles generally
accepted in the United States. 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 auditing standards
generally accepted in the United States, 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, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
February 11, 2000
29
<PAGE> 31
VAN KAMPEN FUNDS
GROWTH
Aggressive Growth*
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth
Mid Cap Growth
Pace
Small Cap Value
Technology
GROWTH AND INCOME
Comstock
Equity Income
Growth and Income
Harbor
Real Estate Securities
Utility
Value
GLOBAL/INTERNATIONAL
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
Global Fixed Income*
Global Franchise
Global Government Securities*
Global Managed Assets*
International Magnum
Latin American
Strategic Income
Worldwide High Income
INCOME
Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
U.S. Government
U.S. Government Trust for Income
CAPITAL PRESERVATION
Reserve
Tax Free Money
SENIOR LOAN
Prime Rate Income Trust
Senior Floating Rate
TAX FREE
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
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 ongoing 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
* Closed to new investors
** Open to new investors for a limited time
30
<PAGE> 32
VAN KAMPEN LIMITED MATURITY GOVERNMENT FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
JERRY D. CHOATE
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
MITCHELL M. MERIN*
JACK E. NELSON
RICHARD F. POWERS, III*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY, PH.D.
PAUL G. YOVOVICH
OFFICERS
RICHARD F. POWERS, III*
President
DENNIS J. MCDONNELL*
Executive Vice President and
Chief Investment Officer
A. THOMAS SMITH III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer and
Chief Financial Officer
STEPHEN L. BOYD*
PETER W. HEGEL*
MICHAEL H. SANTO*
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 218256
Kansas City, Missouri 64121-8256
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., 2000
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 May 31, 2000, the report, if used with prospective
investors, must be accompanied by a monthly performance update.
31
<PAGE> 33
RESULTS OF SHAREHOLDER VOTES
A Joint Special Meeting of the Shareholders of the Fund was held on December 15,
1999, where shareholders voted on the election of trustees and independent
public accountants.
1) With regard to the election of the following trustees by shareholders:
<TABLE>
<CAPTION>
# OF SHARES
--------------------
IN FAVOR WITHHELD
- ----------------------------------------------------------------------
<S> <C> <C>
J. Miles Branagan............................... 2,512,498 33,499
Jerry D. Choate................................. 2,512,498 33,499
Linda Hutton Heagy.............................. 2,514,495 31,502
R. Craig Kennedy................................ 2,514,306 31,691
Mitchell M. Merin............................... 2,512,498 33,499
Jack E. Nelson.................................. 2,514,934 31,063
Richard F. Powers, III.......................... 2,512,498 33,499
Phillip B. Rooney............................... 2,514,934 31,063
Fernando Sisto.................................. 2,514,934 31,063
Wayne W. Whalen................................. 2,512,498 33,499
Suzanne H. Woolsey.............................. 2,514,435 31,562
Paul G. Yovovich................................ 2,514,874 31,123
</TABLE>
2) With regard to the ratification of PricewaterhouseCoopers LLP as independent
public accountants for the Fund, 2,526,497 shares voted in the affirmative,
1,506 shares voted against and 17,994 shares abstained.
32
<PAGE> 34
YEAR 2000 UPDATE
As we enter the new century, it's "business as usual" for Van Kampen. Thank you
for the confidence you showed in us during the changeover on January 1, 2000,
and for entrusting us with your investment portfolio. We look forward to
continuing to serve your investment needs.
