<PAGE> 1
<TABLE>
<S> <C>
Table of Contents
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 4
PORTFOLIO AT A GLANCE
SIX-MONTH DIVIDEND HISTORY 6
ASSET ALLOCATION 6
COUPON DISTRIBUTION 6
Q&A WITH YOUR PORTFOLIO MANAGERS 7
GLOSSARY OF TERMS 10
BY THE NUMBERS
YOUR FUND'S INVESTMENTS 11
FINANCIAL STATEMENTS 14
NOTES TO FINANCIAL STATEMENTS 20
VAN KAMPEN FUNDS
THE VAN KAMPEN FAMILY OF FUNDS 30
FUND OFFICERS AND IMPORTANT ADDRESSES 31
</TABLE>
It is times like these when money-management experience may make a difference.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE> 2
OVERVIEW
LETTER TO SHAREHOLDERS
July 20, 2000
Dear Shareholder,
Whether you have held your fund for years or just joined the Van Kampen family
of shareholders in the last few months, you are likely to have questions and
even some concerns about how recent market volatility has affected your
investment. I encourage you to review the following Q&A in which your portfolio
manager provides an update on how your fund is being managed in this
environment.
It is times like these when money-management experience may make a difference.
Toward that end, you should know that Van Kampen is one of the nation's oldest
investment-management firms, with a history of money management dating back to
1926. Our portfolio managers have invested in all types of market
conditions--during bull and bear markets, periods of inflation and rising
interest rates, and now a technology revolution. We have managed money long
enough to understand short-term market volatility and the value of investing for
the long term.
As we move through the second half of 2000, count on us to
continue to draw on the wisdom of our 74 years of experience.
Along those lines, Van Kampen's "Generations of Experience" is
the theme of a national advertising campaign that we recently kicked off. The
message emphasizes our depth of investment-management history, as well as our
firm belief that with the right investments, anyone can realize life's true
wealth.
Sincerely,
[SIG]
Richard F. Powers, III
President and CEO
Van Kampen Investments
1
<PAGE> 3
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
BEGINNING IN THE SECOND QUARTER OF 2000, EVIDENCE OF SLOWER ECONOMIC GROWTH IN
THE UNITED STATES EMERGED. HOWEVER, ANALYSTS BELIEVE IT MAY HAVE BEEN PREMATURE
TO ASSUME THAT THE U.S. ECONOMY HAS SLOWED TO A SUSTAINABLE, NONINFLATIONARY
PACE, WITH THE GROSS DOMESTIC PRODUCT (GDP), A MEASURE OF ECONOMIC GROWTH, UP
5.2 PERCENT ANNUALIZED IN THE SECOND QUARTER OF 2000.
CONSUMER SPENDING AND EMPLOYMENT
CONSUMER SPENDING REMAINED THE MAIN ENGINE OF GROWTH BEHIND THE U.S. ECONOMY.
LIVING STANDARDS AND SPENDING HABITS WERE BOOSTED BY STRONG GAINS IN REAL
INCOME, AND INDIVIDUAL WEALTH INCREASED SUBSTANTIALLY, PRIMARILY DUE TO A
BUOYANT STOCK MARKET. NONETHELESS, DATA RELEASED IN THE SECOND QUARTER OF 2000
REFLECTED A MINOR DECREASE IN THE SPENDING OF INDIVIDUALS. IN JUNE, THE CONSUMER
PRICE INDEX (CPI), THE LEADING INFLATION INDICATOR, ROSE HIGHER THAN
EXPECTED--0.6 PERCENT MORE THAN THE PREVIOUS MONTH. THAT HEIGHTENED CONCERNS
ABOUT INFLATION, AND THE PROSPECT OF ADDITIONAL FEDERAL RESERVE BOARD
INTEREST-RATE INCREASES.
THE U.S. LABOR MARKET WAS STILL ROBUST DURING THIS TIME, AND JOB INSECURITY
CONTINUED TO DECLINE. SOLID EMPLOYMENT GROWTH WAS ACCOMPANIED BY UNUSUALLY LARGE
GAINS IN PRODUCTIVITY, WHICH LIMITED THE RISE IN UNIT LABOR COSTS ACROSS THE
WHOLE ECONOMY. GIVEN THE HIGH EMPLOYMENT NUMBERS AND STRONG LEVELS OF
PRODUCTIVITY, ANALYSTS BELIEVE AN INCREASE IN INTEREST RATES TO WARD OFF
INFLATION AND FURTHER SLOW THE ECONOMY IS POSSIBLE.
INTEREST RATES AND INFLATION
DURING THE PAST FEW MONTHS, PERSISTENT STRENGTH IN CONSUMER SPENDING ACCOMPANIED
BY A VERY TIGHT LABOR MARKET, RESULTED IN SOME INFLATION. THE CPI REACHED A
LEVEL OF 2.7 PERCENT IN JANUARY 2000 AND 3.7 PERCENT IN JUNE 2000, CLEARLY
DEMONSTRATING SIGNS OF INFLATION.
SINCE JUNE 1999, THE FEDERAL RESERVE HAS INCREASED THE FEDERAL FUNDS RATE SIX
TIMES BY A TOTAL OF 175 BASIS POINTS TO LOWER ECONOMIC GROWTH AND DECREASE ANY
FUTURE FEARS OF INFLATION. THESE INCREASES IN INTEREST RATES HELPED SLOW THE
INTEREST-SENSITIVE AUTO AND HOUSING MARKETS.
MANY OBSERVERS BELIEVE INTEREST RATES COULD BE LIFTED FURTHER IN COMING MONTHS.
WHILE MARKETS HAVE EXPERIENCED MUCH SHORT-TERM VOLATILITY, THE MARKET'S OUTLOOK
COULD IMPROVE ONCE INTEREST-RATE HIKES CEASE.
2
<PAGE> 4
U.S. GROSS DOMESTIC PRODUCT
SEASONALLY ADJUSTED ANNUALIZED RATES
(June 30, 1998 -- June 30, 2000)
[BAR GRAPH]
<TABLE>
<CAPTION>
U.S. GROSS DOMESTIC PRODUCT
---------------------------
<S> <C>
Jun 98 2.10
Sep 98 3.80
Dec 98 5.90
Mar 99 3.50
Jun 99 2.50
Sep 99 5.70
Dec 99 8.30
Mar 00 4.80
Jun 00 5.20
</TABLE>
Source: Bureau of Economic Analysis
INTEREST RATES AND INFLATION
(June 30, 1998 -- June 30, 2000)
[BAR GRAPH]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Jun 98 5.50 1.70
5.50 1.70
5.50 1.60
Sep 98 5.25 1.50
5.00 1.50
4.75 1.50
Dec 98 4.75 1.60
4.75 1.70
4.75 1.60
Mar 99 4.75 1.70
4.75 2.30
4.75 2.10
Jun 99 5.00 2.00
5.00 2.10
5.25 2.30
Sep 99 5.25 2.60
5.25 2.60
5.50 2.60
Dec 99 5.50 2.70
5.50 2.70
5.75 3.20
Mar 00 6.00 3.70
6.00 3.00
6.50 3.10
Jun 00 6.50 3.70
</TABLE>
Interest rates are represented by the closing midline federal funds target rate
on the last day of each month. Inflation is indicated by the annual percent
change of the Consumer Price Index for all urban consumers at the end of each
month.
3
<PAGE> 5
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(as of June 30, 2000)
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Six-month total return based on
NAV(1) 2.56% 2.25% 2.26%
-------------------------------------------------------------------------
Six-month total return(2) 0.26% 0.26% 1.51%
-------------------------------------------------------------------------
One-year total return(2) 1.75% 1.38% 2.65%
-------------------------------------------------------------------------
Five-year average annual total
return(2) 4.18% 3.88% 3.91%
-------------------------------------------------------------------------
Ten-year average annual total
return(2) 4.99% N/A N/A
-------------------------------------------------------------------------
Life-of-Fund average annual total
return(2) 5.34% 3.72%(3) 3.57%
-------------------------------------------------------------------------
Commencement date 06/16/86 11/05/91 05/10/93
-------------------------------------------------------------------------
Distribution rate(4) 5.44% 4.79% 5.15%
-------------------------------------------------------------------------
SEC Yield(5) 6.67% 6.04% 6.46%
-------------------------------------------------------------------------
</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 Class A Shares) or
contingent deferred sales charge ("CDSC"). On purchases of Class A Shares of $1
million or more, a CDSC of 1% may be imposed on certain redemptions made within
one year of purchase. Returns for Class B Shares are calculated without the
effect of the maximum 2% CDSC, charged on certain redemptions made within one
year of purchase and declining thereafter to 0% after the fourth year. Returns
for Class C Shares are calculated without the effect of the maximum .75% CDSC,
charged on certain redemptions made within one year of purchase. If the sales
charges were included, total returns 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 Class A
Shares) or contingent deferred sales charge ("CDSC"). On purchases of Class A
Shares of $1 million or more, a CDSC of 1% may be imposed on certain redemptions
made within one year of purchase. Returns for Class B Shares are calculated with
the effect of the maximum 2% CDSC, charged on certain redemptions made within
one year of purchase and declining thereafter to 0% after the fourth year.
Returns for Class C Shares are calculated with the effect of the maximum .75%
CDSC, charged on certain redemptions made within one year of purchase.
(3) The total return reflects the conversion of Class B Shares into Class A
Shares six years after the end of the calendar month in which the shares were
purchased. See footnote 3 in the Notes to Financial Statements for additional
information.
(4) Distribution rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.
4
<PAGE> 6
(5) 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 June 30, 2000. 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 6.43%, 5.80%,
and 6.21% for Classes A, B, and C, respectively.
An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. Please review the Risk/Return Summary of
the Prospectus for further details on investment risks. Fund shares, when
redeemed, may be worth more or less than their original cost. Past performance
is no guarantee of future results. Investment return and net asset value will
fluctuate with market conditions.
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.
Market forecasts provided in this report may not necessarily come to pass.
5
<PAGE> 7
PORTFOLIO AT A GLANCE
SIX-MONTH DIVIDEND HISTORY
(for the six months ending June 30, 2000)
[BAR GRAPH]
<TABLE>
<CAPTION>
DIVIDENDS
---------
<S> <C>
1/00 0.0545
2/00 0.0545
3/00 0.0545
4/00 0.0545
5/00 0.0545
6/00 0.0545
</TABLE>
The dividend history represents past performance of the fund's Class A shares
and is no guarantee of the fund's future dividends.
ASSET ALLOCATION
(as a percentage of long-term investments)
[BAR GRAPH]
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
------------- -----------------
<S> <C> <C>
CMOS 38.9 38.8
Treasury Notes 32.3 16.3
Asset-Backed Securities 13.5 22.6
FNMA 5.3 6.2
GNMA 4.1 8.7
ARMs 3.9 4.5
FHLMC 2.0 2.9
</TABLE>
COUPON DISTRIBUTION
(as a percentage of long-term investments--June 30, 2000)
[BAR GRAPH]
<TABLE>
<CAPTION>
COUPON DISTRIBUTION
-------------------
<S> <C>
6-6.9 46.6
7-7.9 29.7
8-8.9 1.7
9-9.9 2.8
10 or more 19.2
</TABLE>
6
<PAGE> 8
Q&A WITH YOUR PORTFOLIO MANAGERS
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
AND INFLUENCED THE FUND'S RETURN DURING THE SIX MONTHS ENDED JUNE 30, 2000. THE
TEAM IS LED BY TED V. MUNDY, SENIOR PORTFOLIO MANAGER, WHO HAS MANAGED THE FUND
SINCE JUNE 1994 AND HAS WORKED IN THE INVESTMENT INDUSTRY SINCE 1987. THE
FOLLOWING DISCUSSION REFLECTS HIS VIEWS ON THE FUND'S PERFORMANCE.
Q HOW WOULD YOU DESCRIBE THE
MARKET ENVIRONMENT IN WHICH THE FUND OPERATED, AND HOW DID THE FUND PERFORM
IN THAT ENVIRONMENT?
A The market for U.S. government
securities was driven by concerns over the reaction of the Federal Reserve Board
to consistently above-trend economic growth in the United States. In February,
new-car sales hit an all-time record, and strong consumer demand helped push
overall economic growth to a robust 5.1 percent annualized rate during the first
quarter.
But while inflation remained tame, Fed policymakers worried that it was only
a matter of time before prices began rising more quickly. The inflationary
outlook was complicated by a sharp upward spike in energy costs. Oil prices, for
example, climbed from $24 a barrel in January to $32 a barrel in June. In a
continuation of its preemptive moves against inflation, the Fed increased
short-term interest rates by a total of one percentage point during the period.
In May, however, signs began to appear that the Fed's series of rate hikes was
finally having its intended effect.
For the six-month period ended June 30, 2000, the fund generated a total
return of 2.56 percent (Class A shares at net asset value; if the maximum sales
charge of 2.25 percent were included, the return would have been lower). As a
result of recent market activity, current performance may vary from the figures
shown. By comparison, the Lehman Brothers Mutual Fund One- to Two-Year
Government Index posted a total return of 2.97 percent for the same period. This
broad-based 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. Such
costs would lower the performance of the index. It is not possible to invest
directly in an index. Of course, past performance is no guarantee of future
results. Please refer to the chart and footnotes on page 4 for additional fund
performance results.
Additionally, the fund's Class A shares provided shareholders with a
competitive distribution rate of 5.44 percent, based upon the
7
<PAGE> 9
maximum offering price as of June 30, 2000, and a monthly dividend of $0.0545
per share.
Q WHAT HAPPENED TO GOVERNMENT
SECURITIES DURING THIS TIME?
A As the period began, two-year
Treasuries were yielding slightly less than five-year Treasuries. By the end of
the period, two-year Treasuries were yielding slightly more than five-year
Treasuries. This unusual inversion of the yield curve developed for three
reasons. First, investors thought that the Fed would eventually get inflationary
pressures under control, and thus felt comfortable buying longer-term bonds.
Second, higher short-term bond yields reflected concerns that the Fed would need
to hike the key federal funds rate further to slow the red-hot U.S. economy. And
finally, the government's program of reducing the national debt through the
repurchase of Treasury securities involves the buying back of longer-term debt
securities. Investors' fears of a shortage of long-term Treasury bonds caused
demand for existing supply to increase. These factors helped push the yield on
two-year Treasury notes from 6.39 percent in January to as high as 6.92 percent
in May. After evidence emerged that the U.S. economy might be cooling, the yield
on two-year Treasury notes fell sharply to 6.29 percent by the end of the
period.
Q WHAT WERE YOUR STRATEGIES FOR
MANAGING THE PORTFOLIO DURING THIS PERIOD?
A Entering the period, we believed
that the Fed would continue raising interest rates until it was evident that a
growth slowdown was underway. Accordingly, we positioned the portfolio to
minimize the impact of rising rates. Specifically, we increased the fund's
long-term investments in floating-rate securities, whose yields are reset
monthly. We also reduced the fund's exposure to two-year Treasury notes, whose
value might be negatively impacted by Fed policy. Finally, we increased our
holdings of five-year Treasuries, which would be less affected by upward
pressure on the extreme short end of the yield curve.
Late in the period, we detected signs that the combination of Fed rate hikes
and the slide in stock prices was beginning to take its toll on economic growth.
As a result, we lowered our exposure to floating-rate securities and shifted
some funds out of five-year Treasury notes and into two-year Treasury notes in
anticipation of the yield curve reverting to its normal configuration.
8
<PAGE> 10
Q HOW DID THE FUND'S STRATEGIES
CONTRIBUTE TO PERFORMANCE?
A These strategies contributed
positively to performance relative to the fund's peers. In particular, our
decision to hold a significant percentage of the fund's assets in floating-rate
securities during the early months of the period was rewarded as interest rates
rose. Also, the fund benefited from holding a significant percentage of its
fixed-rate assets in five-year Treasury notes during the early months of the
period.
Q WHAT IS YOUR OUTLOOK FOR THE
MARKET AND THE FUND IN THE MONTHS AHEAD?
A Although growth in the United
States remains robust, there are indications that the pace of economic activity
is moderating. In recent weeks, manufacturing, housing, and consumer spending
each have fallen from highs reached this spring. Because the Fed is unlikely to
raise interest rates during the presidential election campaign, we believe that
an end to the current round of interest-rate hikes is close at hand.
With growth slowing and the Fed moving to the sidelines, we expect the yield
curve to return to a more normal or positive configuration, in which long-term
interest rates are higher than those on the short end of the curve. The fund's
move away from five-year Treasuries and toward two-year Treasuries late in the
period was designed to benefit from such a change. We are also optimistic about
the outlook for mortgage-backed securities, which represented approximately 60
percent of the portfolio at the end of the period. Yield spreads between
mortgages and Treasuries remain high, and we expect those spreads to narrow over
time.
9
<PAGE> 11
GLOSSARY OF TERMS
A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.
CLASS A SHARES: A division of mutual fund shares, which are generally divided
into three groupings, called Class A, Class B, and Class C shares. The specific
features of each are dependent on varying fees and sales charges. In most cases,
Class A shares will have no redemption fee (contingent deferred sales charge).
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank 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.
NET ASSET VALUE (NAV): The value of a mutual fund share, calculated by deducting
a fund's liabilities from the total assets in its portfolio and dividing this
amount by the number of shares outstanding. The NAV does not include any initial
or contingent deferred sales charge.
YIELD: The annual rate of return on an investment, expressed as a percentage.
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.
10
<PAGE> 12
BY THE NUMBERS
YOUR FUND'S INVESTMENTS
June 30, 2000 (Unaudited)
THE FOLLOWING PAGES DETAIL YOUR FUND'S PORTFOLIO OF INVESTMENTS AT THE END OF
THE REPORTING PERIOD.
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
ADJUSTABLE RATE MORTGAGE-BACKED SECURITIES 4.4%
$ 42 Federal Home Loan Mortgage Corp.
Pools (a)......................... 9.925% 02/01/18 $ 41,935
533 Federal National Mortgage
Association Pools (a)............. 7.057 03/01/19 541,834
1,216 Federal National Mortgage
Association Pools (a)............. 7.561 09/01/19 1,239,117
-----------
TOTAL ADJUSTABLE RATE MORTGAGE-BACKED SECURITIES................ 1,822,886
-----------
ASSET BACKED SECURITIES 15.1%
2,500 First USA Credit Card Master Trust
(Variable Rate Coupon) (a)........ 6.757 10/19/06 2,505,375
2,500 MBNA Master Credit Card Trust
II (a)............................ 6.801 02/15/06 2,501,825
1,314 PacificAmerica Home Equity Loan
(Variable Rate Coupon) (a)........ 6.911 12/25/27 1,308,996
-----------
TOTAL ASSET BACKED SECURITIES................................... 6,316,196
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS 43.6%
4,993 Federal Home Loan Mortgage Corp.
(PAC) (a)......................... 6.250 07/15/18 4,962,509
283 Federal Home Loan Mortgage Corp.
(PAC--Variable Rate Coupon) (a)... 7.187 04/15/20 283,332
3,500 Federal National Mortgage
Association....................... 6.625 04/15/02 3,484,040
4,077 Federal National Mortgage
Association (REMIC) (a)........... 7.000 03/25/04 4,059,766
2,077 Federal National Mortgage
Association (REMIC, PAC) (a)...... 7.000 01/25/03 2,065,113
3,377 Government National Mortgage
Association (REMIC--Variable Rate
Coupon) (a)....................... 7.050 09/16/19 3,368,841
-----------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS....................... 18,223,601
-----------
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
YOUR FUND'S INVESTMENTS
June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
MORTGAGE-BACKED SECURITIES 12.7%
$ 712 Federal Home Loan Mortgage Corp.
30 Year Pools..................... 9.250% 12/01/15 $ 731,620
192 Federal Home Loan Mortgage Corp.
15 Year Pools..................... 9.500 12/01/01 199,200
1,096 Federal National Mortgage
Association 30 Year Pools
(15 Year Dwarf)................... 6.500 11/01/09 to 01/01/13 1,058,485
740 Federal National Mortgage
Association 30 Year Pools......... 8.500 05/01/21 to 04/01/25 757,462
195 Federal National Mortgage
Association 30 Year Pools......... 9.500 07/01/11 to 09/01/20 201,613
420 Federal National Mortgage
Association 30 Year Pools......... 10.000 05/01/21 443,313
1,335 Government National Mortgage
Association 30 Year Pools......... 7.500 06/15/28 to 08/15/28 1,325,542
49 Government National Mortgage
Association 30 Year Pools......... 8.500 06/15/16 to 01/15/17 50,021
112 Government National Mortgage
Association 30 Year Pools......... 9.500 03/15/16 to 01/15/19 116,681
214 Government National Mortgage
Association 30 Year Pools......... 10.000 03/15/16 to 04/15/19 225,954
90 Government National Mortgage
Association 30 Year Pools......... 10.500 05/15/13 to 02/15/18 97,187
112 Government National Mortgage
Association 30 Year Pools......... 11.000 11/15/18 121,630
-----------
TOTAL MORTGAGE-BACKED SECURITIES................................ 5,328,708
-----------
U.S. TREASURY OBLIGATIONS 21.9%
1,000 United States Treasury Notes
(a)............................... 7.875 08/15/01 1,015,250
4,300 United States Treasury Bonds...... 11.625 11/15/02 4,782,073
3,000 United States Treasury Bonds...... 14.250 02/15/02 3,354,090
-----------
TOTAL U.S. TREASURY OBLIGATIONS................................. 9,151,413
-----------
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
YOUR FUND'S INVESTMENTS
June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
MARKET
DESCRIPTION VALUE
<C> <S> <C> <C> <C>
TOTAL LONG-TERM INVESTMENTS 97.7%
(Cost $41,014,523)...................................................... $40,842,804
REPURCHASE AGREEMENT 1.9%
State Street Bank ($790,000 par, collateralized by U.S. Government
obligations in a pooled cash account, dated 06/30/00, to be sold on
07/03/00 at $790,425)
(Cost $790,000)......................................................... 790,000
-----------
TOTAL INVESTMENTS 99.6%
(Cost $41,804,523)...................................................... 41,632,804
OTHER ASSETS IN EXCESS OF LIABILITIES 0.4%............................... 167,822
-----------
NET ASSETS 100.0%........................................................ $41,800,626
===========
</TABLE>
(a) Assets segregated as collateral for open futures and forward transactions.
PAC--Planned Amortization Class
REMIC--Real Estate Mortgage Investment Conduits
See Notes to Financial Statements
13
<PAGE> 15
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
June 30, 2000 (Unaudited)
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $41,804,523)........................ $ 41,632,804
Forward Commitments......................................... 6,016,740
Cash........................................................ 210
Receivables:
Interest.................................................. 564,164
Fund Shares Sold.......................................... 65,058
Variation Margin on Futures............................... 1,094
Other....................................................... 165,949
------------
Total Assets............................................ 48,446,019
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 6,129,631
Fund Shares Repurchased................................... 147,041
Income Distributions...................................... 73,643
Distributor and Affiliates................................ 58,808
Investment Advisory Fee................................... 6,672
Trustees' Deferred Compensation and Retirement Plans........ 178,219
Accrued Expenses............................................ 51,379
------------
Total Liabilities....................................... 6,645,393
------------
NET ASSETS.................................................. $ 41,800,626
============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $ 52,434,310
Accumulated Distributions in Excess of Net Investment
Income.................................................... (33,101)
Net Unrealized Depreciation................................. (142,637)
Accumulated Net Realized Loss............................... (10,457,946)
------------
NET ASSETS.................................................. $ 41,800,626
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $32,541,263 and 2,768,871 shares of
beneficial interest issued and outstanding)............. $ 11.75
Maximum sales charge (2.25% of offering price).......... .27
------------
Maximum offering price to public........................ $ 12.02
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $6,565,558 and 556,526 shares of
beneficial interest issued and outstanding)............. $ 11.80
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $2,693,805 and 228,932 shares of
beneficial interest issued and outstanding)............. $ 11.77
============
</TABLE>
* On sales of $25,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
14
<PAGE> 16
Statement of Operations
For the Six Months Ended June 30, 2000 (Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 1,552,247
-----------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $37,823, $41,476 and $15,461,
respectively)............................................. 94,760
Investment Advisory Fee..................................... 88,250
Registration and Filing Fees................................ 44,137
Trustees' Fees and Related Expenses......................... 34,967
Shareholder Services........................................ 34,770
Accounting.................................................. 21,039
Shareholder Reports......................................... 18,986
Custody..................................................... 8,803
Legal....................................................... 1,660
Other....................................................... 13,487
-----------
Total Expenses.......................................... 360,859
Investment Advisory Fee Reduction....................... 43,995
Less Credits Earned on Cash Balances.................... 176
-----------
Net Expenses............................................ 316,688
-----------
NET INVESTMENT INCOME....................................... $ 1,235,559
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ (353,006)
Forward Commitments....................................... (18,047)
Futures................................................... (57,569)
-----------
Net Realized Loss........................................... (428,622)
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (396,018)
-----------
End of the Period:
Investments............................................. (171,719)
Forward Commitments..................................... 5,490
Futures................................................. 23,592
-----------
(142,637)
-----------
Net Unrealized Appreciation During the Period............... 253,381
-----------
NET REALIZED AND UNREALIZED LOSS............................ $ (175,241)
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 1,060,318
===========
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
Statement of Changes in Net Assets
For the Six Months Ended June 30, 2000 and the Year Ended December 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
----------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................ $ 1,235,559 $ 2,639,596
Net Realized Loss.................................... (428,622) (796,086)
Net Unrealized Appreciation/Depreciation During
the Period......................................... 253,381 (807,110)
------------ ------------
Change in Net Assets from Operations................. 1,060,318 1,036,400
------------ ------------
Distributions from Net Investment Income............. (1,167,264) (2,593,346)
Distributions in Excess of Net Investment Income..... (33,101) (29,021)
------------ ------------
Distributions from and in Excess of Net
Investment Income*................................. (1,200,365) (2,622,367)
------------ ------------
NET CHANGE IN NET ASSETS FROM
INVESTMENT ACTIVITIES.............................. (140,047) (1,585,967)
------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold............................ 14,988,660 54,166,511
Net Asset Value of Shares Issued Through Dividend
Reinvestment....................................... 782,684 1,636,980
Cost of Shares Repurchased........................... (25,240,259) (53,774,412)
------------ ------------
NET CHANGE IN NET ASSETS FROM
CAPITAL TRANSACTIONS............................... (9,468,915) 2,029,079
------------ ------------
TOTAL INCREASE/DECREASE IN NET ASSETS................ (9,608,962) 443,112
NET ASSETS:
Beginning of the Period.............................. 51,409,588 50,966,476
------------ ------------
End of the Period (Including accumulated
distributions in excess of net investment income of
$33,101 and $68,295 respectively).................. $ 41,800,626 $ 51,409,588
============ ============
* Distribution by Class
-----------------------------------------------------
Distributions from and in Excess of Net Investment
Income:
Class A Shares..................................... $ (904,920) $ (1,954,418)
Class B Shares..................................... (207,339) (506,678)
Class C Shares..................................... (88,106) (161,271)
------------ ------------
$ (1,200,365) $ (2,622,367)
============ ============
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED YEAR ENDED DECEMBER 31,
CLASS A SHARES JUNE 30, ----------------------------------------
2000(A) 1999(A) 1998(A) 1997 1996
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD........................... $11.782 $12.160 $12.191 $12.151 $ 12.41
------- ------- ------- ------- -------
Net Investment Income............ .337 .645 .685 .685 .627
Net Realized and Unrealized Gain/
Loss........................... (.039) (.381) (.043) .015 (.226)
------- ------- ------- ------- -------
Total from Investment Operations... .298 .264 .642 .700 .401
Less Distributions from and in
Excess of Net Investment
Income........................... .327 .642 .673 .660 .660
------- ------- ------- ------- -------
NET ASSET VALUE, END OF THE
PERIOD........................... $11.753 $11.782 $12.160 $12.191 $12.151
======= ======= ======= ======= =======
Total Return* (b).................. 2.56%** 2.22% 5.40% 5.92% 3.34%
Net Assets at End of the Period (In
millions)........................ $ 32.5 $ 37.0 $ 35.2 $ 39.4 $ 40.2
Ratio of Expenses to Average Net
Assets* (c)...................... 1.25% 1.42% 1.42% 1.32% 1.45%
Ratio of Net Investment Income to
Average Net Assets*.............. 5.74% 5.40% 5.61% 5.68% 5.23%
Portfolio Turnover................. 111%** 153% 249% 175% 260%
* 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)....................... 1.45% 1.47% N/A N/A 1.47%
Ratio of Net Investment Income to
Average Net Assets............... 5.54% 5.35% N/A N/A 5.21%
</TABLE>
** Non-Annualized
(a) Based on average shares outstanding.
(b) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge of 2.25% or contingent deferred
sales charge ("CDSC"). On purchases of $1 million or more, a CDSC of 1% may
be imposed on certain redemptions made within one year of purchase. If the
sales charges were included, total returns would be lower.
(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
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED YEAR ENDED DECEMBER 31,
CLASS B SHARES JUNE 30, ----------------------------------------
2000(A) 1999(A) 1998(A) 1997(A) 1996(A)
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD........................... $11.824 $12.197 $12.220 $12.174 $ 12.43
------- ------- ------- ------- -------
Net Investment Income............ .288 .557 .590 .598 .550
Net Realized and Unrealized Gain/
Loss........................... (.032) (.381) (.036) .012 (.242)
------- ------- ------- ------- -------
Total from Investment Operations... .256 .176 .554 .610 .308
Less Distributions from and in
Excess of Net Investment
Income........................... .283 .549 .577 .564 .564
------- ------- ------- ------- -------
NET ASSET VALUE, END OF THE
PERIOD........................... $11.797 $11.824 $12.197 $12.220 $12.174
======= ======= ======= ======= =======
Total Return* (b).................. 2.25%** 1.42% 4.65% 5.08% 2.69%
Net Assets at End of the Period (In
millions)........................ $ 6.6 $ 9.9 $ 12.4 $ 16.2 $ 22.5
Ratio of Expenses to Average Net
Assets* (c)...................... 1.98% 2.18% 2.19% 2.11% 2.19%
Ratio of Net Investment Income to
Average Net Assets*.............. 5.02% 4.64% 4.82% 4.92% 4.50%
Portfolio Turnover................. 111%** 153% 249% 175% 260%
* 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)....................... 2.18% 2.23% N/A N/A 2.22%
Ratio of Net Investment Income to
Average Net Assets............... 4.82% 4.59% N/A N/A 4.47%
</TABLE>
** Non-Annualized
(a) Based on average shares outstanding.
(b) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum contingent deferred sales charge of 2%,
charged on certain redemptions made within one year of purchase and
declining thereafter to 0% after the fourth year. If the sales charge was
included, total returns would be lower.
(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
Financial Highlights
(Unaudited)
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED YEAR ENDED DECEMBER 31,
CLASS C SHARE JUNE 30, ----------------------------------------
2000(A) 1999(A) 1998(A) 1997 1996
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF THE
PERIOD........................... $11.813 $12.182 $12.206 $12.162 $ 12.42
------- ------- ------- ------- -------
Net Investment Income............ .295 .556 .582 .597 .554
Net Realized and Unrealized
Gain/Loss...................... (.038) (.372) (.029) .011 (.248)
------- ------- ------- ------- -------
Total from Investment Operations... .257 .184 .553 .608 .306
Less Distributions from and in
Excess of Net Investment
Income........................... .303 .553 .577 .564 .564
------- ------- ------- ------- -------
NET ASSET VALUE, END OF THE
PERIOD........................... $11.767 $11.813 $12.182 $12.206 $12.162
======= ======= ======= ======= =======
Total Return* (b).................. 2.26%** 1.54% 4.57% 5.17% 2.62%
Net Assets at End of the Period (In
millions)........................ $ 2.7 $ 4.6 $ 3.3 $ 4.2 $ 4.7
Ratio of Expenses to Average Net
Assets* (c)...................... 1.66% 2.17% 2.19% 2.10% 2.20%
Ratio of Net Investment Income to
Average Net Assets*.............. 5.34% 4.65% 4.76% 4.92% 4.48%
Portfolio Turnover................. 111%** 153% 249% 175% 260%
* 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)....................... 1.86% 2.23% N/A N/A 2.22%
Ratio of Net Investment Income to
Average Net Assets............... 5.14% 4.60% N/A N/A 4.45%
</TABLE>
** Non-Annualized
(a) Based on average shares outstanding.
(b) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum contingent deferred sales charge of .75%,
charge on certain redemptions made within one year of purchase. If the sales
charge was included, total returns would be lower.
(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
19
<PAGE> 21
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
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 marking
the commitment to market on a daily basis. Certain forward commitments are
entered
20
<PAGE> 22
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
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 accreted 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.
At June 30, 2000, for federal income tax purposes the cost of long- and
short-term investments is $41,804,523, the aggregate gross unrealized
appreciation is $192,229 and the aggregate gross unrealized depreciation is
$363,948, resulting in net unrealized depreciation on long- and short-term
investments of $171,719.
21
<PAGE> 23
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
E. DISTRIBUTION OF INCOME AND GAINS The Fund declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed annually.
Due to inherent differences in the recognition of distributions from income
under generally accepted accounting principles and federal income tax purposes,
the amount of distributable net investment income may differ between book and
federal income tax purposes for a particular period. These differences are
temporary in nature, but may result in distributions in excess of net investment
income for certain periods.
F. EXPENSE REDUCTIONS During the six months ended June 30, 2000, the Fund's
custody fee was reduced by $176 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, 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 $500 million.......................................... .400 of 1%
Next $500 million........................................... .375 of 1%
Over $1 billion............................................. .350 of 1%
</TABLE>
For the six months ended June 30, 2000, the Adviser voluntarily waived
$43,995 of its investment advisory fees. This waiver is voluntary and can be
discontinued at the Adviser's discretion.
For the six months ended June 30, 2000, the Fund recognized expenses of
approximately $1,700 representing legal services provided by Skadden, Arps,
Slate,
22
<PAGE> 24
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the Fund
is an affiliated person.
For the six months ended June 30, 2000, the Fund recognized expenses of
approximately $4,800 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 six months ended June 30,
2000, the Fund recognized expenses of approximately $32,200. 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.
23
<PAGE> 25
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
3. CAPITAL TRANSACTIONS
At June 30, 2000, capital aggregated $44,215,610, $5,797,777 and $2,420,923
for Classes A, B and C, respectively. For the six months ended June 30, 2000,
transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A................................................. 840,472 $ 9,848,866
Class B................................................. 304,609 3,589,752
Class C................................................. 131,984 1,550,042
---------- ------------
Total Sales............................................... 1,277,065 $ 14,988,660
========== ============
Dividend Reinvestment:
Class A................................................. 51,973 $ 608,971
Class B................................................. 10,034 118,067
Class C................................................. 4,739 55,646
---------- ------------
Total Dividend Reinvestment............................... 66,746 $ 782,684
========== ============
Repurchases:
Class A................................................. (1,260,334) $(14,785,632)
Class B................................................. (593,561) (6,984,401)
Class C................................................. (295,031) (3,470,226)
---------- ------------
Total Repurchases......................................... (2,148,926) $(25,240,259)
========== ============
</TABLE>
24
<PAGE> 26
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
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>
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 thereon, 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 thereon, automatically convert to Class A Shares six years after the
end of the calendar month in which the shares were purchased. For the six months
ended June 30, 2000 and the year ended December 31, 2000, 212,282 and 254,197
Class B Shares converted to Class A Shares, respectively 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 thereon, 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 January 1, 1997 do not possess a conversion
feature. For the six months ended June 30, 2000 and the year ended December 31,
2000, no Class C Shares converted to Class A Shares. The CDSC for Class B and C
Shares
25
<PAGE> 27
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
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.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
AS A PERCENTAGE
OF DOLLAR AMOUNT
SUBJECT TO CHANGE
--------------------------
YEAR OF REDEMPTION CLASS B CLASS C
<S> <C> <C>
First...................................................... 2.00% .75%
Second..................................................... 1.50% None
Third...................................................... 1.00% None
Fourth..................................................... 0.50% None
Fifth and Thereafter....................................... None None
</TABLE>
For the six months ended June 30, 2000, Van Kampen, as Distributor for the
Fund, received net commissions on sales of the Fund's Class A Shares of
approximately $3,600 and CDSC on redeemed shares of approximately $29,700. 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 and forward commitment transactions, were
$55,324,185 and $49,303,069, 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,
26
<PAGE> 28
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
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 six months ended June 30, 2000,
were as follows:
<TABLE>
<CAPTION>
CONTRACTS
<S> <C>
Outstanding at December 31, 1999............................ 30
Futures Opened.............................................. 98
Futures Closed.............................................. (118)
----
Outstanding at June 30, 2000................................ 10
====
</TABLE>
The futures contracts outstanding as of June 30, 2000, 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 September 2000 (Current
notional value $97,219 per contract)...................... 10 $23,592
== =======
</TABLE>
27
<PAGE> 29
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
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.
The Fund's market exposure from these positions is equal to the Current
Value noted below. The following forward commitment was outstanding as of June
30, 2000.
<TABLE>
<CAPTION>
UNREALIZED
PAR AMOUNT CURRENT APPRECIATION/
(000) DESCRIPTION VALUE DEPRECIATION
<S> <C> <C> <C>
LONG CONTRACT
$6,000 United States Treasury March Forward,
6.625%..................................... $6,016,740 $5,490
========== ======
</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.
28
<PAGE> 30
NOTES TO
FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
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, as amended, 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 six months ended June 30, 2000, are payments retained by Van Kampen
of approximately $48,600.
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, 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.
29
<PAGE> 31
VAN KAMPEN FUNDS
THE VAN KAMPEN
FAMILY OF FUNDS
Growth
Aggressive Growth
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth
Mid Cap Growth
Pace
Select Growth
Small Cap Value
Tax Managed Equity Growth
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
International Magnum
Latin American
Strategic Income
Tax Managed Global Franchise
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 [COMPUTER ICON]
- 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.
[PHONE ICON]
- e-mail us by visiting
WWW.VANKAMPEN.COM and
selecting Contact Us
[MAIL ICON]
* Closed to new investors
** Open to new investors for a limited time
30
<PAGE> 32
FUND OFFICERS AND IMPORTANT ADDRESSES
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
OFFICERS
RICHARD F. POWERS, III*
President
STEPHEN L. BOYD*
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
RICHARD A. CICCARONE*
JOHN R. REYNOLDSON*
MICHAEL H. SANTO*
JOHN H. ZIMMERMANN, 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 AUDITORS(1)
ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, Illinois 60606
(1) Independent auditors for the Fund perform an annual audit of the Fund's
financial statements. The Board of Trustees has engaged Ernst & Young LLP to be
the Fund's independent auditors. PricewaterhouseCoopers LLP ceased being the
Fund's independent auditors effective May 18, 2000. The cessation of the
client-auditor relationship between the Fund and PricewaterhouseCoopers was
based solely on a possible future business relationship by
PricewaterhouseCoopers with an affiliate of the Fund's investment adviser.
* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
(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 charges on
shares of the Fund, and other pertinent data. After November 30,
2000, the report, if used with prospective investors, must be accompanied by a
quarterly performance update.
31
