<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 3
Glossary of Terms................................ 4
Portfolio Management Review...................... 5
Portfolio Highlights............................. 7
Portfolio of Investments......................... 8
Statement of Assets and Liabilities.............. 11
Statement of Operations.......................... 12
Statement of Changes in Net Assets............... 13
Financial Highlights............................. 14
Notes to Financial Statements.................... 17
</TABLE>
USGF SAR 8/98
<PAGE> 2
LETTER TO SHAREHOLDERS
July 15, 1998
Dear Shareholder,
As you may know, Van Kampen
American Capital is consolidating all
of the retail mutual funds that we
distribute under the single name of [PHOTO]
Van Kampen Funds. This move
accompanies the change in our legal
name to Van Kampen Funds Inc. DENNIS J. MCDONNELL AND DON G. POWELL
You can be assured that the
change in your fund's name will not
affect its management or daily
operations. You will begin seeing the application of this change with this
report. In addition, as of August 31, your fund will be listed in the daily
newspapers by share class under the heading "Van Kampen Funds." For your
convenience, we have enclosed a separate brochure that covers additional details
related to these changes.
ECONOMIC REVIEW
The U.S. economy continued to expand at a robust pace despite a deepening
recession in Asia. The nation's inflation-adjusted output of goods and services
ran at 5.4 percent during the first quarter, an annualized rate considered by
many economists to be virtually unsustainable without leading to inflation. As
the reporting period ended, however, there were indications that the Asian
financial crisis was finally having a moderating impact on the economy. Also,
the Conference Board's index of leading indicators has forecasted a slowdown in
economic growth for later this year.
Despite the generally solid pace of economic activity, inflation remained
benign. Consumer prices rose by 1.7 percent during the 12 months through June,
while producer prices actually declined during the same period. Falling
commodity prices and the impact of the strong dollar helped to offset the
inflationary implications of a tight labor market and strong consumer spending.
While the Federal Reserve kept short-term interest rates steady at 5.5
percent during the reporting period, minutes from the central bank's May policy
meeting indicated growing sentiment for tightening monetary policy if the drag
from Asia does not slow the American economy on its own.
MARKET REVIEW
Domestic fixed-income securities benefited from a global flight to quality
by investors--caused by turmoil in Asia and by the growing perception that the
domestic economy was slowing. After starting the year at 5.92 percent, the yield
on the 30-year Treasury benchmark bond rose to over 6.00 percent during the
spring amid signs that some Asian economies were beginning to recover. When
weakness in the Japanese yen
Continued on page two
1
<PAGE> 3
undercut that recovery, U.S. bond prices surged, causing long-term government
yields to fall to 5.62 percent by the end of the reporting period.
While all sectors of the domestic fixed-income market posted positive
returns, strength was concentrated among longer-term, higher-quality issues. For
the first six months of 1998, long-term government bonds gained 6.27 percent,
compared to 4.51 percent for high-yield corporate bonds.
OUTLOOK
We believe economic growth is likely to moderate in coming months as the
impact of the Asian crisis becomes more evident. A return to the "Goldilocks"
economy--not too hot, not too cold--should allow long-term interest rates to
fall modestly from current levels. If fallout from Asia does not slow economic
activity enough to counteract the inflationary pressures building in the
economy, we would expect the Federal Reserve to raise short-term interest rates
by the end of the year.
Additional details about your fund, including a question-and-answer section
with your portfolio management team, are provided in this report. As always, we
are pleased to have the opportunity to serve you and your family through our
diverse menu of quality investments.
Sincerely,
[SIG]
Don G. Powell
Chairman
Van Kampen Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
2
<PAGE> 4
PERFORMANCE RESULTS FOR THE PERIOD ENDED JUNE 30, 1998
VAN KAMPEN U.S. GOVERNMENT FUND
<TABLE>
<CAPTION>
A Shares B Shares C Shares
<S> <C> <C> <C>
TOTAL RETURNS
Six-month total return based on NAV(1)..... 3.02% 2.54% 2.54%
Six-month total return(2).................. (1.88%) (1.44%) 1.54%
One-year total return(2)................... 3.29% 3.53% 6.53%
Five-year average annual total return(2)... 4.68% 4.61% N/A
Ten-year average annual total return(2).... 7.76% N/A N/A
Life-of-Fund average annual total
return(2)................................ 9.35% 5.31% 4.84%
Commencement date.......................... 05/31/84 08/24/92 08/13/93
DISTRIBUTION RATE AND YIELD
Distribution rate(3)....................... 6.61% 6.15% 6.15%
SEC Yield(4)............................... 5.73% 5.17% 5.17%
</TABLE>
N/A = Not Applicable
(1) Assumes reinvestment of all distributions for the period and does
not include payment of the maximum sales charge (4.75% for A shares) or
contingent deferred sales charge for early withdrawal (4% for B shares and 1%
for C shares).
(2) Standardized total return. Assumes reinvestment of all distributions for
the period and includes payment of the maximum sales charge (A shares) or
contingent deferred sales charge for early withdrawal (B and C shares).
(3) Distribution rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.
(4) SEC Yield is a standardized calculation prescribed by the Securities and
Exchange Commission for determining the amount of net income a portfolio should
theoretically generate for the 30-day period ending June 30, 1998.
See the Fund Performance section of the current prospectus. Past performance
does not guarantee 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 on specific securities in
the Fund's portfolio, not to the shares of the Fund. Fund shares, when redeemed,
may be worth more or less than their original cost.
Market forecasts provided in this report may not necessarily come to pass.
3
<PAGE> 5
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. The longer a fund's duration, the greater the effect of interest rate
movements on net asset value. Typically, funds with shorter durations have
performed better in rising rate environments, while funds with longer durations
have performed better when rates decline.
FEDERAL FUNDS RATE: The interest rate charged by one financial institution
lending federal funds to another. This overnight rate is used to meet banks'
daily reserve requirements. The Federal Reserve Board uses the federal funds
rate to affect the direction of interest rates.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank system of the United States. Its policy-making
committee, called the Federal Open Market Committee, meets eight times a year to
establish monetary policy and monitor the economic pulse of the U.S.
INFLATION: An economic state in which the money supply and business activity
dramatically increases, accompanied by sharply rising prices. Inflation is
widely measured by the Consumer Price Index, an economic indicator that measures
the change in the cost of purchased goods and services.
MORTGAGE-BACKED SECURITIES: Securities backed by pools of similar mortgages.
These securities are generally issued by agencies of the U.S. government, such
as Government National Mortgage Association (GNMA, or "Ginnie Mae") and Federal
Home Loan Mortgage Corporation (FHLMC, or "Freddie Mac").
NET ASSET VALUE (NAV): The value of a mutual fund share, calculated by deducting
a fund's liabilities from its total assets and dividing this amount by the
number of shares outstanding. The NAV does not include any initial or contingent
deferred sales charge.
YIELD: The annual rate of return on an investment, 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.
4
<PAGE> 6
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN U.S. GOVERNMENT FUND
We recently spoke with the management team of the Van Kampen U.S. Government
Fund about the key events and economic forces that shaped the markets during the
past six months. As of April 1, 1998, Peter W. Hegel, chief investment officer
for fixed-income investments, assumed the leadership role of the team that
includes portfolio comanagers Barbara Downey and Kelly Gilbert. The following
excerpts reflect their views on the Fund's performance during the six-month
period ended June 30, 1998.
Q HOW WOULD YOU DESCRIBE THE FIXED-INCOME MARKET DURING THE PAST SIX MONTHS?
A During the period, interest rates reached their lowest level since 1993
and the bond market remained stuck in a tight trading range, which limited
our investment opportunities. At the same time, long-term rates fell
closer to short-term rates, which narrowed the yield spread between long- and
short-term rates. Because mortgages are sensitive to long-term rates and rates
were at their lowest level, many homeowners began to refinance their mortgages
at lower interest rates.
In addition to the influence of long-term rates, increases in refinancing
could also be attributed to increased efficiency in the refinancing market. Both
factors contributed to higher-than-anticipated mortgage prepayment levels, which
had an effect on the return of mortgage-backed securities. Despite the negative
effect of prepayments, the total return earned in mortgage-backed securities was
comparable to that of U.S. Treasuries during the six-month period.
Q WHAT STRATEGY DID YOU EMPLOY TO MANAGE THE FUND IN THIS INVESTMENT
ENVIRONMENT?
A Historically, the Fund has functioned as a mortgage-backed securities
portfolio, with as much as 90 percent or more of its assets invested in
mortgage bonds. However, in this environment of low rates, mortgage-backed
securities traded above their face value and were increasingly vulnerable to
prepayment. Therefore, we shifted our exposure in long-term rates from
mortgage-backed securities to U.S. Treasuries.
Prepayments also shorten the duration of the portfolio. In order to
increase our duration and take advantage of the narrowing of the yield spread
between long- and short-term rates, we purchased 10- to 30-year government
bonds to replace the duration we lost due to prepayments of mortgage-backed
securities.
Overall, we maintained below-average exposure to mortgage-backed
securities and above-average exposure to government securities and Treasury
bonds. We also maintained a slightly above-benchmark duration during the
period. For additional Fund portfolio highlights, please refer to page seven.
5
<PAGE> 7
Q HOW DID THE FUND PERFORM DURING THE SIX-MONTH REPORTING PERIOD?
A The Fund generated a total return of 3.02 percent(1) (Class A shares at
net asset value) for the six-month period ended June 30, 1998. By
comparison, the Merrill Lynch 1- to 10-year Treasury Index generated a
total return of 8.45 percent, and the Lehman Brothers Mortgage Index returned
3.38 percent. These are broad-based indices that reflect general performance of
Treasury bonds and mortgage-backed securities, respectively. Neither index
reflects any commissions that would be paid by an investor purchasing the
securities they represent. Please refer to the chart on page three for
additional Fund performance results.
The forthcoming dividend reduction is the result of the increasing number
of mortgage prepayments. Nevertheless, dividends remained competitive during
the period, providing shareholders with a healthy stream of current income.
As of June 30, 1998, the Class A share distribution rate was 6.61 percent(3),
based on a monthly dividend of $.0842 per share and a maximum public offering
price of $15.28 per share on June 30, 1998.
Q WHAT IS YOUR OUTLOOK FOR THE FUND IN THE MONTHS AHEAD?
A Because current mortgage rates continue to decline, we expect mortgage
prepayments to remain brisk during the next few months. Therefore, we will
continue to increase our exposure to treasuries, especially if interest rates
decline.
Many variables will play a factor in our strategy during the next six
months. The strong domestic economy would normally lead to an interest rate
increase by the Federal Reserve Board. However, the turmoil in Asia has begun to
expose signs of weakness in the domestic economy and the Fed has become cautious
about adjusting rates in the short-term.
We will monitor the price of mortgage-backed securities looking to see
whether they become less expensive relative to treasuries. If mortgage-backed
securities begin trading at more favorable levels, we will look to increase our
exposure to this sector.
[SIG]
Barbara Downey
Portfolio Comanager
[SIG]
Kelly Gilbert
Portfolio Comanager
[SIG]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
Please see footnotes on page three
6
<PAGE> 8
PORTFOLIO HIGHLIGHTS
VAN KAMPEN U.S. GOVERNMENT FUND
COUPON DISTRIBUTION AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
LONG-TERM INVESTMENTS
<S> <C>
5.9 or less...................... 2.3%
6-6.9............................ 24.4%
7-7.9............................ 23.7%
8-8.9............................ 18.7%
9-9.9............................ 12.9%
10 or more....................... 18.0%
</TABLE>
PORTFOLIO COMPOSITION AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998 AS OF DECEMBER 31, 1997
<S> <C> <S> <C>
GNMA................. 40.7% GNMA................ 34.4%
Treasury Securities.. 26.2% Treasury Securities.. 19.2%
FNMA................. 24.3% [PIE CHART] FNMA................. 35.1% [PIE CHART]
REMIC/CMO............ 4.4% REMIC/CMO............ 5.6%
FHLMC................ 4.4% FHLMC................ 5.7%
</TABLE>
DURATION
<TABLE>
<CAPTION>
As of June 30, 1998 As of December 31, 1997
<S> <C> <C>
Duration 3.21 years 3.62 years
</TABLE>
7
<PAGE> 9
PORTFOLIO OF INVESTMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MORTGAGE BACKED SECURITIES 69.8%
$ 29,137 FHLMC............................... 8.500% 01/01/16 to 09/01/19 $ 30,183,811
6,664 FHLMC............................... 10.000 12/01/09 to 09/01/21 7,253,521
18,978 FHLMC............................... 11.000 12/01/01 to 01/01/21 21,314,472
-0- FHLMC (Seasoned).................... 8.000 01/01/19 43
3,439 FHLMC (Seasoned).................... 8.500 01/01/16 3,563,107
542 FHLMC (Seasoned).................... 10.250 11/01/09 586,443
92 FHLMC (Seasoned).................... 11.250 09/01/15 103,937
28,064 FHLMC Gold.......................... 6.500 12/01/25 28,037,535
12,609 FHLMC Gold.......................... 10.000 12/01/99 13,775,910
10,242 FHLMC REMIC #170F PAC(a)............ 8.000 01/15/21 10,353,835
15,061 FHLMC REMIC #106G PAC(a)............ 8.250 12/15/20 15,985,294
18,420 FHLMC REMIC #79C PAC(a)............. 8.600 10/15/05 19,122,186
7,893 FHLMC REMIC #89D(a)................. 9.000 02/15/21 8,448,179
7,831 FHLMC REMIC #97G PAC(a)............. 9.250 11/15/05 8,166,466
50,299 FNMA................................ 6.000 03/01/13 to 06/01/13 49,749,104
177,694 FNMA(a)............................. 6.500 06/01/22 to 01/01/27 177,256,121
190,834 FNMA(a)............................. 7.000 09/01/23 to 07/01/24 193,508,228
28,242 FNMA................................ 7.500 12/01/21 to 01/01/23 28,965,477
38,649 FNMA................................ 8.000 12/01/16 to 12/01/22 40,002,128
6,615 FNMA................................ 8.500 04/01/17 to 06/01/21 6,906,233
4,212 FNMA................................ 9.000 03/01/08 to 02/01/21 4,451,686
5,755 FNMA................................ 10.500 06/01/10 to 09/01/19 6,421,790
5,405 FNMA................................ 11.000 12/01/03 to 11/01/19 6,122,805
1,230 FNMA................................ 11.500 12/01/09 to 01/01/16 1,402,002
13,939 FNMA (Seasoned)..................... 6.500 04/01/24 to 05/01/24 13,929,784
4,249 FNMA (Seasoned)..................... 8.500 07/01/19 4,436,569
7,109 FNMA (Seasoned)..................... 9.000 12/01/99 7,584,539
1,721 FNMA (Seasoned)..................... 9.500 05/01/20 1,858,372
46 FNMA (Seasoned)..................... 12.500 03/01/15 53,196
1,513 FNMA (Seasoned)..................... 13.000 06/01/15 1,758,457
29,000 FNMA Preassign 00891................ 6.740 08/25/07 30,305,000
18,085 FNMA REMIC #90-12G PAC(a)........... 4.500 02/25/20 17,235,909
9,538 FNMA REMIC #89-94G PAC(a)........... 7.500 12/25/19 9,773,728
15,000 FNMA REMIC #93-4HB PAC(a)........... 11.000 01/25/19 15,970,950
82,212 GNMA................................ 7.000 03/15/26 to 01/15/28 83,469,189
240,597 GNMA................................ 7.500 12/15/99 to 12/15/23 247,288,232
168,792 GNMA(a)............................. 8.000 12/15/00 to 11/15/22 176,455,138
</TABLE>
See Notes to Financial Statements
8
<PAGE> 10
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MORTGAGE BACKED SECURITIES
(CONTINUED)
$127,678 GNMA................................ 8.500% 04/15/06 to 06/15/23 $ 135,556,409
79,716 GNMA(a)............................. 9.000 10/15/01 to 08/15/24 85,466,959
38,182 GNMA................................ 9.500 06/15/09 to 11/15/22 41,344,075
8,942 GNMA................................ 10.000 09/15/15 to 05/15/19 9,869,183
12,274 GNMA................................ 10.500 09/15/10 to 02/15/20 13,709,019
1,582 GNMA................................ 11.000 03/15/10 to 12/15/18 1,786,491
2,268 GNMA................................ 11.500 10/15/10 to 03/15/18 2,590,120
1,536 GNMA................................ 12.000 07/15/11 to 08/15/15 1,781,001
1,719 GNMA................................ 12.500 04/15/10 to 08/15/15 2,009,834
914 GNMA................................ 13.000 01/15/11 to 08/15/15 1,074,286
138,087 GNMA (Seasoned)(a).................. 9.000 12/15/99 149,004,487
620 GNMA GPM............................ 12.250 09/15/13 to 07/15/15 724,533
148 GNMA II............................. 8.500 05/20/02 to 02/20/17 154,826
5,051 GNMA II............................. 10.500 01/20/14 to 05/20/19 5,641,058
3,024 GNMA II............................. 11.000 07/20/13 to 08/20/19 3,414,430
1,299 GNMA II............................. 11.500 08/20/13 to 07/20/19 1,484,042
1,466 GNMA II............................. 12.000 08/20/13 to 12/20/15 1,699,350
777 GNMA II............................. 12.500 09/20/13 to 09/20/15 900,974
--------------
1,750,010,453
--------------
U.S. TREASURY SECURITIES 24.8%
70,000 U.S. T-Bonds........................ 6.125 11/15/27 74,954,600
223,500 U.S. T-Bonds........................ 10.375 11/15/09 279,450,990
15,000 U.S. T-Bonds........................ 13.125 05/15/01 17,978,400
5,000 U.S. T-Bonds........................ 13.750 08/15/04 7,101,850
37,000 U.S. T-Notes........................ 5.625 05/15/08 37,485,440
30,000 U.S. T-Notes........................ 6.250 06/30/02 30,740,400
170,000 U.S. T-Notes........................ 6.250 08/31/02 174,328,200
--------------
622,039,880
--------------
TOTAL LONG-TERM INVESTMENTS 94.6%
(Cost $2,310,334,182)........................................................ 2,372,050,333
--------------
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description Market Value
- -----------------------------------------------------------------------------------------------
<S> <C>
SHORT-TERM INVESTMENTS 9.6%
U.S. GOVERNMENT AGENCY OBLIGATIONS 5.0%
FHLMC - Discount Notes......................................................... $ 64,763,515
FNMA - Discount Notes.......................................................... 19,893,036
FNMA - Medium Term Notes....................................................... 20,006,000
SLMA - Share Term Notes........................................................ 20,000,000
--------------
124,662,551
--------------
REPURCHASE AGREEMENTS 4.6%
J.P. Morgan (Collateralized by U.S. T-Note, $50,721,000 par, 8.125% coupon,
dated 06/30/98, to be sold on 07/01/98 at $50,728,749)......................... 50,721,000
UBS Securities (Collateralized by U.S. T-Note $64,154,000 par, 8.125% coupon,
dated 06/30/98, to be sold on 07/01/98 at $64,164,603)......................... 64,154,000
UBS Securities (Collateralized by U.S. T-Note $846,000 par, 8.000% coupon,
dated 06/30/98, to be sold on 07/01/98 at $846,140)............................ 846,000
--------------
115,721,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $240,362,587).......................................................... 240,383,551
--------------
TOTAL INVESTMENTS 104.2%
(Cost $2,550,696,769)........................................................ 2,612,433,884
LIABILITIES IN EXCESS OF OTHER ASSETS (4.2%).................................. (106,444,336)
--------------
NET ASSETS 100.0%............................................................. $2,505,989,548
==============
</TABLE>
(a) All or a portion of these assets are segregated as collateral for forward
purchase commitments and dollar roll transactions.
See Notes to Financial Statements
10
<PAGE> 12
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $2,550,696,769)..................... $2,612,433,884
Receivables:
Interest.................................................. 20,204,625
Investments Sold.......................................... 2,228,844
Fund Shares Sold.......................................... 829,829
Forward Commitments......................................... 91,705
Other....................................................... 237,627
--------------
Total Assets.......................................... 2,636,026,514
--------------
LIABILITIES:
Payables:
Investments Purchased..................................... 112,856,250
Income Distributions...................................... 7,117,385
Fund Shares Repurchased................................... 5,948,972
Distributor and Affiliates................................ 1,454,040
Investment Advisory Fee................................... 1,064,794
Variation Margin on Futures............................... 347,719
Custodian Bank............................................ 1,592
Accrued Expenses............................................ 1,066,925
Trustees' Deferred Compensation and Retirement Plans........ 179,289
--------------
Total Liabilities....................................... 130,036,966
--------------
NET ASSETS.................................................. $2,505,989,548
==============
NET ASSETS CONSIST OF:
Capital..................................................... $2,707,585,579
Net Unrealized Appreciation................................. 61,674,602
Accumulated Undistributed Net Investment Income............. 781,690
Accumulated Net Realized Loss............................... (264,052,323)
--------------
NET ASSETS.................................................. $2,505,989,548
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $2,156,281,370 and 148,237,949 shares of
beneficial interest issued and outstanding)............. $ 14.55
Maximum sales charge (4.75%* of offering price)......... .73
--------------
Maximum offering price to public........................ $ 15.28
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $335,597,658 and 23,097,565 shares of
beneficial interest issued and outstanding)............. $ 14.53
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $14,110,520 and 971,341 shares of
beneficial interest issued and outstanding)............. $ 14.53
==============
</TABLE>
* On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
11
<PAGE> 13
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 89,147,461
Fee Income.................................................. 2,942,852
------------
Total Income............................................ 92,090,313
------------
EXPENSES:
Investment Advisory Fee..................................... 6,564,936
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $2,063,459, $1,726,798 and $68,514,
respectively)............................................. 3,858,771
Shareholder Services........................................ 1,574,434
Custody..................................................... 337,994
Trustees' Fees and Expenses................................. 36,854
Legal....................................................... 33,300
Other....................................................... 284,166
------------
Total Operating Expenses................................ 12,690,455
Interest Expense........................................ 288,265
------------
Total Expenses.......................................... 12,978,720
------------
NET INVESTMENT INCOME....................................... $ 79,111,593
============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 12,584,651
Forward Commitments....................................... 1,586,191
Options................................................... (1,062,841)
Futures................................................... 2,166,534
------------
Net Realized Gain........................................... 15,274,535
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 82,098,885
------------
End of the Period:
Investments............................................. 61,737,115
Forward Commitments..................................... 91,705
Futures................................................. (154,218)
------------
61,674,602
------------
Net Unrealized Depreciation During the Period............... (20,424,283)
------------
NET REALIZED AND UNREALIZED LOSS............................ $ (5,149,748)
============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 73,961,845
============
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 1998
and the Year Ended December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................... $ 79,111,593 $ 198,019,355
Net Realized Gain/Loss.............................. 15,274,535 (27,525,829)
Net Unrealized Appreciation/Depreciation During the
Period............................................ (20,424,283) 53,113,057
---------------- ----------------
Change in Net Assets from Operations................ 73,961,845 223,606,583
---------------- ----------------
Distributions from Net Investment Income:
Class A Shares.................................... (76,469,457) (170,044,954)
Class B Shares.................................... (10,670,939) (24,106,451)
Class C Shares.................................... (422,874) (869,235)
---------------- ----------------
Total Distributions............................. (87,563,270) (195,020,640)
---------------- ----------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES........................................ (13,601,425) 28,585,943
---------------- ----------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold........................... 50,228,720 71,425,631
Net Asset Value of Shares Issued Through Dividend
Reinvestment...................................... 43,962,988 96,486,944
Cost of Shares Repurchased.......................... (212,571,690) (547,708,673)
---------------- ----------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS...................................... (118,379,982) (379,796,098)
---------------- ----------------
TOTAL DECREASE IN NET ASSETS........................ (131,981,407) (351,210,155)
NET ASSETS:
Beginning of the Period............................. 2,637,970,955 2,989,181,110
---------------- ----------------
End of the Period (Including accumulated
undistributed net investment income of $781,690
and $9,233,367, respectively)..................... $ 2,505,989,548 $ 2,637,970,955
================ ================
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
Six Months Ended -----------------------------------------
Class A Shares June 30, 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period.................. $ 14.624 $ 14.459 $ 14.950 $ 13.698 $ 15.662
-------- -------- -------- -------- --------
Net Investment Income....... .459 1.039 1.069 1.111 1.177
Net Realized and Unrealized
Gain/Loss................. (.032) .158 (.495) 1.233 (1.965)
-------- -------- -------- -------- --------
Total from Investment
Operations.................. .427 1.197 .574 2.344 (.788)
Less Distributions from and in
Excess of Net Investment
Income...................... .505 1.032 1.065 1.092 1.176
-------- -------- -------- -------- --------
Net Asset Value, End of the
Period...................... $ 14.546 $ 14.624 $ 14.459 $ 14.950 $ 13.698
======== ======== ======== ======== ========
Total Return (a).............. 3.02%* 8.57% 4.10% 17.61% (5.10%)
Net Assets at End of the
Period (In millions)........ $2,156.3 $2,264.8 $2,560.1 $2,962.9 $2,924.4
Ratio of Operating Expenses to
Average Net Assets (b)...... .88% .90% .90% .93% .92%
Ratio of Interest Expense to
Average Net Assets.......... .02% .08% .02% .27% .08%
Ratio of Net Investment Income
to Average Net Assets (b)... 6.32% 7.26% 7.38% 7.68% 8.13%
Portfolio Turnover (Excluding
Dollar Rolls and Forward
Commitment Transactions).... 13%* 104% 64% 63% 44%
</TABLE>
* Non-Annualized
(a) Total Return is based upon Net Asset Value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) For the year ended 1996, the impact on the Ratios of Expenses and Net
Investment Income to Average Net Assets due to Van Kampen's reimbursement of
certain expenses was less than 0.01%.
See Notes to Financial Statements
14
<PAGE> 16
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
Six Months Ended -------------------------------------
Class B Shares June 30, 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period.................... $14.609 $14.447 $14.948 $13.694 $15.643
------- ------- ------- ------- -------
Net Investment Income......... .397 .916 .947 .991 1.055
Net Realized and Unrealized
Gain/Loss................... (.029) .162 (.494) 1.241 (1.964)
------- ------- ------- ------- -------
Total from Investment
Operations.................... .368 1.078 .453 2.232 (.909)
Less Distributions from and in
Excess of Net Investment
Income........................ .447 .916 .954 .978 1.040
------- ------- ------- ------- -------
Net Asset Value, End of the
Period........................ $14.530 $14.609 $14.447 $14.948 $13.694
======= ======= ======= ======= =======
Total Return (a)................ 2.54%* 7.71% 3.24% 16.78% (5.93%)
Net Assets at End of the Period
(In millions)................. $ 335.6 $ 359.0 $ 414.8 $ 466.7 $ 436.3
Ratio of Operating Expenses to
Average Net Assets (b)........ 1.70% 1.72% 1.73% 1.75% 1.74%
Ratio of Interest Expense to
Average Net Assets............ .02% .08% .02% .27% .09%
Ratio of Net Investment Income
to Average Net Assets (b)..... 5.50% 6.44% 6.55% 6.85% 7.29%
Portfolio Turnover (Excluding
Dollar Rolls and Forward
Commitment Transactions)...... 13%* 104% 64% 63% 44%
</TABLE>
* Non-Annualized
(a) Total Return is based upon Net Asset Value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) For the year ended 1996, the impact on the Ratios of Expenses and Net
Investment Income to Average Net Assets due to Van Kampen's reimbursement of
certain expenses was less than 0.01%.
See Notes to Financial Statements
15
<PAGE> 17
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
Six Months Ended -------------------------------------
Class C Shares June 30, 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------
Net Asset Value, Beginning of
the Period.................... $14.608 $14.448 $14.948 $13.693 $15.626
------- ------- ------- ------- -------
Net Investment Income......... .399 .910 .943 .996 1.063
Net Realized and Unrealized
Gain/Loss................... (.033) .166 (.489) 1.237 (1.956)
------- ------- ------- ------- -------
Total from Investment
Operations.................... .366 1.076 .454 2.233 (.893)
Less Distributions from and in
Excess of Net Investment
Income........................ .447 .916 .954 .978 1.040
------- ------- ------- ------- -------
Net Asset Value, End of the
Period........................ $14.527 $14.608 $14.448 $14.948 $13.693
======= ======= ======= ======= =======
Total Return (a)................ 2.54%* 7.71% 3.24% 16.78% (5.86%)
Net Assets at End of the Period
(In millions)................. $ 14.1 $ 14.2 $ 14.3 $ 13.3 $ 11.4
Ratio of Operating Expenses to
Average Net Assets (b)........ 1.70% 1.72% 1.72% 1.75% 1.74%
Ratio of Interest Expense to
Average Net Assets............ .02% .08% .02% .27% .10%
Ratio of Net Investment Income
to Average Net Assets (b)..... 5.48% 6.41% 6.55% 6.86% 7.29%
Portfolio Turnover (Excluding
Dollar Rolls and Forward
Commitment Transactions)...... 13%* 104% 64% 63% 44%
</TABLE>
* Non-Annualized
(a) Total Return is based upon Net Asset Value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) For the year ended 1996, the impact on the Ratios of Expenses and Net
Investment Income to Average Net Assets due to Van Kampen's reimbursement of
certain expenses was less than 0.01%.
See Notes to Financial Statements
16
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen U.S. Government Fund, formerly known as Van Kampen American Capital
U.S. Government Fund, (the "Fund") is organized as a series of Van Kampen U.S.
Government Trust (the "Trust"), 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 provide a high
level of current income, with liquidity and safety of principal. The Fund
commenced investment operations on May 31, 1984. The distribution of the Fund's
Class B and Class C shares commenced on August 24, 1992 and August 13, 1993,
respectively.
The following is a summary of significant accounting policies consistently
followed by the Trust 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, if such valuations are not available, estimates obtained from yield data
relating to instruments or securities with similar characteristics in accordance
with procedures established in good faith by the Board of Trustees. Short-term
securities with remaining maturities of 60 days or less are valued at amortized
cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis.
The Fund may invest in repurchase agreements, which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen Investment Advisory Corp. (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
17
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
the value of the underlying security at not less than the repurchase proceeds
due the Fund.
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. During the term of the commitment,
the Fund may resell the forward commitment and enter into a new forward
commitment, the effect of which is to extend the settlement date. In connection
with this extension, the Fund receives a fee, which is included in fee income on
the date of the extension. In addition, the Fund may occasionally close such
forward commitments prior to delivery.
The Fund may also invest in reverse repurchase agreements. In a reverse
repurchase agreement, the Fund sells securities and agrees to repurchase them at
a mutually agreed upon date and price. During the reverse repurchase agreement
period, the Fund continues to receive principal and interest payments on these
securities but pays interest to the counter-party based upon a short-term
interest rate. The average daily balance of reverse repurchase agreements during
the period was approximately $9.5 million with an average interest rate of
6.13%. At June 30, 1998, there were no reverse repurchase agreements
outstanding.
C. INCOME AND EXPENSES--Interest income is recorded on an accrual basis.
Original issue discount is amortized over the expected life of each applicable
security. 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 loss and offset
18
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
such losses against any future realized capital gains. At December 31, 1997, the
Fund had an accumulated capital loss carryforward for tax purposes of
$279,326,858 which will expire between December 31, 1998 and December 31, 2005.
Of this amount, $6,272,412 will expire on December 31, 1998.
At June 30, 1998, for federal income tax purposes the cost of long- and
short-term investments is $3,110,031,769; the aggregate gross unrealized
appreciation is $67,413,814 and the aggregate gross unrealized depreciation is
$5,739,212, resulting in net unrealized appreciation including open futures
transactions and forward commitments of $61,674,602.
E. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed annually.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
- ---------------------------------------------------------------------
<S> <C>
First $500 million...................................... .550 of 1%
Next $500 million....................................... .525 of 1%
Next $2 billion......................................... .500 of 1%
Next $2 billion......................................... .475 of 1%
Next $2 billion......................................... .450 of 1%
Next $2 billion......................................... .425 of 1%
Thereafter.............................................. .400 of 1%
</TABLE>
For the six months ended June 30, 1998, the Fund recognized expenses of
approximately $19,200 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 six months ended June 30, 1998, the Fund recognized expenses of
approximately $80,000 representing Van Kampen Funds Inc.'s or its affiliates'
(collectively "Van Kampen") cost of providing accounting and legal services to
the Fund.
Van Kampen Investor Services Inc. ("VKIS"), an affiliate of the Adviser,
serves as the shareholder servicing agent of the Fund. For the six months ended
June 30, 1998, the Fund recognized expenses of approximately $964,200. Beginning
in 1998, the transfer
19
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
agency fees are determined through negotiations with the Fund's Board of
Trustees and are based on competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of shares of beneficial interest, Classes
A, B and C, each with a par value of $.01 per share. There are an unlimited
number of shares of each class authorized.
At June 30, 1998, capital aggregated $2,318,000,835, $374,678,607 and
$14,906,137 for Classes A, B and C, respectively. For the six months ended June
30, 1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ----------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A............................... 2,308,381 $ 33,701,684
Class B............................... 928,435 13,542,352
Class C............................... 204,580 2,984,684
----------- -------------
Total Sales............................. 3,441,396 $ 50,228,720
=========== =============
Dividend Reinvestment:
Class A............................... 2,647,102 $ 38,639,742
Class B............................... 350,772 5,115,044
Class C............................... 14,278 208,202
----------- -------------
Total Dividend Reinvestment............. 3,012,152 $ 43,962,988
=========== =============
</TABLE>
20
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ----------------------------------------------------------------------
<S> <C> <C>
Repurchases:
Class A............................... (11,580,501) $(169,192,720)
Class B............................... (2,754,010) (40,176,011)
Class C............................... (219,410) (3,202,959)
----------- -------------
Total Repurchases....................... (14,553,921) $(212,571,690)
=========== =============
</TABLE>
At December 31, 1997, capital aggregated $2,414,852,129, $396,197,222 and
$14,916,210 for Classes A, B and C, respectively. For the year ended December
31, 1997, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................. 3,151,088 $ 45,534,914
Class B.................................. 1,391,041 20,092,618
Class C.................................. 400,545 5,798,099
----------- -------------
Total Sales................................ 4,942,674 $ 71,425,631
=========== =============
Dividend Reinvestment:
Class A.................................. 5,855,818 $ 84,608,875
Class B.................................. 791,434 11,424,371
Class C.................................. 31,439 453,698
----------- -------------
Total Dividend Reinvestment................ 6,678,691 $ 96,486,944
=========== =============
Repurchases:
Class A.................................. (31,205,759) $(450,102,977)
Class B.................................. (6,320,342) (91,072,249)
Class C.................................. (453,300) (6,533,447)
----------- -------------
Total Repurchases.......................... (37,979,401) $(547,708,673)
=========== =============
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B shares will
automatically convert to Class A shares after the eighth year following
purchase. The CDSC will be imposed on
21
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
most redemptions made within six 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
SALE CHARGE
YEAR OF REDEMPTION CLASS B CLASS C
- --------------------------------------------------------------------------
<S> <C> <C>
First.............................................. 4.00% 1.00%
Second............................................. 3.75% None
Third.............................................. 3.50% None
Fourth............................................. 2.50% None
Fifth.............................................. 1.00% None
Sixth.............................................. 1.00% None
Seventh and Thereafter............................. None None
</TABLE>
For the six months ended June 30, 1998, Van Kampen, as Distributor for the
Fund, received commissions on sales of the Fund's Class A shares of
approximately $63,300 and CDSC on redeemed shares of approximately $379,300.
Sales charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales on investments,
including principal paydowns, excluding forward commitment transactions and
short-term investments, for the six months ended June 30, 1998, were
$264,883,873 and $278,930,327, 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 and to manage the portfolio's effective yield, maturity and duration.
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 when exercising a call option contract or taking
delivery of a security underlying a futures contract or forward commitment. In
these instances the recognition of gain or loss is postponed until the disposal
of the security underlying the option, futures or forward contract.
Summarized below are the specific types of derivative financial instruments
used by the Fund.
22
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
A. OPTION CONTRACTS--An option contract gives the buyer the right, but not the
obligation to buy (call) or sell (put) an underlying item at a fixed exercise
price during a specified period.
Transactions in options for the six months ended June 30, 1998, were as
follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- ------------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1997............. -0- $ -0-
Options Written and Purchased (Net).......... 3,500 (2,409,486)
Options Terminated in Closing Transactions
(Net)...................................... (2,500) 1,807,736
Options Expired (Net)........................ (1,000) 601,750
------- ------------
Outstanding at June 30, 1998................. -0- $ -0-
======= ============
</TABLE>
B. 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 on U.S. Treasury Bonds and
typically closes the contract prior to the delivery date.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, securities with a value equal to its obligation
under the futures contracts. During the period the futures contract is open,
payments are received from or made to the broker based upon changes in the value
of the contract (the variation margin). The risk of loss associated with a
future 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, 1998,
were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- ------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1997....................... -0-
Futures Opened......................................... 4,898
Futures Closed......................................... (3,345)
-------
Outstanding at June 30, 1998........................... 1,553
=======
</TABLE>
23
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
The futures contracts outstanding as of June 30, 1998, and the descriptions
and unrealized depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS DEPRECIATION
- ------------------------------------------------------------------------
<S> <C> <C>
US Treasury Note Futures
Sept. 1998 - Sells to Open (Current Notional
Value $113,844 per contract)............. 950 $ 23,437
US Treasury Bond Futures
Sept. 1998 - Sells to Open (Current Notional
Value $123,594 per contract)............. 603 130,781
----- ------------
1,553 $ 154,218
===== ============
</TABLE>
6. FORWARD COMMITMENTS
The Fund trades certain securities under the terms of forward commitments, as
described in Note 1. The following forward purchase commitments were outstanding
as of June 30, 1998. The change in value of these items is reflected as a
component of unrealized appreciation/depreciation on forwards commitments. The
Fund has segregated assets for these open commitments totaling $577.6 million.
<TABLE>
<CAPTION>
UNREALIZED
PAR AMOUNT APPRECIATION/
(000) DESCRIPTION EXPIRATION CURRENT VALUE DEPRECIATION
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$300,000 FNMA, 7.00% coupon 07/14/98 $304,125,000 $(93,750)
155,500 FNMA, 6.50% coupon 07/14/98 154,770,705 291,174
100,000 FNMA, 6.50% coupon 07/20/98 100,531,000 (105,719)
------------- -----------
$559,426,705 $ 91,705
============ ===========
</TABLE>
7. 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).
24
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
A Collateralized Mortgage Obligation (CMO) is a bond which is collateralized
by a pool of MBS's. The Fund also invests in REMIC's (Real Estate Mortgage
Investment Conduit) which are simply another form of CMO. 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. A GPM (Graduated Payment Mortgage) is a negative
amortization mortgage where the payment amount gradually increases over the life
of the mortgage. The early payment amounts are not sufficient to cover the
interest due and, therefore, the unpaid interest is added to the principal, thus
increasing the borrower's mortgage balance.
8. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these fees
for the six months ended June 30 1998, are payments retained by Van Kampen of
approximately $1,394,600.
25
<PAGE> 27
VAN KAMPEN FUNDS
EQUITY FUNDS
Domestic
Aggressive Equity
Aggressive Growth
American Value
Comstock
Emerging Growth
Enterprise
Equity Growth
Equity Income
Growth
Growth and Income
Harbor
Pace
Real Estate Securities
U.S. Real Estate
Utility
Value
International/Global
Asian Growth
Emerging Markets
Global Equity
Global Equity Allocation
Global Managed Assets
International Magnum
Latin American
FIXED-INCOME FUNDS
Income
Corporate Bond
Global Fixed Income
Global Government Securities
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
Short-Term Global Income
Strategic Income
U.S. Government
U.S. Government Trust for Income
Worldwide High Income
Tax Exempt Income
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal
Insured Tax Free Income
Intermediate Term Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
Capital Preservation and
Senior Loan Fund
Prime Rate Income Trust
Reserve
Senior Floating Rate
Tax Free Money
To find out more about any of these funds, ask your financial adviser for a
prospectus, which contains more complete information, including sales
charges, risks, and expenses. Please read it carefully before you invest or
send money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- visit our web site at
WWW.VAN-KAMPEN.COM -- to view prospectuses, select Investors' Place, then
Download a Prospectus
- call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time
(Telecommunications Device for the Deaf users, call 1-800-421-2833)
- e-mail us by visiting
WWW.VAN-KAMPEN.COM and selecting Investors' Place
26
<PAGE> 28
VAN KAMPEN U.S. GOVERNMENT FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
CUSTODIAN AND TRANSFER AGENT
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
EDWARD C. WOOD, III*
Vice President and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
JOHN L. SULLIVAN*
Treasurer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
PAUL R. WOLKENBERG*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN
INVESTMENT ADVISORY CORP.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 418256
Kansas City, Missouri 64141-9256
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG PEAT MARWICK LLP
PricewaterhouseCoopers LLP
303 East Wacker Drive
Chicago, Illinois 60601
* "Interested" persons of the Fund, as defined in the
Investment Company Act of 1940.
(C) Van Kampen Funds Inc., 1998
All rights reserved.
(SM) denotes a service mark of
Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After December 31, 1998, the report, if used with
prospective investors, must be accompanied by a quarterly performance update.
27
<PAGE> 29
VAN KAMPEN U.S. GOVERNMENT FUND
THIS PAGE INTENTIONALLY LEFT BLANK
28
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
<F1> This item relates to the Fund on a composite
basis and not on a class basis
</LEGEND>
<SERIES>
<NUMBER> 11
<NAME> U.S. GOVT CLASS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 2,550,696,769 <F1>
<INVESTMENTS-AT-VALUE> 2,612,433,884 <F1>
<RECEIVABLES> 23,263,298 <F1>
<ASSETS-OTHER> 329,332 <F1>
<OTHER-ITEMS-ASSETS> 0 <F1>
<TOTAL-ASSETS> 2,636,026,514 <F1>
<PAYABLE-FOR-SECURITIES> 112,856,250 <F1>
<SENIOR-LONG-TERM-DEBT> 0 <F1>
<OTHER-ITEMS-LIABILITIES> 17,180,716 <F1>
<TOTAL-LIABILITIES> 130,036,966 <F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,318,000,835
<SHARES-COMMON-STOCK> 148,237,949
<SHARES-COMMON-PRIOR> 154,862,967
<ACCUMULATED-NII-CURRENT> 781,690 <F1>
<OVERDISTRIBUTION-NII> 0 <F1>
<ACCUMULATED-NET-GAINS> (264,052,323)<F1>
<OVERDISTRIBUTION-GAINS> 0 <F1>
<ACCUM-APPREC-OR-DEPREC> 61,674,602 <F1>
<NET-ASSETS> 2,156,281,370
<DIVIDEND-INCOME> 0 <F1>
<INTEREST-INCOME> 89,147,461 <F1>
<OTHER-INCOME> 2,942,852 <F1>
<EXPENSES-NET> (12,978,720)<F1>
<NET-INVESTMENT-INCOME> 79,111,593 <F1>
<REALIZED-GAINS-CURRENT> 15,274,535 <F1>
<APPREC-INCREASE-CURRENT> (20,424,283)<F1>
<NET-CHANGE-FROM-OPS> 73,961,845 <F1>
<EQUALIZATION> 0 <F1>
<DISTRIBUTIONS-OF-INCOME> (76,469,457)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,308,381
<NUMBER-OF-SHARES-REDEEMED> (11,580,501)
<SHARES-REINVESTED> 2,647,102
<NET-CHANGE-IN-ASSETS> (108,505,109)
<ACCUMULATED-NII-PRIOR> 9,233,367 <F1>
<ACCUMULATED-GAINS-PRIOR> (279,326,858)<F1>
<OVERDISTRIB-NII-PRIOR> 0 <F1>
<OVERDIST-NET-GAINS-PRIOR> 0 <F1>
<GROSS-ADVISORY-FEES> 6,564,936 <F1>
<INTEREST-EXPENSE> 288,265 <F1>
<GROSS-EXPENSE> 12,978,720 <F1>
<AVERAGE-NET-ASSETS> 2,210,909,013
<PER-SHARE-NAV-BEGIN> 14.624
<PER-SHARE-NII> 0.459
<PER-SHARE-GAIN-APPREC> (0.032)
<PER-SHARE-DIVIDEND> (0.505)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 14.546
<EXPENSE-RATIO> 0.88
<AVG-DEBT-OUTSTANDING> 0 <F1>
<AVG-DEBT-PER-SHARE> 0 <F1>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
<F1> This item relates to the Fund on a composite
basis and not on a class basis
</LEGEND>
<SERIES>
<NUMBER> 12
<NAME> U.S. GOVT CLASS B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 2,550,696,769 <F1>
<INVESTMENTS-AT-VALUE> 2,612,433,884 <F1>
<RECEIVABLES> 23,263,298 <F1>
<ASSETS-OTHER> 329,332 <F1>
<OTHER-ITEMS-ASSETS> 0 <F1>
<TOTAL-ASSETS> 2,636,026,514 <F1>
<PAYABLE-FOR-SECURITIES> 112,856,250 <F1>
<SENIOR-LONG-TERM-DEBT> 0 <F1>
<OTHER-ITEMS-LIABILITIES> 17,180,716 <F1>
<TOTAL-LIABILITIES> 130,036,966 <F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 374,678,607
<SHARES-COMMON-STOCK> 23,097,565
<SHARES-COMMON-PRIOR> 24,572,368
<ACCUMULATED-NII-CURRENT> 781,690 <F1>
<OVERDISTRIBUTION-NII> 0 <F1>
<ACCUMULATED-NET-GAINS> (264,052,323)<F1>
<OVERDISTRIBUTION-GAINS> 0 <F1>
<ACCUM-APPREC-OR-DEPREC> 61,674,602 <F1>
<NET-ASSETS> 335,597,658
<DIVIDEND-INCOME> 0 <F1>
<INTEREST-INCOME> 89,147,461 <F1>
<OTHER-INCOME> 2,942,852 <F1>
<EXPENSES-NET> (12,978,720)<F1>
<NET-INVESTMENT-INCOME> 79,111,593 <F1>
<REALIZED-GAINS-CURRENT> 15,274,535 <F1>
<APPREC-INCREASE-CURRENT> (20,424,283)<F1>
<NET-CHANGE-FROM-OPS> 73,961,845 <F1>
<EQUALIZATION> 0 <F1>
<DISTRIBUTIONS-OF-INCOME> (10,670,939)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 928,435
<NUMBER-OF-SHARES-REDEEMED> (2,754,010)
<SHARES-REINVESTED> 350,772
<NET-CHANGE-IN-ASSETS> (23,389,643)
<ACCUMULATED-NII-PRIOR> 9,233,367 <F1>
<ACCUMULATED-GAINS-PRIOR> (279,326,858)<F1>
<OVERDISTRIB-NII-PRIOR> 0 <F1>
<OVERDIST-NET-GAINS-PRIOR> 0 <F1>
<GROSS-ADVISORY-FEES> 6,564,936 <F1>
<INTEREST-EXPENSE> 288,265 <F1>
<GROSS-EXPENSE> 12,978,720 <F1>
<AVERAGE-NET-ASSETS> 348,275,894
<PER-SHARE-NAV-BEGIN> 14.609
<PER-SHARE-NII> 0.397
<PER-SHARE-GAIN-APPREC> (0.029)
<PER-SHARE-DIVIDEND> (0.447)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 14.530
<EXPENSE-RATIO> 1.70
<AVG-DEBT-OUTSTANDING> 0 <F1>
<AVG-DEBT-PER-SHARE> 0 <F1>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
<F1> This item relates to the Fund on a composite
basis and not on a class basis
</LEGEND>
<SERIES>
<NUMBER> 13
<NAME> U.S. GOVT CLASS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 2,550,696,769 <F1>
<INVESTMENTS-AT-VALUE> 2,612,433,884 <F1>
<RECEIVABLES> 23,263,298 <F1>
<ASSETS-OTHER> 329,332 <F1>
<OTHER-ITEMS-ASSETS> 0 <F1>
<TOTAL-ASSETS> 2,636,026,514 <F1>
<PAYABLE-FOR-SECURITIES> 112,856,250 <F1>
<SENIOR-LONG-TERM-DEBT> 0 <F1>
<OTHER-ITEMS-LIABILITIES> 17,180,716 <F1>
<TOTAL-LIABILITIES> 130,036,966 <F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14,906,137
<SHARES-COMMON-STOCK> 971,341
<SHARES-COMMON-PRIOR> 971,893
<ACCUMULATED-NII-CURRENT> 781,690 <F1>
<OVERDISTRIBUTION-NII> 0 <F1>
<ACCUMULATED-NET-GAINS> (264,052,323)<F1>
<OVERDISTRIBUTION-GAINS> 0 <F1>
<ACCUM-APPREC-OR-DEPREC> 61,674,602 <F1>
<NET-ASSETS> 14,110,520
<DIVIDEND-INCOME> 0 <F1>
<INTEREST-INCOME> 89,147,461 <F1>
<OTHER-INCOME> 2,942,852 <F1>
<EXPENSES-NET> (12,978,720)<F1>
<NET-INVESTMENT-INCOME> 79,111,593 <F1>
<REALIZED-GAINS-CURRENT> 15,274,535 <F1>
<APPREC-INCREASE-CURRENT> (20,424,283)<F1>
<NET-CHANGE-FROM-OPS> 73,961,845 <F1>
<EQUALIZATION> 0 <F1>
<DISTRIBUTIONS-OF-INCOME> (422,874)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 204,580
<NUMBER-OF-SHARES-REDEEMED> (219,410)
<SHARES-REINVESTED> 14,278
<NET-CHANGE-IN-ASSETS> (86,655)
<ACCUMULATED-NII-PRIOR> 9,233,367 <F1>
<ACCUMULATED-GAINS-PRIOR> (279,326,858)<F1>
<OVERDISTRIB-NII-PRIOR> 0 <F1>
<OVERDIST-NET-GAINS-PRIOR> 0 <F1>
<GROSS-ADVISORY-FEES> 6,564,936 <F1>
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<GROSS-EXPENSE> 12,978,720 <F1>
<AVERAGE-NET-ASSETS> 13,827,579
<PER-SHARE-NAV-BEGIN> 14.608
<PER-SHARE-NII> 0.399
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<PER-SHARE-NAV-END> 14.527
<EXPENSE-RATIO> 1.70
<AVG-DEBT-OUTSTANDING> 0 <F1>
<AVG-DEBT-PER-SHARE> 0 <F1>
</TABLE>
