<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Economic Snapshot................................ 2
Performance Results.............................. 3
Portfolio Management Review...................... 4
Glossary of Terms................................ 7
Portfolio Highlights............................. 8
Portfolio of Investments......................... 9
Statement of Assets and Liabilities.............. 14
Statement of Operations.......................... 15
Statement of Changes in Net Assets............... 16
Financial Highlights............................. 17
Notes to Financial Statements.................... 20
</TABLE>
USGF SAR 8/99
NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE.
<PAGE> 2
LETTER TO SHAREHOLDERS
July 20, 1999
Dear Shareholder,
With the volatility that we've experienced recently in many financial
markets, some investors have sold securities because of uncertainty about where
the markets were going, only to be left rethinking whether they made the right
decision. We've witnessed this kind of market activity numerous times over the
past several years, sparked by concerns such as the impact of the Asian economic
crisis, high stock valuations, or, most recently, the stability of many
high-flying technology companies. While these fears eventually subsided,
investors who may have sold during this period were unable to reap the benefits
of the subsequent rally. That's partly because most of the recent big gains
happened in relatively short periods of time. This kind of volatility--and the
danger of making short-term decisions--highlights the importance of investing
for the long term, in accordance with your individual financial objectives.
Although the worst of the Asian crisis appears to be behind us, new concerns
are always emerging. In the coming months, we'll likely hear more about how the
year 2000 computer problem may affect the markets or that we're overdue for a
correction. While the markets could undoubtedly suffer as a result of these or
any number of other events, we encourage you to focus on your long-term
investment goals. Although nothing is certain, history has shown us that over
time, the markets tend to recover--and most investors want to be positioned to
take advantage of any recovery.
If you have concerns about market volatility or questions about how your
portfolio is structured to respond to these events, we encourage you to contact
your financial advisor. Your advisor can talk with you about sustaining a
long-term investment plan through a variety of market conditions. We hope that
Van Kampen Funds will play an important role as you and your advisor build a
portfolio designed to help you weather what the markets have in store.
Sincerely,
[SIG]
Richard F. Powers, III
Chairman
Van Kampen Investment Advisory Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen Investment Advisory Corp.
1
<PAGE> 3
ECONOMIC SNAPSHOT
The strength of the domestic economy continued to defy expectations in the
first half of 1999, although it finally began to show signs of slowing down.
Strong growth, healthy employment, and low inflation all contributed to the
favorable economic environment.
STRONG ECONOMIC GROWTH
The nation's gross domestic product rose at an impressive rate of 4.3
percent during the first quarter of 1999, but fell to 2.3 percent in the second
quarter. The first-quarter expansion was fueled by an increase in consumer
spending, which dropped to more moderate levels later in the reporting period.
POSITIVE EMPLOYMENT ENVIRONMENT
In May, the unemployment rate dropped to 4.2 percent--its lowest level in
more than 30 years. Throughout the reporting period, unemployment remained low,
the number of jobs grew, and wages rose. The labor market remained especially
tight in the service industry and most urban areas.
LOW INFLATION
Inflation remained low throughout most of the reporting period, although a
sharp increase in oil prices contributed to a spike in April's consumer price
index report (CPI). Following this up-tick, the Federal Reserve raised interest
rates 0.25 percent on June 30. Although the Fed had expressed a bias toward a
series of rate increases, May's tame CPI report prompted it to drop this bias
when announcing the June rate increase.
ECONOMIC OUTLOOK
Our outlook for the economy suggests that the moderate slowdown may
continue, bringing the economy back to historically normal growth levels.
Healthy job growth, which has been supporting the consumer confidence and
spending levels, showed signs of faltering toward the end of the reporting
period. However, a renewed optimism for corporate earnings, low unemployment,
and a vibrant housing market should provide some balance against a slower job
growth rate.
INTEREST RATES AND INFLATION
June 30, 1997, through June 30, 1999
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Jun 1997 6.5000 2.3000
6.0000 2.2000
5.5000 2.2000
Sep 1997 6.2500 2.2000
5.7500 2.1000
5.6875 1.8000
Dec 1997 6.5000 1.7000
5.5625 1.6000
5.6250 1.4000
Mar 1998 6.1250 1.4000
5.6250 1.4000
5.6875 1.7000
Jun 1998 6.0000 1.7000
5.5625 1.7000
5.9375 1.6000
Sep 1998 5.7500 1.5000
5.2500 1.5000
4.8750 1.5000
Dec 1998 4.0000 1.6000
4.8125 1.7000
4.8750 1.6000
Mar 1999 5.1250 1.7000
4.9375 2.3000
4.5000 2.1000
Jun 1999 4.0000 2.0000
</TABLE>
Interest rates are represented by the closing midline federal funds 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.
2
<PAGE> 4
\
PERFORMANCE RESULTS FOR THE PERIOD ENDED JUNE 30, 1999
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)... (0.55%) (0.95%) (1.02%)
Six-month total return(2)................ (5.27%) (4.80%) (1.98%)
One-year total return(2)................. (2.77%) (2.52%) 0.28%
Five-year average annual total
return(2).............................. 5.92% 5.86% 6.12%
Ten-year average annual total
return(2).............................. 6.85% N/A N/A
Life-of-Fund average annual total
return(2).............................. 8.85% 4.82% 4.22%
Commencement date........................ 05/31/84 08/24/92 08/13/93
DISTRIBUTION RATE AND YIELD
Distribution rate(3)..................... 6.49% 6.00% 6.01%
SEC Yield(4)............................. 5.64% 5.11% 5.13%
</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, 1999.
See the Comparative Performance section of the current prospectus. Past
performance does not guarantee future results. U.S. Government securities are
backed by the full faith and credit of the U.S. Government, its agencies or
instrumentalities. The government backing applies only to the timely payment of
principal and interest when due, on specific securities in the Fund's portfolio,
not to shares of the Fund. Fund shares when redeemed, may be worth more or less
than their original cost. The value of debt securities will fluctuate with
changes in market conditions and interest rates, which will effect the value of
Fund shares. Securities which are issued by private issuers involve greater risk
than those issued directly by the U.S. Government.
Market forecasts provided in this report may not necessarily come to pass.
3
<PAGE> 5
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. The team is led by Peter W. Hegel, chief investment officer for
fixed-income investments, who has been a member of the Fund's management team
since the Fund's inception in 1984 and has worked in the investment industry
since 1981. Mr. Hegel is joined by portfolio managers Barbara Downey and Kelly
Gilbert.
The following excerpts reflect their views on the Fund's performance during the
six-month period ended June 30, 1999.
Q DESCRIBE THE MARKET ENVIRONMENT IN WHICH THE FUND OPERATED DURING THE PAST
SIX MONTHS.
A Although many analysts anticipated a slowdown in the U.S. economy after
the global crisis of 1998, the economy continued to grow at a strong pace
during the period. Low inflation and increased consumer spending, as well
as healthy housing and manufacturing markets, led this growth and helped restore
economic confidence. Consequently, investors who had sought refuge in U.S.
Treasuries during the global turmoil began to return to other sectors of the
market.
The change in market sentiment resulted in higher interest rates and
increased demand for mortgage-backed securities during the first quarter of
1999. By April, prices of mortgage-backed securities were back to normal, and
demand subsided. In addition, mortgage prepayments continued to increase as
investors, encouraged by attractive interest rates, used mortgage equity to pay
off credit cards and refinance homes.
Q WHAT STRATEGY DID YOU USE TO MANAGE THE FUND BASED ON THESE FACTORS?
A Historically, the Fund has functioned as a mortgage-backed securities
portfolio, with 80 percent of the Fund typically invested in
mortgage-backed securities and 20 percent in U.S. Treasuries. We began the
period with a significant position in mortgages and maintained a short duration
in an effort to reduce the Fund's volatility in the rising interest-rate
environment. The Fund benefited from this strategy as higher Treasury yields and
diminished fears of mortgage prepayments allowed mortgages to outperform
Treasuries.
When prices returned to normal near the end of the first quarter, we lowered
our exposure to mortgages and increased our exposure to Treasuries. This move
turned out to be premature, as mortgages continued to outperform Treasuries into
April. Near the end of the period we still had a slightly overweight position in
Treasuries, and we took advantage of the decline in mortgage prices to purchase
some longer-duration, lower-coupon mortgages, which we believe will help the
Fund preserve its income. For additional Fund portfolio highlights, please refer
to page 8.
4
<PAGE> 6
Q WHAT DO YOU MEAN BY PRESERVING THE FUND'S INCOME?
A In 1998 interest rates steadily declined, which made purchasing or
refinancing a home less expensive. This factor, combined with increased
efficiency in the refinancing market, led to higher-than-anticipated
mortgage prepayment levels. When a mortgage is prepaid, we need to use the
proceeds to purchase new mortgage backed securities, which are paying at
current, lower interest rates. This lowers the yield of the mortgage-backed
securities held by the Fund. While it generally takes a few months for the
effects of prepayments to reach the portfolio, the lower yields will eventually
reduce the income available for dividends, making it necessary for us to
reexamine the Fund's dividend. We believe the lower-coupon mortgages we
purchased near the end of the period, which are less likely to be prepaid, will
help preserve some of that income.
Q HOW DID THE FUND PERFORM DURING THE SIX-MONTH REPORTING PERIOD?
A The Fund performed well at the beginning of the period, but our premature
move away from mortgages during the second half of the period hurt the
Fund's return. For the six-month period ended June 30, 1999, the Fund
generated a total return of -0.55 percent(1) (Class A shares at net asset
value). By comparison, the Merrill Lynch 1- to 10-year Treasury Index generated
a total return of 4.41 percent, and the Lehman Brothers Mortgage Index returned
- -1.06 percent. Keep in mind these broad-based indices reflect general
performance of Treasury bonds and mortgage-backed securities, respectively.
Neither index reflects any commissions or sales charges that would be paid by an
investor purchasing the securities it represents. Please refer to the chart and
footnotes on page 3 for additional Fund performance results. Past performance
does not guarantee future results.
Dividends remained competitive during the period, providing shareholders
with a healthy stream of current income. As of June 30, 1999, the Class A share
distribution rate was 6.49 percent(3), based on a monthly dividend of $.0790 per
Class A share and a maximum public offering price of $14.60 per share on June
30, 1999. In addition, the Fund's SEC yield was 5.64 percent.
Q WHAT IS YOUR OUTLOOK FOR THE INVESTMENT ENVIRONMENT DURING THE NEXT SIX
MONTHS, AND HOW HAVE YOU POSITIONED THE FUND?
A As expected the Federal Reserve Board raised interest rates by 0.25
percent at the end of the period. We believe this move, combined with low
inflation, will benefit the Fund because mortgages should perform better.
There are factors that concern us, however, including the increase in the prices
of oil and other industrial commodities, which could have a negative effect on
inflation. In addition, we will continue to monitor the effects of refinancing
and prepayments in mortgage-backed securities in an effort to help preserve the
Fund's income.
5
<PAGE> 7
During the next six months, we will invest in mortgages and Treasuries as we
have in the past--when interest rates decline, we have typically favored
Treasuries, and when interest rates rise, we've favored mortgages. At the end of
the period, we positioned the Fund with a slight overweight in Treasuries and a
longer duration because we anticipate future volatility to be relatively low.
[SIG]
Barbara Downey
Portfolio Manager
[SIG]
Kelly Gilbert
Portfolio Manager
[SIG]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
6
<PAGE> 8
GLOSSARY OF TERMS
BOND: A debt security issued by a government or corporation that pays a
bondholder a stated rate of interest and repays the principal at the
maturity date.
COUPON RATE: The stated rate of interest the bond pays on an annual basis,
expressed as a percentage of the face value.
DURATION: A measure of the sensitivity of a bond's price to changes in interest
rates, expressed in years. Each year of duration represents an expected 1
percent change in the price of a bond for every 1 percent change in interest
rates (i.e. a 5-year duration means the bond will fall about 5 percent in
value if interest rates rise by 1 percent). The longer a bond's duration,
the greater the effect of interest rate movements on its price. Typically,
funds with shorter durations perform better in rising rate environments,
while funds with longer durations perform better when rates decline.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank of the United States. Its policy-making
committee, called the Federal Open Market Committee, meets eight times a
year to establish monetary policy and monitor the economic pulse of the
United States.
MORTGAGE-BACKED SECURITIES: Securities backed by pools of similar mortgages.
These securities are generally issued by agencies of the U.S. government,
such as Government National Mortgage Association (GNMA, or "Ginnie Mae") and
Federal Home Loan Mortgage Corporation (FHLMC, or "Freddie Mac").
YIELD: The annual rate of return on an investment, expressed as a percentage.
7
<PAGE> 9
PORTFOLIO HIGHLIGHTS
VAN KAMPEN U.S. GOVERNMENT FUND
DIVIDEND HISTORY FOR THE PERIOD ENDED JUNE 30, 1999
[BAR GRAPH]
<TABLE>
<CAPTION>
Jan 1999 Feb 1999 Mar 1999 Apr 1999 May 1999 Jun 1999
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
DISTRIBUTION PER CLASS A COMMON SHARE 0.0790 0.0790 0.0790 0.0790 0.0790 0.0790
</TABLE>
The dividend history represents past performance of the Fund and does not
predict the Fund's future distributions.
ASSET ALLOCATION AS A PERCENTAGE OF LONG-TERM INVESTMENTS
[BAR GRAPH]
<TABLE>
<CAPTION>
FNMA GNMA Treasury Securities FHLB REMIC/CMO FHLMC
---- ---- ------------------- ---- --------- -----
<S> <C> <C> <C> <C> <C> <C>
6/30/99 43.8 35.6 10.6 5.0 2.8 2.2
12/31/98 26.8 48.9 16.2 0 5.1 3.0
</TABLE>
COUPON DISTRIBUTION AS A PERCENTAGE OF LONG-TERM INVESTMENTS
[BAR GRAPH]
<TABLE>
<CAPTION>
5.9 OR LESS 6-6.9 7-7.9 8-8.9 9-9.9 10 or more
----------- ----- ----- ----- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
12.4 37.4 24.2 13.1 9.4 3.5
</TABLE>
8
<PAGE> 10
PORTFOLIO OF INVESTMENTS
June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MORTGAGE BACKED SECURITIES 83.5%
$ 9,239 Federal Home Loan Mortgage
Corp. Gold Pools............ 10.000% 04/01/10 to 09/01/21 $ 10,005,426
21,399 Federal Home Loan Mortgage
Corp. Pools................. 8.500 01/01/16 to 09/01/19 22,455,519
4,859 Federal Home Loan Mortgage
Corp. Pools................. 10.000 12/01/08 to 10/01/18 5,253,489
404 Federal Home Loan Mortgage
Corp. Pools................. 10.250 11/01/09 440,271
12,904 Federal Home Loan Mortgage
Corp. Pools................. 11.000 10/01/04 to 01/01/21 14,397,814
86 Federal Home Loan Mortgage
Corp. Pools................. 11.250 09/01/15 95,461
1,820 Federal Home Loan Mortgage
Corp. REMIC Pools (PAC)..... 8.000 01/01/19 to 01/15/21 1,820,696
14,506 Federal Home Loan Mortgage
Corp. REMIC Pools (PAC)..... 8.250 12/15/20 14,780,017
11,037 Federal Home Loan Mortgage
Corp. REMIC Pools (PAC)..... 8.600 10/15/05 11,332,627
4,910 Federal Home Loan Mortgage
Corp. REMIC Pools........... 9.000 02/15/21 5,116,742
4,902 Federal Home Loan Mortgage
Corp. REMIC Pools (PAC)..... 9.250 11/15/05 5,064,476
29,415 Federal National Mortgage
Association Pools (Principal
Only)....................... * 02/25/23 to 02/01/28 20,702,400
25,000 Federal National Mortgage
Association Pools........... 5.875 04/23/04 24,464,250
25,000 Federal National Mortgage
Association Pools........... 6.375 06/15/09 24,827,000
147,810 Federal National Mortgage
Association Pools........... 6.000 10/01/28 to 04/01/29 138,935,904
235,816 Federal National Mortgage
Association Pools (a)....... 6.500 06/01/22 to 05/01/29 227,893,949
29,000 Federal National Mortgage
Association Pools (a)....... 6.740 08/25/07 29,008,990
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MORTGAGE BACKED SECURITIES (CONTINUED)
$252,256 Federal National Mortgage
Association Pools........... 7.000% 03/01/12 to 08/01/28 $ 251,097,225
116,797 Federal National Mortgage
Association Pools (a)....... 7.500 08/01/22 to 01/19/39 118,255,796
23,772 Federal National Mortgage
Association Pools........... 8.000 12/01/16 to 12/01/22 24,457,799
6,808 Federal National Mortgage
Association Pools........... 8.500 04/01/17 to 06/01/21 7,148,277
7,853 Federal National Mortgage
Association Pools........... 9.000 05/01/09 to 02/01/21 8,386,964
1,022 Federal National Mortgage
Association Pools........... 9.500 05/01/20 1,090,668
3,856 Federal National Mortgage
Association Pools........... 10.500 10/01/11 to 09/01/19 4,270,015
3,221 Federal National Mortgage
Association Pools........... 11.000 12/01/03 to 11/01/19 3,622,172
903 Federal National Mortgage
Association Pools........... 11.500 12/01/09 to 01/01/16 1,020,861
30 Federal National Mortgage
Association Pools........... 12.500 03/01/15 34,154
1,222 Federal National Mortgage
Association Pools........... 13.000 06/01/15 1,409,558
11,050 Federal National Mortgage
Association REMIC Pools
(PAC)....................... 4.500 02/25/20 10,492,333
6,062 Federal National Mortgage
Association REMIC Pools
(PAC)....................... 7.500 12/25/19 6,171,190
9,761 Federal National Mortgage
Association REMIC Pools
(PAC)....................... 11.000 01/25/19 9,923,306
49,809 Government National Mortgage
Association Pools........... 6.000 01/15/28 to 04/15/29 46,648,545
197,357 Government National Mortgage
Association Pools........... 6.500 04/15/26 to 06/15/29 190,055,277
108,137 Government National Mortgage
Association Pools........... 7.000 08/15/22 to 10/15/28 106,918,468
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MORTGAGE BACKED SECURITIES (CONTINUED)
$ 39,316 Government National Mortgage
Association Pools........... 7.500% 01/15/17 to 11/15/24 $ 39,814,808
123,650 Government National Mortgage
Association Pools........... 8.000 12/15/00 to 11/15/28 128,651,389
86,420 Government National Mortgage
Association Pools (a)....... 8.500 04/15/06 to 06/15/23 91,141,510
143,593 Government National Mortgage
Association Pools (a)....... 9.000 09/15/04 to 03/15/23 153,982,635
42,905 Government National Mortgage
Association Pools........... 9.500 06/15/09 to 11/15/22 46,502,646
5,908 Government National Mortgage
Association Pools........... 10.000 09/15/15 to 09/15/20 6,476,426
7,629 Government National Mortgage
Association Pools........... 10.500 09/15/10 to 02/15/20 8,477,184
1,166 Government National Mortgage
Association Pools........... 11.000 03/15/10 to 12/15/18 1,310,572
1,465 Government National Mortgage
Association Pools........... 11.500 10/15/10 to 03/15/18 1,661,412
1,108 Government National Mortgage
Association Pools........... 12.000 07/15/11 to 08/15/15 1,275,577
487 Government National Mortgage
Association Pools........... 12.250 09/15/13 to 07/15/15 564,388
1,266 Government National Mortgage
Association Pools........... 12.500 04/15/10 to 08/15/15 1,469,424
653 Government National Mortgage
Association Pools........... 13.000 01/15/11 to 06/15/15 762,436
92 Government National Mortgage
Association II Pools........ 8.500 05/20/02 to 02/20/17 96,952
3,297 Government National Mortgage
Association II Pools........ 10.500 01/20/14 to 05/20/19 3,663,372
2,045 Government National Mortgage
Association II Pools........ 11.000 07/20/13 to 08/20/19 2,299,427
937 Government National Mortgage
Association II Pools........ 11.500 11/20/13 to 07/20/19 1,066,328
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MORTGAGE BACKED SECURITIES (CONTINUED)
$ 1,191 Government National Mortgage
Association II Pools........ 12.000% 08/20/13 to 12/20/15 $ 1,374,459
540 Government National Mortgage
Association II Pools........ 12.500 10/20/13 to 09/20/15 628,312
--------------
TOTAL MORTGAGE BACKED SECURITIES 83.5%..................... 1,838,816,896
--------------
UNITED STATES GOVERNMENT AGENCY OBLIGATIONS 5.3%
32,000 Federal Home Loan Bank
Bonds....................... 4.875 01/22/02 31,191,680
47,000 Federal Home Loan Bank
Bonds....................... 5.125 02/26/02 to 09/15/03 45,673,290
15,000 Federal Home Loan Bank
Bonds....................... 5.165 04/12/01 14,847,750
25,000 Federal Home Loan Bank
Bonds....................... 5.500 08/13/01 24,841,000
--------------
TOTAL UNITED STATES GOVERNMENT AGENCY OBLIGATIONS........... 116,553,720
--------------
UNITED STATES TREASURY OBLIGATIONS 11.3%
25,000 United States Treasury
Notes....................... 5.500 08/15/28 22,852,250
25,000 United States Treasury
Notes....................... 5.625 05/15/08 24,506,250
15,000 United States Treasury
Notes....................... 6.125 08/15/07 15,180,300
5,000 United States Treasury
Notes....................... 6.250 02/15/07 5,099,300
28,200 United States Treasury
Notes....................... 6.500 10/15/06 29,135,958
5,000 United States Treasury
Notes....................... 8.375 08/15/08 5,439,900
50,000 United States Treasury Bonds
Stripped Principal Payment
(a)......................... * 05/15/05 35,415,000
77,000 United States Treasury Bonds
Stripped Principal Payment
(a)......................... * 02/15/19 22,368,500
25,000 United States Treasury Bonds
Stripped Principal
Payment..................... * 05/15/09 13,729,250
30,000 United States Treasury
Bonds....................... 6.375 08/15/27 30,674,100
40,000 United States Treasury
Bonds....................... 7.250 08/15/22 44,717,200
--------------
TOTAL UNITED STATES TREASURY OBLIGATIONS.................... 249,118,008
--------------
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
PORTFOLIO OF INVESTMENTS (CONTINUED)
June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FORWARD PURCHASE COMMITMENTS 6.4%
$145,000 Federal National Mortgage
Association August
Forward..................... 6.500% TBA $ 140,355,650
TOTAL INVESTMENTS 106.5%
(Cost $2,370,086,689)................................................ 2,344,844,274
LIABILITIES IN EXCESS OF OTHER ASSETS (6.5)%.......................... (142,677,453)
--------------
NET ASSETS 100.0%..................................................... $2,202,166,821
==============
</TABLE>
* Zero coupon bond
(a) Assets segregated as collateral for open forward transactions or borrowings
of the Fund.
PAC--Planned Amortization Classes
TBA--To be announced, maturity date has not been established. Upon settlement
and delivery of the mortgage pools, maturity dates will be assigned.
See Notes to Financial Statements
13
<PAGE> 15
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $2,370,086,689)..................... $2,344,844,274
Cash........................................................ 89,742
Receivables:
Interest.................................................. 17,519,186
Fund Shares Sold.......................................... 7,962,554
Investments Sold.......................................... 1,211,648
Fee Income................................................ 423,230
Other....................................................... 324,302
--------------
Total Assets.......................................... 2,372,374,936
--------------
LIABILITIES:
Payables:
Investments Purchased..................................... 139,608,724
Income Distributions...................................... 12,470,400
Reverse Repurchase Agreements............................. 8,308,750
Fund Shares Repurchased................................... 3,463,898
Forward Commitments....................................... 3,379,819
Distributor and Affiliates................................ 1,003,281
Investment Advisory Fee................................... 943,861
Accrued Expenses............................................ 818,041
Trustees' Deferred Compensation and Retirement Plans........ 211,341
--------------
Total Liabilities....................................... 170,208,115
--------------
NET ASSETS.................................................. $2,202,166,821
==============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $2,507,448,077
Accumulated Undistributed Net Investment Income............. 60
Net Unrealized Depreciation................................. (26,690,593)
Accumulated Net Realized Loss............................... (278,590,723)
--------------
NET ASSETS.................................................. $2,202,166,821
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $1,974,419,992 and 141,950,449 shares of
beneficial interest issued and outstanding)............. $ 13.91
Maximum sales charge (4.75%* of offering price)......... .69
--------------
Maximum offering price to public........................ $ 14.60
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $207,876,590 and 14,967,587 shares of
beneficial interest issued and outstanding)............. $ 13.89
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $19,870,239 and 1,431,217 shares of
beneficial interest issued and outstanding)............. $ 13.88
==============
</TABLE>
* On sales of $100,000 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, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 81,986,371
Fee Income.................................................. 3,680,508
-------------
Total Income............................................ 85,666,879
-------------
EXPENSES:
Investment Advisory Fee..................................... 5,932,553
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $1,932,698, $1,241,094 and $99,078,
respectively)............................................. 3,272,870
Shareholder Services........................................ 1,362,476
Custody..................................................... 232,780
Legal....................................................... 70,877
Trustees' Fees and Related Expenses......................... 50,751
Other....................................................... 379,863
-------------
Total Operating Expenses................................ 11,302,170
Interest Expense........................................ 499,881
-------------
Total Expenses.......................................... 11,802,051
-------------
NET INVESTMENT INCOME....................................... $ 73,864,828
=============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ (9,843,209)
Forward Commitments....................................... (9,888,906)
Options................................................... 146,000
Futures................................................... 7,321,525
-------------
Net Realized Loss........................................... (12,264,590)
-------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 48,093,284
-------------
End of the Period:
Investments............................................. (25,242,415)
Forward Commitments..................................... (1,448,178)
-------------
(26,690,593)
-------------
Net Unrealized Depreciation During the Period............... (74,783,877)
-------------
NET REALIZED AND UNREALIZED LOSS............................ $ (87,048,467)
=============
NET DECREASE IN NET ASSETS FROM OPERATIONS.................. $ (13,183,639)
=============
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 1999
and the Year Ended December 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1999 December 31, 1998
- -----------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income........................ $ 73,864,828 $ 158,890,618
Net Realized Gain/Loss....................... (12,264,590) 13,000,725
Net Unrealized Depreciation During the
Period..................................... (74,783,877) (34,005,601)
-------------- --------------
Change in Net Assets from Operations......... (13,183,639) 137,885,742
-------------- --------------
Distributions from Net Investment Income:
Class A Shares............................. (68,060,006) (145,479,133)
Class B Shares............................. (7,332,805) (19,836,275)
Class C Shares............................. (583,383) (911,495)
-------------- --------------
Total Distributions.......................... (75,976,194) (166,226,903)
-------------- --------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES................................. (89,159,833) (28,341,161)
-------------- --------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold.................... 512,476,873 227,696,473
Net Asset Value of Shares Issued Through
Dividend Reinvestment...................... 38,717,682 83,888,683
Cost of Shares Repurchased................... (641,673,927) (539,408,924)
-------------- --------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS............................... (90,479,372) (227,823,768)
-------------- --------------
TOTAL DECREASE IN NET ASSETS................. (179,639,205) (256,164,929)
NET ASSETS:
Beginning of the Period...................... 2,381,806,026 2,637,970,955
-------------- --------------
End of the Period (Including accumulated
undistributed net investment income of $60
and $2,111,426, respectively).............. $2,202,166,821 $2,381,806,026
============== ==============
</TABLE>
See Notes to Financial Statements
16
<PAGE> 18
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year Ended December 31,
Ended -----------------------------------------
Class A Shares June 30, 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Period............. $ 14.459 $ 14.624 $ 14.459 $ 14.950 $ 13.698
-------- -------- -------- -------- --------
Net Investment Income..... .461 .941 1.039 1.069 1.111
Net Realized and
Unrealized Gain/Loss.... (.537) (.127) .158 (.495) 1.233
-------- -------- -------- -------- --------
Total from Investment
Operations................ (.076) .814 1.197 .574 2.344
Less Distributions from and
in Excess of Net
Investment Income......... .474 .979 1.032 1.065 1.092
-------- -------- -------- -------- --------
Net Asset Value, End of the
Period.................... $ 13.909 $ 14.459 $ 14.624 $ 14.459 $ 14.950
======== ======== ======== ======== ========
Total Return (a)............ (.55%)* 5.77% 8.57% 4.10% 17.61%
Net Assets at End of the
Period (In millions)...... $1,974.4 $2,079.6 $2,264.8 $2,560.1 $2,962.9
Ratio of Operating Expenses
to Average Net
Assets (b)................ .93% .90% .90% .90% .93%
Ratio of Interest Expense to
Average Net Assets........ .04% .04% .08% .02% .27%
Ratio of Net Investment
Income to Average Net
Assets (b)................ 6.53% 6.45% 7.26% 7.38% 7.68%
Portfolio Turnover
(Excluding Dollar Rolls
and Forward Commitment
Transactions)............. 69%* 82% 104% 64% 63%
</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
17
<PAGE> 19
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year Ended December 31,
Ended -------------------------------------
Class B Shares June 30, 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period.................. $14.440 $14.609 $14.447 $14.948 $13.694
------- ------- ------- ------- -------
Net Investment Income....... .395 .816 .916 .947 .991
Net Realized and Unrealized
Gain/Loss................. (.530) (.121) .162 (.494) 1.241
------- ------- ------- ------- -------
Total from Investment
Operations.................. (.135) .695 1.078 .453 2.232
------- ------- ------- ------- -------
Less Distributions from and in
Excess of Net Investment
Income...................... .417 .864 .916 .954 .978
------- ------- ------- ------- -------
Net Asset Value, End of the
Period...................... $13.888 $14.440 $14.609 $14.447 $14.948
======= ======= ======= ======= =======
Total Return (a).............. (.95%)* 4.87% 7.71% 3.24% 16.78%
Net Assets at End of the
Period (In millions)........ $ 207.9 $ 284.2 $ 359.0 $ 414.8 $ 466.7
Ratio of Operating Expenses to
Average Net Assets (b)...... 1.75% 1.72% 1.72% 1.73% 1.75%
Ratio of Interest Expense to
Average Net Assets.......... .04% .04% .08% .02% .27%
Ratio of Net Investment Income
to Average Net Assets (b)... 5.73% 5.63% 6.44% 6.55% 6.85%
Portfolio Turnover (Excluding
Dollar Rolls and Forward
Commitment Transactions).... 69%* 82% 104% 64% 63%
</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
18
<PAGE> 20
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Year Ended December 31,
Ended -------------------------------------
Class C Shares June 30, 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period.................. $14.436 $14.608 $14.448 $14.948 $13.693
------- ------- ------- ------- -------
Net Investment Income....... .402 .822 .910 .943 .996
Net Realized and Unrealized
Gain/Loss................. (.538) (.130) .166 (.489) 1.237
------- ------- ------- ------- -------
Total from Investment
Operations.................. (.136) .692 1.076 .454 2.233
Less Distributions from and in
Excess of Net Investment
Income...................... .417 .864 .916 .954 .978
------- ------- ------- ------- -------
Net Asset Value, End of the
Period...................... $13.883 $14.436 $14.608 $14.448 $14.948
======= ======= ======= ======= =======
Total Return (a).............. (1.02%)* 4.87% 7.71% 3.24% 16.78%
Net Assets at End of the
Period (In millions)........ $ 19.9 $ 18.0 $ 14.2 $ 14.3 $ 13.3
Ratio of Operating Expenses to
Average Net Assets (b)...... 1.74% 1.72% 1.72% 1.72% 1.75%
Ratio of Interest Expense to
Average Net Assets.......... .04% .04% .08% .02% .27%
Ratio of Net Investment Income
to Average Net Assets (b)... 5.66% 5.63% 6.41% 6.55% 6.86%
Portfolio Turnover (Excluding
Dollar Rolls and Forward
Commitment Transactions).... 69%* 82% 104% 64% 63%
</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
19
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS
June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen 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 indications of value obtained from an independent pricing service. If such
valuations are not available, then estimates are 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
20
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
the value of the underlying security at not less than the repurchase proceeds
due to 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 $26.4 million with an average interest rate of
3.81%.
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. 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 loss and offset
21
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
such losses against any future realized capital gains. At December 31, 1998, the
Fund had an accumulated capital loss carryforward for tax purposes of
$264,523,405 which will expire between December 31, 2000 and December 31, 2005.
Net realized gains or losses may differ for financial reporting and tax purposes
primarily as a result of the deferral of losses relating to wash sale
transactions and the mark to market of open futures contracts at December 31,
1998.
At June 30, 1999, for federal income tax purposes the cost of long- and
short-term investments is $2,370,142,939, the aggregate gross unrealized
appreciation is $28,759,877 and the aggregate gross unrealized depreciation is
$54,058,542, resulting in net unrealized depreciation on long- and short-term
investments of $25,298,665.
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, 1999, the Fund recognized expenses of
approximately $51,000 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, 1999, the Fund recognized expenses of
approximately $228,500 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, 1999, the Fund recognized expenses of approximately $1,018,100.
Transfer agency fees are
22
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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
At June 30, 1999, capital aggregated $2,227,550,616, $258,327,166 and
$21,570,295 for Classes A, B and C, respectively. For the six months ended June
30, 1999, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................. 32,056,755 $ 456,190,626
Class B.................................. 1,379,760 19,663,914
Class C.................................. 2,562,826 36,622,333
----------- -------------
Total Sales................................ 35,999,341 $ 512,476,873
=========== =============
Dividend Reinvestment:
Class A.................................. 2,447,289 $ 34,787,273
Class B.................................. 254,247 3,611,655
Class C.................................. 22,471 318,754
----------- -------------
Total Dividend Reinvestment................ 2,724,007 $ 38,717,682
=========== =============
Repurchases:
Class A.................................. (36,379,454) $(517,190,331)
Class B.................................. (6,349,198) (90,241,325)
Class C.................................. (2,398,561) (34,242,271)
----------- -------------
Total Repurchases.......................... (45,127,213) $(641,673,927)
=========== =============
</TABLE>
23
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
At December 31, 1998, capital aggregated $2,253,763,048, $325,292,922 and
$18,871,479 for Classes A, B and C, respectively. For the year ended December
31, 1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................... 12,318,462 $ 178,967,243
Class B.................................... 2,614,449 38,018,032
Class C.................................... 737,549 10,711,198
----------- -------------
Total Sales.................................. 15,670,460 $ 227,696,473
=========== =============
Dividend Reinvestment:
Class A.................................... 5,072,364 $ 73,854,456
Class B.................................... 657,222 9,560,132
Class C.................................... 32,619 474,095
----------- -------------
Total Dividend Reinvestment.................. 5,762,205 $ 83,888,683
=========== =============
Repurchases:
Class A.................................... (28,427,934) $(413,723,630)
Class B.................................... (8,161,261) (118,456,887)
Class C.................................... (497,580) (7,228,407)
----------- -------------
Total Repurchases............................ (37,086,775) $(539,408,924)
=========== =============
</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
24
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999 (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........................................ 1.50% None
Sixth........................................ 1.00% None
Seventh and Thereafter....................... None None
</TABLE>
For the six months ended June 30, 1999, Van Kampen, as Distributor for the
Fund, received commissions on sales of the Fund's Class A shares of
approximately $39,200 and CDSC on redeemed shares of approximately $258,500.
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, 1999, were
$1,634,517,761 and $1,532,826,712, 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
25
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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.
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, 1999, were as
follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- --------------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1998................ -0- $ -0-
Options Written and Purchased (Net)........... 250 349,563
Options Terminated in Closing Transactions
(Net)...................................... (250) (349,563)
Options Expired (Net)......................... -0- -0-
---- ---------
Outstanding at June 30, 1999.................... -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, 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).
Transactions in futures contracts, each with a par value of $100,000, for
the six months ended June 30, 1999, were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- -----------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1998.......................... 1,837
Futures Opened.......................................... 8,887
Futures Closed.......................................... (10,724)
-------
Outstanding at June 30, 1999.............................. -0-
=======
</TABLE>
26
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
C. FORWARD COMMITMENTS--The Fund trades certain securities under the terms of
forward commitments, as described in Note 1. The change in value of these items
is reflected as a component of unrealized appreciation/depreciation on forward
commitments. The Fund has segregated assets for these open commitments totaling
$450.2 million.
The following forward purchase commitments were outstanding as of June 30,
1999:
<TABLE>
<CAPTION>
UNREALIZED
PAR AMOUNT SETTLEMENT APPRECIATION/
(000) DESCRIPTION DATE CURRENT VALUE DEPRECIATION
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$120,000 FNMA, 6.50% coupon.......... 07/14/99 $115,931,400 $(1,786,178)
25,000 FNMA, 7.50% coupon.......... 08/16/99 25,273,438 -0-
20,000 GNMA, 7.00% coupon.......... 07/22/99 19,759,400 (76,538)
95,000 FHLMC Gold, 7.00% coupon.... 08/16/99 94,109,850 414,538
------------- ------------
$255,074,088 $(1,448,178)
============= ============
</TABLE>
D. CLOSED BUT UNSETTLED FORWARD COMMITMENTS--In certain situations, the Fund has
entered into offsetting transactions for outstanding forward commitments prior
to the settlement of the obligation. In doing so, the Fund realizes a gain or
loss on the transaction at the time the forward commitment is closed. Risks may
result as a result of the potential inability of counterparties to meet the
terms of their contracts.
The following closed but unsettled forward transactions were outstanding at
June 30, 1999:
<TABLE>
<CAPTION>
SETTLEMENT NET
DESCRIPTION DATE RECEIVABLE PAYABLE PAYABLE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FNMA ($145,000,000 par,
6.50% coupon,
12/31/23).............. 07/14/99 $139,216,015 $140,561,328 $(1,345,313)
FHLMC Gold ($95,000,000
par, 7.00% coupon,
12/31/23).............. 07/14/99 93,695,313 94,281,641 (586,328)
-----------
$(1,931,641)
===========
</TABLE>
6. MORTGAGE BACKED SECURITIES
A Mortgage Backed Security (MBS) is a pass-through security created by pooling
mortgages and selling participations in the principal and interest payments
received from borrowers. Most of these securities are guaranteed by federally
sponsored agencies--Government National Mortgage Association (GNMA), Federal
National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation
(FHLMC).
27
<PAGE> 29
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1999 (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.
7. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A net assets and 1.00%
each of Class B and Class C net assets are accrued daily. Included in these fees
for the six months ended June 30, 1999, are payments retained by Van Kampen of
approximately $1,054,300.
28
<PAGE> 30
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
Small Cap Value
Technology
Utility
Value
Global/International
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
Global Franchise
Global Managed Assets
International Magnum
Latin American
FIXED-INCOME FUNDS
Income
Corporate Bond
Global Fixed Income
Global Government Securities
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
Short-Term Global Income
Strategic Income
U.S. Government
U.S. Government Trust for Income
Worldwide High Income
Tax Exempt Income
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal
Insured Tax Free Income
Intermediate Term Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
Capital Preservation
Reserve
Tax Free Money
SENIOR LOAN FUNDS
Prime Rate Income Trust
Senior Floating Rate
To find out more about any of these funds, ask your financial advisor for a
prospectus, which contains more complete information, including sales charges,
risks, and expenses. Please read it carefully before you invest or send money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- - visit our Web site at WWW.VANKAMPEN.COM--to view a prospectus, select Download
Prospectus
- - call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time.
Telecommunications Device for the Deaf users, call 1-800-421-2833.
- - e-mail us by visiting WWW.VANKAMPEN.COM and selecting Contact Us
29
<PAGE> 31
VAN KAMPEN U.S. GOVERNMENT FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
JERRY D. CHOATE
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY, PH.D.
PAUL G. YOVOVICH
OFFICERS
RICHARD F. POWERS, III*
President
DENNIS J. MCDONNELL*
Executive Vice President and Chief Investment Officer
A. THOMAS SMITH III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer and Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
PAUL R. WOLKENBERG*
EDWARD C. WOOD, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN
INVESTMENT ADVISORY CORP.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 218256
Kansas City, Missouri 64121-8256
CUSTODIAN
STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
KPMG 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., 1999 All rights reserved.
(SM) denotes a service mark of
Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After November 30, 1999, the report, if used with
prospective investors, must be accompanied by a monthly performance update.
30
<PAGE> 32
YEAR 2000 READINESS DISCLOSURE
Like other mutual funds, financial and business organizations, and individuals
around the world, the Fund could be adversely affected if the computer systems
used by the Fund's investment adviser and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Fund's
investment adviser is taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to computer systems that it uses and
to obtain reasonable assurances that comparable steps are being taken by the
Fund's other major service providers. At this time, there can be no assurances
that these steps will be sufficient to avoid any adverse impact to the Fund. In
addition, the Year 2000 Problem may adversely affect the markets and the issuers
of securities in which the Fund may invest that, in turn, may adversely affect
the net asset value of the Fund. Improperly functioning trading systems may
result in settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Fund's investments may be adversely affected. The
statements above are subject to the Year 2000 Information and Readiness
Disclosure Act which may limit the legal rights regarding the use of such
statements in the case of dispute.
31
<PAGE> 33
VAN KAMPEN FUNDS
YOUR NOTES:
32
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> U.S. GOVT FD A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<INVESTMENTS-AT-COST> 2,370,086,689<F1>
<INVESTMENTS-AT-VALUE> 2,344,844,274<F1>
<RECEIVABLES> 27,116,618<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 414,044<F1>
<TOTAL-ASSETS> 2,372,374,936<F1>
<PAYABLE-FOR-SECURITIES> 139,608,724<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 30,599,391<F1>
<TOTAL-LIABILITIES> 170,208,115<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,227,550,616
<SHARES-COMMON-STOCK> 141,950,449
<SHARES-COMMON-PRIOR> 143,825,859
<ACCUMULATED-NII-CURRENT> 60<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (278,590,723)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (26,690,593)<F1>
<NET-ASSETS> 1,974,419,992
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 81,986,371<F1>
<OTHER-INCOME> 3,680,508<F1>
<EXPENSES-NET> (11,802,051)<F1>
<NET-INVESTMENT-INCOME> 73,864,828<F1>
<REALIZED-GAINS-CURRENT> (12,264,590)<F1>
<APPREC-INCREASE-CURRENT> (74,783,877)<F1>
<NET-CHANGE-FROM-OPS> (13,183,639)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (68,060,006)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 32,056,755
<NUMBER-OF-SHARES-REDEEMED> (36,379,454)
<SHARES-REINVESTED> 2,447,289
<NET-CHANGE-IN-ASSETS> (105,207,885)
<ACCUMULATED-NII-PRIOR> 2,111,426<F1>
<ACCUMULATED-GAINS-PRIOR> (266,326,133)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 5,932,553<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 11,802,051<F1>
<AVERAGE-NET-ASSETS> 2,044,402,312
<PER-SHARE-NAV-BEGIN> 14.459
<PER-SHARE-NII> 0.461
<PER-SHARE-GAIN-APPREC> (0.537)
<PER-SHARE-DIVIDEND> (0.474)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 13.909
<EXPENSE-RATIO> 0.93
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> U.S. GOVT FD B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<INVESTMENTS-AT-COST> 2,370,086,689<F1>
<INVESTMENTS-AT-VALUE> 2,344,844,274<F1>
<RECEIVABLES> 27,116,618<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 414,044<F1>
<TOTAL-ASSETS> 2,372,374,936<F1>
<PAYABLE-FOR-SECURITIES> 139,608,724<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 30,599,391<F1>
<TOTAL-LIABILITIES> 170,208,115<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 258,327,166
<SHARES-COMMON-STOCK> 14,967,587
<SHARES-COMMON-PRIOR> 19,682,778
<ACCUMULATED-NII-CURRENT> 60<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (278,590,723)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (26,690,593)<F1>
<NET-ASSETS> 207,876,590
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 81,986,371<F1>
<OTHER-INCOME> 3,680,508<F1>
<EXPENSES-NET> (11,802,051)<F1>
<NET-INVESTMENT-INCOME> 73,864,828<F1>
<REALIZED-GAINS-CURRENT> (12,264,590)<F1>
<APPREC-INCREASE-CURRENT> (74,783,877)<F1>
<NET-CHANGE-FROM-OPS> (13,183,639)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (7,332,805)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,379,760
<NUMBER-OF-SHARES-REDEEMED> (6,349,198)
<SHARES-REINVESTED> 254,247
<NET-CHANGE-IN-ASSETS> (76,335,623)
<ACCUMULATED-NII-PRIOR> 2,111,426<F1>
<ACCUMULATED-GAINS-PRIOR> (266,326,133)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 5,932,553<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 11,802,051<F1>
<AVERAGE-NET-ASSETS> 250,159,799
<PER-SHARE-NAV-BEGIN> 14.440
<PER-SHARE-NII> 0.395
<PER-SHARE-GAIN-APPREC> (0.530)
<PER-SHARE-DIVIDEND> (0.417)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 13.888
<EXPENSE-RATIO> 1.75
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 13
<NAME> U.S. GOVT FD C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<INVESTMENTS-AT-COST> 2,370,086,689<F1>
<INVESTMENTS-AT-VALUE> 2,344,844,274<F1>
<RECEIVABLES> 27,116,618<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 414,044<F1>
<TOTAL-ASSETS> 2,372,374,936<F1>
<PAYABLE-FOR-SECURITIES> 139,608,724<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 30,599,391<F1>
<TOTAL-LIABILITIES> 170,208,115<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 21,570,295
<SHARES-COMMON-STOCK> 1,431,217
<SHARES-COMMON-PRIOR> 1,244,481
<ACCUMULATED-NII-CURRENT> 60<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (278,590,723)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (26,690,593)<F1>
<NET-ASSETS> 19,870,239
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 81,986,371<F1>
<OTHER-INCOME> 3,680,508<F1>
<EXPENSES-NET> (11,802,051)<F1>
<NET-INVESTMENT-INCOME> 73,864,828<F1>
<REALIZED-GAINS-CURRENT> (12,264,590)<F1>
<APPREC-INCREASE-CURRENT> (74,783,877)<F1>
<NET-CHANGE-FROM-OPS> (13,183,639)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (583,383)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,562,826
<NUMBER-OF-SHARES-REDEEMED> (2,398,561)
<SHARES-REINVESTED> 22,471
<NET-CHANGE-IN-ASSETS> 1,904,303
<ACCUMULATED-NII-PRIOR> 2,111,426<F1>
<ACCUMULATED-GAINS-PRIOR> (266,326,133)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 5,932,553<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 11,802,051<F1>
<AVERAGE-NET-ASSETS> 19,970,567
<PER-SHARE-NAV-BEGIN> 14.436
<PER-SHARE-NII> 0.402
<PER-SHARE-GAIN-APPREC> (0.538)
<PER-SHARE-DIVIDEND> (0.417)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 13.883
<EXPENSE-RATIO> 1.74
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis.
</FN>
</TABLE>
