<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 3
Performance in Perspective....................... 4
Glossary of Terms................................ 5
Portfolio Management Review...................... 6
Portfolio Highlights............................. 9
Portfolio of Investments......................... 10
Statement of Assets and Liabilities.............. 13
Statement of Operations.......................... 14
Statement of Changes in Net Assets............... 15
Financial Highlights............................. 16
Notes to Financial Statements.................... 19
Report of Independent Accountants................ 28
</TABLE>
USGF ANR 2/99
<PAGE> 2
LETTER TO SHAREHOLDERS
January 20, 1999
Dear Shareholder,
The past decade has been a remarkable time for investors. Together, we've
witnessed one of the greatest bull markets in investment history, unprecedented
growth in mutual fund investing, and a surge in personal retirement planning.
The coming millennium promises to hold even more opportunities.
To lead us into this new era of investing, Richard F. Powers III has joined
Van Kampen as Chairman and Chief Executive Officer. He comes to us from our
parent company, Morgan Stanley Dean Witter & Co., where he served as Executive
Vice President and Director of Marketing. He brings 27 years of experience in
the financial services industry, including an extensive background in product
management, strategic planning and brand development.
Although former Chairman Don G. Powell retired on January 1, he will remain
active in the industry and the community. Mr. Powell plans to continue his
service as a member of the board of directors of the Investment Company
Institute, the leading mutual fund industry association, and he will remain a
trustee of your fund.
ECONOMIC OVERVIEW
Despite a stormy year in the global economy, the United States ended 1998
with only a moderate slowdown in growth. The nation's gross domestic product, a
measure of economic health, grew 3.9 percent during the year, matching 1997's
growth rate and indicating that our nation's economy remains strong. A
continuation of low inflation--only a 1.6 percent increase in the consumer price
index over the last 12 months--also helped sustain the domestic economy and kept
inflation-adjusted interest rates attractive.
Although the year ended on a positive note, the economic environment was
quite unsettled in the third quarter, with the Asian financial crisis
contributing to slowing corporate profits in the United States. Given the
uncertainty surrounding emerging market nations and the near-collapse of a major
U.S. hedge fund, the stock and bond markets experienced significant volatility
during this period. With instability as a backdrop, American and foreign
investors alike pursued a flight to quality--seeking the relative safety of
large-company stocks and government bonds.
In the last few months of the year the global financial situation improved
in conjunction with the Federal Reserve's interest rate decreases. In response
to declining corporate profits and mounting international concerns, the Fed
lowered interest rates three times, with 0.25 percent cuts in September,
October, and November. These rate cuts, coupled with a wave of corporate mergers
and cost-cutting measures, lent the support needed to keep the economy growing.
Dozens of foreign central banks also reduced interest rates in an effort to
stimulate their economies. These actions gave a boost to investor confidence and
encouraged a return to a more diversified range of investments in the last few
months of the year.
Continued on page 2
1
<PAGE> 3
MARKET REVIEW
The bond market continued to rally as interest rates fell during the year,
with U.S. Treasury securities outpacing corporate and municipal bonds in price
appreciation. Investors' desire for safer investments amid the global economic
storm led to strong demand for high-quality bonds. In fact, the U.S. Treasury
bond was considered one of the most attractive places to invest by both domestic
and international investors, propelling the 30-year Treasury yield to 4.71
percent in October--its lowest yield since the federal government began selling
these bonds in 1977. However, higher-yielding bonds suffered--primarily during
the third quarter--as investors' demand for quality increased. Corporate bond
prices, especially among lower-rated issues, fell in conjunction with concerns
about declining corporate profits.
OUTLOOK
Our outlook for the domestic economy is positive, and we anticipate
continued low inflation and healthy economic growth. However, the aftereffects
of the global economic slowdown may continue to put pressure on corporate
earnings in the first half of the year. Internationally, we anticipate that low
interest rates and declining inflation will lead to improvements in troubled
areas such as Asia and Latin America. With the successful launch of the euro,
the new European transnational currency, we believe that many foreign markets
will become increasingly attractive in 1999.
In the long term, we are optimistic that the stock market will continue its
record growth, although we could experience additional volatility in the months
ahead if concerns about high stock valuations and increasing earnings pressure
become more pronounced. Combined with growing questions about corporate and
government reactions to the Year 2000 computer problem, we could see an
increasingly cautious market by mid-year.
Additional details about your fund, including a question-and-answer section
with your portfolio management team, are provided in this report. As always, we
are pleased to have the opportunity to share with you the progress of your
investment.
Sincerely,
[SIG]
Richard F. Powers III
Chairman
Van Kampen Investment Advisory
Corp.
[SIG]
Dennis J. McDonnell
President
Van Kampen Investment Advisory
Corp.
2
<PAGE> 4
PERFORMANCE RESULTS FOR THE PERIOD ENDED DECEMBER 31, 1998
VAN KAMPEN U.S. GOVERNMENT FUND
<TABLE>
<CAPTION>
A Shares B Shares C Shares
<S> <C> <C> <C>
TOTAL RETURNS
One-year total return based on NAV(1)...... 5.77% 4.87% 4.87%
One-year total return(2)................... 0.74% 0.92% 3.88%
Five-year average annual total return(2)... 4.91% 4.85% 5.10%
Ten-year average annual total return(2).... 7.74% N/A N/A
Life-of-Fund average annual total
return(2)................................ 9.21% 5.36% 4.81%
Commencement date.......................... 05/31/84 08/24/92 08/13/93
DISTRIBUTION RATE AND YIELD
Distribution rate(3)....................... 6.25% 5.78% 5.78%
SEC Yield(4)............................... 5.61% 5.04% 5.06%
</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 December 31, 1998.
See the Prior Performance section of the current prospectus. Past performance
does not guarantee future results. U.S. Government securities are backed by the
full faith and credit of the U.S. Government, its agencies or instrumentalities.
The government backing applies only to the timely payment of principal and
interest when due, on specific securities in the Fund's portfolio, not to shares
of the Fund. Fund shares when redeemed, may be worth more or less than their
original cost. The value of debt securities will fluctuate with changes in
market conditions and interest rates, which will effect the value of Fund
shares. Securities which are issued by private issuers involve greater risk than
those issued directly by the U.S. Government.
Market forecasts provided in this report may not necessarily come to pass.
3
<PAGE> 5
PUTTING YOUR FUND'S PERFORMANCE IN PERSPECTIVE
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment performance at regular intervals. A
comparison of your Fund's performance to an applicable benchmark can:
- Illustrate the market environment in which your Fund is being managed.
- Reflect the impact of favorable market trends or difficult market
conditions.
- Help you evaluate how your Fund's management team has responded to
opportunities and challenges.
The following graph compares your Fund's performance to that of the Merrill
Lynch 1- to 10-Year Treasury Index over time. This index is a broad-based,
statistical composite that does not include any commissions or sales charges
that would be paid by an investor purchasing the securities it represents.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen U.S. Government Fund vs. the Merrill Lynch 1- to 10-Year
Treasury Index (December 31, 1988 through December 31, 1998)
INVESTMENT PERFORMANCE CHART
<TABLE>
<CAPTION>
FUNDS TOTAL RETURN
<S> <C>
1 Year Avg. Annual = 0.74%
5 Year Avg. Annual = 4.91%
10 Year Avg. Annual = 7.74%
</TABLE>
<TABLE>
<CAPTION>
MERRILL LYNCH 1- TO 10-YEAR TREASURY
VAN KAMPEN U.S. GOVERNMENT FUND INDEX
------------------------------- ------------------------------------
<S> <C> <C>
Dec 1988 9527.00 10000.00
9603.00 10099.00
9537.00 10057.00
9539.00 10107.00
9701.00 10293.00
9992.00 10510.00
10297.00 10777.00
10497.00 10998.00
10364.00 10845.00
10401.00 10899.00
10632.00 11123.00
10747.00 11232.00
Dec 1989 10849.00 11260.00
10741.00 11196.00
10789.00 11224.00
10801.00 11246.00
10720.00 11207.00
11011.00 11443.00
11194.00 11592.00
11363.00 11759.00
11271.00 11708.00
11368.00 11815.00
11488.00 11979.00
11716.00 12158.00
Dec 1990 11892.00 12330.00
12046.00 12455.00
12131.00 12520.00
12216.00 12588.00
12333.00 12719.00
12420.00 12791.00
12426.00 12805.00
12612.00 12942.00
12873.00 13184.00
13128.00 13409.00
13276.00 13560.00
13400.00 13719.00
Dec 1991 13771.00 14054.00
13552.00 13913.00
13659.00 13965.00
13576.00 13909.00
13675.00 14036.00
13907.00 14236.00
14132.00 14442.00
14314.00 14710.00
14452.00 14880.00
14573.00 15086.00
14368.00 14900.00
14371.00 14834.00
Dec 1992 14634.00 15030.00
14901.00 15311.00
15123.00 15540.00
15186.00 15598.00
15278.00 15721.00
15295.00 15675.00
15561.00 15900.00
15626.00 15912.00
15789.00 16176.00
15766.00 16245.00
15813.00 16274.00
15671.00 16196.00
Dec 1993 15798.00 16259.00
15939.00 16421.00
15685.00 16187.00
15144.00 15961.00
14969.00 15853.00
15031.00 15869.00
14979.00 15880.00
15304.00 16077.00
15315.00 16127.00
15000.00 15998.00
14918.00 16001.00
14825.00 15921.00
Dec 1994 14993.00 15982.00
15347.00 16247.00
15781.00 16558.00
15841.00 16648.00
16065.00 16840.00
16626.00 17321.00
16751.00 17434.00
16739.00 17446.00
16877.00 17589.00
17003.00 17707.00
17154.00 17906.00
17387.00 18129.00
Dec 1995 17633.00 18314.00
17727.00 18471.00
17526.00 18264.00
17442.00 18176.00
17334.00 18119.00
17286.00 18109.00
17480.00 18286.00
17551.00 18342.00
17548.00 18362.00
17830.00 18595.00
18201.00 18898.00
18498.00 19131.00
Dec 1996 18356.00 19027.00
18455.00 19098.00
18515.00 19119.00
18302.00 19021.00
18579.00 19234.00
18741.00 19382.00
18929.00 19549.00
19316.00 19916.00
19216.00 19831.00
19435.00 20050.00
19681.00 20283.00
19741.00 20330.00
Dec 1997 19929.00 20503.00
20153.00 20779.00
20159.00 20751.00
20220.00 20820.00
20309.00 20913.00
20440.00 21054.00
20530.00 21201.00
20628.00 21284.00
20782.00 21709.00
20938.00 22222.00
20864.00 22272.00
20993.00 22189.00
Dec 1998 21078.00 22272.00
</TABLE>
The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of other share classes of
the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions and includes payment of the maximum
sales charge (4.75% for A shares).
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.
4
<PAGE> 6
GLOSSARY OF TERMS
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.
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.
CREDIT SPREAD: Also called quality spread, the difference in yield between
higher-quality issues (such as Treasury securities) and lower-quality
issues. Normally, lower-quality issues provide higher yields to compensate
investors for the additional credit risk.
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 United States.
HEDGE FUND: A fund, usually used by wealthy individuals and institutions, that
is allowed to use aggressive strategies that are unavailable to mutual
funds.
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.
For bonds and notes, the yield is the annual interest divided by the market
price.
YIELD CURVE: A result of viewing the yields of U.S. Treasury securities maturing
in 1, 5, 10, and 30 years. When grouped together and graphed, a pattern of
increasing yield is often reflected as the time to maturity extends. This
pattern creates an upward sloping "curve." A "flat" yield curve represents
little difference between short- and long-term interest rates.
YIELD SPREAD: The additional yield investors can earn by either investing in
bonds with longer maturities or by investing in bonds with lower ratings.
The spread is the difference in yield between bonds with short versus long
maturities or the difference in yield between high-quality bonds and
lower-quality bonds.
5
<PAGE> 7
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN 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 12 months. The team is led by Peter W. Hegel, chief investment officer for
fixed-income investments, and includes portfolio managers Barbara Downey and
Kelly Gilbert. The following excerpts reflect their views on the Fund's
performance during the 12-month period ended December 31, 1998.
Q WHAT FACTORS HAD THE GREATEST INFLUENCE ON THE FUND DURING THE PAST 12
MONTHS?
A Interest rates declined steadily during the period, 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, which lowers the yield of the mortgage-backed
securities held by the Fund. Because mortgage-backed securities became
increasingly sensitive to interest rates during the period, we found managing
this portion of the Fund's portfolio more challenging than in past years.
During the period, international markets, including Asia, Russia, and Latin
America, were plagued by economic crisis. Plummeting stock markets and currency
troubles led investors to seek shelter in the safety of high-quality assets.
Consequently, many investors moved their assets into U.S. Treasuries, causing
the 30-year Treasury bond yield to drop to 4.72 percent in October, its lowest
level since the federal government began selling these bonds in 1977.
Finally, we saw the difference in yield between high- and low-quality
securities widen during the second half of the period, due to investors'
concerns about the health of the economy.
Q WHAT STRATEGY DID YOU USE TO MANAGE THE FUND BASED ON THESE FACTORS?
A Despite the negative effects of mortgage prepayments, we found that the
return earned by mortgage-backed securities was comparable to that of U.S.
Treasuries during the first six months of the period. As a result, we
remained neutral (approximately 80 percent mortgage-backed securities and 20
percent Treasuries) until July, when declining interest rates and accelerating
prepayments caused us to increase our exposure to Treasuries.
Near the end of August and into September we shifted back toward
mortgage-backed securities because we felt the wide yield spreads would present
an opportunity to boost the Fund's yield. Unfortunately, our move toward
mortgages was premature and we missed the second half of the Treasury rally.
During the fourth quarter, however, we continued to hold a significant position
in mortgage-backed securities, which benefited the Fund when mortgages rebounded
to close out the period.
6
<PAGE> 8
Q HOW DID FEDERAL RESERVE BOARD ACTIONS AFFECT THE FUND?
A We believe the three interest rate cuts initiated by the Fed near the end
of the period helped the Fund by providing liquidity to the overall
market. In addition, the Fed lowered interest rates in carefully measured
steps of 0.25 percent, allowing us sufficient time to react accordingly in
positioning the Fund.
Going forward, we feel the Fed is in a difficult position. The U.S. economy,
although strong, has shown signs of slowing. Effects still linger from the
global economic crisis and the collapse of Long Term Capital Management, a U.S.
hedge fund with significant positions in mortgage-backed securities. We believe
the Fed will remain cautious and could reduce rates again during the first half
of 1999.
Q HOW DID THE FUND PERFORM DURING THE 12-MONTH REPORTING PERIOD?
A The Fund generated a total return of 5.77 percent(1) (Class A shares at
net asset value) for the 12-month period ended December 31, 1998. By
comparison, the Merrill Lynch 1- to 10-year Treasury Index generated a
total return of 8.63 percent, and the Lehman Brothers Mortgage Index returned
8.72 percent. Keep in mind that these are broad-based indices that 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 on page 3 for additional Fund performance results.
Dividends remained competitive during the period, providing shareholders
with a healthy stream of current income. As of December 31, 1998, the Class A
share distribution rate was 6.25 percent(3), based on a monthly dividend of
$.0790 per share and a maximum public offering price of $15.18 per share on
December 31, 1998.
Q WHAT IS YOUR OUTLOOK FOR THE INVESTMENT ENVIRONMENT DURING THE NEXT SIX
MONTHS, AND HOW WILL YOU POSITION THE FUND?
A Long Term Capital Management and its problems had many investors favoring
U.S. Treasuries. Once the Fed lowered interest rates, however, stability
began to return. Consequently, the prices of riskier assets, including
mortgage-backed securities, are becoming more attractive, and we believe that
investors will begin to move toward these riskier investments.
Because of these factors, we positioned the Fund with a bias toward
mortgage-backed securities. Our research indicates that mortgages are
inexpensive compared to Treasuries and have solid fundamental characteristics.
Going forward, we expect to add to this position. We will, however, monitor
interest rates and Fed actions for signs of
7
<PAGE> 9
declining interest rates. If interest rates continue to decline, the potential
for additional refinancing activity will increase, and we will shift Fund assets
toward U.S. Treasuries.
[SIG]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
[SIG]
Barbara Downey
Portfolio Manager
[SIG]
Kelly Gilbert
Portfolio Manager
Please see footnotes on page 3
8
<PAGE> 10
PORTFOLIO HIGHLIGHTS
VAN KAMPEN U.S. GOVERNMENT FUND
COUPON DISTRIBUTION AS OF DECEMBER 31, 1998
[BAR GRAPH]
<TABLE>
<CAPTION>
PERCENTAGE OF FUNDS
COUPON RATE LONG-TERM INVESTMENTS
<S> <C>
5.9 or less............ 3.1%
6-6.9.................. 16.3%
7-7.9.................. 30.2%
8-8.9.................. 21.4%
9-9.9.................. 11.4%
10 or more............. 17.6%
</TABLE>
PORTFOLIO COMPOSITION AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
<S> <C>
GNMA ....................... 48.9%
TREASURY SECURITIES ........ 16.2%
FNMA ....................... 26.8% [PIE CHART]
REMIC/CMO .................. 5.1%
FHLMC ...................... 3.0%
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
<S> <C>
GNMA ....................... 34.4%
TREASURY SECURITIES ........ 19.2%
FNMA ....................... 35.1% [PIE CHART]
REMIC/CMO .................. 5.6%
FHLMC ...................... 5.7%
</TABLE>
DURATION
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998(1) AS OF DECEMBER 31, 1997(1)
<S> <C> <C>
Duration 3.16 years 3.62 years
</TABLE>
(1)Unaudited
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MORTGAGE BACKED SECURITIES 76.8%
$ 11,088 Federal Home Loan Mortgage Corp.
Gold Pools.......................... 10.000% 04/01/10 to 09/01/21 $ 12,038,361
26,975 Federal Home Loan Mortgage Corp.
Pools............................... 8.500 01/01/16 to 09/01/19 28,324,028
5,712 Federal Home Loan Mortgage Corp.
Pools............................... 10.000 12/01/08 to 10/01/18 6,193,680
496 Federal Home Loan Mortgage Corp.
Pools............................... 10.250 11/01/09 540,901
15,614 Federal Home Loan Mortgage Corp.
Pools............................... 11.000 10/01/04 to 01/01/21 17,458,351
89 Federal Home Loan Mortgage Corp.
Pools............................... 11.250 09/01/15 99,559
6,132 Federal Home Loan Mortgage Corp.
REMIC Pools (PAC)................... 8.000 01/01/19 to 01/15/21 6,185,484
15,061 Federal Home Loan Mortgage Corp.
REMIC Pools (PAC)................... 8.250 12/15/20 15,727,901
14,426 Federal Home Loan Mortgage Corp.
REMIC Pools (PAC)................... 8.600 10/15/05 14,916,384
6,307 Federal Home Loan Mortgage Corp.
REMIC Pools......................... 9.000 02/15/21 6,523,764
6,613 Federal Home Loan Mortgage Corp.
REMIC Pools (PAC)................... 9.250 11/15/05 6,848,328
100,500 Federal National Mortgage
Association Pools................... 6.000 12/01/28 99,243,750
200,412 Federal National Mortgage
Association Pools (a)............... 6.500 06/01/23 to 10/01/28 201,821,050
29,000 Federal National Mortgage
Association Pools................... 6.740 08/25/07 30,626,610
161,759 Federal National Mortgage
Association Pools (a)............... 7.000 09/01/23 to 10/01/25 165,094,574
23,060 Federal National Mortgage
Association Pools (a)............... 7.500 12/01/21 to 01/01/23 23,701,499
30,396 Federal National Mortgage
Association Pools................... 8.000 12/01/16 to 12/01/22 31,549,914
8,755 Federal National Mortgage
Association Pools................... 8.500 04/01/17 to 06/01/21 9,239,710
9,110 Federal National Mortgage
Association Pools................... 9.000 05/01/09 to 02/01/21 9,702,141
1,317 Federal National Mortgage
Association Pools................... 9.500 05/01/20 1,410,424
4,610 Federal National Mortgage
Association Pools................... 10.500 06/01/10 to 09/01/19 5,112,485
4,418 Federal National Mortgage
Association Pools................... 11.000 12/01/03 to 11/01/19 4,978,990
1,049 Federal National Mortgage
Association Pools................... 11.500 12/01/09 to 01/01/16 1,189,262
45 Federal National Mortgage
Association Pools................... 12.500 03/01/15 51,752
1,350 Federal National Mortgage
Association Pools................... 13.000 06/01/15 1,560,669
14,684 Federal National Mortgage
Association REMIC Pools (PAC)....... 4.500 02/25/20 14,192,428
7,686 Federal National Mortgage
Association REMIC Pools (PAC)....... 7.500 12/25/19 7,957,504
15,000 Federal National Mortgage
Association REMIC Pools (PAC)....... 11.000 01/25/19 15,642,300
23,557 Government National Mortgage
Association Pools (PAC)............. 6.500 02/20/27 23,952,993
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- --------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
MORTGAGE BACKED SECURITIES (CONTINUED)
$176,195 Government National Mortgage
Association Pools (a)............... 7.000% 08/15/22 to 11/15/28 $ 180,214,087
273,305 Government National Mortgage
Association Pools (a)............... 7.500 01/15/17 to 08/15/28 282,125,447
218,633 Government National Mortgage
Association Pools................... 8.000 12/15/00 to 12/15/28 227,583,702
106,843 Government National Mortgage
Association Pools................... 8.500 04/15/06 to 06/15/23 113,624,945
178,641 Government National Mortgage
Association Pools................... 9.000 10/15/01 to 08/15/24 192,310,587
30,723 Government National Mortgage
Association Pools................... 9.500 06/15/09 to 11/15/22 33,245,483
7,419 Government National Mortgage
Association Pools................... 10.000 09/15/15 to 09/15/20 8,140,576
9,772 Government National Mortgage
Association Pools................... 10.500 09/15/10 to 02/15/20 10,847,031
1,282 Government National Mortgage
Association Pools................... 11.000 03/15/10 to 11/15/18 1,444,467
1,780 Government National Mortgage
Association Pools................... 11.500 10/15/10 to 03/15/18 2,022,692
1,303 Government National Mortgage
Association Pools................... 12.000 07/15/11 to 08/15/15 1,502,805
568 Government National Mortgage
Association Pools................... 12.250 09/15/13 to 07/15/15 656,264
1,537 Government National Mortgage
Association Pools................... 12.500 04/15/10 to 08/15/15 1,788,230
774 Government National Mortgage
Association Pools................... 13.000 01/15/11 to 06/15/15 904,763
115 Government National Mortgage
Association II Pools................ 8.500 05/20/02 to 02/20/17 121,912
4,204 Government National Mortgage
Association II Pools................ 10.500 01/20/14 to 05/20/19 4,651,058
2,569 Government National Mortgage
Association II Pools................ 11.000 07/20/13 to 08/20/19 2,882,052
1,145 Government National Mortgage
Association II Pools................ 11.500 08/20/13 to 07/20/19 1,300,508
1,371 Government National Mortgage
Association II Pools................ 12.000 08/20/13 to 12/20/15 1,581,221
701 Government National Mortgage
Association II Pools................ 12.500 09/20/13 to 09/20/15 815,723
--------------
TOTAL MORTGAGE BACKED
SECURITIES 76.8% 1,829,648,349
--------------
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
PORTFOLIO OF INVESTMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- -----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
UNITED STATES TREASURY SECURITIES
14.9%
$ 53,500 United States Treasury Bonds........ 10.375% 11/15/09 $ 68,312,545
15,000 United States Treasury Bonds........ 13.125 05/15/01 17,824,800
5,000 United States Treasury Bonds (a).... 13.750 08/15/04 7,191,000
200,000 United States Treasury Bonds
Stripped Principal Payment.......... * 02/15/19 65,534,000
50,000 United States Treasury Notes........ 5.625 05/15/08 53,312,000
20,000 United States Treasury Notes (a).... 8.875 02/15/99 20,098,800
100,000 United States Treasury Notes (a).... 13.375 08/15/01 121,325,000
--------------
TOTAL UNITED STATES TREASURY SECURITIES............................. 353,598,145
--------------
TOTAL LONG-TERM INVESTMENTS 91.7%
(Cost $2,137,936,474)........................................................ 2,183,246,494
--------------
SHORT-TERM INVESTMENTS 2.5%
U.S. GOVERNMENT AGENCY OBLIGATIONS 0.8%
Federal National Mortgage Associations Medium Term Note ($20,000,000 par,
yielding 5.190%, 04/28/99 maturity)............................................ 19,990,000
REPURCHASE AGREEMENT 1.7%
State Street Bank & Trust Co. (Collateralized by U.S. T-Note, $33,770,000 par,
6.875% coupon, due 08/15/25, dated 12/31/98, to be sold on 01/04/99 at
$41,060,115)................................................................... 41,038,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $61,034,795)........................................................... 61,028,000
--------------
TOTAL INVESTMENTS 94.2%
(Cost $2,198,971,269)........................................................ 2,244,274,494
OTHER ASSETS IN EXCESS OF LIABILITIES 5.8%.................................... 137,531,532
--------------
NET ASSETS 100.0%............................................................. $2,381,806,026
--------------
--------------
</TABLE>
* Zero coupon bond
(a) Assets segregated as collateral for open forward and open futures
transactions.
See Notes to Financial Statements
12
<PAGE> 14
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $2,198,971,269)..................... $2,244,274,494
Cash........................................................ 762
Receivables:
Interest.................................................. 20,094,589
Investments Sold.......................................... 130,027,036
Fund Shares Sold.......................................... 1,345,676
Variation Margin on Futures............................... 127,719
Forward Commitments......................................... 1,616,987
Other....................................................... 224,841
--------------
Total Assets.......................................... 2,397,712,104
--------------
LIABILITIES:
Payables:
Income Distributions...................................... 6,310,895
Fund Shares Repurchased................................... 6,233,566
Distributor and Affiliates................................ 1,621,176
Investment Advisory Fee................................... 1,047,351
Accrued Expenses............................................ 527,560
Trustees' Deferred Compensation and Retirement Plans........ 165,530
--------------
Total Liabilities....................................... 15,906,078
--------------
NET ASSETS.................................................. $2,381,806,026
==============
NET ASSETS CONSIST OF:
Capital..................................................... $2,597,927,449
Net Unrealized Appreciation................................. 48,093,284
Accumulated Undistributed Net Investment Income............. 2,111,426
Accumulated Net Realized Loss............................... (266,326,133)
--------------
NET ASSETS.................................................. $2,381,806,026
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $2,079,627,877 and 143,825,859 shares of
beneficial interest issued and outstanding)............. $ 14.46
Maximum sales charge (4.75%* of offering price)......... .72
--------------
Maximum offering price to public........................ $ 15.18
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $284,212,213 and 19,682,778 shares of
beneficial interest issued and outstanding)............. $ 14.44
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $17,965,936 and 1,244,481 shares of
beneficial interest issued and outstanding)............. $ 14.44
==============
</TABLE>
* On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
13
<PAGE> 15
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $179,434,337
Fee Income.................................................. 5,013,652
------------
Total Income............................................ 184,447,989
------------
EXPENSES:
Investment Advisory Fee..................................... 12,925,764
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $4,069,193, $3,332,534 and $154,233,
respectively)............................................. 7,555,960
Shareholder Services........................................ 2,704,793
Custody..................................................... 363,793
Legal....................................................... 128,341
Trustees' Fees and Expenses................................. 45,400
Other....................................................... 776,683
------------
Total Operating Expenses................................ 24,500,734
Interest Expense........................................ 1,056,637
------------
Total Expenses.......................................... 25,557,371
------------
NET INVESTMENT INCOME....................................... $158,890,618
============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 25,591,894
Forward Commitments....................................... 7,355,388
Options................................................... (5,321,178)
Futures................................................... (14,625,379)
------------
Net Realized Gain........................................... 13,000,725
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 82,098,885
------------
End of the Period:
Investments............................................. 45,303,225
Futures................................................. 1,434,791
Forward Commitments..................................... 1,355,268
------------
48,093,284
------------
Net Unrealized Depreciation During the Period............... (34,005,601)
------------
NET REALIZED AND UNREALIZED LOSS............................ $(21,004,876)
============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $137,885,742
============
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................... $ 158,890,618 $ 198,019,355
Net Realized Gain/Loss.............................. 13,000,725 (27,525,829)
Net Unrealized Appreciation/Depreciation During the
Period............................................ (34,005,601) 53,113,057
----------------- ----------------
Change in Net Assets from Operations................ 137,885,742 223,606,583
----------------- ----------------
Distributions from Net Investment Income:
Class A Shares.................................... (145,479,133) (170,044,954)
Class B Shares.................................... (19,836,275) (24,106,451)
Class C Shares.................................... (911,495) (869,235)
----------------- ----------------
Total Distributions............................. (166,226,903) (195,020,640)
----------------- ----------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES........................................ (28,341,161) 28,585,943
----------------- ----------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold........................... 227,696,473 71,425,631
Net Asset Value of Shares Issued Through Dividend
Reinvestment...................................... 83,888,683 96,486,944
Cost of Shares Repurchased.......................... (539,408,924) (547,708,673)
----------------- ----------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS...................................... (227,823,768) (379,796,098)
----------------- ----------------
TOTAL DECREASE IN NET ASSETS........................ (256,164,929) (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 $2,111,426
and $9,233,367, respectively)..................... $ 2,381,806,026 $ 2,637,970,955
================= ================
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
Class A Shares 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............. .941 1.039 1.069 1.111 1.177
Net Realized and Unrealized
Gain/Loss....................... (.127) .158 (.495) 1.233 (1.965)
-------- -------- -------- -------- --------
Total from Investment Operations.... .814 1.197 .574 2.344 (.788)
Less Distributions from and in
Excess of Net Investment Income... .979 1.032 1.065 1.092 1.176
-------- -------- -------- -------- --------
Net Asset Value, End of the
Period............................ $ 14.459 $ 14.624 $ 14.459 $ 14.950 $ 13.698
======== ======== ======== ======== ========
Total Return (a).................... 5.77% 8.57% 4.10% 17.61% (5.10%)
Net Assets at End of the Period (In
millions)......................... $2,079.6 $2,264.8 $2,560.1 $2,962.9 $2,924.4
Ratio of Operating Expenses to
Average Net Assets (b)............ .90% .90% .90% .93% .92%
Ratio of Interest Expense to Average
Net Assets........................ .04% .08% .02% .27% .08%
Ratio of Net Investment Income to
Average Net Assets (b)............ 6.45% 7.26% 7.38% 7.68% 8.13%
Portfolio Turnover (Excluding Dollar
Rolls and Forward Commitment
Transactions)..................... 82% 104% 64% 63% 44%
</TABLE>
(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
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
Class B Shares 1998 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............... .816 .916 .947 .991 1.055
Net Realized and Unrealized
Gain/Loss......................... (.121) .162 (.494) 1.241 (1.964)
------- ------- ------- ------- -------
Total from Investment Operations...... .695 1.078 .453 2.232 (.909)
Less Distributions from and in Excess
of Net Investment Income............ .864 .916 .954 .978 1.040
------- ------- ------- ------- -------
Net Asset Value, End of the Period.... $14.440 $14.609 $14.447 $14.948 $13.694
======= ======= ======= ======= =======
Total Return (a)...................... 4.87% 7.71% 3.24% 16.78% (5.93%)
Net Assets at End of the Period (In
millions)........................... $ 284.2 $ 359.0 $ 414.8 $ 466.7 $ 436.3
Ratio of Operating Expenses to Average
Net Assets (b)...................... 1.72% 1.72% 1.73% 1.75% 1.74%
Ratio of Interest Expense to Average
Net Assets.......................... .04% .08% .02% .27% .09%
Ratio of Net Investment Income to
Average Net Assets (b).............. 5.63% 6.44% 6.55% 6.85% 7.29%
Portfolio Turnover (Excluding Dollar
Rolls and Forward Commitment
Transactions)....................... 82% 104% 64% 63% 44%
</TABLE>
(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.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
Class C Shares 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............... .822 .910 .943 .996 1.063
Net Realized and Unrealized
Gain/Loss......................... (.130) .166 (.489) 1.237 (1.956)
------- ------- ------- ------- -------
Total from Investment Operations...... .692 1.076 .454 2.233 (.893)
Less Distributions from and in Excess
of Net Investment Income............ .864 .916 .954 .978 1.040
------- ------- ------- ------- -------
Net Asset Value, End of the Period.... $14.436 $14.608 $14.448 $14.948 $13.693
======= ======= ======= ======= =======
Total Return (a)...................... 4.87% 7.71% 3.24% 16.78% (5.86%)
Net Assets at End of the Period (In
millions)........................... $ 18.0 $ 14.2 $ 14.3 $ 13.3 $ 11.4
Ratio of Operating Expenses to Average
Net Assets (b)...................... 1.72% 1.72% 1.72% 1.75% 1.74%
Ratio of Interest Expense to Average
Net Assets.......................... .04% .08% .02% .27% .10%
Ratio of Net Investment Income to
Average Net Assets (b).............. 5.63% 6.41% 6.55% 6.86% 7.29%
Portfolio Turnover (Excluding Dollar
Rolls and Forward Commitment
Transactions)....................... 82% 104% 64% 63% 44%
</TABLE>
(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
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
- --------------------------------------------------------------------------------
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
19
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
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 $29.4 million with an average interest rate of
3.56%. At December 31, 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
20
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
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 wash sales and the mark to market of open futures
contracts at December 31, 1998.
At December 31, 1998, for federal income tax purposes the cost of long- and
short-term investments is $2,199,339,200, the aggregate gross unrealized
appreciation is $57,317,179 and the aggregate gross unrealized depreciation is
$12,381,885, resulting in net unrealized appreciation on long- and short-term
investments of $44,935,294.
E. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed annually.
Due to inherent differences in the recognition of income, expenses and
realized gains/losses under generally accepted accounting principles and federal
income tax purposes, permanent differences between book and tax basis reporting
for 1998 have been identified and appropriately reclassified. Permanent
differences relating to expenses which are not deductible for tax purposes
totaling $214,344 were reclassified from accumulated undistributed net
investment income to capital.
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 year ended December 31, 1998, the Fund recognized expenses of
approximately $88,600 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.
21
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
For the year ended December 31, 1998, the Fund recognized expenses of
approximately $295,300 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 year ended
December 31, 1998, the Fund recognized expenses of approximately $1,905,700.
Beginning in 1998, the transfer agency fees are determined through negotiations
with the Fund's Board of Trustees and are based on competitive market
benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of shares of beneficial interest, Classes
A, B and C, each with a par value of $.01 per share. There are an unlimited
number of shares of each class authorized.
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
=========== =============
</TABLE>
22
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ----------------------------------------------------------------------
<S> <C> <C>
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>
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>
23
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B shares will
automatically convert to Class A shares after the eighth year following
purchase. The CDSC will be imposed on most redemptions made within 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 year ended December 31, 1998, Van Kampen, as Distributor for the
Fund, received commissions on sales of the Fund's Class A shares of
approximately $191,300 and CDSC on redeemed shares of approximately $1,113,000.
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 year ended December 31, 1998, were
$1,872,132,619 and $1,779,575,781, 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
24
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
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 year ended December 31, 1998, were as
follows:
<TABLE>
<CAPTION>
CONTRACTS PREMIUM
- ------------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1997............. -0- $ -0-
Options Written and Purchased (Net).......... 11,400 (11,690,311)
Options Terminated in Closing Transactions
(Net)...................................... (9,900) 10,443,936
Options Expired (Net)........................ (1,500) 1,246,375
------- ------------
Outstanding at December 31, 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 year ended December 31, 1998, were
as follows:
<TABLE>
<CAPTION>
CONTRACTS
- ------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1997....................... -0-
Futures Opened......................................... 23,522
Futures Closed......................................... (21,685)
-------
Outstanding at December 31, 1998....................... 1,837
=======
</TABLE>
25
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
The futures contracts outstanding as of December 31, 1998, and the
descriptions and unrealized appreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS APPRECIATION
- ------------------------------------------------------------------------
<S> <C> <C>
Short Contracts:
US Treasury Note Futures, Mar. 1999
(Current Notional Value $119,156 per
contract)................................ 1,087 $ 485,870
US Treasury Bond Futures, Mar. 1999
(Current Notional Value $127,781 per
contract)................................ 750 948,921
----- ------------
1,837 $ 1,434,791
===== ============
</TABLE>
C. 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 December 31, 1998. 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 $921.4 million.
<TABLE>
<CAPTION>
UNREALIZED
PAR AMOUNT SETTLEMENT APPRECIATION/
(000) DESCRIPTION DATE CURRENT VALUE DEPRECIATION
- -------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$149,000 FNMA, DWARF, 6.00% coupon... 01/20/99 $149,372,500 $497,500
25,000 FNMA, 7.00% coupon.......... 01/14/99 25,503,875 (31)
100,000 FNMA, 7.50% coupon.......... 01/14/99 102,672,000 (78,000)
255,500 FNMA, 6.50% coupon.......... 01/14/99 257,136,478 403,899
150,000 FNMA, 6.00% coupon.......... 01/14/99 148,055,250 258,375
70,000 GNMA, 6.50% coupon.......... 01/21/99 70,732,900 273,525
------------ ----------
$753,473,003 $1,355,268
------------ ----------
</TABLE>
26
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998
- --------------------------------------------------------------------------------
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
December 31, 1998:
<TABLE>
<CAPTION>
SETTLEMENT NET
DESCRIPTION DATE RECEIVABLE PAYABLE RECEIVABLE
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FNMA ($50,000,000 par, 6.00%
coupon, 12/31/23).......... 01/14/99 $49,500,000 $49,238,281 $261,719
</TABLE>
6. MORTGAGE BACKED SECURITIES
A Mortgage Backed Security (MBS) is a pass-through security created by pooling
mortgages and selling participations in the principal and interest payments
received from borrowers. Most of these securities are guaranteed by federally
sponsored agencies--Government National Mortgage Association (GNMA), Federal
National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation
(FHLMC).
A Collateralized Mortgage Obligation (CMO) is a bond which is collateralized
by a pool of MBS's. 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 year ended December 31, 1998, are payments retained by Van Kampen of
approximately $2,730,442.
27
<PAGE> 29
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees and Shareholders of
Van Kampen U.S. Government Fund:
We have audited the accompanying statement of assets and liabilities of Van
Kampen U.S. Government Fund (the "Fund"), including the portfolio of
investments, as of December 31, 1998, and the related statement of operations
for the year then ended, the statement of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of the
periods presented. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1998, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of Van
Kampen U.S. Government Fund as of December 31, 1998, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the periods presented, in conformity with generally accepted accounting
principles.
KPMG LLP
Chicago, Illinois
February 4, 1999
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
Utility
Value
Global/International
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
Global Franchise
Global Managed Assets
International Magnum
Latin American
FIXED-INCOME FUNDS
Income
Corporate Bond
Global Fixed Income
Global Government Securities
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
Limited Maturity Government
Short-Term Global Income
Strategic Income
U.S. Government
U.S. Government Trust for Income
Worldwide High Income
Tax Exempt Income
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal
Insured Tax Free Income
Intermediate Term Municipal Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
Capital Preservation
Reserve
Tax Free Money
Senior Loan
Prime Rate Income Trust
Senior Floating Rate
To find out more about any of these
funds, ask your financial advisor for
a prospectus, which contains more
complete information, including sales
charges, risks, and expenses. Please
read it carefully before you invest
or send money.
To view a current Van Kampen fund
prospectus or to receive additional
fund information, choose from one of
the following:
- - visit our Web site at
WWW.VANKAMPEN.COM--to view a prospectus, select Download Prospectus
- - call us at 1-800-341-2911 weekdays from 7:00 a.m. to 7:00 p.m. Central time.
Telecommunications Device for the Deaf users, call 1-800-421-2833.
- - e-mail us by visiting
WWW.VANKAMPEN.COM and
selecting Contact Us
29
<PAGE> 31
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
PAUL G. YOVOVICH
CUSTODIAN AND TRANSFER AGENT
DENNIS J. MCDONNELL*
President
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 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 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 June 30, 1999, the report, if used with prospective
investors, must be accompanied by a quarterly 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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 2,198,971,269<F1>
<INVESTMENTS-AT-VALUE> 2,244,274,494<F1>
<RECEIVABLES> 151,595,020<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 1,842,590<F1>
<TOTAL-ASSETS> 2,397,712,104<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 15,906,078<F1>
<TOTAL-LIABILITIES> 15,906,078<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,253,763,048
<SHARES-COMMON-STOCK> 143,825,859
<SHARES-COMMON-PRIOR> 154,862,967
<ACCUMULATED-NII-CURRENT> 2,111,426<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (266,326,133)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 48,093,284<F1>
<NET-ASSETS> 2,079,627,877
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 179,434,337<F1>
<OTHER-INCOME> 5,013,652<F1>
<EXPENSES-NET> (25,557,371)<F1>
<NET-INVESTMENT-INCOME> 158,890,618<F1>
<REALIZED-GAINS-CURRENT> 13,000,725<F1>
<APPREC-INCREASE-CURRENT> (34,005,601)<F1>
<NET-CHANGE-FROM-OPS> 137,885,742<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (145,479,133)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12,318,462
<NUMBER-OF-SHARES-REDEEMED> (28,427,934)
<SHARES-REINVESTED> 5,072,364
<NET-CHANGE-IN-ASSETS> (185,158,602)
<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> 12,925,764<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 25,557,371<F1>
<AVERAGE-NET-ASSETS> 2,161,038,335
<PER-SHARE-NAV-BEGIN> 14.624
<PER-SHARE-NII> 0.941
<PER-SHARE-GAIN-APPREC> (0.127)
<PER-SHARE-DIVIDEND> (0.979)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 14.459
<EXPENSE-RATIO> 0.90
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> U.S. GOVT FD B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 2,198,971,269<F1>
<INVESTMENTS-AT-VALUE> 2,244,274,494<F1>
<RECEIVABLES> 151,595,020<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 1,842,590<F1>
<TOTAL-ASSETS> 2,397,712,104<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 15,906,078<F1>
<TOTAL-LIABILITIES> 15,906,078<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 325,292,922
<SHARES-COMMON-STOCK> 19,682,778
<SHARES-COMMON-PRIOR> 24,572,368
<ACCUMULATED-NII-CURRENT> 2,111,426<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (266,326,133)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 48,093,284<F1>
<NET-ASSETS> 284,212,213
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 179,434,337<F1>
<OTHER-INCOME> 5,013,652<F1>
<EXPENSES-NET> (25,557,371)<F1>
<NET-INVESTMENT-INCOME> 158,890,618<F1>
<REALIZED-GAINS-CURRENT> 13,000,725<F1>
<APPREC-INCREASE-CURRENT> (34,005,601)<F1>
<NET-CHANGE-FROM-OPS> 137,885,742<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (19,836,275)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,614,449
<NUMBER-OF-SHARES-REDEEMED> (8,161,261)
<SHARES-REINVESTED> 657,222
<NET-CHANGE-IN-ASSETS> (74,775,088)
<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> 12,925,764<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 25,557,371<F1>
<AVERAGE-NET-ASSETS> 333,233,601
<PER-SHARE-NAV-BEGIN> 14.609
<PER-SHARE-NII> 0.816
<PER-SHARE-GAIN-APPREC> (0.121)
<PER-SHARE-DIVIDEND> (0.864)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 14.440
<EXPENSE-RATIO> 1.72
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 13
<NAME> U.S. GOVT FD C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 2,198,971,269<F1>
<INVESTMENTS-AT-VALUE> 2,244,274,494<F1>
<RECEIVABLES> 151,595,020<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 1,842,590<F1>
<TOTAL-ASSETS> 2,397,712,104<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 15,906,078<F1>
<TOTAL-LIABILITIES> 15,906,078<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 18,871,479
<SHARES-COMMON-STOCK> 1,244,481
<SHARES-COMMON-PRIOR> 971,893
<ACCUMULATED-NII-CURRENT> 2,111,426<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (266,326,133)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 48,093,284<F1>
<NET-ASSETS> 17,965,936
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 179,434,337<F1>
<OTHER-INCOME> 5,013,652<F1>
<EXPENSES-NET> (25,557,371)<F1>
<NET-INVESTMENT-INCOME> 158,890,618<F1>
<REALIZED-GAINS-CURRENT> 13,000,725<F1>
<APPREC-INCREASE-CURRENT> (34,005,601)<F1>
<NET-CHANGE-FROM-OPS> 137,885,742<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (911,495)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 737,549
<NUMBER-OF-SHARES-REDEEMED> (497,580)
<SHARES-REINVESTED> 32,619
<NET-CHANGE-IN-ASSETS> 3,768,761
<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> 12,925,764<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 25,557,371<F1>
<AVERAGE-NET-ASSETS> 15,422,492
<PER-SHARE-NAV-BEGIN> 14.608
<PER-SHARE-NII> 0.822
<PER-SHARE-GAIN-APPREC> (0.130)
<PER-SHARE-DIVIDEND> (0.864)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 14.436
<EXPENSE-RATIO> 1.72
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
