<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............................. 8
Portfolio of Investments......................... 9
Statement of Assets and Liabilities.............. 10
Statement of Operations.......................... 11
Statement of Changes in Net Assets............... 12
Financial Highlights............................. 13
Notes to Financial Statements.................... 16
Report of Independent Accountants................ 24
</TABLE>
GOVT ANR 11/98
<PAGE> 2
LETTER TO SHAREHOLDERS
October 22, 1998
Dear Shareholder,
These continue to be dramatic
and highly unusual times for global
financial markets. Despite a severe
crisis of confidence in many emerging
economies, the United States has been
relatively unscathed by the turmoil. [PHOTO]
However, volatility increased in the
U.S. equity market as the Asian crisis
spread to Russia and Latin America in
the last few months of the reporting
period. Fixed-income investors were not
entirely unaffected, as volatility
forced yield spreads to widen between DENNIS J. MCDONNELL AND DON G. POWELL
Treasuries and high-yield securities,
corporate bonds, and mortgage-backed securities.
We expect that volatility will
remain high until the situation overseas stabilizes. In this environment, it is
important to stay focused on long-term investment goals and to view daily
fluctuations as relatively minor in the larger picture. As we explain elsewhere
in this letter, the U.S. economy remains among the healthiest in the world, and
Federal Reserve policymakers have demonstrated an ability to make prudent
decisions with regard to monetary policy. These factors bode well for investors
during the months ahead.
ECONOMIC OVERVIEW
Growth in the U.S. economy moderated during the reporting period as fallout
from the global financial crisis finally began to hit home. Weak demand for
American goods in Asia and Latin America caused the U.S. trade deficit to hit a
record $56.5 billion during the second quarter, undermining corporate profits.
Weak earnings, in turn, caused job growth to slow and unemployment to increase
modestly from the 28-year low set earlier this year. Manufacturing activity fell
in September for the fourth consecutive month.
Psychological factors also played a role in the deceleration of U.S.
economic growth. In a recent speech, Federal Reserve Chairman Alan Greenspan
noted that Americans seem to have acquired a strong aversion to risk that had
been notably absent in recent years. This risk-averse attitude manifested itself
in slower retail sales growth and a mild drop in housing activity. Also, the
clear preference among investors for safety and liquidity caused interest rates
on lower-quality debt to balloon, leading to fears of a credit crunch for U.S.
businesses. Such concerns were at least partially responsible for the Fed's
decision to cut short-term interest rates by 0.25 percent on September 29 and
again on October 15.
Despite the slowdown, we believe that the American economy remains
fundamentally sound. Inflation at the consumer level increased by just 1.3
percent during the nine months through September, while wholesale prices
actually fell during the same period.
Continued on page 2
1
<PAGE> 3
MARKET OVERVIEW
The deepening global economic crisis helped unleash a furious flight to
quality in the domestic fixed-income market. As the reporting period ended, the
yield on long-term Treasury bonds had fallen below 5 percent for the first time
since 1977. Total returns in the U.S. bond market were uneven, however, as
investors displayed a preference for quality amid the raging global economic
storm. During the nine months through September, long-term Treasury bonds gained
14.71 percent, compared to 7.76 percent for long-term corporate bonds and 0.77
percent for high-yield securities. The varying performance reflects a transition
in investor psychology, with sentiment shifting from confidence to extreme risk
aversion during the course of just six months.
The heightened demand for safety drove yield differentials between bonds of
different credit quality but similar maturities to levels not seen since the
1990-1991 recession. Credit spreads between 10-year Treasury bonds and
high-yield securities, for example, grew to almost 6 percent. While a gradual
widening of credit spreads is normal during the later stages of a business
cycle, the dramatic nature of the expansion was primarily the result of high
demand for Treasury securities by foreign investors seeking shelter from the
sharp sell-offs in overseas equity markets.
OUTLOOK
We expect that global economic fundamentals will remain favorable for
domestic fixed-income investments. The impact of slower economic growth abroad
should help to offset the inflationary implications of a relatively tight labor
market in the United States. Additionally, the recent deceleration in U.S.
economic growth is likely to lead to somewhat higher unemployment in coming
months. However, while the possibility of a recession can no longer be ruled
out, we believe that the U.S. economy will grow at a moderate pace into next
year.
The Federal Reserve has already begun to loosen monetary policy, and we
expect that global overcapacity will continue to exert downward pressure on
commodity prices. Both factors are positive for bonds. We caution, however, that
yields have fallen considerably in recent months, and a mild increase in
long-term interest rates is possible. Also, a weakening dollar or a worsening of
economic conditions overseas could lead to reduced foreign demand for U.S.
financial assets. Finally, credit quality will remain under intense scrutiny,
especially given the risk-averse mindset of global investors and the advanced
stage of the domestic business cycle.
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.]
Don G. Powell
Chairman
Van Kampen Asset Management Inc.
[SIG.]
Dennis J. McDonnell
President
Van Kampen Asset Management Inc.
2
<PAGE> 4
PERFORMANCE RESULTS FOR THE PERIOD ENDED SEPTEMBER 30, 1998
VAN KAMPEN GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
TOTAL RETURNS
<S> <C> <C> <C>
Nine-month total return based on NAV(1)................... 8.62% 8.05% 8.07%
Nine-month total return(2)................................ 3.48% 4.05% 7.07%
One-year total return(2).................................. 6.65% 7.03% 10.05%
Five-year average annual total return(2).................. 5.16% 5.17% 5.41%
Ten-year average annual total return(2)................... 8.06% N/A N/A
Life-of-Fund average annual total return(2)............... 8.37% 6.08% 5.55%
Commencement date......................................... 07/16/84 12/20/91 03/10/93
DISTRIBUTION RATE AND YIELD
Distribution Rate(3)...................................... 5.64% 5.25% 5.26%
SEC Yield(4).............................................. 4.60% 4.07% 3.93%
</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 September 30, 1998.
See the Prior Performance section of the current prospectus. Past performance
does not guarantee future results. Investment return and net asset value will
fluctuate with market conditions. Fund shares, when redeemed, may be worth more
or less than their original cost.
Market forecasts provided in this report may not necessarily come to pass.
On July 31, 1998, the Fund's Board of Trustees voted to change the Fund's
fiscal year end from December 31 to September 30. As a result, this financial
report reflects the 9-month transition period commencing on January 1, 1998, and
ending on September 30, 1998.
3
<PAGE> 5
PUTTING YOUR FUND'S PERFORMANCE IN PERSPECTIVE
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment performance at regular intervals. A
comparison of your Fund's performance to an applicable benchmark can:
- Illustrate the market environment in which your Fund is being managed.
- Reflect the impact of favorable market trends or difficult market
conditions.
- Help you evaluate how your Fund's management team has responded to
opportunities and challenges.
The following graph compares your Fund's performance to that of the Lehman
Brothers Mutual Fund Government/ Mortgage Index over time. The 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 Government Securities Fund vs. the Lehman Brothers Mutual Fund
Government/Mortgage Index (September 30, 1988 through September 30, 1998)
Investment Performance Chart
<TABLE>
<CAPTION>
Lehman Brothers Mutual
Van Kampen Government Fund Government/Mortgage
Securities Fund Index
<S> <C> <C>
9/30/88 9522.00 10000.00
10/31/88 9649.00 10190.00
11/30/88 9568.00 10060.70
12/31/88 9602.00 10068.80
1/31/89 9714.00 10212.00
2/28/89 9621.00 10135.00
3/31/89 9685.00 10181.40
4/30/89 9919.00 10395.20
5/31/89 10185.00 10665.90
6/30/89 10555.00 10991.40
7/31/89 10816.00 11228.50
8/31/89 10583.00 11054.10
9/30/89 10630.00 11111.80
10/31/89 10917.00 11388.20
11/30/89 11016.00 11503.10
12/31/89 11033.00 11538.90
1/31/90 10803.00 11404.00
2/28/90 10808.00 11442.10
3/31/90 10781.00 11450.50
4/30/90 10655.00 11349.00
5/31/90 10993.00 11677.90
6/30/90 11165.00 11862.40
7/31/90 11362.00 12033.20
8/31/90 11243.00 11880.00
9/30/90 11340.00 11988.10
10/31/90 11506.00 12162.50
11/30/90 11779.00 12427.20
12/31/90 11994.00 12625.50
1/31/91 12153.00 12780.40
2/28/91 12241.00 12865.20
3/31/91 12307.00 12938.60
4/30/91 12445.00 13072.60
5/31/91 12512.00 13146.30
6/30/91 12506.00 13138.70
7/31/91 12684.00 13318.40
8/31/91 12988.00 13603.40
9/30/91 13243.00 13877.90
10/31/91 13425.00 14038.80
11/30/91 13520.00 14165.00
12/31/91 13947.00 14577.00
1/31/92 13735.00 14370.60
2/29/92 13845.00 14455.70
3/31/92 13761.00 14368.50
4/30/92 13859.00 14477.20
5/31/92 14103.00 14742.00
6/30/92 14243.00 14939.60
7/31/92 14472.00 15227.70
8/31/92 14621.00 15389.90
9/30/92 14772.00 15572.20
10/31/92 14582.00 15379.40
11/30/92 14639.00 15379.40
12/31/92 14862.00 15616.70
1/31/93 15128.00 15902.70
2/28/93 15362.00 16164.30
3/31/93 15387.00 16234.10
4/30/93 15497.00 16344.20
5/31/93 15535.00 16365.90
6/30/93 15761.00 16643.00
7/31/93 15844.00 16732.20
8/31/93 16059.00 17001.20
9/30/93 16081.00 17048.80
10/31/93 16132.00 17107.80
11/30/93 16006.00 16974.40
12/31/93 16073.00 17065.00
1/31/94 16276.00 17276.30
2/28/94 15953.00 16994.90
3/31/94 15508.00 16591.80
4/30/94 15351.00 16464.20
5/31/94 15359.00 16473.20
6/30/94 15306.00 16436.00
7/31/94 15547.00 16747.50
8/31/94 15572.00 16767.90
9/30/94 15330.00 16531.00
10/31/94 15292.00 16519.70
11/30/94 15237.00 16481.90
12/31/94 15389.00 16593.10
1/31/95 15718.00 16918.00
2/28/95 16146.00 17305.60
3/31/95 16171.00 17404.60
4/30/95 16396.00 17638.90
5/31/95 16916.00 18295.90
6/30/95 16978.00 18423.80
7/31/95 16925.00 18390.10
8/31/95 17105.00 18597.20
9/30/95 17236.00 18770.90
10/31/95 17451.00 19015.60
11/30/95 17719.00 19284.90
12/31/95 17971.00 19547.00
1/31/96 18070.00 19676.60
2/29/96 17739.00 19358.80
3/31/96 17562.00 19229.70
4/30/96 17419.00 19131.60
5/31/96 17346.00 19091.00
6/30/96 17554.00 19343.40
7/31/96 17550.00 19399.50
8/31/96 17528.00 19372.00
9/30/96 17811.00 19694.50
10/31/96 18222.00 20110.70
11/30/96 18539.00 20437.90
12/31/96 18311.00 20266.60
1/31/97 18358.00 20335.70
2/28/97 18385.00 20378.20
3/31/97 18172.00 20171.40
4/30/97 18424.00 20473.50
5/31/97 18564.00 20658.80
6/30/97 18799.00 20893.90
7/31/97 19340.00 21412.90
8/31/97 19121.00 21260.70
9/30/97 19399.00 21561.50
10/31/97 19887.00 21884.50
11/30/97 19785.00 21981.50
12/31/97 19989.00 22200.00
1/31/98 20312.00 22490.80
2/28/98 20224.00 22470.50
3/31/98 20254.00 22546.90
4/30/98 20303.00 22657.40
5/31/98 20492.00 22859.10
6/30/98 20642.00 23060.20
7/31/98 20688.00 23124.80
8/31/98 21158.00 23573.40
9/30/98 21712.00 24070.80
</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.
COUPON RATE: The stated rate of interest the bond pays until maturity, expressed
as a percentage of the face value.
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.
DURATION: A measure of the sensitivity of a bond's price to changes in interest
rates, expressed in years. Each year of duration represents an expected 1
percent change in the price of a bond for every 1 percent change in interest
rates. The longer a fund's duration, the greater the effect of interest rate
movements on net asset value. Typically, funds with shorter durations have
performed better in rising rate environments, while funds with longer
durations have performed better when rates decline.
FEDERAL FUNDS RATE: The interest rate charged by one financial institution
lending federal funds to another. This overnight rate is used to meet banks'
daily reserve requirements. The Federal Reserve Board uses the federal funds
rate to affect the direction of interest rates.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank system of the United States. Its
policy-making committee, called the Federal Open Market Committee, meets
eight times a year to establish monetary policy and monitor the economic
pulse of the United States.
INFLATION: A persistent and measurable rise in the general level of prices.
Inflation is widely measured by the Consumer Price Index, an economic
indicator that measures the change in the cost of purchased goods and
services.
MORTGAGE-BACKED SECURITIES: Securities backed by pools of similar mortgages.
Investors receive interest payments and partial repayment of the principal
passed through from the underlying mortgages (agencies pass on what they
receive from homeowners paying off their mortgages). These securities are
generally issued by agencies of the U.S. government, such as Government
National Mortgage Association (GNMA, or "Ginnie Mae") and Federal Home Loan
Mortgage Corporation (FHLMC, or "Freddie Mac").
NET ASSET VALUE (NAV): The value of a mutual fund share, calculated by deducting
a fund's liabilities from its total assets and dividing this amount by the
number of shares outstanding. The NAV does not include any initial or
contingent deferred sales charge.
YIELD: The annual rate of return on an investment, expressed as a percentage.
For bonds and notes, the yield is the annual interest divided by the market
price.
YIELD CURVE: A result of viewing the yields of U.S. Treasury securities maturing
in 1, 5, 10, and 30 years. When grouped together and graphed, a pattern of
increasing yield is often reflected as the time to maturity extends. This
pattern creates an upward sloping "curve." A "flat" yield curve represents
little difference between short- and long-term interest rates.
YIELD SPREAD: The difference between the yields of different bonds, due to their
different credit ratings or maturities. When yield spreads between bonds of
different credit quality are narrow, there is less incentive to own the
lower-quality bond. When yield spreads between bonds of different maturities
are narrow, there is less incentive to own the bond with the longer
maturity. In both cases, the investor is not being compensated for the
additional risk.
5
<PAGE> 7
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN GOVERNMENT SECURITIES FUND
We recently spoke with the management team of the Van Kampen Government
Securities Fund about the key events and economic forces that shaped the markets
during the fiscal year. The team includes John R. Reynoldson, portfolio manager,
and Peter W. Hegel, chief investment officer for fixed-income investments.
The Fund's fiscal year end was recently changed from December 31 to
September 30. Going forward, your annual reports will be dated September 30, and
your semiannual reports will be dated March 31. The following interview
discusses the Fund's performance during the nine-month period since your last
annual report, from December 31, 1997, to September 30, 1998.
Q HOW WOULD YOU DESCRIBE THE MARKET IN WHICH THE FUND OPERATED DURING
THIS PERIOD?
A The defining characteristic of the benchmark 10-year Treasury bond during
the first six months of 1998 was its narrow trading range and low
volatility. This was caused by the positive combination of reasonable
domestic growth rates and low inflation. The turmoil overseas stemming
from Asia's currency woes stabilized somewhat in the first quarter of 1998 in
the wake of an IMF resuscitation package and a rebound in the emerging markets.
While investors attempted to gauge that package's success, they created a lull
in the market that was very favorable for U.S. fixed-income investments that
maintain incremental yield spreads to Treasuries. In the domestic market,
mortgage-backed securities became a better value in the early part of the year
following a Treasury rally, as investors became more acutely aware of a
potential wave of mortgage refinancing. However, investors who took advantage of
cheaper mortgage-backed securities in January were handsomely rewarded for the
ensuing six months, as refinancing concerns allayed themselves.
In the last few months of the reporting period, this lull ended. Starting
at the end of July, investors began to recognize that overseas aid packages
weren't working, and the Asian contagion again reared its ugly head. This time,
currency meltdowns spread to Russia and Latin America, including our neighbor to
the south, Mexico. Unfortunately, many investors were holding portfolios of
risk-sensitive securities that were very expensive by historical measures. As
international concerns grew, investors started to dump these securities in favor
of Treasuries. Consequently, the 10-year Treasury dropped approximately 100
basis points in yield in the last two months of the reporting period.
Simultaneously, the equity market and risk-sensitive fixed-income
securities--which included high yield securities, corporate bonds, and
mortgage-backed securities--were rocked by volatility and fluctuating value.
Q THE FUND INVESTS PRIMARILY IN MORTGAGE-BACKED SECURITIES AND TREASURIES.
HOW DID THESE SECTORS REACT TO THE VOLATILITY NEAR THE END OF THE PERIOD?
A As the flight to quality ensued, Treasury rates dropped and took mortgage
rates with them. As opportunities for mortgage refinancing surfaced,
mortgage-backed securities began to lose their luster to investors. By the
end of the reporting period, approximately 97 percent of the
mortgage-backed market was subject to refinancing potential. As investor
skepticism about mortgage-backed securities mounted, however, the spread between
Treasury securities and mortgage-backed securities widened dramatically. By many
valuation measures, mortgage-backed securities have been at lows not seen since
the mid-1980s. Because of this, we believe that investors are now being more
than adequately compensated for owning mortgage-backed securities.
Meanwhile, Treasuries saw some interesting changes along the yield curve
during the reporting period. As yields came down, they dropped more on the long
end of the curve, with 2-year notes dropping about 17 basis points during the
first 6 months, whereas 30-year bonds fell about 30 basis points. Since then,
however, the situation has reversed. As the Asian crisis became more negative,
it became clear that the Fed's more restrictive monetary policy would have to be
amended. As a consequence and because of the flight to quality, investors
increased their purchases on the short end of the curve. During the last two
months of the reporting period, the yield for 30-year Treasury bonds fell about
50 basis points, whereas the
6
<PAGE> 8
2-year note fell by 110 basis points. We expect the difference between short-
and long-term yields to become more pronounced in light of the recent Fed
interest rate cut.
Q HOW DID YOU MANAGE THE FUND'S PORTFOLIO IN LIGHT OF MARKET CONDITIONS?
A Given the increasingly tight yield spread between mortgage-backed
securities and Treasuries, we reduced our mortgage-backed securities
exposure to a low of about 42 percent in late July, with a continued bias
toward overweighting GNMA bonds and 15-year issues, both of which tend to
have decreased prepayment risk. This strategy held up well. Even while spreads
were widening, we held the portfolio steady until the last three weeks, when we
began adding mortgage-backed securities at what we believed to be extremely
attractive prices. From a low of 42 percent, we now have about 62 percent of the
portfolio in mortgage-backed securities, which has historically represented a
significant position. Of that, our purchases have primarily been 6.5 and 7
percent 30-year issues, mostly GNMAs.
In terms of Treasuries, we reacted to the changing yield curve by
significantly overweighting the portfolio's allocation in 2-year through 5-year
Treasuries, and by maintaining a market weighting in the 10-year Treasury. We
also slightly extended the portfolio's duration in the second quarter, and have
maintained a profile that is slightly longer than the Fund's comparable index.
For additional Fund portfolio highlights, please refer to page 8.
Q HOW DID THE FUND PERFORM DURING THE REPORTING PERIOD?
A For the nine-month period ended September 30, 1998, the Government
Securities Fund generated a total return of 8.62 percent(1) (Class A
shares at net asset value). By comparison, the Lehman Brothers Mutual Fund
U.S. Government/Mortgage Index posted a total return of 8.44 percent for
the same period. This broad-based index attempts to measure the market
performance of government securities with maturities between one and 10 years.
This unmanaged index does not reflect any commissions or fees that would be paid
by an investor purchasing the securities it represents. For additional Fund
performance results, please refer to the chart on page 3.
Q WHAT IS YOUR OUTLOOK FOR THE MONTHS AHEAD?
A At the time of this writing, the Federal Reserve Board has cut its
overnight federal funds rate twice, in two 25-basis point increments. This
decrease was largely in response to global capital turmoil, the unwinding
of some hedge fund trades, and scant evidence that the domestic economy is
beginning to slow down. It is our belief that some measure of economic and
financial stability will develop in the coming months. This should have the
effect of diminishing interest in Treasury issues, which have been viewed as a
"safe haven" for investors, in favor of risk-sensitive fixed income products.
These products include mortgage-backed securities, which are available at
historically attractive prices. During the period ahead, we will increasingly
seek opportunities to add value to the portfolio using asset allocation
decisions--determining whether to own Treasuries or mortgages--with less
emphasis on duration or yield curve strategies.
[SIG.]
John R. Reynoldson
Portfolio Manager
[SIG.]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
Please see footnotes on page 3
7
<PAGE> 9
PORTFOLIO HIGHLIGHTS
VAN KAMPEN GOVERNMENT SECURITIES FUND
COUPON DISTRIBUTION AS OF SEPTEMBER 30, 1998
[GRAPH]
<TABLE>
<CAPTION>
PERCENTAGE OF
COUPON RATE LONG-TERM INVESTMENTS
<S> <C>
6-6.9..................... 32.8
7.00- 7.9................. 44.20
8.00- 8.9................. 15.80
9.00- 9.9................. 1.90
10 OR MORE................ 5.30
</TABLE>
PORTFOLIO COMPOSITION BY SECTOR AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998 AS OF DECEMBER 31, 1997
<S> <C> <S> <C>
U.S. TREASURIES............... 38% U.S. TREASURIES............... 42%
GNMAs......................... 36% [PIE CHART] GNMAs......................... 31% [PIE CHART]
FNMAs......................... 24% FNMAs......................... 22%
FHLMCs........................ 2% FHLMCs........................ 5%
</TABLE>
DURATION
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998 AS OF DECEMBER 31, 1997
<S> <C> <C>
Duration 4.7 years 4.9 years
</TABLE>
8
<PAGE> 10
PORTFOLIO OF INVESTMENTS
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UNITED STATES GOVERNMENT AGENCY OBLIGATIONS 51.5%
$ -0- Federal Home Loan Mortgage Corp. Pool....................... 11.000% 02/01/14 $ 268
37,260 Federal Home Loan Mortgage Corp. Gold 30 Year Pools......... 7.000 02/01/23 to 09/01/24 38,248,919
5,967 Federal Home Loan Mortgage Corp. Gold 30 Year Pools......... 7.500 01/01/22 to 06/01/24 6,155,032
1,685 Federal Home Loan Mortgage Corp. Gold 30 Year Pools......... 8.000 07/01/24 to 09/01/24 1,751,468
-0- Federal National Mortgage Association 7 Year Balloon Pool... 7.000 12/01/99 298
131,937 Federal National Mortgage Association 15 Year Dwarf Pools... 6.000 01/01/09 to 04/01/13 133,455,875
47,670 Federal National Mortgage Association 15 Year Dwarf Pools... 6.500 06/01/08 to 06/01/12 48,692,443
30,202 Federal National Mortgage Association 15 Year Dwarf Pools... 7.500 03/01/02 to 09/01/12 31,114,002
49,286 Federal National Mortgage Association Pools................. 6.000 03/01/28 to 07/01/28 49,200,813
84,691 Federal National Mortgage Association Pools................. 6.500 01/01/26 to 04/01/26 86,253,045
70,978 Federal National Mortgage Association Pools................. 7.000 12/01/24 to 05/01/25 72,861,918
12,443 Federal National Mortgage Association Pools................. 7.500 03/01/22 to 10/01/24 12,848,752
243 Federal National Mortgage Association Pools................. 8.000 09/01/24 to 11/01/24 252,460
188 Federal National Mortgage Association Pools................. 11.500 02/01/13 to 05/01/19 213,911
3,163 Federal National Mortgage Association Pools................. 12.000 03/01/13 to 01/01/16 3,638,107
138,144 Government National Mortgage Association.................... 6.500 06/15/23 to 09/15/28 141,116,096
277,107 Government National Mortgage Association.................... 7.000 01/15/23 to 09/15/28 285,458,802
49,916 Government National Mortgage Association.................... 7.500 02/15/07 to 11/15/24 51,719,907
37,402 Government National Mortgage Association.................... 8.000 07/15/07 to 10/15/25 38,984,189
24,738 Government National Mortgage Association.................... 8.500 09/15/04 to 12/15/21 26,270,308
46,193 Government National Mortgage Association(a)................. 9.000 11/15/17 to 12/15/19 49,572,798
162 Government National Mortgage Association.................... 11.000 01/15/10 to 11/15/20 183,511
4,485 Government National Mortgage Association.................... 12.000 06/15/11 to 08/15/15 5,191,552
1,867 Government National Mortgage Association.................... 12.500 05/15/10 to 07/15/18 2,179,648
--------------
TOTAL UNITED STATES GOVERNMENT AGENCY OBLIGATIONS........................................... 1,085,364,122
--------------
UNITED STATES TREASURY OBLIGATIONS 47.2%
100,000 United States Treasury Bonds(a)............................. 11.125 08/15/03 129,048,000
150,000 United States Treasury Notes(a)............................. 7.000 07/15/06 174,921,000
310,000 United States Treasury Notes(a)............................. 7.500 11/15/01 to 05/15/02 339,664,700
210,000 United States Treasury Notes(a)............................. 8.500 11/15/00 227,404,800
50,000 United States Treasury Notes(a)............................. 8.750 08/15/00 53,887,500
68,000 United States Treasury Notes(a)............................. 8.875 11/15/98 68,374,680
--------------
TOTAL UNITED STATES TREASURY OBLIGATIONS.................................................... 993,300,680
--------------
FORWARD PURCHASE COMMITMENTS 26.7%
50,000 Federal National Mortgage Association 15 Year Dwarf,
November Forward............................................ 6.500 TBA 51,043,250
100,000 Federal National Mortgage Association 30 Year, October
Forward..................................................... 6.500 TBA 101,703,500
50,000 Federal National Mortgage Association October Forward....... 7.000 TBA 51,398,500
250,000 Government National Mortgage Association 30 Year, October
Forward..................................................... 6.500 TBA 255,508,750
100,000 Government National Mortgage Association October Forward.... 7.000 TBA 103,172,000
--------------
TOTAL FORWARD PURCHASE COMMITMENTS.......................................................... 562,826,000
--------------
TOTAL LONG-TERM INVESTMENTS 125.4%
(Cost $2,565,340,719)............................................................................... 2,641,490,802
REPURCHASE AGREEMENT 0.1%
Donaldson Lufkin Jenrette ($1,625,000 par collateralized by U.S. Government obligations in a pooled
cash account, dated 09/30/98, to be sold on 10/01/98 at $1,625,239)
(Cost $1,625,000)................................................................................... 1,625,000
--------------
TOTAL INVESTMENTS 125.5%
(Cost $2,566,965,719)............................................................................... 2,643,115,802
LIABILITIES IN EXCESS OF OTHER ASSETS (25.5%)........................................................ (536,812,670)
--------------
NET ASSETS 100.0%.................................................................................... $2,106,303,132
==============
</TABLE>
(a) Assets segregated as collateral for open forward and open futures
transactions.
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
9
<PAGE> 11
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $2,566,965,719)..................... $2,643,115,802
Receivables:
Interest.................................................. 28,126,969
Fund Shares Sold.......................................... 1,547,913
Variation Margin on Futures............................... 400,854
Forward Commitments......................................... 9,218,556
Other....................................................... 144,351
--------------
Total Assets.......................................... 2,682,554,445
--------------
LIABILITIES:
Payables:
Investments Purchased..................................... 556,019,532
Fund Shares Repurchased................................... 11,836,836
Income Distributions...................................... 5,229,214
Distributor and Affiliates................................ 1,110,516
Investment Advisory Fee................................... 900,478
Custodian Bank............................................ 756
Accrued Expenses............................................ 783,891
Trustees' Deferred Compensation and Retirement Plans........ 370,090
--------------
Total Liabilities..................................... 576,251,313
--------------
NET ASSETS.................................................. $2,106,303,132
==============
NET ASSETS CONSIST OF:
Capital..................................................... $2,460,005,144
Net Unrealized Appreciation................................. 84,160,417
Accumulated Undistributed Net Investment Income............. 187,214
Accumulated Net Realized Loss............................... (438,049,643)
--------------
NET ASSETS.................................................. $2,106,303,132
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $1,933,764,828 and 181,795,437 shares of
beneficial interest issued and outstanding)............. $ 10.64
Maximum sales charge (4.75%* of offering price)......... .53
--------------
Maximum offering price to public........................ $ 11.17
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $153,201,076 and 14,406,596 shares of
beneficial interest issued and outstanding)............. $ 10.63
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $19,337,228 and 1,822,648 shares of
beneficial interest issued and outstanding)............. $ 10.61
==============
</TABLE>
* On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
10
<PAGE> 12
STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 1998 and
the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, 1998 December 31, 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest.................................................... $ 114,404,577 $ 171,731,550
-------------- --------------
EXPENSES:
Investment Advisory Fee..................................... 8,223,335 11,754,020
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $3,518,358, $1,309,615 and $120,967,
respectively, for the nine months ended 9/30/98 and
$5,005,846, $2,148,056 and $183,656, respectively, for the
year ended 12/31/97)...................................... 4,948,940 7,337,558
Shareholder Services........................................ 2,675,393 4,355,291
Custody..................................................... 196,231 193,093
Trustees' Fees and Expenses................................. 72,742 56,347
Legal....................................................... 36,772 96,022
Other....................................................... 861,857 1,054,371
-------------- --------------
Total Expenses.......................................... 17,015,270 24,846,702
-------------- --------------
NET INVESTMENT INCOME....................................... $ 97,389,307 $ 146,884,848
============== ==============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ 33,218,111 $ (30,196,912)
Futures................................................... 22,056,061 1,117,437
Forward Commitments....................................... 3,353,345 1,201,445
-------------- --------------
Net Realized Gain........................................... 58,627,517 (27,878,030)
-------------- --------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 67,300,424 (4,302,014)
-------------- --------------
End of the Period:
Investments............................................. 76,150,083 62,687,002
Futures................................................. 236,465 5,019,994
Forward Commitments..................................... 7,773,869 (406,572)
-------------- --------------
84,160,417 67,300,424
-------------- --------------
Net Unrealized Appreciation During the Period............... 16,859,993 71,602,438
-------------- --------------
NET REALIZED AND UNREALIZED GAIN............................ $ 75,487,510 $ 43,724,408
============== ==============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 172,876,817 $ 190,609,256
============== ==============
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
STATEMENT OF CHANGES IN NET ASSETS
For the Nine Months Ended September 30, 1998 and
the Years Ended December 31, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended Year Ended Year Ended
September 30, 1998 December 31, 1997 December 31, 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income....................................... $ 97,389,307 $ 146,884,848 $ 176,469,551
Net Realized Gain/Loss...................................... 58,627,517 (27,878,030) (36,087,596)
Net Unrealized Appreciation/Depreciation During the
Period.................................................... 16,859,993 71,602,438 (101,139,373)
-------------- -------------- --------------
Change in Net Assets from Operations........................ 172,876,817 190,609,256 39,242,582
-------------- -------------- --------------
Distributions from Net Investment Income.................... (97,665,107) (146,949,682) (176,383,647)
Distributions in Excess of Net Investment Income............ (523,301) -0- -0-
-------------- -------------- --------------
Distributions from and in Excess of Net Investment
Income*................................................... (98,188,408) (146,949,682) (176,383,647)
-------------- -------------- --------------
NET CHANGE IN NET ASSETS FROM INVESTMENT ACTIVITIES......... 74,688,409 43,659,574 (137,141,065)
-------------- -------------- --------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold................................... 430,405,741 132,259,259 236,824,847
Net Asset Value of Shares Issued Through Dividend
Reinvestment.............................................. 55,571,884 82,009,897 97,997,307
Cost of Shares Repurchased.................................. (600,313,098) (526,704,317) (639,804,020)
-------------- -------------- --------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS.......... (114,335,473) (312,435,161) (304,981,866)
-------------- -------------- --------------
TOTAL DECREASE IN NET ASSETS................................ (39,647,064) (268,775,587) (442,122,931)
NET ASSETS:
Beginning of the Period..................................... 2,145,950,196 2,414,725,783 2,856,848,714
-------------- -------------- --------------
End of the Period (Including accumulated undistributed net
investment income of $187,214, $275,800 and $1,350,378,
respectively)............................................. $2,106,303,132 $2,145,950,196 $2,414,725,783
============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended Year Ended Year Ended
*Distribution by Class September 30, 1998 December 31, 1997 December 31, 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Distributions from and in Excess of Net Investment Income:
Class A Shares............................................ $(90,081,411) $(133,143,951) $(159,010,911)
Class B Shares............................................ (7,423,591) (12,711,171) (15,893,275)
Class C Shares............................................ (683,406) (1,094,560) (1,479,461)
------------ ------------- -------------
$(98,188,408) $(146,949,682) $(176,383,647)
============ ============= =============
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
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,
Nine Months Ended ----------------------------------------------------
Class A Shares September 30, 1998 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period........ $ 10.259 $ 10.045 $ 10.55 $ 9.67 $ 10.80 $ 10.75
---------------- -------- -------- -------- -------- --------
Net Investment Income......................... .483 .659 .689 .67 .66 .80375
Net Realized and Unrealized Gain/Loss......... .383 .215 (.504) .8985 (1.1145) .05
---------------- -------- -------- -------- -------- --------
Total from Investment Operations................ .866 .874 .185 1.5685 (.4545) .85375
Less Distributions from and in Excess of Net
Investment Income............................. .488 .660 .690 .6885 .6755 .80375
---------------- -------- -------- -------- -------- --------
Net Asset Value, End of the Period.............. $ 10.637 $ 10.259 $ 10.045 $ 10.55 $ 9.67 $ 10.80
================ ======== ======== ======== ======== ========
Total Return (a)................................ 8.62%* 9.16% 1.90% 16.77% (4.26%) 8.15%
Net Assets at End of the Period (In millions)... $ 1,933.8 $1,930.4 $2,156.4 $2,544.5 $2,578.7 $3,418.8
Ratio of Expenses to Average Net Assets (b)..... 1.02% 1.03% 1.06% 1.01% 1.02% .98%
Ratio of Net Investment Income to Average Net
Assets (b).................................... 6.30% 6.62% 6.88% 6.62% 6.96% 7.73%
Portfolio Turnover.............................. 180%* 114% 271% 231% 306% 239%
</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 December 31, 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
13
<PAGE> 15
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,
Nine Months Ended -----------------------------------------------
Class B Shares September 30, 1998(a) 1997(a) 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the Period......... $ 10.261 $10.050 $ 10.56 $ 9.68 $ 10.80 $10.75
-------- ------- ------- ------- -------- ------
Net Investment Income.......................... .427 .588 .635 .60 .60 .74
Net Realized and Unrealized Gain/Loss.......... .380 .211 (.527) .8965 (1.1275) .03
------- ------- ------- ------- -------- ------
Total from Investment Operations................. .807 .799 .108 1.4965 (.5275) .77
Less Distributions from and in Excess of Net
Investment Income.............................. .434 .588 .618 .6165 .5925 .72
-------- ------- ------- ------- -------- ------
Net Asset Value, End of the Period............... $ 10.634 $10.261 $10.050 $ 10.56 $ 9.68 $10.80
======== ======= ======= ======= ======== ======
Total Return (b)................................. 8.05%* 8.27% 1.17% 15.93% (4.95%) 7.31%
Net Assets at End of the Period (In millions).... $ 153.2 $ 199.2 $ 236.7 $ 285.5 $ 278.7 $368.4
Ratio of Expenses to Average Net Assets (c)...... 1.78% 1.78% 1.82% 1.77% 1.78% 1.74%
Ratio of Net Investment Income to Average Net
Assets (c)..................................... 5.55% 5.87% 6.13% 5.86% 6.20% 7.21%
Portfolio Turnover............................... 180%* 114% 271% 231% 306% 239%
</TABLE>
* Non-Annualized
(a) Based on average month-end shares outstanding.
(b) Total Return is based upon net asset value which does not include payment
of the maximum sales charge or contingent deferred sales charge.
(c) For the year ended December 31, 1996, the impact on the Ratios of Expenses
and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
See Notes to Financial Statements
14
<PAGE> 16
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of the Fund
outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 10, 1998
(Commencement
Year Ended December 31, of Distribution) to
Nine Months Ended -------------------------------------- December 31,
Class C Shares September 30, 1998(a) 1997(a) 1996 1995 1994 1993(a)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................. $10.239 $10.031 $ 10.54 $ 9.66 $ 10.79 $ 10.94
------- ------- ------- ------- -------- -------
Net Investment Income.............. .423 .587 .623 .60 .60 .69
Net Realized and Unrealized
Gain/Loss........................ .381 .209 (.514) .8965 (1.1375) (.3055)
------- ------- ------- ------- -------- -------
Total from Investment Operations..... .804 .796 .109 1.4965 (.5375) .3845
Less Distributions from and in Excess
of Net Investment Income........... .434 .588 .618 .6165 .5925 .5345
------- ------- ------- ------- -------- -------
Net Asset Value, End of the Period... $10.609 $10.239 $10.031 $ 10.54 $ 9.66 $ 10.79
======= ======= ======= ======= ======== =======
Total Return (b)..................... 8.07%* 8.28% 1.18% 15.96% (5.05%) 3.58%*
Net Assets at End of the Period (In
millions).......................... $ 19.3 $ 16.4 $ 21.6 $ 26.8 $ 32.0 $ 39.0
Ratio of Expenses to Average Net
Assets (c)......................... 1.78% 1.79% 1.82% 1.77% 1.78% 1.72%
Ratio of Net Investment Income to
Average Net Assets (c)............. 5.51% 5.87% 6.12% 5.86% 6.24% 7.54%
Portfolio Turnover................... 180%* 114% 271% 231% 306% 239%
</TABLE>
* Non-Annualized
(a) Based on average month-end shares outstanding.
(b) Total Return is based upon net asset value which does not include payment
of the maximum sales charge or contingent deferred sales charge.
(c) For the year ended December 31, 1996, the impact on the Ratios of Expenses
and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of certain expenses was less than 0.01%.
See Notes to Financial Statements
15
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Government Securities Fund (the "Fund"), is organized as a Delaware
business trust, and is registered as a diversified open-end management
investment company under the Investment Company Act of 1940, as amended. The
Fund's investment objective is to seek a high level of income by primarily
investing in debt securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. The Fund commenced investment operations on July
16, 1984. The distribution of the Fund's Class B and C shares commenced on
December 20, 1991 and March 10, 1993, respectively. In July, 1998, the Fund's
Board of Trustees approved a change in the Fund's fiscal year end from December
31 to September 30. As a result, this financial report reflects the nine month
period commencing on January 1, 1998, and ending on September 30, 1998.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION--Investments are stated at value using market quotations
or indications of value obtained from an independent pricing service. For those
securities where quotations or prices are not available, valuations are
determined in accordance with procedures established in good faith by the Board
of Trustees. The Fund's security valuation methodology was changed in January,
1998 from bid side pricing to the mean of the bid and asked prices. The impact
of the change, which was not material, is included as a component of the change
in unrealized appreciation/depreciation for the nine months ended September 30,
1998. 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 purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made.
The Fund may invest in repurchase agreements which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen Asset Management Inc. (the "Adviser") or its
affiliates, the daily aggregate of which is invested in repurchase agreements.
Repurchase agreements are fully collateralized by the underlying debt security.
The Fund will make payment for such securities only upon physical delivery or
evidence of book entry transfer to the account of the custodian bank. The seller
is required to maintain the value of the underlying security at not less than
the repurchase proceeds due the Fund.
C. INCOME AND EXPENSES--Interest income is recorded on an accrual basis.
Original issue discount is amortized over the expected life of each applicable
security. Premiums on debt securities are not amortized. 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.
16
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
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.
At September 30, 1998, for federal income tax purposes the cost of long-
and short-term investments is $2,569,784,229, the aggregate gross unrealized
appreciation is $74,004,684 and the aggregate gross unrealized depreciation is
$673,111, resulting in net unrealized appreciation on long- and short-term
investments of $73,331,573.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset these losses against any future realized capital
gains. At September 30, 1998, the Fund had an accumulated capital loss
carryforward for tax purposes of $429,856,841 which will expire between
September 30, 2002 and September 30, 2005.
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
have been identified and appropriately reclassified. During 1998, permanent book
and tax basis differences relating to the recognition of net realized losses on
paydowns of mortgage pool obligations totaling $710,515 were reclassified from
accumulated net realized loss to accumulated undistributed net investment
income. Additionally, $152,796,171 of the capital loss carryforward for tax
purposes expired during 1998 and was reclassified from accumulated net realized
loss to capital. During 1997, permanent book and tax basis differences relating
to the recognition of net realized losses on paydowns of mortgage pool
obligations totaling $1,009,745 were reclassified from accumulated net realized
loss to accumulated undistributed net investment income. Additionally,
$34,785,440 of the capital loss carryforward for tax purposes expired during
1997 and was reclassified from accumulated net realized loss to capital.
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. Distributions from net realized gains for book purposes
may include short-term capital gains and gains on futures transactions. All
short-term capital gains and a portion of futures gains are included in ordinary
income for tax purposes. In January, 1999 the Fund will provide tax information
to shareholders for the 1998 calendar year.
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 $1 billion............................................ .540 of 1%
Next $1 billion............................................. .515 of 1%
Next $1 billion............................................. .490 of 1%
Next $1 billion............................................. .440 of 1%
Next $1 billion............................................. .390 of 1%
Next $1 billion............................................. .340 of 1%
Next $1 billion............................................. .290 of 1%
Over $7 billion............................................. .240 of 1%
</TABLE>
For the nine months ended September 30, 1998 and the year ended December
31, 1997, the Fund recognized expenses of approximately $36,800 and $95,200,
respectively, representing legal services provided by
17
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
Skadden, Arps, Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a
trustee of the Fund is an affiliated person.
For the nine months ended September 30, 1998 and the year ended December
31, 1997, the Fund recognized expenses of approximately $399,600 and
$292,500,respectively, representing Van Kampen Funds Inc.'s or its affiliates'
(collectively "Van Kampen") cost of providing accounting services to the Fund.
Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as
the shareholder servicing agent for the Fund. For the nine months ended
September 30, 1998 and the year ended December 31, 1997, the Fund recognized
expenses of approximately $2,053,700 and $3,027,300, respectively. Beginning in
1998, the transfer agency fees are determined through negotiations with the
Fund's Board of Trustees and are based upon 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.
18
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
At September 30, 1998, capital aggregated $2,363,288,331, $83,427,546 and
$13,289,267 for Classes A, B and C, respectively. For the nine months ended
September 30, 1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A................................................... 38,209,773 $ 392,629,272
Class B................................................... 2,981,950 30,757,165
Class C................................................... 679,207 7,019,304
----------- -------------
Total Sales................................................. 41,870,930 $ 430,405,741
=========== =============
Dividend Reinvestment:
Class A................................................... 4,901,780 $ 50,467,666
Class B................................................... 449,273 4,624,075
Class C................................................... 46,713 480,143
----------- -------------
Total Dividend Reinvestment................................. 5,397,766 $ 55,571,884
=========== =============
Repurchases:
Class A................................................... (49,480,517) $(508,314,040)
Class B................................................... (8,433,459) (86,819,263)
Class C................................................... (502,069) (5,179,795)
----------- -------------
Total Repurchases........................................... (58,416,045) $(600,313,098)
=========== =============
</TABLE>
19
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
At December 31, 1997, capital aggregated $2,568,785,271, $145,979,134 and
$12,372,383 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................................................... 11,053,580 $ 111,167,157
Class B................................................... 1,797,284 17,946,215
Class C................................................... 314,437 3,145,887
----------- -------------
Total Sales................................................. 13,165,301 $ 132,259,259
=========== =============
Dividend Reinvestment:
Class A................................................... 7,387,982 $ 73,655,314
Class B................................................... 769,452 7,676,933
Class C................................................... 68,029 677,650
----------- -------------
Total Dividend Reinvestment................................. 8,225,463 $ 82,009,897
=========== =============
Repurchases:
Class A................................................... (44,948,129) $(450,176,664)
Class B................................................... (6,711,644) (67,148,668)
Class C................................................... (939,038) (9,378,985)
----------- -------------
Total Repurchases........................................... (52,598,811) $(526,704,317)
=========== =============
</TABLE>
At December 31, 1996, capital aggregated $2,865,431,316, $190,732,886 and
$18,193,187 for Classes A, B and C, respectively. For the year ended December
31, 1996, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A................................................... 19,916,758 $ 202,339,730
Class B................................................... 2,958,853 29,869,622
Class C................................................... 457,510 4,615,495
----------- -------------
Total Sales................................................. 23,333,121 $ 236,824,847
=========== =============
Dividend Reinvestment:
Class A................................................... 8,692,189 $ 87,523,376
Class B................................................... 948,561 9,565,633
Class C................................................... 90,225 906,298
----------- -------------
Total Dividend Reinvestment................................. 9,730,975 $ 97,997,307
=========== =============
Repurchases:
Class A................................................... (55,118,215) $(556,059,402)
Class B................................................... (7,388,783) (74,318,737)
Class C................................................... (939,225) (9,425,881)
----------- -------------
Total Repurchases........................................... (63,446,223) $(639,804,020)
=========== =============
</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
20
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
following purchase. The CDSC will be imposed on most redemptions made within
five years of the purchase for Class B and one year of the purchase for Class C
as detailed in the following schedule.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
YEAR OF REDEMPTION CLASS B CLASS C
- ---------------------------------------------------------------------------------------
<S> <C> <C>
First....................................................... 4.00% 1.00%
Second...................................................... 4.00% None
Third....................................................... 3.00% None
Fourth...................................................... 2.50% None
Fifth....................................................... 1.50% None
Sixth and Thereafter........................................ None None
</TABLE>
For the nine months ended September 30, 1998 and the year ended December
31, 1997, Van Kampen, as Distributor for the Fund, received net commissions on
sales of the Fund's Class A shares of approximately $61,700 and $72,800,
respectively, and CDSC on redeemed shares of approximately $172,300 and
$493,100, respectively. Sales charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
For the nine months ended September 30, 1998, the cost of purchases and proceeds
from sales of government securities, including paydowns on mortgage-backed
securities and excluding short-term investments, were $3,755,924,669 and
$3,795,750,432, respectively. For the year ended December 31, 1997, the cost of
purchases and proceeds from sales of government securities, including paydowns
on mortgage-backed securities and excluding short-term investments, were
$2,552,779,772 and $3,114,172,761, respectively.
5. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio or generate potential gain. All of the Fund's portfolio holdings,
including derivative instruments, are marked to market each day with the change
in value reflected in unrealized appreciation/depreciation. Upon disposition, a
realized gain or loss is recognized accordingly, except when taking delivery of
a security underlying a futures contract or forward. In this instance, the
recognition of gain or loss is postponed until the disposal of the security
underlying the futures contract or forward.
Summarized below are the specific types of derivative financial instruments
used by the Fund.
A. FUTURES CONTRACTS--A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Fund generally invests in exchange traded futures contracts on U.S. Treasury
Bonds and typically closes the contract prior to the delivery date. These
contracts are generally used to manage the portfolio's effective maturity and
duration.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, 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 potential risk of loss associated
with a futures contract is in excess of the variation margin reflected on the
Statement of Assets and Liabilities.
21
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
Transactions in futures contracts for the year ended December 31, 1997 and
nine months ended September 30, 1998, were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- -----------------------------------------------------------------------
<S> <C>
Outstanding at December 31, 1996............................ 4,946
Futures Opened.............................................. 51,719
Futures Closed.............................................. (52,665)
-------
Outstanding at December 31, 1997............................ 4,000
Futures Opened.............................................. 48,285
Futures Closed.............................................. (51,085)
-------
Outstanding at September 30, 1998........................... 1,200
=======
</TABLE>
The futures contracts outstanding as of September 30, 1998, and the
descriptions and unrealized appreciation/depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Long Contracts:
U.S. Treasury Bond Futures Dec. 1998
(Current Notional Value of $131,469 per contract)......... 900 $1,074,614
Short Contracts:
U.S. Treasury Note 10-Year Futures Dec. 1998
(Current Notional Value $121,438 per contract)............ 300 (838,149)
--------- -----------
1,200 $ 236,465
--------- -----------
</TABLE>
B. FORWARD COMMITMENTS--The Fund trades certain securities under the terms of
forward commitments, whereby the settlement occurs at a specific future date.
Forward commitments are privately negotiated transactions between the Fund and
dealers. While forward commitments are outstanding, the Fund maintains
sufficient collateral of cash or securities in a segregated account with its
custodian. Forward commitments are marked-to-market on a daily basis with
changes in value reflected as a component of unrealized
appreciation/depreciation. Purchasing securities on a forward commitment
involves a risk that the market value at the time of delivery may be lower than
the agreed upon purchase price resulting in an unrealized loss. This potential
for loss may be greater than the amount shown on the Statement of Assets and
Liabilities. Selling securities on a forward commitment involves different risks
and can result in losses more significant than those arising from the purchase
of such securities. The Fund's market exposure from these positions is equal to
the Current Value noted below.
The following forward commitments were outstanding as of September 30,
1998:
<TABLE>
<CAPTION>
PAR
AMOUNT CURRENT UNREALIZED
(000) DESCRIPTION VALUE APPRECIATION
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Long Contracts
$100,000 U.S. Treasury Note October Forward, 8.00%....... $137,676,500 $ 3,840,563
120,000 U.S. Treasury Note November Forward, 8.125%..... 164,895,000 3,933,306
------------ -----------
$302,571,500 $ 7,773,869
------------ ------------
</TABLE>
22
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
C. CLOSED BUT UNSETTLED FORWARD COMMITMENTS--In certain situations, the Fund has
entered into offsetting transactions for outstanding forward commitments prior
to 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
September 30, 1998:
<TABLE>
<CAPTION>
NET RECEIVABLE/
DESCRIPTION RECEIVABLE PAYABLE PAYABLE
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury Note October Forward,
5.75%.................................... $107,257,813 $(105,765,625) $1,492,187
GNMA October Forward, 8.00%................ 16,615,000 (16,662,500) (47,500)
----------
$1,444,687
==========
</TABLE>
6. 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 nine months ended September 30, 1998 and the year ended December 31,
1997, are payments retained by Van Kampen of approximately $1,164,400 and
$1,879,000, respectively.
7. YEAR 2000 COMPLIANCE (UNAUDITED)
Van Kampen utilizes a number of computer programs across its entire operation
relying on both internal software systems as well as external software systems
provided by third parties. In 1996 Van Kampen initiated a CountDown 2000 Project
to review both the internal systems and external vendor connections. The goal of
this project is to position its business to continue unaffected as a result of
the century change. At this time, there can be no assurance that the steps taken
will be sufficient to avoid any adverse impact to the Fund, but Van Kampen does
not anticipate that the move to Year 2000 will have a material impact on its
ability to continue to provide the Fund with service at current levels. In
addition, it is possible that the securities markets in which the Fund invests
may be detrimentally affected by computer failures throughout the financial
services industry beginning January 1, 2000. Improperly functioning trading
systems may result in settlement problems and liquidity issues.
23
<PAGE> 25
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Van Kampen Government Securities Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen Government Securities
Fund (the "Fund") at September 30, 1998, and the results of its operations, the
changes in its net assets and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
September 30, 1998 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
November 6, 1998
24
<PAGE> 26
VAN KAMPEN GOVERNMENT SECURITIES 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
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
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
ASSET MANAGEMENT INC.
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
PRICEWATERHOUSECOOPERS LLP
200 E. Randolph Drive
Chicago, Illinois 60601
* "Interested" persons of the Fund, as defined in the Investment Company Act of
1940.
(C) Van Kampen Funds Inc., 1998 All rights reserved.
(SM) denotes a service mark of Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After March 31, 1999, the report, if used with prospective
investors, must be accompanied by a quarterly performance update.
25
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> GOV'T SECS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 2,566,965,719<F1>
<INVESTMENTS-AT-VALUE> 2,643,115,802<F1>
<RECEIVABLES> 30,075,736<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 9,362,907<F1>
<TOTAL-ASSETS> 2,682,554,445<F1>
<PAYABLE-FOR-SECURITIES> 556,019,532<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 20,231,781<F1>
<TOTAL-LIABILITIES> 576,251,313<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,363,288,331
<SHARES-COMMON-STOCK> 181,795,437
<SHARES-COMMON-PRIOR> 188,164,401
<ACCUMULATED-NII-CURRENT> 187,214<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (438,049,643)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 84,160,417<F1>
<NET-ASSETS> 1,933,764,828
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 114,404,577<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (17,015,270)<F1>
<NET-INVESTMENT-INCOME> 97,389,307<F1>
<REALIZED-GAINS-CURRENT> 58,627,517<F1>
<APPREC-INCREASE-CURRENT> 16,859,993<F1>
<NET-CHANGE-FROM-OPS> 172,876,817<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (90,081,411)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 38,209,773
<NUMBER-OF-SHARES-REDEEMED> (49,480,517)
<SHARES-REINVESTED> 4,901,780
<NET-CHANGE-IN-ASSETS> 3,337,742
<ACCUMULATED-NII-PRIOR> 275,800<F1>
<ACCUMULATED-GAINS-PRIOR> (648,762,816)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 8,223,335<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 17,015,270<F1>
<AVERAGE-NET-ASSETS> 1,899,573,306
<PER-SHARE-NAV-BEGIN> 10.259
<PER-SHARE-NII> 0.483
<PER-SHARE-GAIN-APPREC> 0.383
<PER-SHARE-DIVIDEND> (0.488)
<PER-SHARE-DISTRIBUTIONS> (0.000)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.637
<EXPENSE-RATIO> 1.02
<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> 012
<NAME> GOV'T SECS B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 2,566,965,719<F1>
<INVESTMENTS-AT-VALUE> 2,643,115,802<F1>
<RECEIVABLES> 30,075,736<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 9,362,907<F1>
<TOTAL-ASSETS> 2,682,554,445<F1>
<PAYABLE-FOR-SECURITIES> 556,019,532<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 20,231,781<F1>
<TOTAL-LIABILITIES> 576,251,313<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 83,427,546
<SHARES-COMMON-STOCK> 14,406,596
<SHARES-COMMON-PRIOR> 19,408,832
<ACCUMULATED-NII-CURRENT> 187,214<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (438,049,643)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 84,160,417<F1>
<NET-ASSETS> 153,201,076
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 114,404,577<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (17,015,270)<F1>
<NET-INVESTMENT-INCOME> 97,389,307<F1>
<REALIZED-GAINS-CURRENT> 58,627,517<F1>
<APPREC-INCREASE-CURRENT> 16,859,993<F1>
<NET-CHANGE-FROM-OPS> 172,876,817<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (7,423,591)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,981,950
<NUMBER-OF-SHARES-REDEEMED> (8,433,459)
<SHARES-REINVESTED> 449,273
<NET-CHANGE-IN-ASSETS> (45,951,930)
<ACCUMULATED-NII-PRIOR> 275,800<F1>
<ACCUMULATED-GAINS-PRIOR> (648,762,816)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 8,223,335<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 17,015,270<F1>
<AVERAGE-NET-ASSETS> 175,136,256
<PER-SHARE-NAV-BEGIN> 10.261
<PER-SHARE-NII> 0.427
<PER-SHARE-GAIN-APPREC> 0.380
<PER-SHARE-DIVIDEND> (0.434)
<PER-SHARE-DISTRIBUTIONS> (0.000)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.634
<EXPENSE-RATIO> 1.78
<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> 013
<NAME> GOV'T SECS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 2,566,965,719<F1>
<INVESTMENTS-AT-VALUE> 2,643,115,802<F1>
<RECEIVABLES> 30,075,736<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 9,362,907<F1>
<TOTAL-ASSETS> 2,682,554,445<F1>
<PAYABLE-FOR-SECURITIES> 556,019,532<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 20,231,781<F1>
<TOTAL-LIABILITIES> 576,251,313<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 13,289,267
<SHARES-COMMON-STOCK> 1,822,648
<SHARES-COMMON-PRIOR> 1,598,797
<ACCUMULATED-NII-CURRENT> 187,214<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (438,049,643)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 84,160,417<F1>
<NET-ASSETS> 19,337,228
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 114,404,577<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (17,015,270)<F1>
<NET-INVESTMENT-INCOME> 97,389,307<F1>
<REALIZED-GAINS-CURRENT> 58,627,517<F1>
<APPREC-INCREASE-CURRENT> 16,859,993<F1>
<NET-CHANGE-FROM-OPS> 172,876,817<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (683,406)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 679,207
<NUMBER-OF-SHARES-REDEEMED> (502,069)
<SHARES-REINVESTED> 46,713
<NET-CHANGE-IN-ASSETS> 2,967,124
<ACCUMULATED-NII-PRIOR> 275,800<F1>
<ACCUMULATED-GAINS-PRIOR> (648,762,816)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 8,223,335<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 17,015,270<F1>
<AVERAGE-NET-ASSETS> 16,175,477
<PER-SHARE-NAV-BEGIN> 10.239
<PER-SHARE-NII> 0.423
<PER-SHARE-GAIN-APPREC> 0.381
<PER-SHARE-DIVIDEND> (0.434)
<PER-SHARE-DISTRIBUTIONS> (0.000)
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.609
<EXPENSE-RATIO> 1.78
<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 a class basis.
</FN>
</TABLE>
