<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 3
Glossary of Terms................................ 4
Portfolio Management Review...................... 5
Portfolio Highlights............................. 8
Portfolio of Investments......................... 9
Statement of Assets and Liabilities.............. 12
Statement of Operations.......................... 13
Statement of Changes in Net Assets............... 14
Financial Highlights............................. 15
Notes to Financial Statements.................... 18
</TABLE>
GOVT SAR 5/99
<PAGE> 2
LETTER TO SHAREHOLDERS
April 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
The U.S. economy continued to grow at a robust pace, despite financial
problems abroad. In the fourth quarter, the nation's gross domestic product
(GDP) rose at an astounding 6.0 percent annual rate, surprising most economists,
whose estimates had been much more conservative. GDP remained strong through the
first quarter of 1999, posting a 4.5 percent annual growth rate. However, the
economy began to show signs of slowing down early in 1999, as corporate profits
and wage growth declined.
A series of interest rate cuts by the Federal Reserve helped the U.S.
economy avoid the economic slump that plagued many global markets. The Fed's
0.25 percent interest rate cut in September was followed by additional cuts in
October and November. These rate cuts, coupled with a wave of corporate mergers
and cost-cutting measures, lent the support needed to foster continued growth.
In addition, the outlook for troubled areas such as Asia and Latin America
improved significantly, and most experts agree that these economies are on the
slow road to recovery.
Despite the improvements abroad and record economic growth in the United
States, inflation remained at bay as commodity prices tumbled. This low
inflationary environment--only a 1.7 percent increase in the consumer price
index over the past 12 months--contributed to the strong domestic economy and
kept inflation-adjusted interest rates attractive. A low level of unemployment,
vibrant consumer spending, and an active housing market also supported the
positive economic conditions.
Continued on page 2
1
<PAGE> 3
MARKET REVIEW
Most areas of the bond market were quite active during the reporting period,
with U.S. Treasury bonds experiencing the greatest price appreciation. Intense
demand, decreasing supply, and a flight to quality that included investors
around the globe pushed the 30-year Treasury bond to its lowest yield ever in
October 1998.
At the same time, investors shied away from lower-rated securities, causing
the prices of high-yield bonds to plummet. This lack of demand for lower-rated
bonds led to unusually high yields in the marketplace as investors required
significant premiums in exchange for purchasing these out-of-favor securities.
The difference in yields between U.S. Treasury bonds and high-yield bonds of
comparable maturity widened to as much as 7.79 percent in mid-October. The
high-yield market rebounded late in 1998 as investors saw that the economy was
performing well and that the global financial crisis was on its way to recovery.
The prices of most investment-grade bonds experienced similar, though much less
dramatic, movement during this period. Investors' preference for quality also
held true for international bonds, although there was some renewed interest in
lower-rated foreign bonds in recent months.
OUTLOOK
Our outlook for the domestic economy remains positive, although the pattern
of reduced growth may continue into the second half of the year. We look for a
slow but steady rise in inflation throughout 1999 to more normal, but certainly
not alarming levels. Internationally, low interest rates and improving financial
conditions should continue to support the economic improvements we've witnessed
in Asia and Latin America.
We believe the markets may still favor higher-quality securities such as
large-company stocks and investment-grade bonds in the near term. In addition,
we anticipate continued day-to-day volatility in the markets, although we
probably won't see sustained high or low periods during the next six months.
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 MARCH 31, 1999
VAN KAMPEN GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
<S> <C> <C> <C>
TOTAL RETURNS
Six-month total return based on NAV(1)... (1.29%) (1.72%) (1.82%)
Six-month total return(2)................ (5.97%) (5.55%) (2.78%)
One-year total return(2)................. 0.79% 1.01% 3.90%
Five-year average annual total
return(2)................................ 5.65% 5.65% 5.85%
Ten-year average annual total
return(2)................................ 7.74% N/A N/A
Life-of-Fund average annual total
return(2)................................ 7.98% 5.40% 4.76%
Commencement date........................ 07/16/84 12/20/91 03/10/93
DISTRIBUTION RATE AND YIELD
Distribution Rate(3)..................... 5.89% 5.49% 5.50%
SEC Yield(4)............................. 4.96% 4.43% 4.45%
</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 March 31, 1999.
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 loss 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
GLOSSARY OF TERMS
COUPON RATE: The stated rate of interest the bond pays on an annual basis,
expressed as a percentage of the face value.
DURATION: A measure of the sensitivity of a bond's price to changes in interest
rates, expressed in years. Each year of duration represents an expected 1
percent change in the price of a bond for every 1 percent change in interest
rates. The longer a bond's duration, the greater the effect of interest rate
movements on net asset value. Typically, funds with shorter durations
perform better in rising rate environments, while funds with longer
durations perform better when rates decline.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank 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.
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.
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.
4
<PAGE> 6
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 past six months. The team includes John R. Reynoldson, portfolio
manager, and Peter W. Hegel, chief investment officer for fixed-income
investments. The following interview discusses the Fund's performance during the
six-month period ending March 31, 1999.
Q DESCRIBE THE ENVIRONMENT IN WHICH THE FUND OPERATED DURING THIS PERIOD?
A Heading into this six-month period, a lingering cloud of global volatility
overshadowed the domestic fixed-income market. As investors flocked to the
relative safety of U.S. Treasury securities, the yield for the benchmark 10-year
Treasury dropped below the trading range set in the first half of 1998. This
occurred in response to international economic developments and in anticipation
of short-term interest rate cuts initiated by the Federal Reserve Board. By year
end, the yield for the 10-year Treasury bond--which, like all bond yields, moves
in the opposite direction of its price--settled into a three-month trading range
of 4.65 to 4.85 percent.
The new year ushered in a more positive mood for risk-sensitive securities,
including corporate bonds, high-yield securities, and mortgage-backed
securities. In contrast to the latter half of 1998, investors began to study
this group more favorably as it became clear that the U.S. economy continued to
expand despite concerns to the contrary. Because these securities were priced at
very attractive levels--after being slashed in the third quarter of
1998--investors had additional incentive to add them to portfolio holdings.
Consequently, the yield spreads between these securities and Treasuries
tightened, indicating better relative pricing and an improvement in performance.
This was certainly the case for mortgage-backed securities, which became less of
a target for refinancing as price volatility diminished and interest rates
gradually rose.
Q HOW DID YOU MANAGE THE FUND'S PORTFOLIO IN LIGHT OF THESE FACTORS?
A At the beginning of the reporting period, we took advantage of
historically cheap valuations in mortgage-backed securities and
incrementally increased the portfolio allocation to this sector. In
overweighting this position, we sought to capture greater yield potential before
yield spreads began to narrow. We also looked to decrease the portfolio's
exposure to prepayment risk, so we purchased mortgage securities with favorable
prepayment characteristics. These included 6.5 percent 30-year GNMAs, which tend
to prepay more slowly than their higher coupon counterparts, and 6 and 6.5
percent 15-year FNMAs, which featured attractive prepayment trends and pricing,
as well as a slightly lower duration than 30-year comparable coupon issues.
5
<PAGE> 7
After hitting their widest point in early October, yield spreads between
agency securities and Treasuries steadily contracted through the first quarter
of 1999, indicating that mortgage-backed securities outperformed during this
time. At the same time, interest rates steadily began to rise, decreasing the
possibility of prepayment risks. As a result, our allocation served the Fund
well during the period.
We were also very selective about the Fund's Treasury exposure during this
time, concentrating Treasury assets in the long and short ends of the yield
curve as it steepened. This strategy moved the Fund's Treasury assets away from
the middle of the yield curve, where little value was thought to be found.
Finally, we maintained a relatively constant portfolio duration during the
period, with our attention directed more toward security selection than duration
management. After having set the portfolio's duration to a more neutral range
near the beginning of the reporting period, duration levels were subsequently
nudged higher, reflecting a somewhat more constructive view towards bonds. As of
the end of the reporting period, the duration was 4.5 years. For additional Fund
portfolio highlights, please refer to page 8.
Q HOW DID THE FUND PERFORM DURING THE REPORTING PERIOD?
A For the six-month period ended March 31, 1999, the Government Securities
Fund generated a total return of -1.29 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 4.26 percent for the same
period. This broad-based index attempts to measure the market performance of
government Treasury, agency, and mortgage-backed securities with maturities of
between one and 30 years. Please keep in mind that this unmanaged index does not
reflect any commissions or fees that would be paid by an investor purchasing the
securities it represents. Of course, past performance does not guarantee future
results. Please refer to the chart and footnotes on page 3 for additional Fund
performance results.
Q WHAT IS YOUR OUTLOOK FOR THE MONTHS AHEAD?
A Through the middle of the year, we think the bond market will remain in a
trading range, but one with a modestly positive price bias. Although we
expect the economy to slow in the second and third quarters of 1999, we
believe that growth will remain positive with inflation in check. A continued
tight job market and high consumer confidence will likely continue to propel
retail spending. The international picture is decidedly mixed. Asian economies
are stabilizing and beginning to show signs of life, but Europe remains ensnared
by economic stagnation.
6
<PAGE> 8
With this in mind, we plan to maintain our focus on mortgage-backed
securities. We believe this sector still exhibits excellent value and attractive
yield opportunities. We expect to see the evolution of a favorable trading range
in the coming months for these securities, with interest rates generally varying
between 5.125 to 5.875 percent. Going forward, we will continue to evaluate the
relationship between mortgages and Treasuries in order to maintain what we
believe to be an optimal balance.
[SIG.]
John R. Reynoldson
Portfolio Manager
[SIG.]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
7
<PAGE> 9
PORTFOLIO HIGHLIGHTS
VAN KAMPEN GOVERNMENT SECURITIES FUND
COUPON DISTRIBUTION AS OF MARCH 31, 1999
[GRAPH]
<TABLE>
<CAPTION>
6-6.9 7-7.9 8-8.9 9-9.9 10 OR MORE
<S> <C> <C> <C> <C> <C>
Percentage Of Long-Term Investments 45.4 25 20.8 3.1 5.7
COUPON RATE
</TABLE>
PORTFOLIO COMPOSITION BY SECTOR AS A PERCENTAGE OF LONG-TERM INVESTMENTS
<TABLE>
<CAPTION>
U.S.
GNMAS TREASURIES FNMAS FHLMCS
----- ---------- ----- ------
<S> <C> <C> <C> <C>
AS OF MARCH 31, 1999 39.9 33.5 24.9 1.7
</TABLE>
[PIE CHART]
<TABLE>
<CAPTION>
U.S.
TREASURIES GNMAS FNMAS FHLMCS
----------- ----- ----- ------
<S> <C> <C> <C> <C>
AS OF SEPTEMBER 30,
1998 37.6 36.3 24.3 1.8
</TABLE>
[PIE CHART]
8
<PAGE> 10
PORTFOLIO OF INVESTMENTS
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
UNITED STATES GOVERNMENT
AGENCY OBLIGATIONS 66.9%
$ -0- Federal Home Loan Mortgage
Corp. Pool................ 11.000% 02/01/14 $ 261
31,427 Federal Home Loan Mortgage
Corp. Gold 30 Year
Pools..................... 7.000 02/01/23 to 09/01/24 31,902,047
4,927 Federal Home Loan Mortgage
Corp. Gold 30 Year
Pools..................... 7.500 01/01/22 to 06/01/24 5,070,578
1,286 Federal Home Loan Mortgage
Corp. Gold 30 Year
Pools..................... 8.000 07/01/24 to 09/01/24 1,340,081
-0- Federal National Mortgage
Association 7 Year Balloon
Pool...................... 7.000 12/01/99 272
122,522 Federal National Mortgage
Association 15 Year Dwarf
Pools..................... 6.000 01/01/09 to 05/01/13 121,660,986
88,336 Federal National Mortgage
Association 15 Year Dwarf
Pools (a)................. 6.500 06/01/08 to 12/01/12 89,143,810
24,302 Federal National Mortgage
Association 15 Year Dwarf
Pools..................... 7.500 03/01/02 to 09/01/12 25,081,480
48,537 Federal National Mortgage
Association Pools......... 6.000 02/01/28 to 07/01/28 47,192,581
171,361 Federal National Mortgage
Association Pools......... 6.500 05/01/23 to 11/01/28 170,706,119
61,163 Federal National Mortgage
Association Pools (a)..... 7.000 12/01/24 to 05/01/25 62,048,811
10,068 Federal National Mortgage
Association Pools......... 7.500 03/01/22 to 10/01/24 10,355,234
132 Federal National Mortgage
Association Pools......... 8.000 09/01/24 to 11/01/24 137,658
180 Federal National Mortgage
Association Pools......... 11.500 02/01/13 to 05/01/19 203,980
2,679 Federal National Mortgage
Association Pools......... 12.000 03/01/13 to 01/01/16 3,068,190
201,185 Government National
Mortgage Association
Pools..................... 6.000 06/15/28 to 01/15/29 195,602,206
182,368 Government National
Mortgage Association
Pools..................... 6.500 06/15/23 to 11/15/28 181,836,072
</TABLE>
See Notes to Financial Statements
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
UNITED STATES GOVERNMENT
AGENCY OBLIGATIONS
(CONTINUED)
$205,449 Government National
Mortgage Association
Pools..................... 7.000% 12/15/22 to 01/15/29 $ 208,832,514
40,625 Government National
Mortgage Association
Pools..................... 7.500 02/15/07 to 11/15/24 41,883,148
30,061 Government National
Mortgage Association
Pools..................... 8.000 07/15/07 to 10/15/25 31,463,623
19,817 Government National
Mortgage Association
Pools..................... 8.500 09/15/04 to 12/15/21 21,090,864
37,833 Government National
Mortgage Association
Pools..................... 9.000 11/15/17 to 12/15/19 40,933,525
127 Government National
Mortgage Association
Pools..................... 11.000 01/15/10 to 11/15/20 142,852
3,731 Government National
Mortgage Association
Pools..................... 12.000 06/15/11 to 08/15/15 4,300,949
1,509 Government National
Mortgage Association
Pools..................... 12.500 05/15/10 to 07/15/18 1,754,165
--------------
TOTAL UNITED STATES GOVERNMENT AGENCY OBLIGATIONS 66.9%............... 1,295,752,006
--------------
UNITED STATES TREASURY OBLIGATIONS 32.4%
100,000 United States Treasury
Bonds (a)................. 11.125 08/15/03 122,527,000
185,000 United States Treasury
Notes (a)................. 7.500 11/15/01 195,694,850
5,000 United States Treasury
Notes (a)................. 8.000 08/15/99 5,062,150
210,000 United States Treasury
Notes (a)................. 8.500 11/15/00 221,367,300
50,000 United States Treasury
Notes (a)................. 8.750 08/15/00 52,493,000
30,000 United States Treasury
Notes (a)................. 9.125 05/15/99 30,159,600
--------------
TOTAL UNITED STATES TREASURY OBLIGATIONS............................... 627,303,900
--------------
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FORWARD PURCHASE COMMITMENTS 20.5%
$ 50,000 Federal National Mortgage
Association--April
Forward................... 6.000% TBA $ 48,586,000
100,000 Government National
Mortgage Association--May
Forward................... 6.500 TBA 99,379,500
100,000 Government National
Mortgage Association--June
Forward................... 6.500 TBA 99,187,500
120,000 United States Treasury
Note--May Forward......... 8.125 TBA 150,837,000
--------------
TOTAL FORWARD PURCHASE COMMITMENTS..................................... 397,990,000
--------------
TOTAL LONG-TERM INVESTMENTS 119.8%
(Cost $2,314,102,822)................................................ 2,321,045,906
REPURCHASE AGREEMENT 0.1%
Donaldson Lufkin Jenrette ($2,105,000 par collateralized by U.S.
Government obligations in a pooled cash account, dated 03/31/99, to be
sold on 04/01/99 at $2,105,289) (Cost $2,105,000)...................... 2,105,000
--------------
TOTAL INVESTMENTS 119.9%
(Cost $2,316,207,822)................................................ 2,323,150,906
LIABILITIES IN EXCESS OF OTHER ASSETS (19.9%)......................... (385,324,359)
--------------
NET ASSETS 100.0%..................................................... $1,937,826,547
==============
</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
11
<PAGE> 13
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $2,316,207,822)..................... $2,323,150,906
Receivables:
Interest.................................................. 24,922,829
Fund Shares Sold.......................................... 10,374,538
Variation Margin on Futures............................... 93,638
Other....................................................... 130,592
--------------
Total Assets.......................................... 2,358,672,503
--------------
LIABILITIES:
Payables:
Investments Purchased..................................... 401,366,808
Fund Shares Repurchased................................... 10,478,670
Income Distributions...................................... 5,067,325
Distributor and Affiliates................................ 1,335,140
Investment Advisory Fee................................... 872,026
Forward Commitments....................................... 731,812
Custodian Bank............................................ 92
Accrued Expenses............................................ 594,024
Trustees' Deferred Compensation and Retirement Plans........ 400,059
--------------
Total Liabilities..................................... 420,845,956
--------------
NET ASSETS.................................................. $1,937,826,547
==============
NET ASSETS CONSIST OF:
Capital..................................................... $2,381,360,177
Net Unrealized Appreciation................................. 6,184,960
Accumulated Distributions in Excess of Net Investment
Income.................................................... (968,025)
Accumulated Net Realized Loss............................... (448,750,565)
--------------
NET ASSETS.................................................. $1,937,826,547
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $1,807,591,409 and 177,628,743 shares of
beneficial interest issued and outstanding)............. $ 10.18
Maximum sales charge (4.75%* of offering price)......... .51
--------------
Maximum offering price to public........................ $ 10.69
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $111,738,172 and 10,986,951 shares of
beneficial interest issued and outstanding)............. $ 10.17
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $18,496,966 and 1,823,735 shares of
beneficial interest issued and outstanding)............. $ 10.14
==============
</TABLE>
* On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
12
<PAGE> 14
STATEMENT OF OPERATIONS
For the Six Months Ended March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 70,183,468
------------
EXPENSES:
Investment Advisory Fee..................................... 5,297,216
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $2,333,529, $652,100 and $94,624,
respectively)............................................. 3,080,253
Shareholder Services........................................ 1,708,818
Custody..................................................... 108,223
Legal....................................................... 63,703
Trustees' Fees and Expenses................................. 31,929
Other....................................................... 495,999
------------
Total Expenses.......................................... 10,786,141
------------
NET INVESTMENT INCOME....................................... $ 59,397,327
============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $11,701,963
Futures................................................... (5,140,401)
Forward Commitments....................................... (17,262,484)
------------
Net Realized Loss........................................... (10,700,922)
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 84,160,417
------------
End of the Period:
Investments............................................. 6,943,084
Futures................................................. (26,312)
Forward Commitments..................................... (731,812)
------------
6,184,960
------------
Net Unrealized Depreciation During the Period............... (77,975,457)
------------
NET REALIZED AND UNREALIZED LOSS............................ $(88,676,379)
============
NET DECREASE IN NET ASSETS FROM OPERATIONS.................. $(29,279,052)
============
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended March 31, 1999, the Nine Months Ended
September 30, 1998 and the Year Ended December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Nine Months Ended Year Ended
March 31, 1999 September 30, 1998 December 31, 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................. $59,397,327 $97,389,307 $146,884,848
Net Realized Gain/Loss................ (10,700,922) 58,627,517 (27,878,030)
Net Unrealized
Appreciation/Depreciation
During the Period................... (77,975,457) 16,859,993 71,602,438
----------- ----------- -----------
Change in Net Assets from
Operations.......................... (29,279,052) 172,876,817 190,609,256
----------- ----------- -----------
Distributions from Net Investment
Income.............................. (59,584,541) (97,665,107) (146,949,682)
Distributions in Excess of Net
Investment Income................... (968,025) (523,301) -0-
----------- ----------- -----------
Distributions from and in Excess of
Net Investment Income*.............. (60,552,566) (98,188,408) (146,949,682)
----------- ----------- -----------
NET CHANGE IN NET ASSETS FROM
INVESTMENT ACTIVITIES............... (89,831,618) 74,688,409 43,659,574
----------- ----------- -----------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold............. 305,172,563 430,405,741 132,259,259
Net Asset Value of Shares Issued
Through Dividend Reinvestment....... 34,546,325 55,571,884 82,009,897
Cost of Shares Repurchased............ (418,363,855) (600,313,098) (526,704,317)
----------- ----------- -----------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS........................ (78,644,967) (114,335,473) (312,435,161)
----------- ----------- -----------
TOTAL DECREASE IN NET ASSETS.......... (168,476,585) (39,647,064) (268,775,587)
NET ASSETS:
Beginning of the Period............... 2,106,303,132 2,145,950,196 2,414,725,783
------------- ------------- -------------
End of the Period (Including
accumulated undistributed net
investment income of ($968,025),
$187,214 and $275,800,
respectively)....................... 1,$937,826,547 2,$106,303,132 2,$145,950,196
============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Nine Months Ended Year Ended
*Distribution by Class March 31, 1999 September 30, 1998 December 31, 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Distributions from and in Excess of
Net Investment Income:
Class A Shares...................... $(56,530,838) $(90,081,411) ($133,143,951)
Class B Shares...................... (3,508,378) (7,423,591) (12,711,171)
Class C Shares...................... (513,350) (683,406) (1,094,560)
----------- ----------- -----------
$(60,552,566) $(98,188,408) ($146,949,682)
============ ============ ============
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Nine Months
Ended Ended Year Ended December 31,
March 31, September 30, -----------------------------------------
Class A Shares 1999 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of the Period............ $10.637 $10.259 $ 10.045 $ 10.55 $ 9.67 $ 10.80
------- ------- -------- -------- -------- --------
Net Investment Income.... .309 .483 .659 .689 .67 .66
Net Realized and
Unrealized
Gain/Loss.............. (.455) .383 .215 (.504) .8985 (1.1145)
------- ------- -------- -------- -------- --------
Total from Investment
Operations............... (.146) .866 .874 .185 1.5685 (.4545)
Less Distributions from and
in Excess of Net
Investment Income........ .315 .488 .660 .690 .6885 .6755
------- ------- -------- -------- -------- --------
Net Asset Value, End of the
Period................... $10.176 $10.637 $ 10.259 $ 10.045 $ 10.55 $ 9.67
======= ======= ======== ======== ======== ========
Total Return (a)........... (1.29%)* 8.62%* 9.16% 1.90% 16.77% (4.26%)
Net Assets at End of the
Period (In millions)..... $1,807.6 $1,933.8 $1,930.4 $2,156.4 $2,544.5 $2,578.7
Ratio of Expenses to
Average Net Assets (b)... 1.02% 1.02% 1.03% 1.06% 1.01% 1.02%
Ratio of Net Investment
Income to Average Net
Assets (b)............... 5.97% 6.30% 6.62% 6.88% 6.62% 6.96%
Portfolio Turnover......... 47%* 180%* 114% 271% 231% 306%
</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
15
<PAGE> 17
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Nine Months
Ended Ended Year Ended December 31,
March 31, September 30, --------------------------------------
Class B Shares 1999(a) 1998(a) 1997(a) 1996 1995 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period............... $10.634 $10.261 $10.050 $ 10.56 $ 9.68 $ 10.80
------- ------- ------- ------- ------- --------
Net Investment
Income............. .270 .427 .588 .635 .60 .60
Net Realized and
Unrealized
Gain/Loss.......... (.455) .380 .211 (.527) .8965 (1.1275)
------- ------- ------- ------- ------- --------
Total from Investment
Operations........... (.185) .807 .799 .108 1.4965 (.5275)
Less Distributions from
and in Excess of Net
Investment Income.... .279 .434 .588 .618 .6165 .5925
------- ------- ------- ------- ------- --------
Net Asset Value, End of
the Period........... $10.170 $10.634 $10.261 $10.050 $ 10.56 $ 9.68
======= ======= ======= ======= ======= ========
Total Return (b)....... (1.72%)* 8.05%* 8.27% 1.17% 15.93% (4.95%)
Net Assets at End of
the Period (In
millions)............ $ 111.7 $ 153.2 $ 199.2 $ 236.7 $ 285.5 $ 278.7
Ratio of Expenses to
Average Net
Assets (c)........... 1.77% 1.78% 1.78% 1.82% 1.77% 1.78%
Ratio of Net Investment
Income to Average Net
Assets (c)........... 5.21% 5.55% 5.87% 6.13% 5.86% 6.20%
Portfolio Turnover..... 47%* 180%* 114% 271% 231% 306%
</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
16
<PAGE> 18
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated. (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Nine Months
Ended Ended Year Ended December 31,
March 31, September 30, ------------------------------------
Class C Shares 1999(a) 1998(a) 1997(a) 1996 1995 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of the
Period................. $10.609 $10.239 $10.031 $ 10.54 $ 9.66 $ 10.79
------- ------- ------- ------- ------ -------
Net Investment
Income............... .269 .423 .587 .623 .60 .60
Net Realized and
Unrealized
Gain/Loss............ (.457) .381 .209 (.514) .8965 (1.1375)
------- ------- ------- ------- ------ -------
Total from Investment
Operations............. (.188) .804 .796 .109 1.4965 (.5375)
Less Distributions from
and in Excess of Net
Investment Income...... .279 .434 .588 .618 .6165 .5925
------- ------- ------- ------- ------ -------
Net Asset Value, End of
the Period............. $10.142 $10.609 $10.239 $10.031 $10.54 $ 9.66
======= ======= ======= ======= ====== =======
Total Return (b)......... (1.82%)* 8.07%* 8.28% 1.18% 15.96% (5.05%)
Net Assets at End of the
Period (In millions)... $ 18.5 $ 19.3 $ 16.4 $ 21.6 $ 26.8 $ 32.0
Ratio of Expenses to
Average Net
Assets (c)............. 1.77% 1.78% 1.79% 1.82% 1.77% 1.78%
Ratio of Net Investment
Income to Average Net
Assets (c)............. 5.21% 5.51% 5.87% 6.12% 5.86% 6.24%
Portfolio Turnover....... 47%* 180%* 114% 271% 231% 306%
</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
17
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION--Investments are stated at value using market quotations
or indications of value obtained from an independent pricing service based upon
the mean of the bid and asked prices. For those securities where quotations or
prices are not available, valuations are determined in accordance with
procedures established in good faith by the Board of Trustees. Short-term
securities with remaining maturities of 60 days or less are valued at amortized
cost.
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. At March 31, 1999, there were no
when issued or delayed delivery purchase commitments.
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
18
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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.
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 March 31, 1999, for federal income tax purposes the cost of long- and
short-term investments is $2,319,026,333, the aggregate gross unrealized
appreciation is $22,225,449 and the aggregate gross unrealized depreciation is
$18,100,876, resulting in net unrealized appreciation on long- and short-term
investments of $4,124,573.
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. Net realized gains or losses may
differ for financial and tax reporting purposes primarily as a result of the
deferral of losses for tax purposes resulting from wash sales. 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
19
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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.
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.
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 six months ended March 31, 1999, the Fund recognized expenses of
approximately $63,700 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the six months ended March 31, 1999, the Fund recognized expenses of
approximately $209,300 representing Van Kampen Funds Inc.'s or its affiliates'
(collectively "Van Kampen") cost of providing accounting services to the Fund.
Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as
the shareholder servicing agent for the Fund. For the six months ended March 31,
1999, the Fund recognized expenses of approximately $1,288,400. Transfer agency
fees are
20
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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.
21
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
At March 31, 1999, capital aggregated $2,320,049,086, $47,984,857 and
$13,326,234 for Classes A, B and C, respectively. For the six months ended March
31, 1999, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- --------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................... 26,513,676 $ 275,015,857
Class B.................................... 2,385,263 24,804,724
Class C.................................... 514,826 5,351,982
----------- -------------
Total Sales.................................. 29,413,765 $ 305,172,563
=========== =============
Dividend Reinvestment:
Class A.................................... 3,075,982 $ 31,887,703
Class B.................................... 224,619 2,328,213
Class C.................................... 31,968 330,409
----------- -------------
Total Dividend Reinvestment.................. 3,332,569 $ 34,546,325
=========== =============
Repurchases:
Class A.................................... (33,756,352) $(350,142,805)
Class B.................................... (6,029,527) (62,575,626)
Class C.................................... (545,707) (5,645,424)
----------- -------------
Total Repurchases............................ (40,331,586) $(418,363,855)
=========== =============
</TABLE>
22
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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>
23
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
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>
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 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>
24
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
For the six months ended March 31, 1999, Van Kampen, as Distributor for the
Fund, received net commissions on sales of the Fund's Class A shares of
approximately $54,800 and CDSC on redeemed shares of approximately $142,100.
Sales charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
For the six months ended March 31, 1999, the cost of purchases and proceeds from
sales of government securities, including paydowns on mortgage-backed securities
and excluding short-term investments, were $974,177,754 and $1,130,361,365,
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 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.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, cash or liquid securities with a value equal to its
obligation under the futures contracts. During the period the futures contract
is open, payments are received from or made to the broker based upon changes in
the value of the contract (the variation margin). The potential risk of loss
associated with a futures contract is in excess of the variation margin
reflected on the Statement of Assets and Liabilities.
25
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Transactions in futures contracts for the six months ended March 31, 1999,
were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- -----------------------------------------------------------------------
<S> <C>
Outstanding at September 30, 1998......................... 1,200
Futures Opened............................................ 31,505
Futures Closed............................................ (31,955)
-------
Outstanding at March 31, 1999............................. 750
=======
</TABLE>
The futures contracts outstanding as of March 31, 1999, and the descriptions
and unrealized appreciation/depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
- -------------------------------------------------------------------------
<S> <C> <C>
SHORT CONTRACTS:
U.S. Treasury Bond Futures June 1999
(Current Notional Value of $120,563 per
contract)............................... 450 $ (73,912)
U.S. Treasury Note 10-Year Futures June 1999
(Current Notional Value $114,688 per
contract)............................... 300 47,600
----- ----------
750 $ (26,312)
===== ==========
</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.
26
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
The following forward commitment was outstanding as of March 31, 1999:
<TABLE>
<CAPTION>
PAR UNREALIZED
AMOUNT CURRENT APPRECIATION/
(000) DESCRIPTION VALUE DEPRECIATION
- ---------------------------------------------------------------------------
<C> <S> <C> <C>
Long Contracts
$100,000 $125,463,500 $ (731,812)
U.S. Treasury Note--May
Forward, 8.00%............................ ------------ ----------
</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 six months ended March 31, 1999 are payments retained by Van Kampen of
approximately $620,300.
27
<PAGE> 29
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
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., 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 August 31, 1999, the report, if used with
prospective investors, must be accompanied by a monthly performance update.
28
<PAGE> 30
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.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> GOV'T SECS A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<INVESTMENTS-AT-COST> 2,316,207,822<F1>
<INVESTMENTS-AT-VALUE> 2,323,150,906<F1>
<RECEIVABLES> 35,391,005<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 130,592<F1>
<TOTAL-ASSETS> 2,358,672,503<F1>
<PAYABLE-FOR-SECURITIES> 401,366,808<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 19,479,148<F1>
<TOTAL-LIABILITIES> 420,845,956<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,320,049,086
<SHARES-COMMON-STOCK> 177,628,743
<SHARES-COMMON-PRIOR> 181,795,437
<ACCUMULATED-NII-CURRENT> (968,025)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (448,750,565)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 6,184,960<F1>
<NET-ASSETS> 1,807,591,409
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 70,183,468<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (10,786,141)<F1>
<NET-INVESTMENT-INCOME> 59,397,327<F1>
<REALIZED-GAINS-CURRENT> (10,700,922)<F1>
<APPREC-INCREASE-CURRENT> (77,975,457)<F1>
<NET-CHANGE-FROM-OPS> (29,279,052)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (56,530,838)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 26,513,676
<NUMBER-OF-SHARES-REDEEMED> (33,756,352)
<SHARES-REINVESTED> 3,075,982
<NET-CHANGE-IN-ASSETS> (126,173,419)
<ACCUMULATED-NII-PRIOR> 187,214<F1>
<ACCUMULATED-GAINS-PRIOR> (438,049,643)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 5,297,216<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 10,786,141<F1>
<AVERAGE-NET-ASSETS> 1,863,697,220
<PER-SHARE-NAV-BEGIN> 10.637
<PER-SHARE-NII> 0.309
<PER-SHARE-GAIN-APPREC> (0.455)
<PER-SHARE-DIVIDEND> (0.315)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.176
<EXPENSE-RATIO> 1.02
<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> GOV'T SEC B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<INVESTMENTS-AT-COST> 2,316,207,822<F1>
<INVESTMENTS-AT-VALUE> 2,323,150,906<F1>
<RECEIVABLES> 35,391,005<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 130,592<F1>
<TOTAL-ASSETS> 2,358,672,503<F1>
<PAYABLE-FOR-SECURITIES> 401,366,808<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 19,479,148<F1>
<TOTAL-LIABILITIES> 420,845,956<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 47,984,857
<SHARES-COMMON-STOCK> 10,986,951
<SHARES-COMMON-PRIOR> 14,406,596
<ACCUMULATED-NII-CURRENT> (968,025)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (448,750,565)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 6,184,960<F1>
<NET-ASSETS> 111,738,172
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 70,183,468<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (10,786,141)<F1>
<NET-INVESTMENT-INCOME> 59,397,327<F1>
<REALIZED-GAINS-CURRENT> (10,700,922)<F1>
<APPREC-INCREASE-CURRENT> (77,975,457)<F1>
<NET-CHANGE-FROM-OPS> (29,279,052)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (3,508,378)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,385,263
<NUMBER-OF-SHARES-REDEEMED> (6,029,527)
<SHARES-REINVESTED> 224,619
<NET-CHANGE-IN-ASSETS> (41,462,904)
<ACCUMULATED-NII-PRIOR> 187,214<F1>
<ACCUMULATED-GAINS-PRIOR> (438,049,643)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 5,297,216<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 10,786,141<F1>
<AVERAGE-NET-ASSETS> 130,695,880
<PER-SHARE-NAV-BEGIN> 10.634
<PER-SHARE-NII> 0.270
<PER-SHARE-GAIN-APPREC> (0.455)
<PER-SHARE-DIVIDEND> (0.279)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.170
<EXPENSE-RATIO> 1.77
<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> GOV'T SECS C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<INVESTMENTS-AT-COST> 2,316,207,822<F1>
<INVESTMENTS-AT-VALUE> 2,323,150,906<F1>
<RECEIVABLES> 35,391,005<F1>
<ASSETS-OTHER> 0<F1>
<OTHER-ITEMS-ASSETS> 130,592<F1>
<TOTAL-ASSETS> 2,358,672,503<F1>
<PAYABLE-FOR-SECURITIES> 401,366,808<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 19,479,148<F1>
<TOTAL-LIABILITIES> 420,845,956<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 13,326,234
<SHARES-COMMON-STOCK> 1,823,735
<SHARES-COMMON-PRIOR> 1,822,648
<ACCUMULATED-NII-CURRENT> (968,025)<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (448,750,565)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 6,184,960<F1>
<NET-ASSETS> 18,496,966
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 70,183,468<F1>
<OTHER-INCOME> 0<F1>
<EXPENSES-NET> (10,786,141)<F1>
<NET-INVESTMENT-INCOME> 59,397,327<F1>
<REALIZED-GAINS-CURRENT> (10,700,922)<F1>
<APPREC-INCREASE-CURRENT> (77,975,457)<F1>
<NET-CHANGE-FROM-OPS> (29,279,052)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (513,350)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 514,826
<NUMBER-OF-SHARES-REDEEMED> (545,707)
<SHARES-REINVESTED> 31,968
<NET-CHANGE-IN-ASSETS> (840,262)
<ACCUMULATED-NII-PRIOR> 187,214<F1>
<ACCUMULATED-GAINS-PRIOR> (438,049,643)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 5,297,216<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 10,786,141<F1>
<AVERAGE-NET-ASSETS> 18,967,172
<PER-SHARE-NAV-BEGIN> 10.609
<PER-SHARE-NII> 0.269
<PER-SHARE-GAIN-APPREC> (0.457)
<PER-SHARE-DIVIDEND> (0.279)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.142
<EXPENSE-RATIO> 1.77
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
