<PAGE> 1
<TABLE>
<S> <C>
Table of Contents
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 3
PORTFOLIO AT A GLANCE
SIX-MONTH DISTRIBUTION HISTORY 5
ASSET ALLOCATION 5
COUPON DISTRIBUTION 5
Q&A WITH YOUR PORTFOLIO MANAGERS 6
GLOSSARY OF TERMS 9
BY THE NUMBERS
YOUR FUND'S INVESTMENTS 10
FINANCIAL STATEMENTS 13
NOTES TO FINANCIAL STATEMENTS 19
FUND OFFICERS AND IMPORTANT ADDRESSES 28
RESULTS OF SHAREHOLDER VOTES 29
</TABLE>
One of the greatest shifts we've seen is the increasing importance of investing
for many Americans.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE> 2
OVERVIEW
LETTER TO SHAREHOLDERS
April 20, 2000
Dear Shareholder,
As we enter a new century--and millennium--it seems appropriate to take a look
back at the progress that's been made over the last 100 years and how the world
of investing has changed over the generations. Although rapid advances in
technology and science have dramatically altered the world that we live in
today, one of the greatest shifts we've seen is the increasing importance of
investing for many Americans.
Once considered primarily for the wealthy, investing in the stock market is now
available to most people. In fact, almost 79 million individuals--who represent
almost half of all U.S. households--own stocks either directly or through mutual
funds. This is even more impressive when considering that just 16 years earlier,
only 19 percent of households owned stocks. Another important shift has been the
need for retirement planning beyond a pension plan or Social Security. The
Investment Company Institute, the leading mutual fund industry association,
reports that 77 percent of all
mutual fund shareholders earmarked retirement as their primary
financial goal in 1998.
Through all the changes in the investment environment over the
past century, the general principles that have made
generations of investors successful remain the same. Some that have stood the
test of time include:
- Investing for the long term
- Basing investment decisions on sound research
- Building a diversified portfolio
- Acting on the value of professional investment advice
While no one can predict the future, at Van Kampen we believe that these ideas
will remain important tenets for investors well into this century. As we
continue to focus on these principles, we hope that our decades of investment
experience can help bring you closer to your financial goals as we welcome the
new millennium.
Sincerely,
<TABLE>
<S> <C>
[SIG]
Richard F. Powers, III
Chairman
Van Kampen
Asset Management Inc.
</TABLE>
1
<PAGE> 3
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
ECONOMIC GROWTH REMAINED VIBRANT DURING THE REPORTING PERIOD, PRIMARILY DUE TO
STRONG CONSUMER SPENDING. GROSS DOMESTIC PRODUCT (GDP), THE PRIMARY MEASURE OF
ECONOMIC GROWTH, INCREASED AT AN ANNUALIZED RATE OF 7.3 PERCENT IN THE FOURTH
QUARTER OF 1999, ITS FASTEST GROWTH RATE SINCE 1984. WITH GDP MEASURING 4.4
PERCENT FOR 1999, THIS WAS THE THIRD SUCCESSIVE YEAR IN WHICH GDP EXCEEDED 4
PERCENT.
CONSUMER SPENDING AND EMPLOYMENT
INFLATION CONCERNS MOUNTED DURING THE REPORTING PERIOD BECAUSE OF STRONG
CONSUMER SPENDING AND THE TIGHT LABOR MARKET. RISING INTEREST RATES HAVE DONE
LITTLE TO CURB CONSUMER SPENDING--RETAIL SALES GROWTH SOARED AS SHOPPERS SPENT
SOME OF THEIR STOCK-MARKET PROFITS.
IN ADDITION, UNEMPLOYMENT HOVERED NEAR A 30-YEAR LOW. THE LABOR SHORTAGE BEGAN
TO PUSH WAGES UPWARD, AS EMPLOYERS RAISED WAGES TO ATTRACT SKILLED WORKERS. WAGE
PRESSURE, IN TURN, BEGAN TO AFFECT PRICES, AS COMPANIES STARTED TO RAISE THE
COST OF GOODS AND SERVICES TO COMPENSATE FOR THEIR HIGHER LABOR COSTS.
INTEREST RATES AND INFLATION
STRONG GDP DATA, CONSUMER SPENDING, AND EMPLOYMENT PROMPTED THE FEDERAL RESERVE
BOARD TO MAINTAIN ITS ACTIVE STANCE IN TEMPERING ECONOMIC GROWTH TO WARD OFF
INFLATION. THE FED HAS INCREASED THE FEDERAL FUNDS RATE FIVE TIMES SINCE JUNE
1999. DESPITE THE FED'S ACTIONS, INFLATION BEGAN TO ACCELERATE, DRIVEN
PRINCIPALLY BY ESCALATING ENERGY PRICES. THE CONSUMER PRICE INDEX, A MEASURE OF
INFLATION, ROSE 3.7 PERCENT DURING THE 12 MONTHS ENDED MARCH 31, 2000--A NOTABLE
INCREASE OVER RECENT MONTHS. GIVEN THIS RECENT SURGE, FURTHER FED INTEREST-RATE
HIKES ARE WIDELY ANTICIPATED.
INTEREST RATES AND INFLATION
(March 31, 1998 - March 31, 2000)
[LINE GRAPH]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Mar 98 5.50 1.40
5.50 1.40
5.50 1.70
Jun 98 5.50 1.70
5.50 1.70
5.50 1.60
Sep 98 5.25 1.50
5.00 1.50
4.75 1.50
Dec 98 4.75 1.60
4.75 1.70
4.75 1.60
Mar 99 4.75 1.70
4.75 2.30
4.75 2.10
Jun 99 5.00 2.00
5.00 2.10
5.25 2.30
Sep 99 5.25 2.60
5.25 2.60
5.50 2.60
Dec 99 5.50 2.70
5.50 2.70
5.75 3.20
Mar 00 6.00 3.70
</TABLE>
Interest rates are represented by the closing midline federal funds target rate
on the last day of each month. Inflation is indicated by the annual percent
change of the Consumer Price Index for all urban consumers at the end of each
month.
2
<PAGE> 4
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(as of March 31, 2000)
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Six-month total return based on
NAV(1) 2.04% 1.66% 1.56%
-------------------------------------------------------------------------
Six-month total return(2) (2.76%) (2.30%) .56%
-------------------------------------------------------------------------
One-year total return(2) (4.23%) (3.95%) (1.12%)
-------------------------------------------------------------------------
Five-year average annual total
return(2) 4.89% 4.86% 5.09%
-------------------------------------------------------------------------
Ten-year average annual total
return(2) 6.66% N/A N/A
-------------------------------------------------------------------------
Life-of-Fund average annual total
return(2) 7.49% 4.93%(3) 4.05%
-------------------------------------------------------------------------
Commencement date 07/16/84 12/20/91 03/10/93
-------------------------------------------------------------------------
Distribution Rate(4) 5.52% 5.06% 5.07%
-------------------------------------------------------------------------
SEC Yield(5) 4.82% 4.29% 4.31%
-------------------------------------------------------------------------
</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 Class A shares) or
contingent deferred sales charge ("CDSC"). On purchases of Class A shares of $1
million or more, a CDSC of 1% may be imposed on certain redemptions made within
one year of purchase. Returns for Class B shares are calculated without the
effect of the maximum 4% CDSC, charged on certain redemptions made within one
year of purchase and declining thereafter to 0% after the fifth year. Returns
for Class C shares are calculated without the effect of the maximum 1% CDSC,
charged on certain redemptions made within one year of purchase. If the sales
charges were included, total returns would be lower.
(2) Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (4.75% for Class A
shares) or contingent deferred sales charge ("CDSC"). On purchases of Class A
shares of $1 million or more, a CDSC of 1% may be imposed on certain redemptions
made within one year of purchase. Returns for Class B shares are calculated with
the effect of the maximum 4% CDSC, charged on certain redemptions made within
one year of purchase and declining thereafter to 0% after the fifth year.
Returns for Class C shares are calculated with the effect of the maximum 1%
CDSC, charged on certain redemptions made within one year of purchase.
(3) The total return reflects the conversion of Class B shares into Class A
shares six years after the end of the calendar month in which the shares were
purchased. See footnote 3 in the Notes to Financial Statements for additional
information.
(4) Distribution rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.
For additional Performance Summary disclosure, see page 4.
3
<PAGE> 5
Continued from page 3.
(5) 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, 2000.
An investment in the Fund is subject to investment risks, and you could lose
money on your investment in the Fund. Please review the Risk/Return Summary of
the Prospectus for further details on investment risks. Fund shares, when
redeemed, may be worth more or less than their original cost. Past performance
is no guarantee of future results. Investment return and net asset value will
fluctuate with market conditions. U.S. Government securities are backed by the
full faith and credit of the U.S. Government, its agencies or instrumentalities.
The government backing applies only to the timely payment of principal and
interest when due on specific securities in the Fund's portfolio, not to shares
of the Fund.
Market forecasts provided in this report may not necessarily come to pass.
4
<PAGE> 6
PORTFOLIO AT A GLANCE
SIX-MONTH DISTRIBUTION HISTORY
(for the period ended March 31, 2000)
[BAR GRAPH]
<TABLE>
<CAPTION>
DIVIDENDS
---------
<S> <C>
10/99 0.0500
11/99 0.0500
12/99 0.0500
1/00 0.0500
2/00 0.0465
3/00 0.0465
</TABLE>
The distribution history represents past performance of the Fund's Class A
shares and does not predict or guarantee the Fund's future distributions.
ASSET ALLOCATION
(as a percentage of long-term investments)
[BAR GRAPH]
<TABLE>
<CAPTION>
MARCH 31, 2000 SEPTEMBER 30, 1999
-------------- ------------------
<S> <C> <C>
FNMA 39.0 27.0
U.S. Treasuries 30.0 27.0
GNMA 20.0 43.0
FHLMC 11.0 3.0
</TABLE>
COUPON DISTRIBUTION
(as a percentage of long-term investments)
[BAR GRAPH]
<TABLE>
<CAPTION>
COUPON DISTRIBUTION
-------------------
<S> <C>
less than 6.0% 7.5
6-6.9% 39.1
7-7.9% 24.3
8-8.9% 19.0
9-9.9% 5.1
10% or more 5.0
</TABLE>
5
<PAGE> 7
Q&A WITH YOUR PORTFOLIO MANAGERS
WE RECENTLY SPOKE WITH REPRESENTATIVES OF THE ADVISER OF THE VAN KAMPEN
GOVERNMENT SECURITIES FUND ABOUT THE KEY EVENTS AND ECONOMIC FORCES THAT SHAPED
THE MARKETS DURING THE PAST SIX MONTHS. JOHN R. REYNOLDSON, PORTFOLIO MANAGER,
HAS MANAGED THE FUND SINCE 1988 AND WORKED IN THE INVESTMENT INDUSTRY SINCE
1977. HE IS JOINED BY PETER W. HEGEL, CHIEF INVESTMENT OFFICER FOR FIXED-INCOME
INVESTMENTS. THE FOLLOWING DISCUSSION REFLECTS THEIR VIEWS ON THE FUND'S
PERFORMANCE FOR THE SIX-MONTH PERIOD ENDED MARCH 31, 2000.
Q HOW WOULD YOU CHARACTERIZE THE
MARKET CONDITIONS IN WHICH THE FUND OPERATED DURING THE PAST SIX MONTHS?
A A combination of factors pushed
short- and long-term interest rates in opposite directions during the reporting
period. The result was a dramatic change in the nature of the yield curve, which
measures yields of Treasury securities at maturities ranging from 1 year to 30
years. Short-term interest rates rose sharply as the Federal Reserve Board
raised the federal funds rate to head off potential inflation. Meanwhile, yields
on 30-year Treasury bonds declined from 6.06 percent to 5.83 percent during the
reporting period.
The sharp upward movement on the short end of the yield curve, coupled with
the modest drop in long-term bond yields, produced a negative yield curve in
which 30-year bonds yielded less than their 2-year counterparts. This "inverted"
configuration is highly unusual and primarily reflects the Fed's restrictive
monetary policy and the expected government buyback of longer-term Treasury
securities over the coming years.
Q WHAT HAPPENED TO MORTGAGE-
BACKED SECURITIES DURING THIS TIME?
A As the reporting period began, the
yield spread between 10-year Treasury notes and mortgages was narrowing as
investors came to the view that Y2K computer concerns were overblown,
precipitating an outperformance of mortgage securities during that period. In
general, bonds that do not carry a government "guarantee" tend to outperform
Treasury securities during periods when investors perceive economic risks to be
receding. In mid-January, however, spreads began to widen again amid fears that
the Treasury Department's aggressive buyback plan would severely limit the
supply of Treasury debt in the future. The subsequent heightened demand for
long-term Treasury securities boosted the sector's price and lowered
6
<PAGE> 8
its yield, increasing the spread relative to mortgages.
Overall market volatility, as measured by the price action of Treasury
securities, remained low and actually declined during the period. As a result,
there was no strong relative mispricing between coupons of various
mortgage-backed securities. In effect, the mortgage market became more fairly
valued given the absence of an investor bias towards more yield--a response
typical of a defensive environment--or towards lower-coupon mortgages that might
outperform during a period of falling interest rates. Having said this,
investors showed a clear preference for GNMA securities in the last weeks of the
reporting period, as questions arose regarding the precise nature of the
government backing for Fannie Mae and Freddie Mac mortgages. GNMA securities
carry an iron-clad government guarantee, a backing that is not in dispute.
Q WHAT WERE YOUR STRATEGIES FOR
MANAGING THE PORTFOLIO DURING THIS PERIOD?
A We entered the reporting period
with a slight overweighting in mortgage securities in the portfolio. As a
result, the Fund was positioned to benefit when credit spreads narrowed and
mortgages outperformed Treasuries during the last quarter of 1999. As spreads
subsequently narrowed, we gradually reduced the Fund's mortgage-backed exposure
from 71 percent of portfolio assets on September 30, 1999, to 50 percent as of
March 31, 2000. As our mortgage-backed position was pared back, we overweighted
three- to five-year agency debt holdings as a means of maintaining the Fund's
exposure to the non-Treasury sector. Also, we gradually increased the Fund's
duration to slightly above neutral as the reporting period unfolded, due to the
drop in long-term interest rates.
From a portfolio management perspective, it is important to note that the
recent widening of credit spreads and consequent outperformance of Treasury
securities has not been accompanied by an unusual amount of Treasury-market
volatility. This is significant because price volatility typically has signaled
a buying opportunity for mortgage-backed securities, as their prices become more
attractive relative to Treasuries. The current widening of spreads, however, is
not the result of investors seeking safety in the Treasury market--an event that
often creates above-average volatility--but rather a reaction to the Treasury's
buyback program. Accordingly, we resisted adding to the Fund's weighting in
mortgage-backed securities during the first quarter of 2000, despite the
significant widening of credit spreads over that period.
Q HOW DID THE FUND'S STRATEGIES
CONTRIBUTE TO PERFORMANCE?
A The Fund's significant
overweighting of mortgage securities early in the reporting period allowed us to
participate fully in the outperformance of these securities between October and
mid-January. At the same time, our subsequent reduction in the Fund's mortgage
weighting helped reduce exposure to
7
<PAGE> 9
that sector's underperformance when spreads widened. The Fund also benefited
from the drop in long-term bond yields as a result of its modest increase in
portfolio duration to 5.9 years.
Q HOW DID THE FUND PERFORM
DURING THE REPORTING PERIOD?
A For the six-month period ended
March 31, 2000, the Fund generated a total return of 2.04 percent (Class A
shares at net asset value; if the maximum sales charge of 4.75 percent were
included, the return would have been lower). By comparison, the Lehman Brothers
Mutual Fund U.S. Government/Mortgage Index posted a total return of 2.28 percent
for the same period. This broad-based, unmanaged index, which reflects the
general performance of U.S. government and mortgage-backed securities, does not
reflect any commissions or fees that would be paid by an investor purchasing the
securities it represents. Such costs would lower the performance of the index.
An investment cannot be made directly in an index. Of course, past performance
is no guarantee of future results. For additional performance results, please
refer to the chart and footnotes on page 3.
Q WHAT IS YOUR OUTLOOK FOR THE
FUND IN THE MONTHS AHEAD?
A We believe that the Fed will raise
interest rates again in the near term. In that environment, we expect to
maintain a more neutral posture with respect to the Fund's duration and
weightings in mortgage-backed securities. However, we will closely monitor what
we believe is a highly fluid environment within the domestic economy and
financial markets. In particular, we will be on the alert for signs that the
current round of Fed tightenings might be nearing an end, either as a result of
a natural slowdown in economic activity, or because of stock-market volatility.
8
<PAGE> 10
GLOSSARY OF TERMS
A HELPFUL GUIDE TO SOME OF THE COMMON TERMS YOU'RE LIKELY TO SEE IN THIS REPORT
AND OTHER FINANCIAL PUBLICATIONS.
DURATION: A measure of the sensitivity of a bond's price to changes in interest
rates, expressed in years. Each year of duration represents an expected 1
percent change in the price of a bond for every 1 percent change in interest
rates (i.e., a 5-year duration means the bond will fall about 5 percent in value
if interest rates rise by 1 percent). The longer a bond's duration, the greater
the effect of interest-rate movements on its price. Typically, funds with
shorter durations perform better in rising-rate environments, while funds with
longer durations perform better when rates decline.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank of the United States. Its policy-making
committee, called the Federal Open Market Committee, meets eight times a year to
establish monetary policy and monitor the economic pulse of the United States.
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.
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.
9
<PAGE> 11
BY THE NUMBERS
YOUR FUND'S INVESTMENTS
March 31, 2000 (Unaudited)
THE FOLLOWING PAGES DETAIL THE SPECIFIC HOLDINGS OF YOUR FUND AT THE END OF THE
REPORTING PERIOD.
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
MORTGAGE-BACKED SECURITIES 49.0%
$26,469 Federal Home Loan Mortgage
Corp. Gold 30 Year Pools..... 7.000% 02/01/23 to 10/01/24 $ 25,506,632
4,165 Federal Home Loan Mortgage
Corp. Gold 30 Year Pools..... 7.500 01/01/22 to 06/01/24 4,102,657
931 Federal Home Loan Mortgage
Corp. Gold 30 Year Pools..... 8.000 07/01/24 to 09/01/24 935,764
0 Federal Home Loan Mortgage
Corp. Gold 30 Year Single.... 11.000 02/01/14 241
34,950 Federal National Mortgage
Association.................. 6.000 04/01/13 32,912,444
24,339 Federal National Mortgage
Association 15 Year Dwarf
Pools........................ 6.000 01/01/09 to 01/01/10 23,148,383
54,662 Federal National Mortgage
Association 15 Year Dwarf
Pools........................ 6.500 12/01/07 to 12/01/12 52,664,124
19,353 Federal National Mortgage
Association 15 Year Dwarf
Pools........................ 7.500 03/01/02 to 09/01/12 19,351,600
69,125 Federal National Mortgage
Association Pools............ 6.000 02/01/28 to 07/01/29 62,914,297
139,352 Federal National Mortgage
Association Pools............ 6.500 05/01/23 to 11/01/28 130,985,177
101,454 Federal National Mortgage
Association Pools............ 7.000 12/01/24 to 12/01/29 97,697,242
8,062 Federal National Mortgage
Association Pools............ 7.500 03/01/22 to 10/01/24 7,937,815
74 Federal National Mortgage
Association Pools............ 8.000 09/01/24 to 11/01/24 75,356
146 Federal National Mortgage
Association Pools............ 11.500 02/01/13 to 05/01/19 162,824
1,920 Federal National Mortgage
Association Pools............ 12.000 03/01/13 to 01/01/16 2,147,690
96,314 Government National Mortgage
Association Pools............ 6.000 11/15/28 to 01/15/29 88,226,348
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
YOUR FUND'S INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
MORTGAGE-BACKED SECURITIES (CONTINUED)
$30,083 Government National Mortgage
Association Pools............ 6.500% 07/15/24 to 09/15/29 $ 28,480,275
101,250 Government National Mortgage
Association Pools............ 7.000 01/15/23 to 09/15/29 98,441,791
33,099 Government National Mortgage
Association Pools............ 7.500 02/15/07 to 08/15/24 32,885,808
23,722 Government National Mortgage
Association Pools............ 8.000 07/15/07 to 10/15/25 24,180,826
14,847 Government National Mortgage
Association Pools............ 8.500 09/15/04 to 12/15/21 15,329,153
13,261 Government National Mortgage
Association Pools............ 9.000 11/15/17 to 12/15/19 13,863,811
80 Government National Mortgage
Association Pools............ 11.000 01/15/10 to 11/15/20 88,579
2,717 Government National Mortgage
Association Pools............ 12.000 06/15/11 to 08/15/15 3,054,750
1,168 Government National Mortgage
Association Pools............ 12.500 05/15/10 to 07/15/18 1,325,548
--------------
TOTAL MORTGAGE-BACKED SECURITIES 49.0%.................... 766,419,135
--------------
U.S. GOVERNMENT AGENCY OBLIGATIONS 16.3%
30,000 Federal Home Loan Bank....... 5.125 9/15/03 28,259,100
30,000 Federal Home Loan Mortgage
Corp......................... 5.000 1/15/04 27,938,700
30,000 Federal Home Loan Mortgage
Corp......................... 6.250 7/15/04 29,072,700
30,000 Federal National Mortgage
Association.................. 5.750 4/15/03 29,063,100
30,000 Federal National Mortgage
Association.................. 5.750 6/15/05 28,270,800
60,000 Federal National Mortgage
Association.................. 6.000 5/15/08 55,591,800
25,000 Federal National Mortgage
Association.................. 6.250 11/15/02 24,585,250
35,000 Federal National Mortgage
Association.................. 6.250 5/15/29 31,679,200
--------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS................... 254,460,650
--------------
</TABLE>
See Notes to Financial Statements
11
<PAGE> 13
YOUR FUND'S INVESTMENTS
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS 28.9%
$35,000 United States Treasury
Bonds........................ 6.125% 11/15/27 $ 35,356,300
100,000 United States Treasury
Bonds........................ 8.000 11/15/21 121,792,000
105,000 United States Treasury
Bonds (a).................... 8.125 08/15/19 127,678,950
40,000 United States Treasury
Bonds (a).................... 9.250 02/15/16 52,058,400
10,000 United States Treasury
Bonds........................ 9.375 02/15/06 11,456,300
22,000 United States Treasury
Bonds........................ 10.375 11/15/12 27,085,080
10,000 United States Treasury
Bonds........................ 10.750 08/15/05 11,936,700
22,000 United States Treasury
Bonds........................ 12.000 08/15/13 29,750,160
10,000 United States Treasury
Notes........................ 7.000 07/15/06 10,340,600
25,000 United States Treasury
Notes (a).................... 7.500 11/15/01 25,377,000
--------------
TOTAL U.S. TREASURY OBLIGATIONS............................ 452,831,490
--------------
FORWARD PURCHASE COMMITMENTS 3.1%
50,000 Federal Home Loan Mortgage
Corp. April Forward.......... 7.500 TBA 49,172,000
--------------
TOTAL LONG-TERM INVESTMENTS 97.3%
(Cost $1,536,638,680).............................................. 1,522,883,275
REPURCHASE AGREEMENT 5.5%
Goldman Sachs ($86,405,000 par collateralized by U.S. Government
obligations in a pooled cash account, dated 03/31/00, to be sold on
04/01/00 at $86,449,643)
(Cost $86,405,000)................................................. 86,405,000
--------------
TOTAL INVESTMENTS 102.8%
(Cost $1,623,043,680).............................................. 1,609,288,275
LIABILITIES IN EXCESS OF OTHER ASSETS (2.8%)........................ (44,121,716)
--------------
NET ASSETS 100.0%................................................... $1,565,166,559
==============
</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
12
<PAGE> 14
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
March 31, 2000 (Unaudited)
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $1,623,043,680)..................... $1,609,288,275
Receivables:
Interest.................................................. 16,946,608
Fund Shares Sold.......................................... 3,169,995
Variation Margin on Futures............................... 231,250
Other....................................................... 210,432
--------------
Total Assets............................................ 1,629,846,560
--------------
LIABILITIES:
Payables:
Investments Purchased..................................... 49,218,750
Fund Shares Repurchased................................... 7,379,088
Income Distributions...................................... 3,926,804
Distributor and Affiliates................................ 1,199,672
Investment Advisory Fee................................... 707,387
Custodian Bank............................................ 1,031
Forward Commitments......................................... 1,393,356
Trustees' Deferred Compensation and Retirement Plans........ 500,353
Accrued Expenses............................................ 353,560
--------------
Total Liabilities....................................... 64,680,001
--------------
NET ASSETS.................................................. $1,565,166,559
==============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $2,114,952,871
Accumulated Distributions in Excess of Net Investment
Income.................................................... (3,791,181)
Net Unrealized Depreciation................................. (14,050,324)
Accumulated Net Realized Loss............................... (531,944,807)
--------------
NET ASSETS.................................................. $1,565,166,559
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $1,485,770,537 and 154,452,954 shares of
beneficial interest issued and outstanding)............. $ 9.62
Maximum sales charge (4.75%* of offering price)......... .48
--------------
Maximum offering price to public........................ $ 10.10
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $65,093,762 and 6,774,890 shares of
beneficial interest issued and outstanding)............. $ 9.61
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $14,302,260 and 1,492,418 shares of
beneficial interest issued and outstanding)............. $ 9.58
==============
</TABLE>
* On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
13
<PAGE> 15
Statement of Operations
For the Six Months Ended March 31, 2000 (Unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 56,706,118
-------------
EXPENSES:
Investment Advisory Fee..................................... 4,425,803
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $1,938,811, $389,618 and $77,211,
respectively)............................................. 2,405,640
Shareholder Services........................................ 1,530,188
Custody..................................................... 134,453
Trustees' Fees and Related Expenses......................... 111,239
Legal....................................................... 51,754
Other....................................................... 338,215
-------------
Total Expenses.......................................... 8,997,292
Less Credits Earned on Cash Balances.................... 13,587
-------------
Net Expenses............................................ 8,983,705
-------------
NET INVESTMENT INCOME....................................... $ 47,722,413
=============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ (37,357,266)
Futures................................................... 349,330
Forward Commitments....................................... (909,845)
-------------
Net Realized Loss........................................... (37,917,781)
-------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (34,165,641)
-------------
End of the Period:
Investments............................................. (13,755,405)
Futures................................................. 1,098,437
Forward Commitments..................................... (1,393,356)
-------------
(14,050,324)
-------------
Net Unrealized Appreciation During the Period............... 20,115,317
-------------
NET REALIZED AND UNREALIZED LOSS............................ $ (17,802,464)
=============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 29,919,949
=============
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
Statement of Changes in Net Assets
For the Six Months Ended March 31, 2000 and
the Year Ended September 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
MARCH 31, 2000 SEPTEMBER 30, 1999
-----------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................... $ 47,722,413 $ 115,282,053
Net Realized Loss................................... (37,917,781) (54,139,987)
Net Unrealized Appreciation/Depreciation During the
Period............................................ 20,115,317 (118,326,058)
-------------- --------------
Change in Net Assets from Operations................ 29,919,949 (57,183,992)
-------------- --------------
Distributions from Net Investment Income............ (47,722,413) (115,469,267)
Distributions in Excess of Net Investment Income.... (2,183,525) (3,445,052)
-------------- --------------
Distributions from and in Excess of Net Investment
Income*........................................... (49,905,938) (118,914,319)
-------------- --------------
NET CHANGE IN NET ASSETS FROM
INVESTMENT ACTIVITIES............................. (19,985,989) (176,098,311)
-------------- --------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold........................... 236,078,294 673,923,927
Net Asset Value of Shares Issued Through Dividend
Reinvestment...................................... 29,066,650 68,040,278
Cost of Shares Repurchased.......................... (481,295,109) (870,866,313)
-------------- --------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS...................................... (216,150,165) (128,902,108)
-------------- --------------
TOTAL DECREASE IN NET ASSETS........................ (236,136,154) (305,000,419)
NET ASSETS:
Beginning of the Period............................. 1,801,302,713 2,106,303,132
-------------- --------------
End of the Period (Including accumulated
distributions in excess of net investment income
of $3,791,181 and $1,607,656, respectively)....... $1,565,166,559 $1,801,302,713
============== ==============
* Distribution by Class
----------------------------------------------------
Distributions from and in Excess of Net Investment
Income:
Class A Shares.................................... $ (47,412,842) $ (111,541,874)
Class B Shares.................................... (2,083,363) (6,353,822)
Class C Shares.................................... (409,733) (1,018,623)
-------------- --------------
$ (49,905,938) $ (118,914,319)
============== ==============
</TABLE>
See Notes to Financial Statements
15
<PAGE> 17
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED. (UNAUDITED)
<TABLE>
<CAPTION>
SIX NINE
MONTHS MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED DECEMBER 31,
CLASS A SHARES MAR. 31, SEPT. 30, SEPT. 30, ------------------------------
2000 1999 1998 1997 1996 1995
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
THE PERIOD................. $ 9.721 $ 10.637 $ 10.259 $ 10.045 $ 10.55 $ 9.67
-------- -------- -------- -------- -------- --------
Net Investment Income...... .277 .608 .483 .659 .689 .67
Net Realized and Unrealized
Gain/Loss................ (.085) (.896) .383 .215 (.504) .8985
-------- -------- -------- -------- -------- --------
Total from Investment
Operations................. .192 (.288) .866 .874 .185 1.5685
-------- -------- -------- -------- -------- --------
Less Distributions from and
in Excess of Net Investment
Income..................... .293 .628 .488 .660 .690 .6885
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF THE
PERIOD..................... $ 9.620 $ 9.721 $ 10.637 $ 10.259 $ 10.045 $ 10.55
======== ======== ======== ======== ======== ========
Total Return (a)............. 2.04%* (2.71%) 8.62%* 9.16% 1.90% 16.77%
Net Assets at End of the
Period (In millions)....... $1,485.8 $1,688.8 $1,933.8 $1,930.4 $2,156.4 $2,544.5
Ratio of Expenses to Average
Net Assets (b)............. 1.03% 1.02% 1.02% 1.03% 1.06% 1.01%
Ratio of Net Investment
Income to Average Net
Assets (b)................. 5.76% 6.01% 6.30% 6.62% 6.88% 6.62%
Portfolio Turnover........... 70%* 94% 180%* 114% 271% 231%
</TABLE>
* Non-Annualized
(a) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum sales charge of 4.75% or contingent deferred
sales charge ("CDSC"). On purchases of $1 million or more, a CDSC of 1% may
be imposed on certain redemptions made within one year of purchase. If the
sales charges were included, total returns would be lower.
(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
16
<PAGE> 18
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED. (UNAUDITED)
<TABLE>
<CAPTION>
SIX NINE
MONTHS MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED DECEMBER 31,
CLASS B SHARES MAR. 31, SEPT. 30, SEPT. 30, ------------------------------
2000 (A) 1999 (A) 1998 (A) 1997 (A) 1996 1995
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
THE PERIOD................. $ 9.713 $ 10.634 $ 10.261 $ 10.050 $ 10.56 $ 9.68
-------- -------- -------- -------- -------- --------
Net Investment Income...... .241 .533 .427 .588 .635 .60
Net Realized and Unrealized
Gain/Loss................ (.089) (.898) .380 .211 (.527) .8965
-------- -------- -------- -------- -------- --------
Total from Investment
Operations................. .152 (.365) .807 .799 .108 1.4965
-------- -------- -------- -------- -------- --------
Less Distributions from and
in Excess of Net Investment
Income..................... .257 .556 .434 .588 .618 .6165
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF THE
PERIOD..................... $ 9.608 $ 9.713 $ 10.634 $ 10.261 $ 10.050 $ 10.56
======== ======== ======== ======== ======== ========
Total Return (b)............. 1.66%* (3.49%) 8.05%* 8.27% 1.17% 15.93%
Net Assets at End of the
Period (In millions)....... $ 65.1 $ 93.9 $ 153.2 $ 199.2 $ 236.7 $ 285.5
Ratio of Expenses to Average
Net Assets (c)............. 1.78% 1.78% 1.78% 1.78% 1.82% 1.77%
Ratio of Net Investment
Income to Average Net
Assets (c)................. 5.01% 5.24% 5.55% 5.87% 6.13% 5.86%
Portfolio Turnover........... 70%* 94% 180%* 114% 271% 231%
</TABLE>
* Non-Annualized
(a) Based on average month-end shares outstanding.
(b) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum contingent deferred sales charge of 4%,
charged on certain redemptions made within one year of purchase and
declining thereafter to 0% after the fifth year. If the sales charge was
included, total returns would be lower.
(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
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED. (UNAUDITED)
<TABLE>
<CAPTION>
SIX NINE
MONTHS MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED DECEMBER 31,
CLASS C SHARES MAR. 31, SEPT. 30, SEPT. 30, ------------------------------
2000(A) 1999(A) 1998(A) 1997(A) 1996 1995
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
THE PERIOD................. $ 9.686 $ 10.609 $ 10.239 $ 10.031 $ 10.54 $ 9.66
-------- -------- -------- -------- -------- --------
Net Investment Income...... .237 .530 .423 .587 .623 .60
Net Realized and Unrealized
Gain/Loss................ (.083) (.897) .381 .209 (.514) .8965
-------- -------- -------- -------- -------- --------
Total from Investment
Operations................. .154 (.367) .804 .796 .109 1.4965
-------- -------- -------- -------- -------- --------
Less Distributions from and
in Excess of Net Investment
Income..................... .257 .556 .434 .588 .618 .6165
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF THE
PERIOD..................... $ 9.583 $ 9.686 $ 10.609 $ 10.239 $ 10.031 $ 10.54
======== ======== ======== ======== ======== ========
Total Return (b)............. 1.56%* (3.50%) 8.07%* 8.28% 1.18% 15.96%
Net Assets at End of the
Period (In millions)....... $ 14.3 $ 18.7 $ 19.3 $ 16.4 $ 21.6 $ 26.8
Ratio of Expenses to Average
Net Assets (c)............. 1.78% 1.78% 1.78% 1.79% 1.82% 1.77%
Ratio of Net Investment
Income to Average Net
Assets (c)................. 5.01% 5.25% 5.51% 5.87% 6.12% 5.86%
Portfolio Turnover........... 70%* 94% 180%* 114% 271% 231%
</TABLE>
* Non-Annualized
(a) Based on average month-end shares outstanding.
(b) Assumes reinvestment of all distributions for the period and does not
include payment of the maximum contingent deferred sales charge of 1%,
charged on certain redemptions made within one year of purchase. If the
sales charge was included, total returns would be lower.
(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
18
<PAGE> 20
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (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.
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, which approximates market value.
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, 2000, 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 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
19
<PAGE> 21
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
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 accreted over the expected life of each applicable security.
Premiums on debt securities are not amortized. Income and expenses of the Fund
are allocated on a pro rata basis to each class of shares, except for
distribution and service fees and transfer agency costs which are unique to each
class of shares.
D. FEDERAL INCOME TAXES It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
At March 31, 2000, for federal income tax purposes the cost of long- and
short-term investments is $1,623,043,680, the aggregate gross unrealized
appreciation is $16,910,334 and the aggregate gross unrealized depreciation is
$30,665,739, resulting in net unrealized depreciation on long- and short-term
investments of $13,755,405.
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, 1999, the Fund had an accumulated capital loss
carryforward for tax purposes of $428,642,286 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 post
October 31 losses which are not recognized for tax purposes until the first day
of the following tax year, wash sales, and gains or losses recognized for tax
purposes on open futures and forward transactions.
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 forwards and futures
transactions. All short-term capital gains and a portion of futures gains are
included in ordinary income for tax purposes.
20
<PAGE> 22
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
Due to inherent differences in the recognition of distributions from income
under generally accepted accounting principles and federal income tax purposes,
the amount of distributable net investment income may differ between book and
federal income tax purposes for a particular period. These differences are
temporary in nature, but may result in distributions in excess of net investment
income for certain periods.
F. EXPENSE REDUCTIONS During the six months ended March 31, 2000, the Fund's
custody fee was reduced by $13,587 as a result of credits earned on overnight
cash balances.
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 DAILY 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, 2000, the Fund recognized expenses of
approximately $51,800 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, 2000, the Fund recognized expenses of
approximately $178,900 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,
2000, the Fund recognized expenses of approximately $1,149,300. Transfer agency
fees are determined through negotiations with the Fund's Board of Trustees and
are based upon competitive market benchmarks.
21
<PAGE> 23
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per trustee under the plan is $2,500.
3. CAPITAL TRANSACTIONS
At March 31, 2000, capital aggregated $2,097,526,250, $7,251,540 and $10,175,081
for Classes A, B and C, respectively. For the six months ended March 31, 2000,
transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A............................................... 23,043,333 $ 220,937,777
Class B............................................... 1,289,784 12,325,855
Class C............................................... 293,927 2,814,662
----------- -------------
Total Sales............................................. 24,627,044 $ 236,078,294
=========== =============
Dividend Reinvestment:
Class A............................................... 2,857,492 $ 27,244,712
Class B............................................... 161,967 1,548,164
Class C............................................... 28,698 273,774
----------- -------------
Total Dividend Reinvestment............................. 3,048,157 $ 29,066,650
=========== =============
Repurchases:
Class A............................................... (45,174,320) $(432,522,678)
Class B............................................... (4,340,913) (41,524,076)
Class C............................................... (756,359) (7,248,355)
----------- -------------
Total Repurchases....................................... (50,271,592) $(481,295,109)
=========== =============
</TABLE>
22
<PAGE> 24
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
At September 30, 1999, capital aggregated $2,281,866,439, $34,901,597 and
$14,335,000 for Classes A, B and C, respectively. For the year ended September
30, 1999, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A............................................... 60,813,307 $ 613,643,155
Class B............................................... 4,897,452 49,553,022
Class C............................................... 1,062,446 10,727,750
----------- -------------
Total Sales............................................. 66,773,205 $ 673,923,927
=========== =============
Dividend Reinvestment:
Class A............................................... 6,243,513 $ 63,009,646
Class B............................................... 433,204 4,376,618
Class C............................................... 65,022 654,014
----------- -------------
Total Dividend Reinvestment............................. 6,741,739 $ 68,040,278
=========== =============
Repurchases:
Class A............................................... (75,125,808) $(758,074,693)
Class B............................................... (10,073,200) (102,455,589)
Class C............................................... (1,023,964) (10,336,031)
----------- -------------
Total Repurchases....................................... (86,222,972) $(870,866,313)
=========== =============
</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 purchased
on or after June 1, 1996, and any dividend reinvestment plan Class B shares
received thereon, automatically convert to Class A shares eight years after the
end of the calendar month in which the shares were purchased. Class B shares
purchased before June 1, 1996, and any dividend reinvestment plan Class B shares
received thereon, automatically convert to Class A shares six years after the
end of the calendar month in which the shares were purchased. For the six months
ended March 31, 2000 and the year ended September 30, 1999, 1,419,921 and
5,247,496 Class B shares converted to Class A shares, respectively and are shown
in the above tables as sales of Class A shares and repurchases of Class B
shares. Class C shares purchased before January 1, 1997, and any dividend
reinvestment plan Class C shares received thereon, automatically convert to
Class A shares ten years after the end of the calendar month in which such
shares were purchased. Class C shares purchased on or after January 1, 1997 do
not possess a conversion feature. For the six months ended March 31, 2000 and
the year ended September 30, 1999, no Class C shares converted to Class A
shares. The CDSC will be imposed on most
23
<PAGE> 25
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
redemptions made within five years of the purchase for Class B shares and one
year of the purchase for Class C shares 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 six months ended March 31, 2000, Van Kampen, as Distributor for the
Fund, received net commissions on sales of the Fund's Class A shares of
approximately $31,300 and CDSC on redeemed shares of approximately $104,500.
Sales charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of government
securities, including paydowns on mortgage-backed securities and excluding
short-term investments and forward commitment transactions, were $1,169,755,511
and $1,679,759,528, 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 commitment. In this instance, the recognition of
gain or loss is postponed until the disposal of the security underlying the
futures contract or forward commitment.
Summarized below are the specific types of derivative financial instruments
used by the Fund.
24
<PAGE> 26
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
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.
Transactions in futures contracts for the six months ended March 31, 2000,
were as follows:
<TABLE>
<CAPTION>
CONTRACTS
<S> <C>
Outstanding at September 30, 1999........................... 1,400
Futures Opened.............................................. 12,275
Futures Closed.............................................. (12,475)
-------
Outstanding at March 31, 2000............................... 1,200
=======
</TABLE>
The futures contracts outstanding as of March 31, 2000, and the descriptions
and unrealized appreciation/depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
<S> <C> <C>
LONG CONTRACTS:
U.S. Treasury Note 5-Year Futures June 2000
(Current Notional Value of $98,500 per contract).......... 700 $ 654,687
U.S. Treasury Note 10-Year Futures June 2000
(Current Notional Value $98,078 per contract)............. 500 443,750
----- ----------
1,200 $1,098,437
===== ==========
</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
25
<PAGE> 27
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
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 for forwards that do not intend to
settle. 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
March 31, 2000:
<TABLE>
<CAPTION>
UNREALIZED
PAR AMOUNT CURRENT APPRECIATION/
(000) DESCRIPTION VALUE DEPRECIATION
<S> <C> <C> <C>
SHORT CONTRACTS
$30,000 FNMA April Forward, 7.00%................... $28,828,200 $ (107,887)
75,000 GNMA April Forward, 6.00%................... 68,695,500 (820,500)
50,000 GNMA April Forward, 7.00%................... 48,422,000 (464,969)
-----------
$(1,393,356)
===========
</TABLE>
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 transactions at the time the forward commitment is closed. Risks may
result from the potential inability of counterparties to meet the terms of their
contracts. At March 31, 2000, the Fund has net realized losses on closed but
unsettled forward contracts of $1,466,406 scheduled to settle between April 13,
2000 and April 19, 2000.
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, as amended, 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, 2000 are payments retained by Van Kampen of
approximately $418,200.
26
<PAGE> 28
NOTES TO
FINANCIAL STATEMENTS
March 31, 2000 (Unaudited)
7. BORROWINGS
In accordance with its investment policies, the Fund may borrow from banks for
temporary purposes and is subject to certain other customary restrictions.
Effective November 30, 1999, the Fund, in conjunction with certain other funds
of Van Kampen, has entered in to a $650,000,000 committed line of credit
facility with a group of banks which expires on November 28, 2000, but is
renewable with the consent of the participating banks. Each fund is permitted to
utilize the facility in accordance with the restrictions of its prospectus. In
the event the demand for the credit facility meets or exceeds $650 million on a
complex-wide basis, each fund will be limited to its pro-rata percentage based
on the net assets of each participating fund. Interest on borrowings is charged
under the agreement at a rate of 0.50% above the federal funds rate per annum.
An annual commitment fee of 0.09% per annum is charged on the unused portion of
the credit facility, which each fund incurs based on its pro-rata percentage of
quarterly net assets. The Fund has not borrowed against the credit facility
during the period.
27
<PAGE> 29
FUND OFFICERS AND IMPORTANT ADDRESSES
VAN KAMPEN GOVERNMENT SECURITIES FUND
BOARD OF TRUSTEES
J. MILES BRANAGAN
JERRY D. CHOATE
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
MITCHELL M. MERIN*
JACK E. NELSON
RICHARD F. POWERS, III*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY
OFFICERS
RICHARD F. POWERS, III*
President
STEPHEN L. BOYD*(1)
Executive Vice President and
Chief Investment Officer
A. THOMAS SMITH III*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer and
Chief Financial Officer
PETER W. HEGEL*
MICHAEL H. SANTO*
JOHN H. ZIMMERMANN, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN ASSET MANAGEMENT INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 60181-5555
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, Illinois 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
ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, Illinois 60606
(1) Appointed Executive Vice President and Chief Investment Officer effective
April 3, 2000.
* "Interested persons" of the Fund, as defined in the Investment Company Act of
1940, as amended.
(C) Van Kampen Funds Inc., 2000. 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,
2000, the report, if used with prospective investors, must be accompanied by a
quarterly performance update, if applicable.
28
<PAGE> 30
RESULTS OF
SHAREHOLDER VOTES
A Joint Special Meeting of the Shareholders of the Portfolio was held on
December 15, 1999, where shareholders voted on the election of trustees and
independent public accountants.
1) With regard to the election of the following trustees by shareholders:
<TABLE>
<CAPTION>
# OF SHARES
--------------------------------
IN FAVOR WITHHELD
<S> <C> <C>
J. Miles Branagan.................................. 101,248,828 2,132,812
Jerry D. Choate.................................... 101,177,545 2,204,095
Linda Hutton Heagy................................. 101,234,704 2,146,936
R. Craig Kennedy................................... 101,266,757 2,114,883
Mitchell M. Merin.................................. 101,175,962 2,205,678
Jack E. Nelson..................................... 101,187,425 2,184,215
Richard F. Powers, III............................. 101,156,936 2,224,704
Phillip B. Rooney.................................. 101,180,357 2,201,283
Fernando Sisto..................................... 101,169,328 2,212,312
Wayne W. Whalen.................................... 101,271,504 2,110,136
Suzanne H. Woolsey................................. 101,223,608 2,158,032
Paul G. Yovovich*.................................. 101,265,631 2,116,009
</TABLE>
* On April 14, 2000, Paul G. Yovovich resigned from the Board of Trustees.
2) With regard to the ratification of PricewaterhouseCoopers LLP as independent
public accounts for the Fund, 100,421,409 shares voted for the proposal, 633,649
shares voted against and 2,326,582 shares abstained.**
** PricewaterhouseCoopers LLP has ceased being the Fund's independent
accountants effective May 18, 2000. The cessation of the client-auditor
relationship between the Fund and PricewaterhouseCoopers was based solely on a
possible future business relationship by PricewaterhouseCoopers with an
affiliate of the Fund's investment adviser.
29
