<PAGE> 1
<TABLE>
<S> <C>
Table of Contents
OVERVIEW
LETTER TO SHAREHOLDERS 1
ECONOMIC SNAPSHOT 2
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS 4
GROWTH OF A $10,000 INVESTMENT 6
PORTFOLIO AT A GLANCE
TWELVE-MONTH DIVIDEND HISTORY 7
ASSET ALLOCATION 7
COUPON DISTRIBUTION 7
Q&A WITH YOUR PORTFOLIO MANAGERS 8
GLOSSARY OF TERMS 11
BY THE NUMBERS
YOUR FUND'S INVESTMENTS 12
FINANCIAL STATEMENTS 16
NOTES TO FINANCIAL STATEMENTS 22
REPORT OF INDEPENDENT AUDITORS 31
VAN KAMPEN FUNDS
THE VAN KAMPEN FAMILY OF FUNDS 32
FUND OFFICERS AND IMPORTANT ADDRESSES 33
</TABLE>
Our generations
of money-
management
experience
may help you
pursue life's
true wealth.
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
<PAGE> 2
OVERVIEW
LETTER TO SHAREHOLDERS
October 20, 2000
Dear Shareholder,
The first three quarters of 2000 proved to be especially volatile, with all of
the major markets declining in the spring and spending the following months
trying to recover. To manage one's portfolio during such unpredictable times
requires investment-management experience, and the following pages should give
you some insight into how we have performed in this difficult environment.
In this report, the portfolio managers will explain how your investment
performed during the reporting period and describe the strategies they used to
manage your fund during that span. The report will also show you how your
investment has performed over time. Helpful charts summarize the fund's largest
investments, and you can examine the complete portfolio to see all of your
fund's holdings as of the end of your fund's reporting period.
At Van Kampen, we place a high priority on providing you and
your financial advisor with the information you need to help
you monitor your investments during all types of markets. With
nearly four generations of investment-management experience,
we've been around long enough to understand that by investing
with Van Kampen you're entrusting us with much more than your money. Your
investments may help make it possible to afford your next house, keep up with
rising college costs, or enjoy a comfortable retirement.
No matter what your reasons for investing, we're thankful that you've chosen to
place your investments with Van Kampen. We will continue to apply our
generations of money-management experience to helping you pursue life's true
wealth.
Sincerely,
[SIG]
Richard F. Powers, III
President and CEO
Van Kampen Investments
1
<PAGE> 3
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
ECONOMIC GROWTH WAS STRONG DURING THE REPORTING PERIOD, UNDERPINNED BY LOW
UNEMPLOYMENT AND RISING PRODUCTIVITY, YET THERE WERE SIGNS THAT A HEALTHY
SLOWDOWN WAS UNDERWAY. GROSS DOMESTIC PRODUCT, THE PRIMARY MEASURE OF ECONOMIC
GROWTH, INCREASED AT A 2.7 PERCENT ANNUALIZED RATE FOR THE THIRD QUARTER OF
2000. FOLLOWING MILD FIRST-- AND SECOND--QUARTER DATA, THIS THIRD--QUARTER
FIGURE OFFERS FURTHER EVIDENCE THAT GROWTH MIGHT BE SETTLING BACK TO A MORE
MODERATE AND SUSTAINABLE PACE THAN ITS RAPID RATE IN LATE 1999.
CONSUMER SPENDING AND EMPLOYMENT
CONCERNS ABOUT INFLATION REMAINED AT BAY DUE IN PART TO A GRADUAL SLOWDOWN IN
CONSUMER SPENDING. RISING INTEREST RATES, HIGHER ENERGY COSTS, AND A
DISAPPOINTING STOCK MARKET BEGAN TO TEMPER RETAIL SALES, WHICH LEVELED OFF FROM
THE BLISTERING PACE OF LATE 1999 AND EARLY 2000. AND WHILE CONSUMER SPENDING WAS
BRISK, THE OVERALL TREND HAS BEEN DOWNWARD THIS YEAR.
THE JOBLESS RATE CONTINUED TO BE EXTREMELY LOW BY HISTORICAL STANDARDS, BUT
RECENT CUTS IN MANUFACTURING PAYROLLS SUPPORT THE POPULAR BELIEF THAT THE
ECONOMY IS MODERATING. ALTHOUGH EMPLOYER COSTS SUCH AS WAGES AND BENEFITS WERE
RISING AT THE END OF 1999 AND IN THE BEGINNING OF 2000, OVER THE PAST SIX MONTHS
THE EMPLOYMENT COST INDEX HAS SHOWN MARKED DECELERATION, WHICH SHOULD HELP EASE
INFLATION CONCERNS.
INTEREST RATES AND INFLATION
THE FEDERAL RESERVE BOARD (THE FED) RAISED INTEREST RATES FOUR TIMES DURING THE
LAST 12 MONTHS IN AN EFFORT TO WARD OFF INFLATION BY CURBING ECONOMIC GROWTH.
OVER THE SAME PERIOD, THE CONSUMER PRICE INDEX ROSE 3.5 PERCENT, WHICH INDICATED
THAT INFLATION GENERALLY REMAINS UNDER CONTROL.
THE FED HAS ACKNOWLEDGED THE RISK OF RISING INFLATION AND WILL STAY ON GUARD, AS
RISING ENERGY COSTS AND LOW UNEMPLOYMENT THREATEN TO PROPEL THIS FIGURE UPWARD
IN THE COMING MONTHS. AS LONG AS INFLATION IS CONTAINED AND THE PACE OF ECONOMIC
GROWTH REMAINS FAVORABLE, THE FED IS LIKELY TO HOLD INTEREST RATES STEADY IN THE
SHORT TERM, WHICH COULD HELP STABILIZE THE STOCK AND BOND MARKETS.
2
<PAGE> 4
U.S. GROSS DOMESTIC PRODUCT
SEASONALLY ADJUSTED ANNUALIZED RATES
(September 30, 1998--September 30, 2000)
[BAR GRAPH]
<TABLE>
<CAPTION>
U.S. GROSS DOMESTIC PRODUCT
---------------------------
<S> <C>
Sep 98 3.80
Dec 98 5.90
Mar 99 3.50
Jun 99 2.50
Sep 99 5.70
Dec 99 8.30
Mar 00 4.80
Jun 00 5.60
Sep 00 2.70
</TABLE>
Source: Bureau of Economic Analysis
INTEREST RATES AND INFLATION
(September 30, 1998--September 30, 2000)
[LINE GRAPH]
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
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
6.00 3.00
6.50 3.10
Jun 00 6.50 3.70
6.50 3.70
6.50 3.30
Sep 00 6.50 3.50
</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.
3
<PAGE> 5
PERFORMANCE SUMMARY
RETURN HIGHLIGHTS
(as of September 30, 2000)
<TABLE>
<CAPTION>
A SHARES B SHARES C SHARES
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
One-year total return based on
NAV(1) 6.53% 5.76% 5.78%
-------------------------------------------------------------------------
One-year total return(2) 1.52% 1.76% 4.78%
-------------------------------------------------------------------------
Five-year average annual total
return(2) 4.46% 4.45% 4.68%
-------------------------------------------------------------------------
Ten-year average annual total
return(2) 6.57% N/A N/A
-------------------------------------------------------------------------
Life-of-Fund average annual total
return(2) 7.54% 5.16%(3) 4.34%
-------------------------------------------------------------------------
Commencement date 07/16/84 12/20/91 03/10/93
-------------------------------------------------------------------------
Distribution rate(4) 4.97% 4.55% 4.56%
-------------------------------------------------------------------------
SEC Yield(5) 5.34% 4.86% 4.88%
-------------------------------------------------------------------------
</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.
These returns do include Rule 12b-1 fees of up to .25% for Class A Shares
and 1% for Class B and Class C Shares.
(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") and Rule 12b-1 fee. 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. The Rule 12b-1 fee for Class A
Shares is up to .25% and for Class B and Class C Shares is 1%.
(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
<PAGE> 6
(4) Distribution rate represents the monthly annualized distributions of the
Fund at the end of the period and not the earnings of the Fund.
(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 September 30,
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.
5
<PAGE> 7
GROWTH OF A $10,000 INVESTMENT
(September 30, 1990--September 30, 2000)
[INVESTMENT PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
LEHMAN BROTHERS MUTUAL FUND
U.S. GOVT/MORTGAGE INDEX
reflects the general per-
formance of U.S. Government
GOVERNMENT SECURITIES FUND and mortgage-backed securities.+
-------------------------- --------------------------------
<S> <C> <C>
9/90 9521 10000
10070 10531.6
10332 10792.8
10500 10959.7
9/91 11119 11576.3
11709 12159.5
11553 11985.6
11958 12462
9/92 12402 12989.7
12478 13026.8
12918 13541.8
13233 13882.9
9/93 13501 14221.4
13495 14234.9
13020 13840.1
12850 13710.2
9/94 12870 13789.4
12920 13841.3
13577 14518.2
14254 15368.4
9/95 14470 15657.9
15087 16305.2
14744 16040.6
14737 16135.5
9/96 14953 16428.3
15374 16905.5
15256 16826.1
15783 17428.8
9/97 16287 17985.7
16782 18518.2
17004 18807.7
17331 19235.8
9/98 18228 20078.8
18173 20235.8
17994 20143.8
17633 20004.6
9/99 17734 20161.7
17624 20125.1
18096 20622.3
18381 21011.8
9/00 18893 21640.1
Fund's Total Return
1 Year Total Return 1.52%
5 Year Avg. Annual 4.46%
10 Year Avg. Annual 6.57%
Inception Avg. Annual 7.54%
</TABLE>
This chart compares your fund's performance to that of the Lehman Brothers
Mutual Fund U.S. Government/Mortgage Index over time.
This index is an unmanaged broad-based, statistical composite that does
not include any commissions or fees that would be paid by an investor
purchasing the securities it represents. Such costs would lower the
performance of this index. The historical performance of the index is
shown for illustrative purposes only; it is not meant to forecast, imply,
or guarantee the future performance of any investment vehicle. It is not
possible to invest directly in an index.
The above chart reflects the performance of Class A shares of the fund. The
performance of Class A shares will differ from that of other share classes of
the fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The fund's performance
assumes reinvestment of all distributions, and includes payment of the maximum
sales charge (4.75% for Class A shares) and an annual 12b-1 fee of up to 0.25
percent.
While past performance is no guarantee of future results, the above information
provides a broader vantage point from which to evaluate the discussion of the
fund's performance found in the following pages. As a result of recent market
activity, current performance may vary from the figures shown.
Source:
* Hypo(R) Provided by Towers Data, Bethesda, MD
(+) Lehman Brothers
6
<PAGE> 8
PORTFOLIO AT A GLANCE
TWELVE-MONTH DIVIDEND HISTORY
(for the period ended September 30, 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
4/00 0.0465
5/00 0.0465
6/00 0.0465
7/00 0.0425
8/00 0.0425
9/00 0.0425
</TABLE>
The dividend history represents past performance of the fund's Class A shares
and is no guarantee of the fund's future dividends.
ASSET ALLOCATION
(as a percentage of long-term investments)
[BAR GRAPH]
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------ ------------------
<S> <C> <C>
FNMA 38.00 27.00
U.S. Treasuries 34.00 27.00
GNMA 16.00 43.00
FHLMC 10.00 3.00
FHL Bank 2.00 0.00
</TABLE>
COUPON DISTRIBUTION
(as a percentage of long-term investments--September 30, 2000)
[BAR GRAPH]
<TABLE>
<CAPTION>
COUPON DISTRIBUTION
-------------------
<S> <C>
less than 6.0% 8.80
6-6.9% 34.40
7-7.9% 28.70
8-8.9% 19.90
9-9.9% 5.30
10% or more 2.90
</TABLE>
7
<PAGE> 9
[PHOTO]
[PHOTO]
Q&A WITH YOUR PORTFOLIO MANAGERS
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 AND INFLUENCED
THE FUND'S RETURN DURING THE 12 MONTHS ENDED SEPTEMBER 30,
2000. THE TEAM IS LED BY JOHN R. REYNOLDSON, SENIOR
PORTFOLIO MANAGER, WHO HAS MANAGED THE FUND SINCE 1988 AND WORKED IN THE
INVESTMENT INDUSTRY SINCE 1977. HE IS JOINED BY PORTFOLIO MANAGER TED MUNDY. THE
FOLLOWING DISCUSSION REFLECTS THEIR VIEWS ON THE FUND'S PERFORMANCE.
Q HOW WOULD YOU CHARACTERIZE
THE MARKET CONDITIONS IN WHICH THE FUND OPERATED, AND HOW DID THE FUND
PERFORM IN THAT ENVIRONMENT?
A The market for government
securities was driven primarily by three key market events. First, concerns
about the much-anticipated year 2000 transition created a tentative market
environment for much of late 1999. However, consumer activity picked up after
Y2K concerns abated. Secondly, as the U.S. economy gained momentum, the Federal
Reserve Board continued raising interest rates to fight perceived growing
inflationary risks. Lastly, as the Fed's aggressive actions put upward pressure
on short-term interest rates, the Treasury announced a buyback program for
30-year Treasury bonds. The combination of Fed interest rate hikes and a
perceived shortage of long-term bonds created a negative or "inverted" yield
curve--where yields on long-term securities were lower than their short-term
counterparts. This highly unusual yield-curve configuration had not been seen
since 1991.
The curve inversion peaked in May as the Fed raised rates by a final 0.50
percent. Following this event, a series of reports indicated that economic
growth was moderating, and market sentiment began to improve. Rates subsequently
began to fall as the Fed felt less need to adjust policy further.
The fund's performance was consistently strong during these events,
outperforming its peer group for most of the reporting period. For the 12-month
period ended September 30, 2000, the fund generated a total return of 6.53
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). Of course, past
performance is no guarantee of future results. As a result of recent market
activity, current performance will vary from the figures shown. By comparison,
the Lehman Brothers Mutual Fund U.S. Government/ Mortgage Index posted a total
return of
8
<PAGE> 10
7.30 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. It is not possible to invest directly in an index. For
additional performance results, please refer to the chart and footnotes on page
4.
Q WHAT HAPPENED TO MORTGAGE-
BACKED SECURITIES DURING THIS TIME?
A Early in the reporting period, the
yield spread between 10-year Treasury notes and mortgages narrowed, indicating
that mortgage securities were outperforming Treasuries. In mid-January, however,
spreads widened amid fears that the Treasury's buyback program would severely
limit the supply of long-term Treasury securities--driving Treasury bond prices
up and yields down. Because mortgage prices remained relatively stable during
this time, the mortgage market underperformed relative to Treasuries. Possible
legislation affecting the credit status of the Fannie Mae and Freddie Mac
created a negative tone as well.
Approaching mid-year, we began to see a shift toward more positive market
sentiment once again. The Fed appeared to be finished raising interest rates,
mortgage-backed securities remained stable while yield spreads stayed narrow,
and the reporting period ended with yield spreads at levels similar to where
they were a year ago. This environment allowed mortgages to perform well for the
reporting period overall.
Q WHAT WERE YOUR STRATEGIES FOR
MANAGING THE FUND, AND HOW DID THEY CONTRIBUTE TO ITS PERFORMANCE DURING
THIS PERIOD?
A Given the fund's bias toward
mortgage securities, the fund was positioned to benefit when mortgages
outperformed Treasuries early in the reporting year. We subsequently began
reducing the fund's mortgage exposure in early 2000 to help insulate the fund
from that sector's underperformance as spreads widened. At the same time, we
began purchasing three- to five-year agency debt holdings as a means of
maintaining the fund's exposure to the non-Treasury sector. The fund held on to
the remaining mortgage-backed and agency note positions. This proved fortuitous
as these sectors ended the fiscal year with improving performance.
We also altered the fund's duration somewhat in response to expected
interest-rate changes. Duration, which is expressed in years, is a measurement
of a bond's price sensitivity to changes in interest rates. At the beginning of
the reporting period, the fund had an above average duration exposure in
anticipation of lower rates, but by December the fund had moved to a more
neutral posture, which we maintained throughout the remainder of the period. We
also reduced the fund's exposure to shorter-term securities in order to avoid
the negative effects of the yield curve inversion. We evened out the fund's
9
<PAGE> 11
exposure across the maturity spectrum in the summer months, feeling the curve
inversion had likely run its course and could begin to flatten.
Q WHAT IS YOUR OUTLOOK FOR THE
FUND IN THE MONTHS AHEAD?
A All indicators point to slowing
economic growth in the months ahead. The housing and manufacturing sectors have
cooled, consumer spending has leveled off from last year's pace, and inflation
is still modest. Oil prices have increased considerably, which historically has
been associated with slowing economic growth. We also believe that the Fed is
unlikely to raise interest rates during the presidential election campaign.
These trends all signal the probable end of interest-rate hikes for the near
term. We believe this should create a positive environment for the fixed-income
market as a whole.
10
<PAGE> 12
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. 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 at least 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: The pattern that results from 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 credit 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.
11
<PAGE> 13
BY THE NUMBERS
YOUR FUND'S INVESTMENTS
September 30, 2000
THE FOLLOWING PAGES DETAIL YOUR FUND'S PORTFOLIO OF INVESTMENTS 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 47.7%
$ 25,360 Federal Home Loan Mortgage
Corp. Gold 30 Year Pools.... 7.000% 02/01/23 to 10/01/24 $ 24,992,853
52,906 Federal Home Loan Mortgage
Corp. Gold 30 Year Pools.... 7.500 01/01/22 to 05/01/30 52,901,224
868 Federal Home Loan Mortgage
Corp. Gold 30 Year Pools.... 8.000 07/01/24 to 09/01/24 883,533
0 Federal Home Loan Mortgage
Corp. Gold 30 Year Single... 11.000 02/01/14 232
46,418 Federal National Mortgage
Association 15 Year Dwarf
Pools....................... 6.000 01/01/09 to 04/01/13 44,752,651
25,342 Federal National Mortgage
Association 15 Year Dwarf
Pools....................... 6.500 12/01/07 to 12/01/12 24,886,930
38,025 Federal National Mortgage
Association 15 Year Dwarf
Pools....................... 7.000 12/01/14 to 07/01/15 37,835,058
17,461 Federal National Mortgage
Association 15 Year Dwarf
Pools....................... 7.500 03/01/02 to 09/01/12 17,606,925
66,704 Federal National Mortgage
Association Pools........... 6.000 02/01/28 to 07/01/29 62,358,538
107,195 Federal National Mortgage
Association Pools........... 6.500 05/01/23 to 05/01/26 103,172,581
96,817 Federal National Mortgage
Association Pools........... 7.000 12/01/24 to 12/01/29 95,359,830
7,569 Federal National Mortgage
Association Pools........... 7.500 03/01/22 to 10/01/24 7,589,216
69 Federal National Mortgage
Association Pools........... 8.000 09/01/24 to 11/01/24 70,391
</TABLE>
See Notes to Financial Statements
12
<PAGE> 14
YOUR FUND'S INVESTMENTS
September 30, 2000
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
MORTGAGE-BACKED SECURITIES (CONTINUED)
$ 138 Federal National Mortgage
Association Pools........... 11.500% 02/01/13 to 05/01/19 $ 150,263
1,738 Federal National Mortgage
Association Pools........... 12.000 03/01/13 to 01/01/16 1,912,624
20,326 Government National Mortgage
Association Pools........... 6.000 11/15/28 to 12/15/28 19,091,492
28,487 Government National Mortgage
Association Pools........... 6.500 06/15/23 to 02/15/29 27,517,320
94,877 Government National Mortgage
Association Pools........... 7.000 12/15/22 to 09/15/29 93,657,942
30,844 Government National Mortgage
Association Pools........... 7.500 02/15/07 to 08/15/24 31,006,796
21,661 Government National Mortgage
Association Pools........... 8.000 07/15/07 to 10/15/25 22,147,765
13,540 Government National Mortgage
Association Pools........... 8.500 09/15/04 to 12/15/21 14,043,867
11,696 Government National Mortgage
Association Pools........... 9.000 11/15/17 to 12/15/19 12,309,614
65 Government National Mortgage
Association Pools........... 11.000 01/15/10 to 11/15/20 70,787
2,333 Government National Mortgage
Association Pools........... 12.000 06/15/11 to 08/15/15 2,587,912
1,044 Government National Mortgage
Association Pools........... 12.500 05/15/10 to 07/15/18 1,170,358
--------------
TOTAL MORTGAGE-BACKED SECURITIES 47.7%..................... 698,076,702
--------------
U.S. GOVERNMENT AGENCY OBLIGATIONS 16.6%
30,000 Federal Home Loan Bank...... 5.125 09/15/03 28,895,100
30,000 Federal Home Loan Mortgage
Corp. ...................... 5.000 01/15/04 28,641,900
40,000 Federal Home Loan Mortgage
Corp. ...................... 5.750 07/15/03 39,247,600
30,000 Federal National Mortgage
Association................. 5.750 04/15/03 29,481,900
35,000 Federal National Mortgage
Association................. 6.000 05/15/08 33,427,800
25,000 Federal National Mortgage
Association................. 6.250 11/15/02 24,875,250
35,000 Federal National Mortgage
Association................. 6.250 05/15/29 32,371,500
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
YOUR FUND'S INVESTMENTS
September 30, 2000
<TABLE>
<CAPTION>
PAR
AMOUNT MARKET
(000) DESCRIPTION COUPON MATURITY VALUE
<C> <S> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS (CONTINUED)
$ 4,500 Federal National Mortgage
Association................. 7.250% 05/15/30 $ 4,730,895
20,250 Federal National Mortgage
Association................. 7.300 05/25/10 20,832,187
--------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS 16.6%............. 242,504,132
--------------
U.S. TREASURY OBLIGATIONS 33.9%
35,000 United States Treasury
Bonds....................... 6.125 11/15/27 35,337,750
98,600 United States Treasury
Bonds....................... 8.000 11/15/21 120,536,528
105,000 United States Treasury Bonds
(a)......................... 8.125 08/15/19 128,327,850
40,000 United States Treasury Bonds
(a)......................... 9.250 02/15/16 52,408,800
10,000 United States Treasury
Bonds....................... 9.375 02/15/06 11,563,000
7,000 United States Treasury
Bonds....................... 10.375 11/15/12 8,703,940
10,000 United States Treasury
Bonds....................... 10.750 08/15/05 12,002,200
11,000 United States Treasury
Bonds....................... 12.000 08/15/13 15,000,920
40,000 United States Treasury
Notes....................... 6.250 02/15/03 40,240,800
46,000 United States Treasury
Notes....................... 6.500 03/31/02 46,230,920
25,000 United States Treasury Notes
(a)......................... 7.500 11/15/01 25,332,500
--------------
TOTAL U.S. TREASURY OBLIGATIONS............................. 495,685,208
--------------
TOTAL LONG-TERM INVESTMENTS 98.2%
(Cost $1,424,354,565)................................................ 1,436,266,042
REPURCHASE AGREEMENT 1.2%
State Street Bank and Trust Co. ($17,750,000 par collateralized by
U.S. Government obligations in a pooled cash account, dated 09/29/00,
to be sold on 10/02/00 at $17,759,467)
(Cost $17,750,000)................................................... 17,750,000
--------------
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
YOUR FUND'S INVESTMENTS
September 30, 2000
<TABLE>
<CAPTION>
MARKET
VALUE
<C> <S> <C> <C> <C>
TOTAL INVESTMENTS 99.4%
(Cost $1,442,104,565)............................................... $1,454,016,042
OTHER ASSETS IN EXCESS OF LIABILITIES 0.6%............................ 8,721,791
--------------
NET ASSETS 100.0%.................................................... $1,462,737,833
==============
</TABLE>
(a) Assets segregated as collateral for open forward and open future contracts.
See Notes to Financial Statements
15
<PAGE> 17
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
September 30, 2000
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $1,442,104,565)..................... $1,454,016,042
Receivables:
Interest.................................................. 16,732,279
Fund Shares Sold.......................................... 1,597,763
Variation Margin on Futures............................... 29,125
Other....................................................... 189,545
--------------
Total Assets............................................ 1,472,564,754
--------------
LIABILITIES:
Payables:
Fund Shares Repurchased................................... 3,898,930
Income Distributions...................................... 2,538,081
Custodian Bank............................................ 807,255
Distributor and Affiliates................................ 678,513
Investment Advisory Fee................................... 640,409
Forward Commitments......................................... 606,325
Trustees' Deferred Compensation and Retirement Plans........ 501,810
Accrued Expenses............................................ 155,598
--------------
Total Liabilities....................................... 9,826,921
--------------
NET ASSETS.................................................. $1,462,737,833
==============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $1,989,349,437
Net Unrealized Appreciation................................. 11,577,555
Accumulated Undistributed Net Investment Income............. 25,411
Accumulated Net Realized Loss............................... (538,214,570)
--------------
NET ASSETS.................................................. $1,462,737,833
==============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $1,389,601,738 and 142,183,970 shares of
beneficial interest issued and outstanding)............. $ 9.77
Maximum sales charge (4.75%* of offering price)......... .49
--------------
Maximum offering price to public........................ $ 10.26
==============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $59,507,211 and 6,095,681 shares of
beneficial interest issued and outstanding)............. $ 9.76
==============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $13,628,884 and 1,399,655 shares of
beneficial interest issued and outstanding)............. $ 9.74
==============
</TABLE>
* On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
16
<PAGE> 18
Statement of Operations
For the Year Ended September 30, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $109,204,315
------------
EXPENSES:
Investment Advisory Fee..................................... 8,422,360
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $3,695,366, $697,525 and $146,384,
respectively)............................................. 4,539,275
Shareholder Services........................................ 2,301,385
Custody..................................................... 250,339
Trustees' Fees and Related Expenses......................... 149,651
Legal....................................................... 61,582
Other....................................................... 656,818
------------
Total Expenses.......................................... 16,381,410
Less Credits Earned on Cash Balances.................... 53,325
------------
Net Expenses............................................ 16,328,085
------------
NET INVESTMENT INCOME....................................... $ 92,876,230
============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $(43,718,251)
Futures................................................... 2,584,525
Forward Commitments....................................... (2,178,012)
------------
Net Realized Loss........................................... (43,311,738)
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (34,165,641)
------------
End of the Period:
Investments............................................. 11,911,477
Futures................................................. 272,403
Forward Commitments..................................... (606,325)
------------
11,577,555
------------
Net Unrealized Appreciation During the Period............... 45,743,196
------------
NET REALIZED AND UNREALIZED GAIN............................ $ 2,431,458
============
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $ 95,307,688
============
</TABLE>
See Notes to Financial Statements
17
<PAGE> 19
Statement of Changes in Net Assets
For the Years Ended September 30, 2000 and 1999
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------
2000 1999
--------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income............................... $ 92,876,230 $ 115,282,053
Net Realized Loss................................... (43,311,738) (54,139,987)
Net Unrealized Appreciation/Depreciation During the
Period............................................ 45,743,196 (118,326,058)
-------------- --------------
Change in Net Assets from Operations................ 95,307,688 (57,183,992)
-------------- --------------
Distributions from Net Investment Income............ (92,118,969) (115,469,267)
Distributions in Excess of Net Investment Income.... -0- (3,445,052)
-------------- --------------
Distributions from and in Excess of Net Investment
Income*........................................... (92,118,969) (118,914,319)
-------------- --------------
NET CHANGE IN NET ASSETS FROM
INVESTMENT ACTIVITIES............................. 3,188,719 (176,098,311)
-------------- --------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold........................... 302,901,080 673,923,927
Net Asset Value of Shares Issued Through Dividend
Reinvestment...................................... 53,365,981 68,040,278
Cost of Shares Repurchased.......................... (698,020,660) (870,866,313)
-------------- --------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS...................................... (341,753,599) (128,902,108)
-------------- --------------
TOTAL DECREASE IN NET ASSETS........................ (338,564,880) (305,000,419)
NET ASSETS:
Beginning of the Period............................. 1,801,302,713 2,106,303,132
-------------- --------------
End of the Period (Including accumulated
undistributed net investment income of $25,411 and
$(1,607,656), respectively)....................... $1,462,737,833 $1,801,302,713
============== ==============
* Distribution by Class
----------------------------------------------------
Distributions from and in Excess of Net Investment
Income:
Class A Shares.................................... $ (87,760,651) $ (111,541,874)
Class B Shares.................................... (3,605,154) (6,353,822)
Class C Shares.................................... (753,164) (1,018,623)
-------------- --------------
$ (92,118,969) $ (118,914,319)
============== ==============
</TABLE>
See Notes to Financial Statements
18
<PAGE> 20
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
NINE
YEAR ENDED MONTHS
SEPTEMBER 30, ENDED YEAR ENDED DECEMBER 31,
CLASS A SHARES ------------------- SEPT. 30, ------------------------------
2000 1999 1998 1997 1996 1995
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
THE PERIOD................. $ 9.72 $ 10.64 $ 10.26 $ 10.05 $ 10.55 $ 9.67
-------- -------- -------- -------- -------- --------
Net Investment Income...... 0.56 0.61 0.48 0.66 0.69 0.67
Net Realized and Unrealized
Gain/Loss................ 0.05 (0.90) 0.39 0.21 (0.50) 0.90
-------- -------- -------- -------- -------- --------
Total from Investment
Operations................. 0.61 (0.29) 0.87 0.87 0.19 1.57
Less Distributions from and
in Excess of Net Investment
Income..................... 0.56 0.63 0.49 0.66 0.69 0.69
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF THE
PERIOD..................... $ 9.77 $ 9.72 $ 10.64 $ 10.26 $ 10.05 $ 10.55
======== ======== ======== ======== ======== ========
Total Return (a)............. 6.53% -2.71% 8.62%* 9.16% 1.90% 16.77%
Net Assets at End of the
Period (In millions)....... $1,389.6 $1,688.8 $1,933.8 $1,930.4 $2,156.4 $2,544.5
Ratio of Expenses to Average
Net Assets (b)............. 1.00% 1.02% 1.02% 1.03% 1.06% 1.01%
Ratio of Net Investment
Income to Average Net
Assets (b)................. 5.91% 6.01% 6.30% 6.62% 6.88% 6.62%
Portfolio Turnover........... 100% 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
19
<PAGE> 21
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
NINE
YEAR ENDED MONTHS
SEPTEMBER 30, ENDED YEAR ENDED DECEMBER 31,
CLASS B SHARES ------------------ 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........................... $9.71 $10.63 $10.26 $10.05 $10.56 $ 9.68
----- ------ ------ ------ ------ ------
Net Investment Income............ 0.49 0.53 0.42 0.59 0.64 0.60
Net Realized and Unrealized
Gain/Loss...................... 0.05 (0.89) 0.38 0.21 (0.53) 0.90
----- ------ ------ ------ ------ ------
Total from Investment Operations... 0.54 (0.36) 0.80 0.80 0.11 1.50
Less Distributions from and in
Excess of Net Investment
Income........................... 0.49 0.56 0.43 0.59 0.62 0.62
----- ------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE
PERIOD........................... $9.76 $ 9.71 $10.63 $10.26 $10.05 $10.56
===== ====== ====== ====== ====== ======
Total Return (b)................... 5.76% -3.49% 8.05%* 8.27% 1.17% 15.93%
Net Assets at End of the Period (In
millions)........................ $59.5 $ 93.9 $153.2 $199.2 $236.7 $285.5
Ratio of Expenses to Average Net
Assets (c)....................... 1.75% 1.78% 1.78% 1.78% 1.82% 1.77%
Ratio of Net Investment Income to
Average Net Assets (c)........... 5.16% 5.24% 5.55% 5.87% 6.13% 5.86%
Portfolio Turnover................. 100% 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
20
<PAGE> 22
Financial Highlights
THE FOLLOWING SCHEDULE PRESENTS FINANCIAL HIGHLIGHTS FOR ONE SHARE OF THE FUND
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
<TABLE>
<CAPTION>
NINE
YEAR ENDED MONTHS
SEPTEMBER 30, ENDED YEAR ENDED DECEMBER 31,
CLASS C SHARES ----------------- 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............................ $9.69 $10.61 $10.24 $10.03 $10.54 $ 9.66
----- ------ ------ ------ ------ ------
Net Investment Income............. 0.49 0.53 0.42 0.59 0.62 0.60
Net Realized and Unrealized
Gain/Loss....................... 0.05 (0.89) 0.38 0.21 (0.51) 0.90
----- ------ ------ ------ ------ ------
Total from Investment Operations.... 0.54 (0.36) 0.80 0.80 0.11 1.50
Less Distributions from and in
Excess of Net Investment Income... 0.49 0.56 0.43 0.59 0.62 0.62
----- ------ ------ ------ ------ ------
NET ASSET VALUE, END OF THE PERIOD.. $9.74 $ 9.69 $10.61 $10.24 $10.03 $10.54
===== ====== ====== ====== ====== ======
Total Return (b).................... 5.78% -3.50% 8.07%* 8.28% 1.18% 15.96%
Net Assets at End of the Period (In
millions)......................... $13.6 $ 18.7 $ 19.3 $ 16.4 $ 21.6 $ 26.8
Ratio of Expenses to Average Net
Assets (c)........................ 1.75% 1.78% 1.78% 1.79% 1.82% 1.77%
Ratio of Net Investment Income to
Average Net Assets (c)............ 5.16% 5.25% 5.51% 5.87% 6.12% 5.86%
Portfolio Turnover.................. 100% 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
21
<PAGE> 23
NOTES TO
FINANCIAL STATEMENTS
September 30, 2000
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 high current return consistent with
preservation of capital. The Fund invests primarily 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 accounting principles
generally accepted in the United States of America 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 September 30, 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
22
<PAGE> 24
NOTES TO
FINANCIAL STATEMENTS
September 30, 2000
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 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 September 30, 2000, for federal income tax purposes the cost of long- and
short-term investments is $1,446,645,569, the aggregate gross unrealized
appreciation is $21,743,221, the aggregate gross unrealized depreciation is
$14,372,748, resulting in net unrealized appreciation on long- and short-term
investments of $7,370,473.
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, 2000, the Fund had an accumulated capital loss
carryforward for tax purposes of $492,418,958 which will expire between
September 30, 2002 and September 30, 2008. 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, straddle positions, 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.
23
<PAGE> 25
NOTES TO
FINANCIAL STATEMENTS
September 30, 2000
Due to inherent differences in the recognition of income, expenses and
realized gains/losses under accounting principles generally accepted in the
United States of America and federal income tax purposes, permanent differences
between book and tax basis reporting have been identified and appropriately
reclassified. During 2000, permanent book and tax basis differences relating to
the recognition of net realized gain on paydowns of mortgage pool obligations
totaling $875,806 were reclassified from accumulated net realized gain to
accumulated undistributed net investment income.
F. EXPENSE REDUCTIONS During the year ended September 30, 2000, the Fund's
custody fee was reduced by $53,325 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 year ended September 30, 2000, the Fund recognized expenses of
approximately $58,600 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the year ended September 30, 2000, the Fund recognized expenses of
approximately $94,900 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 year ended September 30,
2000, the Fund recognized expenses of approximately $1,754,000. Transfer agency
fees are determined through negotiations with the Fund's Board of Trustees and
are based upon competitive market benchmarks.
24
<PAGE> 26
NOTES TO
FINANCIAL STATEMENTS
September 30, 2000
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 September 30, 2000, capital aggregated $1,979,256,373, $772,799 and
$9,320,265 for Classes A, B and C, respectively. For the year ended September
30, 2000, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Sales:
Class A............................................... 28,299,134 $ 271,576,754
Class B............................................... 2,641,783 25,390,160
Class C............................................... 619,268 5,934,166
----------- -------------
Total Sales............................................. 31,560,185 $ 302,901,080
=========== =============
Dividend Reinvestment:
Class A............................................... 5,236,110 $ 50,182,160
Class B............................................... 281,059 2,695,186
Class C............................................... 51,060 488,635
----------- -------------
Total Dividend Reinvestment............................. 5,568,229 $ 53,365,981
=========== =============
Repurchases:
Class A............................................... (65,077,723) $(624,368,980)
Class B............................................... (6,491,213) (62,214,144)
Class C............................................... (1,196,825) (11,437,536)
----------- -------------
Total Repurchases....................................... (72,765,761) $(698,020,660)
=========== =============
</TABLE>
25
<PAGE> 27
NOTES TO
FINANCIAL STATEMENTS
September 30, 2000
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 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 years ended September 30, 2000 and 1999,
2,248,132 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 years ended September 30, 2000 and
1999, no Class C Shares converted to Class A Shares. Class B and C Shares are
offered without a front end sales charge, but are subject to a contingent
deferred sales charge (CDSC). The CDSC will be imposed on most redemptions made
within five
26
<PAGE> 28
NOTES TO
FINANCIAL STATEMENTS
September 30, 2000
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 AS A PERCENTAGE
OF DOLLAR AMOUNT
SUBJECT TO CHARGE
----------------------------------
YEAR OF REDEMPTION CLASS B CLASS C
<S> <C> <C> <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 year ended September 30, 2000, Van Kampen, as Distributor for the
Fund, received net commissions on sales of the Fund's Class A Shares of
approximately $54,300 and CDSC on redeemed shares of approximately $180,800.
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 $1,584,508,315
and $2,107,676,452 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.
27
<PAGE> 29
NOTES TO
FINANCIAL STATEMENTS
September 30, 2000
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 year ended September 30, 2000,
were as follows:
<TABLE>
<CAPTION>
CONTRACTS
<S> <C>
Outstanding at September 30, 1999........................... 1,400
Futures Opened.............................................. 15,681
Futures Closed.............................................. (16,639)
-------
Outstanding at September 30, 2000........................... 442
=======
</TABLE>
The futures contracts outstanding as of September 30, 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 Dec 2000
(Current Notional Value of $100,547 per contract)......... 46 $ 53,172
U.S. Treasury Note 10-Year Futures Dec 2000
(Current Notional Value $100,219 per contract)............ 341 171,075
SHORT CONTRACT:
U.S. Treasury Bond Futures Dec 2000
(Current Notional Value of $98,656 per contract).......... 55 48,156
--- --------
442 $272,403
=== ========
</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
28
<PAGE> 30
NOTES TO
FINANCIAL STATEMENTS
September 30, 2000
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 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
September 30, 2000:
<TABLE>
<CAPTION>
UNREALIZED
PAR AMOUNT CURRENT APPRECIATION/
(000) DESCRIPTION VALUE DEPRECIATION
<S> <C> <C> <C>
SHORT CONTRACTS
$30,000 FNMA October Forward, 7.00%................. $29,390,700 $(262,575)
50,000 GNMA October Forward, 7.00%................. 49,250,000 (343,750)
---------
$(606,325)
=========
</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. There were no closed but unsettled forward commitments open as of
September 30, 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 year ended September 30, 2000 are payments retained by Van Kampen of
approximately $725,300.
29
<PAGE> 31
NOTES TO
FINANCIAL STATEMENTS
September 30, 2000
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.
30
<PAGE> 32
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees of Van Kampen Government Securities
Fund
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Van Kampen Government Securities Fund (the
"Fund"), as of September 30, 2000, and the related statements of operations,
changes in net assets and financial highlights for the year then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The statement of changes in net assets
of the Fund for the year ended September 30, 1999, and the financial highlights
for each of the five years in the period then ended were audited by other
auditors whose report dated November 5, 1999, expressed an unqualified opinion
on those statements.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosure in
the financial statements. Our procedures included confirmation of securities
owned as of September 30, 2000, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the 2000 financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of the Fund at September 30, 2000, the results of its operations,
changes in net assets and financial highlights for the year then ended, in
conformity with accounting principles generally accepted in the United States.
SIG
Chicago, Illinois
November 8, 2000
31
<PAGE> 33
VAN KAMPEN FUNDS
THE VAN KAMPEN
FAMILY OF FUNDS
Growth
Aggressive Growth
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth
Mid Cap Growth
Pace
Select Growth
Small Cap Value
Tax Managed Equity Growth
Technology
Growth and Income
Comstock
Equity Income
Growth and Income
Harbor
Real Estate Securities
Utility
Value
Global/International
Asian Growth
Emerging Markets
European Equity
Global Equity
Global Equity Allocation
International Magnum
Latin American
Strategic Income*
Tax Managed Global Franchise
Worldwide High Income
Income
Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
Limited Maturity Government
U.S. Government
U.S. Government Trust for Income
Capital Preservation
Reserve
Tax Free Money
Senior Loan
Prime Rate Income Trust
Senior Floating Rate
Tax Free
California Insured Tax Free
Florida Insured Tax Free Income
High Yield Municipal**
Insured Tax Free Income
Intermediate Term Municipal
Income
Municipal Income
New York Tax Free Income
Pennsylvania Tax Free Income
Tax Free High Income
To find out more about any of these funds, ask your financial advisor for a
prospectus, which contains more complete information, including sales charges,
risks, and ongoing expenses. Please read it carefully before you invest or send
money.
To view a current Van Kampen fund prospectus or to receive additional fund
information, choose from one of the following:
- visit our Web site at
WWW.VANKAMPEN.COM--
to view a prospectus, select
Download Prospectus [COMPUTER ICON]
- call us at 1-800-341-2911
weekdays from 7:00 a.m. to 7:00 p.m.
central time. Telecommunications
Device for the Deaf users, call
1-800-421-2833.
[PHONE ICON]
- e-mail us by visiting
WWW.VANKAMPEN.COM and
selecting Contact Us
[MAIL ICON]
* Closed to new investors
** Open to new investors for a limited time
32
<PAGE> 34
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*
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
RICHARD A. CICCARONE*
JOHN R. REYNOLDSON*
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 AUDITORS(1)
ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, Illinois 60606
(1) Independent auditors for the Fund perform an annual audit of the Fund's
financial statements. The Board of Trustees has engaged Ernst & Young LLP to
be the Fund's independent auditors. PricewaterhouseCoopers LLP ceased being
the Fund's independent auditors 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 for the Fund's Investment Adviser.
* "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 February 29,
2000, the report, if used with prospective investors, must be accompanied by a
quarterly performance update, if applicable.
33
