<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Performance Results.............................. 3
Performance in Perspective....................... 4
Glossary of Terms................................ 5
Portfolio Management Review...................... 7
Portfolio Highlights............................. 10
Portfolio of Investments......................... 11
Statement of Assets and Liabilities.............. 12
Statement of Operations.......................... 13
Statement of Changes in Net Assets............... 14
Financial Highlights............................. 15
Notes to Financial Statements.................... 18
Report of Independent Accountants................ 28
</TABLE>
GTI ANR 11/98
<PAGE> 2
LETTER TO SHAREHOLDERS
[PHOTO]
DENNIS J. MCDONNELL AND DON G.
POWELL
October 22, 1998
Dear Shareholder,
These continue to be dramatic and
highly unusual times for global
financial markets. Despite a severe
crisis of confidence in many emerging
economies, the United States has been
relatively unscathed by the turmoil.
However, volatility increased in the
U.S. equity market as the Asian crisis
spread to Russia and Latin America in
the last few months of the reporting
period. Fixed-income investors were not
entirely unaffected, as volatility
forced yield spreads to widen between
Treasuries and high-yield securities, corporate bonds, and mortgage-backed
securities.
We expect that volatility will remain high until the situation overseas
stabilizes. In this environment, it is important to stay focused on long-term
investment goals and to view daily fluctuations as relatively minor in the
larger picture. As we explain elsewhere in this letter, the U.S. economy remains
among the healthiest in the world, and Federal Reserve policymakers have
demonstrated an ability to make prudent decisions with regard to monetary
policy. These factors bode well for investors during the months ahead.
ECONOMIC OVERVIEW
Growth in the U.S. economy moderated during the reporting period as fallout
from the global financial crisis finally began to hit home. Weak demand for
American goods in Asia and Latin America caused the U.S. trade deficit to hit a
record $56.5 billion during the second quarter, undermining corporate profits.
Weak earnings, in turn, caused job growth to slow and unemployment to increase
modestly from the 28-year low set earlier this year. Manufacturing activity fell
in September for the fourth consecutive month.
Psychological factors also played a role in the deceleration of U.S.
economic growth. In a recent speech, Federal Reserve Chairman Alan Greenspan
noted that Americans seem to have acquired a strong aversion to risk that had
been notably absent in recent years. This risk-averse attitude manifested itself
in slower retail sales growth and a mild drop in housing activity. Also, the
clear preference among investors for safety and liquidity caused interest rates
on lower-quality debt to balloon, leading to fears of a credit crunch for U.S.
businesses. Such concerns were at least partially responsible for the Fed's
decision to cut short-term interest rates by 0.25 percent on September 29 and
again on October 15.
Despite the slowdown, we believe that the American economy remains
fundamentally sound. Inflation at the consumer level increased by just 1.4
percent during the 12 months through September, while wholesale prices actually
fell during the same period.
Continued on page 2
1
<PAGE> 3
MARKET OVERVIEW
The deepening global economic crisis helped unleash a furious flight to
quality in the domestic fixed-income market. As the reporting period ended, the
yield on long-term Treasury bonds had fallen below 5 percent for the first time
since 1977. Total returns in the U.S. bond market were uneven, however, as
investors displayed a preference for quality amid the raging global economic
storm. During the 12 months through September, long-term Treasury bonds gained
20.97 percent, compared to 11.55 percent for long-term corporate bonds and 3.14
percent for high-yield securities. The varying performance reflects a transition
in investor psychology, with sentiment shifting from confidence to extreme risk
aversion during the course of just six months.
The heightened demand for safety drove yield differentials between bonds of
different credit quality but similar maturities to levels not seen since the
1990-1991 recession. Credit spreads between 10-year Treasury bonds and
high-yield securities, for example, grew to almost 6 percent. While a gradual
widening of credit spreads is normal during the later stages of a business
cycle, the dramatic nature of the expansion was primarily the result of high
demand for Treasury securities by foreign investors seeking shelter from the
sharp sell-offs in overseas equity markets.
OUTLOOK
We expect that global economic fundamentals will remain favorable for
domestic fixed-income investments. The impact of slower economic growth abroad
should help to offset the inflationary implications of a relatively tight labor
market in the United States. Additionally, the recent deceleration in U.S.
economic growth is likely to lead to somewhat higher unemployment in coming
months. However, while the possibility of a recession can no longer be ruled
out, we believe that the U.S. economy will grow at a moderate pace into next
year.
The Federal Reserve has already begun to loosen monetary policy, and we
expect that global overcapacity will continue to exert downward pressure on
commodity prices. Both factors are positive for bonds. We caution, however, that
yields have fallen considerably in recent months, and a mild increase in
long-term interest rates is possible. Also, a weakening dollar or a worsening of
economic conditions overseas could lead to reduced foreign demand for U.S.
financial assets. Finally, credit quality will remain under intense scrutiny,
especially given the risk-averse mindset of global investors and the advanced
stage of the domestic business cycle.
Additional details about your Fund, including a question-and-answer section
with your portfolio management team, are provided in this report. As always, we
are pleased to have the opportunity to share with you the progress of your
investment.
Sincerely,
[sig]
Don G. Powell
Chairman
Van Kampen Asset Management Inc.
[sig]
Dennis J. McDonnell
President
Van Kampen Asset Management Inc.
2
<PAGE> 4
PERFORMANCE RESULTS FOR THE PERIOD ENDED SEPTEMBER 30, 1998
VAN KAMPEN U.S. GOVERNMENT TRUST FOR INCOME
<TABLE>
<CAPTION>
A Shares B Shares C Shares
<S> <C> <C> <C>
TOTAL RETURNS
One-year total return based on NAV(1)...... 9.87% 8.96% 8.96%
One-year total return(2)................... 4.63% 4.96% 7.96%
Five-year average annual total return(2)... 4.57% 4.55% 4.80%
Life-of-Fund average annual total
return(2)................................ 5.23%(3) 5.27%(3) 4.77%
Commencement date.......................... 10/06/92 10/06/92 04/12/93
DISTRIBUTION RATE AND YIELD
Distribution rate(4)....................... 6.11% 5.71% 5.71%
SEC Yield(5)............................... 4.29% 3.74% 3.75%
</TABLE>
(1)Assumes reinvestment of all distributions for the period and does not include
payment of the maximum sales charge (4.75% for A shares) or contingent deferred
sales charge for early withdrawal (4% for B shares and 1% for C shares).
(2)Standardized total return. Assumes reinvestment of all distributions for the
period and includes payment of the maximum sales charge (A shares) or contingent
deferred sales charge for early withdrawal (B and C shares).
(3)Total return from November 2, 1992 (date the Fund's investment strategy was
implemented) through the end of the period.
(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, 1998.
See the Fund Performance section of the current prospectus. Past performance
does not guarantee future results. Investment return and net asset value will
fluctuate with market conditions. Fund shares, when redeemed, may be worth more
or less than their original cost.
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 on specific securities in
the Fund's portfolio, not to the shares of the Fund.
Market forecasts provided in this report may not necessarily come to pass.
3
<PAGE> 5
PUTTING YOUR FUND'S PERFORMANCE IN PERSPECTIVE
As you evaluate your progress toward achieving your financial goals, it is
important to track your investment performance at regular intervals. A
comparison of your Fund's performance to an applicable benchmark can:
- Illustrate the market environment in which your Fund is being managed
- Reflect the impact of favorable market trends or difficult market
conditions
- Help you evaluate how your Fund's management team has responded to
opportunities and challenges
The following graph compares your Fund's performance to that of the Merrill
Lynch Intermediate-Term U.S. Government Index over time. The index is a
broad-based, statistical composite that does not include any commissions or
sales charges that would be paid by an investor purchasing the securities it
represents.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen U.S. Government Trust for Income vs. the Merrill Lynch
Intermediate-Term U.S. Government Index (November 2, 1992 through September
30, 1998)
Investment Performance Chart
<TABLE>
<CAPTION>
Van Kampen US Merrill Lynch Int
Measurement Period Government Trust for Term US Government
(Fiscal Year Covered) Inc - A IDM
<S> <C> <C>
Nov-92 9527 10000
9492 10000
9651 10128
9835 10312
9968 10468
9984 10508
10087 10592
10018 10564
10144 10710
10159 10734
10262 10895
Sep-93 10296 10944
10320 10965
10254 10915
10297 10959
10447 11067
10244 10914
9970 10766
9858 10693
9839 10703
9831 10710
10014 10844
10019 10880
Sep-94 9903 10793
9895 10797
9839 10744
9886 10783
10089 10959
10318 11171
10360 11236
10491 11364
10788 11685
10831 11764
10810 11773
10919 11870
Sep-95 10989 11950
11098 12082
11265 12230
11419 12352
11494 12457
11288 12323
11202 12267
11116 12229
11083 12222
11202 12343
11224 12381
11219 12395
Sep-96 11381 12553
11600 12757
11778 12913
11674 12845
11697 12894
11706 12909
11614 12845
11754 12989
11850 13089
11977 13202
12252 13447
12157 13393
Sep-97 12301 13539
12446 13695
12485 13727
12601 13843
12779 14026
12742 14026
12767 14060
12808 14123
12896 14219
12982 14317
13006 14374
13268 14648
Sep-98 13516 14983
</TABLE>
The above chart reflects the performance of Class A shares of the Fund. The
performance of Class A shares will differ from that of other share classes of
the Fund because of the difference in sales charges and/or expenses paid by
shareholders investing in the different share classes. The Fund's performance
assumes reinvestment of all distributions, and includes payment of the maximum
sales charge (4.75% for A shares).
While past performance is not indicative of future performance, the above
information provides a broader vantage point from which to evaluate the
discussion of the Fund's performance found in the following pages.
4
<PAGE> 6
GLOSSARY OF TERMS
BASIS POINT: A measure used in quoting bond yields. One hundred basis points is
equal to 1 percent. For example, if a bond's yield changes from 7.00 to 6.65
percent, it is a 35 basis-point move.
COUPON RATE: The stated rate of interest the bond pays until maturity, expressed
as a percentage of the face value.
CREDIT SPREAD: Also called quality spread, the difference in yield between
higher-quality issues (such as Treasury securities) and lower-quality
issues. Normally, lower-quality issues provide higher yields to compensate
investors for the additional credit risk.
DURATION: A measure of the sensitivity of a bond's price to changes in interest
rates, expressed in years. Each year of duration represents an expected 1
percent change in the price of a bond for every 1 percent change in interest
rates. The longer a fund's duration, the greater the effect of interest rate
movements on net asset value. Typically, funds with shorter durations have
performed better in rising rate environments, while funds with longer
durations have performed better when rates decline.
FEDERAL FUNDS RATE: The interest rate charged by one financial institution
lending federal funds to another. This overnight rate is used to meet banks'
daily reserve requirements. The Federal Reserve Board uses the federal funds
rate to affect the direction of interest rates.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank system of the United States. Its
policy-making committee, called the Federal Open Market Committee, meets
eight times a year to establish monetary policy and monitor the economic
pulse of the United States.
INFLATION: A persistent and measurable rise in the general level of prices.
Inflation is widely measured by the Consumer Price Index, an economic
indicator that measures the change in the cost of purchased goods and
services.
MORTGAGE-BACKED SECURITIES: Securities backed by pools of similar mortgages.
Investors receive interest payments and partial repayment of the principal
passed through from the underlying mortgages (agencies pass on what they
receive from homeowners paying off their mortgages).These securities are
generally issued by agencies of the U.S. government, such as Government
National Mortgage Association (GNMA, or "Ginnie Mae") and Federal Home Loan
Mortgage Corporation (FHLMC, or "Freddie Mac").
NET ASSET VALUE (NAV): The value of a mutual fund share, calculated by deducting
a fund's liabilities from its total assets and dividing this amount by the
number of shares outstanding. The NAV does not include any initial or
contingent deferred sales charge.
5
<PAGE> 7
YIELD: The annual rate of return on an investment, expressed as a percentage.
For bonds and notes, the yield is the annual interest divided by the market
price.
YIELD CURVE: A result of viewing the yields of U.S. Treasury securities maturing
in 1, 5, 10, and 30 years. When grouped together and graphed, a pattern of
increasing yield is often reflected as the time to maturity extends. This
pattern creates an upward sloping "curve." A "flat" yield curve represents
little difference between short-and long-term interest rates.
YIELD SPREAD: The difference between the yields of different bonds, due to their
different credit ratings or maturities. When yield spreads between bonds of
different credit quality are narrow, there is less incentive to own the
lower-quality bond. When yield spreads between bonds of different maturities
are narrow, there is less incentive to own the bond with the longer
maturity. In both cases, the investor is not being compensated for the
additional risk.
6
<PAGE> 8
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN U.S. GOVERNMENT TRUST FOR INCOME
We recently spoke with the management team of the Van Kampen U.S. Government
Trust for Income about the key events and economic forces that shaped the
markets during the past 12 months. The team includes Ted V. Mundy, portfolio
manager, and Peter W. Hegel, chief investment officer for fixed-income
investments. The following excerpts reflect their views on the Fund's
performance during the fiscal year ended September 30, 1998.
Q
DESCRIBE THE ENVIRONMENT IN WHICH THE FUND OPERATED DURING THE REPORTING
PERIOD.
A
In our last report at the end of March, we discussed the impact of
Southeast Asia's economic woes on the U.S. bond market, with specific
attention given to the Fund's benchmark, the five-year Treasury bond.
After dropping to a record low in February, the five-year Treasury retreated
slightly and ended the semiannual period at 5.62 percent amid a sense that the
United States might remain relatively unaffected from trouble overseas. A lull
settled over a reasonably constructive bond market during the first several
months of this reporting period, with interest rates predominately flat or
trading close to 5.50 percent. However, in late July, problems overseas took
center stage again, when economic woes extended to include Russia and Latin
America. With this development, the equity market became bearish. In sympathy,
bond yields fell and bond prices rose accordingly, despite relatively stable
U.S. economic indicators. This dynamic dominated the last several weeks of the
Fund's fiscal year, which culminated in the Federal Reserve Board easing the
federal funds rate for the first time in over two years.
Q
THE FUND INVESTS PRIMARILY IN MORTGAGE-BACKED SECURITIES AND TREASURIES.
HOW WERE THESE SECTORS AFFECTED BY MARKET CONDITIONS?
A
As world markets began to unwind, investors developed a decreased appetite
for risk, which led to a rise in the sale of risk-sensitive
securities--including mortgage-backed securities, corporate bonds, and
high yield securities. This shift had the dual effect of causing Treasury yields
to drop precipitously while driving yield spreads wider. We felt that much of
the volatility during this time was driven primarily by the need for liquidity
from hedge funds, creating outsized dislocations in the markets. On September
30, 1998, the yield for the five-year Treasury fell to 4.42 percent,
representing a drop of 120 basis points in six months. As these falling yields
pulled mortgage yields down, the risk of homeowner refinancing commanded
investors' attention. This window of opportunity for refinancing cut into the
value of mortgage-backed securities that were priced at premiums, which included
the majority of the mortgage market. This contributed to widening yield spreads
throughout the period. For example, the yield spread between the Ginnie Mae
seven-percent coupon and the five-year Treasury increased 88 basis points in the
last two months of the period alone. Among Treasuries, the yield curve steepened
even further as the Treasury rallied in response to the renewed flight to
quality.
7
<PAGE> 9
Q
CONSIDERING THESE FACTORS, HOW DID YOU POSITION THE FUND?
A
We assumed a slightly longer duration, which reflected our positive
outlook on the market and interest rates. At the end of the period, the
portfolio duration of 4.00 years was longer than the 3.07 year duration of
the Fund's comparable index, the Merrill Lynch Intermediate-Term Government
Index. We also incrementally increased the Fund's exposure to mortgage-backed
securities during the past six months. Mortgage-backed securities moved to
historically cheap levels, and high yields and wider spreads presented good
potential return opportunities for the Fund. In adding new mortgage-backed
securities to the portfolio, we watched for any tightening of yield spreads as
well as the incremental return gained from the higher yield. We believe spreads
will tighten in the face of increased demand for mortgage-backed securities,
which would occur if Treasury yields were to rise or stabilize near current
levels.
In the last report, we mentioned that we were adjusting the Fund's Treasury
exposure by investing at the ends of the yield curve (two- and 30-year
Treasuries) because we felt that the five- and 10-year securities had reached
the ceiling on their performance potential. In retrospect, this move was timed a
little too soon, as five- and 10-year securities continued to outperform.
However, we are maintaining this position and are comfortable with the current
and expected level of performance from two- and 30-year Treasuries. For
additional Fund portfolio highlights, please refer to page 10.
Q
HOW DID THE FUND PERFORM DURING THE REPORTING PERIOD?
A
For the 12-month period ended September 30, 1998, the U.S. Government
Trust for Income generated a total return of 9.87 percent(1) (Class A
shares at net asset value). Additionally, the Fund's Class A shares
provided shareholders with a competitive distribution rate of 6.11 percent,(4)
based upon the maximum offering price as of September 30, 1998, and a monthly
dividend of $.045 per Class A share. By comparison, the Merrill Lynch
Intermediate-Term Government Index posted a total return of 10.66 percent for
the same period. This broad-based index measures the market performance of
government securities with maturities between one and ten years. This unmanaged
index does not reflect any commissions or fees that would be paid by an investor
purchasing the securities it represents. For additional Fund performance
results, please refer to the chart on page 3.
Q
WHAT IS YOUR OUTLOOK FOR MARKET AND THE FUND IN THE MONTHS AHEAD?
A
The Fed action in September is likely to be the first step in a process of
reducing short-term interest rates with the intention of providing
additional liquidity to the system. Nonetheless, a large disparity remains
between the two-year Treasury and the Fed Funds rate because the Treasury yield
is so low. The current market pricing is discounting significantly more adverse
market and economic developments than we anticipate. Given further Fed action
and the passing of time, we would expect hedge fund liquidity difficulties to
run their course. (Editor's note: After the reporting period ended, the Fed
8
<PAGE> 10
reduced interest rates again by 0.25 percent.) If the world markets begin to
settle down and the market starts to sense that the black clouds have passed,
the focus could once again shift to the stability of the domestic economy. In
this scenario, rates could stabilize or even back up, which would benefit
current mortgage-backed security holdings. The average coupon held in the
portfolio is low enough that prepayment exposure should remain modest even in
the event rates were to move somewhat lower, and we believe that the potential
for strong returns more than compensates for the potential prepayment risk.
Meanwhile, we are maintaining the Fund's above-average duration and awaiting the
Fed's further actions.
[SIG.]
Ted V. Mundy
Portfolio Manager
[SIG.]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
Please see footnotes on page 3
9
<PAGE> 11
PORTFOLIO HIGHLIGHTS
VAN KAMPEN U.S. GOVERNMENT TRUST FOR INCOME
COUPON DISTRIBUTION AS OF SEPTEMBER 30, 1998
GRAPH
PORTFOLIO COMPOSITION BY SECTOR AS A PERCENTAGE OF LONG-TERM INVESTMENTS
PIE CHART
PIE CHART
DURATION
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998 AS OF MARCH 31, 1998
<S> <C> <C>
Duration 4.0 years 3.8 years
</TABLE>
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ASSET-BACKED SECURITIES 5.9%
$ 8,829 Pacific America Home Equity Loan...... 5.916% 12/25/27 $ 8,823,173
------------
COLLATERALIZED MORTGAGE
OBLIGATIONS 3.0%
4,371 Salomon Brothers Mortgage Securities,
Series 93-5A3......................... 7.346 10/25/23 4,506,910
------------
UNITED STATES GOVERNMENT AGENCY OBLIGATIONS 43.9%
8,561 Federal Home Loan Mortgage Corp. Gold
30 Year Pool.......................... 6.500 02/01/26 to 05/01/26 8,724,984
7,886 Federal Home Loan Mortgage Corp. CMO,
Series 1992-FB (a).................... 6.088 09/15/27 7,898,743
7,485 Federal National Mortgage Association
CMO, Series 94-87F (a)................ 6.138 03/25/09 7,503,363
11,000 Federal National Mortgage Association
Medium Term Note (a).................. 11.875 05/19/00 12,221,990
1,312 Federal National Mortgage Association
Pool.................................. 8.500 01/01/22 to 09/01/24 1,369,371
15,150 Government National Mortgage
Association Pool...................... 7.500 06/15/28 to 09/15/28 15,691,606
3,553 Government National Mortgage
Association Pool...................... 8.000 11/15/21 to 08/15/24 3,695,395
4,370 Government National Mortgage
Association Pool (a).................. 8.500 12/15/17 4,639,203
3,778 Government National Mortgage
Association Pool...................... 9.000 03/15/18 to 12/15/19 4,055,470
------------
TOTAL UNITED STATES GOVERNMENT AGENCY OBLIGATIONS..................... 65,800,125
------------
UNITED STATES TREASURY
OBLIGATIONS 44.7%
1,000 United States Treasury Bonds (a)...... 9.125 05/15/18 1,484,240
9,000 United States Treasury Bonds (a)...... 9.000 11/15/18 13,271,130
5,000 United States Treasury Bonds.......... 6.625 02/15/27 6,073,400
7,000 United States Treasury Notes (a)...... 9.125 05/15/99 7,193,550
10,000 United States Treasury Notes (a)...... 8.000 05/15/01 10,888,900
22,000 United States Treasury Notes (a)...... 11.625 11/15/02 27,970,360
------------
TOTAL UNITED STATES TREASURY OBLIGATIONS.............................. 66,881,580
------------
TOTAL LONG-TERM INVESTMENTS 97.5%
(Cost $143,380,289)........................................................... 146,011,788
REPURCHASE AGREEMENT 1.1%
DLJ Mortgage Acceptance Corp. ($1,615,000 par collateralized by U.S. Government
obligations in a pooled cash account, dated 09/30/98, to be sold on 10/01/98 at
$1,615,238)
(Cost $1,615,000)............................................................. 1,615,000
------------
TOTAL INVESTMENTS 98.6%
(Cost $144,995,289)........................................................... 147,626,788
OTHER ASSETS IN EXCESS OF LIABILITIES 1.4%..................................... 2,080,925
------------
NET ASSETS 100.0%.............................................................. $149,707,713
-----------
</TABLE>
(a) Assets segregated as collateral for open futures and forwards transactions.
See Notes to Financial Statements
11
<PAGE> 13
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $144,995,289)....................... $147,626,788
Cash........................................................ 230
Receivables:
Interest.................................................. 2,669,643
Fund Shares Sold.......................................... 39,259
Variation Margin on Futures............................... 24,863
Other..................................................... 5,589
Forward Commitments......................................... 615,644
Other....................................................... 17,411
------------
Total Assets.......................................... 150,999,427
------------
LIABILITIES:
Payables:
Income Distributions...................................... 498,141
Fund Shares Repurchased................................... 436,202
Distributor and Affiliates................................ 131,108
Investment Advisory Fee................................... 73,700
Accrued Expenses............................................ 81,588
Trustees' Deferred Compensation and Retirement Plans........ 70,975
------------
Total Liabilities....................................... 1,291,714
------------
NET ASSETS.................................................. $149,707,713
============
NET ASSETS CONSIST OF:
Capital..................................................... $195,816,020
Net Unrealized Appreciation................................. 3,283,548
Accumulated Undistributed Net Investment Income............. 178,742
Accumulated Net Realized Loss............................... (49,570,597)
------------
NET ASSETS.................................................. $149,707,713
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $37,232,277 and 4,420,846 shares of
beneficial interest issued and outstanding)............. $ 8.42
Maximum sales charge (4.75%* of offering price)......... .42
------------
Maximum offering price to public........................ $ 8.84
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $101,204,627 and 12,031,407 shares of
beneficial interest issued and outstanding)............. $ 8.41
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $11,270,809 and 1,339,882 shares of
beneficial interest issued and outstanding)............. $ 8.41
============
</TABLE>
* On sales of $100,000 or more, the sales charge will be reduced.
See Notes to Financial Statements
12
<PAGE> 14
STATEMENT OF OPERATIONS
For the Year Ended September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $12,497,238
Fee Income.................................................. 967,087
-----------
Total Income............................................ 13,464,325
-----------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $92,734, $1,105,221 and $124,627,
respectively)............................................. 1,322,582
Investment Advisory Fee..................................... 969,854
Shareholder Services........................................ 211,791
Trustees' Fees and Expenses................................. 21,544
Custody..................................................... 21,535
Legal....................................................... 3,687
Other....................................................... 267,481
-----------
Total Expenses.......................................... 2,818,474
-----------
NET INVESTMENT INCOME....................................... $10,645,851
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $(1,353,173)
Futures................................................... (180,300)
Forward Commitments....................................... 1,299,100
-----------
Net Realized Loss........................................... (234,373)
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... (410,480)
-----------
End of the Period:
Investments............................................. 2,631,499
Futures................................................. 121,630
Forward Commitments..................................... 530,419
-----------
3,283,548
-----------
Net Unrealized Appreciation During the Period............... 3,694,028
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 3,459,655
===========
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $14,105,506
===========
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended September 30, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
September 30, 1998 September 30, 1997
- -------------------------------------------------------------------------------------------
FROM INVESTMENT ACTIVITIES:
Operations:
<S> <C> <C>
Net Investment Income............................. $ 10,645,851 $ 12,258,038
Net Realized Loss................................. (234,373) (2,095,870)
Net Unrealized Appreciation During the Period..... 3,694,028 3,772,798
------------------ ------------------
Change in Net Assets from Operations.............. 14,105,506 13,934,966
------------------ ------------------
Distributions from Net Investment Income:
Class A Shares.................................. (2,579,681) (2,842,739)
Class B Shares.................................. (6,583,547) (8,230,537)
Class C Shares.................................. (742,528) (961,509)
------------------ ------------------
(9,905,756) (12,034,785)
------------------ ------------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES...................................... 4,199,750 1,900,181
------------------ ------------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold......................... 21,122,925 7,421,625
Net Asset Value of Shares Issued Through Dividend
Reinvestment.................................... 3,832,141 4,910,254
Cost of Shares Repurchased........................ (53,196,413) (55,107,596)
------------------ ------------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS.................................... (28,241,347) (42,775,717)
------------------ ------------------
TOTAL DECREASE IN NET ASSETS...................... (24,041,597) (40,875,536)
NET ASSETS:
Beginning of the Period........................... 173,749,310 214,624,846
------------------ ------------------
End of the Period (Including accumulated
undistributed net investment income of $178,742
and $(108,311), respectively)................... $ 149,707,713 $ 173,749,310
================== ==================
</TABLE>
See Notes to Financial Statements
14
<PAGE> 16
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------
Class A Shares 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period................................. $8.193 $8.108 $ 8.38 $ 8.17 $ 9.26
------ ------ ------ ------ --------
Net Investment Income.................. .595 .567 .565 .63 .67
Net Realized and Unrealized
Gain/Loss............................ .184 .073 (.274) .23 (1.0085)
------ ------ ------ ------ --------
Total from Investment Operations......... .779 .640 .291 .86 (.3385)
------ ------ ------ ------ --------
Less:
Distributions from Net Investment
Income............................... .550 .555 .563 .645 .674
Distributions from Net Realized Gain... -0- -0- -0- .005 .0775
------ ------ ------ ------ --------
Total Distributions...................... .550 .555 .563 .65 .7515
------ ------ ------ ------ --------
Net Asset Value, End of the Period....... $8.422 $8.193 $8.108 $ 8.38 $ 8.17
====== ====== ====== ====== ========
Total Return (a)......................... 9.87% 8.09% 3.57% 10.97% (3.82%)
Net Assets at End of the Period (In
millions).............................. $ 37.2 $ 38.3 $ 45.2 $ 70.2 $ 75.3
Ratio of Expenses to Average Net
Assets................................. 1.16% 1.18% 1.13% 1.09% 1.07%
Ratio of Net Investment Income to Average
Net Assets............................. 7.19% 6.95% 6.83% 7.67% 7.89%
Portfolio Turnover....................... 217% 82% 282% 262% 122%
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge.
See Notes to Financial Statements
15
<PAGE> 17
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------
Class B Shares 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period.................................. $8.187 $8.104 $ 8.38 $ 8.17 $ 9.26
------ ------ ------ ------ --------
Net Investment Income................... .529 .505 .504 .57 .61
Net Realized and Unrealized Gain/Loss... .186 .073 (.277) .228 (1.0205)
------ ------ ------ ------ --------
Total from Investment Operations.......... .715 .578 .227 .798 (.4105)
------ ------ ------ ------ --------
Less:
Distributions from Net Investment
Income................................ .490 .495 .503 .583 .602
Distributions from Net Realized Gain.... -0- -0- -0- .005 .0775
------ ------ ------ ------ --------
Total Distributions....................... .490 .495 .503 .588 .6795
------ ------ ------ ------ --------
Net Asset Value, End of the Period........ $8.412 $8.187 $8.104 $ 8.38 $ 8.17
====== ====== ====== ====== ========
Total Return (a).......................... 8.96% 7.43% 2.70% 10.14% (4.61%)
Net Assets at End of the Period (In
millions)............................... $101.2 $121.7 $150.8 $200.2 $ 226.7
Ratio of Expenses to Average Net Assets... 1.93% 1.94% 1.89% 1.85% 1.82%
Ratio of Net Interest Income to Average
Net Assets.............................. 6.40% 6.20% 6.08% 6.92% 7.11%
Portfolio Turnover........................ 217% 82% 282% 262% 122%
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
a contingent deferred sales charge.
See Notes to Financial Statements
16
<PAGE> 18
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share
of the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------
Class C Shares 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------
Net Asset Value, Beginning of
the Period............................... $8.186 $8.104 $ 8.38 $ 8.17 $ 9.25
------ ------ ------ ------ -------
Net Investment Income.................... .529 .503 .502 .57 .63
Net Realized and Unrealized Gain/Loss.... .187 .074 (.275) .228 (1.0305)
------ ------ ------ ------ -------
Total from Investment Operations........... .716 .577 .227 .798 (.4005)
------ ------ ------ ------ -------
Less:
Distributions from Net Investment
Income................................. .490 .495 .503 .583 .602
Distributions from Net Realized Gain..... -0- -0- -0- .005 .0775
------ ------ ------ ------ -------
Total Distributions........................ .490 .495 .503 .588 .6795
------ ------ ------ ------ -------
Net Asset Value, End of the Period......... $8.412 $8.186 $8.104 $ 8.38 $ 8.17
====== ====== ====== ====== =======
Total Return (a)........................... 8.96% 7.43% 2.70% 10.14% (4.51%)
Net Assets at End of the Period (In
millions)................................ $ 11.3 $ 13.7 $ 18.6 $ 28.1 $ 37.5
Ratio of Expenses to Average Net Assets.... 1.93% 1.94% 1.89% 1.85% 1.82%
Ratio of Net Investment Income to Average
Net Assets............................... 6.41% 6.20% 6.08% 6.94% 7.08%
Portfolio Turnover......................... 217% 82% 282% 262% 122%
</TABLE>
(a) Total return is based upon net asset value which does not include payment of
a contingent deferred sales charge.
See Notes to Financial Statements
17
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen U.S. Government Trust for Income, formerly known as Van Kampen
American Capital U.S. Government Trust for Income, (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 October 6, 1992 with two classes of common shares, Class A and
Class B shares. The distribution of the Fund's Class C shares commenced on April
12, 1993.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION--Investments are stated at value using market quotations
or indications of value obtained from an independent pricing service. For those
securities where quotations or prices are not available, valuations are
determined in accordance with procedures established in good faith by the Board
of Trustees. The Fund's security valuation methodology was changed in January,
1998 from bid side pricing to the mean of the bid and asked prices. The impact
of the change, which was not material, is included as a component of the change
in unrealized appreciation/depreciation for the year ended September 30, 1998.
Short-term securities with remaining maturities of 60 days or less are valued at
amortized cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made.
18
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
At September 30, 1998, there were no when issued or delayed delivery purchase
commitments.
The Fund trades certain securities under the terms of forward commitments,
whereby the settlement for payment and delivery occurs at a specified future
date. Forward commitments are privately negotiated transactions between the Fund
and dealers. Upon executing a forward commitment and during the period of
obligation, the Fund maintains collateral of cash or securities in a segregated
account with its custodian in an amount sufficient to relieve the obligation. If
the intent of the Fund is to accept delivery of a security traded under a
forward purchase commitment, the commitment is recorded as a long-term purchase.
For forward purchase commitments for which security settlement is not intended
by the Fund, changes in the value of the commitment are recognized by marking
the commitment to market on a daily basis. During the term of the commitment,
the Fund may resell the forward commitment and enter into a new forward
commitment, the effect of which is to extend the settlement date. In connection
with this extension, the Fund receives a fee, which is included in fee income on
the date of the extension. In addition, the Fund may occasionally close such
forward commitments prior to delivery.
The Fund may invest in repurchase agreements, which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen Asset Management, Inc. (the "Adviser") or its
affiliates, the daily aggregate of which is invested in repurchase agreements.
Repurchase agreements are fully collateralized by the underlying debt security.
The Fund will make payment for such securities only upon physical delivery or
evidence of book entry transfer to the account of the custodian bank. The seller
is required to maintain the value of the underlying security at not less than
the repurchase proceeds due the Fund.
C. INCOME AND EXPENSES--Interest income is recorded on an accrual basis.
Original issue discount is amortized over the expected life of each applicable
security. 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
19
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
substantially all of its taxable income to its shareholders. Therefore, no
provision for federal income taxes is required.
At September 30, 1998, for federal income tax purposes, cost of long- and
short-term investments is $145,018,987, the aggregate gross unrealized
appreciation is $3,334,876 and the aggregate gross unrealized depreciation is
$727,075, resulting in net unrealized appreciation on long- and short-term
investments of $2,607,801.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset these losses against any future realized capital
gains. At September 30, 1998, the Fund had an accumulated capital loss
carryforward for tax purposes of $49,113,277 which will expire between September
30, 2003 and September 30, 2006. Net realized loss differs 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 fiscal year and
losses recognized for tax purposes on open futures positions at September 30,
1998.
E. DISTRIBUTION OF INCOME AND GAINS--The Fund declares daily and pays monthly
dividends from net investment income. Net realized gains, if any, are
distributed annually. Distributions from net realized gains for book purposes
may include short-term capital gains and gains on futures transactions. All
short-term capital gains and a portion of futures gains are included in ordinary
income for tax purposes. In January, 1999, the Fund will provide tax information
to shareholders for the 1998 calendar year.
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.
Permanent book and tax basis differences relating to the recognition of
losses on paydowns of mortgage pool obligations totaling $453,042 were
reclassified from accumulated net realized gain/loss to accumulated
undistributed net investment income.
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, of .60% of the Fund's average daily net assets.
20
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
For the year ended September 30, 1998, the Fund recognized expenses of
approximately $3,700 representing legal services provided by Skadden, Arps,
Slate, Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the
Fund is an affiliated person.
For the year ended September 30, 1998, the Fund recognized expenses of
approximately $57,900 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. ("VKIS"), an affiliate of the Adviser,
serves as the shareholder servicing agent for the Fund. For the year ended
September 30, 1998, the Fund recognized expenses of approximately $211,800.
Beginning in 1998, the transfer agency fees are determined through negotiations
with the Fund's Board of Trustees and are based on competitive benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the retirement plan are payable for a ten-year period
and are based upon each trustee's years of service to the Fund. The maximum
annual benefit per Trustee under the plan is $2,500.
At September 30, 1998, VKAC owned 5,302 shares each of Classes A and B,
respectively, and 53 shares of Class C.
3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of shares of beneficial interest, Classes
A, B and C, each with a par value of $.01 per share. There are an unlimited
number of shares of each class authorized.
21
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
At September 30, 1998, capital aggregated $47,512,226, $131,430,907 and
$16,872,887 for Classes A, B and C, respectively. For the year ended September
30, 1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ----------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A................................. 1,317,193 $ 10,837,724
Class B................................. 1,103,881 9,096,177
Class C................................. 144,333 1,189,024
---------- ------------
Total Sales............................... 2,565,407 $ 21,122,925
========== ============
Dividend Reinvestment:
Class A................................. 106,644 $ 880,219
Class B................................. 315,137 2,598,342
Class C................................. 42,886 353,580
---------- ------------
Total Dividend Reinvestment............... 464,667 $ 3,832,141
========== ============
Repurchases:
Class A................................. (1,678,538) $(13,853,819)
Class B................................. (4,256,983) (35,039,788)
Class C................................. (522,127) (4,302,806)
---------- ------------
Total Repurchases......................... (6,457,648) $(53,196,413)
========== ============
</TABLE>
22
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
At September 30, 1997, capital aggregated $49,648,102, $154,776,176 and
$19,633,089 for Classes A, B and C, respectively. For the year ended September
30, 1997, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................... 414,895 $ 3,387,293
Class B.................................... 419,235 3,415,948
Class C.................................... 76,387 618,384
---------- ------------
Total Sales.................................. 910,517 $ 7,421,625
========== ============
Dividend Reinvestment:
Class A.................................... 141,435 $ 1,152,447
Class B.................................... 404,778 3,295,398
Class C.................................... 56,785 462,409
---------- ------------
Total Dividend Reinvestment.................. 602,998 $ 4,910,254
========== ============
Repurchases:
Class A.................................... (1,456,979) $(11,854,279)
Class B.................................... (4,563,587) (37,123,144)
Class C.................................... (753,064) (6,130,173)
---------- ------------
Total Repurchases............................ (6,773,630) $(55,107,596)
========== ============
</TABLE>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B shares will
automatically convert to Class A shares after the eighth year following
purchase. The CDSC will be imposed on most redemptions made within five years of
the purchase for Class B and one year of the purchase for Class C as detailed in
the following schedule.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
---------------------
YEAR OF REDEMPTION CLASS B CLASS C
- --------------------------------------------------------------------------
<S> <C> <C>
First.............................................. 4.00% 1.00%
Second............................................. 4.00% None
Third.............................................. 3.00% None
Fourth............................................. 2.50% None
Fifth.............................................. 1.50% None
Sixth and Thereafter............................... None None
</TABLE>
23
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
For the year ended September 30, 1998, Van Kampen, as Distributor for the
Fund, received commissions on sales of the Fund's Class A shares of
approximately $3,700 and CDSC on redeemed shares of approximately $200,700.
Sales charges do not represent expenses of the Fund.
4. INVESTMENT TRANSACTIONS
During the period, the cost of purchases and proceeds from sales of investments,
excluding short-term investments and forward commitment transactions, were
$363,541,858 and $381,926,180, respectively.
5. DERIVATIVE FINANCIAL INSTRUMENTS
A derivative financial instrument in very general terms refers to a security
whose value is "derived" from the value of an underlying asset, reference rate
or index.
The Fund has a variety of reasons to use derivative instruments, such as to
attempt to protect the Fund against possible changes in the market value of its
portfolio or generate potential gain. All of the Fund's portfolio holdings,
including derivative instruments, are marked to market each day with the change
in value reflected in unrealized appreciation/depreciation. Upon disposition, a
realized gain or loss is recognized accordingly, except when taking delivery of
a security underlying a futures contract or forward commitment. In these
instances, 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.
A. FUTURES CONTRACTS--A futures contract is an agreement involving the delivery
of a particular asset on a specified future date at an agreed upon price. The
Fund generally invests in exchange traded futures contracts on U.S. Treasury
Bonds and typically closes the contract prior to the delivery date. These
contracts are generally used to manage the portfolio's effective maturity and
duration.
Upon entering into futures contracts, the Fund maintains, in a segregated
account with its custodian, securities with a value equal to its obligation
under the futures contracts. During the period the futures contract is open,
payments are received from or made to the broker based upon changes in the value
of the contract (the variation margin). The potential risk of loss associated
with a futures contract is in excess of the variation margin reflected on the
Statement of Assets and Liabilities.
24
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
Transactions in futures contracts, each with a par value of $100,000, for
the year ended September 30, 1998, were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- -------------------------------------------------------------------
<S> <C>
Outstanding at September 30, 1997....................... 125
Futures Opened.......................................... 3,701
Futures Closed.......................................... (3,774)
------
Outstanding at September 30, 1998....................... 52
======
</TABLE>
The futures contracts outstanding as of September 30, 1998, and the
descriptions and unrealized appreciation/depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
CONTRACTS DEPRECIATION
- ------------------------------------------------------------------------
<S> <C> <C>
Long Contracts
10-Year U.S. Treasury Note Future, December
1998--
(Current Notional Value of $121,438 per
contract).................................. 46 $142,180
Short Contracts
5-Year U.S. Treasury Note Future, December
1998--
(Current Notional Value of $114,953 per
contract).................................. 6 (20,550)
-- --------
52 $121,630
== ========
</TABLE>
B. FORWARD COMMITMENTS--The Fund trades certain securities under the terms of
forward commitments, whereby the settlement occurs at a specific future date.
Forward commitments are privately negotiated transactions between the Fund and
dealers. While forward commitments are outstanding, the Fund maintains
sufficient collateral of cash or securities in a segregated account with its
custodian. Forward commitments are marked to market on a daily basis with
changes in value reflected as a component of unrealized
appreciation/depreciation. Purchasing securities on a forward commitment
involves a risk that the market value at the time of delivery may be lower than
the agreed upon purchase price resulting in an unrealized loss. This potential
for loss may be greater than the amount shown on the Statement of Assets and
Liabilities. Selling securities on a forward commitment involves different risks
and can result in losses more significant than those arising from the purchase
of such securities. The Fund's market exposure from these
25
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
positions is equal to the Current Value noted below. The following forward
commitments were outstanding as of September 30, 1998:
<TABLE>
<CAPTION>
PAR AMOUNT UNREALIZED
(000) DESCRIPTION CURRENT VALUE APPRECIATION
- --------------------------------------------------------------------------
<C> <S> <C> <C>
Long Contracts
$16,000 U.S. T-Note November Forward, $ 17,044,480 $ 34,480
8.875%
8,750 U.S. T-Note October Forward, 9,005,981 16,797
6.375%
7,000 FNMA October Forward, 7.00% 7,195,790 83,681
17,000 FNMA Dwarf November Forward, 15 17,354,705 147,830
Yr., 6.50%
5,000 FNMA Dwarf October Forward, 15 5,054,700 111,731
Yr., 6.00%
15,000 GNMA November Forward, 7.00% 15,464,025 135,900
------------ -----------
$ 71,119,681 $ 530,419
------------ -----------
</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 as a result of the potential inability of counterparties to meet the
terms of their contracts.
The following closed but unsettled forward transactions were outstanding at
September 30, 1998:
<TABLE>
<CAPTION>
NET
DESCRIPTION RECEIVABLE PAYABLE RECEIVABLE
- -------------------------------------------------------------------------
<S> <C> <C> <C>
$7,003,281 $ 6,921,250 $82,031
FNMA 15 Year October Dwarf
Forward, 6.00%.................
$5,459,176 $ 5,455,982 3,194
U.S. Treasury Note October
Forward, 6.50%.................
----------
$85,225
----------
</TABLE>
6. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
26
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998
- --------------------------------------------------------------------------------
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, 1998, are payments retained by Van Kampen of
approximately $960,500.
7. YEAR 2000 COMPLIANCE (UNAUDITED)
Van Kampen utilizes a number of computer programs across its entire operation
relying on both internal software systems as well as external software systems
provided by third parties. In 1996 Van Kampen initiated a CountDown 2000 Project
to review both the internal systems and external vendor connections. The goal of
this project is to position its business to continue unaffected as a result of
the century change. At this time, there can be no assurance that the steps taken
will be sufficient to avoid any adverse impact to the Fund, but Van Kampen does
not anticipate that the move to Year 2000 will have a material impact on its
ability to continue to provide the Fund with service at current levels. In
addition, it is possible that the securities markets in which the Fund invests
may be detrimentally affected by computer failures throughout the financial
services industry beginning January 1, 2000. Improperly functioning trading
systems may result in settlement problems and liquidity issues.
27
<PAGE> 29
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Van Kampen U.S. Government Trust for Income
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Van Kampen U.S. Government Trust
for Income (the "Fund") at September 30, 1998 and the results of its operations,
the changes in its net assets and the financial highlights for each of the
periods presented, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
September 30, 1998 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
November 6, 1998
28
<PAGE> 30
VAN KAMPEN U.S. GOVERNMENT TRUST FOR INCOME
BOARD OF TRUSTEES
J. MILES BRANAGAN
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
PAUL G. YOVOVICH
OFFICERS
DENNIS J. MCDONNELL*
President
RONALD A. NYBERG*
Vice President and Secretary
JOHN L. SULLIVAN*
Vice President, Treasurer and
Chief Financial Officer
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
PETER W. HEGEL*
PAUL R. WOLKENBERG*
EDWARD C. WOOD, III*
Vice Presidents
INVESTMENT ADVISER
VAN KAMPEN
ASSET MANAGEMENT INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
DISTRIBUTOR
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
P.O. Box 5555
Oakbrook Terrace, IL 60181-5555
SHAREHOLDER SERVICING AGENT
VAN KAMPEN INVESTOR SERVICES INC.
P.O. Box 418256
Kansas City, Missouri 64141-9256
CUSTODIAN
STATE STREET BANK
AND TRUST COMPANY
225 Franklin Street
P.O. Box 1713
Boston, Massachusetts 02105
LEGAL COUNSEL
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, Illinois 60606
INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
200 E. Randolph
Chicago, Illinois 60601
* "Interested" persons of the Fund, as defined in the
Investment Company Act of 1940.
(C) Van Kampen Funds Inc., 1998
All rights reserved.
(SM) denotes a service mark of
Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After March 31, 1999, the report, if used with prospective
investors, must be accompanied by a quarterly performance update.
29
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> U.S. GOV'T TR FOR INC A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998<F1>
<PERIOD-START> OCT-01-1997<F1>
<PERIOD-END> SEP-30-1998<F1>
<INVESTMENTS-AT-COST> 144,995,289<F1>
<INVESTMENTS-AT-VALUE> 147,626,788<F1>
<RECEIVABLES> 2,739,354<F1>
<ASSETS-OTHER> 17,411<F1>
<OTHER-ITEMS-ASSETS> 615,874<F1>
<TOTAL-ASSETS> 150,999,427<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 1,291,714<F1>
<TOTAL-LIABILITIES> 1,291,714<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 47,512,226
<SHARES-COMMON-STOCK> 4,420,846
<SHARES-COMMON-PRIOR> 4,675,547
<ACCUMULATED-NII-CURRENT> 178,742<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (49,570,597)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 3,283,548<F1>
<NET-ASSETS> 37,232,277
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 12,497,238<F1>
<OTHER-INCOME> 967,087<F1>
<EXPENSES-NET> (2,818,474)<F1>
<NET-INVESTMENT-INCOME> 10,645,851<F1>
<REALIZED-GAINS-CURRENT> (234,373)<F1>
<APPREC-INCREASE-CURRENT> 3,694,028<F1>
<NET-CHANGE-FROM-OPS> 14,105,506<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (2,579,681)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,317,193
<NUMBER-OF-SHARES-REDEEMED> (1,678,538)
<SHARES-REINVESTED> 106,644
<NET-CHANGE-IN-ASSETS> (1,070,375)
<ACCUMULATED-NII-PRIOR> (108,311)<F1>
<ACCUMULATED-GAINS-PRIOR> (49,789,266)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 969,854<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 2,818,474<F1>
<AVERAGE-NET-ASSETS> 38,637,039
<PER-SHARE-NAV-BEGIN> 8.193
<PER-SHARE-NII> 0.595
<PER-SHARE-GAIN-APPREC> 0.184
<PER-SHARE-DIVIDEND> (0.550)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 8.422
<EXPENSE-RATIO> 1.16
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> U.S. GOV'T TR FOR INC B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998<F1>
<PERIOD-START> OCT-01-1997<F1>
<PERIOD-END> SEP-30-1998<F1>
<INVESTMENTS-AT-COST> 144,995,289<F1>
<INVESTMENTS-AT-VALUE> 147,626,788<F1>
<RECEIVABLES> 2,739,354<F1>
<ASSETS-OTHER> 17,411<F1>
<OTHER-ITEMS-ASSETS> 615,874<F1>
<TOTAL-ASSETS> 150,999,427<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 1,291,714<F1>
<TOTAL-LIABILITIES> 1,291,714<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 131,430,907
<SHARES-COMMON-STOCK> 12,031,407
<SHARES-COMMON-PRIOR> 14,869,372
<ACCUMULATED-NII-CURRENT> 178,742<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (49,570,597)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 3,283,548<F1>
<NET-ASSETS> 101,204,627
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 12,497,238<F1>
<OTHER-INCOME> 967,087<F1>
<EXPENSES-NET> (2,818,474)<F1>
<NET-INVESTMENT-INCOME> 10,645,851<F1>
<REALIZED-GAINS-CURRENT> (234,373)<F1>
<APPREC-INCREASE-CURRENT> 3,694,028<F1>
<NET-CHANGE-FROM-OPS> 14,105,506<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (6,583,547)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,103,881
<NUMBER-OF-SHARES-REDEEMED> (4,256,983)
<SHARES-REINVESTED> 315,137
<NET-CHANGE-IN-ASSETS> (20,528,890)
<ACCUMULATED-NII-PRIOR> (108,311)<F1>
<ACCUMULATED-GAINS-PRIOR> (49,789,266)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 969,854<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 2,818,474<F1>
<AVERAGE-NET-ASSETS> 110,459,281
<PER-SHARE-NAV-BEGIN> 8.187
<PER-SHARE-NII> 0.529
<PER-SHARE-GAIN-APPREC> 0.186
<PER-SHARE-DIVIDEND> (0.490)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 8.412
<EXPENSE-RATIO> 1.93
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 13
<NAME> U.S. GOV'T TR FOR INC C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998<F1>
<PERIOD-START> OCT-01-1997<F1>
<PERIOD-END> SEP-30-1998<F1>
<INVESTMENTS-AT-COST> 144,995,289<F1>
<INVESTMENTS-AT-VALUE> 147,626,788<F1>
<RECEIVABLES> 2,739,354<F1>
<ASSETS-OTHER> 17,411<F1>
<OTHER-ITEMS-ASSETS> 615,874<F1>
<TOTAL-ASSETS> 150,999,427<F1>
<PAYABLE-FOR-SECURITIES> 0<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 1,291,714<F1>
<TOTAL-LIABILITIES> 1,291,714<F1>
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 16,872,887
<SHARES-COMMON-STOCK> 1,339,882
<SHARES-COMMON-PRIOR> 1,674,790
<ACCUMULATED-NII-CURRENT> 178,742<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (49,570,597)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> 3,283,548<F1>
<NET-ASSETS> 11,270,809
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 12,497,238<F1>
<OTHER-INCOME> 967,087<F1>
<EXPENSES-NET> (2,818,474)<F1>
<NET-INVESTMENT-INCOME> 10,645,851<F1>
<REALIZED-GAINS-CURRENT> (234,373)<F1>
<APPREC-INCREASE-CURRENT> 3,694,028<F1>
<NET-CHANGE-FROM-OPS> 14,105,506<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (742,528)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 144,333
<NUMBER-OF-SHARES-REDEEMED> (522,127)
<SHARES-REINVESTED> 42,886
<NET-CHANGE-IN-ASSETS> (2,439,332)
<ACCUMULATED-NII-PRIOR> (108,311)<F1>
<ACCUMULATED-GAINS-PRIOR> (49,789,266)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 969,854<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 2,818,474<F1>
<AVERAGE-NET-ASSETS> 12,453,530
<PER-SHARE-NAV-BEGIN> 8.186
<PER-SHARE-NII> 0.529
<PER-SHARE-GAIN-APPREC> 0.187
<PER-SHARE-DIVIDEND> (0.490)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 8.412
<EXPENSE-RATIO> 1.93
<AVG-DEBT-OUTSTANDING> 0<F1>
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>
This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
