<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................... 1
Economic Snapshot................................ 2
Performance Results.............................. 3
Performance in Perspective....................... 4
Portfolio Management Review...................... 5
Glossary of Terms................................ 8
Portfolio Highlights............................. 9
Portfolio of Investments......................... 10
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>
NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE.
<PAGE> 2
LETTER TO SHAREHOLDERS
October 20, 1999
Dear Shareholder,
With the volatility that we've experienced recently in many financial
markets, some investors have sold securities because of uncertainty about where
the markets were going, only to be left rethinking whether they made the right
decision. We've witnessed this kind of market activity numerous times over the
past several years, sparked by concerns such as the impact of the Asian economic
crisis, high stock valuations, or, most recently, the stability of many
high-flying technology companies. While these fears eventually subsided,
investors who may have sold during this period were unable to reap the benefits
of the subsequent rally. That's partly because most of the recent big gains
happened in relatively short periods of time. This kind of volatility--and the
danger of making short-term decisions--highlights the importance of investing
for the long term, in accordance with your individual financial objectives.
Although the Asian crisis appears to be behind us, new concerns are always
emerging. In the coming months, we'll likely hear more about how the year 2000
computer problem may affect the markets or that we're overdue for a correction.
While the markets could undoubtedly suffer as a result of these or any number of
other events, we encourage you to focus on your long-term investment goals.
Although nothing is certain, history has shown us that over time, the markets
tend to recover--and most investors want to be positioned to take advantage of
any recovery.
If you have concerns about market volatility or questions about how your
portfolio is structured to respond to these events, we encourage you to contact
your financial advisor. Your advisor can talk with you about sustaining a
long-term investment plan through a variety of market conditions. We hope that
Van Kampen Funds will play an important role as you and your advisor build a
portfolio designed to help you weather what the markets have in store.
Sincerely,
[SIG]
Richard F. Powers, III
Chairman
Van Kampen Asset Management Inc.
[SIG]
Dennis J. McDonnell
President
Van Kampen Asset Management Inc.
1
<PAGE> 3
ECONOMIC SNAPSHOT
ECONOMIC GROWTH
Americans continued their spending spree, keeping the economy growing at a
healthy pace. High levels of consumer confidence fueled this heavy retail
purchasing activity, pushing the personal savings rate down to a record low as
spending rates outpaced income growth. Although we experienced a slowdown during
the second quarter of 1999, economic growth accelerated toward the end of the
reporting period. The growth rate of the nation's gross domestic product (GDP)
dipped to 1.6 percent for the second quarter of 1999, but climbed back up to 4.8
percent in the third quarter.
EMPLOYMENT SITUATION
The strong job market helped to support the health of the economy. During
the reporting period, the unemployment rate reached its lowest level in almost
30 years, and wages continued to climb. The wage pressures were balanced
somewhat by productivity gains, but they ultimately pushed the cost of labor
higher, as evidenced by the sharp jump in the Employment Cost Index in the
second quarter of 1999.
INFLATION AND INTEREST RATES
Inflation remained tame throughout most of the reporting period, although a
sharp increase in oil prices contributed to a spike in April's consumer price
index (CPI) report. The Federal Reserve remained active in guarding against
inflation and tempering the economy during this environment. The Fed reversed
two of its interest rate cuts from the fall of 1998, raising rates in June and
August 1999 to keep the economy from overheating.
INTEREST RATES AND INFLATION
September 30, 1997, through September 30, 1999
<TABLE>
<CAPTION>
INTEREST RATES INFLATION
-------------- ---------
<S> <C> <C>
Sep 1997 5.5000 2.2000
6.2500 2.2000
5.7500 2.1000
Dec 1997 5.6875 1.8000
6.5000 1.7000
5.5625 1.6000
Mar 1998 5.6250 1.4000
6.1250 1.4000
5.6250 1.4000
Jun 1998 5.6875 1.7000
6.0000 1.7000
5.5625 1.7000
Sep 1998 5.9375 1.6000
5.7500 1.5000
5.2500 1.5000
Dec 1998 4.8750 1.5000
4.0000 1.6000
4.8125 1.7000
Mar 1999 4.8750 1.6000
5.1250 1.7000
4.9375 2.3000
Jun 1999 4.5000 2.1000
4.0000 2.0000
4.7500 2.1000
Sep 1999 5.4375 2.3000
</TABLE>
Interest rates are represented by the closing midline federal funds rate
on the last day of each month. Inflation is indicated by the annual
percent change of the Consumer Price Index for all urban consumers at
the end of each month.
2
<PAGE> 4
PERFORMANCE RESULTS FOR THE PERIOD ENDED SEPTEMBER 30, 1999
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).... (1.34%) (2.07%) (2.07%)
One-year total return(2)................. (6.03%) (5.76%) (3.00%)
Five-year average annual total
return(2).............................. 5.10% 5.10% 5.33%
Life-of-Fund average annual total
return(2).............................. 4.25%(3) 4.25%(3) 3.69%
Commencement date........................ 10/06/92 10/06/92 04/12/93
DISTRIBUTION RATE AND YIELD
Distribution rate(4)..................... 6.40% 5.95% 5.95%
SEC Yield(5)............................. 4.79% 4.27% 4.28%
</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, 1999.
See the Comparative 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 when due, on specific
securities in the Fund's portfolio, not to shares of the Fund. The value of debt
securities will fluctuate with changes in market conditions and interest rates,
which will effect the value of Fund shares. Securities which are issued by
private issuers involve greater risk than those issued directly by the U.S.
Government.
Market forecasts provided in this report may not necessarily come to pass.
3
<PAGE> 5
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.
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
Van Kampen U.S. Government Trust for Income Fund vs. the Merrill Lynch
Intermediate-Term U.S. Government Index (November 2, 1992 through September
30, 1999)
[INVESTMENT PERFORMANCE GRAPH]
- --------------------------------
Fund's Total Return
1 Year Total Return = -6.03%
5 Year Avg. Annual = 5.10%
Inception Avg. Annual = 4.25%
- --------------------------------
<TABLE>
<CAPTION>
VAN KAMPEN U.S. GOVERNMENT TRUST MERRILL LYNCH INTERMEDIATE-TERM U.S.
FOR INCOME FUND GOVERNMENT INDEX
-------------------------------- ------------------------------------
<S> <C> <C>
Nov 1992 9492 10000
9651 10128
9835 10312
9968 10466
9984 10508
10087 10592
10018 10564
10144 10710
10159 10734
10262 10895
Sep 1993 10296 10944
10320 10965
10254 10915
10297 10959
10447 11087
10244 10914
9970 10766
9858 10693
9839 10703
9831 10710
10014 10844
10019 10880
Sep 1994 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 1995 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 1996 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 1997 12301 13539
12446 13695
12485 13727
12601 13643
12779 14026
12742 14026
12767 14060
12808 14123
12896 14219
12982 14317
13006 14374
13268 14648
Sep 1998 13516 14983
13443 15013
13435 14960
13464 15021
13521 15094
13333 14872
13407 14981
13432 15029
13323 14930
13265 14948
13203 14953
13192 14976
Sep 1999 13334 15105
</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
PORTFOLIO MANAGEMENT REVIEW
VAN KAMPEN U.S. GOVERNMENT TRUST FOR INCOME
We recently spoke with the portfolio manager 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. Ted V. Mundy, portfolio manager, has managed
the Fund since June 1994 and worked in the investment industry since 1987. He is
joined by Peter W. Hegel, chief investment officer for fixed-income investments.
The following excerpts reflect their views on the Fund's performance for the
fiscal year ended September 30, 1999.
Q DESCRIBE THE ENVIRONMENT IN WHICH THE FUND OPERATED DURING THE LAST 12
MONTHS.
A The fourth quarter of 1998 was marked by a series of interest-rate cuts by
the Federal Reserve Board, implemented to restore order to a volatile
market. This intervention paved the way for recovery in the first quarter
of 1999, as investors gained confidence in the strength of the economy and
inflation remained moderate. Consequently, yield spreads narrowed between
Treasuries and other types of bonds, including mortgage-backed securities.
However, the good news for the fixed-income market was quelled in the second
quarter, as investors became distracted by expectations of rising inflation,
warnings of additional action by the Fed, and concerns relating to the year 2000
problem. These developments prompted interest rates to rise and yield spreads to
widen, although not to the record-high levels seen last fall. The market
breathed a sigh of relief at the end of the second quarter, as the Fed announced
a 0.25 percent rate hike.
By the beginning of August, rumblings of another rate hike were again
triggered by indications of a further increase in inflation and a strengthening
economy. At its late August meeting, the Fed boosted the federal funds rate a
second time, to 5.25 percent. Bond prices grew erratic at the possibility of a
third increase by the end of the year, and declined for most of September.
However, a slide in the stock market and reports of slowing economic growth
provided a boost for bonds in the final days of the reporting period.
Q WHAT HAPPENED TO MORTGAGE-BACKED SECURITIES DURING THIS TIME?
A As described above, yield spreads between mortgage-backed securities and
Treasuries began widening in the second quarter, indicating that
mortgage-backed securities were underperforming Treasuries. As the summer
unfolded, this trend accelerated due to growing concerns about the impact of the
year 2000 problem. In the middle of the third quarter, investors widely expected
issuers to bring record-high levels of new corporate and high-yield bonds to the
market in September in an effort to preclude any problems with liquidity or
investor demand toward the end of the year. Predictions of as much as $30
billion of new issuance in one month widened spreads between Treasuries and
bonds, including mortgage-backed securities. However, less than
5
<PAGE> 7
$500 million was issued by the end of the month--an amount that the market was
clearly capable of handling. As investor fears subsided, spreads narrowed and
mortgage-backed securities began to recuperate.
Despite the volatility between mortgage-backed securities and Treasuries
during the summer months, general yield spreads were contained in a range of
approximately 125 to 185 basis points. In addition, the low prices for
mortgage-backed securities, reflecting lower mortgage prepayment rates,
presented excellent opportunities to investors interested in the sector. The
sector was further encouraged by a Fed announcement that, through April of next
year, mortgage-backed securities will be accepted as collateral to facilitate
liquidity into the year 2000. As a result, we expect to see higher demand for
these securities in the coming months.
Q WHAT WERE YOUR STRATEGIES FOR MANAGING THE PORTFOLIO DURING THIS PERIOD?
A In March, we decided to reduce the Fund's long-term investments in
mortgage-backed securities from 78 percent to 61 percent due to narrowing
spreads between these securities and Treasuries. Although spreads widened
again in the second quarter, we believed that we were in a good position to take
advantage of future tightening, so we maintained our exposure to mortgage-backed
securities and increased it just slightly to 62 percent. This strategy benefited
the Fund in the last month of the reporting period, as spreads began to tighten
and the sector began to outperform.
Within this sector, we maintained a focus on GNMAs with 7.5 percent coupons.
Early in the year, we shifted from FNMAs with 6.5 percent coupons to these
higher coupons, which became more attractive as interest rates rose and the risk
of prepayments declined. We also maintained a position in non-agency
mortgage-backed securities. These longer-term securities tend to benefit from
spread tightening more than agency-issued pass-through securities such as GNMAs
and FNMAs.
Finally, our allocation to five-year Treasuries, benefited the Fund as the
short end of the yield curve flattened through the last six months of the
period. However, our slightly higher allocation to mortgage-backed securities
elevated the portfolio duration to 4.9 years, approximately 0.3 years longer
than the benchmark index and 1.0 years longer than the Fund's duration in March.
In hindsight, the Fund might have benefited from a lower duration in the second
quarter of 1999, but we were pleased with the Fund's profile at the end of the
period. For additional Fund portfolio highlights, please refer to page 9.
Q HOW DID THE FUND PERFORM AS A RESULT?
A For the 12-month period ended September 30, 1999, the U.S. Government
Trust for Income generated a total return of -1.34 percent(1) (Class A
shares at net asset value). By comparison, the Merrill Lynch
Intermediate-Term Government Index posted a total return of 0.82 percent for the
same period. This broad-based, unmanaged index measures the market performance
of government securities with maturities between one and ten years.
6
<PAGE> 8
Although the Fund's dividend was decreased in July 1999, the Fund continues
to provide shareholders with a competitive monthly dividend of $0.0435 per Class
A share. The Fund's current distribution rate of 6.40 percent(4) is based upon
the maximum offering price as of September 30, 1999. Past performance does not
guarantee future performance. Please refer to the chart and footnotes on page 3
for additional Fund performance results.
Q THAT IS YOUR OUTLOOK FOR THE MONTHS AHEAD?
A Although it was tempting to reduce the portfolio's allocation to
mortgage-backed securities in the second quarter of 1999, we're glad we
held the position steady--and we will now look for opportunities to
increase our weighting in this sector. We still see value in the mortgage market
and believe that it will be buoyed by increased demand around the end of the
year. Taking this perspective, we'll continue to emphasize mortgages with
reliable structures in order to support the Fund's income stream without risking
our ability to participate in market rallies.
Of course, we will continue to keep a close eye on the changing yield
spreads between Treasuries and other fixed-income securities, but we expect the
trend in yield spreads to be favorable. Our ongoing evaluation of the
relationship between mortgages and Treasuries should help us maintain an optimal
balance between the two sectors in the Fund's portfolio.
[SIG.]
Ted V. Mundy
Portfolio Manager
[SIG.]
Peter W. Hegel
Chief Investment Officer
Fixed Income Investments
7
<PAGE> 9
GLOSSARY OF TERMS
DURATION: A measure of the sensitivity of a bond's price to changes in interest
rates, expressed in years. Each year of duration represents an expected 1
percent change in the price of a bond for every 1 percent change in interest
rates. The longer a bond's duration, the greater the effect of interest rate
movements on net asset value. Typically, funds with shorter durations
perform better in rising rate environments, while funds with longer
durations perform better when rates decline.
FEDERAL RESERVE BOARD (THE FED): The governing body of the Federal Reserve
System, which is the central bank system of the United States. Its
policy-making committee, called the Federal Open Market Committee, meets
eight times a year to establish monetary policy and monitor the economic
pulse of the United States.
INFLATION: A persistent and measurable rise in the general level of prices.
Inflation is widely measured by the Consumer Price Index, an economic
indicator that measures the change in the cost of purchased goods and
services.
MORTGAGE-BACKED SECURITIES: Securities backed by pools of similar mortgages.
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").
YIELD: The annual rate of return on an investment, expressed as a percentage.
YIELD CURVE: A result of viewing the yields of U.S. Treasury securities maturing
in 1, 5, 10, and 30 years. When grouped together and graphed, a pattern of
increasing yield is often reflected as the time to maturity extends. This
pattern creates an upward sloping "curve." A "flat" yield curve represents
little difference between short- and long-term interest rates.
YIELD SPREAD: The additional yield investors can earn by either investing in
bonds with longer maturities or by investing in bonds with lower ratings.
The spread is the difference in yield between bonds with short versus long
maturities or the difference in yield between high-quality bonds and
lower-quality bonds.
8
<PAGE> 10
PORTFOLIO HIGHLIGHTS
VAN KAMPEN U.S. GOVERNMENT TRUST FOR INCOME FUND
DIVIDEND HISTORY
FOR THE PERIOD ENDED SEPTEMBER 30, 1999
[BAR GRAPH]
<TABLE>
<CAPTION>
DIVIDEND
--------
<S> <C>
Oct 1998 0.0450
Nov 1998 0.0450
Dec 1998 0.0450
Jan 1999 0.0450
Feb 1999 0.0450
Mar 1999 0.0450
Apr 1999 0.0450
May 1999 0.0450
Jun 1999 0.0450
Jul 1999 0.0435
Aug 1999 0.0435
Sep 1999 0.0435
</TABLE>
The dividend history represents past performance of the Fund's Class A shares
and does not predict the Fund's future distributions.
ASSET ALLOCATION AS A PERCENTAGE OF LONG-TERM INVESTMENTS
[BAR GRAPH]
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
GNMA 15.60 19.20
FNMA 13.80 14.40
Treasury/Agency 46.30 45.80
CMO 10.20 3.10
FHLMC 7.30 11.40
Asset Backed 6.80 6.10
</TABLE>
COUPON DISTRIBUTION AS A PERCENTAGE OF LONG-TERM INVESTMENTS
[BAR GRAPH]
<TABLE>
<CAPTION>
<S> <C>
5-5.9 20.30
6-6.9 15.80
7-7.9 11.50
8-8.9 11.60
9-9.9 7.00
10 OR MORE 33.80
</TABLE>
9
<PAGE> 11
PORTFOLIO OF INVESTMENTS
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ASSET-BACKED
SECURITIES 7.4%
$ 3,444 Norwest Asset Securities
Corp., Series 1997-19
(a)........................ 7.250% 12/25/27 $ 3,244,072
5,602 Pacific America Home Equity
Loan (a)................... 5.916 12/25/27 5,584,626
------------
TOTAL ASSET-BACKED SECURITIES................................ 8,828,698
------------
COLLATERALIZED MORTGAGE OBLIGATIONS 11.0%
6,932 Residential Funding
Mortgage Securities
Investment, Series 1998-S20
M1 (a)..................... 6.750 09/25/28 6,444,504
7,351 Residential Funding
Mortgage Securities
Investment, Series 1999-S2
M1 (a)..................... 6.500 01/25/29 6,702,970
------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS.................... 13,147,474
------------
UNITED STATES GOVERNMENT AGENCY OBLIGATIONS 39.6%
7,540 Federal Home Loan Mortgage
Corp. Gold 30 Year Pool
(a)........................ 6.500 02/01/26 to 05/01/26 7,287,620
2,234 Federal Home Loan Mortgage
Corp. CMO, Series 1992-FB
(a)........................ 5.588 09/15/27 2,236,793
5,440 Federal National Mortgage
Association CMO, Series
94-87F (a)................. 5.638 03/25/09 5,453,210
11,000 Federal National Mortgage
Association Medium Term
Note (a)................... 11.875 05/19/00 11,416,570
906 Federal National Mortgage
Association Pool (a)....... 8.500 01/01/22 to 09/01/24 939,514
11,609 Government National
Mortgage Association Pool
(a)........................ 7.500 06/15/28 to 09/15/28 11,663,717
2,603 Government National
Mortgage Association Pool
(a)........................ 8.000 11/15/21 to 08/15/24 2,666,994
2,960 Government National
Mortgage Association Pool
(a)........................ 8.500 12/15/17 3,110,616
2,549 Government National
Mortgage Association Pool
(a)........................ 9.000 03/15/18 to 12/15/19 2,694,542
------------
TOTAL UNITED STATES GOVERNMENT AGENCY OBLIGATIONS............ 47,469,576
------------
UNITED STATES TREASURY OBLIGATIONS 50.0%
6,000 United States Treasury
Bonds (a).................. 13.125 05/15/01 6,686,520
</TABLE>
See Notes to Financial Statements
10
<PAGE> 12
PORTFOLIO OF INVESTMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ---------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 3,300 United States Treasury
Bonds...................... 8.750% 05/15/17 $ 4,087,215
5,000 United States Treasury
Bonds...................... 9.000 11/15/18 6,378,200
4,000 United States Treasury
Notes...................... 8.000 05/15/01 4,144,560
13,000 United States Treasury
Notes...................... 5.500 08/31/01 12,970,490
22,000 United States Treasury
Notes...................... 11.625 11/15/02 25,568,840
------------
TOTAL UNITED STATES TREASURY OBLIGATIONS..................... 59,835,825
------------
TOTAL LONG-TERM INVESTMENTS 108.0%
(Cost $135,551,252).................................................. 129,281,573
REPURCHASE AGREEMENT 0.8%
State Street Bank & Trust Corp. ($1,010,000 par collateralized by U.S.
Government obligations in a pooled cash account, dated 09/30/99, to be
sold on 10/01/99 at $1,010,140)........................................ 1,010,000
------------
TOTAL INVESTMENTS 108.8%
(Cost $136,561,252).................................................. 130,291,573
LIABILITIES IN EXCESS OF OTHER ASSETS (8.8%).......................... (10,558,667)
------------
NET ASSETS 100.0%..................................................... $119,732,906
============
</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, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $136,561,252)....................... $130,291,573
Cash........................................................ 3,473
Receivables:
Interest.................................................. 2,522,450
Investments Sold.......................................... 301,547
Fund Shares Sold.......................................... 167,758
Forward Commitments......................................... 411,726
Other....................................................... 20,764
------------
Total Assets.......................................... 133,719,291
------------
LIABILITIES:
Payables:
Investments Purchased..................................... 13,042,757
Income Distributions...................................... 406,947
Fund Shares Repurchased................................... 172,865
Distributor and Affiliates................................ 110,396
Investment Advisory Fee................................... 59,696
Variation Margin on Futures............................... 13,656
Accrued Expenses............................................ 95,167
Trustees' Deferred Compensation and Retirement Plans........ 84,901
------------
Total Liabilities..................................... 13,986,385
------------
NET ASSETS.................................................. $119,732,906
============
NET ASSETS CONSIST OF:
Capital (Par value of $.01 per share with an unlimited
number of shares authorized).............................. $177,107,271
Accumulated Undistributed Net Investment Income............. 147,133
Net Unrealized Depreciation................................. (5,872,538)
Accumulated Net Realized Loss............................... (51,648,960)
------------
NET ASSETS.................................................. $119,732,906
============
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $69,191,221 and 8,907,537 shares of
beneficial interest issued and outstanding)............. $ 7.77
Maximum sales charge (4.75%* of offering price)......... .39
------------
Maximum offering price to public........................ $ 8.16
============
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $40,446,130 and 5,213,567 shares of
beneficial interest issued and outstanding)............. $ 7.76
============
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $10,095,555 and 1,301,272 shares of
beneficial interest issued and outstanding)............. $ 7.76
============
</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, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $ 10,720,315
Fee Income.................................................. 299,922
------------
Total Income............................................ 11,020,237
------------
EXPENSES:
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $124,498, $757,445 and $110,261,
respectively)............................................. 992,204
Investment Advisory Fee..................................... 823,170
Shareholder Services........................................ 214,245
Custody..................................................... 31,555
Trustees' Fees and Related Expenses......................... 23,853
Legal....................................................... 10,380
Other....................................................... 218,260
------------
Total Expenses.......................................... 2,313,667
Less Credits Earned on Cash Balances.................... 9,020
------------
Net Expenses............................................ 2,304,647
------------
NET INVESTMENT INCOME....................................... $ 8,715,590
============
REALIZED AND UNREALIZED GAIN/LOSS:
Realized Gain/Loss:
Investments............................................... $ (393,276)
Futures................................................... (455,879)
Forward Commitments....................................... (1,446,752)
------------
Net Realized Loss........................................... (2,295,907)
------------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................... 3,283,548
------------
End of the Period:
Investments............................................. (6,269,679)
Futures................................................. (14,585)
Forward Commitments..................................... 411,726
------------
(5,872,538)
------------
Net Unrealized Depreciation During the Period............... (9,156,086)
------------
NET REALIZED AND UNREALIZED LOSS............................ $(11,451,993)
============
NET DECREASE IN NET ASSETS FROM OPERATIONS.................. $ (2,736,403)
============
</TABLE>
See Notes to Financial Statements
13
<PAGE> 15
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended September 30, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
September 30, 1999 September 30, 1998
- ---------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income.......................... $ 8,715,590 $10,645,851
Net Realized Loss.............................. (2,295,907) (234,373)
Net Unrealized Appreciation/Depreciation During
the Period................................... (9,156,086) 3,694,028
------------ ------------
Change in Net Assets from Operations........... (2,736,403) 14,105,506
------------ ------------
Distributions from Net Investment Income:
Class A Shares............................... (3,378,179) (2,579,681)
Class B Shares............................... (4,495,665) (6,583,547)
Class C Shares............................... (655,811) (742,528)
------------ ------------
(8,529,655) (9,905,756)
------------ ------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES................................... (11,266,058) 4,199,750
------------ ------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold...................... 81,626,150 21,122,925
Net Asset Value of Shares Issued Through
Dividend Reinvestment........................ 3,442,192 3,832,141
Cost of Shares Repurchased..................... (103,777,091) (53,196,413)
------------ ------------
NET CHANGE IN NET ASSETS FROM CAPITAL
TRANSACTIONS................................. (18,708,749) (28,241,347)
------------ ------------
TOTAL DECREASE IN NET ASSETS................... (29,974,807) (24,041,597)
NET ASSETS:
Beginning of the Period........................ 149,707,713 173,749,310
------------ ------------
End of the Period (Including accumulated
undistributed
net investment income of $147,133 and
$178,742, respectively)...................... $119,732,906 $149,707,713
============ ============
</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 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................ $ 8.422 $8.193 $8.108 $ 8.38 $ 8.17
------- ------ ------ ------ ------
Net Investment Income........... .540 .595 .567 .565 .63
Net Realized and Unrealized
Gain/Loss..................... (.656) .184 .073 (.274) .23
------- ------ ------ ------ ------
Total from Investment
Operations...................... (.116) .779 .640 .291 .86
------- ------ ------ ------ ------
Less:
Distributions from Net
Investment Income............. .538 .550 .555 .563 .645
Distributions from Net Realized
Gain.......................... -0- -0- -0- -0- .005
------- ------ ------ ------ ------
Total Distributions............... .538 .550 .555 .563 .65
------- ------ ------ ------ ------
Net Asset Value, End of the
Period.......................... $ 7.768 $8.422 $8.193 $8.108 $ 8.38
======= ====== ====== ====== ======
Total Return (a).................. (1.34%) 9.87% 8.09% 3.57% 10.97%
Net Assets at End of the Period
(In millions)................... $ 69.2 $ 37.2 $ 38.3 $ 45.2 $ 70.2
Ratio of Expenses to Average Net
Assets (b)...................... 1.22% 1.16% 1.18% 1.13% 1.09%
Ratio of Net Investment Income to
Average Net Assets.............. 6.88% 7.19% 6.95% 6.83% 7.67%
Portfolio Turnover................ 85% 217% 82% 282% 262%
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) The Ratio of Expenses to Average Net Assets does not reflect credits earned
on overnight cash balances. If these credits were reflected as a reduction
of expenses, the ratio would decrease by .01% for the period ended September
30, 1999.
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 1999 (c) 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period................................... $ 8.412 $8.187 $8.104 $ 8.38 $ 8.17
------- ------ ------ ------ ------
Net Investment Income.................. .490 .529 .505 .504 .57
Net Realized and Unrealized
Gain/Loss............................ (.666) .186 .073 (.277) .228
------- ------ ------ ------ ------
Total from Investment Operations......... (.176) .715 .578 .227 .798
------- ------ ------ ------ ------
Less:
Distributions from Net Investment
Income............................... .478 .490 .495 .503 .583
Distributions from Net Realized Gain... -0- -0- -0- -0- .005
------- ------ ------ ------ ------
Total Distributions...................... .478 .490 .495 .503 .588
------- ------ ------ ------ ------
Net Asset Value, End of the Period....... $ 7.758 $8.412 $8.187 $8.104 $ 8.38
======= ====== ====== ====== ======
Total Return (a)......................... (2.07%) 8.96% 7.43% 2.70% 10.14%
Net Assets at End of the Period
(In millions).......................... $ 40.4 $101.2 $121.7 $150.8 $200.2
Ratio of Expenses to Average Net
Assets (b)............................. 1.96% 1.93% 1.94% 1.89% 1.85%
Ratio of Net Investment Income to Average
Net Assets............................. 6.05% 6.40% 6.20% 6.08% 6.92%
Portfolio Turnover....................... 85% 217% 82% 282% 262%
</TABLE>
(a) Total Return is based upon net asset value which does not include payment of
the maximum sales charge or a contingent deferred sales charge.
(b) The Ratio of Expenses to Average Net Assets does not reflect credits earned
on overnight cash balances. If these credits were reflected as a reduction
of expenses, the ratio would decrease by .01% for the period ended September
30, 1999.
(c) Based on average shares outstanding.
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 1999 (c) 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of the
Period............................. $8.412 $8.186 $8.104 $ 8.38 $ 8.17
------ ------ ------ ------ ------
Net Investment Income............ .489 .529 .503 .502 .57
Net Realized and Unrealized
Gain/Loss...................... (.665) .187 .074 (.275) .228
------ ------ ------ ------ ------
Total from Investment Operations... (.176) .716 .577 .227 .798
------ ------ ------ ------ ------
Less:
Distributions from Net Investment
Income......................... .478 .490 .495 .503 .583
Distributions from Net Realized
Gain........................... -0- -0- -0- -0- .005
------ ------ ------ ------ ------
Total Distributions................ .478 .490 .495 .503 .588
------ ------ ------ ------ ------
Net Asset Value, End of the
Period........................... $7.758 $8.412 $8.186 $8.104 $ 8.38
====== ====== ====== ====== ======
Total Return (a)................... (2.07%) 8.96% 7.43% 2.70% 10.14%
Net Assets at End of the Period (In
millions)........................ $ 10.1 $ 11.3 $ 13.7 $ 18.6 $ 28.1
Ratio of Expenses to Average Net
Assets (b)....................... 1.97% 1.93% 1.94% 1.89% 1.85%
Ratio of Net Investment Income to
Average Net Assets............... 6.08% 6.41% 6.20% 6.08% 6.94%
Portfolio Turnover................. 85% 217% 82% 282% 262%
</TABLE>
(a) Total return is based upon net asset value which does not include payment of
the maximum sales charge or a contingent deferred sales charge.
(b) The Ratio of Expenses to Average Net Assets does not reflect credits earned
on overnight cash balances. If these credits were reflected as a reduction
of expenses, the ratio would decrease by .01% for the period ended September
30, 1999.
(c) Based on average shares outstanding.
See Notes to Financial Statements
17
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen 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 based on
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
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, 1999, 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
18
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
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. Certain forward commitments are entered into with
the intent of recognizing fee income which results from the difference between
the price of a forward settlement security versus the current cash settlement
price of the same security. Upon the closing of these forward commitments, this
income is recognized and is shown as fee income on the Statement of Operations.
The Fund may invest in repurchase agreements, which are short-term
investments in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the security at a future time and specified price.
The Fund may invest independently in repurchase agreements, or transfer
uninvested cash balances into a pooled cash account along with other investment
companies advised by Van Kampen Asset Management Inc. (the "Adviser") or its
affiliates, the daily aggregate of which is invested in repurchase agreements.
Repurchase agreements are fully collateralized by the underlying debt security.
The Fund will make payment for such securities only upon physical delivery or
evidence of book entry transfer to the account of the custodian bank. The seller
is required to maintain the value of the underlying security at not less than
the repurchase proceeds due the Fund.
C. INCOME AND EXPENSES--Interest income is recorded on an accrual basis.
Original issue discount is amortized over the expected life of each applicable
security. Premiums on debt securities are not amortized. 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, 1999, for federal income tax purposes, cost of long- and
short-term investments is $136,561,252, the aggregate gross unrealized
appreciation is
19
<PAGE> 21
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
$463,577 and the aggregate gross unrealized depreciation is $6,733,256,
resulting in net unrealized depreciation on long- and short-term investments of
$6,269,679.
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry a realized capital loss forward for eight years following the
year of the loss and offset these losses against any future realized capital
gains. At September 30, 1999, the Fund had an accumulated capital loss
carryforward for tax purposes of $49,043,409 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,
1999.
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. In January, 2000, the Fund will
provide tax information to shareholders for the 1999 calendar year.
Due to inherent differences in the recognition of income, expenses and
realized gains/losses under generally accepted accounting principles and federal
income tax purposes, permanent differences between book and tax basis reporting
have been identified and appropriately reclassified. During 1999, permanent book
and tax basis differences relating to the recognition of net realized losses on
paydowns of mortgage pool obligations totaling $217,544 were reclassified from
accumulated undistributed net investment income to accumulated net realized
loss.
F. EXPENSE REDUCTIONS--During the year ended September 30, 1999, the Fund's
custody fee was reduced by $9,020 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, of .60% of the Fund's average daily net assets.
For the year ended September 30, 1999, the Fund recognized expenses of
approximately $10,400 representing legal services provided by Skadden, Arps,
Slate,
20
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
Meagher & Flom (Illinois), counsel to the Fund, of which a trustee of the Fund
is an affiliated person.
For the year ended September 30, 1999, the Fund recognized expenses of
approximately $71,100 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, 1999, the Fund recognized expenses of approximately $141,500.
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.
21
<PAGE> 23
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
3. CAPITAL TRANSACTIONS
At September 30, 1999, capital aggregated $83,464,706, $77,049,994 and
$16,592,571 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.................................... 8,393,826 $ 66,973,779
Class B.................................... 1,471,020 12,001,267
Class C.................................... 324,468 2,651,104
----------- -------------
Total Sales.................................. 10,189,314 $ 81,626,150
=========== =============
Dividend Reinvestment:
Class A.................................... 165,012 $ 1,314,796
Class B.................................... 222,640 1,795,593
Class C.................................... 41,347 331,803
----------- -------------
Total Dividend Reinvestment.................. 428,999 $ 3,442,192
=========== =============
Repurchases:
Class A.................................... (4,072,147) $ (32,336,095)
Class B.................................... (8,511,500) (68,177,773)
Class C.................................... (404,425) (3,263,223)
----------- -------------
Total Repurchases............................ (12,988,072) $(103,777,091)
=========== =============
</TABLE>
22
<PAGE> 24
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
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>
Class B and C shares are offered without a front end sales charge, but are
subject to a contingent deferred sales charge (CDSC). Class B shares purchased
on or after June 1, 1996 will automatically convert to Class A shares after the
eighth year following purchase. Class B shares purchased before June 1, 1996
automatically convert to Class A shares after the sixth year following purchase.
For the year ended September 30, 1999, 4,729,905 Class B shares automatically
converted to Class A shares and are shown in the above table. Class C shares
purchased on or after January 1, 1997 do not convert to Class A shares. Class C
shares purchased before January 1, 1997, automatically convert to Class A shares
after the tenth year following purchase. For the year ended September 30, 1999,
no Class C shares converted to Class A shares. The CDSC will be
23
<PAGE> 25
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
imposed on most redemptions made within five years of the purchase for Class B
and one year of the purchase for Class C as detailed in the following schedule.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
--------------------------
YEAR OF REDEMPTION CLASS B CLASS C
- ---------------------------------------------------------------------------
<S> <C> <C>
First........................................ 4.00% 1.00%
Second....................................... 4.00% None
Third........................................ 3.00% None
Fourth....................................... 2.50% None
Fifth........................................ 1.50% None
Sixth and Thereafter......................... None None
</TABLE>
For the year ended September 30, 1999, Van Kampen, as Distributor for the
Fund, received commissions on sales of the Fund's Class A shares of
approximately $7,200 and CDSC on redeemed shares of approximately $81,400. 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,
including paydowns on mortgage backed securities, and excluding short-term
investments and forward commitment transactions, were $114,385,062 and
$122,120,745, 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.
24
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
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, 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, each with a par value of $100,000, for
the year ended September 30, 1999, were as follows:
<TABLE>
<CAPTION>
CONTRACTS
- -----------------------------------------------------------------------
<S> <C>
Outstanding at September 30, 1998......................... 52
Futures Opened............................................ 2,647
Futures Closed............................................ (2,661)
------
Outstanding at September 30, 1999......................... 38
======
</TABLE>
The futures contracts outstanding as of September 30, 1999, and the
descriptions and unrealized appreciation/depreciation are as follows:
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION/
CONTRACTS (DEPRECIATION)
- ---------------------------------------------------------------------------
<S> <C> <C>
SHORT CONTRACTS
5-Year U.S. Treasury Note Future, December
1999--(Current Notional Value of
$108,469 per contract).................... 38 $(14,585)
--- --------
</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
25
<PAGE> 27
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999
- --------------------------------------------------------------------------------
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 don't 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, 1999:
<TABLE>
<CAPTION>
UNREALIZED
PAR AMOUNT APPRECIATION/
(000) DESCRIPTION CURRENT VALUE DEPRECIATION
- -------------------------------------------------------------------------
<C> <S> <C> <C>
Long Contracts
$9,000 U.S. T-Note November Forward,
5.875% $9,048,285 $170,955
8,000 FNMA October Forward, 6.50% 7,671,240 28,740
6,500 FNMA October Forward, 7.00% 6,387,258 163,508
8,000 FNMA Dwarf November Forward,
15 Yr., 7.00% 7,982,520 38,145
3,500 GNMA October Forward, 7.50% 3,511,498 44,310
Short Contracts
7,000 GNMA October Forward, 7.50% 7,022,995 (33,932)
--------
$411,726
========
</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. As of September 30, 1999, there were no closed but unsettled forward
commitments outstanding.
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, 1999
- --------------------------------------------------------------------------------
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, 1999, are payments retained by Van Kampen of
approximately $684,700.
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, 1999 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 accounting principles generally accepted
in the United States. 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 auditing standards generally accepted in
the United States 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, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
November 11, 1999
28
<PAGE> 30
VAN KAMPEN FUNDS
GROWTH
Aggressive Growth
American Value*
Emerging Growth
Enterprise
Equity Growth
Focus Equity
Growth
Pace
Small Cap Value
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
Global Fixed Income
Global Franchise
Global Government Securities
Global Managed Assets
International Magnum
Latin American
Short-Term Global Income*
Strategic Income
Worldwide High Income
INCOME
Corporate Bond
Government Securities
High Income Corporate Bond
High Yield
High Yield & Total Return
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
- - 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.
- - e-mail us by visiting WWW.VANKAMPEN.COM and selecting Contact Us
* Closed to new investors
29
<PAGE> 31
VAN KAMPEN U.S. GOVERNMENT TRUST FOR INCOME
BOARD OF TRUSTEES
J. MILES BRANAGAN
JERRY D. CHOATE
RICHARD M. DEMARTINI*
LINDA HUTTON HEAGY
R. CRAIG KENNEDY
JACK E. NELSON
DON G. POWELL*
PHILLIP B. ROONEY
FERNANDO SISTO
WAYNE W. WHALEN* - Chairman
SUZANNE H. WOOLSEY, PH.D.
PAUL G. YOVOVICH
OFFICERS
RICHARD F. POWERS, III*
President
DENNIS J. MCDONNELL*
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
CURTIS W. MORELL*
Vice President and Chief Accounting Officer
TANYA M. LODEN*
Controller
STEPHEN L. BOYD*
PETER W. HEGEL*
MICHAEL H. SANTO*
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 218256
Kansas City, Missouri 64121-8256
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
203 N. LaSalle
Chicago, Illinois 60601
* "Interested" persons of the Fund, as defined in the
Investment Company Act of 1940.
(C) Van Kampen Funds Inc., 1999 All rights reserved.
(SM) denotes a service mark of
Van Kampen Funds Inc.
This report is submitted for the general information of the shareholders of the
Fund. It is not authorized for distribution to prospective investors unless it
has been preceded or is accompanied by an effective prospectus of the Fund which
contains additional information on how to purchase shares, the sales charge, and
other pertinent data. After February 29, 2000, the report, if used with
prospective investors, must be accompanied by a monthly performance update.
30
<PAGE> 32
YEAR 2000 READINESS DISCLOSURE
Like other mutual funds, financial and business organizations and individuals
around the world, the Fund could be adversely affected if the computer systems
used by the Fund's investment adviser and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Fund's
investment adviser is taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to computer systems that it uses and
to obtain reasonable assurances that comparable steps are being taken by the
Fund's other major service providers. At this time, there can be no assurances
that these steps will be sufficient to avoid any adverse impact to the Fund. In
addition, the Year 2000 Problem may adversely affect the markets and the issuers
of securities in which the Fund may invest that, in turn, may adversely affect
the net asset value of the Fund. Improperly functioning trading systems may
result in settlement problems and liquidity issues. In addition, corporate and
governmental data processing errors may result in production problems for
individual companies or issuers and overall economic uncertainty. Earnings of
individual issuers will be affected by remediation costs, which may be
substantial and may be reported inconsistently in U.S. and foreign financial
statements. Accordingly, the Fund's investments may be adversely affected. The
statements above are subject to the Year 2000 Information and Readiness
Disclosure Act, which may limit the legal rights regarding the use of such
statements in the case of dispute.
31
<PAGE> 33
VAN KAMPEN FUNDS
YOUR NOTES:
32
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> U.S. GOVERNMENT TRUST FOR INCOME A
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999<F1>
<PERIOD-START> OCT-01-1998<F1>
<PERIOD-END> SEP-30-1999<F1>
<INVESTMENTS-AT-COST> 136,561,252<F1>
<INVESTMENTS-AT-VALUE> 130,291,573<F1>
<RECEIVABLES> 2,991,755<F1>
<ASSETS-OTHER> 20,764<F1>
<OTHER-ITEMS-ASSETS> 415,199<F1>
<TOTAL-ASSETS> 133,719,291<F1>
<PAYABLE-FOR-SECURITIES> 13,042,757<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 943,628<F1>
<TOTAL-LIABILITIES> 13,986,385<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 83,464,706
<SHARES-COMMON-STOCK> 8,907,537
<SHARES-COMMON-PRIOR> 4,420,846
<ACCUMULATED-NII-CURRENT> 147,133<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (51,648,960)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (5,872,538)<F1>
<NET-ASSETS> 69,191,221
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 10,720,315<F1>
<OTHER-INCOME> 299,922<F1>
<EXPENSES-NET> (2,304,647)<F1>
<NET-INVESTMENT-INCOME> 8,715,590<F1>
<REALIZED-GAINS-CURRENT> (2,295,907)<F1>
<APPREC-INCREASE-CURRENT> (9,156,086)<F1>
<NET-CHANGE-FROM-OPS> (2,736,403)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (3,378,179)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,393,826
<NUMBER-OF-SHARES-REDEEMED> (4,072,147)
<SHARES-REINVESTED> 165,012
<NET-CHANGE-IN-ASSETS> 31,958,944
<ACCUMULATED-NII-PRIOR> 178,742<F1>
<ACCUMULATED-GAINS-PRIOR> (49,570,597)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 823,170<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 2,313,667<F1>
<AVERAGE-NET-ASSETS> 50,390,895
<PER-SHARE-NAV-BEGIN> 8.422
<PER-SHARE-NII> 0.540
<PER-SHARE-GAIN-APPREC> (0.656)
<PER-SHARE-DIVIDEND> (0.538)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 7.768
<EXPENSE-RATIO> 1.23
<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. GOVERNMENT TRUST FOR INCOME B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999<F1>
<PERIOD-START> OCT-01-1998<F1>
<PERIOD-END> SEP-30-1999<F1>
<INVESTMENTS-AT-COST> 136,561,252<F1>
<INVESTMENTS-AT-VALUE> 130,291,573<F1>
<RECEIVABLES> 2,991,755<F1>
<ASSETS-OTHER> 20,764<F1>
<OTHER-ITEMS-ASSETS> 415,199<F1>
<TOTAL-ASSETS> 133,719,291<F1>
<PAYABLE-FOR-SECURITIES> 13,042,757<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 943,628<F1>
<TOTAL-LIABILITIES> 13,986,385<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 77,049,994
<SHARES-COMMON-STOCK> 5,213,567
<SHARES-COMMON-PRIOR> 12,031,407
<ACCUMULATED-NII-CURRENT> 147,133<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (51,648,960)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (5,872,538)<F1>
<NET-ASSETS> 40,446,130
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 10,720,315<F1>
<OTHER-INCOME> 299,922<F1>
<EXPENSES-NET> (2,304,647)<F1>
<NET-INVESTMENT-INCOME> 8,715,590<F1>
<REALIZED-GAINS-CURRENT> (2,295,907)<F1>
<APPREC-INCREASE-CURRENT> (9,156,086)<F1>
<NET-CHANGE-FROM-OPS> (2,736,403)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (4,495,665)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,471,020
<NUMBER-OF-SHARES-REDEEMED> (8,511,500)
<SHARES-REINVESTED> 222,640
<NET-CHANGE-IN-ASSETS> (60,758,497)
<ACCUMULATED-NII-PRIOR> 178,742<F1>
<ACCUMULATED-GAINS-PRIOR> (49,570,597)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 823,170<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 2,313,667<F1>
<AVERAGE-NET-ASSETS> 75,656,896
<PER-SHARE-NAV-BEGIN> 8.412
<PER-SHARE-NII> 0.490
<PER-SHARE-GAIN-APPREC> (0.666)
<PER-SHARE-DIVIDEND> (0.478)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 7.758
<EXPENSE-RATIO> 1.96
<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. GOVERNMENT TRUST FOR INCOME C
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999<F1>
<PERIOD-START> OCT-01-1998<F1>
<PERIOD-END> SEP-30-1999<F1>
<INVESTMENTS-AT-COST> 136,561,252<F1>
<INVESTMENTS-AT-VALUE> 130,291,573<F1>
<RECEIVABLES> 2,991,755<F1>
<ASSETS-OTHER> 20,764<F1>
<OTHER-ITEMS-ASSETS> 415,199<F1>
<TOTAL-ASSETS> 133,719,291<F1>
<PAYABLE-FOR-SECURITIES> 13,042,757<F1>
<SENIOR-LONG-TERM-DEBT> 0<F1>
<OTHER-ITEMS-LIABILITIES> 943,628<F1>
<TOTAL-LIABILITIES> 13,986,385<F1>
<SENIOR-EQUITY> 0<F1>
<PAID-IN-CAPITAL-COMMON> 16,592,571
<SHARES-COMMON-STOCK> 1,301,272
<SHARES-COMMON-PRIOR> 1,339,882
<ACCUMULATED-NII-CURRENT> 147,133<F1>
<OVERDISTRIBUTION-NII> 0<F1>
<ACCUMULATED-NET-GAINS> (51,648,960)<F1>
<OVERDISTRIBUTION-GAINS> 0<F1>
<ACCUM-APPREC-OR-DEPREC> (5,872,538)<F1>
<NET-ASSETS> 10,095,555
<DIVIDEND-INCOME> 0<F1>
<INTEREST-INCOME> 10,720,315<F1>
<OTHER-INCOME> 299,922<F1>
<EXPENSES-NET> (2,304,647)<F1>
<NET-INVESTMENT-INCOME> 8,715,590<F1>
<REALIZED-GAINS-CURRENT> (2,295,907)<F1>
<APPREC-INCREASE-CURRENT> (9,156,086)<F1>
<NET-CHANGE-FROM-OPS> (2,736,403)<F1>
<EQUALIZATION> 0<F1>
<DISTRIBUTIONS-OF-INCOME> (655,811)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 324,468
<NUMBER-OF-SHARES-REDEEMED> (404,425)
<SHARES-REINVESTED> 41,347
<NET-CHANGE-IN-ASSETS> (1,175,254)
<ACCUMULATED-NII-PRIOR> 178,742<F1>
<ACCUMULATED-GAINS-PRIOR> (49,570,597)<F1>
<OVERDISTRIB-NII-PRIOR> 0<F1>
<OVERDIST-NET-GAINS-PRIOR> 0<F1>
<GROSS-ADVISORY-FEES> 823,170<F1>
<INTEREST-EXPENSE> 0<F1>
<GROSS-EXPENSE> 2,313,667<F1>
<AVERAGE-NET-ASSETS> 11,018,054
<PER-SHARE-NAV-BEGIN> 8.412
<PER-SHARE-NII> 0.489
<PER-SHARE-GAIN-APPREC> (0.665)
<PER-SHARE-DIVIDEND> (0.478)
<PER-SHARE-DISTRIBUTIONS> (0.000)
<RETURNS-OF-CAPITAL> (0.000)
<PER-SHARE-NAV-END> 7.758
<EXPENSE-RATIO> 1.97
<FN>
<F1>This item relates to the Fund on a composite basis and not on a class basis
</FN>
</TABLE>
