<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 29, 1998
REGISTRATION NOS. 2-21819
811-2423
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
<TABLE>
<S> <C>
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 [X]
POST-EFFECTIVE AMENDMENT NO. 70 [X]
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 27 [X]
</TABLE>
VAN KAMPEN CORPORATE BOND FUND
(EXACT NAME OF REGISTRANT AS SPECIFIED IN DECLARATION OF TRUST)
1 PARKVIEW PLAZA, PO BOX 5555, OAKBROOK TERRACE, ILLINOIS 60181-5555
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(630) 684-6000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
DENNIS J. MCDONNELL
PRESIDENT
VAN KAMPEN INVESTMENTS INC.
1 PARKVIEW PLAZA, PO BOX 5555
OAKBROOK TERRACE, ILLINOIS 60181-5555
(NAME AND ADDRESS OF AGENT FOR SERVICE)
---------------------
COPY TO:
WAYNE W. WHALEN, ESQ.
THOMAS A. HALE, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 W. WACKER DRIVE
CHICAGO, ILLINOIS 60606
(312) 407-0700
---------------------
Approximate Date of Proposed Public Offering: As soon as practicable following
effectiveness of this Registration Statement.
It is proposed that this filing will become effective:
[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered: Shares of Beneficial Interest, par
value $0.01 per share
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
VAN KAMPEN
CORPORATE BOND FUND
Van Kampen Corporate Bond Fund is a mutual
fund that has a primary investment objective
of providing current income with preservation
of capital. Capital appreciation is a
secondary objective that is sought only when
consistent with the primary investment
objective. The Fund's management seeks to
achieve the investment objectives by investing
primarily in a diversified portfolio of
corporate debt securities.
Shares of the Fund have not been approved or
disapproved by the Securities and Exchange
Commission (SEC) or any state regulators, and
neither the SEC nor any state regulator has
ruled on the accuracy or adequacy of this
prospectus. It is a criminal offense to state
otherwise.
This prospectus is dated DECEMBER 29, 1998.
[VAN KAMPEN FUNDS LOGO]
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
Risk/Return Summary................................ 3
Fees and Expenses of the Fund...................... 5
Investment Objectives and Policies................. 6
Investment Advisory Services....................... 10
Purchase of Shares................................. 11
Redemption of Shares............................... 18
Distributions from the Fund........................ 19
Shareholder Services............................... 20
Federal Income Taxation............................ 22
Financial Highlights............................... 23
Appendix--Description of Securities Ratings........ 24
</TABLE>
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations, other than those contained in this
prospectus, in connection with the offer contained in this prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Fund, the Fund's investment adviser or the
Fund's distributor. This prospectus does not constitute an offer by the Fund or
by the Fund's distributor to sell or a solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction to any person to whom it is
unlawful for the Fund to make such an offer in such jurisdiction.
<PAGE> 4
RISK/RETURN SUMMARY
INVESTMENT OBJECTIVES
The Fund is a mutual fund that has a primary investment objective of providing
current income with preservation of capital. Capital appreciation is a secondary
objective that is sought only when consistent with the primary investment
objective. There can be no assurance the Fund will achieve its investment
objectives.
INVESTMENT STRATEGIES
The Fund's management seeks to achieve the investment objectives by investing
primarily in a diversified portfolio of corporate debt securities:
TYPES OF SECURITIES. Under normal market conditions, at least 65% of the Fund's
total assets are invested in corporate bonds with original maturities of more
than one year. The Fund's management may also invest up to 20% of total assets
in convertible securities and up to 10% of total assets in preferred stocks. In
addition, up to 20% of the Fund's total assets may be invested in United States
dollar denominated securities of foreign governments or corporations.
QUALITY LEVELS. Under normal market conditions, anywhere from 60% to 100% of the
Fund's total assets are invested in "investment grade" securities, which are
securities rated Baa or higher by Moody's Investors Service, Inc. ("Moody's") or
BBB or higher by Standard & Poor's ("S&P") at the time they are purchased,
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, commercial paper rated Prime by Moody's or A by S&P and cash
and cash equivalents.
Up to 40% of the Fund's total assets may be invested in securities rated Ba by
Moody's or BB by S&P at the time of purchase. No more than 20% of the Fund's
total assets may be invested in securities rated B or lower by Moody's or S&P or
which are unrated, although it is the Fund's current policy not to buy any
securities rated below B or unrated securities judged by the Fund's investment
adviser to be of comparable quality (see box for an explanation of quality
ratings). Securities rated Ba or lower by Moody's or BB or lower by S&P or
unrated securities of comparable quality are commonly referred to as "junk
bonds" and involve special risks as compared with investments in higher-grade
securities.
UNDERSTANDING
QUALITY RATINGS
Bond ratings are based on the issuer's ability to pay interest and repay the
principal. Bonds with ratings above the line are considered "investment
grade," while those with ratings below the line are regarded as
"noninvestment grade," or "junk bonds." A detailed explanation of these and
other ratings can be found in the appendix to this prospectus.
<TABLE>
<S> <S> <C>
Moody's S&P Meaning
- ----------------------------------------------------
Aaa AAA Highest quality
....................................................
Aa AA High quality
....................................................
A A Above-average quality
....................................................
Baa BBB Average quality
....................................................
- ----------------------------------------------------
Ba BB Below-average quality
....................................................
B B Marginal quality
....................................................
Caa CCC Poor quality
....................................................
Ca CC Highly speculative
....................................................
C C Lowest quality
....................................................
-- D In default
....................................................
</TABLE>
INVESTMENT RISKS
Because of the following risks, you could lose money on your investment in the
Fund over the short or long term:
MARKET RISK. The prices of income securities tend to fall as interest rates
rise. This "market risk" is usually greater among securities with longer
maturities. Because the Fund does not have a policy limiting the maturities of
its investments and the Fund may own securities with longer maturities, the Fund
will be subject to greater market risk than a fund that owns shorter-term
securities. Lower-grade securities may fluctuate more in price in response to
negative corporate or economic news than higher grade securities.
CREDIT RISK. Credit risk refers to an issuer's ability to make timely payments
of interest or principal. Because the Fund can invest in securities with a
variety of different credit qualities, it is subject to a higher level of credit
risk than a fund that buys only investment grade securities. The credit quality
of "noninvestment grade" securities is considered speculative by recognized
rating agencies with respect to the issuer's continuing ability to pay interest
or principal. Lower-grade securities may have less liquidity, a higher incidence
of default and the Fund
3
-
<PAGE> 5
may incur higher expenditures to protect the Fund's interest in such securities
than investments in higher grade securities. The credit risks and market prices
of lower-grade securities generally are more sensitive to negative corporate
developments, such as a decline in profits, or adverse economic conditions, such
as a recession, than are higher-grade securities.
INCOME RISK. The income you receive from the Fund is based primarily on interest
rates, which can vary widely over the short- and long-term. If interest rates
drop, your income from the Fund may drop as well.
CALL RISK. If interest rates fall, it is possible that issuers of bonds with
high interest rates will prepay or "call" their bonds before their maturity
dates. In this event, the proceeds from the called bonds would be reinvested by
the Fund in bonds with the new, lower interest rates, resulting in a possible
decline in the Fund's income and distributions to shareholders.
FOREIGN RISKS. Because the Fund may own securities from foreign issuers, it may
be subject to risks not usually associated with owning securities of U.S.
issuers. These risks can include fluctuations in foreign currencies, foreign
currency exchange controls, political and economic instability, differences in
financial reporting, differences in securities regulation and trading, and
foreign taxation issues.
MANAGER RISK. As with any fund, the Fund's management may not be successful in
selecting the best-performing securities and the Fund's performance may lag
behind that of similar funds.
An investment in the Fund is not a deposit of any bank or other insured
depository institution. Your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
INVESTOR PROFILE
In light of its objectives and investment strategies, the Fund may be
appropriate for investors who:
- - Seek current income.
- - Are willing to take on the increased risks of longer-maturity corporate bonds
in exchange for potentially higher income.
- - Wish to diversify their personal investment portfolios with a Fund that
invests primarily in corporate bonds.
An investment in the Fund may not be appropriate for all investors. The Fund is
not intended to be a complete investment program, and investors should consider
their long-term investment goals and financial needs when making an investment
decision about the Fund. An investment in the Fund is intended to be a long-term
investment and the Fund should not be used as a trading vehicle.
ANNUAL PERFORMANCE
One way to measure the risks of investing in the Fund is to look at how its
performance varies from year to year. The following chart shows the annual
returns of the Fund's Class A Shares over the past ten calendar years prior to
the date of this prospectus, as well as its best and worst quarter during that
period. Sales loads are not reflected in this chart. If these sales loads had
been included, the returns shown below would have been lower. Remember that the
past performance of the Fund is not indicative of its future performance.
<TABLE>
<CAPTION>
ANNUAL RETURN
-------------
<S> <C>
'1988 12.86
'1989 3.99
'1990 7.04
'1991 16.74
'1992 8.50
'1993 11.68
'1994 -4.27
'1995 21.25
'1996 2.66
'1997 10.66
</TABLE>
The annual return variability of the Fund's Class B Shares and Class C Shares
would be substantially similar to that shown for the Class A Shares because all
of the Fund's shares are invested in the same portfolio of securities; however,
the actual annual returns of the Class B Shares and Class C Shares would be
lower than the annual returns shown for the Fund's Class A Shares because of
differences in the expenses borne by each class of shares.
During the ten-year period shown in the bar chart, the highest quarterly return
was 7.35% (for the
4
-
<PAGE> 6
quarter ended June 30, 1995) and the lowest quarterly return was -3.22% (for the
quarter ended March 31, 1996).
COMPARATIVE PERFORMANCE
This table shows how the Fund's performance compares with two broad-based market
indices that the Fund's management believes are applicable benchmarks for the
Fund: the Lehman Brothers Corporate Bond Index and the Lipper Corporate
BBB-Rated Index. Average annual total returns, assuming payment of the maximum
sales charges, are shown for one-, five-, and ten-year periods ended December
31, 1997 (the most recently completed calendar year prior to the date of this
prospectus). Remember that the past performance of the Fund is not indicative of
its future performance.
<TABLE>
<CAPTION>
Average Annual
Total Returns Past 10
for the Years
Periods Ended Past Past or Since
December 31, 1997 1 Year 5 Years Inception
- --------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Van Kampen
Corporate Bond
Fund
........................................................
Class A Shares 5.45% 7.01% 8.39%
........................................................
Class B Shares 5.84% 6.94% 6.72%(1)
........................................................
Class C Shares 8.85% -- 5.51%(2)
........................................................
Lehman Brothers
Corporate Bond
Index 10.23% 8.44% 11.10%
........................................................
Lipper Corporate
BBB-Rated Index 9.84% 8.16% 9.20%
........................................................
</TABLE>
Inception Dates: (1) 9/28/92, (2) 8/30/93
The current yield for the thirty day period ended August 31, 1998 is 5.59% for
Class A Shares, 5.14% for Class B Shares and 5.16% for Class C Shares. Investors
can obtain the current yield of the Fund for each class of shares by calling
(800) 341-2911.
FEES AND EXPENSES
OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES
(fees paid directly from your investment):
<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
- --------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum sales charge
(load) imposed on
purchases (as a
percentage of
offering price) 4.75%(1) None None
..............................................................
Maximum deferred
sales charge (load)
(as a percentage of
the lesser of
original purchase
price or redemption
proceeds) None(2) Year 1-4.00% Year 1-1.00%
Year 2-4.00% After-None
Year 3-3.00%
Year 4-2.50%
Year 5-1.50%
After-None
..............................................................
Maximum sales charge
(load) imposed on
reinvested dividends
(as a percentage of
offering price) None None None
..............................................................
Redemption fees (as a
percentage of amount None None None
redeemed)
..............................................................
Exchange fee None None None
..............................................................
</TABLE>
(1) Reduced for purchases of $100,000 and over. See "Purchase of Shares -- Class
A Shares."
(2) Investments of $1 million or more are not subject to any sales charge at the
time of purchase, but a deferred sales charge of 1.00% may be imposed on
certain redemptions made within one year of the purchase. See "Purchase of
Shares -- Class A Shares."
5
-
<PAGE> 7
ANNUAL FUND
OPERATING EXPENSES
(expenses that are deducted from Fund assets)
<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
- --------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees 0.48% 0.48% 0.48%
..............................................................
Distribution and/or 0.23% 1.00%(2) 1.00%(2)
Service (12b-1)
Fees(1)
..............................................................
Other Expenses 0.37% 0.37% 0.37%
..............................................................
Total Annual Fund 1.08% 1.85% 1.85%
Operating Expenses
..............................................................
</TABLE>
(1) Class A Shares are subject to an annual service fee of up to 0.25% of the
average daily net assets attributable to such class of shares. Class B
Shares and Class C Shares are each subject to a combined annual distribution
and service fee of up to 1.00% of the average daily net assets attributable
to such class of shares. See "Purchase of Shares."
(2) Because Distribution and/or Service (12b-1) Fees are paid out of the Fund's
assets on an ongoing basis, over time these fees will increase the cost of
your investment and may cost you more than paying other types of sales
charges. Long-term shareholders may pay more than the economic equivalent of
the maximum front-end sales charges permitted by National Association of
Securities Dealers, Inc. rules.
Example:
The following Example is intended to help you compare the cost of investing in
the Fund with the costs of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% annual return each year and
that the Fund's operating expenses remain the same each year (except for the ten
year amounts for Class B Shares which reflect the conversion of Class B Shares
to Class A Shares after eight years). Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
One Three Five Ten
Year Years Years Years
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $580 $802 $1,042 $1,730
......................................................................
Class B Shares $588 $882 $1,151 $1,968*
......................................................................
Class C Shares $288 $582 $1,001 $2,169
......................................................................
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
One Three Five Ten
Year Years Years Years
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A Shares $580 $802 $1,042 $1,730
......................................................................
Class B Shares $188 $582 $1,001 $1,968*
......................................................................
Class C Shares $188 $582 $1,001 $2,169
......................................................................
</TABLE>
* Based on conversion to Class A Shares after eight years.
To simplify comparison among funds, all funds are required by the SEC to use a
5% annual return assumption. Class B Shares of the Fund acquired through the
exchange privilege are subject to the contingent deferred sales charge schedule
of the fund from which the shareholder's purchase of Class B Shares was
originally made. Accordingly, future expenses as projected could be higher than
those determined in the above table if the investor's Class B Shares were
exchanged from a fund with a higher contingent deferred sales charge. The Fund's
actual annual return and actual expenses for future periods may be greater or
less than those shown.
INVESTMENT OBJECTIVES
AND POLICIES
The Fund's primary investment objective is to provide current income consistent
with preservation of capital. Capital appreciation is a secondary objective
which is sought only when consistent with the Fund's primary objective. The
Fund's management seeks to achieve the investment objectives by investing
primarily in a diversified portfolio of corporate debt securities, including
convertible securities. There is no assurance that the Fund will achieve these
objectives and yields may fluctuate over time.
Under normal market conditions, at least 65% of the Fund's total assets will be
invested in corporate bonds. For these purposes a corporate bond is defined as
any corporate debt security with an original term to maturity of greater than
one year. The Fund may invest up to 10% of its total assets in preferred stocks.
The Fund may invest up to 20% of its total assets in convertible securities,
which includes convertible bonds as well as convertible preferred stocks. In
addition, up to 20% of the Fund's total assets may be invested in United States
dollar
6
-
<PAGE> 8
denominated securities of foreign governments or corporations. In order to seek
to manage portfolio risks associated with changes in interest rates, the Fund
may invest in or write options on U.S. Government securities and engage in
transactions involving interest rate futures and options on such contracts.
Corporate bonds with longer maturities generally tend to produce higher yields
but are subject to greater market risk than debt securities with shorter
maturities. The Fund is not limited as to the maturities of the corporate debt
securities in which it invests. Most preferred stocks have no stated maturity or
redemption date. In general, the prices of debt securities vary inversely with
interest rates. If interest rates rise, debt security prices generally fall; if
interest rates fall, debt security prices generally rise. In addition, for a
given change in interest rates, longer-maturity debt securities generally
fluctuate more in price (gaining or losing more in value) than shorter-maturity
debt securities. This potential for a decline in prices of debt securities due
to rising interest rates is referred to as "market risk". The weighted average
maturity, which is likely to vary from time to time, of the corporate bonds
owned by the Fund on August 31, 1998, was 13.9 years.
The Fund invests in three categories of securities:
I. (a) securities rated at the time of purchase Baa or higher by Moody's or
BBB or higher by S&P;
(b) securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities;
(c) commercial paper rated Prime by Moody's or A by S&P; and
(d) cash and cash equivalents.
II. Securities rated Ba by Moody's or BB by S&P.
III. Securities rated B or below by Moody's or S&P or unrated (excluding
unrated U.S. Government agency obligations).
The ratings specified above apply to preferred stocks as well as to corporate
bonds.
At least 60% of the Fund's total assets must be, and up to 100% may be, invested
in category I securities. Up to 40% of the Fund's total assets may be invested
in category II securities. No more than 20% of the Fund's total assets may be
invested in category III securities. Securities rated Ba or lower by Moody's or
BB or lower by S&P or unrated securities judged by the Fund's investment adviser
to be of comparable quality are commonly referred to as "junk bonds." See the
appendix for a description of securities ratings.
The above percentage limitations apply to the Fund's investment portfolio
excluding options, futures contracts and related options. The foregoing are
fundamental policies of the Fund which may not be changed without approval by a
majority (as defined in the Investment Company Act of 1940, as amended (the
"1940 Act")) of the Fund's shareholders. Although the Fund may invest up to 40%
of its total assets in securities rated Ba by Moody's or BB by S&P, it currently
intends to limit such investments to less than 35% of its total assets. It is
the current operating policy of the Fund not to purchase debt securities rated
below B by both Moody's and S&P or unrated securities considered by the Fund's
investment adviser to be of comparable quality.
During the fiscal year ended August 31, 1998, the average percentage of the
Fund's assets invested in debt securities (or preferred stocks) within the
various rating categories (based on the higher of the Moody's or S&P ratings)
and the unrated debt securities considered by the Fund's investment adviser to
be of comparable quality, determined on a monthly dollar weighted average, were
as follows:
<TABLE>
<CAPTION>
Rated (and Unrated of Comparable
Quality) Securities
Category (As a Percentage of Portfolio Value)
- ---------------------------------------------------------------
<S> <C> <C> <C>
AAA/Aaa 2.2%
...............................................................
AA/Aa 4.2%
...............................................................
A/A 21.8%
...............................................................
BBB/Baa 55.1%
...............................................................
BB/Ba 16.5%
...............................................................
B 0.2%
...............................................................
Total Net Assets 100.00%
...............................................................
</TABLE>
Generally, lower grade securities provide a higher yield than higher grade
securities of similar maturity but are subject to greater credit risk. Lower
grade securities are considered speculative with respect to the capacity of the
issuer to make interest and principal payments. The ratings of Moody's and S&P
represent their opinions of the quality of the securities they undertake to
rate, but not the market
7
-
<PAGE> 9
value risk of such securities. It should be emphasized, however, that ratings
are general and are not absolute standards of quality. Credit ratings are also
subject to a risk that the rating agencies may fail to change such ratings to
reflect subsequent events in a timely fashion. Investors should consider
carefully the additional risks associated with investment in lower grade
securities, which are not generally meant for short-term investment.
The market value of lower grade securities may fluctuate more than the market
value of higher grade securities, since the former tend to reflect short-term
corporate and economic developments to a greater extent than higher grade
securities, which fluctuate primarily in response to the general level of
interest rates, assuming that there has been no change in the fundamental
quality of such securities. Investment results of the Fund's lower grade
securities may be more dependent upon the investment adviser's credit analysis
than the results from investments in higher grade securities. Lower grade
securities may be more susceptible to real or perceived adverse economic and
competitive industry conditions than higher grade securities. A projection of an
economic downturn, for example, could cause a decline in prices of lower grade
securities because the advent of a recession could lessen the ability of a
highly leveraged company to make principal and interest payments on its senior
securities or obtain additional financing when necessary.
In addition, the secondary trading market for lower grade securities may be less
liquid than the market for higher grade securities. Prices of lower grade debt
securities may decline rapidly in the event a significant number of holders
decide to sell. Changes in expectations regarding an individual issuer, an
industry or lower grade debt securities generally could reduce market liquidity
for such securities and make their sale by the Fund more difficult, at least in
the absence of price concessions. An economic downturn or an increase in
interest rates could severely disrupt the market for such securities and
adversely affect the value of outstanding bonds and the ability of the issuers
to repay principal and interest. See "Risk Factors" in the Statement of
Additional Information for a further discussion of risk factors associated with
investments in lower grade securities.
In purchasing and selling securities, the investment adviser evaluates the
issuers of such securities based on a number of factors, including but not
limited to the issuer's financial strength, its earnings potential, its
operating history and management skills.
CONVERTIBLE SECURITIES
The Fund may invest up to 20% of its total assets in convertible securities.
Convertible bonds and convertible preferred stock are debt securities which have
the right to be converted into another security or which carry the right to
purchase another security. A convertible security entitles the holder to
exchange it for a fixed number of shares of common stock or other equity
security, usually of the same company, at fixed prices within a specified period
of time. A convertible security entitles the holder to receive the income of a
bond or the dividend preference of a preferred stock until the holder elects to
exercise the conversion privilege. The difference between the market price of
the convertible security and the market price of the securities into which it
may be converted is called the "premium." When the premium is small, the
convertible security has performance characteristics similar to an equity
security; when the premium is large, the convertible security has performance
characteristics similar to a debt security. The conversion privilege may take
the form of warrants attached to the bond or preferred stock which entitle the
holder to purchase a specific number of shares of common stock or other equity
security, usually of the same company, at fixed prices for a specified period of
time.
Convertible bonds and preferred stocks generally do not participate in any
dividend increases or decreases of the underlying common stocks. However, the
market prices of convertible bonds and preferred stocks may be affected by any
such dividend changes. Convertible securities rank senior to common stocks in a
corporation's capital structure and generally entail less risk than the
corporation's common stock, although the extent to which such risk is reduced
depends in large measure upon the degree to which the convertible security sells
above its value as a fixed income security. Through careful selection of
individual securities, diversification of investments, and by continuing
supervision of the investment portfolio, the Fund's investment adviser strives
to reduce risk and thereby conserve principal.
Common stocks may be temporarily acquired in the portfolio as a result of
conversion of convertible securities into such common stocks or upon exercise of
warrants attached to or included in a unit with a debt security purchased by the
Fund.
8
-
<PAGE> 10
PREFERRED STOCKS
The Fund may invest up to 10% of its total assets in preferred stocks. Preferred
stocks may provide a higher dividend rate than the interest yield on debt
securities of the same issuer, but are subject to greater risk of fluctuation in
market value and greater risk of non-receipt of income. Unlike interest on debt
securities, dividends on preferred stocks must be declared by the issuers' board
of directors before becoming payable.
Preferred stocks are in many ways like perpetual debt securities, providing a
stream of income but without stated maturity date. Because they often lack a
fixed maturity or redemption date, preferred stocks are likely to fluctuate
substantially in price when interest rates change. Such fluctuations generally
are comparable to or exceed those of long-term government or corporate bonds
(those with maturities of fifteen to thirty years).
Preferred stocks have claims on assets and earnings of the issuer which are
subordinate to the claims of all creditors but senior to the claims of common
stock-holders. A preferred stock rating differs from a bond rating because it
applies to an equity issue which is intrinsically different from, and
subordinated to, a debt issue. Preferred stock ratings generally represent an
assessment of the capacity and willingness of an issuer to pay preferred stock
dividends and any applicable sinking fund obligations.
SECURITIES OF FOREIGN ISSUERS
The Fund may invest up to 20% of its total assets in United States dollar
denominated securities issued by foreign governments and other foreign issuers
which are similar in quality to the securities described above. The Fund's
investment adviser believes that in certain instances such foreign debt
securities may provide higher yields than securities of domestic issuers which
have similar maturities.
Investments in foreign securities present certain risks not ordinarily
associated with investments in securities of U.S. issuers. These risks include
fluctuations in foreign exchange rates, political and economic developments
(including war or other instability, expropriation of assets, nationalization
and confiscatory taxation), the imposition of foreign exchange limitations,
withholding taxes on income or capital transactions or other restrictions,
higher transaction costs and difficulty in taking judicial action. In addition,
there generally is less publicly available information about many foreign
issuers, and auditing, accounting and financial reporting requirements are less
stringent and less uniform in many foreign countries. Such securities may be
less liquid than the securities of U.S. corporations, and are certainly less
liquid than securities issued by the U.S. Government or its agencies. Such
securities may also be subject to greater fluctuations in price than securities
of U.S. corporations or of the U.S. Government. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the U.S., and, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, or diplomatic
developments which could affect investment in those countries. Because there is
usually less supervision and governmental regulation of exchanges, brokers and
dealers than there is in the U.S., the Fund may experience settlement
difficulties or delays not usually encountered in the U.S. Finally, in the event
of a default on any such foreign debt obligations, it may be more difficult for
the Fund to obtain or to enforce judgment against the issuers of such
securities. The risks of foreign investments should be considered carefully by
an investor in the Fund. Such investments will be made only when the Fund's
investment adviser believes that higher yields justify the attendant risks.
OTHER INVESTMENTS AND RISK FACTORS
For cash management purposes, the Fund may engage in repurchase agreements with
banks and broker-dealers to earn a return on temporarily available cash. Such
transactions are subject to the risk of default by the other party.
The investment policies of the Fund permit the Fund to purchase or sell options,
futures contracts or options on futures for several different reasons depending
on the status of the Fund's portfolio and the investment adviser's expectations
on the securities markets. In certain cases, the use of options, futures
contracts or options on futures may provide investment or risk management
opportunities not available from direct investments in securities, and some
strategies can be performed with greater ease and at lower costs than purchasing
or selling portfolio securities. However, such transactions involve risks
different from the direct investment in underlying securities such as imperfect
correlation between the value of the instruments and the underlying assets, risk
of default by the other party to certain transactions, that the transactions may
incur losses
9
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<PAGE> 11
that partially or completely offset gains in portfolio positions, that the
transactions may not be liquid, and manager risk. Such transactions also may
involve commissions and other costs.
The Fund may lend its portfolio securities to broker/dealers and other financial
institutions in an amount up to 10% of the Fund's net assets in order to
generate income on the loaned security and any collateral received. The Fund may
incur lending fees and other costs in connection with securities lending, and
securities lending is subject to the risk of default by the other party.
The Fund may invest up to 10% of the Fund's net assets in illiquid and certain
restricted securities. Such securities may be difficult or impossible to sell at
the time and the price that the Fund would like. Thus, the Fund may have to sell
such securities at a lower price, sell other securities instead to obtain cash
or forego other investment opportunities.
Further information about these types of investments and other investment
practices that may be used by the Fund is contained in the Fund's Statement of
Additional Information which can be obtained by investors free of charge as
described on the back cover of this prospectus.
Although the Fund does not intend to engage in substantial short-term trading,
it may sell securities without regard to the length of time they have been held
in order to take advantage of new investment opportunities or yield
differentials or otherwise. The Fund's portfolio turnover is shown under the
heading "Financial Highlights." The portfolio turnover rate may be expected to
vary from year to year. A high portfolio turnover rate (100% or more) increases
the Fund's transactions costs, including brokerage commissions or dealer costs,
and may result in the realization of more short-term capital gains than if the
Fund had lower portfolio turnover. The turnover rate will not be a limiting
factor, however, if the Fund's investment adviser considers portfolio changes
appropriate.
When market conditions dictate a more "defensive" investment strategy, the Fund
may invest on a temporary basis a portion or all of its assets in securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities,
prime commercial paper, certificates of deposit, bankers' acceptances and other
obligations of domestic banks having total assets of at least $500 million,
repurchase agreements and short-term money market instruments. Under normal
market conditions, the yield on these securities will tend to be lower than the
yield on other securities owned by the Fund. The effect of taking such a
defensive position may be that the Fund does not achieve its investment
objectives.
YEAR 2000 RISKS. 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 which, 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 Act may limit the legal rights
regarding the use of such statements in the case of a dispute.
INVESTMENT ADVISORY
SERVICES
THE ADVISER. Van Kampen Asset Management Inc. is the Fund's investment adviser
(the "Adviser" or "Asset Management"). The Adviser is a wholly owned subsidiary
of Van Kampen Investments Inc. ("Van Kampen Investments"). Van Kampen
Investments is a diversified asset management company with more than two million
retail investor accounts, extensive capabilities for managing institutional
portfolios, and more than $50 billion under management or supervision. Van
Kampen
10
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<PAGE> 12
Investments' more than 50 open-end and 39 closed-end funds and more than 2,500
unit investment trusts are professionally distributed by leading financial
advisers nationwide. Van Kampen Funds Inc., the distributor of the Fund (the
"Distributor") and the sponsor of the funds mentioned above, is also a wholly
owned subsidiary of Van Kampen Investments. Van Kampen Investments is an
indirect wholly owned subsidiary of Morgan Stanley Dean Witter & Co. The
Adviser's principal office is located at 1 Parkview Plaza, PO Box 5555, Oakbrook
Terrace, Illinois 60181-5555.
ADVISORY AGREEMENT. The Fund retains the Adviser to manage the investment of its
assets and to place orders for the purchase and sale of its portfolio
securities. Under an investment advisory agreement between the Adviser and the
Fund (the "Advisory Agreement"), the Fund pays the Adviser a monthly fee
computed based upon an annual rate applied to average daily net assets of the
Fund as follows:
<TABLE>
<CAPTION>
Average Daily Net Assets % Per Annum
- ------------------------------------------------------
<S> <C> <C> <C>
First $150 million 0.50 of 1.00%
......................................................
Next $100 million 0.45 of 1.00%
......................................................
Next $100 million 0.40 of 1.00%
......................................................
Over $350 million 0.35 of 1.00%
......................................................
</TABLE>
Applying this fee schedule, the Fund paid the Adviser an advisory fee at the
effective rate of 0.48% of the Fund's average net assets for the Fund's fiscal
year ended August 31, 1998.
Under the Advisory Agreement, the Fund also reimburses the Adviser for the cost
of the Fund's accounting services, which include maintaining its financial books
and records and calculating its daily net asset value. Other operating expenses
paid by the Fund include service fees, distribution fees, custodial fees, legal
and accounting fees, the costs of reports and proxies to shareholders, trustees'
fees (other than those who are affiliated persons of the Adviser, Distributor or
Van Kampen Investments) and all other business expenses not specifically assumed
by the Adviser.
From time to time, the Adviser or the Distributor may voluntarily undertake to
reduce the Fund's expenses by reducing the fees payable to them or reducing
other expenses of the Fund in accordance with such limitations as the Adviser or
Distributor may establish.
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen Investment
Advisory Corp. ("Advisory Corp.").
PERSONAL INVESTMENT POLICIES. The Fund and the Adviser have adopted Codes of
Ethics designed to recognize the fiduciary relationship between the Fund and the
Adviser and its employees. The Codes of Ethics permit directors, trustees,
officers and employees to buy and sell securities for their personal accounts
subject to certain restrictions. Persons with access to certain sensitive
information are subject to pre-clearance and other procedures designed to
prevent conflicts of interest.
PORTFOLIO MANAGEMENT. David R. Troth has been primarily responsible for the
day-to-day management of the Fund's investment portfolio since 1979. During the
past five years, Mr. Troth has been a Senior Vice President of the Adviser.
Since June 1995, Mr. Troth has been a Senior Vice President of Advisory Corp.
PURCHASE OF SHARES
GENERAL
The Fund offers three classes of shares designated as Class A Shares, Class B
Shares and Class C Shares. By offering three classes of shares, the Fund permits
each investor to choose the class of shares that is most beneficial given the
amount to be invested and the length of time the investor expects to hold the
shares.
Initial investments must be at least $500 for each class of shares, and
subsequent investments must be at least $25 for each class of shares. Both
minimums may be waived by the Distributor for plans involving periodic
investments.
Each class of shares represents an interest in the same portfolio of investments
of the Fund and has the same rights except that (i) Class A Shares generally
bear the sales charge expenses at the time of purchase while Class B Shares and
Class C Shares bear the sales charge expenses at the time of redemption and any
expenses (including higher distribution fees and transfer agency costs)
resulting from such deferred sales charge arrangement, (ii) generally, each
class of shares has exclusive voting rights with respect to approvals of the
Rule 12b-1 distribution plan
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<PAGE> 13
(described below) pursuant to which its distribution fee or service fee is paid,
(iii) each class of shares has different exchange privileges, (iv) certain
classes of shares are subject to a conversion feature and (v) certain classes of
shares have different shareholder service options available.
The price of the Fund's shares is based upon the Fund's net asset value per
share. The net asset values per share of the Class A Shares, Class B Shares and
Class C Shares are generally expected to be substantially the same. In certain
circumstances, however, the per share net asset values of the classes of shares
may differ from one another, reflecting the daily expense accruals of the higher
distribution fees and transfer agency costs applicable to the Class B Shares and
Class C Shares and the differential in the dividends that may be paid on each
class of shares.
The net asset value per share for each class of shares of the Fund is determined
once daily as of the close of trading on the New York Stock Exchange (the
"Exchange") (currently 4:00 p.m., New York time) each day the Exchange is open
for trading. Net asset value per share for each class is determined by dividing
the value of the Fund's portfolio securities, cash and other assets (including
accrued interest) attributable to such class, less all liabilities (including
accrued expenses) attributable to such class, by the total number of shares of
the class outstanding. Any security listed or traded principally on a national
securities exchange is valued at the last reported sales price on the exchange
where principally traded. Unlisted securities and listed securities for which
the last sales price is not available are valued at the mean between the last
reported bid price and asked price. The value of any other securities or other
assets is fair value as determined in good faith by the Adviser using methods
determined by the Fund's Trustees. Short-term securities are valued in the
manner described in the notes to the financial statements included in the
Statement of Additional Information.
The Fund has adopted a distribution plan (the "Distribution Plan") with respect
to each class of its shares pursuant to Rule 12b-1 under the Investment Company
Act of 1940, as amended (the "1940 Act"). The Fund also has adopted a service
plan (the "Service Plan") with respect to each class of its shares. The
Distribution Plan and the Service Plan provide that the Fund may pay
distribution fees in connection with the sale and distribution of its shares and
service fees in connection with the provision of ongoing services to
shareholders of each class.
The amount of distribution and service fees varies among the classes offered by
the Fund. Because these fees are paid out of the Fund's assets on an ongoing
basis, these fees will increase the cost of your investment in the Fund. By
purchasing a class of shares subject to higher distribution and service fees,
you may pay more over time than on a class of shares with other types of sales
charge arrangements. The net income attributable to a class of shares and the
dividends payable on such class of shares will be reduced by the amount of the
distribution fees and other expenses associated with such class of shares. To
assist investors in comparing classes of shares, the tables under the heading
"Fees and Expenses of the Fund" provide a summary of sales charges and expenses
and an example of the sales charges and expenses applicable to each class of
shares.
The shares are offered to the public on a continuous basis through the
Distributor as principal underwriter, which is located at 1 Parkview Plaza, PO
Box 5555, Oakbrook Terrace, Illinois 60181-5555. Shares also are offered through
members of the National Association of Securities Dealers, Inc. ("NASD") who are
acting as securities dealers ("dealers") and NASD members or eligible non-NASD
members who are acting as brokers or agents or investors ("brokers"). "Dealers"
and "brokers" are sometimes referred to herein as "authorized dealers."
Shares may be purchased on any business day by completing the application
accompanying this prospectus and forwarding the application, directly or through
an authorized dealer, to the Fund's shareholder service agent, Van Kampen
Investor Services Inc. ("Investor Services"), a wholly owned subsidiary of Van
Kampen Investments. When purchasing shares of the Fund, investors must specify
whether the purchase is for Class A Shares, Class B Shares or Class C Shares.
Sales personnel of authorized dealers distributing the Fund's shares are
entitled to receive compensation for selling such shares and may receive
differing compensation for selling Class A Shares, Class B Shares or Class C
Shares.
The price paid for shares purchased is based on the next calculation of net
asset value per share (plus sales charges, where applicable) after an order is
received by Investor Services. Orders received by authorized dealers prior to
the close of the Exchange are priced based on the date of receipt provided such
order is transmitted to Investor Services prior to Investor Services' close of
business on such day. Orders received by authorized dealers after the close of
the
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<PAGE> 14
Exchange or transmitted to Investor Services after its close of business are
priced based on the day of the next computed net asset value per share provided
they are received by Investor Services prior to Investor Services' close of
business on such day. It is the responsibility of authorized dealers to transmit
orders received by them to Investor Services' so they will be received in a
timely manner. Orders of less than $500 generally are mailed by the authorized
dealer and processed at the offering price next calculated after receipt by
Investor Services.
Shares of the Fund may be sold in foreign countries where permissible. The Fund
and the Distributor reserve the right to refuse any order for the purchase of
shares. The Fund also reserves the right to suspend the sale of the Fund's
shares in response to conditions in the securities markets or for other reasons.
Investor accounts will automatically be credited with additional shares of the
Fund after any Fund distributions, such as dividends and capital gains
distributions, unless the investor instructs the Fund otherwise. Investors
wishing to receive cash instead of additional shares should contact the Fund at
(800) 341-2911 or by writing to the Fund, c/o Van Kampen Investors Services
Inc., PO Box 418256, Kansas City, MO 64141-9256.
CLASS A SHARES
Class A Shares of the Fund are sold at net asset value plus an initial maximum
sales charge of up to 4.75% of the offering price (or 4.99% of the net amount
invested), reduced on investments of $100,000 or more as follows:
CLASS A SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
As % of As % of
Size of Offering Net Amount
Investment Price Invested
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
Less than $100,000 4.75% 4.99%
..........................................................
$100,000 but less than
$250,000 3.75% 3.90%
..........................................................
$250,000 but less than
$500,000 2.75% 2.83%
..........................................................
$500,000 but less than
$1,000,000 2.00% 2.04%
..........................................................
$1,000,000 or more * *
..........................................................
</TABLE>
* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a contingent
deferred sales charge of 1.00% on certain redemptions made within one year of
the purchase. The contingent deferred sales charge is assessed on an amount
equal to the lesser of the then current market value or the cost of the shares
being redeemed. Accordingly, no sales charge is imposed on increases in net
asset value above the initial purchase price.
The Fund may spend an aggregate amount up to 0.25% per year of the average daily
net assets attributable to the Class A Shares of the Fund pursuant to the
Distribution Plan and Service Plan. From such amount, the Fund may spend up to
0.25% per year of the Fund's average daily net assets attributable to the Class
A Shares pursuant to the Service Plan in connection with the ongoing provision
of services to holders of such shares by the Distributor and by brokers, dealers
or financial intermediaries and in connection with the maintenance of such
shareholders' accounts. The rates in this paragraph are 0.15% with respect to
Class A Shares in accounts existing on or before September 30, 1989.
CLASS B SHARES
Class B Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge if redeemed within five years of purchase as shown in the
table as follows:
CLASS B SHARES
SALES CHARGE SCHEDULE
<TABLE>
<CAPTION>
Contingent Deferred
Sales Charge
as a Percentage of
Dollar Amount
Year Since Purchase Subject to Charge
- ------------------------------------------------
<S> <C> <C> <C>
First 4.00%
................................................
Second 4.00%
................................................
Third 3.00%
................................................
Fourth 2.50%
................................................
Fifth 1.50%
................................................
Sixth and After None
................................................
</TABLE>
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gains distributions.
It is presently the policy of the Distributor not to accept any order for Class
B Shares in an amount of $500,000 or more because it
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-
<PAGE> 15
ordinarily will be more advantageous for an investor making such an investment
to purchase Class A Shares.
The amount of the contingent deferred sales charge, if any, varies depending on
the number of years from the time of payment for the purchase of Class B Shares
until the time of redemption of such shares. Solely for purposes of determining
the number of years from the time of any payment for the purchase of shares, all
payments during a month are aggregated and deemed to have been made on the last
day of the month.
In determining whether a contingent deferred sales charge is applicable to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
The Fund may spend up to 0.75% per year of the average daily net assets
attributable to the Class B Shares of the Fund pursuant to the Distribution
Plan. In addition, the Fund may spend up to 0.25% per year of the Fund's average
daily net assets attributable to the Class B Shares pursuant to the Service Plan
in connection with the ongoing provision of services to holders of such shares
by the Distributor and by brokers, dealers or financial intermediaries and in
connection with the maintenance of such shareholders' accounts.
CLASS C SHARES
Class C Shares of the Fund are sold at net asset value and are subject to a
deferred sales charge of 1.00% of the dollar amount subject to charge if
redeemed within one year of purchase.
The contingent deferred sales charge is assessed on an amount equal to the
lesser of the then current market value or the cost of the shares being
redeemed. Accordingly, no sales charge is imposed on increases in net asset
value above the initial purchase price. In addition, no sales charge is assessed
on shares derived from reinvestment of dividends or capital gains distributions.
It is presently the policy of the Distributor not to accept any order for Class
C Shares in an amount of $1 million or more because it ordinarily will be more
advantageous for an investor making such an investment to purchase Class A
Shares.
In determining whether a contingent deferred sales charge is applicable to a
redemption, it is assumed that the redemption is first of any shares in the
shareholder's Fund account that are not subject to a contingent deferred sales
charge and then of shares held the longest in the shareholder's account.
The Fund may spend up to 0.75% per year of the average daily net assets
attributable to the Class C Shares of the Fund pursuant to the Distribution
Plan. In addition, the Fund may spend up to 0.25% per year of the Fund's average
daily net assets attributable to the Class C Shares pursuant to the Service Plan
in connection with the ongoing provision of services to holders of such shares
by the Distributor and by brokers, dealers or financial intermediaries and in
connection with the maintenance of such shareholders' accounts.
CONVERSION FEATURE
Class B Shares purchased on or after June 1, 1996, and any dividend reinvestment
plan shares received thereon, automatically convert to Class A Shares eight
years after the end of the calendar month in which the shares were purchased.
Class B Shares purchased before June 1, 1996, and any dividend reinvestment plan
shares received thereon, automatically convert to Class A Shares six years after
the end of the calendar month in which the shares were purchased. Class C Shares
purchased before January 1, 1997, and any dividend reinvestment plan shares
received thereon, automatically convert to Class A Shares ten years after the
end of the calendar month in which such shares were purchased. Such conversion
will be on the basis of the relative net asset values per share, without the
imposition of any sales load, fee or other charge. The conversion schedule
applicable to a share of the Fund acquired through the exchange privilege from
another Van Kampen fund is determined by reference to the Van Kampen fund from
which such share was originally purchased.
The conversion of such shares to Class A Shares is subject to the continuing
availability of an opinion of counsel to the effect that (i) the assessment of
the higher distribution fee and transfer agency costs with respect to such
shares does not result in the Fund's dividends or distributions constituting
"preferential dividends" under the federal income tax law and (ii) the
conversion of shares does not constitute a taxable event under federal income
tax law. The conversion may be suspended if such an opinion is no longer
available and such shares might continue to be subject to the higher aggregate
fees applicable to such shares for an indefinite period.
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<PAGE> 16
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge is waived on redemptions of Class B Shares
and Class C Shares (i) within one year following the death or disability (as
disability is defined by federal income tax law) of a shareholder, (ii) in
connection with required minimum distributions from an individual retirement
account ("IRA") or certain other retirement plan distributions, (iii) pursuant
to the Fund's systematic withdrawal plan but limited to 12% annually of the
initial value of the account, (iv) in circumstances under which no commission or
transaction fee is paid to authorized dealers at the time of purchase of such
shares and (v) effected pursuant to the right of the Fund to involuntarily
liquidate a shareholder's account as described under the heading "Redemption of
Shares." The contingent deferred sales charge also is waived on redemptions of
Class C Shares as it relates to the reinvestment of redemption proceeds in
shares of the same class of the Fund within 180 days after redemption. For a
more complete description of contingent deferred sales charge waivers, please
refer to the Statement of Additional Information or contact your authorized
dealer.
QUANTITY DISCOUNTS
Investors purchasing Class A Shares may, under certain circumstances described
below, be entitled to pay reduced sales charges. Investors, or their authorized
dealers, must notify the Fund at the time of the purchase order whenever a
quantity discount is applicable to purchases. Upon such notification, an
investor will receive the lowest applicable sales charge. Quantity discounts may
be modified or terminated at any time. For more information about quantity
discounts, investors should contact their authorized dealer or the Distributor.
A person eligible for a reduced sales charge includes an individual, his or her
spouse and children under 21 years of age and any corporation, partnership or
sole proprietorship which is 100% owned, either alone or in combination, by any
of the foregoing; a trustee or other fiduciary purchasing for a single trust or
for a single fiduciary account, or a "company" as defined in Section 2(a)(8) of
the 1940 Act.
As used herein, "Participating Funds" refers to certain open-end investment
companies advised by Asset Management or Advisory Corp. and distributed by the
Distributor as determined from time to time by the Fund's Board of Trustees.
VOLUME DISCOUNTS. The size of investment shown in the Class A Shares sales
charge table applies to the total dollar amount being invested by any person in
shares of the Fund, or in any combination of shares of the Fund and shares of
other Participating Funds, although other Participating Funds may have different
sales charges.
CUMULATIVE PURCHASE DISCOUNT. The size of investment shown in the Class A Shares
sales charge table may also be determined by combining the amount being invested
in shares of the Participating Funds plus the current offering price of all
shares of the Participating Funds which have been previously purchased and are
still owned.
LETTER OF INTENT. A Letter of Intent provides an opportunity for an investor to
obtain a reduced sales charge by aggregating the investments over a 13-month
period to determine the sales charge as outlined in the Class A Shares sales
charge table. The size of investment shown in the Class A Shares sales charge
table includes purchases of shares of the Participating Funds over a 13-month
period based on the total amount of intended purchases plus the value of all
shares of the Participating Funds previously purchased and still owned. An
investor may elect to compute the 13-month period starting up to 90 days before
the date of execution of a Letter of Intent. Each investment made during the
period receives the reduced sales charge applicable to the total amount of the
investment goal. The initial purchase must be for an amount equal to at least 5%
of the minimum total purchase amount of the level selected. If trades not
initially made under a Letter of Intent subsequently qualify for a lower sales
charge through the 90-day back-dating provisions, an adjustment will be made at
the expiration of the Letter of Intent to give effect to the lower charge. Such
adjustment in sales charge will be used to purchase additional shares for the
shareholder at the applicable discount category. The Fund initially will escrow
shares totaling 5% of the dollar amount of the Letter of Intent to be held by
Investor Services in the name of the shareholder. In the event the Letter of
Intent goal is not achieved within the period, the investor must pay the
difference between the sales charge applicable to the purchases made and the
sales charges previously paid. Such payments may be made directly to the
Distributor or, if not paid, the Distributor will liquidate sufficient escrowed
shares to obtain the difference.
15
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<PAGE> 17
OTHER PURCHASE PROGRAMS
Purchasers of Class A Shares may be entitled to reduced initial sales charges in
connection with the unit investment trust reinvestment program and purchases by
registered representatives of selling firms or purchases by persons affiliated
with the Fund or the Distributor. The Fund reserves the right to modify or
terminate these arrangements at any time.
UNIT INVESTMENT TRUST REINVESTMENT PROGRAM. The Fund permits unitholders of unit
investment trusts to reinvest distributions from such trusts in Class A Shares
of the Fund at net asset value per share and with no minimum initial or
subsequent investment requirement, if the administrator of an investor's unit
investment trust program meets certain uniform criteria relating to cost savings
by the Fund and the Distributor. The total sales charge for all other
investments made from unit trust distributions will be 1.00% of the offering
price (1.01% of net asset value). Of this amount, the Distributor will pay to
the authorized dealer, if any, through which such participation in the
qualifying program was initiated 0.50% of the offering price as a dealer
concession or agency commission. Persons desiring more information with respect
to this program, including the applicable terms and conditions thereof, should
contact their authorized dealer or the Distributor.
The administrator of such a unit investment trust must have an agreement with
the Distributor pursuant to which the administrator will (1) submit a single
bulk order and make payment with a single remittance for all investments in the
Fund during each distribution period by all investors who choose to invest in
the Fund through the program and (2) provide Investor Services with appropriate
backup data for each participating investor in a computerized format fully
compatible with Investor Services' processing system.
As further requirements for obtaining these special benefits, the Fund also
requires that all dividends and other distributions by the Fund be reinvested in
additional shares without any systematic withdrawal program. There will be no
minimum for reinvestments from unit investment trusts. The Fund will send
account activity statements to such participants on a quarterly basis only, even
if their investments are made more frequently. The Fund reserves the right to
modify or terminate this program at any time.
NET ASSET VALUE PURCHASE OPTIONS. Class A Shares of the Fund may be purchased at
net asset value, upon written assurance that the purchase is made for investment
purposes and that the shares will not be resold except through redemption by the
Fund, by:
1. Current or retired trustees or directors of funds advised by Asset Management
or Advisory Corp. and such persons' families and their beneficial accounts.
2. Current or retired directors, officers and employees of Morgan Stanley Dean
Witter & Co. and any of its subsidiaries, employees of an investment
subadviser to any fund described in (1) above or an affiliate of such
subadviser, and such persons' families and their beneficial accounts.
3. Directors, officers, employees and, when permitted, registered
representatives, of financial institutions that have a selling group
agreement with the Distributor and their spouses and children under 21 years
of age when purchasing for any accounts they beneficially own, or, in the
case of any such financial institution, when purchasing for retirement plans
for such institution's employees; provided that such purchases are otherwise
permitted by such institutions.
4. Registered investment advisers who charge a fee for their services, trust
companies and bank trust departments investing on their own behalf or on
behalf of their clients. The Distributor may pay authorized dealers through
which purchases are made an amount up to 0.50% of the amount invested, over a
12-month period.
5. Trustees and other fiduciaries purchasing shares for retirement plans which
invest in multiple fund families through broker-dealer retirement plan
alliance programs that have entered into agreements with the Distributor and
which are subject to certain minimum size and operational requirements.
Trustees and other fiduciaries should refer to the Statement of Additional
Information for further details with respect to such alliance programs.
6. Beneficial owners of shares of Participating Funds held by a retirement plan
or held in a tax-advantaged retirement account who purchase shares of the
Fund with proceeds from distributions from such a plan or retirement account
other than distributions taken to correct an excess contribution.
16
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<PAGE> 18
7. Accounts as to which a bank or broker-dealer charges an account management
fee ("wrap accounts"), provided the bank or broker-dealer has a separate
agreement with the Distributor.
8. Trusts created under pension, profit sharing or other employee benefit plans
qualified under Section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), or custodial accounts held by a bank created pursuant
to Section 403(b) of the Code and sponsored by non-profit organizations
defined under Section 501(c)(3) of the Code and assets held by an employer or
trustee in connection with an eligible deferred compensation plan under
Section 457 of the Code. Such plans will qualify for purchases at net asset
value provided, for plans initially establishing accounts with the
Distributor in the Participating Funds after February 1, 1997, that (1) the
initial amount invested in the Participating Funds is at least $500,000 or
(2) such shares are purchased by an employer sponsored plan with more than
100 eligible employees. Such plans that have been established with a
Participating Fund or have received proposals from the Distributor prior to
February 1, 1997 based on net asset value purchase privileges previously in
effect will be qualified to purchase shares of the Participating Funds at net
asset value for accounts established on or before May 1, 1997. Section 403(b)
and similar accounts for which Van Kampen Trust Company serves as custodian
will not be eligible for net asset value purchases based on the aggregate
investment made by the plan or the number of eligible employees, except under
certain uniform criteria established by the Distributor from time to time.
Prior to February 1, 1997, a commission will be paid to authorized dealers
who initiate and are responsible for such purchases within a rolling
twelve-month period as follows: 1.00% on sales to $5 million, plus 0.50% on
the next $5 million, plus 0.25% on the excess over $10 million. For purchases
on February 1, 1997 and thereafter, a commission will be paid as follows:
1.00% on sales to $2 million, plus 0.80% on the next $1 million, plus 0.50%
on the next $47 million, plus 0.25% on the excess over $50 million.
9. Individuals who are members of a "qualified group". For this purpose, a
qualified group is one which (i) has been in existence for more than six
months, (ii) has a purpose other than to acquire shares of the Fund or
similar investments, (iii) has given and continues to give its endorsement or
authorization, on behalf of the group, for purchase of shares of the Fund and
Participating Funds, (iv) has a membership that the authorized dealer can
certify as to the group's members and (v) satisfies other uniform criteria
established by the Distributor for the purpose of realizing economies of
scale in distributing such shares. A qualified group does not include one
whose sole organizational nexus, for example, is that its participants are
credit card holders of the same institution, policy holders of an insurance
company, customers of a bank or broker-dealer, clients of an investment
adviser or other similar groups. Shares purchased in each group's
participants account in connection with this privilege will be subject to a
contingent deferred sales charge of 1.00% in the event of redemption within
one year of purchase, and a commission will be paid to authorized dealers who
initiate and are responsible for such sales to each individual as follows:
1.00% on sales to $2 million, plus 0.80% on the next $1 million and 0.50% on
the excess over $3 million.
The term "families" includes a person's spouse, children under 21 years of age
and grandchildren, parents, and a person's spouse's parents.
Purchase orders made pursuant to clause (4) may be placed either through
authorized dealers as described above or directly with Investor Services by the
investment adviser, trust company or bank trust department, provided that
Investor Services receives federal funds for the purchase by the close of
business on the next business day following acceptance of the order. An
authorized dealer may charge a transaction fee for placing an order to purchase
shares pursuant to this provision or for placing a redemption order with respect
to such shares. Authorized dealers will be paid a service fee as described on
purchases made as described in (3) through (9) above. The Fund may terminate, or
amend the terms of, offering shares of the Fund at net asset value to such
groups at any time.
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<PAGE> 19
REDEMPTION OF
SHARES
Generally shareholders may redeem for cash some or all of their shares without
charge by the Fund (other than applicable sales charge) at any time. As
described under the heading "Purchase of Shares," redemptions of Class B Shares
and Class C Shares may be subject to a contingent deferred sales charge. In
addition, certain redemptions of Class A Shares for shareholder accounts of $1
million or more may be subject to a contingent deferred sales charge.
Redemptions completed through an authorized dealer or a custodian of a
retirement plan account may involve additional fees charged by the dealer or
custodian.
Except as specified below under "Telephone Redemption Requests," payment for
shares redeemed generally will be made by check mailed within seven days after
acceptance by Investor Services of the request and any other necessary documents
in proper order. Such payment may be postponed or the right of redemption
suspended as provided by the rules of the SEC. Such payment may, under certain
circumstances, be paid wholly or in part by a distribution-in-kind of portfolio
securities. If the shares to be redeemed have been recently purchased by check,
Investor Services may delay the redemption until it confirms the purchase check
has cleared, which may take up to 15 days. A taxable gain or loss will be
recognized by the shareholder upon redemption of shares.
WRITTEN REDEMPTION REQUESTS. Shareholders may request a redemption of shares by
written request in proper form sent directly to Van Kampen Investor Services
Inc., PO Box 418256, Kansas City, MO 64141-9256. The request for redemption
should indicate the number of shares to be redeemed, the class designation of
such shares and the shareholder's account number. The redemption request must be
signed by all persons in whose names the shares are registered. Signatures must
conform exactly to the account registration. If the proceeds of the redemption
exceed $50,000, or if the proceeds are not to be paid to the record owner at the
record address, or if the record address has changed within the previous 30
days, signature(s) must be guaranteed by one of the following: a bank or trust
company; a broker-dealer; a credit union; a national securities exchange,
registered securities association or clearing agency; a savings and loan
association; or a federal savings bank.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption. In some cases, however,
other documents may be necessary. In the case of shareholders holding
certificates, the certificates for the shares being redeemed properly endorsed
for transfer must accompany the redemption request. In the event the redemption
is requested by a corporation, partnership, trust, fiduciary, executor or
administrator, and the name and title of the individual(s) authorizing such
redemption is not shown in the account registration, a copy of the corporate
resolution or other legal documentation appointing the authorized signer and
certified within the prior 120 days must accompany the redemption request. IRA
redemption requests should be sent to the IRA custodian to be forwarded to
Investor Services. Contact the IRA custodian for further information.
In the case of written redemption requests sent directly to Investor Services,
the redemption price is the net asset value per share next determined after the
request in proper form is received by Investor Services.
AUTHORIZED DEALER REDEMPTION REQUESTS. Shareholders may place redemption
requests through an authorized dealer. Orders sent through authorized dealers
must be at least $500 (unless transmitted by your authorized dealer via the
FUNDSERV network). The redemption price for such shares is the net asset value
per share next calculated after an order in proper form is received by an
authorized dealer provided such order is transmitted to the Distributor prior to
the Distributor's close of business on such day. It is the responsibility of
authorized dealers to transmit redemption requests received by them to the
Distributor so they will be received prior to such time. Redemptions completed
through an authorized dealer may involve additional fees charged by the dealer.
TELEPHONE REDEMPTION REQUESTS. The Fund permits redemption of shares by
telephone and for redemption proceeds to be sent to the address of record for
the account or to the bank account of record as described below. To establish
such privilege, a shareholder must complete the appropriate section of the
application form accompanying this prospectus or call the Fund at (800) 341-2911
to request that a copy of the Telephone Redemption Authorization form be sent to
them for completion. To redeem shares, contact the telephone transaction line at
(800) 421-5684. Van Kampen Investments, Investor Services and the Fund employ
procedures considered
18
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<PAGE> 20
by them to be reasonable to confirm that instructions communicated by telephone
are genuine. Such procedures include requiring certain personal identification
information prior to acting upon telephone instructions, tape recording
telephone communications and providing written confirmation of instructions
communicated by telephone. If reasonable procedures are employed, neither Van
Kampen Investments, Investor Services nor the Fund will be liable for following
telephone instructions which it reasonably believes to be genuine. Telephone
redemptions may not be available if the shareholder cannot reach Investor
Services by telephone, whether because all telephone lines are busy or for any
other reason; in such case, a shareholder would have to use the Fund's other
redemption procedure previously described. Requests received by Investor
Services prior to 4:00 p.m., New York time, will be processed at the next
determined net asset value per share. These privileges are available for all
accounts other than retirement accounts or accounts with shares represented by
certificates. If an account has multiple owners, Investor Services may rely on
the instructions of any one owner.
For redemptions authorized by telephone, amounts of $50,000 or less may be
redeemed daily if the proceeds are to be paid by check and amounts of at least
$1,000 up to $1 million may be redeemed daily if the proceeds are to be paid by
wire. The proceeds must be payable to the shareholder(s) of record and sent to
the address of record for the account or wired directly to their predesignated
bank account. This privilege is not available if the address of record has been
changed within 30 days prior to a telephone redemption request. Proceeds from
redemptions payable by wire transfer are expected to be wired on the next
business day following the date of redemption. The Fund reserves the right at
any time to terminate, limit or otherwise modify this redemption privilege.
OTHER REDEMPTION INFORMATION. The Fund may redeem any shareholder account with a
value on the date of the notice of redemption less than the minimum initial
investment as specified in this prospectus. At least 60 days advance written
notice of any such involuntary redemption will be given and the shareholder will
be given an opportunity to purchase the required value of additional shares at
the next determined net asset value without sales charge. Any involuntary
redemption may only occur if the shareholder account is less than the minimum
initial investment due to shareholder redemptions.
DISTRIBUTIONS FROM
THE FUND
In addition to any increase in the value of shares which the Fund may achieve,
shareholders may receive two kinds of return from the Fund: dividends and
capital gains distributions. Investors will be entitled to begin receiving
dividends on their shares on the business day after Investor Services receives
payment for such shares. However, shares become entitled to dividends on the day
Investor Services receives payment for the shares either through a fed wire or
NSCC settlement. Shares remain entitled to dividends through the day such shares
are processed for payment on redemption.
DIVIDENDS. Interest earned from investments is the Fund's main source of income.
Under the Fund's present policy, which may be changed at any time by the Fund's
Board of Trustees, distributions of all or substantially all of this income,
less expenses, are declared daily and paid monthly as dividends to shareholders.
The Fund has paid consecutive monthly dividends since its first monthly dividend
in November 1971. Dividends are automatically applied to purchase additional
shares of the Fund at the next determined net asset value unless the shareholder
instructs otherwise.
The per share dividends on Class B Shares and Class C Shares may be lower than
the per share dividends on Class A Shares as a result of the higher distribution
fees and transfer agency costs applicable to such classes of shares.
CAPITAL GAINS. The Fund may realize capital gains or losses when it sells
securities, depending on whether the sales prices for the securities are higher
or lower than purchase prices. Net realized capital gains represent the total
profit from sales of securities minus total losses from sales of securities
including losses carried forward from prior years. The Fund distributes any
taxable net realized capital gains to shareholders at least annually. As in the
case of dividends, capital gains distributions are automatically reinvested in
additional shares of the Fund at net asset value unless the shareholder
instructs otherwise.
19
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<PAGE> 21
SHAREHOLDER SERVICES
Listed below are some of the shareholder services the Fund offers to investors.
For a more complete description of the Fund's shareholder services, such as
investment accounts, share certificates, retirement plans, automated clearing
house deposits, dividend diversification and the systematic withdrawal plan,
please refer to the Statement of Additional Information or contact your
authorized dealer.
REINVESTMENT PLAN. A convenient way for investors to accumulate additional
shares is by accepting dividends and capital gains distributions in shares of
the Fund. Such shares are acquired at net asset value per share (without sales
charge) on the applicable payable date of the dividend or capital gains
distribution. Unless the shareholder instructs otherwise, the reinvestment plan
is automatic. This instruction may be made by telephone by calling (800)
341-2911 ((800) 421-2833 for the hearing impaired) or by writing to Investor
Services. The investor may, on the initial application or prior to any
declaration, instruct that dividends be paid in cash and capital gains
distributions be reinvested at net asset value, or that both dividends and
capital gains distributions be paid in cash.
AUTOMATIC INVESTMENT PLAN. An automatic investment plan is available under which
a shareholder can authorize Investor Services to charge a bank account on a
regular basis to invest pre-determined amounts in the Fund. Additional
information is available from the Distributor or your authorized dealer.
CHECK WRITING PRIVILEGE. A Class A shareholder holding shares of the Fund for
which certificates have not been issued and which are in a non-escrow status may
appoint Investor Services as agent by completing the Authorization for
Redemption by Check form and the appropriate section of the application and
returning the form and the application to Investor Services. Once the form is
properly completed, signed and returned to the agent, a supply of checks drawn
on State Street Bank and Trust Company (the "Bank") will be sent to the Class A
shareholder. These checks may be made payable by the Class A shareholder to the
order of any person in any amount of $100 or more.
When a check is presented to the Bank for payment, full and fractional Class A
Shares required to cover the amount of the check are redeemed from the
shareholder's Class A account by Investor Services at the next determined net
asset value per share. Check writing redemptions represent the sale of Class A
Shares. Any gain or loss realized on the sale of shares is a taxable event.
Checks will not be honored for redemption of Class A Shares held less than 15
calendar days, unless such Class A Shares have been paid for by bank wire. Any
Class A Shares for which there are outstanding certificates may not be redeemed
by check. If the amount of the check is greater than the proceeds of all
uncertificated shares held in the shareholder's Class A account, the check will
be returned and the shareholder may be subject to additional charges. A Class A
shareholder may not liquidate the entire account by means of a check. The check
writing privilege may be terminated or suspended at any time by the Fund or the
Bank. Retirement plans and accounts that are subject to backup withholding are
not eligible for the privilege.
EXCHANGE PRIVILEGE. Shares of the Fund may be exchanged for shares of the same
class of any Participating Fund based on the next computed net asset value per
share of each fund after requesting the exchange without any sales charge,
subject to certain limitations. Shares of the Fund may be exchanged for shares
of any Participating Fund only if shares of that Participating Fund are
available for sale; however, during periods of suspension of sales, shares of a
Participating Fund may be available for sale only to existing shareholders of a
Participating Fund. Shareholders seeking an exchange into a Participating Fund
should obtain and read the current prospectus for such fund.
To be eligible for exchange, shares of the Fund must have been registered in the
shareholder's name at least 30 days prior to an exchange. Shares of the Fund
registered in a shareholder's name for less than 30 days may only be exchanged
upon receipt of prior approval of the Adviser. Under normal circumstances, it is
the policy of the Adviser not to approve such requests.
When Class B Shares and Class C Shares are exchanged among Participating Funds,
the holding period for purposes of computing the contingent deferred sales
charge is based upon the date of the initial purchase of such shares from a
Participating Fund. If such Class B Shares or Class C Shares are redeemed and
not exchanged for shares of another
20
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<PAGE> 22
Participating Fund, Class B Shares and Class C Shares are subject to the
contingent deferred sales charge schedule imposed by the Participating Fund from
which such shares were originally purchased.
Exchanges of shares are sales and may result in a gain or loss for federal
income tax purposes. If the shares exchanged have been held for less than 91
days, the sales charge paid on such shares is carried over and included in the
tax basis of the shares acquired.
A shareholder wishing to make an exchange may do so by sending a written request
to Investor Services or by contacting the telephone transaction line at (800)
421-5684. A shareholder automatically has telephone exchange privileges unless
otherwise designated in the application form accompanying the prospectus. Van
Kampen Investments and its subsidiaries, including Investor Services, and the
Fund employ procedures considered by them to be reasonable to confirm that
instructions communicated by telephone are genuine. Such procedures include
requiring certain personal identification information prior to acting upon
telephone instructions, tape recording telephone communications, and providing
written confirmation of instructions communicated by telephone. If reasonable
procedures are employed, neither Van Kampen Investments, Investor Services nor
the Fund will be liable for following telephone instructions which it reasonably
believes to be genuine. If the exchanging shareholder does not have an account
in the fund whose shares are being acquired, a new account will be established
with the same registration, dividend and capital gains options (except dividend
diversification) and authorized dealer of record as the account from which
shares are exchanged, unless otherwise specified by the shareholder. In order to
establish a systematic withdrawal plan for the new account or reinvest dividends
from the new account into another fund, however, an exchanging shareholder must
submit a specific request. The Fund reserves the right to reject any order to
acquire its shares through exchange. In addition, the Fund may modify, restrict
or terminate the exchange privilege at any time on 60 days' notice to its
shareholders of any termination or material amendment.
For purposes of determining the sales charge rate previously paid on Class A
Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of his securities, the security upon
which the highest sales charge rate was previously paid is deemed exchanged
first.
Exchange requests received on a business day prior to the time shares of the
funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares in the fund from which the
shareholder is withdrawing an investment will be redeemed at the net asset value
per share next determined on the date of receipt. Shares of the new fund into
which the shareholder is investing will also normally be purchased at the net
asset value per share, plus any applicable sales charge, next determined on the
date of receipt. Exchange requests received on a business day after the time
shares of the funds involved in the request are priced will be processed on the
next business day in the manner described herein.
A prospectus of any of these Participating Funds may be obtained from any
authorized dealer or the Distributor. An investor considering an exchange to one
of such funds should refer to the prospectus for additional information
regarding such fund prior to investing.
INTERNET TRANSACTIONS. In addition to performing transactions on your account
through written instruction or by telephone, you may also perform certain
transactions through the internet. Please refer to our web site at
www.vankampen.com for further instruction. Van Kampen Investments, Investor
Services and the Fund employ procedures considered by them to be reasonable to
confirm that instructions communicated through the internet are genuine. Such
procedures include requiring use of a personal identification number prior to
acting upon internet instructions and providing written confirmation of
instructions communicated through the internet. If reasonable procedures are
employed, neither Van Kampen Investments, Investor Services nor the Fund will be
liable for following instructions through the internet which it reasonably
believes to be genuine. If an account has multiple owners, Investor Services may
rely on the instructions of any one owner.
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<PAGE> 23
FEDERAL INCOME TAXATION
Distributions of the Fund's net investment income (consisting generally of
taxable income and net short-term capital gains) are taxable to shareholders as
ordinary income to the extent of the Fund's earnings and profits, whether paid
in cash or reinvested in additional shares. Distributions of the Fund's net
capital gains (which are the excess of net long-term capital gains over net
short-term capital losses), if any, are taxable to shareholders as long-term
capital gains, whether paid in cash or reinvested in additional shares, and
regardless of how long the shares of the Fund have been held by such
shareholders. Such capital gain dividends may be taxed at different rates
depending on how long the Fund held the securities. The Fund expects that its
distributions will consist primarily of ordinary income. Distributions in excess
of the Fund's earnings and profits will first reduce the adjusted tax basis of a
holder's shares and, after such adjusted tax basis is reduced to zero, will
constitute capital gains to such holder (assuming such shares are held as a
capital asset). Although distributions generally are treated as taxable in the
year they are paid, distributions declared in October, November or December,
payable to shareholders of record on a specified date in such month and paid
during January of the following year will be treated as having been distributed
by the Fund and received by the shareholders on the December 31st prior to the
date of payment. The Fund will inform shareholders of the source and tax status
of all distributions promptly after the close of each calendar year.
The sale or exchange of shares is a taxable transaction for federal income tax
purposes. Shareholders that sell their shares will generally recognize gain or
loss in an amount equal to the difference between their adjusted tax basis in
the shares and the amount received. If such shares are held as a capital asset,
the gain or loss will be a capital gain or loss. Any capital gains may be taxed
at different rates depending on how long the shareholder held it shares.
The Fund is required, in certain circumstances, to withhold 31% of dividends and
certain other payments, including redemptions, paid to shareholders who do not
furnish to the Fund their correct taxpayer identification number (in the case of
individuals, their social security number) and certain required certifications
or who are otherwise subject to backup withholding.
Foreign shareholders, including shareholders who are non-resident aliens, may be
subject to United States withholding tax on certain distributions (whether
received in cash or in shares) at a rate of 30% or such lower rate as prescribed
by an applicable treaty. Prospective foreign investors should consult their
United States tax advisers concerning the tax consequences to them of an
investment in shares.
The Fund intends to qualify as a regulated investment company under the federal
income tax law. If the Fund so qualifies and distributes each year to its
shareholders at least 90% of its net investment income, the Fund will not be
required to pay federal income taxes on any income it distributed to
shareholders. If the Fund distributes less than 98% of its ordinary income or
less than 98% of its capital gain net income, then the Fund will be subject to a
4% excise tax on such undistributed amounts.
The federal income tax discussion above is for general information only.
Prospective investors should consult their own tax advisers regarding the
specific federal tax consequences of purchasing, holding, exchanging or selling
shares, as well as the effects of state, local and foreign tax law and any
proposed tax law changes.
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<PAGE> 24
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past five years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the Fund's financial statements, is
included in the Statement of Additional Information and may be obtained by
shareholders without charge by calling the telephone number on the back cover of
this prospectus. This information should be read in conjunction with the
financial statements and notes thereto included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
Class A Shares
Year Ended August 31,
1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period................... $6.967 $6.650 $6.94 $6.62 $7.36
------ ------ ------ ------ ------
Net Investment Income........ .454 .494 .479 .48 .49
Net Realized and Unrealized
Gain/Loss.................. .085 .309 (.289) .32 (.745)
------ ------ ------ ------ ------
Total from Investment
Operations................... .539 .803 .190 .80 (.255)
Less Distributions from and in
Excess of Net Investment
Income....................... .480 .486 .480 .48 .485
------ ------ ------ ------ ------
Net Asset Value, End of the
Period....................... $7.026 $6.967 $6.650 $6.94 $6.62
====== ====== ====== ====== ======
Total Return (a)............... 7.89% 12.46% 2.71% 12.71% (3.55%)
Net Assets at End of the Period
(In millions)................ $186.0 $160.9 $162.9 $169.0 $160.0
Ratio of Expenses to Average
Net Assets (b)............... 1.08% 1.13% 1.10% 1.13% 1.09%
Ratio of Net Investment Income
to Average Net Assets (b).... 6.40% 7.16% 6.90% 7.22% 7.06%
Portfolio Turnover............. 17% 18% 34% 25% 0%
<CAPTION>
Class B Shares
Year Ended August 31,
1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period................... $6.955 $6.642 $6.94 $6.62 $7.36
------ ------ ------ ------ ------
Net Investment Income........ .412 .438 .424 .42 .44
Net Realized and Unrealized
Gain/Loss.................. .071 .308 (.290) .33 (.755)
------ ------ ------ ------ ------
Total from Investment
Operations................... .483 .746 .134 .75 (.315)
Less Distributions from and in
Excess of Net Investment
Income....................... .427 .433 .432 .43 .425
------ ------ ------ ------ ------
Net Asset Value, End of the
Period....................... $7.011 $6.955 $6.642 $6.94 $6.62
====== ====== ====== ====== ======
Total Return (a)............... 6.95% 12.19% 1.85% 11.86% (4.38%)
Net Assets at End of the Period
(In millions)................ $53.8 $34.0 $26.9 $19.2 $13.5
Ratio of Expenses to Average
Net Assets (b)............... 1.85% 1.91% 1.90% 1.94% 1.90%
Ratio of Net Investment Income
to Average Net Assets (b).... 5.59% 6.37% 6.12% 6.40% 6.29%
Portfolio Turnover............. 17% 18% 34% 25% 0%
<CAPTION>
Class C Shares
Year Ended August 31,
1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
the Period................... $6.956 $6.639 $6.93 $6.62 $7.36
------ ------ ------ ------ ------
Net Investment Income........ .419 .434 .426 .42 .44
Net Realized and Unrealized
Gain/Loss.................. .063 .316 (.285) .32 (.755)
------ ------ ------ ------ ------
Total from Investment
Operations................... .482 .750 .141 .74 (.315)
Less Distributions from and in
Excess of Net Investment
Income....................... .427 .433 .432 .43 .425
------ ------ ------ ------ ------
Net Asset Value, End of the
Period....................... $7.011 $6.956 $6.639 $6.93 $6.62
====== ====== ====== ====== ======
Total Return (a)............... 6.95% 11.63% 2.00% 11.70% (4.51%)
Net Assets at End of the Period
(In millions)................ $9.8 $5.1 $5.9 $4.1 $2.3
Ratio of Expenses to Average
Net Assets (b)............... 1.85% 1.92% 1.90% 1.93% 1.93%
Ratio of Net Investment Income
to Average Net Assets (b).... 5.55% 6.38% 6.14% 6.40% 6.49%
Portfolio Turnover............. 17% 18% 34% 25% 0%
</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) For the years ended August 31, 1997 and 1996, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due the Adviser's
reimbursement of expenses was less than 0.01%.
23
<PAGE> 25
APPENDIX -- DESCRIPTION
OF SECURITIES RATINGS
STANDARD & POOR'S -- A brief description of the applicable Standard & Poor's
(S&P) rating symbols and their meanings (as published by S&P) follow:
A S&P corporate or municipal debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers, or
lessees.
The debt rating is not a recommendation to purchase, sell, or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer or obtained
by S&P from other sources it considers reliable. S&P does not perform an audit
in connection with any rating and may, on occasion, rely on unaudited financial
information. The ratings may be changed, suspended, or withdrawn as a result of
changes in, or unavailability of, such information, or based on other
circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of payment--capacity and willingness of the obligor to meet its
financial commitment on an obligation in accordance with the terms of the
obligation:
2. Nature of and provisions of the obligation:
3. Protection afforded by, and relative position of, the obligation in the event
of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditor's rights.
1. LONG-TERM DEBT -- INVESTMENT GRADE
AAA: Debt rated "AAA" has the highest rating assigned by S&P. Capacity to meet
its financial commitment on the obligation is extremely strong.
AA: Debt rated "AA" differs from the highest rated issues only in small degree.
Capacity to meet its financial commitment on the obligation is very strong.
A: Debt rated "A" is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligations in higher rated
categories. Capacity to meet its financial commitment on the obligation is still
strong.
BBB: Debt rated "BBB" exhibits adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to meet its financial commitment on the obligation.
SPECULATIVE GRADE
BB, B, CCC, CC, C: Debts rated "BB", "B", "CCC", "CC" and "C" are regarded as
having significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB: Debt rated "BB" is less vulnerable to nonpayment than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
B: Debt rated "B" is more vulnerable to nonpayment than obligations rated "BB",
but the obligor currently has the capacity to meet its financial commitment on
the obligation. Adverse business, financial, or economic conditions will likely
impair the obligor's capacity or willingness to meet its financial commitment on
the obligation.
CCC: Debt rated "CCC" is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial, or economic conditions, the obligor is not likely to have
the capacity to meet its financial commitment on the obligation.
CC: Debt rated "CC" is currently highly vulnerable to nonpayment.
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<PAGE> 26
C: The "C" rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this obligation
are being continued.
D: Debt rated "D" is in payment default. The "D" rating category is used when
payments on an obligation are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such payments will be
made during such grace period. The 'D' rating also will be used upon the filing
of a bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
r: This symbol is attached to the ratings of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk--such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
DEBT OBLIGATIONS OF ISSUERS OUTSIDE THE UNITED STATES AND ITS TERRITORIES are
rated on the same basis as domestic corporate and municipal issues. The ratings
measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
BOND INVESTMENT QUALITY STANDARDS: Under present commercial bank regulations
issued by the Comptroller of the Currency, bonds rated in the top four
categories ("AAA", "AA", "A", "BBB", commonly known as "investment grade"
ratings) are generally regarded as eligible for bank investment. In addition,
the laws of various states governing legal investments impose certain ratings or
other standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
2. COMMERCIAL PAPER
A S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.
Ratings are graded into several categories, ranging from "A-1" for the highest
quality obligations to "D" for the lowest. These categories are as follows:
A-1: The highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1".
A-3: Issues carrying this designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B: Issues rated "B" are regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
C: This rating is assigned to short-term debt obligations currently vulnerable
to nonpayment and is dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the obligation.
D: Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The "D" rating also will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
A commercial paper rating is not a recommendation to purchase, sell or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on
25
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<PAGE> 27
current information furnished to S&P by the issuer or obtained from other
sources it considers reliable. S&P does not perform an audit in connection with
any rating and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended or withdrawn as a result of changes in, or
unavailability of, such information, or based on other circumstances.
3. PREFERRED STOCK
A S&P preferred stock rating is an assessment of the capacity and willingness of
an issuer to pay preferred stock dividends and any applicable sinking fund
obligations. A preferred stock rating differs from a bond rating inasmuch as it
is assigned to an equity issue, which issue is intrinsically different from, and
subordinated to, a debt issue. Therefore, to reflect this difference, the
preferred stock rating symbol will normally not be higher than the bond rating
symbol assigned to, or that would be assigned to, the senior debt of the same
issuer.
The preferred stock ratings are based on the following considerations:
i. Likelihood of payment-capacity and willingness of the issuer to meet the
timely payment of preferred stock dividends and any applicable sinking fund
requirements in accordance with the terms of the obligation.
ii. Nature of, and provisions of, the issuer.
iii. Relative position of the issue in the event of bankruptcy, reorganization,
or other arrangements under the laws of bankruptcy and other laws affecting
creditors' rights.
AAA: This is the highest rating that may be assigned by S&P to a preferred stock
issue and indicates an extremely strong capacity to pay the preferred stock
obligations.
AA: A preferred stock issue rated "AA" also qualifies as a high-quality, fixed
income security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated "AAA".
A: An issue rated "A" is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
BBB: An issue rated "BBB" is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the "A" category.
BB, B and CCC: Preferred stock rated "B", "B", and "CCC" are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations.
"BB" indicates the lowest degree of speculation and "CCC" the highest. While
such issues will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
CC: The rating "CC" is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments, but that is currently paying.
C: A preferred stock rated "C" is a nonpaying issue.
D: A preferred stock rated "D" is a nonpaying issue with the issuer in default
on debt instruments.
NR: This indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy. PLUS (+) or MINUS (-): To provide more
detailed indications of preferred stock quality, ratings from "AA" to "CCC" may
be modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
A preferred stock rating is not a recommendation to purchase, sell, or hold a
security inasmuch as it does not comment as to market price or suitability for a
particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained by S&P from other sources it considers reliable.
S&P does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended, or withdrawn as a result of changes in, or unavailability of, such
information, or based on other circumstances.
MOODY'S INVESTORS SERVICE -- a brief description of the applicable Moody's
Investors
26
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<PAGE> 28
Service (Moody's) rating symbols and their meanings (as published by Moody's
Investor Service) follows:
1. LONG-TERM DEBT
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long- term risks appear somewhat larger than the Aaa securities.
A: Bonds which are rated a possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payment
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the issue ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated as a
matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published in
Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
2. SHORT-TERM DEBT
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year unless explicitly noted.
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<PAGE> 29
Moody's employs the following three designations, all judged to be investment
grade, to indicate the relative repayment ability of rated issues:
Issuers rated Prime-1 (or supporting institutions) have a superior ability for
repayment of senior short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics:
- -- Leading market positions in well-established industries.
- -- High rates of return on funds employed.
- -- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- -- Broad margins is earnings coverage of fixed financial charges and high
internal cash generation.
- -- Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of senior short-term debt obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or supporting institutions) have an acceptable ability
for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes of the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
3. PREFERRED STOCK
Preferred stock rating symbols and their definitions are as follows:
AAA: As issue which is rated "AAA" is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks.
AA: An issue which is rated "AA" is considered a high-grade preferred stock.
This rating indicates that there is a reasonable assurance the earnings and
asset protection will remain relatively well maintained in the foreseeable
future.
A: An issue which is rated "A" is considered to be an upper-medium-grade
preferred stock. While risks are judged to be somewhat greater than in the "AAA"
and "AA" classifications, earnings and asset protections are, nevertheless,
expected to be maintained at adequate levels.
BAA: An issue which is rated "BAA" is considered to be a medium-grade preferred
stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.
BA: An issue which is rated "BA" is considered to have speculative elements and
its future cannot be considered well assured. Earnings and asset protection may
be very moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.
B: An issue which is rated "B" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
CAA: An issue which is rated "CAA" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future status
of payments.
CA: An issue which is rated "CA" is speculative in a high degree and is likely
to be in arrears on dividends with little likelihood of eventual payment.
C: This is the lowest rated class of preferred or preference stock. Issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each rating classification.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category, the modifier 2 indicates a mid-range ranking, and the
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
28
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<PAGE> 30
FOR MORE INFORMATION
EXISTING SHAREHOLDERS OR PROSPECTIVE INVESTORS
Call your broker or (800) 341-2911
7:00 a.m. to 7:00 p.m. Central time, Monday through Friday
DEALERS
For dealer information, selling agreements, wire orders, or
redemptions, call the Distributor at
(800) 421-5666
TELECOMMUNICATIONS DEVICE FOR THE DEAF
For shareholder and dealer inquiries through Telecommunications
Device for the Deaf (TDD), call (800) 421-2833
FUND INFO(R)
For automated telephone services, call (800) 847-2424
WEB SITE
www.vankampen.com
VAN KAMPEN CORPORATE BOND FUND
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Investment Adviser
VAN KAMPEN ASSET MANAGEMENT INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Distributor
VAN KAMPEN FUNDS INC.
1 Parkview Plaza
PO Box 5555
Oakbrook Terrace, IL 60181-5555
Transfer Agent
VAN KAMPEN INVESTOR SERVICES INC.
PO Box 418256
Kansas City, MO 64141-9256
Attn: Van Kampen Corporate Bond Fund
Custodian
STATE STREET BANK AND TRUST COMPANY
225 West Franklin Street
PO Box 1713
Boston, MA 02105-1713
Attn: Van Kampen Corporate Bond Fund
Legal Counsel
SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
Independent Accountants
PRICEWATERHOUSECOOPERS LLP
200 East Randolph Drive
Chicago, IL 60601
<PAGE> 31
VAN KAMPEN
CORPORATE BOND FUND
PROSPECTUS
DECEMBER 29, 1998
A Statement of Additional Information, which
contains more details about the Fund, is
incorporated by reference in its entirety into
this prospectus.
You will find additional information about the
Fund in its annual and semiannual reports,
which explain the market conditions and
investment strategies affecting the Fund's
recent performance.
You can ask questions or obtain a free copy of
the Fund's reports or its Statement of
Additional Information by calling (800)
341-2911 from 7:00 a.m. to 7:00 p.m., Central
time, Monday through Friday.
Telecommunications Device for the Deaf users
may call (800) 421-2833. A free copy of the
Fund's reports can also be ordered from our
web site at www.vankampen.com.
Information about the Fund, including its
reports and Statement of Additional
Information, has been filed with the
Securities and Exchange Commission (SEC). It
can be reviewed and copied at the SEC Public
Reference Room in Washington, DC or online at
the SEC's web site (http://www.sec.gov). For
more information, please call the SEC at (800)
SEC-0330. You can also request these materials
by writing the Public Reference Section of the
SEC, Washington DC, 20549-6009, and paying a
duplication fee.
[VAN KAMPEN FUNDS LOGO]
Investment Company Act File No.
811-2423.
CORP PRO 12/98
<PAGE> 32
STATEMENT OF ADDITIONAL INFORMATION
VAN KAMPEN
CORPORATE BOND FUND
Van Kampen Corporate Bond Fund is a mutual fund that has a primary
investment objective of providing current income with preservation of capital.
Capital appreciation is a secondary objective that is sought only when
consistent with the primary investment objective. The Fund's management seeks to
achieve the investment objectives by investing primarily in a diversified
portfolio of corporate debt securities.
The Fund is organized as a diversified series of Van Kampen Corporate Bond
Fund, an open-end, management investment company (the "Trust").
This Statement of Additional Information is not a prospectus. This
Statement of Additional Information should be read in conjunction with the
Fund's prospectus (the "Prospectus") dated as of the same date as this Statement
of Additional Information. This Statement of Additional Information does not
include all the information that a prospective investor should consider before
purchasing shares of the Fund. Investors should obtain and read the Prospectus
prior to purchasing shares of the Fund. A Prospectus may be obtained without
charge by writing or calling Van Kampen Funds Inc. at 1 Parkview Plaza, PO Box
5555, Oakbrook Terrace, Illinois 60181-5555 or (800) 341-2911.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information......................................... B-2
Risk Factors................................................ B-3
Investment Objectives and Policies.......................... B-4
Options, Futures Contracts and Related Options.............. B-7
Investment Restrictions..................................... B-11
Trustees and Officers....................................... B-13
Investment Advisory Agreement............................... B-21
Distribution and Service.................................... B-22
Transfer Agent.............................................. B-25
Portfolio Transactions and Brokerage Allocation............. B-25
Shareholder Services........................................ B-27
Redemption of Shares........................................ B-29
Contingent Deferred Sales Charge-Class A.................... B-29
Waiver of Class B and Class C Contingent Deferred Sales
Charge.................................................... B-29
Taxation.................................................... B-31
Fund Performance............................................ B-34
Other Information........................................... B-36
Report of Independent Accountants........................... F-1
Financial Statements........................................ F-2
Notes to Financial Statements............................... F-12
</TABLE>
THIS STATEMENT OF ADDITIONAL INFORMATION IS DATED DECEMBER 29, 1998.
<PAGE> 33
GENERAL INFORMATION
The Fund was originally incorporated in Delaware on July 18, 1963 under the
name American Capital Bond Fund, Inc. The Fund was reincorporated by merger into
a Maryland corporation on September 19, 1973 under the same name. As of August
5, 1995, the Fund was reorganized under the name Van Kampen American Capital
Corporate Bond Fund as a series of the Trust. The Trust is organized as a
business trust under the laws of the State of Delaware. On July 14, 1998, the
Fund and the Trust adopted their present names.
Van Kampen Asset Management Inc. (the "Adviser" or "Asset Management"), Van
Kampen Funds Inc. (the "Distributor"), and Van Kampen Investor Services Inc.
("Investor Services") are wholly owned subsidiaries of Van Kampen Investments
Inc. (Van Kampen Investments), which is an indirect wholly owned subsidiary of
Morgan Stanley Dean Witter & Co. The principal office of the Fund, the Adviser,
the Distributor and Van Kampen Investments is located at 1 Parkview Plaza, PO
Box 5555, Oakbrook Terrace, Illinois 60181-5555.
Morgan Stanley Dean Witter & Co. and various of its directly or indirectly
owned subsidiaries, including Morgan Stanley Asset Management Inc., an
investment adviser, Morgan Stanley & Co. Incorporated, a registered
broker-dealer and investment adviser, and Morgan Stanley International, are
engaged in a wide range of financial services. Their principal businesses
include securities underwriting, distribution and trading; merger, acquisition,
restructuring and other corporate finance advisory activities; merchant banking;
stock brokerage and research services; credit services; asset management;
trading of futures, options, foreign exchange, commodities and swaps (involving
foreign exchange, commodities, indices and interest rates); real estate advice,
financing and investing; and securities lending.
The authorized capitalization of the Trust consists of an unlimited number
of shares of beneficial interest, par value $0.01 per share, which can be
divided into series, such as the Fund, and further subdivided into classes of
each series. Each share represents an equal proportionate interest in the assets
of the series with each other share in such series and no interest in any other
series. No series is subject to the liabilities of any other series. The
Declaration of Trust provides that shareholders are not liable for any
liabilities of the Trust or any of its series, requires inclusion of a clause to
that effect in every agreement entered into by the Trust or any of its series
and indemnifies shareholders against any such liability.
The Fund currently offers three classes of shares, designated Class A
Shares, Class B Shares and Class C Shares. Other classes may be established from
time to time in accordance with provisions of the Declaration of Trust. Each
class of shares of the Fund generally are identical in all respects except that
each class bears certain distribution expenses and has exclusive voting rights
with respect to its distribution fee. Shares of the Trust entitle their holders
to one vote per share; however, separate votes are taken by each series on
matters affecting an individual series and separate votes are taken by each
class of a series on matters affecting an individual class of such series. For
example, a change in investment policy for a series would be voted upon by
shareholders of only the series involved and a change in the distribution fee
for a class of a series would be voted upon by shareholders of only the class of
such series involved. Except as otherwise described in the Prospectus or herein,
shares do not have cumulative voting rights, preemptive rights or any
conversion, subscription or exchange rights.
The Fund does not contemplate holding regular meetings of shareholders to
elect Trustees or otherwise. However, the holders of 10% or more of the
outstanding shares may by written request require a meeting to consider the
removal of Trustees by a vote of two-thirds of the shares then outstanding cast
in person or by proxy at such meeting. The Fund will assist such holders in
communicating with other shareholders of the Fund to the extent required by the
1940 Act, as amended (the "1940 Act"), or rules or regulations promulgated by
the Securities and Exchange Commission ("SEC").
In the event of liquidation, each of the shares of the Fund is entitled to
its portion of all of the Fund's net assets after all debts and expenses of the
Fund have been paid. Since Class B Shares and Class C Shares have higher
distribution fees and transfer agency costs, the liquidation proceeds to holders
of Class B Shares and Class C Shares are likely to be lower than to holders of
Class A Shares.
The Trustees may amend the Declaration of Trust (including with respect to
any series) in any manner without shareholder approval, except that the Trustees
may not adopt any amendment adversely affecting the
B-2
<PAGE> 34
rights of shareholders of any series without approval by a majority of the
shares of each affected series present at a meeting of shareholders (or such
higher vote as may be required by the 1940 Act or other applicable law) and
except that the Trustees cannot amend the Declaration of Trust to impose any
liability on shareholders, make any assessment on shares or impose liabilities
on the Trustees without approval from each affected shareholder or Trustee, as
the case may be.
Statements contained in this Statements of Additional Information as to the
contents of any contract or other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement of which
this Statement of Additional Information forms a part, each such statement being
qualified in all respects by such reference.
As of December 3, 1998, no person was known by the Fund to own beneficially
or to hold of record 5% or more of the outstanding Class A Shares, Class B
Shares or Class C Shares of the Fund, except as follows:
<TABLE>
<CAPTION>
AMOUNT OF
OWNERSHIP AT
NAME AND ADDRESS DECEMBER 3, CLASS PERCENTAGE
OF HOLDER 1998 OF SHARES OWNERSHIP
---------------- ------------ --------- ----------
<S> <C> <C> <C>
Van Kampen Trust Company.................................. 5,825,717.69 A 21.63%
2800 Post Oak Blvd. 1,456,587.38 B 17.88%
Houston, TX 77056.........................................
Merrill Lynch Pierce Fenner & Smith Inc................... 1,914,975.09 C 18.44%
For the Sole Benefit of its Customers
Attn: Fund Administration
4800 Deer Lake Drive East
2nd Floor
Jacksonville, FL 32246-6484
</TABLE>
- ---------------
Van Kampen Trust Company acts as custodian for certain employee benefit plans
and independent retirement accounts.
RISK FACTORS
The following are additional risk factors associated with the Fund's
investments in lower grade debt securities.
Youth and Growth of the Lower Grade Debt Securities Market. Past experience
may not provide an accurate indication of future performance of the market for
lower grade debt securities, particularly during periods of economic recession.
An economic downturn or increase in interest rates is likely to have a greater
negative effect on this market, including the ability of the issuers of such
securities to repay principal and interest, meet projected business goals and
obtain additional financing, all of which would have an adverse effect on the
value of lower grade debt securities in the Fund's portfolio and the Fund's net
asset value. These circumstances also may result in a higher incidence of
defaults than with respect to higher grade securities. An investment in this
Fund may be considered more speculative than investment in shares of a fund
which invests only in higher grade debt securities.
Sensitivity to Interest Rate and Economic Changes. Prices of lower grade
debt securities may be more sensitive to adverse economic changes or corporate
developments than higher grade investments. Debt securities with longer
maturities, which may have higher yields, may increase or decrease in value more
than debt securities with shorter maturities. Market prices of lower grade debt
securities structured as zero coupon or pay-in-kind securities are affected to a
greater extent by interest rate changes and may be more volatile than securities
which pay interest periodically and in cash. Lower grade securities have a
higher incidence of default than higher grade securities. An investment in this
Fund is more speculative than investment in shares of a fund which invests
primarily in higher grade income securities. The Fund monitors securities in the
portfolio and may take actions it considers appropriate in the event of
anticipated financial difficulties, default or bankruptcy of either the issuer
or any security owned by the Fund or the underlying source of funds for debt
service. Such actions may include retaining the services of various persons and
firms to evaluate or protect any real estate, facilities or other assets
securing any such obligation or acquired by the Fund as a result of any
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such event. The Fund may incur additional expenditures in taking protective
action, including litigation, with respect to Fund obligations in default and
assets securing such obligations. Where it deems it appropriate and in the best
interests of Fund shareholders, the Fund may incur additional expenses to seek
recovery on a debt security on which the issuer has defaulted.
Liquidity and Valuation. Because the market for lower grade securities may
be thinner and less active than for higher grade securities, there may be market
price volatility for these securities and limited liquidity in the resale
market. Changes in expectations regarding an individual issuer, an industry or
lower grade securities in general could reduce market liquidity for such
securities and make their sale by the Fund more difficult, at least in the
absence of price concessions. An economic downturn or an increase in interest
rates could severely disrupt the market for high yield bonds and adversely
affect the value of outstanding bonds and the ability of the issuers to repay
principal and interest. Unrated securities are usually not as attractive to as
many buyers as rated securities are, a factor which may make unrated securities
less marketable. These factors may have the effect of limiting the availability
of the securities for purchase by the Fund and may also limit the ability of the
Fund to sell such securities at their fair value either to meet redemption
requests or in response to changes in the economy or the financial markets.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of lower rated debt securities,
especially in a thinly traded market. To the extent the Fund owns or may acquire
illiquid or restricted lower grade securities, these securities may involve
special registration responsibilities, liabilities and costs, and liquidity and
valuation difficulties. Changes in values of debt securities which the Fund owns
will affect its net asset value per share. If market quotations are not readily
available for the Fund's lower rated or unrated securities, these securities
will be valued at prices believed to reflect their fair value determined in good
faith by the Fund's Adviser using methods approved by the Fund's Board of
Trustees. Judgment plays a greater role in valuing lower rated debt securities
than with respect to securities for which more external sources of quotations
and last sale information are available.
Congressional Action. New and proposed laws may have an impact on the
market for lower rated debt securities.
Taxation. Special tax considerations are associated with investing in lower
grade debt securities structured as zero coupon or pay-in-kind securities. The
Fund accrues income on these securities prior to the receipt of cash payments.
The Fund must distribute substantially all of its income to its shareholders to
qualify for pass-through treatment under the tax laws and may, therefore, have
to dispose of its portfolio securities to satisfy distribution requirements.
Credit Ratings and Manager Risk. Credit ratings are a factor the Fund's
Adviser considers in evaluating lower rated securities, but certain risks are
associated with using credit ratings. Credit ratings are not necessarily an
accurate reflection of the current financial condition of the issuers because
they may be based upon considerations taken into account at the time such
ratings were assigned, rather than upon subsequent developments affecting such
issuers. Moreover, ratings categories tend to be broad so that there may be
significant variations among the financial conditions of issuers within the same
category. The agencies may fail to change in a timely fashion the credit ratings
to reflect subsequent events; however, the Fund's Adviser continuously monitors
the issuers of lower rated income securities in its portfolio in an attempt to
determine if the issuers will have sufficient cash flow and profits to meet
required principal and interest payments. Achievement of the Fund's investment
objectives may be more dependent upon the Adviser's credit analysis than is the
case for higher quality income securities. Credit ratings for individual
securities may change from time to time and the Fund may retain a portfolio
security whose rating has been changed.
INVESTMENT OBJECTIVES AND POLICIES
The following disclosures supplement disclosures set forth under the same
caption in the Prospectus and do not, standing alone, present a complete or
accurate explanation of the matters disclosed. Readers must refer also to this
caption in the Prospectus for a complete presentation of the matters disclosed
below.
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LENDING OF SECURITIES
Consistent with applicable regulatory requirements, the Fund may lend its
portfolio securities, in an amount up to 10% of the Fund's total assets, to
broker-dealers and other financial institutions provided that such loans are
callable at any time by the Fund, and are at all times secured by cash
collateral that is at least equal to the market value, determined daily, of the
loaned securities. The advantage of such loans is that the Fund continues to
receive the interest and dividends on the loaned securities, while at the same
time earning interest on the collateral which will be invested in short-term
obligations. The Fund pays lending fees and custodial fees in connection with
loans of its securities. There is no assurance as to the extent to which
securities loans can be effected.
A loan may be terminated by the borrower on one business day's notice, or
by the Fund at any time. If the borrower fails to maintain the requisite amount
of collateral, the loan automatically terminates, and the Fund could use the
collateral to replace the securities while holding the borrower liable for any
excess of replacement cost over collateral. As with any extensions of credit,
there are risks of delay in recovery and in some cases even loss of rights in
the collateral should the borrower of the securities fail financially. However,
these loans of portfolio securities will only be made to firms deemed by the
Fund's management to be creditworthy and when the consideration which can be
earned from such loans is believed to justify the attendant risks. On
termination of the loan, the borrower is required to return the securities to
the Fund; any gain or loss in the market price during the loan would inure to
the Fund.
When voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loan, whole or in part
as may be appropriate, to permit the exercise of such rights if the matters
involved would have a material effect on the Fund's investment in the securities
which are the subject of the loan.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with banks or broker-dealers
in order to earn a return on temporarily available cash. A repurchase agreement
is a short-term investment in which the purchaser (i.e., the Fund) acquires
ownership of a debt security and the seller agrees to repurchase the obligation
at a future time and set price, thereby determining the yield during the holding
period. Repurchase agreements involve certain risks in the event of default by
the other party. The Fund may enter into repurchase agreements with banks or
broker-dealers deemed to be creditworthy by the Adviser under guidelines
approved by the Trustees. The Fund will not invest in repurchase agreements
maturing in more than seven days if any such investment, together with any other
illiquid securities held by the Fund, would exceed the Fund's limitation on
illiquid securities described below. In the event of the bankruptcy or other
default of a seller of a repurchase agreement, the Fund could experience both
delays in liquidating the underlying securities and losses including: (a)
possible decline in the value of the underlying security during the period while
the Fund seeks to enforce its rights thereto; (b) possible lack of access to
income on the underlying security during this period; and (c) expenses of
enforcing its rights.
For the purpose of investing in repurchase agreements, the Adviser may
aggregate the cash that certain funds advised or subadvised by the Adviser or
certain of its affiliates would otherwise invest separately into a joint
account. The cash in the joint account is then invested in repurchase agreements
and the funds that contributed to the joint account share pro rata in the net
revenue generated. The Adviser believes that the joint account produces
efficiencies and economies of scale that may contribute to reduced transaction
costs, higher returns, higher quality investments and greater diversity of
investments for the Fund than would be available to the Fund investing
separately. The manner in which the joint account is managed is subject to
conditions set forth in an exemptive order from the SEC authorizing this
practice, which conditions are designed to ensure the fair administration of the
joint account and to protect the amounts in that account.
Repurchase agreements are fully collateralized by the underlying debt
securities and are considered to be loans under the 1940 Act. The Fund pays for
such securities only upon physical delivery or evidence of book entry transfer
to the account of a custodian or bank acting as agent. The seller under a
repurchase agreement will be required to maintain the value of the underlying
securities marked-to-market daily at not less than the
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repurchase price. The underlying securities (normally securities of the U.S.
Government, or its agencies and instrumentalities) may have maturity dates
exceeding one year. The Fund does not bear the risk of a decline in value of the
underlying security unless the seller defaults under its repurchase obligation.
PORTFOLIO TURNOVER
The Fund's portfolio turnover rate is calculated by dividing the lesser of
purchases or sales of portfolio securities for a fiscal year by the average
monthly value of the Fund's portfolio securities during such fiscal year.
Securities which mature in one year or less at the time of acquisition are not
included in this computation. The turnover rate may vary greatly from year to
year as well as within a year. The Fund's portfolio turnover rate (the lesser of
the value of the securities purchased or securities sold divided by the average
value of the securities held in the Fund's portfolio excluding all securities
whose maturities at acquisition were one year or less) is shown in the table of
"Financial Highlights" in the Prospectus. A high portfolio turnover rate (100%
or more) increases the Fund's transaction costs, including brokerage
commissions, and may result in the realization of more short-term capital gains
than if the Fund had a lower portfolio turnover. The turnover rate will not be a
limiting factor, however, if the Adviser deems portfolio changes appropriate.
ILLIQUID SECURITIES
The Fund may invest up to 10% of its net assets in illiquid securities,
which includes repurchase agreements which have a maturity of longer than seven
days and generally includes securities that are restricted from sale to the
public without registration under the Securities Act of 1933, as amended (the
"1933 Act"). Restricted securities are often purchased at a discount from the
market price of unrestricted securities of the same issuer reflecting the fact
that such securities may not be readily marketable without some time delay.
Investments in securities which have no ready market are valued at fair value as
determined in good faith by the Adviser in accordance with procedures approved
by the Fund's Trustees. Ordinarily, the Fund would invest in restricted
securities only when it receives the issuer's commitment to register the
securities without expense to the Fund. However, registration and underwriting
expenses (which may range from 7% to 15% of the gross proceeds of the securities
sold) may be paid by the Fund. Restricted securities which can be offered and
sold to qualified institutional buyers under Rule 144A under the 1933 Act ("144A
Securities") and are determined to be liquid under guidelines adopted by and
subject to the supervision of the Fund's Board of Trustees are not subject to
the limitation on illiquid securities. Such 144A Securities are subject to
monitoring and may become illiquid to the extent qualified institutional buyers
become, for a time, uninterested in purchasing such securities. Factors used to
determine whether 144A Securities are liquid include, among other things, a
security's trading history, the availability of reliable pricing information,
the number of dealers making quotes or making a market in such security and the
number of potential purchasers in the market for such security. For purposes
hereof, investments by the Fund in securities of other investment companies will
not be considered investments in restricted securities to the extent permitted
by (i) the 1940 Act, as amended from time to time, (ii) the rules and
regulations promulgated by the SEC under the 1940 Act, as amended from time to
time, or (iii) an exemption or other relief from the provisions of the 1940 Act.
U.S. GOVERNMENT SECURITIES
The U.S. Government securities in which the Fund may invest include
obligations issued or guaranteed as to principal and interest by the U.S.
Government, its agencies and instrumentalities which are supported by any of the
following: (a) the full faith and credit of the U.S. Government, (b) the right
of the issuer to borrow an amount limited to a specific line of credit from the
U.S. Government, (c) discretionary authority of the U.S. Government agency or
instrumentality, or (d) the credit of the instrumentality. Such agencies or
instrumentalities include, but are not limited to, the Federal National Mortgage
Association, the Government National Mortgage Association, Federal Land Banks,
and the Farmer's Home Administration.
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OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS
SELLING CALL AND PUT OPTIONS
Purpose. The principal reason for selling options is to obtain, through
receipt of premiums, a greater current return than would be realized on the
underlying securities alone. Such current return could be expected to fluctuate
because premiums earned from an option selling program and dividend or interest
income yields on portfolio securities vary as economic and market conditions
change. Selling options on portfolio securities is likely to result in a higher
portfolio turnover rate.
Selling Options. The purchaser of a call option pays a premium to the
seller (i.e., the writer) for the right to buy the underlying security from the
seller at a specified price during a certain period. The Fund would write call
options only on a covered basis or for cross-hedging purposes. A call option is
covered if, at all times during the option period, the Fund would own or have
the right to acquire securities of the type that it would be obligated to
deliver if any outstanding option were exercised. An option is for cross-hedging
purposes if it is not covered by the security subject to the option, but is
designed to provide a hedge against another security which the Fund owns or has
the right to acquire. In such circumstances, the Fund collateralizes the option
by maintaining in a segregated account with the Fund's custodian cash or liquid
securities in an amount not less than the market value of the underlying
security, marked to market daily, while the option is outstanding.
The purchaser of a put option pays a premium to the seller (i.e., the
writer) for the right to sell the underlying security to the writer at a
specified price during a certain period. The Fund would sell put options only on
a secured basis, which means that, at all times during the option period, the
Fund would maintain in a segregated account with its custodian cash or liquid
securities in an amount of not less than the exercise price of the option, or
would hold a put on the same underlying security at an equal or greater exercise
price.
Closing Purchase Transactions and Offsetting Transactions. In order to
terminate its position as a writer of a call or put option, the Fund could enter
into a "closing purchase transaction," which is the purchase of a call (put) on
the same underlying security and having the same exercise price and expiration
date as the call (put) previously sold by the Fund. The Fund would realize a
gain (loss) if the premium plus commission paid in the closing purchase
transaction is less (greater) than the premium it received on the sale of the
option. The Fund would also realize a gain if an option it has written lapses
unexercised.
The Fund could sell options that are listed on an exchange as well as
options which are privately negotiated in over-the-counter transactions. The
Fund could close out its position as a seller of an option only if a liquid
secondary market exists for options of that series, but there is no assurance
that such a market will exist, particularly in the case of over-the-counter
options, since they can be closed out only with the other party to the
transaction. Alternatively, the Fund could purchase an offsetting option, which
would not close out its position as a seller, but would provide an asset of
equal value to its obligation under the option sold. If the Fund is not able to
enter into a closing purchase transaction or to purchase an offsetting option
with respect to an option it has sold, it will be required to maintain the
securities subject to the call or the collateral securing the option until a
closing purchase transaction can be entered into (or the option is exercised or
expires) even though it might not be advantageous to do so.
Risks of Writing Options. By selling a call option, the Fund loses the
potential for gain on the underlying security above the exercise price while the
option is outstanding; by selling a put option the Fund might become obligated
to purchase the underlying security at an exercise price that exceeds the then
current market price.
PURCHASING CALL AND PUT OPTIONS
The Fund could purchase call options to protect (i.e., hedge) against
anticipated increases in the prices of securities it wishes to acquire.
Alternatively, call options could be purchased for capital appreciation. Since
the premium paid for a call option is typically a small fraction of the price of
the underlying security, a given amount of funds will purchase call options
covering a much larger quantity of such security than could be purchased
directly. By purchasing call options, the Fund could benefit from any
significant increase in the price of the underlying security to a greater extent
than had it invested the same amount in the security
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<PAGE> 39
directly. However, because of the very high volatility of option premiums, the
Fund would bear a significant risk of losing the entire premium if the price of
the underlying security did not rise sufficiently, or if it did not do so before
the option expired.
Put options may be purchased to protect (i.e., hedge) against anticipated
declines in the market value of either specific portfolio securities or of the
Fund's assets generally. Alternatively, put options may be purchased for capital
appreciation in anticipation of a price decline in the underlying security and a
corresponding increase in the value of the put option. The purchase of put
options for capital appreciation involves the same significant risk of loss as
described above for call options.
In any case, the purchase of options for capital appreciation would
increase the Fund's volatility by increasing the impact of changes in the market
price of the underlying securities on the Fund's net asset value.
OVER THE COUNTER OPTIONS
The Fund is authorized to purchase and sell over-the-counter options ("OTC
Options"). OTC Options are purchased from or sold to securities dealers,
financial institutions of other parties ("Counterparties") through direct
bilateral agreement with the Counterparty. The Fund will sell only OTC Options
(other than OTC currency options) that are subject to a buy-back provision
permitting the Fund to require to the Counterparty to sell the option back to
the Fund at a formula price within seven days. The staff of the SEC currently
takes the position that, in general, OTC Options on securities other than U.S.
Government securities purchased by the Fund, and portfolio securities covering
OTC Options sold by the Fund, are illiquid securities subject to the Fund's
limitation on illiquid securities.
FUTURES CONTRACTS
The Fund may engage in transactions involving futures contracts and related
options in accordance with the rules and interpretations of the Commodity
Futures Trading Commission ("CFTC") under which the Fund would be exempt from
registration as a "commodity pool."
A corporate bond index futures contract is an agreement pursuant to which
two parties agree to take and make delivery of an amount of cash equal to a
specified dollar amount multiplied by the difference between the corporate bond
index value at a specified time and the price at which the futures contract
originally was struck. No physical delivery of the underlying corporate bonds in
the index is made.
An interest rate futures contract is an agreement pursuant to which a party
agrees to take or make delivery of a specified debt security (such as U.S.
Treasury bonds or notes) at a specified future time and at a specified price.
Initial and Variation Margin. In contrast to the purchase or sale of a
security, no price is paid or received upon the purchase or sale of a futures
contract. Initially, the Fund is required to deposit with its custodian in an
account in the broker's name an amount of cash or liquid securities equal to a
percentage (which will normally range between 2% and 10%) of the contract
amount. This amount is known as initial margin. The nature of initial margin in
futures transactions is different from that of margin in securities transactions
in that futures contract margin does not involve the borrowing of funds by the
customer to finance the transaction. Rather, the initial margin is in the nature
of a performance bond or good faith deposit on the contract, which is returned
to the Fund upon termination of the futures contract and satisfaction of its
contractual obligations. Subsequent payments to and from the broker, called
variation margin, are made on a daily basis as the price of the underlying
securities or index fluctuates, making the long and short positions in the
futures contract more or less valuable, a process known as marking to market.
For example, when the Fund purchases a futures contract and the price of
the underlying security rises, that position increases in value, and the Fund
receives from the broker a variation margin payment equal to that increase in
value. Conversely, where the Fund purchases a futures contract and the value of
the underlying security or index declines, the position is less valuable, and
the Fund is required to make a variation margin payment to the broker.
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<PAGE> 40
At any time prior to expiration of the futures contract, the Fund may elect
to terminate the position by taking an opposite position. A final determination
of variation margin is then made, additional cash is required to be paid by or
released to the Fund, and the Fund realizes a loss or a gain.
Futures Strategies. When the Fund anticipates a significant market or
market sector advance, the purchase of a futures contract affords a hedge
against not participating in the advance at a time when the Fund is otherwise
fully invested ("anticipatory hedge"). Such purchase of a futures contract would
serve as a temporary substitute for the purchase of individual securities, which
may be purchased in an orderly fashion once the market has stabilized. As
individual securities are purchased, an equivalent amount of futures contracts
could be terminated by offsetting sales. The Fund may sell futures contracts in
anticipation of or in a general market or market sector decline that may
adversely affect the market value of the Fund's securities ("defensive hedge").
To the extent that the Fund's portfolio of securities changes in value in
correlation with the underlying security or index, the sale of futures contracts
would substantially reduce the risk to the Fund of a market decline and, by so
doing provides an alternative to the liquidation of securities positions in the
Fund. Ordinarily commissions on futures transactions are lower than transaction
costs incurred in the purchase and sale of securities.
Special Risks Associated with Futures Transactions. There are several risks
connected with the use of futures contracts as a hedging device. These include
the risk of imperfect correlation between movements in the price of the futures
contracts and of the underlying securities, the risk of market distortion, the
illiquidity risk and the risk of error in anticipating price movement.
There may be an imperfect correlation (or no correlation) between movements
in the price of the futures contracts and of the securities being hedged. The
risk of imperfect correlation increases as the composition of the securities
being hedged diverges from the securities upon which the futures contract is
based. If the price of the futures contract moves less than the price of the
securities being hedged, the hedge will not be fully effective. To compensate
for the imperfect correlation, the Fund could buy or sell futures contracts in a
greater dollar amount than the dollar amount of securities being hedged if the
historical volatility of the securities being hedged is greater than the
historical volatility of the securities underlying the futures contract.
Conversely, the Fund could buy or sell futures contracts in a lesser dollar
amount than the dollar amount of securities being hedged if the historical
volatility of the securities being hedged is less than the historical volatility
of the securities underlying the futures contracts. It is also possible that the
value of futures contracts held by the Fund could decline at the same time as
portfolio securities being hedged; if this occurred, the Fund would lose money
on the futures contract in addition to suffering a decline in value in the
portfolio securities being hedged.
There is also the risk that the price of futures contracts may not
correlate perfectly with movements in the securities or index underlying the
futures contract due to certain market distortions. First, all participants in
the futures market are subject to margin depository and maintenance
requirements. Rather than meet additional margin depository requirements,
investors may close futures contracts through offsetting transactions, which
could distort the normal relationship between the futures market and the
securities or index underlying the futures contract. Second, from the point of
view of speculators, the deposit requirements in the futures market are less
onerous than margin requirements in the securities markets. Therefore, increased
participation by speculators in the futures markets may cause temporary price
distortions. Due to the possibility of price distortion in the futures markets
and because of the imperfect correlation between movements in futures contracts
and movements in the securities underlying them, a correct forecast of general
market trends by the Adviser may still not result in a successful hedging
transaction.
There is also the risk that futures markets may not be sufficiently liquid.
Futures contracts may be closed out only on an exchange or board of trade that
provides a market for such futures contracts. Although the Fund intends to
purchase or sell futures only on exchanges and boards of trade where there
appears to be an active secondary market, there can be no assurance that an
active secondary market will exist for any particular contract or at any
particular time. In the event of such illiquidity, it might not be possible to
close a futures position and, in the event of adverse price movement, the Fund
would continue to be required to make daily payments of variation margin. Since
the securities being hedged would not be sold until the related
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<PAGE> 41
futures contract is sold, an increase, if any, in the price of the securities
may to some extent offset losses on the related futures contract. In such event,
the Fund would lose the benefit of the appreciation in value of the securities.
Successful use of futures is also subject to the Adviser's ability to
correctly predict the direction of movements in the market. For example, if the
Fund hedges against a decline in the market, and market prices instead advance,
the Fund will lose part or all of the benefit of the increase in value of its
securities holdings because it will have offsetting losses in futures contracts.
In such cases, if the Fund has insufficient cash, it may have to sell portfolio
securities at a time when it is disadvantageous to do so in order to meet the
daily variation margin.
Although the Fund intends to enter into futures contracts only if there is
an active market for such contracts, there is no assurance that an active market
will exist for the contracts at any particular time. Most U.S. futures exchanges
and boards of trade limit the amount of fluctuation permitted in futures
contract prices during a single trading day. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit. It is possible that futures contract prices would move to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses. In such event, and in the event of
adverse price movements, the Fund would be required to make daily cash payments
of variation margin. In such circumstances, an increase in the value of the
portion of the portfolio being hedged, if any, may partially or completely
offset losses on the futures contract. However, as described above, there is no
guarantee that the price of the securities being hedged will, in fact, correlate
with the price movements in a futures contract and thus provide an offset to
losses on the futures contract.
The Fund will not enter into futures contracts or options transactions
(except for closing transactions) other than for bona fide hedging purposes, if
immediately thereafter, the sum of its initial margin and premiums on open
futures contracts and options exceed 5% of the fair market value of the Fund's
assets; however, in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. In order to prevent leverage in connection with the purchase of
futures contracts by the Fund, an amount of cash or liquid securities equal to
the market value of the obligation under the futures contracts (less any related
margin deposits) will be maintained in a segregated account with the custodian.
OPTIONS ON FUTURES CONTRACTS
The Fund could also purchase and write options on futures contracts. An
option on a futures contract gives the purchaser the right, in return for the
premium paid, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the option period. As a writer of an option on
a futures contract, the Fund would be subject to initial margin and maintenance
requirements similar to those applicable to futures contracts. In addition, net
option premiums received by the Fund are required to be included as initial
margin deposits. When an option on a futures contract is exercised, delivery of
the futures position is accompanied by cash representing the difference between
the current market price of the futures contract and the exercise price of the
option. The Fund could purchase put options on futures contracts in lieu of, and
for the same purposes as the sale of a futures contract; at the same time, it
could write put options at a lower strike price (a "put bear spread") to offset
part of the cost of the strategy to the Fund. The purchase of call options on
futures contracts is intended to serve the same purpose as the actual purchase
of the futures contracts.
Risks of Transactions in Options on Futures Contracts. In addition to the
risks described above which apply to all options transactions, there are several
special risks relating to options on futures. The Adviser will not purchase
options on futures on any exchange unless in the Adviser's opinion, a liquid
secondary exchange market for such options exists. Compared to the use of
futures, the purchase of options on futures involves less potential risk to the
Fund because the maximum amount at risk is the premium paid for the options
(plus transaction costs). However, there may be circumstances, such as when
there is no movement in the price of
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<PAGE> 42
the underlying security or index, when the use of an option on a future would
result in a loss to the Fund when the use of a future would not.
ADDITIONAL RISKS OF OPTIONS, FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
TRANSACTIONS
Each of the exchanges has established limitations governing the maximum
number of call or put options on the same underlying security or futures
contract (whether or not covered) which may be written by a single investor,
whether acting alone or in concert with others (regardless of whether such
options are written on the same or different exchanges or are held or written on
one or more accounts or through one or more brokers). Option positions of all
investment companies advised by the Adviser are combined for purposes of these
limits. An exchange may order the liquidation of positions found to be in
violation of these limits and it may impose other sanctions or restrictions.
These position limits may restrict the number of listed options which the Fund
may write.
In the event of the bankruptcy of a broker through which the Fund engages
in transactions in options, futures or related options, the Fund could
experience delays and/or losses in liquidating open positions purchased or incur
a loss of all or part of its margin deposits with the broker. Transactions are
entered into by the Fund only with brokers or financial institutions deemed
creditworthy by the Adviser.
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental investment restrictions
which may not be changed without approval by the vote of a majority of its
outstanding voting securities, which is defined by the 1940 Act as the lesser of
(i) 67% or more of the voting securities present in person or by proxy at the
meeting, if the holders of more than 50% of the outstanding voting securities
are present or represented by proxy; or (ii) more than 50% of the outstanding
voting securities. The Fund shall not:
1. Invest more than 5% of the value of its total assets in companies
having a record, together with predecessors, of less than three years
of continuous operation, except that the Fund may purchase securities
of other investment companies to the extent permitted by (i) the 1940
Act, as amended from time to time, (ii) the rules and regulations
promulgated by the Securities and Exchange Commission ("SEC") under the
1940 Act, as amended from time to time, or (iii) an exemption or other
relief from the provisions of the 1940 Act.
2. Borrow money, except for temporary or emergency purposes, and then not
in excess of 5% of its total assets taken at cost, or mortgage, pledge
or hypothecate its assets to secure such borrowing except in an amount
taken at market not exceeding 10% of its total assets taken at cost.
Notwithstanding the foregoing, the Fund may engage in transactions in
options, futures contracts and related options, segregate or deposit
assets to cover or secure options written and make margin deposits and
payments for futures contracts and related options.
3. Underwrite securities of other issuers, except insofar as the Fund may
be deemed to be an underwriter for purposes of the Securities Act of
1933, as amended (the "1933 Act") in the resale of any unregistered
securities owned by the Fund; provided, however, the Fund shall not
purchase any unregistered securities if immediately after and as a
result of such purchase of such securities, together with any other
illiquid securities held by the Fund, would constitute more than 10% of
the Fund's total assets.
4. Lend any of its assets except for the following types of transactions:
(a) loans of portfolio securities up to 10% of the value of the Fund's
net assets, taken at market, collateralized at 100% each business day,
subject to immediate termination if the collateral is not maintained,
or on five business days' notice by the Fund or not less than one
business day's notice by the borrower, on which the Fund will receive
all income accruing on the borrowed securities during the loan; (b) the
purchase of debt securities publicly distributed or of a type
customarily purchased by institutional investors; and (c) the purchase
of securities subject to repurchase agreements.
B-11
<PAGE> 43
5. Purchase real estate or interests in real estate (except through the
purchase of liquid securities of real estate investment trusts) or
commodities or commodity contracts, except that the Fund may enter into
transactions in futures contracts or related options.
6. Purchase securities on margin, but the Fund may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities, and it may engage in transactions in options, futures
contracts and related options and make margin payments in connection
therewith.
7. Make short sales of securities or maintain a short position, but it may
engage in transactions in options, futures contracts and related
options.
8. Invest more than 25% of the value of its total assets in the securities
of issuers all of which conduct their principal business activities in
the same industry; provided that neither all utility companies, as a
group, nor all finance companies, as a group, are considered a single
industry for purposes of this policy.
9. Invest in securities issued by other investment companies except as
part of a merger, reorganization or other acquisition and except to the
extent permitted by (i) the 1940 Act, as amended from time to time,
(ii) the rules and regulations promulgated by the SEC under the 1940
Act, as amended from time to time, or (iii) an exemption or other
relief from the provisions of the 1940 Act.
10. Issue any bonds, notes, debentures or other obligations senior to
shares of its capital stock. Notwithstanding the foregoing, the Fund
may engage in transactions in options, futures contracts and related
options and make margin deposits and payments in connection therewith.
11. Hold the securities of a company if any officer or trustee of the Fund
or its investment adviser owns more than 1/2% interest in it, or if
the officers and trustees together own more than a 5% interest.
12. Invest for the purpose of exercising control or management, except that
the Fund may purchase securities of other investment companies to the
extent permitted by (i) the 1940 Act, as amended from time to time,
(ii) the rules and regulations promulgated by the SEC under the 1940
Act, as amended from time to time, or (iii) an exemption or other
relief from the provisions of the 1940 Act.
13. Invest more than 5% of its total assets at market value in any one
issuer or purchase more than 10% of any class of securities of any
issuer (excluding in both cases the United States Government), except
that the Fund may purchase securities of other investment companies to
the extent permitted by (i) the 1940 Act, as amended from time to time,
(ii) the rules and regulations promulgated by the SEC under the 1940
Act, as amended from time to time, or (iii) an exemption or other
relief from the provisions of the 1940 Act.
14. Invest more than 10% of its net assets (determined at the time of
investment) in illiquid securities and repurchase agreements which have
a maturity of longer than seven days.
B-12
<PAGE> 44
TRUSTEES AND OFFICERS
The business and affairs of the Fund are managed under the direction of the
Fund's Board of Trustees and the Fund's officers appointed by the Board of
Trustees. The tables below list the trustees and officers of the Fund and
executive officers of the Fund's investment adviser and their principal
occupations for the last five years and their affiliations, if any, with Van
Kampen Investments Inc. ("Van Kampen Investments"), Van Kampen Investment
Advisory Corp. ("Advisory Corp."), Van Kampen Asset Management Inc. ("Asset
Management"), Van Kampen Funds Inc. (the "Distributor"), Van Kampen Management
Inc., Van Kampen Advisors Inc., Van Kampen Insurance Agency of Illinois Inc.,
Van Kampen Insurance Agency of Texas Inc., Van Kampen System Inc., Van Kampen
Recordkeeping Services Inc., American Capital Contractual Services, Inc., Van
Kampen Trust Company, Van Kampen Exchange Corp. and Van Kampen Investor Services
Inc. ("Investor Services"). Advisory Corp. and Asset Management sometimes are
referred to herein collectively as the "Advisers". For purposes hereof, the term
"Fund Complex" includes each of the open-end investment companies advised by the
Advisers (excluding Van Kampen Exchange Fund).
TRUSTEES
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- --------------------- --------------------------
<S> <C>
J. Miles Branagan......................... Private investor. Co-founder, and prior to August 1996,
1632 Morning Mountain Road Chairman, Chief Executive Officer and President, MDT
Raleigh, NC 27614 Corporation (now known as Getinge/Castle, Inc., a
Date of Birth: 07/14/32 subsidiary of Getinge Industrier AB), a company which
develops, manufactures, markets and services medical and
scientific equipment. Trustee/Director of each of the
funds in the Fund Complex.
Richard M. DeMartini*..................... Chairman and Chief Executive Officer of International
Two World Trade Center Private Client Group, a division of Morgan Stanley Dean
66th Floor Witter & Co. Chairman of Dean Witter Futures & Currency
New York, NY 10048 Management Inc. and Demeter Management Corporation.
Date of Birth: 10/12/52 Director of Dean Witter Reynolds Inc. Chairman and
Director of Dean Witter Capital Corporation. Chairman,
Chief Executive Officer, President and a Director of Dean
Witter Alliance Capital Corporation, Director of the
National Healthcare Resources, Inc., Morgan Stanley Dean
Witter Distributors, Inc., Dean Witter Realty Inc., Dean
Witter Reynolds Venture Equities Inc., DW Window Covering
Holding, Inc., and is a member of the Morgan Stanley Dean
Witter Management Committee. Prior to December of 1998,
Mr. DeMartini was President and Chief Operating Officer
of Morgan Stanley Dean Witter Individual Asset Management
and a Director of Morgan Stanley Dean Witter Trust FSB.
Formerly Vice Chairman of the Board of the National
Association of Securities Dealers, Inc. and Chairman of
the Board of the Nasdaq Stock Market, Inc. Trustee of the
TCW/DW Funds, Director of the Morgan Stanley Dean Witter
Funds and Trustee/Director of each of the funds in the
Fund Complex.
</TABLE>
B-13
<PAGE> 45
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- --------------------- --------------------------
<S> <C>
Linda Hutton Heagy........................ Managing Partner of Heidrick & Stuggles, an executive
Sears Tower search firm. Prior to 1997, Partner, Ray & Berndtson,
233 South Wacker Drive Inc., an executive recruiting and management consulting
Suite 7000 firm. Formerly, Executive Vice President of ABN AMRO,
Chicago, IL 60606 N.A., a Dutch bank holding company. Prior to 1992,
Date of Birth: 06/03/48 Executive Vice President of La Salle National Bank.
Trustee on the University of Chicago Hospitals Board,
Vice Chair of the Board of The YMCA of Metropolitan
Chicago and a member of the Women's Board of the
University of Chicago. Prior to 1996, Trustee of The
International House Board. Trustee/Director of each of
the funds in the Fund Complex.
R. Craig Kennedy.......................... President and Director, German Marshall Fund of the
11 DuPont Circle, N.W. United States. Formerly, advisor to the Dennis Trading
Washington, D.C. 20036 Group Inc. Prior to 1992, President and Chief Executive
Date of Birth: 02/29/52 Officer, Director and Member of the Investment Committee
of the Joyce Foundation, a private foundation.
Trustee/Director of each of the funds in the Fund
Complex.
Jack E. Nelson............................ President, Nelson Investment Planning Services, Inc., a
423 Country Club Drive financial planning company and registered investment
Winter Park, FL 32789 adviser. President, Nelson Ivest Brokerage Services Inc.,
Date of Birth: 02/13/36 a member of the National Association of Securities
Dealers, Inc. ("NASD") and Securities Investors
Protection Corp. ("SIPC"). Trustee/Director of each of
the funds in the Fund Complex.
Don G. Powell*............................ Chairman and a Director of Van Kampen Investments, the
2800 Post Oak Blvd. Advisers, the Distributor and Investor Services. Director
Houston, TX 77056 or officer of certain other subsidiaries of Van Kampen
Date of Birth: 10/19/39 Investments. Chairman of River View International Inc.
Chairman of the Board of Governors and the Executive
Committee of the Investment Company Institute. Prior to
July of 1998, Director and Chairman of VK/AC Holding,
Inc. Prior to November 1996, President, Chief Executive
Officer and a Director of VK/AC Holding, Inc.
Trustee/Director of each of the funds in the Fund Complex
and Trustee of other funds advised by the Advisers or Van
Kampen Management Inc.
Phillip B. Rooney......................... Vice Chairman and Director of The ServiceMaster Company,
One ServiceMaster Way a business and consumer services company. Director of
Downers Grove, IL 60515 Illinois Tool Works, Inc., a manufacturing company and
Date of Birth: 07/08/44 the Urban Shopping Centers Inc., a retail mall management
company. Trustee, University of Notre Dame. Prior to
1998, Director of Stone Smurfit Container Corp., a paper
manufacturing company. Formerly, President, Chief
Executive Officer and Chief Operating Officer of Waste
Management, Inc., an environmental services company.
Trustee/Director of each of the funds in the Fund
Complex.
Fernando Sisto............................ Professor Emeritus and, prior to 1995, Dean of the
155 Hickory Lane Graduate School, Stevens Institute of Technology.
Closter, NJ 07624 Director, Dynalysis of Princeton, a firm engaged in
Date of Birth: 08/02/24 engineering research. Trustee/Director of each of the
funds in the Fund Complex.
</TABLE>
B-14
<PAGE> 46
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
- --------------------- --------------------------
<S> <C>
Wayne W. Whalen*.......................... Partner in the law firm of Skadden, Arps, Slate, Meagher
333 West Wacker Drive & Flom (Illinois), legal counsel to the funds in the Fund
Chicago, IL 60606 Complex, and other open-end and closed-end funds advised
Date of Birth: 08/22/39 by the Advisers or Van Kampen Management Inc.
Trustee/Director of each of the funds in the Fund
Complex, and Trustee/Managing General Partner of other
open-end and closed-end funds advised by the Advisers or
Van Kampen Management Inc.
Paul G. Yovovich.......................... Private investor. Prior to April 1996, President of
Sears Tower Advance Ross Corporation. Director of 3Com Corporation,
233 South Wacker Drive APAC Teleservices, Inc., and COMARCO, Inc.
Suite 9700 Trustee/Director of each of the Funds in the Fund
Chicago, IL 60606 Complex.
Date of Birth: 10/29/53
</TABLE>
- ------------------------------------
* Such trustee is an "interested person" (within the meaning of Section 2(a)(19)
of the 1940 Act). Mr. Whalen is an interested person of the Fund by reason of
his firm currently acting as legal counsel to the Fund. Messrs. DeMartini and
Powell are interested persons of the Fund and the Advisers by reason of their
positions with Morgan Stanley Dean Witter & Co. or its affiliates.
OFFICERS
Messrs. McDonnell, Hegel, Nyberg, Wood, Sullivan, Dalmaso, Martin,
Wetherell and Hill are located at 1 Parkview Plaza, PO Box 5555, Oakbrook
Terrace, IL 60181-5555. The Fund's other officers are located at 2800 Post Oak
Blvd., Houston, TX 77056.
<TABLE>
<CAPTION>
NAME, AGE, POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES WITH FUND DURING PAST 5 YEARS
------------------------ ---------------------
<S> <C>
Dennis J. McDonnell....................... Executive Vice President and a Director of Van Kampen
Date of Birth: 05/20/42 Investments. President, Chief Operating Officer and a
President Director of the Advisers, Van Kampen Advisors Inc., and
Van Kampen Management Inc. Prior to July of 1998,
Director and Executive Vice President of VK/AC Holding,
Inc. Prior to April of 1998, President and a Director of
Van Kampen Merritt Equity Advisors Corp. Prior to April
of 1997, Mr. McDonnell was a Director of Van Kampen
Merritt Equity Holdings Corp. Prior to September of 1996,
Mr. McDonnell was Chief Executive Officer and Director of
MCM Group, Inc., McCarthy, Crisanti & Maffei, Inc. and
Chairman and Director of MCM Asia Pacific Company,
Limited and MCM (Europe) Limited. Prior to July of 1996,
Mr. McDonnell was President, Chief Operating Officer and
Trustee of VSM Inc. and VCJ Inc. President of each of the
funds in the Fund Complex. President, Chairman of the
Board and Trustee/Managing General Partner of other
investment companies advised by the Advisers or their
affiliates.
Peter W. Hegel............................ Executive Vice President of the Advisers, Van Kampen
Date of Birth: 06/25/56 Management Inc. and Van Kampen Advisors Inc. Prior to
Vice President July of 1996, Mr. Hegel was a Director of VSM Inc. Prior
to September of 1996, he was a Director of McCarthy,
Crisanti & Maffei, Inc. Vice President of each of the
funds in the Fund Complex and certain other investment
companies advised by the Advisers or their affiliates.
</TABLE>
B-15
<PAGE> 47
<TABLE>
<CAPTION>
NAME, AGE, POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES WITH FUND DURING PAST 5 YEARS
------------------------ ---------------------
<S> <C>
John L. Sullivan.......................... First Vice President of Van Kampen Investments and the
Date of Birth: 08/20/55 Advisers. Treasurer, Vice President and Chief Financial
Treasurer, Vice President and Chief Officer of each of the funds in the Fund Complex and
Financial Officer certain other investment companies advised by the
Advisers or their affiliates.
Curtis W. Morell.......................... Senior Vice President of the Advisers, Vice President and
Date of Birth: 08/04/46 Chief Accounting Officer of each of the funds in the Fund
Vice President and Chief Accounting Complex and certain other investment companies advised by
Officer the Advisers or their affiliates.
Ronald A. Nyberg.......................... Executive Vice President, General Counsel, Secretary and
Date of Birth: 07/29/53 Director of Van Kampen Investments. Mr. Nyberg is
Vice President and Secretary Executive Vice President, General Counsel, Assistant
Secretary and a Director of the Advisers and the
Distributor, Van Kampen Advisors Inc., Van Kampen
Management Inc., Van Kampen Exchange Corp., American
Capital Contractual Services, Inc. and Van Kampen Trust
Company. Executive Vice President, General Counsel and
Assistant Secretary of Investor Services and River View
International Inc. Director or officer of certain other
subsidiaries of Van Kampen Investments. Director of ICI
Mutual Insurance Co., a provider of insurance to members
of the Investment Company Institute. Prior to July of
1998, Director and Executive Vice President, General
Counsel and Secretary of VK/AC Holding, Inc. Prior to
April of 1998, Executive Vice President, General Counsel
and Director of Van Kampen Merritt Equity Advisors Corp.
Prior to April of 1997, he was Executive Vice President,
General Counsel and a Director of Van Kampen Merritt
Equity Holdings Corp. Prior to September of 1996, he was
General Counsel of McCarthy, Crisanti & Maffei, Inc.
Prior to July of 1996, Mr. Nyberg was Executive Vice
President and General Counsel of VSM Inc. and Executive
Vice President and General Counsel of VCJ Inc. Vice
President and Secretary of each of the funds in the Fund
Complex and certain other investment companies advised by
the Advisers or their affiliates.
Paul R. Wolkenberg........................ Executive Vice President and Director of Van Kampen
Date of Birth: 11/10/44 Investments. Executive Vice President of Asset Management
Vice President and the Distributor. President and a Director of Investor
Services. President and Chief Operating Officer of Van
Kampen Recordkeeping Services Inc. Prior to July of 1998,
Director and Executive Vice President of VK/AC Holding,
Inc. Vice President of each of the funds in the Fund
Complex and certain other investment companies advised by
the Advisers or their affiliates.
Edward C. Wood III........................ Senior Vice President of the Advisers, Van Kampen
Date of Birth: 01/11/56 Investments and Van Kampen Management Inc. Senior Vice
Vice President President and Chief Operating Officer of the Distributor.
Vice President of each of the funds in the Fund Complex
and certain other investment companies advised by the
Advisers or their affiliates.
</TABLE>
B-16
<PAGE> 48
<TABLE>
<CAPTION>
NAME, AGE, POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES WITH FUND DURING PAST 5 YEARS
------------------------ ---------------------
<S> <C>
Tanya M. Loden............................ Vice President of Van Kampen Investments and the
Date of Birth: 11/19/59 Advisers. Controller of each of the funds in the Fund
Controller Complex and other investment companies advised by the
Advisers or their affiliates.
Nicholas Dalmaso.......................... Associate General Counsel and Assistant Secretary of Van
Date of Birth: 03/01/65 Kampen Investments. Vice President, Associate General
Assistant Secretary Counsel and Assistant Secretary of the Advisers, the
Distributor, Van Kampen Advisors Inc. and Van Kampen
Management Inc. Assistant Secretary of each of the funds
in the Fund Complex and other investment companies
advised by the Advisers or their affiliates.
Huey P. Falgout, Jr....................... Vice President, Assistant Secretary and Senior Attorney
Date of Birth: 11/15/63 of Van Kampen Investments. Vice President, Assistant
Assistant Secretary Secretary and Senior Attorney of the Advisers, the
Distributor, Investor Services, Van Kampen Management
Inc., American Capital Contractual Services, Inc., Van
Kampen Exchange Corp. and Van Kampen Advisors Inc.
Assistant Secretary of each of the funds in the Fund
Complex and other investment companies advised by the
Advisers or their affiliates.
Scott E. Martin........................... Senior Vice President, Deputy General Counsel and
Date of Birth: 08/20/56 Assistant Secretary of Van Kampen Investments. Senior
Assistant Secretary Vice President, Deputy General Counsel and Secretary of
the Advisers, the Distributor, Investor Services,
American Capital Contractual Services, Inc., Van Kampen
Management Inc., Van Kampen Exchange Corp., Van Kampen
Advisors Inc., Van Kampen Insurance Agency of Illinois
Inc., Van Kampen System Inc. and Van Kampen Recordkeeping
Services Inc. Prior to July of 1998, Senior Vice
President, Deputy General Counsel and Assistant Secretary
of VK/AC Holding, Inc. Prior to April of 1998, Van Kampen
Merritt Equity Advisors Corp. Prior to April of 1997,
Senior Vice President, Deputy General Counsel and
Secretary of Van Kampen American Capital Services, Inc.
and Van Kampen Merritt Holdings Corp. Prior to September
of 1996, Mr. Martin was Deputy General Counsel and
Secretary of McCarthy, Crisanti & Maffei, Inc., and prior
to July of 1996, he was Senior Vice President, Deputy
General Counsel and Secretary of VSM Inc. and VCJ Inc.
Assistant Secretary of each of the funds in the Fund
Complex and other investment companies advised by the
Advisers or their affiliates.
Weston B. Wetherell....................... Vice President, Associate General Counsel and Assistant
Date of Birth: 06/15/56 Secretary of Van Kampen Investments, the Advisers, the
Assistant Secretary Distributor, Van Kampen Management Inc. and Van Kampen
Advisors Inc. Prior to September of 1996, Mr. Wetherell
was Assistant Secretary of McCarthy, Crisanti & Maffei,
Inc. Assistant Secretary of each of the funds in the Fund
Complex and other investment companies advised by the
Advisers or their affiliates.
Steven M. Hill............................ Vice President of Van Kampen Investments and the
Date of Birth: 10/16/64 Advisers. Assistant Treasurer of each of the funds in the
Assistant Treasurer Fund Complex and other investment companies advised by
the Advisers or their affiliates.
</TABLE>
B-17
<PAGE> 49
<TABLE>
<CAPTION>
NAME, AGE, POSITIONS AND PRINCIPAL OCCUPATIONS
OFFICES WITH FUND DURING PAST 5 YEARS
------------------------ ---------------------
<S> <C>
Michael Robert Sullivan................... Assistant Vice President of the Advisers. Assistant
Date of Birth: 03/30/33 Controller of each of the funds in the Fund Complex and
Assistant Controller other investment companies advised by the Advisers or
their affiliates.
</TABLE>
Each trustee/director holds the same position with each of the funds in the
Fund Complex. As of the date of this Statement of Additional Information, there
are 65 operating funds in the Fund Complex. For purposes of the following
compensation and benefits discussion, the Fund Complex is divided into the
following three groups: the funds advised by Asset Management (the "AC Funds"),
the funds advised by Advisory Corp. excluding funds organized as series of the
Van Kampen Series Fund, Inc. (the "VK Funds") and the funds advised by Advisory
Corp. organized as series of the Van Kampen Series Fund, Inc. (the "MS Funds").
Each trustee/director who is not an affiliated person of Van Kampen Investments,
the Advisers or the Distributor (each a "Non-Affiliated Trustee") is compensated
by an annual retainer and meeting fees for services to the funds in the Fund
Complex. Each fund in the Fund Complex (except the money market series of the MS
Funds) provides a deferred compensation plan to its Non-Affiliated Trustees that
allows trustees/directors to defer receipt of their compensation and earn a
return on such deferred amounts. Deferring compensation has the economic effect
as if the Non-Affiliated Trustee reinvested his or her compensation into the
funds. Each fund in the Fund Complex (except the money market series of the MS
Funds) provides a retirement plan to its Non-Affiliated Trustees that provides
Non-Affiliated Trustees with compensation after retirement, provided that
certain eligibility requirements are met as more fully described below.
The trustees recently reviewed and adopted a standardized compensation and
benefits program for each fund in the Fund Complex. Effective January 1, 1998,
the compensation of each Non-Affiliated Trustee includes an annual retainer in
an amount equal to $50,000 per calendar year, due in four quarterly installments
on the first business day of each quarter. Payment of the annual retainer is
allocated among the funds in the Fund Complex (except the money market series of
the MS Funds) on the basis of the relative net assets of each fund as of the
last business day of the preceding calendar quarter. Effective January 1, 1998,
the compensation of each Non-Affiliated Trustee includes a per meeting fee from
each fund in the Fund Complex (except the money market series of the MS Funds)
in the amount of $200 per quarterly or special meeting attended by the
Non-Affiliated Trustee, due on the date of the meeting, plus reasonable expenses
incurred by the Non-Affiliated Trustee in connection with his or her services as
a trustee, provided that no compensation will be paid in connection with certain
telephonic special meetings.
For each AC Fund's last fiscal year and the period up to and including
December 31, 1997, the compensation of each Non-Affiliated Trustee from the AC
Funds includes an annual retainer in an amount equal to $35,000 per calendar
year, due in four quarterly installments on the first business day of each
calendar quarter. The AC Funds pay each Non-Affiliated Trustee a per meeting fee
in the amount of $2,000 per regular quarterly meeting attended by the
Non-Affiliated Trustee, due on the date of such meeting, plus reasonable
expenses incurred by the Non-Affiliated Trustee in connection with his or her
services as a trustee. Payment of the annual retainer and the regular meeting
fee is allocated among the AC Funds (i) 50% on the basis of the relative net
assets of each AC Fund to the aggregate net assets of all the AC Funds and (ii)
50% equally to each AC Fund, in each case as of the last business day of the
preceding calendar quarter. Each AC Fund which is the subject of a special
meeting of the trustees generally pays each Non-Affiliated Trustee a per meeting
fee in the amount of $125 per special meeting attended by the Non-Affiliated
Trustee, due on the date of such meeting, plus reasonable expenses incurred by
the Non-Affiliated Trustee in connection with his or her services as a trustee,
provided that no compensation will be paid in connection with certain telephonic
special meetings.
For each VK Fund's last fiscal year and the period up to and including
December 31, 1997, the compensation of each Non-Affiliated Trustee from each VK
Fund includes an annual retainer in an amount equal to $2,500 per calendar year,
due in four quarterly installments on the first business day of each calendar
quarter. Each Non-Affiliated Trustee receives a per meeting fee from each VK
Fund in the amount of $125 per regular quarterly meeting attended by the
Non-Affiliated Trustee, due on the date of such meeting, plus reasonable
expenses incurred by the Non-Affiliated Trustee in connection with his or her
services as a trustee.
B-18
<PAGE> 50
Each Non-Affiliated Trustee receives a per meeting fee from each VK Fund in the
amount of $125 per special meeting attended by the Non-Affiliated Trustee, due
on the date of such meeting, plus reasonable expenses incurred by the
Non-Affiliated Trustee in connection with his or her services as a trustee,
provided that no compensation will be paid in connection with certain telephonic
special meetings.
For the period from July 2, 1997 up to and including December 31, 1997, the
compensation of each Non-Affiliated Trustee from the MS Funds was based
generally on the compensation amounts and methodology used by such funds prior
to their joining the current Fund Complex on July 2, 1997. Each trustee/director
was elected as a director of the MS Funds on July 2, 1997. Prior to July 2,
1997, the MS Funds were part of another fund complex (the "Prior Complex") and
the former directors of the MS Funds were paid an aggregate fee allocated among
the funds in the Prior Complex that resulted in individual directors receiving
total compensation between approximately $8,000 to $10,000 from the MS Funds
during such funds' last fiscal year.
Under the deferred compensation plan, each Non-Affiliated Trustee generally
can elect to defer receipt of all or a portion of the compensation earned by
such Non-Affiliated Trustee until retirement. Amounts deferred are retained by
the Fund and earn a rate of return determined by reference to the return on the
common shares of such Fund or other funds in the Fund Complex as selected by the
respective Non-Affiliated Trustee, with the same economic effect as if such
Non-Affiliated Trustee had invested in one or more funds in the Fund Complex. To
the extent permitted by the 1940 Act, the Fund may invest in securities of those
funds selected by the Non-Affiliated Trustees in order to match the deferred
compensation obligation. The deferred compensation plan is not funded and
obligations thereunder represent general unsecured claims against the general
assets of the Fund.
Under the retirement plan, a Non-Affiliated Trustee who is receiving
compensation from such Fund prior to such Non-Affiliated Trustee's retirement,
has at least 10 years of service (including years of service prior to adoption
of the retirement plan) and retires at or after attaining the age of 60, is
eligible to receive a retirement benefit equal to $2,500 per year for each of
the ten years following such retirement from such Fund. Non-Affiliated Trustees
retiring prior to the age of 60 or with fewer than 10 years but more than 5
years of service may receive reduced retirement benefits from such Fund. Each
trustee/director has served as a member of the Board of Trustees of the Fund
since he or she was first appointed or elected in the year set forth below. The
retirement plan contains a Fund Complex retirement benefit cap of $60,000 per
year.
B-19
<PAGE> 51
Additional information regarding compensation and benefits for trustees is
set forth below for the periods described in the notes accompanying the table.
COMPENSATION TABLE
<TABLE>
<CAPTION>
FUND COMPLEX
----------------------------------------------------------
AGGREGATE AGGREGATE TOTAL
YEAR FIRST PENSION OR ESTIMATED MAXIMUM COMPENSATION
APPOINTED OR AGGREGATE COMPENSATION RETIREMENT BENEFITS ANNUAL BENEFITS BEFORE DEFERRAL
ELECTED TO THE BEFORE DEFERRAL FROM THE ACCRUED AS PART OF FROM THE FUND UPON FROM FUND
NAME(1) BOARD FUND(2) EXPENSES(3) RETIREMENT(4) COMPLEX(5)
------- -------------- ------------------------ ------------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
J. Miles Branagan* 1991 $1,324 $35,691 $60,000 $111,197
Linda Hutton Heagy* 1995 1,124 3,861 60,000 111,197
R. Craig Kennedy* 1995 1,324 2,652 60,000 111,197
Jack E. Nelson* 1995 1,324 18,385 60,000 104,322
Jerome L. Robinson 1995 260 10,810 15,750 107,947
Phillip B. Rooney* 1997 1,324 6,002 60,000 74,697
Dr. Fernando Sisto* 1978 1,324 68,615 60,000 111,197
Wayne W. Whalen* 1995 1,324 12,658 60,000 111,197
</TABLE>
- ---------------
* Currently a member of the Board of Trustees.
(1) Persons not designated by an asterisk are not currently members of the Board
of Trustees, but were members of the Board of Trustees during the Fund's
most recently completed fiscal year. Mr. Robinson retired from the Board of
Trustees on December 31, 1997. Mr. Yovovich joined the Board of Trustees on
October 22, 1998 and therefore has no historical information to report in
the table. Trustees not eligible for compensation are not included in the
compensation table.
(2) The amounts shown in this column represent the Aggregate Compensation before
Deferral with respect to the Fund's fiscal year ended August 31, 1998. The
following trustees deferred compensation from the Fund during the fiscal
year ended August 31, 1998: Mr. Branagan, $1,324; Ms. Heagy, $1,124; Mr.
Kennedy, $662; Mr. Nelson, $1,324; Mr. Robinson, $260; Mr. Rooney, $1,324;
Dr. Sisto, $662; and Mr. Whalen, $1,324. Amounts deferred are retained by
the Fund and earn a rate of return determined by reference to either the
return on the common shares of the Fund or other funds in the Fund Complex
as selected by the respective Non-Affiliated Trustee, with the same economic
effect as if such Non-Affiliated Trustee had invested in one or more funds
in the Fund Complex. To the extent permitted by the 1940 Act, each Fund may
invest in securities of those funds selected by the Non-Affiliated Trustees
in order to match the deferred compensation obligation. The cumulative
deferred compensation (including interest) accrued with respect to each
trustee, including former trustees, from the Fund as of August 31, 1998 is
as follows: Mr. Branagan, $2,470; Dr. Caruso, $3,100; Mr. Gaughan, $215; Ms.
Heagy, $3,207; Mr. Kennedy, $1,873; Mr. Miller, $1,380; Mr. Nelson, $3,742;
Mr. Rees, $19,034; Mr. Robinson, $2,443; Mr. Rooney, $1,417; Dr. Sisto,
$11,356; Mr. Vernon, $1,744; and Mr. Whalen, $3,917. The deferred
compensation plan is described above the Compensation Table.
(3) The amounts shown in this column represent the sum of the retirement
benefits expected to be accrued by the operating investment companies in the
Fund Complex for each of the trustees for the Funds' respective fiscal years
ended in 1998. The retirement plan is described above the Compensation
Table.
(4) For Mr. Robinson, this is the sum of the actual annual benefits payable by
the operating investment companies in the Fund Complex as of the date of his
retirement for each year of the 10-year period since his retirement. For the
remaining trustees, this is the sum of the estimated maximum annual benefits
payable by the operating investment companies in the Fund Complex for each
year of the 10-year period commencing in the year of such trustee's
anticipated retirement. The Retirement Plan is described above the
Compensation Table.
(5) The amounts shown in this column represent the aggregate compensation paid
by all operating investment companies in the Fund Complex as of December 31,
1997 before deferral by the trustees under the
B-20
<PAGE> 52
deferred compensation plan. Because the funds in the Fund Complex have
different fiscal year ends, the amounts shown in this column are presented
on a calendar year basis. Certain trustees deferred all or a portion of
their aggregate compensation from the Fund Complex during the calendar year
ended December 31, 1997. The deferred compensation earns a rate of return
determined by reference to the return on the shares of the funds in the Fund
Complex as selected by the respective Non-Affiliated Trustee, with the same
economic effect as if such Non-Affiliated Trustee had invested in one or
more funds in the Fund Complex. To the extent permitted by the 1940 Act, the
Fund may invest in securities of those investment companies selected by the
Non-Affiliated Trustees in order to match the deferred compensation
obligation. The Advisers and their affiliates also serve as investment
adviser for other investment companies; however, with the exception of Mr.
Whalen, the Non-Affiliated Trustees were not trustees of such investment
companies. Combining the Fund Complex with other investment companies
advised by the Advisers and their affiliates, Mr. Whalen received Total
Compensation of $268,447 during the calendar year ended December 31, 1997.
As of December 3, 1998, the trustees and officers of the Fund as a group
owned less than 1% of the shares of the Fund.
INVESTMENT ADVISORY AGREEMENT
The Fund and the Adviser are parties to an investment advisory agreement
(the "Advisory Agreement"). Under the Advisory Agreement, the Fund retains the
Adviser to manage the investment of the Fund's assets, including the placing of
orders for the purchase and sale of portfolio securities. The Adviser obtains
and evaluates economic, statistical and financial information to formulate and
implement the Fund's investment objectives. The Adviser also furnishes the
services of the Fund's President and such other executive and clerical personnel
as are necessary to prepare the various reports and statements and conduct the
Fund's day-to-day operations. The Fund, however, bears the cost of its
accounting services, which include maintaining its financial books and records
and calculating its daily net asset value. The costs of such accounting services
include the salaries and overhead expenses of the Fund's Treasurer and the
personnel operating under his direction. Charges are allocated among the
investment companies advised or subadvised by the Adviser or its affiliates. A
portion of these amounts is paid to the Adviser or its affiliates in
reimbursement of personnel, office space, facilities and equipment costs
attributable to the provision of accounting services to the Fund. The Fund also
pays distribution fees, service fees, custodian fees, legal and auditing fees,
the costs of reports to shareholders, and all other ordinary business expenses
not specifically assumed by the Adviser. The Advisory Agreement also provides
that the Adviser shall not be liable to the Fund for any actions or omissions if
it acted without willful misfeasance, bad faith, negligence or reckless
disregard of its obligations.
Under the Advisory Agreement, the Fund pays to the Adviser, as compensation
for the services rendered, facilities furnished, and expenses paid by it, a
monthly fee payable computed based upon an annual rate applied to the average
daily net assets of the Fund as follows: 0.50% on the first $150 million of
average daily net assets; 0.45% on the next $100 million of average daily net
assets; 0.40% on the next $100 million of average net assets; and 0.35% on the
average daily net assets over $350 million.
The Fund's average net assets are determined by taking the average of all
of the determinations of the net assets during a given calendar month. Such fee
is payable for each calendar month as soon as practicable after the end of that
month. The fee payable to the Adviser will be reduced by any commissions, tender
solicitation and other fees, brokerage or similar payments received by the
Adviser or any other direct or indirect majority owned subsidiary of Van Kampen
Investments in connection with the purchase and sale of portfolio investments
less any direct expenses incurred by such subsidiary of Van Kampen Investments,
in connection with obtaining such commissions, fees, brokerage or similar
payments. The Adviser agrees to use its best efforts to recapture tender
solicitation fees and exchange offer fees for the Fund's benefit and to advise
the Trustees of the Fund of any other commissions, fees, brokerage or similar
payments which may be possible for the Adviser or any other direct or indirect
majority owned subsidiary of Van Kampen Investments to receive in connection
with the Fund's portfolio transactions or other arrangements which may benefit
the Fund.
B-21
<PAGE> 53
The Advisory Agreement also provides that, in the event the ordinary
business expenses of the Fund for any fiscal year exceed 1 1/2% of the first $30
million of the Fund's average net assets, plus 1% of may excess over $30
million, the compensation due the Adviser will be reduced by the amount of such
excess and that, if a reduction in and refund of the advisory fee is
insufficient, the Adviser will pay the Fund monthly an amount sufficient to make
up the deficiency, subject to readjustment during the year. Ordinary business
expenses include the investment advisory fee and other operating costs paid by
the Fund except (1) interest and taxes, (2) brokerage commissions, (3) certain
litigation and indemnification expenses as described in the Advisory Agreement
and (4) payments made by the Fund pursuant to the distribution plans.
The Advisory Agreement may be continued from year to year if specifically
approved at least annually (a)(i) by the Fund's Trustees or (ii) by vote of a
majority of the Fund's outstanding voting securities and (b) by the affirmative
vote of a majority of the Trustees who are not parties to the agreement or
interested persons of any such party by votes cast in person at a meeting called
for such purpose. The Advisory Agreement provides that it shall terminate
automatically if assigned and that it may be terminated without penalty by
either party on 60 days' written notice.
During the fiscal years ended August 31, 1996, 1997 and 1998, the Adviser
received $963,864, $964,679 and $1,090,017, respectively, in advisory fees from
the Fund. For such periods the Fund paid $89,221, $49,215 and $89,900,
respectively, for accounting services.
DISTRIBUTION AND SERVICE
The Distributor acts as the principal underwriter of the Fund's shares
pursuant to a written agreement (the "Distribution and Service Agreement"). The
Distributor has the exclusive right to distribute shares of the Fund through
authorized dealers on a continuous basis. The Distributor's obligation is an
agency or "best efforts" arrangement under which the Distributor is required to
take and pay for only such shares of the Fund as may be sold to the public. The
Distributor is not obligated to sell any stated number of shares. The
Distributor bears the cost of printing (but not typesetting) prospectuses used
in connection with this offering and certain other costs including the cost of
supplemental sales literature and advertising. The Distribution and Service
Agreement is renewable from year to year if approved (a)(i) by the Fund's
Trustees or (ii) by vote of a majority of the Fund's outstanding voting
securities and (b) by the affirmative vote of a majority of Trustees who are not
parties to the Distribution and Service Agreement or interested persons of any
party, by votes cast in person at a meeting called for such purpose. The
Distribution and Service Agreement provides that it will terminate if assigned,
and that it may be terminated without penalty by either party on 90 days'
written notice. Total underwriting commissions on the sale of shares of the Fund
for the last three fiscal periods are shown in the chart below. Advantage
Capital Corporation is a former affiliated dealer of the Fund.
<TABLE>
<CAPTION>
DEALER REALLOWANCES
AMOUNTS RECEIVED BY
TOTAL UNDERWRITING RETAINED ADVANTAGE CAPITAL
COMMISSIONS BY DISTRIBUTOR CORPORATION
------------------ -------------- -------------------
<S> <C> <C> <C>
Fiscal Year Ended August 31, 1998.............. $442,698 $48,520 N/A
Fiscal Year Ended August 31, 1997.............. $216,748 $24,065 N/A
Fiscal Year Ended August 31, 1996.............. $326,880 $ 5,013 $29,637
</TABLE>
B-22
<PAGE> 54
With respect to sales of Class A Shares of the Fund, the total sales
charges and concessions reallowed to authorized dealers at the time of purchase
are as follows:
CLASS A SHARES SALES CHARGE TABLE
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
--------------------------- REALLOWED
AS % OF AS % OF TO DEALERS
OFFERING NET AMOUNT AS A % OF
SIZE OF INVESTMENT PRICE INVESTED OFFERING PRICE
------------------ -------- ---------- --------------
<S> <C> <C> <C>
Less than $100,000.................................... 4.75% 4.99% 4.25%
$100,000 but less than $250,000....................... 3.75% 3.90% 3.25%
$250,000 but less than $500,000....................... 2.75% 2.83% 2.25%
$500,000 but less than $1,000,000..................... 2.00% 2.04% 1.75%
$1,000,000 or more.................................... * * *
</TABLE>
- ------------------------------------
* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the Fund imposes a contingent
deferred sales charge of 1.00% on certain redemptions made within one year of
the purchase. A commission or transaction fee will be paid by the Distributor
at the time of purchase directly out of the Distributor's assets (and not out
of the Fund's assets) to authorized dealers who initiate and are responsible
for purchases of $1 million or more computed based on a percentage of the
dollar value of such shares sold as follows: 1.00% on sales to $2 million,
plus 0.80% on the next $1 million and 0.50% on the excess over $3 million.
With respect to sales of Class B Shares and Class C Shares of the Fund, a
commission or transaction fee generally will be paid by the Distributor at the
time of purchase directly out of the Distributor's assets (and not out of the
Fund's assets) to authorized dealers who initiate and are responsible for such
purchases computed based on a percentage of the dollar value of such shares sold
of 4.00% on Class B Shares and 1.00% on Class C Shares.
Proceeds from any deferred sales charge and any distribution fees on Class
B Shares and Class C Shares of the Fund are paid to the Distributor and are used
by the Distributor to defray its distribution related expenses in connection
with the sale of the Fund's shares, such as the payment to authorized dealers
for selling such shares. With respect to Class C Shares, the authorized dealers
generally are paid the ongoing commission and transaction fees of up to 0.75% of
the average daily net assets of the Fund's Class C Shares annually commencing in
the second year after purchase.
In addition to reallowances or commissions described above, the Distributor
may from time to time implement programs under which an authorized dealer's
sales force may be eligible to win nominal awards for certain sales efforts or
under which the Distributor will reallow to any authorized dealer that sponsors
sales contests or recognition programs conforming to criteria established by the
Distributor, or participates in sales programs sponsored by the Distributor, an
amount not exceeding the total applicable sales charges on the sales generated
by the authorized dealer at the public offering price during such programs.
Other programs provide, among other things and subject to certain conditions,
for certain favorable distribution arrangements for shares of the Fund. Also,
the Distributor in its discretion may from time to time, pursuant to objective
criteria established by the Distributor, pay fees to, and sponsor business
seminars for, qualifying authorized dealers for certain services or activities
which are primarily intended to result in sales of shares of the Fund. Fees may
include payment for travel expenses, including lodging, incurred in connection
with trips taken by invited registered representatives for meetings or seminars
of a business nature. In some instances additional compensation or promotional
incentives may be offered to brokers, dealers or financial intermediaries that
have sold or may sell significant amounts of shares during specified periods of
time. The Distributor may provide additional compensation to Edward D. Jones &
Co. or an affiliate thereof based on a combination of its sales of shares and
increases in assets under management. All of the foregoing payments are made by
the Distributor out of its own assets. Such fees paid for such services and
activities with respect to the Fund will not exceed in the aggregate 1.25% of
the average total daily net assets of the Fund on an annual basis. These
programs will not change the price an investor will pay for shares or the amount
that a Fund will receive from such sale.
B-23
<PAGE> 55
Banks are currently prohibited under the Glass-Steagall Act from providing
certain underwriting or distribution services. If banking firms were prohibited
from acting in any capacity or providing any of the described services, the
Distributor would consider what action, if any, would be appropriate. The
Distributor does not believe that termination of a relationship with a bank
would result in any material adverse consequences to the Fund. State securities
laws regarding registration of banks and other financial institutions may differ
from the interpretations of federal law expressed herein, and banks and other
financial institutions may be required to register as dealers pursuant to
certain state laws.
The Fund has adopted a distribution plan (the "Distribution Plan") with
respect to each class of its shares pursuant to Rule 12b-1 under the 1940 Act.
The Fund also has adopted a service plan (the "Service Plan") with respect to
each class of its shares. The Distribution Plan and the Service Plan sometimes
are referred to herein as the "Plans". The Plans provide that the Fund may spend
a portion of the Fund's average daily net assets attributable to each class of
shares in connection with distribution of the respective class of shares and in
connection with the provision of ongoing services to shareholders of such class,
respectively. The Distribution Plan and the Service Plan are being implemented
through an agreement (the "Distribution and Service Agreement") with the
Distributor of each class of the Fund's shares, sub-agreements between the
Distributor and members of the NASD who are acting as securities dealers and
NASD members or eligible non-members who are acting as brokers or agents and
similar agreements between the Fund and financial intermediaries who are acting
as brokers (collectively, "Selling Agreements") that may provide for their
customers or clients certain services or assistance, which may include, but not
be limited to, processing purchase and redemption transactions, establishing and
maintaining shareholder accounts regarding the Fund, and such other services as
may be agreed to from time to time and as may be permitted by applicable
statute, rule or regulation. Brokers, dealers and financial intermediaries that
have entered into sub-agreements with the Distributor and sell shares of the
Fund are referred to herein as "financial intermediaries."
The Distributor must submit quarterly reports to the Board of Trustees of
the Trust, of which the Fund is a series, setting forth separately by class of
shares all amounts paid under the Distribution Plan and the purposes for which
such expenditures were made, together with such other information as from time
to time is reasonably requested by the Trustees. The Plans provide that they
will continue in full force and effect from year to year so long as such
continuance is specifically approved by a vote of the Trustees, and also by a
vote of the disinterested Trustees, cast in person at a meeting called for the
purpose of voting on the Plans. Each of the Plans may not be amended to increase
materially the amount to be spent for the services described therein with
respect to any class of shares without approval by a vote of a majority of the
outstanding voting shares of such class, and all material amendments to either
of the Plans must be approved by the Trustees and also by the disinterested
Trustees. Each of the Plans may be terminated with respect to any class of
shares at any time by a vote of a majority of the disinterested Trustees or by a
vote of a majority of the outstanding voting shares of such class.
The Plans generally provide for the Fund to reimburse the lesser of (i) the
distribution and service fees at the rates specified in the prospectus or (ii)
the amount of the Distributor's actual expenses incurred less any deferred sales
charges it received. For Class A Shares, to the extent the Distributor is not
fully reimbursed in a given year, there is no carryover of such unreimbursed
amounts to succeeding years. For each of the Class B Shares and Class C Shares,
to the extent the Distributor is not fully reimbursed in a given year, any
unreimbursed expenses for such class will be carried forward and paid by the
Fund in future years so long as such Plans are in effect. Except as mandated by
applicable law, the Fund does not impose any limit with respect to the number of
years into the future that such unreimbursed expenses may be carried forward (on
a Fund level basis). Because such expenses are accounted on a Fund level basis,
in periods of extreme net asset value fluctuation such amounts with respect to a
particular Class B Share of Class C Share may be greater or less than the amount
of the initial commission (including carrying cost) paid by the Distributor with
respect to such share. In such circumstances, a shareholder of a share may be
deemed to incur expenses attributable to other shareholders of such class. As of
August 31, 1998, there were $2,141,678 and $178,791 of unreimbursed
distribution-related expenses with respect to Class B Shares and Class C Shares,
respectively, representing 3.98% and 1.82% of the Fund's net assets attributable
to Class B Shares and Class C Shares, respectively. If the Plan were terminated
or not continued, the Fund would not be contractually obligated to
B-24
<PAGE> 56
pay the Distributor for any expenses not previously reimbursed by the Fund or
recovered through deferred sales charge.
For the fiscal year ended August 31, 1998, the Fund's aggregate expenses
under the Plans for Class A Shares were $389,101 or 0.23% of the Class A Shares'
average daily net assets. Such expenses were paid to reimburse the Distributor
for payments made to financial intermediaries for servicing Fund shareholders
and for administering the Plans. For the fiscal year ended August 31, 1998, the
Fund's aggregate expenses under the Class B Plan were $412,157 or 1.00% of the
Class B Shares' average net assets. Such expenses were paid to reimburse the
Distributor for the following payments: $308,235 for commissions and transaction
fees paid to financial intermediaries in respect of sales of Class B Shares of
the Fund and $103,922 for fees paid to financial intermediaries for servicing
Class B shareholders and administering the Plans. For the fiscal year ended
August 31, 1998, the Fund's aggregate expenses under the Plans for Class C
Shares were $58,362 or 1.00% of the Class C Shares' average net assets. Such
expenses were paid to reimburse the Distributor for the following payments;
$21,472 for commissions and transaction fees paid to financial intermediaries in
respect of sales of Class C Shares of the Fund and $36,890 for fees paid to
financial intermediaries for servicing Class C shareholders and administering
the Class C Plan.
The Distributor has entered into agreements with (i) The Prudential
Insurance Company of America ("Prudential") under which the Fund shall be
offered pursuant to the PruArray Programs and (ii) Merrill Lynch ("Merrill")
under which the Fund shall be offered pursuant to the Merrill Program. Trustees
and other fiduciaries of retirement plans seeking to invest in multiple fund
families through broker-dealer retirement plan alliance programs should contact
Prudential or Merrill for further information concerning the PruArray and
Merrill Programs including, but not limited to, minimum size and operational
requirements.
TRANSFER AGENT
The Fund's transfer agent is Van Kampen Investor Services Inc., PO Box
418256, Kansas City, MO 64141-9256. During the fiscal years ending August 31,
1996, 1997 and 1998, Investor Services received fees aggregating $362,676,
$316,230 and $344,030, respectively for these services. Prior to 1998, these
services were provided at cost plus a profit. Beginning in 1998, the transfer
agency prices are determined through negotiations with the Fund's Board of
Trustees and are based on competitive benchmarks.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
The Adviser is responsible for decisions to buy and sell securities for the
Fund, the selection of brokers and dealers to effect the transactions and the
negotiation of prices and any brokerage commissions on such transactions. While
the Adviser will be primarily responsible for the placement of the Fund's
portfolio business, the policies and practices in this regard will at all times
be subject to review by the Trustees of the Fund.
As most transactions made by the Fund are principal transactions at net
prices, the Fund generally incurs little or no brokerage costs. The portfolio
securities in which the Fund invests are normally purchased directly from the
issuer or in the over-the-counter market from an underwriter or market maker for
the securities. Purchases from underwriters of portfolio securities include a
commission or concession paid by the issuer to the underwriter and purchases
from dealers serving as market makers include a spread or markup to the dealer
between the bid and asked price. Sales to dealers are effected at bid prices.
The Fund may also purchase certain money market instruments directly from an
issuer, in which case no commissions or discounts are paid, or may purchase and
sell listed bonds on a exchange, which are effected through brokers who charge a
commission for their services.
The Adviser is responsible for placing portfolio transactions and does so
in a manner deemed fair and reasonable to the Fund and not according to any
formula. The primary consideration in all portfolio transactions is prompt
execution of orders in an effective manner at the most favorable price. In
selecting broker/dealers and in negotiating prices and any brokerage commissions
on such transactions, the Adviser considers the firm's reliability, integrity
and financial condition and the firm's execution capability, the size and
breadth of the market for the security, the size of and difficulty in executing
the order, and the best net
B-25
<PAGE> 57
price. There are many instances when, in the judgment of the Adviser, more than
one firm can offer comparable execution services. In selecting among such firms,
consideration may be given to those firms which supply research and other
services in addition to execution services. The Adviser is authorized to pay
higher commissions to brokerage firms that provide it with investment and
research information than to firms which do not provide such services if the
Adviser determines that such commissions are reasonable in relation to the
overall services provided. No specific value can be assigned to such research
services which are furnished without cost to the Adviser. Since statistical and
other research information is only supplementary to the research efforts of the
Adviser to the Fund and still must be analyzed and reviewed by its staff, the
receipt of research information is not expected to reduce its expenses
materially. The investment advisory fee is not reduced as a result of the
Adviser's receipt of such research services. Services provided may include (a)
furnishing advice as to the value of securities, the advisability of investing
in, purchasing or selling securities, and the availability of securities or
purchasers or sellers of securities; (b) furnishing analyses and reports
concerning issuers, industries, securities, economic factors and trends,
portfolio strategy, and the performance of accounts; and (c) effecting
securities transactions and performing functions incidental thereto (such as
clearance, settlement and custody). Research services furnished by firms through
which the Fund effects its securities transactions may be used by the Adviser in
servicing all of its advisory accounts; not all of such services may be used by
the Adviser in connection with the Fund. The Adviser also may place portfolio
transactions, to the extent permitted by law, with brokerage firms affiliated
with the Fund, the Adviser or the Distributor and with brokerage firms
participating in the distribution of the Fund's shares if it reasonably believes
that the quality of execution and the commission are comparable to that
available from other qualified firms. Similarly, to the extent permitted by law
and subject to the same considerations on quality of execution and comparable
commission rates, the Adviser may direct an executing broker to pay a portion or
all of any commissions, concessions or discounts to a firm supplying research or
other services or to a firm participating in the distribution of the Fund's
shares.
The Adviser may place portfolio transactions at or about the same time for
other advisory accounts, including other investment companies. The Adviser seeks
to allocate portfolio transactions equitably whenever concurrent decisions are
made to purchase or sell securities for the Fund and another advisory account.
In some cases, this procedure could have an adverse effect on the price or the
amount of securities available to the Fund. In making such allocations among the
Fund and other advisory accounts, the main factors considered by the Adviser are
the respective sizes of the Fund and other advisory accounts, the respective
investment objectives, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held and opinions of the persons responsible
for recommending the investment.
Effective October 31, 1996, Morgan Stanley Group Inc. ("Morgan Stanley")
became an affiliate of the Adviser. Effective May 31, 1997, Dean Witter Discover
& Co. ("Dean Witter") became an affiliate of the Adviser. The Trustees have
adopted certain policies incorporating the standards of Rule 17e-1 issued by the
SEC under the 1940 Act which requires that the commissions paid to affiliates of
the Fund must be reasonable and fair compared to the commissions, fees or other
remuneration received or to be received by other brokers in connection with
comparable transactions involving similar securities during a comparable period
of time. The rule and procedures also contain review requirements and require
the Adviser to furnish reports to the Trustees and to maintain records in
connection with such reviews. After consideration of all factors deemed
relevant, the Trustees will consider from time to time whether the advisory fee
for the Fund will be reduced by all or a portion of the brokerage commission
given to affiliated brokers.
B-26
<PAGE> 58
The Fund paid the following commissions to all brokers and affiliated
brokers during the periods shown:
Commissions Paid:
<TABLE>
<CAPTION>
AFFILIATED BROKERS
------------------
ALL MORGAN DEAN
BROKERS STANLEY WITTER
------- ------- ------
<S> <C> <C> <C>
Commissions paid:
Fiscal year 1996.......................................... $ 2,500 N/A N/A
Fiscal year 1997.......................................... $ 3,500 -- --
Fiscal year 1998.......................................... -- -- --
-------
Fiscal year 1997 Percentages:
Commissions with affiliate to total commissions........... -- --
Value of brokerage transactions with affiliate to total
transactions........................................... -- --
</TABLE>
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services designed to facilitate
investment in its shares at little or no extra cost to the investor. Below is a
description of such services. The following information supplements the section
in the Fund's Prospectus captioned "Shareholder Services."
INVESTMENT ACCOUNT
Each shareholder has an investment account under which the investor's
shares of the Fund are held by Investor Services, the Fund's transfer agent.
Investor Services performs bookkeeping, data processing and administrative
services related to the maintenance of shareholder accounts. Except as described
in the Prospectus and this Statement of Additional Information, after each share
transaction in an account, the shareholder receives a statement showing the
activity in the account. Each shareholder who has an account in any of the
Participating Funds will receive statements quarterly from Investor Services
showing any reinvestments of dividends and capital gains distributions and any
other activity in the account since the preceding statement. Such shareholders
also will receive separate confirmations for each purchase or sale transaction
other than reinvestment of dividends and capital gains distributions and
systematic purchases or redemptions. Additions to an investment account may be
made at any time by purchasing shares through authorized dealers or by mailing a
check directly to Investor Services.
SHARE CERTIFICATES
Generally, the Fund will not issue share certificates. However, upon
written or telephone request to the Fund, a share certificate will be issued
representing shares (with the exception of fractional shares) of the Fund. A
shareholder will be required to surrender such certificates upon redemption
thereof. In addition, if such certificates are lost the shareholder must write
to Van Kampen Funds, c/o Investor Services, PO Box 418256, Kansas City, MO
64141-9256, requesting an "affidavit of loss" and obtain a Surety Bond in a form
acceptable to Investor Services. On the date the letter is received, Investor
Services will calculate a fee for replacing the lost certificate equal to no
more than 2.00% of the net asset value of the issued shares, and bill the party
to whom the replacement certificate was mailed.
RETIREMENT PLANS
Eligible investors may establish individual retirement accounts ("IRAs");
SEP; 401(k) plans; Section 403(b)(7) plans in the case of employees of public
school systems and certain non-profit organizations; or other pension or profit
sharing plans. Documents and forms containing detailed information regarding
these plans are available from the Distributor. Van Kampen Trust Company serves
as custodian under the IRA, 403(b)(7) and Keogh plans. Details regarding fees,
as well as full plan administration for profit sharing, pension and 401(k)
plans, are available from the Distributor.
B-27
<PAGE> 59
AUTOMATED CLEARING HOUSE ("ACH") DEPOSITS
Holders of Class A Shares can use ACH to have redemption proceeds deposited
electronically into their bank accounts. Redemptions transferred to a bank
account via the ACH plan are available to be credited to the account on the
second business day following normal payment. In order to utilize this option,
the shareholder's bank must be a member of ACH. In addition, the shareholder
must fill out the appropriate section of the account application. The
shareholder must also include a voided check or deposit slip from the bank
account into which redemptions are to be deposited together with the completed
application. Once Investor Services has received the application and the voided
check or deposit slip, such shareholder's designated bank account, following any
redemption, will be credited with the proceeds of such redemption. Once enrolled
in the ACH plan, a shareholder may terminate participation at any time by
writing Investor Services.
DIVIDEND DIVERSIFICATION
A shareholder may, upon written request or by completing the appropriate
section of the application form accompanying the Prospectus or by calling (800)
341-2911 ((800) 421-2833 for the hearing impaired), elect to have all dividends
and other distributions paid on a class of shares of the Fund invested into
shares of the same class of any Participating Fund so long as the investor has a
pre-existing account for such class of shares of the other fund. Both accounts
must be of the same type, either non-retirement or retirement. If the accounts
are retirement accounts, they must both be for the same class and of the same
type of retirement plan (e.g. IRA, 403(b)(7), 401(k), Keogh) and for the benefit
of the same individual. If a qualified, pre-existing account does not exist, the
shareholder must establish a new account subject to minimum investment and other
requirements of the fund into which distributions would be invested.
Distributions are invested into the selected fund at its net asset value per
share as of the payable date of the distribution.
SYSTEMATIC WITHDRAWAL PLAN
Any investor whose shares in a single account total $10,000 or more at the
offering price next computed after receipt of instructions may establish a
monthly, quarterly, semi-annual or annual withdrawal plan. Any investor whose
shares in a single account total $5,000 or more at the offering price next
computed after receipt of instructions may establish a quarterly, semiannual or
annual withdrawal plan. This plan provides for the orderly use of the entire
account, not only the income but also the capital, if necessary. Each withdrawal
constitutes a redemption of shares on which any capital gain or loss will be
recognized. The planholder may arrange for monthly, quarterly, semi-annual or
annual checks in any amount, not less than $25. Such a systematic withdrawal
plan may also be maintained by an investor purchasing shares for a retirement
plan established on a form made available by the Fund.
Class B shareholders and Class C shareholders who establish a withdrawal
plan may redeem up to 12% annually of the shareholder's initial account balance
without incurring a contingent deferred sales charge. Initial account balance
means the amount of the shareholder's investment at the time the election to
participate in the plan is made.
Under the plan, sufficient shares of the Fund are redeemed to provide the
amount of the periodic withdrawal payment. Dividends and capital gains
distributions on shares held under the plans are reinvested in additional shares
at the next determined net asset value per share. If periodic withdrawals
continuously exceed reinvested dividends and capital gains distributions, the
shareholder's original investment will be correspondingly reduced and ultimately
exhausted. Withdrawals made concurrently with the purchase of additional shares
ordinarily will be disadvantageous to the shareholder because of the duplication
of sales charges. Any gain or loss realized by the shareholder upon redemption
of shares is a taxable event. The Fund reserves the right to amend or terminate
the systematic withdrawal program on 30 days' notice to its shareholders.
REINSTATEMENT PRIVILEGE
A Class A shareholder or Class B shareholder who has redeemed shares of the
Fund may reinstate any portion or all of the net proceeds of such redemption in
Class A Shares of the Fund. A Class C shareholder
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who has redeemed shares of the Fund may reinstate any portion or all of the net
proceeds of such redemption in Class C Shares of the Fund with credit given for
any contingent deferred sales charge paid upon such redemption. Such
reinstatement is made at the net asset value per share (without sales charge)
next determined after the order is received, which must be within 180 days after
the date of the redemption. Reinstatement at net asset value per share is also
offered to participants in those eligible retirement plans held or administered
by Van Kampen Trust Company for repayment of principal (and interest) on their
borrowings on such plans.
REDEMPTION OF SHARES
Redemptions are not made on days during which the Exchange is closed. The
right of redemption may be suspended and the payment therefor may be postponed
for more than seven days during any period when (a) the Exchange is closed for
other than customary weekends or holidays; (b) trading on the Exchange is
restricted; (c) an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund to fairly determine the value of its net assets; or (d)
the SEC, by order, so permits.
Additionally, if the Board of Trustees determines that payment wholly or
partly in cash would be detrimental to the best interests of the remaining
shareholders of the Fund, the Fund may pay the redemption proceeds in whole or
in part by a distribution-in-kind of portfolio securities held by the Fund in
lieu of cash in conformity with applicable rules of the SEC. Shareholders may
incur brokerage charges upon the sale of portfolio securities so received in
payment of redemptions.
CONTINGENT DEFERRED SALES CHARGE-CLASS A ("CDSC-CLASS A")
For purposes of the CDSC-Class A, when shares of one fund are exchanged for
shares of another fund, the purchase date for the shares of the fund exchanged
into will be assumed to be the date on which shares were purchased in the fund
from which the exchange was made. If the exchanged shares themselves are
acquired through an exchange, the purchase date is assumed to carry over from
the date of the original election to purchase shares subject to a CDSC-Class A
rather than a front-end load sales charge. In determining whether a CDSC-Class A
is payable, it is assumed that shares held the longest are the first to be
redeemed.
WAIVER OF CLASS B AND CLASS C CONTINGENT DEFERRED SALES CHARGE ("CDSC-CLASS B
AND C")
As described in the Prospectus under "Redemption of Shares," redemptions of
Class B Shares and Class C Shares will be subject to a contingent deferred sales
charge. The CDSC-Class B and C is waived on redemptions of Class B Shares and
Class C Shares in the circumstances described below:
REDEMPTION UPON DEATH OR DISABILITY
The Fund will waive the CDSC-Class B and C on redemptions following the
death or disability of a Class B shareholder and Class C shareholder. An
individual will be considered disabled for this purpose if he or she meets the
definition thereof in Section 72(m)(7) of the Code, which in pertinent part
defines a person as disabled if such person "is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or to be of
long-continued and indefinite duration." While the Fund does not specifically
adopt the balance of the Code's definition which pertains to furnishing the
Secretary of Treasury with such proof as he or she may require, the Distributor
will require satisfactory proof of death or disability before it determines to
waive the CDSC-Class B and C.
In cases of death or disability, the CDSC-Class B and C will be waived
where the decedent or disabled person is either an individual shareholder or
owns the shares as a joint tenant with right of survivorship or is the
beneficial owner of a custodial or fiduciary account, and where the redemption
is made within one year of the death or initial determination of disability.
This waiver of the CDSC-Class B and C applies to a total or
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partial redemption, but only to redemptions of shares held at the time of the
death or initial determination of disability.
REDEMPTION IN CONNECTION WITH CERTAIN DISTRIBUTIONS FROM RETIREMENT PLANS
The Fund will waive the CDSC-Class B and C when a total or partial
redemption is made in connection with certain distributions from retirement
plans. The charge will be waived upon the tax-free rollover or transfer of
assets to another retirement plan invested in one or more Participating Funds;
in such event, as described below, the Fund will "tack" the period for which the
original shares were held on to the holding period of the shares acquired in the
transfer or rollover for purposes of determining what, if any, CDSC-Class B and
C is applicable in the event that such acquired shares are redeemed following
the transfer or rollover. The charge also will be waived on any redemption which
results from the return of an excess contribution pursuant to Section 408(d)(4)
or (5) of the Code, the return of excess deferral amounts pursuant to Code
Section 401(k)(8) or 402(g)(2), or from the death or disability of the employee
(see Code Section 72(m)(7) and 72(t)(2)(A)(ii)). In addition, the charge will be
waived on any minimum distribution required to be distributed in accordance with
Code Section 401(a)(9).
The Fund does not intend to waive the CDSC-Class B and C for any
distributions from IRAs or other retirement plans not specifically described
above.
REDEMPTION PURSUANT TO A FUND'S SYSTEMATIC WITHDRAWAL PLAN
A shareholder may elect to participate in a systematic withdrawal plan
("Plan") with respect to the shareholder's investment in the Fund. Under the
Plan, a dollar amount of a participating shareholder's investment in the Fund
will be redeemed systematically by the Fund on a periodic basis, and the
proceeds mailed to the shareholder. The amount to be redeemed and frequency of
the systematic withdrawals will be specified by the shareholder upon his or her
election to participate in the Plan. The CDSC-Class B and C will be waived on
redemptions made under the Plan.
The amount of the shareholder's investment in a Fund at the time the
election to participate in the Plan is made with respect to the Fund is
hereinafter referred to as the "initial account balance." The amount to be
systematically redeemed from the Fund without the imposition of a CDSC-Class B
and C may not exceed a maximum of 12% annually of the shareholder's initial
account balance. The Fund reserves the right to change the terms and conditions
of the Plan and the ability to offer the Plan.
NO INITIAL COMMISSION OR TRANSACTION FEE
The Fund will waive the CDSC-Class B and C in circumstances under which no
commission or transaction fee is paid to authorized dealers at the time of
purchase of shares.
INVOLUNTARY REDEMPTIONS OF SHARES
The Fund reserves the right to redeem shareholder accounts with balances of
less than a specified dollar amount as set forth in the Prospectus. Prior to
such redemptions, shareholders will be notified in writing and allowed a
specified period of time to purchase additional shares to bring the account up
to the required minimum balance. The Fund will waive the CDSC-Class B and C upon
such involuntary redemption.
REINVESTMENT OF REDEMPTION PROCEEDS
A shareholder who has redeemed Class C Shares of a Fund may reinvest at net
asset value, with credit for any CDSC-Class C paid on the redeemed shares, any
portion or all of his or her redemption proceeds (plus that amount necessary to
acquire a fractional share to round off his or her purchase to the nearest full
share) in Class C Shares of the Fund, provided that the reinvestment is effected
within 180 days after such redemption and the shareholder has not previously
exercised this reinvestment privilege with respect to Class C Shares of the
Fund. Shares acquired in this manner will be deemed to have the original cost
and purchase date of the redeemed shares for purposes of applying the CDSC-Class
C to subsequent redemptions.
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REDEMPTION BY ADVISER
The Fund may waive the CDSC-Class B and C when a total or partial
redemption is made by the Adviser with respect to its investments in the Fund.
TAXATION
Federal Income Taxation. The Fund has elected and qualified, and intends to
continue to qualify each year, to be treated as a regulated investment company
under Subchapter M of the Code. To qualify as a regulated investment company,
the Fund must comply with certain requirements of the Code relating to, among
other things, the source of its income and diversification of its assets.
If the Fund so qualifies and distributes each year to its shareholders at
least 90% of its net investment income (including taxable income and net
short-term capital gain, but not net capital gains, which are the excess of net
long-term capital gains over net short-term capital losses), it will not be
required to pay federal income taxes on any income distributed to shareholders.
The Fund intends to distribute at least the minimum amount of net investment
income necessary to satisfy the 90% distribution requirement. The Fund will not
be subject to federal income tax on any net capital gains distributed to
shareholders.
In order to avoid a 4% excise tax, the Fund will be required to distribute,
by December 31st of each year, at least an amount equal to the sum of (i) 98% of
its ordinary income for such year and (ii) 98% of its capital gain net income
(the latter of which generally is computed on the basis of the one-year period
ending on October 31st of such year), plus any amounts that were not distributed
in previous taxable years. For purposes of the excise tax, any ordinary income
or capital gain net income retained by, and subject to federal income tax in the
hands of, the Fund will be treated as having been distributed.
If the Fund failed to qualify as a regulated investment company or failed
to satisfy the 90% distribution requirement in any taxable year, the Fund would
be taxed as an ordinary corporation on its taxable income (even if such income
were distributed to its shareholders) and all distributions out of earnings and
profits would be taxed to shareholders as ordinary income. To qualify again as a
regulated investment company in a subsequent year, the Fund may be required to
pay an interest charge on 50% of its earnings and profits attributable to
non-regulated investment company years and would be required to distribute such
earnings and profits to shareholders (less any interest charge). In addition, if
the Fund failed to qualify as a regulated investment company for its first
taxable year or, if immediately after qualifying as a regulated investment
company for any taxable year, it failed to qualify for a period greater than one
taxable year, the Fund would be required to recognize any net built-in gains
(the excess of aggregate gains, including items of income, over aggregate losses
that would have been realized if it had been liquidated) in order to qualify as
a regulated investment company in a subsequent year.
Some of the Fund's investment practices are subject to special provisions
of the Code that, among other things, may defer the use of certain losses of the
Fund and affect the holding period of the securities held by the Fund and the
character of the gains or losses realized by the Fund. These provisions may also
require the Fund to recognize income or gain without receiving cash with which
to make distributions in amounts necessary to satisfy the 90% distribution
requirement and the distribution requirements for avoiding income and excise
taxes. The Fund will monitor its transactions and may make certain tax elections
in order to mitigate the effect of these rules and prevent disqualification of
the Fund as a regulated investment company.
Investments of the Fund in securities issued at a discount or providing for
deferred interest or payment of interest in kind are subject to special tax
rules that will affect the amount, timing and character of distributions to
shareholders. For example, with respect to securities issued at a discount, the
Fund will be required to accrue as income each year a portion of the discount
and to distribute such income each year in order to maintain its qualification
as a regulated investment company and to avoid income and excise taxes. In order
to generate sufficient cash to make distributions necessary to satisfy the 90%
distribution requirement and to avoid income and excise taxes, the Fund may have
to dispose of securities that it would otherwise have continued to hold.
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Distributions. Distributions of the Fund's net investment income are
taxable to shareholders as ordinary income to the extent of the Fund's earnings
and profits, whether paid in cash or reinvested in additional shares.
Distributions of the Fund's net capital gains ("capital gain dividends"), if
any, are taxable to shareholders as long-term capital gains regardless of the
length of time shares of the Fund have been held by such shareholders.
Distributions in excess of the Fund's earnings and profits will first reduce the
adjusted tax basis of a holder's shares and, after such adjusted tax basis is
reduced to zero, will constitute capital gains to such holder (assuming such
shares are held as a capital asset). For a summary of the tax rates applicable
to capital gains (including capital gain dividends), see "Capital Gains Rates"
below. Tax-exempt shareholders not subject to federal income tax on their income
generally will not be taxed on distributions from the Fund.
Shareholders receiving distributions in the form of additional shares
issued by the Fund will be treated for federal income tax purposes as receiving
a distribution in an amount equal to the fair market value of the shares
received, determined as of the distribution date. The basis of such shares will
equal the fair market value on the distribution date.
The Fund will inform shareholders of the source and tax status of all
distributions promptly after the close of each calendar year. Fund distributions
generally will not qualify for the dividends received deduction for
corporations.
Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to shareholders of
record on a specified date in such month and paid during January of the
following year will be treated as having been distributed by the Fund and
received by the shareholders on the December 31st prior to the date of payment.
In addition, certain other distributions made after the close of a taxable year
of the Fund may be "spilled back" and treated as paid by the Fund (except for
purposes of the 4% excise tax) during such taxable year. In such case,
shareholders will be treated as having received such dividends in the taxable
year in which the distribution was actually made.
Income from investments in foreign securities received by the Fund may be
subject to income, withholding or other taxes imposed by foreign countries and
U.S. possessions. Such taxes will not be deductible or creditable by
shareholders. Tax conventions between certain countries and the United States
may reduce or eliminate such taxes.
Under Code Section 988, foreign currency gains or losses from certain
forward contracts not traded in the interbank market as well as certain other
gains or losses attributable to currency exchange rate fluctuations are
typically treated as ordinary income or loss. Such income or loss may increase
or decrease (or possibly eliminate) the Fund's income available for
distribution. If, under the rules governing the tax treatment of foreign
currency gains and losses, the Fund's income available for distribution is
decreased or eliminated, all or a portion of the dividends declared by the Fund
may be treated for federal income tax purposes as a return of capital or, in
some circumstances, as capital gain. Generally, a shareholder's tax basis in
Fund shares will be reduced to the extent that an amount distributed to such
shareholder is treated as a return of capital.
Sale of Shares. The sale of shares (including transfers in connection with
a redemption or repurchase of shares) will be a taxable transaction for federal
income tax purposes. Selling shareholders will generally recognize gain or loss
in an amount equal to the difference between their adjusted tax basis in the
shares and the amount received. If such shares are held as a capital asset, the
gain or loss will be a capital gain or loss. For a summary of the tax rates
applicable to capital gains, see "Capital Gains Rates" below. Any loss
recognized upon a taxable disposition of shares held for six months or less will
be treated as a long-term capital loss to the extent of any capital gain
dividends received with respect to such shares. For purposes of determining
whether shares have been held for six months or less, the holding period is
suspended for any periods during which the shareholder's risk of loss is
diminished as a result of holding one or more other positions in substantially
similar or related property or through certain options or short sales.
Capital Gains Rates. The maximum tax rate applicable to net capital gains
recognized by individuals and other non-corporate taxpayers is (i) the same as
the maximum ordinary income tax rate for capital assets held for one year or
less or (ii) 20% for capital assets held for more than one year. A special 28%
tax rate may apply
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to a portion of the capital gain dividends paid by the Fund with respect to its
taxable year ended August 31, 1998. The maximum long-term capital gains rate for
corporations is 35%.
Non-U.S. Shareholders. A shareholder who is not (i) a citizen or resident
of the United States, (ii) a corporation or partnership created or organized
under the laws of the United States or any state thereof, (iii) an estate, the
income of which is subject to United States federal income taxation regardless
of its source or (iv) a trust whose administration is subject to the primary
supervision of a United States court and which has one or more United States
fiduciaries who have the authority to control all substantial decisions of the
trust (a "Non-U.S. Shareholder") generally will be subject to withholding of
United States federal income tax at a 30% rate (or lower applicable treaty rate)
on dividends from the Fund (other than capital gain dividends) that are not
"effectively connected" with a United States trade or business carried on by
such shareholder. Accordingly, investment in the Fund is likely to be
appropriate for a Non-U.S. Shareholder only if such person can utilize a foreign
tax credit or corresponding tax benefit in respect of such United States
withholding tax.
Non-effectively connected capital gain dividends and gains realized from
the sale of shares will not be subject to United States federal income tax in
the case of (i) a Non-U.S. Shareholder that is a corporation and (ii) a Non-U.S.
Shareholder that is not present in the United States for more than 182 days
during the taxable year (assuming that certain other conditions are met).
However, certain Non-U.S. Shareholders may nonetheless be subject to backup
withholding on capital gain dividends and gross proceeds paid to them upon the
sale of their shares. See "Backup Withholding" below.
If income from the Fund or gains realized from the sale of shares is
effectively connected with a Non-U.S. Shareholder's United States trade or
business, then such amounts will be subject to United States federal income tax
at the tax rates applicable to United States citizens or domestic corporations.
Non-U.S. Shareholders that are corporations may also be subject to an additional
"branch profits tax" with respect to income from the Fund that is effectively
connected with a United States trade or business.
The United States Treasury Department recently issued Treasury regulations
generally effective for payments made after December 31, 1999 concerning the
withholding of tax and reporting for certain amounts paid to nonresident alien
individuals and foreign corporations (the "Final Withholding Regulations").
Among other things, the Final Withholding Regulations may require Non-U.S.
Shareholders to furnish new certification of their foreign status after December
31, 1999. Prospective investors should consult their tax advisors concerning the
applicability and effect of the Final Withholding Regulations on an investment
in shares.
The tax consequences to a Non-U.S. Shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described in
this section. Non-U.S. Shareholders may be required to provide appropriate
documentation to establish their entitlement to the benefits of such a treaty.
Foreign investors are advised to consult their tax advisers with respect to the
tax implications of purchasing, holding and disposing of shares.
Backup Withholding. The Fund may be required to withhold federal income tax
at a rate of 31% ("backup withholding") from dividends and redemption proceeds
paid to non-corporate shareholders. This tax may be withheld from dividends if
(i) the shareholder fails to furnish the Fund with its correct taxpayer
identification number, (ii) the IRS notifies the Fund that the shareholder has
failed to properly report certain interest and dividend income to the IRS and to
respond to notices to that effect or (iii) when required to do so, the
shareholder fails to certify that he or she is not subject to backup
withholding. Redemption proceeds may be subject to withholding under the
circumstances described in (i) above.
The Fund must report annually to the IRS and to each Non-U.S. Shareholder
the amount of dividends paid to such shareholder and the amount, if any, of tax
withheld pursuant to backup withholding rules with respect to such dividends.
This information may also be made available to the tax authorities in the
Non-U.S. Shareholder's country of residence.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules from payments made to a Shareholder may be refunded or
credited against such shareholder's United States federal income tax liability,
if any, provided that the required information is furnished to the IRS.
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General. The federal income tax discussion set forth above is for general
information only. Prospective investors should consult their advisors regarding
the specific federal tax consequences of purchasing, holding and disposing of
shares, as well as the effects of state, local and foreign tax law and any
proposed tax law changes.
FUND PERFORMANCE
From time to time the Fund may advertise its total return for prior
periods. Any such advertisement would include at least average annual total
return quotations for one year, five year and ten year periods. Other total
return quotations, aggregate or average, over other time periods may also be
included.
The total return of the Fund for a particular period represents the
increase (or decrease) in the value of a hypothetical investment in the Fund
from the beginning to the end of the period. Total return is calculated by
subtracting the value of the initial investment from the ending value and
showing the difference as a percentage of the initial investment; the
calculation assumes the initial investment is made at the current maximum public
offering price (which includes a maximum sales charge of 4.75% for Class A
Shares); that all income dividends or capital gains distributions during the
period are reinvested in Fund shares at net asset value; and that any applicable
contingent deferred sales charge has been paid. The Fund's total return will
vary depending on market conditions, the securities comprising the Fund's
portfolio, the Fund's operating expenses and unrealized net capital gains or
losses during the period. Since Class A Shares of the Fund were offered at a
maximum sales charge of 6.75% prior to June 12, 1989, actual Fund total return
would have been somewhat less than that computed on the basis of the current
maximum sales charge. Total return is based on historical earnings and asset
value fluctuations and is not intended to indicate future performance. No
adjustments are made to reflect any income taxes payable by shareholders on
dividends and distributions paid by the Fund or to reflect the fact no 12b-1
fees were incurred prior to October 1, 1989.
Average annual total return quotations for periods of two or more years are
computed by finding the average annual compounded rate of return over the period
that would equate the initial amount invested to the ending redeemable value.
The Fund may, in supplemental sales literature, advertise non-standardized
total return figures representing the cumulative, non-annualized total return of
each class of shares of the Fund from a given date to a subsequent given date.
Cumulative non-standardized total return is calculated by measuring the value of
an initial investment in a given class of shares of the Fund at a given time,
deducting the maximum initial sales charge, if any, determining the value of all
subsequent reinvested distributions, and dividing the net change in the value of
the investment as of the end of the period by the amount of the initial
investment and expressing the result as a percentage. Non-standardized total
return will be calculated separately for each class of shares.
Non-standardized total return calculations do not reflect the imposition of
a contingent deferred sales charge, and if any such contingent deferred sales
charge with respect to the contingent deferred sales charge imposed at the time
of redemption were reflected, it would reduce the performance quoted.
In addition to total return information, the Fund may also advertise its
current "yield." Yield figures are based on historical earnings and are not
intended to indicate future performance. Yield is determined by analyzing the
Fund's net income per share for a 30-day (or one-month) period (which period
will be stated in the advertisement), and dividing by the maximum offering price
per share on the last day of the period. A "bond equivalent" annualization
method is used to reflect a semiannual compounding.
For purposes of calculating yield quotations, net income is determined by a
standard formula prescribed by the SEC to facilitate comparison with yields
quoted by other investment companies. Net income computed for this formula
differs from net income reported by the Fund in accordance with generally
accepted accounting principles and from net income computed for federal income
tax reporting purposes. Thus the yield computed for a period may be greater or
less than the Fund's then current dividend rate.
The Fund's yield is not fixed and will fluctuate in response to prevailing
interest rates and the market value of portfolio securities, and as a function
of the type of securities owned by the Fund, portfolio maturity and the Fund's
expenses.
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Yield quotations should be considered relative to changes in the net asset
value of the Fund's shares, the Fund's investment policies, and the risks of
investing in shares of the Fund. For example, the high yields of lower grade
bonds in which the Fund invests reflect the risk that the value of the bonds may
be impaired in a financial restructuring or default by the issuer. The
investment return and principal value of an investment in the Fund will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost.
Yield and total return are calculated separately for Class A Shares, Class
B Shares and Class C Shares. Class A Shares total return figures include the
maximum sales charge of 4.75%; Class B Shares and Class C Shares total return
figures include any applicable contingent deferred sales charge. Because of the
differences in sales charges and distribution fees, the total returns for each
of the classes will differ.
From time to time, the Fund may include in its sales literature and
shareholder reports a quotation of the current "distribution rate" for each
class of shares of the Fund. Distribution rate is a measure of the level of
income and short-term capital gain dividends, if any, distributed for a
specified period. Distribution rate differs from yield, which is a measure of
the income actually earned by the Fund's investments, and from total return
which is a measure of the income actually earned by the Fund's investments plus
the effect of any realized and unrealized appreciation or depreciation of such
investments during a stated period. Distribution rate is, therefore, not
intended to be a complete measure of the Fund's performance. Distribution rate
may sometimes be greater than yield since, for instance, it may not include the
effect of amortization of bond premiums, and may include non-recurring
short-term capital gains and premiums from futures transactions engaged in by
the Fund. Distribution rates will be computed separately for each class of the
Fund's shares.
From time to time marketing materials may provide a portfolio manager
update, an adviser update or discuss general economic conditions and outlooks.
The Fund's marketing materials may also show the Fund's asset class
diversification, top five sectors, ten largest holdings and other Fund asset
structures, such as duration, maturity, coupon, NAV, rating breakdown, AMT
exposure and number of issues in the portfolio. Materials may also mention how
the Distributor believes the Fund compares relative to other Van Kampen funds.
Materials may also discuss the Dalbar Financial Services study from 1984 to 1994
which studied investor cash flow into and out of all types of mutual funds. The
ten year study found that investors who bought mutual fund shares and held such
shares outperformed investors who bought and sold. The Dalbar study conclusions
were consistent regardless of if shareholders purchased their funds in direct or
sales force distribution channels. The study showed that investors working with
a professional representative have tended over time to earn higher returns than
those who invested directly. The Fund will also be marketed on the internet.
In reports or other communications to shareholders or in advertising
material, the Fund may compare its performance with that of other mutual funds
as listed in the rankings or ratings prepared by Lipper Analytical Services,
Inc., CDA, Morningstar Mutual Funds or similar independent services which
monitor the performance of mutual funds with the Consumer Price Index, Salomon
Brothers Corporate Bond Index, Shearson-Lehman Corporate Bond Index, Merrill
Lynch Corporate Master Index, Merrill Lynch Corporate and Government Index,
Bloomberg Financial Markets Indices, other appropriate indices of investment
securities, or with investment or savings vehicles. The performance information
may also include evaluations of the Fund published by nationally recognized
ranking services and by nationally recognized financial publications. Such
comparative performance information will be stated in the same terms in which
the comparative data or indices are stated. Such advertisements and sales
material may also include a yield quotation as of a current period. In each
case, such total return and yield information, if any, will be calculated
pursuant to rules established by the SEC and will be computed separately for
each class of the Fund's shares. For these purposes, the performance of the
Fund, as well as the performance of other mutual funds or indices, do not
reflect sales charges, the inclusion of which would reduce the Fund's
performance. The Fund will include performance data for each class of shares of
the Fund in any advertisement or information including performance data of the
Fund.
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The Fund may also utilize performance information in hypothetical
illustrations provided in narrative form. These hypotheticals will be
accompanied by standard performance information required by the SEC as described
above.
The Fund's Annual Report and Semi-Annual Report contain additional
performance information. A copy of the Annual Report or Semi-Annual Report may
be obtained without charge by calling or writing the Fund at the telephone
number and address printed on the back cover of the Prospectus.
The Fund's average annual total return, assuming payment of the maximum
sales charge, for Class A Shares of the Fund for (i) the one year period ended
August 31, 1998 was 2.73%, (ii) the five year period ended August 31, 1998 was
5.22% and (iii) the ten year period ended August 31, 1998 was 7.78%. The Fund's
average annual total return, assuming payment of the maximum sales charge, for
Class B Shares of the Fund for (i) the one year period ended August 31, 1998 was
2.95%, (ii) the five year period ended August 31, 1998 was 5.16% and (iii) the
five year, eleven month period since September 28, 1992, the commencement of
distribution for Class B Shares of the Fund, through August 31, 1998 was 6.49%.
The average annual total return, assuming payment of the maximum sales charge,
for Class C Shares of the Fund for (i) the one year period ended August 31, 1998
was 5.95%; and (ii) the five year period ended August 31, 1998 was 5.37%. These
results are based on historical earnings and asset value fluctuations and are
not intended to indicate future performance. Such information should be
considered in light of the Fund's investment objectives and policies as well as
the risks incurred in the Fund's investment practices.
The annualized current yield for Class A Shares, Class B Shares and Class C
Shares of the Fund for the 30-day period ending August 31, 1998 was 5.59%, 5.14%
and 5.16%, respectively. The yield for Class A Shares, Class B Shares and Class
C Shares is not fixed and will fluctuate in response to prevailing interest
rates and the market value of portfolio securities, and as a function of the
type of securities owned by the Fund, portfolio maturity and the Fund's
expenses.
Yield and total return are computed separately for Class A Shares, Class B
Shares and Class C Shares.
The Fund may, from time to time: (1) illustrate the benefits of
tax-deferral by comparing taxable investments to investments made through
tax-deferred retirement plans; (2) illustrate in graph or chart form, or
otherwise, the benefits of dollar cost averaging by comparing investments made
pursuant to a systematic investment plan to investments made in a rising market;
and (3) in reports or other communications to shareholders or in advertising
material, illustrate the benefits of compounding at various assumed rates of
return. Such illustrations may be in the form of charts or graphs and will not
be based on historical returns experienced by the Fund.
OTHER INFORMATION
CUSTODY OF ASSETS -- All securities owned by the Fund and all cash, including
proceeds from the sale of shares of the Fund and of securities in the Fund's
investment portfolio, are held by State Street Bank and Trust Company, 225 West
Franklin Street, Boston, Massachusetts 02110, as Custodian.
SHAREHOLDER REPORTS -- Semi-annual statements are furnished to shareholders, and
annually such statements are audited by the independent accountants.
INDEPENDENT ACCOUNTANTS -- PricewaterhouseCoopers LLP, 200 East Randolph Drive,
Chicago, Illinois 60601, the independent accountants for the Fund, performs an
annual audit of the Fund's financial statements.
LEGAL COUNSEL -- Counsel to the Fund is Skadden, Arps, Slate, Meagher & Flom
(Illinois).
B-36
<PAGE> 68
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Trustees of
Van Kampen Corporate Bond Fund
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 Corporate Bond Fund (the
"Fund") at August 31, 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 August 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
October 2, 1998
F-1
<PAGE> 69
PORTFOLIO OF INVESTMENTS
August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CORPORATE BOND 85.0%
CONSUMER DISTRIBUTION 0.8%
$ 2,000 Nabisco, Inc.................................... 7.550% 06/15/15 $ 2,068,400
------------
CONSUMER DURABLES 0.8%
750 Brunswick Corp.................................. 7.125 08/01/27 794,393
1,000 Chrysler Corp................................... 7.450 03/01/27 1,078,410
------------
1,872,803
------------
CONSUMER NON-DURABLES 2.1%
2,000 Coca Cola Enterprises, Inc...................... 8.500 02/01/12 2,441,680
750 Dimon, Inc...................................... 8.875 06/01/06 705,000
2,000 Westpoint Stevens, Inc. 144A -- Private
Placement (a)................................... 7.875 06/15/05 1,970,000
------------
5,116,680
------------
CONSUMER SERVICES 19.9%
1,250 Belo A H Corp................................... 7.125 06/01/07 1,348,000
2,500 Clear Channel Communications, Inc............... 7.250 10/15/27 2,561,275
5,000 Cox Communications, Inc......................... 6.875 06/15/05 5,228,500
3,000 Cox Communications, Inc......................... 7.250 11/15/15 3,159,600
1,250 CSC Holdings, Inc............................... 7.875 12/15/07 1,275,000
2,500 CSC Holdings, Inc............................... 7.875 02/15/18 2,525,000
1,000 Harcourt General, Inc........................... 7.200 08/01/27 964,600
1,250 Harcourt General, Inc........................... 8.875 06/01/22 1,571,462
5,000 ITT Corp........................................ 6.750 11/15/05 4,833,750
6,000 News America Holdings, Inc...................... 8.875 04/26/23 7,432,680
2,000 News America Holdings, Inc...................... 9.250 02/01/13 2,440,400
375 Premier Parks, Inc.............................. * 04/01/08 228,750
250 Premier Parks, Inc.............................. 9.250 04/01/06 240,000
2,500 Royal Caribbean Cruises Ltd..................... 7.500 10/15/27 2,667,375
1,500 Stewart Enterprises, Inc........................ 6.400 05/01/03 1,524,600
3,000 TCI Communications, Inc......................... 6.875 02/15/06 3,109,710
2,500 TCI Communications, Inc......................... 8.750 08/01/15 2,937,075
2,000 TCI Communications, Inc......................... 9.250 01/15/23 2,330,800
3,000 Viacom, Inc..................................... 7.750 06/01/05 3,172,500
------------
49,551,077
------------
</TABLE>
See Notes to Financial Statements
F-2
<PAGE> 70
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
ENERGY 11.3%
$ 6,300 Ashland Oil, Inc................................ 8.800% 11/15/12 $ 7,713,090
750 Barrett Resources Corp.......................... 7.550 02/01/07 765,000
1,000 Lyondell Petrochemical Co....................... 6.500 02/15/06 1,006,340
6,300 PDV America, Inc................................ 7.875 08/01/03 6,556,914
1,500 Petroliam Nasional Berhad 144A -- Private
Placement (a)................................... 7.625 10/15/26 845,700
5,000 Phillips Petroleum Co........................... 8.860 05/15/22 5,652,750
1,000 R & B Falcon Corp............................... 6.500 04/15/03 1,012,300
4,000 Union Oil Co.................................... 9.125 02/15/06 4,754,000
------------
28,306,094
------------
FINANCE 10.7%
3,000 Cez Finance B V................................. 7.125 07/15/07 2,785,080
3,500 Hutchison Whampoa Finance 144A -- Private
Placement (a)................................... 7.500 08/01/27 2,542,050
10,000 Merrill Lynch & Co., Inc........................ 6.000 07/15/05 9,976,800
3,171 PNPP II Funding Corp............................ 8.510 11/30/06 3,337,477
3,000 Royal Bank Scotland Group....................... 6.375 02/01/11 3,048,300
4,500 Ryder Systems, Inc.............................. 9.250 05/15/01 4,910,850
------------
26,600,557
------------
HEALTHCARE 6.2%
2,000 Aetna Services, Inc............................. 7.125 08/15/06 2,089,100
1,000 Allegiance Corp................................. 7.800 10/15/16 1,130,400
4,000 Baxter International, Inc....................... 6.625 02/15/28 3,994,640
1,500 Beckman Coulter, Inc............................ 7.450 03/04/08 1,539,450
500 Manor Care, Inc................................. 7.500 06/15/06 513,350
6,500 Tenet Healthcare Corp. 144A -- Private Placement
(a)............................................. 8.125 12/01/08 6,272,500
------------
15,539,440
------------
OIL & GAS 0.4%
1,000 Transcontinental Gas Pipeline Corp.............. 7.250 12/01/26 1,038,650
------------
PRODUCER MANUFACTURING 3.0%
5,000 Federal-Mogul Corp.............................. 7.875 07/01/10 4,837,500
2,500 Rubbermaid, Inc................................. 6.600 11/15/06 2,636,000
------------
7,473,500
------------
RAW MATERIALS/PROCESSING INDUSTRIES 9.1%
1,000 Carter Holt Harvey Ltd.......................... 8.375 04/15/15 1,120,600
4,000 Crown Cork & Seal, Inc.......................... 8.000 04/15/23 4,518,960
4,000 Federal Paper Board, Inc........................ 8.875 07/01/12 4,961,600
1,750 Idex Corp....................................... 6.875 02/15/08 1,774,973
4,000 IMC Global, Inc................................. 6.875 07/15/07 4,222,280
1,000 IMC Global, Inc................................. 7.300 01/15/28 1,002,500
</TABLE>
See Notes to Financial Statements
F-3
<PAGE> 71
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
RAW MATERIALS/PROCESSING INDUSTRIES (CONTINUED)
$ 3,000 Lafarge Corp.................................... 6.500% 07/15/08 $ 2,986,800
1,250 Owens Illinois, Inc............................. 7.150 05/15/05 1,276,625
250 Pride International, Inc........................ 9.375 05/01/07 232,500
750 Smithfield Foods, Inc........................... 7.625 02/15/08 727,500
------------
22,824,338
------------
TECHNOLOGY 4.5%
5,000 Computer Associates International, Inc. 144A --
Private Placement (a)........................... 6.375 04/15/05 4,954,200
5,000 International Business Machines Corp............ 7.500 06/15/13 5,715,500
500 Raytheon Co..................................... 7.200 08/15/27 551,510
------------
11,221,210
------------
TRANSPORTATION 7.8%
3,000 AMR Corp........................................ 9.500 05/15/01 3,285,690
750 CSX Corp........................................ 8.625 05/15/22 916,575
2,000 Delta Airlines, Inc............................. 9.750 05/15/21 2,656,200
1,500 Kansas City Southern Industries, Inc............ 7.875 07/01/02 1,596,855
4,000 Union Pacific Corp.............................. 8.350 05/01/25 4,466,200
5,000 United Airlines, Inc............................ 10.020 03/22/14 6,655,400
------------
19,576,920
------------
UTILITIES 8.4%
1,000 360 Communications Co........................... 7.125 03/01/03 1,045,770
1,000 AES Corp........................................ 10.250 07/15/06 1,030,000
1,000 Arizona Public Service Co....................... 8.750 01/15/24 1,110,600
2,000 Arizona Public Service Co....................... 9.500 04/15/21 2,246,620
1,000 Gulf States Utilities Co........................ 8.940 01/01/22 1,070,990
1,000 Long Island Lighting Co......................... 9.000 11/01/22 1,137,500
3,250 Niagara Mohawk Power Corp....................... 7.625 10/01/05 3,315,000
2,500 Texas Utilities Electric Co..................... 8.875 02/01/22 2,803,000
500 UtiliCorp United, Inc........................... 6.700 10/15/06 520,935
4,750 Worldcom, Inc................................... 6.950 08/15/28 4,697,750
2,000 Yorkshire Power Finance Ltd. 144A -- Private
Placement (a)................................... 6.496 02/25/08 1,969,160
------------
20,947,325
------------
TOTAL CORPORATE BOND 85.0%............................... 212,136,994
------------
</TABLE>
See Notes to Financial Statements
F-4
<PAGE> 72
PORTFOLIO OF INVESTMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par
Amount
(000) Description Coupon Maturity Market Value
- ------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
GOVERNMENT OBLIGATIONS 10.1%
$ 4,000 Providence of Newfoundland (Canada)............. 9.000% 10/15/21 $ 5,292,400
650 Providence of Saskatchewan (Canada)............. 8.000 02/01/13 754,936
1,000 Republic of Argentina........................... 11.375 01/30/17 720,000
5,000 Republic of South Africa........................ 8.375 10/17/06 4,864,900
3,500 Republic of South Africa........................ 8.500 06/23/17 2,910,915
2,500 United Mexican States (Mexico).................. 9.875 01/15/07 2,125,000
4,000 United Mexican States (Mexico).................. 11.375 09/15/16 3,410,000
5,000 United States Treasury Notes.................... 5.750 10/31/02 5,132,400
------------
TOTAL GOVERNMENT OBLIGATIONS.............................. 25,210,551
------------
TOTAL LONG-TERM INVESTMENTS 95.1%
(Cost $224,004,748)....................................................... 237,347,545
REPURCHASE AGREEMENT 3.2%
BA Securities ($8,025,000 par collateralized by U.S. Government
obligations in a pooled cash account, dated 08/31/98, to be sold on
09/01/98 at $8,026,288)
(Cost $8,025,000)......................................................... 8,025,000
------------
TOTAL INVESTMENTS 98.3%
(Cost $232,029,748)....................................................... 245,372,545
OTHER ASSETS IN EXCESS OF LIABILITIES 1.7%................................. 4,218,013
------------
NET ASSETS 100.0%.......................................................... $249,590,558
-----------
</TABLE>
* Zero coupon bond
(a) 144A securities are those which are exempt from registration under Rule 144A
of the Securities Act of 1933. These securities may be resold only in
transactions exempt from registration which are normally those transactions
with qualified institutional buyers.
See Notes to Financial Statements
F-5
<PAGE> 73
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Total Investments (Cost $232,029,748)....................... $245,372,545
Cash........................................................ 2,516
Receivables:
Interest.................................................. 4,198,372
Fund Shares Sold.......................................... 2,727,906
Other....................................................... 49,478
------------
Total Assets.......................................... 252,350,817
------------
LIABILITIES:
Payables:
Fund Shares Repurchased................................... 1,792,179
Income Distributions...................................... 459,053
Distributor and Affiliates................................ 145,538
Investment Advisory Fee................................... 102,333
Accrued Expenses............................................ 135,782
Trustees' Deferred Compensation and Retirement Plans........ 125,374
------------
Total Liabilities..................................... 2,760,259
------------
NET ASSETS.................................................. $249,590,558
----------
NET ASSETS CONSIST OF:
Capital..................................................... $252,387,962
Net Unrealized Appreciation................................. 13,342,797
Accumulated Undistributed Net Investment Income............. (386,213)
Accumulated Net Realized Loss............................... (15,753,988)
------------
NET ASSETS.................................................. $249,590,558
----------
MAXIMUM OFFERING PRICE PER SHARE:
Class A Shares:
Net asset value and redemption price per share (Based on
net assets of $185,963,933 and 26,467,270 shares of
beneficial interest issued and outstanding)............. $ 7.03
Maximum sales charge (4.75%* of offering price)......... .35
------------
Maximum offering price to public........................ $ 7.38
----------
Class B Shares:
Net asset value and offering price per share (Based on
net assets of $53,809,578 and 7,674,616 shares of
beneficial interest issued and outstanding)............. $ 7.01
----------
Class C Shares:
Net asset value and offering price per share (Based on
net assets of $9,817,047 and 1,400,251 shares of
beneficial interest issued and outstanding)............. $ 7.01
----------
*On sales of $100,000 or more, the sales charge will be
reduced.
</TABLE>
See Notes to Financial Statements
F-6
<PAGE> 74
STATEMENT OF OPERATIONS
For the Year Ended August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest.................................................... $16,782,210
Other....................................................... 88,000
-----------
Total Income............................................ 16,870,210
-----------
EXPENSES:
Investment Advisory Fee..................................... 1,090,017
Distribution (12b-1) and Service Fees (Attributed to Classes
A, B and C of $401,436, $428,251 and $61,754,
respectively)............................................. 891,441
Shareholder Services........................................ 494,953
Custody..................................................... 19,659
Trustees' Fees and Expenses................................. 18,707
Legal....................................................... 7,478
Other....................................................... 292,131
-----------
Total Expenses.......................................... 2,814,386
-----------
NET INVESTMENT INCOME....................................... $14,055,824
===========
REALIZED AND UNREALIZED GAIN/LOSS:
Net Realized Gain........................................... $ 897,823
-----------
Unrealized Appreciation/Depreciation:
Beginning of the Period................................. 12,431,314
End of the Period....................................... 13,342,797
-----------
Net Unrealized Appreciation During the Period............... 911,483
-----------
NET REALIZED AND UNREALIZED GAIN............................ $ 1,809,306
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS.................. $15,865,130
===========
</TABLE>
See Notes to Financial Statements
F-7
<PAGE> 75
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended August 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
August 31, 1998 August 31, 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
Operations:
Net Investment Income................................ $ 14,055,824 $ 13,877,118
Net Realized Gain/Loss............................... 897,823 (177,546)
Net Unrealized Appreciation During the Period........ 911,483 9,169,489
------------- -------------
Change in Net Assets from Operations................. 15,865,130 22,869,061
------------- -------------
Distributions from Net Investment Income*............ (14,433,446) (13,688,097)
Distributions in Excess of Net Investment Income*.... (430,640) -0-
------------- -------------
Total Distributions................................ (14,864,086) (13,688,097)
------------- -------------
NET CHANGE IN NET ASSETS FROM INVESTMENT
ACTIVITIES......................................... 1,001,044 9,180,964
------------- -------------
FROM CAPITAL TRANSACTIONS:
Proceeds from Shares Sold............................ 92,822,340 36,820,373
Net Asset Value of Shares Issued Through Dividend
Reinvestment....................................... 10,139,695 9,046,389
Cost of Shares Repurchased........................... (54,403,687) (50,822,539)
------------- -------------
NET CHANGE IN NET ASSETS FROM CAPITAL TRANSACTIONS... 48,558,348 (4,955,777)
------------- -------------
TOTAL INCREASE IN NET ASSETS......................... 49,559,392 4,225,187
NET ASSETS:
Beginning of the Period.............................. 200,031,166 195,805,979
------------- -------------
End of the Period (Including accumulated
undistributed net investment income of $(386,213)
and $377,622, respectively)........................ $ 249,590,558 $ 200,031,166
============= =============
</TABLE>
<TABLE>
<CAPTION>
Year Ended Year Ended
*Distributions by Class: August 31, 1998 August 31, 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Distributions from and in Excess of
Net Investment Income:
Class A Shares..................................... $(11,934,964) $(11,405,905)
Class B Shares..................................... (2,562,029) (1,925,295)
Class C Shares..................................... (367,093) (356,897)
------------ ------------
$(14,864,086) $(13,688,097)
============ ============
</TABLE>
See Notes to Financial Statements
F-8
<PAGE> 76
FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended August 31,
-------------------------------------------------
Class A Shares 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
Net Asset Value, Beginning of the
Period............................. $ 6.967 $ 6.650 $ 6.94 $ 6.62 $ 7.36
-------- -------- ------- ------- -------
Net Investment Income.............. .454 .494 .479 .48 .49
Net Realized and Unrealized
Gain/Loss........................ .085 .309 (.289) .32 (.745)
-------- -------- ------- ------- -------
Total from Investment Operations..... .539 .803 .190 .80 (.255)
Less Distributions from and in Excess
of Net Investment Income........... .480 .486 .480 .48 .485
-------- -------- ------- ------- -------
Net Asset Value, End of the Period... $ 7.026 $ 6.967 $ 6.650 $ 6.94 $ 6.62
======== ======== ======= ======= =======
Total Return (a)..................... 7.89% 12.46% 2.71% 12.71% (3.55%)
Net Assets at End of the Period (In
millions).......................... $ 186.0 $ 160.9 $ 162.9 $ 169.0 $ 160.0
Ratio of Expenses to Average Net
Assets (b)......................... 1.08% 1.13% 1.10% 1.13% 1.09%
Ratio of Net Investment Income to
Average Net Assets (b)............. 6.40% 7.16% 6.90% 7.22% 7.06%
Portfolio Turnover................... 17% 18% 34% 25% 0%
</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) For the years ended August 31, 1997 and 1996, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of expenses was less than 0.01%.
See Notes to Financial Statements
F-9
<PAGE> 77
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended August 31,
-------------------------------------------------
Class B Shares 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
Net Asset Value, Beginning of the
Period............................. $ 6.955 $ 6.642 $ 6.94 $ 6.62 $ 7.36
-------- -------- ------- ------- -------
Net Investment Income.............. .412 .438 .424 .42 .44
Net Realized and Unrealized
Gain/Loss........................ .071 .308 (.290) .33 (.755)
-------- -------- ------- ------- -------
Total from Investment Operations..... .483 .746 .134 .75 (.315)
Less Distributions from and in Excess
of Net Investment Income........... .427 .433 .432 .43 .425
-------- -------- ------- ------- -------
Net Asset Value, End of the Period... $ 7.011 $ 6.955 $ 6.642 $ 6.94 $ 6.62
======== ======== ======= ======= =======
Total Return (a)..................... 6.95% 12.19% 1.85% 11.86% (4.38%)
Net Assets at End of the Period (In
millions).......................... $ 53.8 $ 34.0 $ 26.9 $ 19.2 $ 13.5
Ratio of Expenses to Average Net
Assets (b)......................... 1.85% 1.91% 1.90% 1.94% 1.90%
Ratio of Net Investment Income to
Average Net Assets (b)............. 5.59% 6.37% 6.12% 6.40% 6.29%
Portfolio Turnover................... 17% 18% 34% 25% 0%
</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) For the years ended August 31, 1997 and 1996, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of expenses was less than 0.01%.
See Notes to Financial Statements
F-10
<PAGE> 78
FINANCIAL HIGHLIGHTS (CONTINUED)
The following schedule presents financial highlights for one share of
the Fund outstanding throughout the periods indicated.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended August 31,
-------------------------------------------------
Class C Shares 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
Net Asset Value, Beginning of the
Period............................. $ 6.956 $ 6.639 $ 6.93 $ 6.62 $ 7.36
-------- -------- ------- ------- -------
Net Investment Income.............. .419 .434 .426 .42 .44
Net Realized and Unrealized
Gain/Loss........................ .063 .316 (.285) .32 (.755)
-------- -------- ------- ------- -------
Total from Investment Operations..... .482 .750 .141 .74 (.315)
Less Distributions from and in Excess
of Net Investment Income........... .427 .433 .432 .43 .425
-------- -------- ------- ------- -------
Net Asset Value, End of the Period... $ 7.011 $ 6.956 $ 6.639 $ 6.93 $ 6.62
======== ======== ======= ======= =======
Total Return (a)..................... 6.95% 11.63% 2.00% 11.70% (4.51%)
Net Assets at End of the Period (In
millions).......................... $ 9.8 $ 5.1 $ 5.9 $ 4.1 $ 2.3
Ratio of Expenses to Average Net
Assets (b)......................... 1.85% 1.92% 1.90% 1.93% 1.93%
Ratio of Net Investment Income to
Average Net Assets (b)............. 5.55% 6.38% 6.14% 6.40% 6.49%
Portfolio Turnover................... 17% 18% 34% 25% 0%
</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) For the years ended August 31, 1997 and 1996, the impact on the Ratios of
Expenses and Net Investment Income to Average Net Assets due to Van Kampen's
reimbursement of expenses was less than 0.01%.
See Notes to Financial Statements
F-11
<PAGE> 79
NOTES TO FINANCIAL STATEMENTS
August 31, 1998
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Van Kampen Corporate Bond Fund (the "Fund") is organized as a Delaware business
trust, and is registered as a diversified open-end management investment company
under the Investment Company Act of 1940, as amended. The Fund's investment
objective is to provide current income with preservation of capital through
investing primarily in a diversified portfolio of corporate debt securities. The
Fund commenced investment operations on September 23, 1971. The distribution of
the Fund's Class B and Class C shares commenced on September 28, 1992 and August
30, 1993, respectively.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A. SECURITY VALUATION--Fixed income investments are stated at value using market
quotations or indications of value obtained from an independent pricing service.
Investments in securities listed on a securities exchange are valued at their
last sale price. Unlisted securities and listed securities for which the last
sales price is not available are valued at the mean of the bid and asked prices.
For those securities where quotations or prices are not available as noted
above, valuations are determined in accordance with procedures established in
good faith by the Board of Trustees. Short-term securities with remaining
maturities of 60 days or less are valued at amortized cost.
B. SECURITY TRANSACTIONS--Security transactions are recorded on a trade date
basis. Realized gains and losses are determined on an identified cost basis. The
Fund may purchase and sell securities on a "when issued" or "delayed delivery"
basis, with settlement to occur at a later date. The value of the security so
purchased is subject to market fluctuations during this period. The Fund will
maintain, in a segregated account with its custodian, assets having an aggregate
value at least equal to the amount of the when issued or delayed delivery
purchase commitments until payment is made. At August 31, 1998, there were no
when issued or delayed delivery purchase commitments.
The Fund invests 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
F-12
<PAGE> 80
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
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 and
dividend income is recorded on the ex-dividend date. Original issue discount is
amortized over the expected life of each applicable security. Premiums on debt
securities are not amortized. Expenses of the Fund are allocated on a pro rata
basis to each class of shares, except for distribution and service fees and
transfer agency costs which are unique to each class of shares.
D. FEDERAL INCOME TAXES--It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no provision for federal income taxes is required.
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 August 31, 1998, the Fund had an accumulated capital loss carryforward
for tax purposes of $15,753,988 which will expire between August 31, 1999 and
August 31, 2005. Of this amount, $13,885,229 will expire on August 31, 1999.
At August 31, 1998, for federal income tax purposes the cost of long- and
short-term investments is $232,029,748; the aggregate gross unrealized
appreciation is $17,392,412 and the aggregate gross unrealized depreciation is
$4,049,615, resulting in net unrealized appreciation of $13,342,797.
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 option and futures
transactions. All short-term capital gains and a portion of option and futures
gains are included in ordinary income for tax purposes. Due
F-13
<PAGE> 81
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
to the 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 for the
1998 fiscal year have been identified and appropriately reclassified. Permanent
differences totaling $44,427 related to market discount recognized upon
disposition were reclassified from accumulated net realized gain/loss to
accumulated undistributed net investment income and $6,833,853 related to the
expiration of a portion of the capital loss carryforward, was reclassified from
accumulated net realized gain/loss to capital.
2. INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of the Fund's Investment Advisory Agreement, the Adviser will
provide investment advice and facilities to the Fund for an annual fee payable
monthly as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS % PER ANNUM
- ---------------------------------------------------------------------
<S> <C>
First $150 million...................................... .50 of 1%
Next $100 million....................................... .45 of 1%
Next $100 million....................................... .40 of 1%
Over $350 million....................................... .35 of 1%
</TABLE>
For the year ended August 31, 1998, the Fund recognized expenses of
approximately $6,700 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 August 31, 1998, the Fund recognized expenses of
approximately $89,900 representing Van Kampen Funds Inc.'s or its affiliates'
(collectively "Van Kampen") cost of providing accounting services to the Fund.
Van Kampen Investor Services Inc., an affiliate of the Adviser, serves as
the shareholder servicing agent for the Fund. For the year ended August 31,
1998, the Fund recognized expenses of approximately $344,000. Beginning in 1998,
the transfer agency fees are determined through negotiations with the Fund's
Board of Trustees and are based on competitive market benchmarks.
Certain officers and trustees of the Fund are also officers and directors of
Van Kampen. The Fund does not compensate its officers or trustees who are
officers of Van Kampen.
The Fund provides deferred compensation and retirement plans for its
trustees who are not officers of Van Kampen. Under the deferred compensation
plan, trustees may elect to defer all or a portion of their compensation to a
later date. Benefits under the
F-14
<PAGE> 82
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
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 equal to $2,500.
3. CAPITAL TRANSACTIONS
The Fund has outstanding three classes of shares of beneficial interest, Classes
A, B and C each with a par value of $.01 per share. There are an unlimited
number of shares of each class authorized.
At August 31, 1998, capital aggregated $190,399,189, $52,350,550 and
$9,638,223 for Classes A, B and C, respectively. For the year ended August 31,
1998, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................... 7,628,952 $ 54,313,505
Class B.................................... 4,450,037 31,604,203
Class C.................................... 971,515 6,904,632
---------- ------------
Total Sales.................................. 13,050,504 $ 92,822,340
========== ============
Dividend Reinvestment:
Class A.................................... 1,165,005 $ 8,276,050
Class B.................................... 236,853 1,679,288
Class C.................................... 26,012 184,357
---------- ------------
Total Dividend Reinvestment.................. 1,427,870 $ 10,139,695
========== ============
Repurchases:
Class A.................................... (5,430,218) $(38,590,584)
Class B.................................... (1,897,082) (13,463,546)
Class C.................................... (331,118) (2,349,557)
---------- ------------
Total Repurchases............................ (7,658,418) $(54,403,687)
========== ============
</TABLE>
F-15
<PAGE> 83
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
At August 31, 1997, capital aggregated $171,751,125, $33,829,037 and
$5,083,305 for Classes A, B and C, respectively. For the year ended August 31,
1997, transactions were as follows:
<TABLE>
<CAPTION>
SHARES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
Sales:
Class A.................................... 3,365,902 $ 23,137,035
Class B.................................... 1,831,776 12,527,159
Class C.................................... 168,402 1,156,179
---------- ------------
Total Sales.................................. 5,366,080 $ 36,820,373
========== ============
Dividend Reinvestment:
Class A.................................... 1,113,282 $ 7,650,477
Class B.................................... 179,988 1,235,230
Class C.................................... 23,436 160,682
---------- ------------
Total Dividend Reinvestment.................. 1,316,706 $ 9,046,389
========== ============
Repurchases:
Class A.................................... (5,877,398) $(40,312,723)
Class B.................................... (1,182,021) (8,099,925)
Class C.................................... (352,188) (2,409,891)
---------- ------------
Total Repurchases............................ (7,411,607) $(50,822,539)
========== ============
</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 be
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>
F-16
<PAGE> 84
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
For the year ended August 31, 1998, Van Kampen, as Distributor for the Fund,
received commissions on sales of the Fund's Class A shares of approximately
$72,600 and CDSC on redeemed shares of approximately $154,400. 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,
excluding short-term investments, were $80,797,372 and $37,017,083 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 the unrealized appreciation/depreciation on securities.
Upon disposition, a realized gain or loss is recognized accordingly, except when
taking delivery of a security underlying a futures contract. In this instance
the recognition of gain or loss is postponed until the disposal of the security
underlying the futures contract.
The Fund may invest in futures contracts, a type of derivative. 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).
F-17
<PAGE> 85
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
August 31, 1998
- --------------------------------------------------------------------------------
6. DISTRIBUTION AND SERVICE PLANS
The Fund and its shareholders have adopted a distribution plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 and a service plan (collectively
the "Plans"). The Plans govern payments for the distribution of the Fund's
shares, ongoing shareholder services and maintenance of shareholder accounts.
Annual fees under the Plans of up to .25% of Class A average net assets and
1.00% each of Class B and Class C average net assets are accrued daily. Included
in these fees for the year ended August 31, 1998 are payments retained by Van
Kampen of approximately $362,136.
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.
F-18
<PAGE> 86
PART C: OTHER INFORMATION
ITEM 23. EXHIBITS.
<TABLE>
<S> <C>
(a)(1) -- First Amended and Restated Agreement and Declaration of
Trust (5)
(2) -- Second Certificate of Amendment (8)
(3) -- Second Amended and Restated Certificate of Designation
(8)
(b) -- Amended and Restated Bylaws (5)
(c)(1) -- Specimen Class A Share Certificate (7)
(2) -- Specimen Class B Share Certificate (7)
(3) -- Specimen Class C Share Certificate (7)
(d) -- Investment Advisory Agreement (7)
(e)(1) -- Distribution and Service Agreement (7)
(2) -- Form of Dealer Agreement (6)
(3) -- Form of Broker Fully Disclosed Selling Agreement (6)
(4) -- Form of Bank Fully Disclosed Selling Agreement (6)
(f)(1) -- Individual Retirement Account Brochure with Application
(3)
(2) -- 403(b)(7) Custodial Account (3)
(3) -- ORP 403(b)(7) Custodial Account (3)
(4) -- Retirement Plans for the Small Business-Forms Package and
Plan Documents (1)
(5) -- Prototype Profit Sharing/Money Purchase Plan and Trust
(2)
(6) -- Prototype 401(k) Plan and Trust (2)
(g)(1) -- Custodian Contract (7)
(2) -- Transfer Agency and Service Agreement (7)
(h)(1) -- Data Access Services Agreement (6)
(2) -- Fund Accounting Agreement (7)
(i) -- Opinion and Consent of Skadden, Arps, Slate, Meagher &
Flom (Illinois) (6)
(j) -- Consent of PricewaterhouseCoopers LLP+
(k) -- Computation of Performance Quotations+
(l) -- Not applicable.
(m)(1) -- Plan of Distribution pursuant to Rule 12b-1 (6)
(2) -- Form of Shareholder Assistance Agreement (6)
(3) -- Form of Administrative Services Agreement (6)
(4) -- Service Plan (6)
(n) -- Financial Data Schedules+
</TABLE>
C-1
<PAGE> 87
<TABLE>
<S> <C>
(o) -- Amended Multi-Class Plan (6)
(p) -- Power of Attorney (8)
(z)(1) -- List of Investment Companies in response to Item 27(a)+
(2) -- List of Officers and Directors of Van Kampen Funds Inc. in response to Item 27(b)+
</TABLE>
- -------------------------
(1) Incorporated herein by reference to Post-Effective Amendment No. 44 to Van
Kampen American Capital Emerging Growth Fund's Registration Statement on
Form N-1A, File No. 2-33214, filed December 21, 1990.
(2) Incorporated herein by reference to Post-Effective Amendment No. 61 to Van
Kampen American Capital Growth and Income Fund's Registration Statement on
Form N-1A, File No. 2-21657, filed March 26, 1991.
(3) Incorporated herein by reference to Post-Effective Amendment No. 30 to Van
Kampen American Capital Reserve Fund's Registration Statement on Form N-1A,
File No. 2-50870, filed September 24, 1992.
(4) Incorporated herein by reference to Post-Effective Amendment No. 64 to
Registrant's Registration Statement on Form N-1A, File No. 2-21819, filed
July 21, 1995.
(5) Incorporated herein by reference to Post-Effective Amendment No. 65 to
Registrant's Registration Statement on Form N-1A, File No. 2-21819, filed
December 21, 1995.
(6) Incorporated herein by reference to Post-Effective Amendment No. 67 to
Registrant's Registration Statement on Form N-1A, File No. 2-21819, filed
December 26, 1996.
(7) Incorporated herein by reference to Post-Effective Amendment No. 68 to
Registrant's Registration Statement on Form N-1A, File No. 2-21819, filed
December 24, 1997.
(8) Incorporated herein by reference to Post-Effective Amendment No. 69 to
Registrant's Registration Statement on Form N-1A, File No. 2-21819, filed
October 28, 1998.
+ Filed herewith.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
See the Statement of Additional Information.
ITEM 25. INDEMNIFICATION.
Reference is made to Article 8, Section 8.4 of the Registrant's Agreement
and Declaration of Trust.
Article 8; Section 8.4 of the Agreement and Declaration of Trust provides
that each officer and trustee of the Registrant shall be indemnified by the
Registrant against all liabilities incurred in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
in which the officer or trustee may be or may have been involved by reason of
being or having been an officer or trustee, except that such indemnity shall not
protect any such person against a liability to the Registrant or any shareholder
thereof to which such person would otherwise be subject by reason of (i) not
acting in good faith in the reasonable belief that such person's actions were
not in the best interests of the Trust, (ii) willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his or her office (iii) for a criminal proceeding, not having a reasonable cause
to believe that such conduct was unlawful (collectively, "Disabling Conduct").
Absent a court determination that an officer or trustee seeking indemnification
was not liable on the merits or guilty of Disabling Conduct in the conduct of
his or her office, the decision by the Registrant to indemnify such person must
be based upon the reasonable determination of independent counsel or non-party
independent trustees, after review of the facts, that such officer or trustee is
not guilty of Disabling Conduct in the conduct of his or her office.
The Registrant has purchased insurance on behalf of its officers and
trustees protecting such persons from liability arising from their activities as
officers or trustees of the Registrant. The insurance does not protect or
purport to protect such persons from liability to the Registrant or to its
shareholders to which such officer or
C-2
<PAGE> 88
trustee would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
their office.
Conditional advancing of indemnification monies may be made if the trustee
or officer undertakes to repay the advance unless it is ultimately determined
that he or she is entitled to the indemnification and only if the following
conditions are met: (1) the trustee or officer provides a security for the
undertaking; (2) the Registrant is insured against losses arising from lawful
advances; or (3) a majority of a quorum of the Registrant's disinterested,
non-party trustees, or an independent legal counsel in a written opinion, shall
determine, based upon a review of readily available facts, that a recipient of
the advance ultimately will be found entitled to indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by the trustee, officer, or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such trustee, officer or controlling person in connection with the
shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
See "Investment Advisory Services" in the Prospectus and "Trustees and
Officers" in the Statement of Additional Information for information regarding
the business of the Adviser. For information as to the business, profession,
vocation and employment of a substantial nature of directors and officers of Van
Kampen Asset Management Inc., reference is made to the Adviser's current Form
ADV (File No. 801-1669) filed under the Investment Advisers Act of 1940, as
amended, incorporated herein by reference.
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) The sole principal underwriter is Van Kampen Funds Inc., which acts as
principal underwriter for certain investment companies and unit investment
trusts. See Exhibit (z)(1).
(b) Van Kampen Funds Inc. which is an affiliated person of an affiliated person
of Registrant, is the sole principal underwriter for Registrant. The name,
principal business address and positions and offices with Van Kampen Funds
Inc. of each of the directors and officers are disclosed in Exhibit (z)(2).
Except as disclosed under the heading, "Trustees and Officers" in Part B of
this Registration Statement, none of such persons has any position or
office with Registrant.
(c) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required by Section 31(a) of the
Investment Company Act of 1940 and the Rules thereunder to be maintained (i) by
Registrant will be maintained at its offices, located at 1 Parkview Plaza, PO
Box 5555, Oakbrook Terrace, Illinois 60181-5555. Van Kampen Investor Services
Inc., 7501 Tiffany Springs Parkway, Kansas City, Missouri 64153, or at the State
Street Bank and Trust Company, 1776 Heritage Drive, North Quincy, MA; (ii) by
the Adviser, will be maintained at its offices, located at 1 Parkview Plaza, PO
Box 5555, Oakbrook Terrace, Illinois 60181-5555; and (iii) by Van Kampen Funds
Inc., the principal underwriter, will be maintained at its offices located at 1
Parkview Plaza, PO Box 5555, Oakbrook Terrace, Illinois 60181-5555.
C-3
<PAGE> 89
ITEM 29. MANAGEMENT SERVICES.
Not applicable.
ITEM 30. UNDERTAKINGS.
Registrant hereby undertakes to furnish to each person to whom a prospectus
is delivered, a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
Registrant hereby undertakes, if requested to do so by the holders of at
least 10% of the Registrant's outstanding shares, to call a meeting of
shareholders for the purpose of voting upon the question of removal of a trustee
or trustees and to assist in communications with other shareholders as required
by Section 16(c) of the Investment Company Act of 1940.
C-4
<PAGE> 90
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, VAN KAMPEN CORPORATE BOND FUND,
certifies that it meets all of the requirements for effectiveness of this
Amendment to the Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Oakbrook Terrace and State of Illinois, on the 29th
day of December, 1998.
VAN KAMPEN CORPORATE BOND FUND
By /s/ DENNIS J. McDONNELL
---------------------------------------
Dennis J. McDonnell, President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed on December 29, 1998 by the
following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<S> <C>
Principal Executive Officer:
/s/ DENNIS J. MCDONNELL President
- ---------------------------------
Dennis J. McDonnell
Principal Financial Officer:
/s/ JOHN L. SULLIVAN Vice President, Chief Financial Officer and
- --------------------------------- Treasurer
John L. Sullivan
Trustees:
/s/ J. MILES BRANAGAN* Trustee
- ---------------------------------
J. Miles Branagan
/s/ RICHARD M. DEMARTINI* Trustee
- ---------------------------------
Richard M. DeMartini
/s/ LINDA H. HEAGY* Trustee
- ---------------------------------
Linda H. Heagy
/s/ R. CRAIG KENNEDY* Trustee
- ---------------------------------
R. Craig Kennedy
/s/ JACK E. NELSON* Trustee
- ---------------------------------
Jack E. Nelson
/s/ DON G. POWELL* Trustee
- ---------------------------------
Don G. Powell
/s/ PHILLIP B. ROONEY* Trustee
- ---------------------------------
Phillip B. Rooney
/s/ FERNANDO SISTO* Trustee
- ---------------------------------
Fernando Sisto
/s/ WAYNE W. WHALEN* Trustee
- ---------------------------------
Wayne W. Whalen
Trustee
- ---------------------------------
Paul G. Yovovich
- ---------------
* Signed by Dennis J.McDonnell pursuant to a power of attorney.
/s/ DENNIS J. McDONNELL December 29, 1998
- --------------------------------- -----------
Dennis J. McDonnell
Attorney-in-Fact
</TABLE>
<PAGE> 91
SCHEDULE OF EXHIBITS TO POST-EFFECTIVE AMENDMENT NO. 70 TO FORM N-1A
AS SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION
ON DECEMBER 29, 1998
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
- ------- -------
<S> <C>
(j) -- Consent of PricewaterhouseCoopers LLP
(k) -- Computation of Performance Quotations
(n) -- Financial Data Schedules
(z)(1) -- List of Investment Companies in response to Item 27(a)+
(z)(2) -- List of Officers and Directors of Van Kampen Funds Inc.
in response to Item 27(b)+
</TABLE>
<PAGE> 1
EXHIBIT (j)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 70 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
October 2, 1998, relating to the financial statements and financial highlights
of Van Kampen Corporate Bond Fund, which appears in such Statement of Additional
Information, and to the incorporation by reference of our report into the
Prospectus which constitutes part of this Registration Statement. We also
consent to the references to us under the headings "Financial Highlights" and
"Independent Accountants" in such Prospectus and to the reference to us under
the heading "Independent Accountants" in such Statement of Additional
Information.
/s/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
December 29, 1998
<PAGE> 1
EXHIBIT (k)
CORPORATE BOND FUND
CALCULATION OF DISTRIBUTION RATE
PERIOD ENDED AUGUST 31, 1998
Current Annual Income Per Share
Current Offering Price
Class A Shares
$0.462
---------
$7.38 = 6.26%
Class B Shares
$ 0.408
---------
$7.01 = 5.82%
Class C Shares
$0.408
---------
$7.01 = 5.82%
<PAGE> 2
CORPORATE BOND FUND - CLASS A SHARES
TOTAL RETURN CALCULATION ONE YEAR PERIOD ENDED AUGUST 31, 1998
<TABLE>
<S> <C> <C> <C>
n
Formula P(1+T) = ERV
Including Payment of the Sales Charge
Net Asset Value $7.03
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,027.34 = ERV
One year period ended 8/31/98 = (12 Mos.) 1 = n
TOTAL RETURN FOR THE PERIOD 2.73% = T
Excluding Payment of the Sales Charge
Net Asset Value $7.03
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,078.90 = ERV
One year period ended 8/31/98 = (12 Mos.) 1 = n
TOTAL RETURN FOR THE PERIOD 7.89% = T
<CAPTION>
TOTAL RETURN CALCULATION FIVE YEARS ENDED AUGUST 31, 1998
<S> <C> <C> <C>
n
Formula P(1+T) = ERV
Including Payment of the Sales Charge
Net Asset Value $7.03
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,289.89 = ERV
Five years ended 8/31/98 = (60 Mos.) 5 = n
TOTAL RETURN FOR THE PERIOD 5.22% = T
Excluding Payment of the Sales Charge
Net Asset Value $7.03
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,354.77 = ERV
Five years ended 8/31/98 = (60 Mos.) 5 = n
TOTAL RETURN FOR THE PERIOD 6.26% = T
</TABLE>
<PAGE> 3
CORPORATE BOND FUND - CLASS A SHARES
TOTAL RETURN CALCULATION TEN YEARS ENDED AUGUST 31, 1998
<TABLE>
<S> <C> <C> <C>
n
Formula P(1+T) = ERV
Including Payment of the Sales Charge
Net Asset Value $7.03
Initial Investment $1,000.00 = P
Ending Redeemable Value $2,114.57 = ERV
Ten years ended 8/31/98 = (120 Mos.) 10 = n
TOTAL RETURN FOR THE PERIOD 7.78% = T
Excluding Payment of the Sales Charge
Net Asset Value $7.03
Initial Investment $1,000.00 = P
Ending Redeemable Value $2,219.74 = ERV
Ten years ended 8/31/98 = (120 Mos.) 10 = n
TOTAL RETURN FOR THE PERIOD 8.30% = T
TOTAL RETURN CALCULATION INCEPTION THROUGH AUGUST 31, 1998
<CAPTION>
<S> <C> <C> <C>
n
Formula P(1+T) = ERV
Including Payment of the Sales Charge
Net Asset Value $7.03
Initial Investment $1,000.00 = P
Ending Redeemable Value $8,632.21 = ERV
Inception through 8/31/98 = (311 Mos.) 26.94 = n
TOTAL RETURN FOR THE PERIOD 8.33% = T
Excluding Payment of the Sales Charge
Net Asset Value $7.03
Initial Investment $1,000.00 = P
Ending Redeemable Value $9,063.15 = ERV
Inception through 8/31/98 = (311 Mos.) 26.94 = n
TOTAL RETURN FOR THE PERIOD 8.53% = T
</TABLE>
<PAGE> 4
CORPORATE BOND FUND - CLASS A SHARES
NON-STANDARDIZED CUMULATIVE TOTAL RETURN CALCULATION
INCEPTION THROUGH AUGUST 31, 1998
<TABLE>
<S> <C> <C> <C> <C> <C>
Formula ERV - P
-----------
P = T
Including Payment of the Sales Charge
Net Asset Value $7.03
Initial Investment $1,000.00 = P
Ending Redeemable Value $8,632.21 = ERV
TOTAL RETURN FOR THE PERIOD 763.22% = T
Excluding Payment of the Sales Charge
Net Asset Value $7.03
Initial Investment $1,000.00 = P
Ending Redeemable Value $9,063.15 = ERV
TOTAL RETURN FOR THE PERIOD 806.32% = T
</TABLE>
<PAGE> 5
CORPORATE BOND FUND - CLASS B SHARES
TOTAL RETURN CALCULATION ONE YEAR PERIOD ENDED AUGUST 31, 1998
<TABLE>
n
Formula P(1+T) = ERV
<S> <C> <C> <C>
Including Payment of the CDSC
Net Asset Value $7.01
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,029.52 = ERV
One year period ended 8/31/98 = (12 Mos.) 1 = n
TOTAL RETURN FOR THE PERIOD 2.95% = T
Excluding Payment of the CDSC
Net Asset Value $7.01
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,069.52 = ERV
One year period ended 8/31/98 = (12 Mos.) 1 = n
TOTAL RETURN FOR THE PERIOD 6.95% = T
TOTAL RETURN CALCULATION FIVE YEAR PERIOD ENDED AUGUST 31, 1998
<CAPTION>
<S> <C> <C> <C>
n
Formula P(1+T) = ERV
Including Payment of the CDSC
Net Asset Value $7.01
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,286.32 = ERV
Five year period ended 8/31/98 = (60 Mos.) 5 = n
TOTAL RETURN FOR THE PERIOD 5.16% = T
Excluding Payment of the CDSC
Net Asset Value $7.01
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,300.61 = ERV
Five year period ended 8/31/98 = (60 Mos.) 5 = n
TOTAL RETURN FOR THE PERIOD 5.40% = T
</TABLE>
<PAGE> 6
CORPORATE BOND FUND - CLASS B SHARES
TOTAL RETURN CALCULATION INCEPTION THROUGH AUGUST 31, 1998
<TABLE>
<S> <C> <C> <C>
n
Formula P(1+T) = ERV
Including Payment of the CDSC
Net Asset Value $7.01
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,450.72 = ERV
Inception through 8/31/98 = (71 Mos.) 5.92 = n
TOTAL RETURN FOR THE PERIOD 6.49% = T
Excluding Payment of the CDSC
Net Asset Value $7.01
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,450.72 = ERV
Inception through 8/31/98 = (71 Mos.) 5.92 = n
TOTAL RETURN FOR THE PERIOD 6.49% = T
</TABLE>
<PAGE> 7
CORPORATE BOND FUND - CLASS B SHARES
NON-STANDARDIZED CUMULATIVE TOTAL RETURN CALCULATION
INCEPTION THROUGH AUGUST 31, 1998
<TABLE>
<S> <C> <C> <C> <C> <C>
Formula ERV - P
---------
P = T
Including Payment of the CDSC
Net Asset Value $7.01
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,450.72 = ERV
TOTAL RETURN FOR THE PERIOD 45.07% = T
Excluding Payment of the CDSC
Net Asset Value $7.01
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,450.72 = ERV
TOTAL RETURN FOR THE PERIOD 45.07% = T
</TABLE>
<PAGE> 8
CORPORATE BOND FUND - CLASS C SHARES
TOTAL RETURN CALCULATION ONE YEAR PERIOD ENDED AUGUST 31, 1998
<TABLE>
<S> <C> <C> <C>
n
Formula P(1+T) = ERV
Including Payment of the CDSC
Net Asset Value $7.01
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,059.52 = ERV
One year period ended 8/31/98 = (12 Mos.) 1 = n
TOTAL RETURN FOR THE PERIOD 5.95% = T
Excluding Payment of the CDSC
Net Asset Value $7.01
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,069.52 = ERV
One year period ended 8/31/98 = (12 Mos.) 1 = n
TOTAL RETURN FOR THE PERIOD 6.95% = T
<CAPTION>
TOTAL RETURN CALCULATION FIVE YEAR PERIOD ENDED AUGUST 31, 1998
<S> <C> <C> <C>
n
Formula P(1+T) = ERV
Including Payment of the CDSC
Net Asset Value $7.01
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,298.97 = ERV
One year period ended 8/31/98 = (60 Mos.) 5 = n
TOTAL RETURN FOR THE PERIOD 5.37% = T
Excluding Payment of the CDSC
Net Asset Value $7.01
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,298.97 = ERV
One year period ended 8/31/98 = (60 Mos.) 5 = n
TOTAL RETURN FOR THE PERIOD 5.37% = T
</TABLE>
<PAGE> 9
CORPORATE BOND FUND - CLASS C SHARES
TOTAL RETURN CALCULATION INCEPTION THROUGH AUGUST 31, 1998
<TABLE>
<S> <C> <C> <C>
n
Formula P(1+T) = ERV
Including Payment of the CDSC
Net Asset Value $7.01
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,300.21 = ERV
Inception through 8/31/98 = (60 Mos.) 5.00 = n
TOTAL RETURN FOR THE PERIOD 5.39% = T
Excluding Payment of the CDSC
Net Asset Value $7.01
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,300.24 = ERV
Inception through 8/31/98 = (60 Mos.) 5.00 = n
TOTAL RETURN FOR THE PERIOD 5.39% = T
</TABLE>
<PAGE> 10
CORPORATE BOND FUND - CLASS C SHARES
NON-STANDARDIZED CUMULATIVE TOTAL RETURN CALCULATION
INCEPTION THROUGH AUGUST 31, 1998
<TABLE>
<S> <C> <C> <C> <C>
Formula ERV - P
----------
P = T
Including Payment of the CDSC
Net Asset Value $7.01
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,300.21 = ERV
TOTAL RETURN FOR THE PERIOD 30.02% = T
Excluding Payment of the CDSC
Net Asset Value $7.01
Initial Investment $1,000.00 = P
Ending Redeemable Value $1,300.24 = ERV
TOTAL RETURN FOR THE PERIOD 30.02% = T
</TABLE>
<PAGE> 1
[ARTICLE] 6
[SERIES]
[NUMBER] 11
[NAME] CORPORATE BOND CLASS A
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] AUG-31-1998
[PERIOD-START] SEP-01-1997
[PERIOD-END] AUG-31-1998
[INVESTMENTS-AT-COST] 232,029,748<F1>
[INVESTMENTS-AT-VALUE] 245,372,545<F1>
[RECEIVABLES] 6,926,278<F1>
[ASSETS-OTHER] 0<F1>
[OTHER-ITEMS-ASSETS] 51,994<F1>
[TOTAL-ASSETS] 252,350,817<F1>
[PAYABLE-FOR-SECURITIES] 0<F1>
[SENIOR-LONG-TERM-DEBT] 0<F1>
[OTHER-ITEMS-LIABILITIES] 2,760,259<F1>
[TOTAL-LIABILITIES] 2,760,259<F1>
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 190,399,189
[SHARES-COMMON-STOCK] 26,467,270
[SHARES-COMMON-PRIOR] 23,103,531
[ACCUMULATED-NII-CURRENT] (386,213)<F1>
[OVERDISTRIBUTION-NII] 0<F1>
[ACCUMULATED-NET-GAINS] (15,753,988)<F1>
[OVERDISTRIBUTION-GAINS] 0<F1>
[ACCUM-APPREC-OR-DEPREC] 13,342,797<F1>
[NET-ASSETS] 185,963,933
[DIVIDEND-INCOME] 0<F1>
[INTEREST-INCOME] 16,782,210<F1>
[OTHER-INCOME] 88,000<F1>
[EXPENSES-NET] (2,814,386)<F1>
[NET-INVESTMENT-INCOME] 14,055,824<F1>
[REALIZED-GAINS-CURRENT] 897,823<F1>
[APPREC-INCREASE-CURRENT] 911,483<F1>
[NET-CHANGE-FROM-OPS] 15,865,130<F1>
[EQUALIZATION] 0<F1>
[DISTRIBUTIONS-OF-INCOME] (11,934,964)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 7,628,952
[NUMBER-OF-SHARES-REDEEMED] (5,430,218)
[SHARES-REINVESTED] 1,165,005
[NET-CHANGE-IN-ASSETS] 25,012,663
[ACCUMULATED-NII-PRIOR] 377,622<F1>
[ACCUMULATED-GAINS-PRIOR] (23,441,237)<F1>
[OVERDISTRIB-NII-PRIOR] 0<F1>
[OVERDIST-NET-GAINS-PRIOR] 0<F1>
[GROSS-ADVISORY-FEES] 1,090,017<F1>
[INTEREST-EXPENSE] 0<F1>
[GROSS-EXPENSE] 2,814,386<F1>
[AVERAGE-NET-ASSETS] 176,808,330
[PER-SHARE-NAV-BEGIN] 6.967
[PER-SHARE-NII] 0.454
[PER-SHARE-GAIN-APPREC] 0.085
[PER-SHARE-DIVIDEND] (0.480)
[PER-SHARE-DISTRIBUTIONS] 0.000
[RETURNS-OF-CAPITAL] 0.000
[PER-SHARE-NAV-END] 7.026
[EXPENSE-RATIO] 1.08
[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>
<PAGE> 2
[ARTICLE] 6
[SERIES]
[NUMBER] 12
[NAME] CORPORATE BOND CLASS B
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] AUG-31-1998
[PERIOD-START] SEP-01-1997
[PERIOD-END] AUG-31-1998
[INVESTMENTS-AT-COST] 232,029,748<F1>
[INVESTMENTS-AT-VALUE] 245,372,545<F1>
[RECEIVABLES] 6,926,278<F1>
[ASSETS-OTHER] 0<F1>
[OTHER-ITEMS-ASSETS] 51,994<F1>
[TOTAL-ASSETS] 252,350,817<F1>
[PAYABLE-FOR-SECURITIES] 0<F1>
[SENIOR-LONG-TERM-DEBT] 0<F1>
[OTHER-ITEMS-LIABILITIES] 2,760,259<F1>
[TOTAL-LIABILITIES] 2,760,259<F1>
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 52,350,550
[SHARES-COMMON-STOCK] 7,674,616
[SHARES-COMMON-PRIOR] 4,884,808
[ACCUMULATED-NII-CURRENT] (386,213)<F1>
[OVERDISTRIBUTION-NII] 0<F1>
[ACCUMULATED-NET-GAINS] (15,753,988)<F1>
[OVERDISTRIBUTION-GAINS] 0<F1>
[ACCUM-APPREC-OR-DEPREC] 13,342,797<F1>
[NET-ASSETS] 53,809,578
[DIVIDEND-INCOME] 0<F1>
[INTEREST-INCOME] 16,782,210<F1>
[OTHER-INCOME] 88,000<F1>
[EXPENSES-NET] (2,814,386)<F1>
[NET-INVESTMENT-INCOME] 14,055,824<F1>
[REALIZED-GAINS-CURRENT] 897,823<F1>
[APPREC-INCREASE-CURRENT] 911,483<F1>
[NET-CHANGE-FROM-OPS] 15,865,130<F1>
[EQUALIZATION] 0<F1>
[DISTRIBUTIONS-OF-INCOME] (2,562,029)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 4,450,037
[NUMBER-OF-SHARES-REDEEMED] (1,897,082)
[SHARES-REINVESTED] 236,853
[NET-CHANGE-IN-ASSETS] 19,384,014
[ACCUMULATED-NII-PRIOR] 377,622<F1>
[ACCUMULATED-GAINS-PRIOR] (23,441,237)<F1>
[OVERDISTRIB-NII-PRIOR] 0<F1>
[OVERDIST-NET-GAINS-PRIOR] 0<F1>
[GROSS-ADVISORY-FEES] 1,090,017<F1>
[INTEREST-EXPENSE] 0<F1>
[GROSS-EXPENSE] 2,814,386<F1>
[AVERAGE-NET-ASSETS] 42,830,833
[PER-SHARE-NAV-BEGIN] 6.955
[PER-SHARE-NII] 0.412
[PER-SHARE-GAIN-APPREC] 0.071
[PER-SHARE-DIVIDEND] (0.427)
[PER-SHARE-DISTRIBUTIONS] 0.000
[RETURNS-OF-CAPITAL] 0.000
[PER-SHARE-NAV-END] 7.011
[EXPENSE-RATIO] 1.85
[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>
<PAGE> 3
[ARTICLE] 6
[SERIES]
[NUMBER] 13
[NAME] CORPORATE BOND CLASS C
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] AUG-31-1998
[PERIOD-START] SEP-01-1997
[PERIOD-END] AUG-31-1998
[INVESTMENTS-AT-COST] 232,029,748<F1>
[INVESTMENTS-AT-VALUE] 245,372,545<F1>
[RECEIVABLES] 6,926,278<F1>
[ASSETS-OTHER] 0<F1>
[OTHER-ITEMS-ASSETS] 51,994<F1>
[TOTAL-ASSETS] 252,350,817<F1>
[PAYABLE-FOR-SECURITIES] 0<F1>
[SENIOR-LONG-TERM-DEBT] 0<F1>
[OTHER-ITEMS-LIABILITIES] 2,760,259<F1>
[TOTAL-LIABILITIES] 2,760,259<F1>
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 9,638,223
[SHARES-COMMON-STOCK] 1,400,251
[SHARES-COMMON-PRIOR] 733,842
[ACCUMULATED-NII-CURRENT] (386,213)<F1>
[OVERDISTRIBUTION-NII] 0<F1>
[ACCUMULATED-NET-GAINS] (15,753,988)<F1>
[OVERDISTRIBUTION-GAINS] 0<F1>
[ACCUM-APPREC-OR-DEPREC] 13,342,797<F1>
[NET-ASSETS] 9,817,047
[DIVIDEND-INCOME] 0<F1>
[INTEREST-INCOME] 16,782,210<F1>
[OTHER-INCOME] 88,000<F1>
[EXPENSES-NET] (2,814,386)<F1>
[NET-INVESTMENT-INCOME] 14,055,824<F1>
[REALIZED-GAINS-CURRENT] 897,823<F1>
[APPREC-INCREASE-CURRENT] 911,483<F1>
[NET-CHANGE-FROM-OPS] 15,865,130<F1>
[EQUALIZATION] 0<F1>
[DISTRIBUTIONS-OF-INCOME] (367,093)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 971,515
[NUMBER-OF-SHARES-REDEEMED] (331,118)
[SHARES-REINVESTED] 26,012
[NET-CHANGE-IN-ASSETS] 4,712,715
[ACCUMULATED-NII-PRIOR] 377,622<F1>
[ACCUMULATED-GAINS-PRIOR] (23,441,237)<F1>
[OVERDISTRIB-NII-PRIOR] 0<F1>
[OVERDIST-NET-GAINS-PRIOR] 0<F1>
[GROSS-ADVISORY-FEES] 1,090,017<F1>
[INTEREST-EXPENSE] 0<F1>
[GROSS-EXPENSE] 2,814,386<F1>
[AVERAGE-NET-ASSETS] 6,176,263
[PER-SHARE-NAV-BEGIN] 6.956
[PER-SHARE-NII] 0.419
[PER-SHARE-GAIN-APPREC] 0.063
[PER-SHARE-DIVIDEND] (0.427)
[PER-SHARE-DISTRIBUTIONS] 0.000
[RETURNS-OF-CAPITAL] 0.000
[PER-SHARE-NAV-END] 7.011
[EXPENSE-RATIO] 1.85
[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>
<PAGE> 1
EXHIBIT(Z)(1)
Item 27(a)
- ----------
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST
VAN KAMPEN ADVANTAGE MUNICIPAL INCOME TRUST II
VAN KAMPEN ADVANTAGE PENNSYLVANIA MUNICIPAL INCOME TRUST
VAN KAMPEN BOND FUND
VAN KAMPEN CALIFORNIA MUNICIPAL TRUST
VAN KAMPEN CALIFORNIA QUALITY MUNICIPAL TRUST
VAN KAMPEN CALIFORNIA VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN COMSTOCK FUND
VAN KAMPEN CONVERTIBLE SECURITIES FUND
VAN KAMPEN CORPORATE BOND FUND
VAN KAMPEN EMERGING GROWTH FUND
VAN KAMPEN ENTERPRISE FUND
VAN KAMPEN EQUITY TRUST
VAN KAMPEN AGGRESSIVE GROWTH FUND
VAN KAMPEN GREAT AMERICAN COMPANIES FUND
VAN KAMPEN GROWTH FUND
VAN KAMPEN MID CAP VALUE FUND
VAN KAMPEN PROSPECTOR FUND
VAN KAMPEN UTILITY FUND
VAN KAMPEN EQUITY INCOME FUND
THE EXPLORER INSTITUTIONAL TRUST
EXPLORER INSTITUTIONAL ACTIVE CORE FUND
EXPLORER INSTITUTIONAL LIMITED DURATION FUND
VAN KAMPEN AMERICAN CAPITAL EXCHANGE FUND
VAN KAMPEN FLORIDA MUNICIPAL OPPORTUNITY TRUST
VAN KAMPEN FLORIDA QUALITY MUNICIPAL TRUST
VAN KAMPEN GLOBAL MANAGED ASSETS FUND
VAN KAMPEN GOVERNMENT SECURITIES FUND
VAN KAMPEN GROWTH AND INCOME FUND
VAN KAMPEN HARBOR FUND
VAN KAMPEN HIGH INCOME CORPORATE BOND FUND
VAN KAMPEN HIGH INCOME TRUST
VAN KAMPEN HIGH INCOME TRUST II
VAN KAMPEN INCOME TRUST
VAN KAMPEN INVESTMENT GRADE MUNICIPAL TRUST
VAN KAMPEN LIFE INVESTMENT TRUST
on behalf of its Series
ASSET ALLOCATION PORTFOLIO
COMSTOCK PORTFOLIO
DOMESTIC INCOME PORTFOLIO
EMERGING GROWTH PORTFOLIO
ENTERPRISE PORTFOLIO
GLOBAL EQUITY PORTFOLIO
GOVERNMENT PORTFOLIO
GROWTH AND INCOME PORTFOLIO
MONEY MARKET PORTFOLIO
MORGAN STANLEY REAL ESTATE SECURITIES PORTFOLIO
STRATEGIC STOCK PORTFOLIO
VAN KAMPEN LIMITED MATURITY GOVERNMENT FUND
VAN KAMPEN MASSACHUSETTS VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN MUNICIPAL INCOME TRUST
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST
<PAGE> 2
VAN KAMPEN MUNICIPAL OPPORTUNITY TRUST II
VAN KAMPEN MUNICIPAL TRUST
VAN KAMPEN NEW JERSEY VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN NEW YORK QUALITY MUNICIPAL TRUST
VAN KAMPEN NEW YORK VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN OHIO QUALITY MUNICIPAL TRUST
VAN KAMPEN OHIO VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN PACE FUND
VAN KAMPEN PENNSYLVANIA QUALITY MUNICIPAL TRUST
VAN KAMPEN PENNSYLVANIA TAX FREE INCOME FUND
VAN KAMPEN PENNSYLVANIA VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN PRIME RATE INCOME TRUST
VAN KAMPEN REAL ESTATE SECURITIES FUND
VAN KAMPEN RESERVE FUND
VAN KAMPEN SELECT SECTOR MUNICIPAL TRUST
VAN KAMPEN SENIOR FLOATING RATE FUND
VAN KAMPEN SENIOR INCOME TRUST
VAN KAMPEN SERIES FUND, INC.
VAN KAMPEN AGGRESSIVE EQUITY FUND
VAN KAMPEN AMERICAN VALUE FUND
VAN KAMPEN ASIAN GROWTH FUND
VAN KAMPEN EMERGING MARKETS DEBT FUND*
VAN KAMPEN EMERGING MARKETS FUND
VAN KAMPEN EQUITY GROWTH FUND*
VAN KAMPEN EUROPEAN EQUITY FUND*
VAN KAMPEN GLOBAL EQUITY ALLOCATION FUND
VAN KAMPEN GLOBAL EQUITY FUND
VAN KAMPEN GLOBAL FIXED INCOME FUND
VAN KAMPEN GLOBAL FRANCHISE FUND*
MORGAN STANLEY GOVERNMENT OBLIGATIONS MONEY MARKET FUND
VAN KAMPEN GROWTH AND INCOME FUND II*
VAN KAMPEN HIGH YIELD & TOTAL RETURN FUND
VAN KAMPEN INTERNATIONAL MAGNUM FUND
VAN KAMPEN JAPANESE EQUITY FUND*
VAN KAMPEN LATIN AMERICAN FUND
VAN KAMPEN MID CAP GROWTH FUND*
MORGAN STANLEY MONEY MARKET FUND
MORGAN STANLEY TAX-FREE MONEY MARKET FUND*
VAN KAMPEN U.S. REAL ESTATE FUND
VAN KAMPEN VALUE FUND
VAN KAMPEN WORLDWIDE HIGH INCOME FUND
VAN KAMPEN SMALL CAPITALIZATION FUND
VAN KAMPEN STRATEGIC SECTOR MUNICIPAL TRUST
VAN KAMPEN TAX-EXEMPT TRUST
on behalf of its Series
HIGH YIELD MUNICIPAL FUND
VAN KAMPEN TAX FREE TRUST
VAN KAMPEN CALIFORNIA INSURED TAX FREE FUND
VAN KAMPEN CALIFORNIA TAX FREE INCOME FUND*
VAN KAMPEN FLORIDA INSURED TAX FREE INCOME FUND
VAN KAMPEN INSURED TAX FREE INCOME FUND
VAN KAMPEN INTERMEDIATE TERM MUNICIPAL INCOME FUND
<PAGE> 3
VAN KAMPEN MICHIGAN TAX FREE INCOME FUND*
VAN KAMPEN MISSOURI TAX FREE INCOME FUND*
VAN KAMPEN MUNICIPAL INCOME FUND
VAN KAMPEN NEW YORK TAX FREE INCOME FUND
VAN KAMPEN OHIO TAX FREE INCOME FUND*
VAN KAMPEN TAX FREE HIGH INCOME FUND
VAN KAMPEN TAX FREE MONEY FUND
VAN KAMPEN TRUST
VAN KAMPEN HIGH YIELD FUND
VAN KAMPEN SHORT-TERM GLOBAL INCOME FUND
VAN KAMPEN STRATEGIC INCOME FUND
VAN KAMPEN TRUST FOR INSURED MUNICIPALS
VAN KAMPEN TRUST FOR INVESTMENT GRADE CALIFORNIA MUNICIPALS
VAN KAMPEN TRUST FOR INVESTMENT GRADE FLORIDA MUNICIPALS
VAN KAMPEN TRUST FOR INVESTMENT GRADE MUNICIPALS
VAN KAMPEN TRUST FOR INVESTMENT GRADE NEW JERSEY MUNICIPALS
VAN KAMPEN TRUST FOR INVESTMENT GRADE NEW YORK MUNICIPALS
VAN KAMPEN TRUST FOR INVESTMENT GRADE PENNSYLVANIA MUNICIPALS
VAN KAMPEN U.S. GOVERNMENT TRUST
VAN KAMPEN U.S. GOVERNMENT FUND
VAN KAMPEN U.S. GOVERNMENT TRUST FOR INCOME
VAN KAMPEN VALUE MUNICIPAL INCOME TRUST
VAN KAMPEN WORLD PORTFOLIO SERIES TRUST
on behalf of its Series
VAN KAMPEN GLOBAL GOVERNMENT SECURITIES FUND
* Funds have not commenced investment operations.
<PAGE> 4
<TABLE>
<S> <C>
Insured Municipals Income Trust Series 404
California Insured Municipals Income Trust Series 177
Colorado Insured Municipals Income Trust Series 87
Connecticut Insured Municipals Income Trust Series 38
Florida Insured Municipals Income Trust Series 123
Georgia Insured Municipals Income Trust Series 88
Maryland Investors' Quality Tax-Exempt Trust Series 87
Michigan Insured Municipals Income Trust Series 152
Minnesota Insured Municipals Income Trust Series 62
Missouri Insured Municipals Income Trust Series 108
New Jersey Insured Municipals Income Trust Series 124
New York Insured Municipals Income Trust Series 147
North Carolina Investors' Quality Tax-Exempt Trust Series 96
Ohio Insured Municipals Income Trust Series 110
Pennsylvania Insured Municipals Income Trust Series 239
South Carolina Investors' Quality Tax-Exempt Trust Series 86
Tennessee Insured Municipals Income Trust Series 41
Virginia Investors' Quality Tax-Exempt Trust Series 82
Van Kampen American Capital Insured Income Trust Series 72
Internet Trust Series 12
The Dow SM Strategic 10 Trust November 1998
Series
The Dow SM Strategic 10 Trust November 1998
Traditional
Series
The Dow SM Strategic 5 Trust November 1998
Series
The Dow SM Strategic 5 Trust November 1998
Traditional
Series
EAFE Strategic 20 Trust November 1998
Series
EURO Strategic 20 Trust November 1998
Series
Strategic Picks Opportunity Trust November 1998
Series
Great International Firms Trust Series 5
Dow 30 Index Trust Series 5
Dow 30 Index and Treasury Trust Series 7
Baby Boomer Opportunity Trust Series 5
Global Energy Trust Series 7
Brand Name Equity Trust Series 7
Edward Jones Select Growth Trust July 1998
Series
Banking Trust Series 4
Morgan Stanley High-Technology 35 Index Trust Series 4
Health Care Trust Series 4
Telecommunications Trust Series 4
Utility Trust Series 4
Financial Services Trust Series 4
Morgan Stanley Euro Tec Trust Series 1
Natcity Investments, Inc. Great American Equities Trust Series 1
Gruntal Global Transport Trust Series 1
Josepthal Financial Institutions Growth & Consolidation Trust Series 2001
Northern Illinois Equity Value Trust Series
Euro/Pacific Strategy Series 1
</TABLE>
<PAGE> 1
EXHIBIT (Z)(2)
Item 27(b)
- ----------
<TABLE>
<S> <C> <C>
Powell, Don G. Chairman Houston, TX
Powers, Richard F. III Chief Executive Officer Oakbrook Terrace, IL
Zimmerman, III, John H. President Oakbrook Terrace, IL
Gehrman, Douglas B. Executive Vice President Houston, TX
Nyberg, Ronald A. Executive Vice President, Gen. Coun., Asst. Sec. Oakbrook Terrace, IL
Rybak, William R. Executive Vice President & Chief Financial Officer Oakbrook Terrace, IL
Wolkenberg, Paul R. Executive Vice President Oakbrook Terrace, IL
Althoff, Laurence Joseph Senior Vice President & Controller Oakbrook Terrace, IL
DeMoss, Gary R. Senior Vice President Oakbrook Terrace, IL
Doyle, John E. Senior Vice President Oakbrook Terrace, IL
Golod, Richard G. Senior Vice President Annapolis, MD
Martin, Scott Evan Sen. V.P., Deputy Gen. Coun. and Sec. Oakbrook Terrace, IL
McGannon, Mark T. Senior Vice President Oakbrook Terrace, IL
Millington, Charles G. Senior Vice President and Treasurer Oakbrook Terrace, IL
Rein, Walter E. Senior Vice President Oakbrook Terrace, IL
Saucedo, Colette M. Senior Vice President Houston, TX
Shepherd, Frederick Senior Vice President Houston, TX
Sorenson, Steven P. Senior Vice President Oakbrook Terrace, IL
Stallard, Michael L. Senior Vice President Oakbrook Terrace, IL
West, Robert Scott Senior Vice President Oakbrook Terrace, IL
Wood, Edward C, III Senior Vice President & Chief Operating Officer Oakbrook Terrace, IL
Cackovic, Glenn M. First Vice President Laguna Nigel, CA
Hargens, Eric J. First Vice President Orlando, FL
Hogaboom, David S. First Vice President Oakbrook Terrace, IL
Martellaro, Dominic C. First Vice President Danville, CA
Mayfield, Carl First Vice President Lakewood, CO
McClure, Mark R. First Vice President Oakbrook Terrace, IL
Ryan, James J. First Vice President Oakbrook Terrace, IL
Vogel, George J. First Vice President Oakbrook Terrace, IL
Woelfel, Patrick J. First Vice President Oakbrook Terrace, IL
Abreu, Robert J. Vice President New York, NY
Ambrosio, James K. Vice President Massapequa, NY
Arcara, Brian P. Vice President Buffalo, NY
Bart, Louis P Vice President
Bettlach, Patricia A. Vice President Chesterfield, Mo
Biegel, Carol S. Vice President Oakbrook Terrace, IL
Bisaillon, Chistopher M. Vice President Oakbrook Terrace, IL
Boos, Michael P. Vice President Oakbrook Terrace, IL
Boyne, James Joseph V.P., Associate Gen. Coun. & Asst. Sec. Oakbrook Terrace, IL
Brooks, Robert C. Vice President Oakbrook Terrace, IL
Burke, Jr., William F. Vice President Mendham, NJ
Burket, Loren Vice President Plymouth, MN
Byrum, Christine Cleary Vice President Tampa, FL
Caggiano, Joseph N. Vice President New York, NY
Chambers, Daniel R. Vice President Austin, TX
</TABLE>
<PAGE> 2
[CAPTION]
<TABLE>
<S> <C> <C>
Charlino, Richard J. Vice President Houston, TX
Chiaro, Deanna Margaret Vice President Oakbrook Terrace, IL
Chriske, Scott A. Vice President Plano, TX
Clavijo, German Vice President Atlanta, GA
Cloud, Eleanor M. Vice President Oakbrook Terrace, Il
Cogliandro, Dominick Vice President and Assistant Treasurer New York, NY
Colston, Michael Vice President Louisville, KY
Cummings, Suzanne Vice President Oakbrook Terrace, IL
Dalmaso, Nicholas V.P., Associate Gen. Coun. & Asst. Sec. Oakbrook Terrace, IL
Eccleston, Michael E. Vice President Oakbrook Tarrace, IL
Eckhard, Jonathan Vice President Tampa, FL
Falgout, Huey P. Jr. V.P., Asst. Secretary and Sr. Attorney Houston, TX
Fisher, Charles Edward Vice President Naperville, IL
Fow, William J. Vice President Redding, CT
Foxhoven, Nicholas J. Vice President Englewood, CO
Friday, Charles Vice President Gibsonia, PA
Griffith, Timothy D. Vice President Kirkland, WA
Haas, Kyle D. Vice President Oakbrook Terrace, IL
Hamilton, Daniel Vice President Austin, TX
Hansen, John G. Vice President Oakbrook Terrace, IL
Hays, Joseph Vice President Cherry Hill, NJ
Heffington, Gregory Vice President Ft. Collins, CO
Hill, Susan Jean Vice President and Senior Attorney Oakbrook Terrace, IL
Hindelang, Thomas R. Vice President Gilbert, AZ
Hoggard, Bryn M. Vice President Houston, TX
Hughes, Michael B. Vice President Oakbrook Tarrace, IL
Hunt, Robert S. Vice President Phoenix, MD
Jackson, Lowell Vice President Norcross, GA
Jajuga, Kevin G. Vice President Baltimore, MD
Johnson, Steven T. Vice President Oakbrook Terrace, IL
Klein, Dana R. Vice President Oakbrook Terrace, IL
Kohly, Frederick Vice President Miami, FL
Kowalski, David Richard Vice President & Director of Compliance Oakbrook Terrace, IL
Kozlowski, Richard D. Vice President Atlanta, GA
Langs, Bradford N. Vice President Oakbrook Terrace, IL
Lathrop, Patricia D. Vice President Tampa, FL
Laux, Brian Vice President Staten Island, NY
Leal, Tony E. Vice President Daphne, AL
Lehew III, S. William Vice President Charlotte, NC
Levinson, Eric Vice President San Francisco, CA
Linstra, Jonathan Vice President Oakbrook Terrace, IL
Lundgren, Richard M. Vice President Oakbrook Terrace, IL
Lynn, Walter Vice President Flower Mound, TX
MacAyeal, Linda S. Vice President and Senior Attorney Oakbrook Terrace, IL
Marsh, Kevin S. Vice President Bellevue, WA
</TABLE>
<PAGE> 3
[CAPTION]
<TABLE>
<S> <C> <C>
McCartney, Brooks D. Vice President Puyallup, WA
McGrath, Anne Therese Vice President Los Gatos, CA
McGrath, Maura A. Vice President New York, NY
Mills, John Vice President Kenner, LA
Morrow, Ted Vice President Dallas, TX
Muller, Jr. Robert F. Vice President Cypress, TX
Nicolas, Peter Vice President Beverly, MA
Page, Todd W. Vice President Oakbrook Terrace, IL
Parker, Gregory S. Vice President Houston, TX
Petrungaro, Christopher Vice President Oakbrook Terrace, IL
Poli, Richard J. Vice President Philadelphia, PA
Pratt, Ronald E. Vice President Marietta, GA
Prichard, Craig S. Vice President Fairlawn, OH
Reams, Daniel D. Vice President Royal Oak, MI
Rohr, Michael W. Vice President Oakbrook Terrace, IL
Rose, Jeffrey L. Vice President Houston, TX
Rothberg, Suzette N. Vice President Plymouth, MN
Rourke, Jeffrey Vice President Oakbrook Terrace, IL
Rowley, Thomas Vice President St. Louis, MO
Sabo, Heather R. Vice President Richmond, VA
Scarlata, Stephanie Vice President Bedford Corners, NY
Scherer, Andrew J. Vice President Oakbrook Terrace, IL
Schuster, Ronald J. Vice President Tampa, FL
Shaneyfelt, Gwen L. Vice President Oakbrook Terrace, IL
Shirk, Jefferey C. Vice President Swampscott, MA
Sorensen, Traci T. Vice President Oakbrook Terrace, IL
Spangler, Kimberly M. Vice President Fairfax, Va
Stabler, Darren D. Vice President Phoenix, AZ
Staniforth, Christopher Vice President Leawood, KS
Stefanec, Richard Vice President Los Angeles, CA
Stevens, James D. Vice President North Andover, MA
Strafford, William C. Vice President Granger, IN
Syswerda, Mark A. Vice President Oakbrook Terrace, IL
Tabone, David A. Vice President Scottsdale, AZ
Tierney, John F. Vice President Oakbrook Terrace, IL
Ulvestad, Curtis L. Vice President Red Wing, MN
Volkman, Todd A. Vice President Austin, TX
Waldron, Daniel B. Vice President Oakbrook Terrace, IL
Warland, Jeff Vice President Oakbrook Terrace, IL
Wetherell, Weston B. V.P., Associate Gen. Coun. & Asst. Sec Oakbrook Terrace, IL
Whitworth III, Harold Vice President Oakbrook Terrace, IL
Wilson, Thomas M. Vice President Oakbrook Terrace, IL
Withers, Barbara A. Vice President Oakbrook Terrace, IL
Wynn, David M. Vice President Phoenix, AZ
Yount, James R. Vice President Mercer Island, WA
</TABLE>
<PAGE> 4
[CAPTION]
<TABLE>
<S> <C> <C>
Zacchea, Patrick M. Vice President Oakbrook Terrace, IL
Becker, Scott F. Assistant Vice President Oakbrook Terrace, IL
Binder, Brian E. Assistant Vice President Oakbrook Terrace, IL
Blackwood, Joan E. Assistant Vice President Oakbrook Terrace, IL
Bronaugh, Billie J. Assistant Vice President Houston, TX
Brunk, Gregory T. Assistant Vice President Oakbrook Terrace, IL
Costello, Gina Assistant Vice President & Assistant Secretary Oakbrook Terrace, IL
Gieser, Sarah K. Assistant Vice President Oakbrook Terrace, IL
Gray, Walter C. Assistant Vice President Houston, TX
Jones, Laurie L. Assistant Vice President Houston, TX
Jordan, Robin R. Assistant Vice President Oakbrook Terrace, IL
Lowe, Ivan R. Assistant Vice President Houston, TX
Moehlman, Stuart R. Assistant Vice President Houston, TX
Norvid, Steven R. Assistant Vice President Oakbrook Terrace, IL
Putong, Christine K. Assistant Vice President & Assistant Secretary Oakbrook Terrace, IL
Robbins, David P. Assistant Vice President Oakbrook Terrace, IL
Rosen, Regina Assistant Vice President Oakbrook Terrace, IL
Salley, Pamela S. Assistant Vice President Houston, TX
Sanchez, Vanessa M. Assistant Vice President Oakbrook Terrace, IL
Sauerborn, Thomas J. Assistant Vice President New York, NY
Saxon, Bruce Assistant Vice President Oakbrook Terrace, IL
Saylor, David T. Assistant Vice President Oakbrook Terrace, IL
Schmieder, Christina L. Assistant Vice President Oakbrook Terrace, IL
Sinai, Lauren B. Assistant Vice President Oakbrook Terrace, IL
Transier, Kristen L. Assistant Vice President Houston, TX
Villarreal, David H. Assistant Vice President Oakbrook Terrace, IL
Wells, Sharon M.C. Assistant Vice President Oakbrook Terrace, IL
Napoli, Cathy Assistant Secretary Oakbrook Terrace, IL
Brown, Elizabeth M. Officer Houston, TX
Browning, John Officer Oakbrook Terrace, IL
George, Leticia Officer Houston, TX
McLaughlin, William D. Officer Houston, TX
Newman, Rebecca Officer Houston, TX
Renn, Theresa M. Officer Oakbrook Terrace, IL
Vickrey, Larry Officer Houston, TX
Yovanovic, John Officer Houston, TX
Powell, Don G. Director
Powers, Richard F. III Director
Nyberg, Ronald A. Director
Rybak, William R. Director
Zimmermann, III, John H. Director
</TABLE>
