<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 30, 1997
REGISTRATION NOS. 2-62115
811-2851
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
<TABLE>
<S> <C> <C>
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 [X]
POST-EFFECTIVE AMENDMENT NO. 39 [X]
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 34 [X]
</TABLE>
VAN KAMPEN AMERICAN CAPITAL
HIGH INCOME CORPORATE BOND FUND
(EXACT NAME OF REGISTRANT AS SPECIFIED IN DECLARATION OF TRUST)
ONE PARKVIEW PLAZA, OAKBROOK TERRACE, ILLINOIS 60181
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(630) 684-6000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
RONALD A. NYBERG, ESQ.
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
VAN KAMPEN AMERICAN CAPITAL, INC.
ONE PARKVIEW PLAZA
OAKBROOK TERRACE, ILLINOIS 60181
(NAME AND ADDRESS OF AGENT FOR SERVICE)
---------------------
Copies 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:
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) 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 AMERICAN CAPITAL HIGH INCOME CORPORATE BOND FUND
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM N-1A ITEM
PART A PROSPECTUS CAPTION
-------------- ------------------
<C> <S> <C>
1. Cover Page................................. Cover Page
2. Synopsis................................... Prospectus Summary; Shareholder Transaction
Expenses; Annual Fund Operating Expenses
and Example
3. Condensed Financial Information............ Financial Highlights; Fund Performance
4. General Description of Registrant.......... The Fund; Investment Objectives and
Policies; Investment Practices; Description
of Shares of the Fund
5. Management of the Fund..................... Annual Fund Operating Expenses and Example;
The Fund; Investment Practices;
Investment Advisory Services; Inside Back
Cover
6. Capital Stock and Other Securities......... The Fund; Alternative Sales Arrangements;
Purchase of Shares; Shareholder Services;
Distribution and Service Plans;
Redemptions of Shares; Distributions from
the Fund; Tax Status; Description of
Shares of the Fund; Additional
Information; Inside Back Cover
7. Purchase of Securities Being Offered....... Alternative Sales Arrangements; Purchase of
Shares; Shareholder Services;
Distribution and Service Plans
8. Redemption or Repurchase................... Shareholder Services; Redemption of Shares
9. Pending Legal Proceedings.................. Inapplicable
</TABLE>
<TABLE>
<CAPTION>
PART B STATEMENT OF ADDITIONAL INFORMATION
------ -----------------------------------
<C> <S> <C>
10. Cover Page................................. Cover Page
11. Table of Contents.......................... Table of Contents
12. General Information and History............ General Information
13. Investment Objectives and Policies......... Investment Objectives and Policies;
Investment Restrictions
14. Management of the Fund..................... General Information; Trustees and Officers;
Investment Advisory Agreement
15. Control Persons and Principal Holders of
Securities............................... General Information; Trustees and Officers;
Investment Advisory Agreement
16. Investment Advisory and Other Services..... General Information; Trustees and Officers;
Investment Advisory Agreement;
Distributor; Distribution and Service
Plans; Transfer Agent; Portfolio
Transactions and Brokerage; Other
Information
17. Brokerage Allocation and Other Practices... Portfolio Turnover; Portfolio Transactions
and Brokerage
18. Capital Stock and Other Securities......... Purchase and Redemption of Shares
19. Purchase, Redemption and Pricing of
Securities Being Offered................. Determination of Net Asset Value; Purchase
and Redemption of Shares; Exchange
Privilege
20. Tax Status................................. Tax Status of the Fund
21. Underwriters............................... Distributor
22. Calculation of Performance Data............ Fund Performance
23. Financial Statements....................... Independent Accountants' Report; Financial
Statements; Notes to Financial Statements
PART C
</TABLE>
Information required to be included in Part C is set forth under the
appropriate item in Part C of this registration statement.
<PAGE> 3
SUBJECT TO COMPLETION--DATED OCTOBER 30, 1997
- ------------------------------------------------------------------------
VAN KAMPEN AMERICAN CAPITAL
HIGH INCOME CORPORATE BOND FUND
- ------------------------------------------------------------------------
Van Kampen American Capital High Income Corporate Bond Fund (the "Fund") is
a professionally managed mutual fund. The primary investment objective is to
maximize current income. Capital appreciation is a secondary objective which is
sought only when consistent with the primary investment objective. The Fund
seeks to achieve its investment objectives by investing primarily in high
yielding, high risk fixed-income securities. SUCH SECURITIES ARE REGARDED BY THE
RATING AGENCIES AS SPECULATIVE WITH RESPECT TO THE ISSUER'S CONTINUING ABILITY
TO MEET PRINCIPAL AND INTEREST PAYMENTS. See "Investment Objectives and
Policies--Risk Factors of Investing in Lower Rated Debt Securities."
The Fund's investment adviser is Van Kampen American Capital Asset
Management, Inc. This Prospectus sets forth certain information that a
prospective investor should know before investing in the Fund. Please read it
carefully and retain it for future reference. The address of the Fund is One
Parkview Plaza, Oakbrook Terrace, Illinois 60181 and its telephone number is
(800) 421-5666.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR STATE REGULATORS NOR HAS THE COMMISSION OR ANY STATE
REGULATORS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR DEPOSITORY INSTITUTION; FURTHER, SUCH SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. SHARES OF THE FUND INVOLVE
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
A Statement of Additional Information, dated December , 1997, containing
additional information about the Fund is hereby incorporated by reference in its
entirety into this Prospectus. A copy of the Statement of Additional Information
may be obtained without charge by calling (800) 421-5666 or for
Telecommunications Device for the Deaf at (800) 421-2833. This Statement of
Additional Information has been filed with the Securities and Exchange
Commission ("SEC") and is available along with other Fund materials at the SEC's
internet web site (http://www.sec.gov).
------------------
VAN KAMPEN AMERICAN CAPITAL SM
------------------
THIS PROSPECTUS IS DATED DECEMBER , 1997.
<PAGE> 4
- ------------------------------------------------------------------------------
TABLE OF CONTENTS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 3
Shareholder Transaction Expenses............................ 5
Annual Fund Operating Expenses and Example.................. 6
Financial Highlights........................................ 8
The Fund.................................................... 10
Investment Objectives and Policies.......................... 10
Investment Practices........................................ 16
Investment Advisory Services................................ 20
Alternative Sales Arrangements.............................. 22
Purchase of Shares.......................................... 25
Shareholder Services........................................ 34
Redemption of Shares........................................ 39
Distribution and Service Plans.............................. 42
Distributions from the Fund................................. 44
Tax Status.................................................. 45
Fund Performance............................................ 49
Description of Shares of the Fund........................... 51
Additional Information...................................... 52
Appendix -- Description of Bond Ratings..................... 53
</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 ADVISER OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY THE FUND OR BY THE 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.
2
<PAGE> 5
- ------------------------------------------------------------------------------
PROSPECTUS SUMMARY
- ------------------------------------------------------------------------------
THE FUND. Van Kampen American Capital High Income Corporate Bond Fund (the
"Fund") is a diversified, open-end management investment company organized as a
Delaware business trust.
MINIMUM PURCHASE. $500 minimum initial investment for each class of shares and
$25 minimum for each subsequent investment for each class of shares (or less as
described under "Purchase of Shares").
INVESTMENT OBJECTIVES. The primary investment objective of the Fund is to
maximize current income. Capital appreciation is a secondary objective which is
sought only when consistent with the primary objective. There is no assurance
the Fund will achieve its investment objectives. See "Investment Objectives and
Policies."
INVESTMENT POLICY. The Fund seeks to achieve its investment objectives by
investing primarily in high yielding, high risk fixed-income securities.
INVESTMENT RESULTS. The investment results of the Fund are shown in the table of
"Financial Highlights."
ALTERNATIVE SALES ARRANGEMENTS. The Fund offers three classes of shares to the
public, each with its own sales charge structure: Class A shares, Class B shares
and Class C shares. Each class has distinct advantages and disadvantages for
different investors, and investors may choose the class of shares that best
suits their circumstances and objectives. Each class of shares represents an
interest in the same portfolio of investments of the Fund. See "Alternative
Sales Arrangements." For information on redeeming shares see "Redemption of
Shares."
Class A Shares. Class A shares are offered at net asset value per share plus a
maximum initial sales charge of 4.75% of the offering price (4.99% of the net
amount invested), reduced on investments of $100,000 or more. Investments of $1
million or more are not subject to any sales charge at the time of purchase, but
a contingent deferred sales charge ("CDSC") of 1.00% may be imposed on
redemptions made within one year of purchase. Class A shares are subject to an
annual service fee of up to 0.25% of its average daily net assets attributable
to such class of shares. See "Purchase of Shares -- Class A Shares" and
"Distribution and Service Plans."
Class B Shares. Class B shares are offered at net asset value per share and
are subject to a maximum CDSC of 4.00% of redemption proceeds on redemptions
made within the first year after purchase and declining thereafter to 0.00%
after the fifth year. See "Redemption of Shares." Class B shares are subject to
a combined annual distribution fee and service fee of up to 1.00% of the Fund's
average daily net assets attributable to such class of shares. See "Purchase of
Shares -- Class B Shares" and "Distribution and Service Plans." Class B shares
convert automatically to Class A shares eight years after the end of the
calendar month in which the shareholder's order to purchase was accepted. See
"Alternative Sales Arrangements -- Conversion Feature."
3
<PAGE> 6
Class C Shares. Class C shares are offered at net asset value per share and
are subject to a CDSC of 1.00% of redemption proceeds on redemptions made within
one year of purchase. See "Redemption of Shares." Class C shares are subject to
a combined annual distribution fee and service fee of up to 1.00% of the Fund's
average daily net assets attributable to such class of shares. See "Purchase of
Shares -- Class C Shares" and "Distribution and Service Plans."
INVESTMENT ADVISER. Van Kampen American Capital Asset Management, Inc. (the
"Adviser") is the Fund's investment adviser.
DISTRIBUTOR. Van Kampen American Capital Distributors, Inc. (the "Distributor")
distributes the Fund's shares.
RISK FACTORS. The lower rated debt securities in which the Fund may invest are
regarded as predominantly speculative with respect to the issuer's continuing
ability to meet principal and interest payments. Because investment in lower
rated securities (commonly referred to as junk bonds) involves greater
investment risk, achievement of the Fund's investment objectives may be more
dependent on the investment adviser's credit analysis than would be the case if
the Fund were investing in higher rated securities. Lower rated securities may
be more susceptible to real or perceived adverse economic and competitive
industry conditions than investment grade securities and thus be subject to
greater risk. A projection of an economic downturn, for example, could cause a
decline in lower rated securities prices because the advent of a recession could
lessen the ability of a highly leveraged company to make principal and interest
payments on its debt securities. In addition, the secondary trading market for
lower rated securities may be less liquid than the market for higher grade
securities. The market prices of debt securities also generally fluctuate with
changes in interest rates so that the Fund's net asset value can be expected to
decrease as long-term interest rates rise and to increase as long-term interest
rates fall. The above risks may be increased by investments in debt securities
not producing immediate cash income, such as zero-coupon securities. See
"Investment Objectives and Policies." The Fund may invest up to 35% of its total
assets in securities issued by foreign governments and other foreign issuers.
Such securities may be denominated in U.S. dollars or in currencies other than
U.S. dollars. See "Investment Objectives and Policies -- Foreign Securities."
The Fund may seek to hedge investments through transactions in options, futures
contracts and related options. Such transactions involve certain risks. See
"Investment Practices -- Using Options, Futures Contracts and Related Options."
DISTRIBUTIONS FROM THE FUND. Dividends from net investment income are
distributed monthly and capital gains, if any, are distributed at least
annually. All dividends and distributions are automatically reinvested in shares
of the Fund at net asset value per share (without sales charge) unless payment
in cash is requested. See "Distributions from the Fund."
The foregoing is qualified in its entirety by reference to the more
detailed information appearing elsewhere in this Prospectus.
4
<PAGE> 7
- ------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
Maximum sales charge imposed on
purchases (as a percentage of
offering price)............... 4.75%(1) None None
Maximum sales charge imposed on
reinvested dividends (as a
percentage of offering
price)........................ None None None
Deferred sales charge (as a
percentage of the lesser of
original purchase price or Year
redemption proceeds).......... None(2) Year 1--4.00% 1--1.00%
Year 2--4.00% After--None
Year 3--3.00%
Year 4--2.50%
Year 5--1.50%
After--None
Redemption fees (as a percentage
of amount redeemed)........... None None None
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 CDSC of 1.00% may be imposed on redemptions made
within one year of the purchase. See "Purchase of Shares -- Class A Shares."
5
<PAGE> 8
- ------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES AND EXAMPLE
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
Management Fees (as a percentage of
average daily net assets)............. % % %
12b-1 Fees (as a percentage of average
daily net assets)(1).................. % %(2) %(2)
Other Expenses (as a percentage of
average daily net assets)............. % % %
Total Expenses (as a percentage of
average daily net assets)............. % % %
</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 "Distribution and Service Plans."
(2) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted as a Fund-level expense by NASD
Rules.
6
<PAGE> 9
<TABLE>
<CAPTION>
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
EXAMPLE: ---- ----- ----- -----
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming (i) an
operating expense ratio of 1.08% for
Class A shares, 1.87% for Class B shares
and 1.87% for Class C shares, (ii) a 5%
annual return and (iii) redemption at
the end of each time period:
Class A shares........................ $ $ $ $
Class B shares........................ $ $ $ $ *
Class C shares........................ $ $ $ $
You would pay the following expenses on
the same $1,000 investment assuming no
redemption at the end of each time
period:
Class A shares........................ $ $ $ $
Class B shares........................ $ $ $ $ *
Class C shares........................ $ $ $ $
</TABLE>
- ------------------------------------------------------------------------------
* Based on conversion to Class A shares after eight years.
The purpose of the foregoing table is to assist an investor in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. The "Example" reflects expenses based on the "Annual Fund
Operating Expenses" table as shown above carried out to future years and is
included to provide a means for the investor to compare expense levels of funds
with different fee structures over varying investment periods. To facilitate
such comparison, all funds are required by the SEC to utilize a 5.00% annual
return assumption. The ten year amount with respect to Class B shares of the
Fund reflects the lower aggregate 12b-1 and service fees applicable to such
shares after conversion to Class A shares. Class B shares acquired through the
exchange privilege are subject to the CDSC schedule relating to the Class B
shares of the fund from which the 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 CDSC. THE INFORMATION CONTAINED IN THE ABOVE TABLE
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. For a more complete
description of such costs and expenses, see "Purchase of Shares," "Investment
Advisory Services," "Redemption of Shares" and "Distribution and Service Plans."
7
<PAGE> 10
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (Selected data for a share of beneficial interest
outstanding throughout each of the periods indicated)
- --------------------------------------------------------------------------------
The following financial highlights have been audited by Price Waterhouse LLP,
independent accountants, whose report thereon was unqualified. The most recent
annual report (which contains the financial highlights for the last five years)
is included in the Statement of Additional Information and may be obtained by
shareholders without charge by calling the telephone number on the 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
---------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of the
period............................ $6.15 $6.12 $6.61 $6.40 $5.71 $5.78
-------- -------- -------- -------- -------- -------- ---------
Net investment income............. .607 .55 .63 .64 .725 .80
Net realized and unrealized gain
or loss on securities........... .139 .0515 (.47) .27 .6775 (.055)
-------- -------- -------- -------- -------- -------- ---------
Total from investment operations... .746 .6015 .16 .91 1.4025 .745
-------- -------- -------- -------- -------- -------- ---------
LESS DISTRIBUTIONS FROM
Net investment income............. .598 .5715 .65 .70 .7125 .815
Net realized gain on securities... -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- ---------
Total distributions................ .598 .5715 .65 .70 .7125 .815
-------- -------- -------- -------- -------- -------- ---------
Net asset value, end of the
period............................ $6.298 $6.15 $6.12 $6.61 $6.40 $5.71
======== ======== ======== ======== ======== ======== =========
TOTAL RETURN(A).................... 12.66% 10.48% 2.34% 15.20% 25.82% 15.66%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions)......................... $421.4 $411.9 $364.2 $452.4 $435.1 $341.9
Ratios to average net assets
Expenses(b)....................... 1.08% 1.12% 1.10% 1.09% 1.05% 1.06%
Net investment income(b).......... 9.65% 9.23% 9.03% 10.10% 11.77% 15.20%
Portfolio turnover rate............ 76% 49% 66% 75% 73% 114%
<CAPTION>
CLASS A SHARES
------------------------------
YEAR ENDED AUGUST 31
------------------------------
1990 1989 1988
-------- -------- --------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of the
period............................ $7.96 $9.09 $9.86
-------- -------- --------
Net investment income............. .93 1.15 1.20
Net realized and unrealized gain
or loss on securities........... (2.165) (1.0775) (.7025)
-------- -------- --------
Total from investment operations... (1.235) .0725 .4975
-------- -------- --------
LESS DISTRIBUTIONS FROM
Net investment income............. .945 1.2025 1.2675
Net realized gain on securities... -- -- --
-------- -------- --------
Total distributions................ .945 1.2025 1.2675
-------- -------- --------
Net asset value, end of the
period............................ $5.78 $7.96 $9.09
======== ======== ========
TOTAL RETURN(A).................... (15.88%) .81% 6.32%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in
millions)......................... $331.4 $554.4 $582.6
Ratios to average net assets
Expenses(b)....................... 1.02% .77% .73%
Net investment income(b).......... 14.23% 13.27% 13.14%
Portfolio turnover rate............ 59% 45% 58%
</TABLE>
(Table continued on following page)
8
<PAGE> 11
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B SHARES
--------------------------------------------------------------------------
YEAR ENDED AUGUST 31 JULY 2, 1992(C)
----------------------------------------------------- THROUGH AUGUST 31,
1997 1996 1995 1994 1993 1992
-------- --------- -------- -------- -------- ------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of the
period.......................... $ 6.16 $ 6.14 $ 6.63 $ 6.41 $ 6.33
-------- -------- ------- ------- ------- -------
Net investment income........... .559 .51 .58 .58 .09
Net realized and unrealized gain
or loss on securities......... .141 .0335 (.468) .292 .097
-------- -------- ------- ------- ------- -------
Total from investment
operations...................... .700 .5435 .112 .872 .187
-------- -------- ------- ------- ------- -------
Less distributions from net
investment income............... .550 .5235 .602 .652 .107
-------- -------- ------- ------- ------- -------
Net asset value, end of the
period.......................... 6.310 $6.16 $ 6.14 $ 6.63 $ 6.41
======== ======== ======= ======= ======= =======
TOTAL RETURN(a).................. 11.78% 9.41% 1.59% 14.49% 2.97%*
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(millions)...................... $114.6 $ 89.9 $ 71.0 $ 37.7 $ 3.1
Ratios to average net assets
(annualized)
Expenses(b)..................... 1.87% 1.93% 1.90% 1.90% 2.08%
Net investment income(b)........ 8.86% 8.42% 8.25% 9.10% 10.30%
Portfolio turnover rate.......... 76% 49% 66% 75% 73%
<CAPTION>
CLASS C SHARES
--------------------------------------------------------------
YEAR ENDED AUGUST 31, JULY 6, 1993(C)
----------------------------------------- THROUGH AUGUST 31,
1997 1996 1995 1994 1993
-------- -------- -------- -------- ------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of the
period.......................... $ 6.14 $ 6.11 $ 6.61 $6.63
-------- ------- ------- ------- -------
Net investment income........... .557 .51 .53 .06
Net realized and unrealized gain
or loss on securities......... .137 .0435 (.428) .0195
-------- ------- ------- ------- -------
Total from investment
operations...................... .694 .5535 .102 .0795
-------- ------- ------- ------- -------
Less distributions from net
investment income............... .550 .5235 .602 .0995
-------- ------- ------- ------- -------
Net asset value, end of the
period.......................... $ 6.284 $6.14 $ 6.11 $6.61
======== ======= ======= ======= =======
TOTAL RETURN(a).................. 11.66% 9.63% 1.43% 1.20%*
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(millions)...................... $17.5 $15.7 $ 13.2 $1.0
Ratios to average net assets
(annualized)
Expenses(b)..................... 1.87% 1.93% 1.91% 2.34%
Net investment income(b)........ 8.86% 8.42% 8.25% 8.05%
Portfolio turnover rate.......... 76% 49% 66% 75%
</TABLE>
- ------------
* Non-Annualized.
(a) Total return is based upon net asset value which does not include payment of
the maximum sales charge or contingent deferred sales charge.
(b) The impact on the Ratios of Expenses and Net Investment Income to Average
Net Net Assets due to the Adviser's reimbursement of Expenses was less than
0.01%.
(c) Commencement of distribution.
9
<PAGE> 12
- ------------------------------------------------------------------------------
THE FUND
- ------------------------------------------------------------------------------
The Fund is a diversified, open-end management investment company, commonly
known as a mutual fund. A mutual fund provides, for those who have similar
investment goals, a practical and convenient way to invest in a diversified
portfolio of securities by combining their resources in an effort to achieve
such goals.
Van Kampen American Capital Asset Management, Inc. (the "Adviser") provides
investment advisory and administrative services to the Fund. The Adviser and its
affiliates also act as investment adviser to other mutual funds distributed by
Van Kampen American Capital Distributors, Inc. (the "Distributor"). To obtain
prospectuses and other information on any of these other funds, please call the
telephone number on the cover page of the Prospectus.
- ------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES
- ------------------------------------------------------------------------------
The primary investment objective of the Fund is to maximize current income.
Capital appreciation is a secondary objective which will be sought only when
consistent with its primary investment objective. The Fund seeks to achieve its
investment objectives by investing in a diversified portfolio of high yielding,
high risk fixed-income securities (commonly referred to as junk bonds).
Fixed-income securities appropriate for the Fund may include both convertible
and non-convertible debt securities and preferred stocks. The Fund's investment
objectives may be changed by the Fund's Trustees without shareholder approval,
but no change is anticipated. If there is a change in investment objectives,
shareholders should consider whether the Fund remains an appropriate investment
in light of their then current financial position and needs. There is no
assurance that these objectives will be achieved and yields may fluctuate over
time.
The Fund generally invests at least 80% of its total assets in fixed-income
securities rated Baa or lower by Moody's Investors Service, Inc. ("Moody's") or
BBB or lower by Standard & Poor's Ratings Group ("S&P") or unrated fixed income
securities determined by the Fund's Adviser to be of comparable quality. In
addition, under normal circumstances, at least 65% of the total assets of the
Fund are 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. See the Appendix for a description of corporate bond
ratings. Since some issuers do not seek ratings for their securities, nonrated
securities are also considered for investment by the Fund.
Investors should consider carefully the additional risks associated with
investment in securities which carry lower ratings. 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
10
<PAGE> 13
financial needs when making an investment decision with respect to the Fund. An
investment in the Fund is intended to be a long-term investment, and should not
be used as a trading vehicle.
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 fluctuate more in price (gaining
or losing more in value) than shorter-maturity debt securities, and generally
offer higher yields than shorter-maturity debt securities, all other factors,
including credit quality, being equal. This potential for a decline in prices of
debt securities due to rising interest rates is referred to herein as "market
risk." While the Fund has no policy limiting the maturities of the debt
securities in which it may invest, the Adviser seeks to moderate market risk by
generally maintaining a portfolio duration within a range of two to six years.
Duration is a measure of the expected life of a debt security that was developed
as a more precise alternative to the concept of "term to maturity." Duration
incorporates a debt security's yield, coupon interest payments, final maturity
and call features into one measure.
Traditionally a debt security's "term to maturity" has been used as a proxy
for the sensitivity of the security's price to changes in interest rates (which
is the "interest rate risk" or "price volatility" of the security). However,
"term to maturity" measures only the time until a debt security provides its
final payment taking no account of the pattern of the security's payments of
interest or principal prior to maturity. Duration is a measure of the expected
life of a debt security on a present value basis expressed in years. It measures
the length of the time interval between the present and the time when the
interest and principal payments are scheduled (or in the case of a callable
bond, expected to be received) weighing them by the present value of the cash to
be received at each future point in time. For any debt security with interest
payments occurring prior to the payment of principal, duration is always less
than maturity, and for zero coupon issues, duration and "term to maturity" are
equal. In general, the lower the coupon rate of interest or the longer the
maturity, or the lower the yield-to-maturity of a debt security, the longer its
duration; conversely, the higher the coupon rate of interest, the shorter the
maturity or the higher the yield-to-maturity of a debt security, the shorter its
duration.
There are some situations where even the standard duration calculation does
not properly reflect the interest rate exposure of a security. For example,
floating and variable rate securities often have final maturities of ten or more
years; however, their interest rate exposure corresponds to the frequency of the
coupon reset. Another example where the interest rate exposure is not properly
captured by duration is the case of mortgage pass-through securities. The stated
final maturity of such securities is generally 30 years, but current prepayment
rates are more
11
<PAGE> 14
critical in determining the securities' interest rate exposure. In these and
other similar situations, the Adviser will use more sophisticated analytical
techniques that incorporate the economic life of a security into the
determination of its interest rate exposure. At August 31, 1997, the average
maturity of the debt securities owned by the Fund was approximately [ ] years
and the duration of the portfolio was approximately [ ] years. The duration
is likely to vary from time to time as the Adviser pursues its strategy of
striving to maintain an active balance between seeking to maximize income and
endeavoring to maintain the value of the Fund's capital. Thus, the objective of
providing high current income to shareholders is tempered by seeking to avoid
undue market risk and thus provide reasonable total return as well as high
distributed return. There is, of course, no assurance that the Adviser will be
successful in achieving such results for the Fund.
The higher yields sought by the Fund are generally obtainable from securities
rated in the lower categories by recognized rating services. These securities
generally are subordinated to the prior claims of banks and other senior
lenders. The lower rated debt securities in which the Fund may invest are
regarded as predominately speculative with respect to the issuers continuing
ability to meet principal and interest payments. The ratings of Moody's and S&P
represent their opinions of the quality of the debt securities they undertake to
rate, but not the market value risk of such securities. It should be emphasized,
however, that ratings are general and are not absolute standards of quality.
Consequently, debt securities with the same maturity, coupon and rating may have
different yields while debt securities of the same maturity and coupon with
different ratings may have the same yield.
During the fiscal year ended August 31, 1997, the average percentage of the
Fund's assets invested in debt securities within the various rating categories
(based on the higher of the S&P or Moody's ratings), and the nonrated debt
securities, determined on a monthly dollar weighted average, were as follows:
<TABLE>
<CAPTION>
UNRATED SECURITIES OF
RATED SECURITIES COMPARABLE QUALITY
RATING (AS A PERCENTAGE OF (AS A PERCENTAGE OF
CATEGORY PORTFOLIO VALUE) PORTFOLIO VALUE)
-------- ------------------- ---------------------
<S> <C> <C>
AAA/Aaa..............................
AA/Aa................................
A/A..................................
BBB/Baa..............................
BB/Ba................................
B/B..................................
CCC/Caa..............................
CC/Ca................................
C/C..................................
D....................................
--- --
Percentage of Rated and Unrated Debt
Securities.........................
=== ==
</TABLE>
12
<PAGE> 15
LOWER RATED DEBT SECURITIES. The securities in which the Fund may invest
include the following:
-- Straight fixed-income debt securities. These include bonds and other debt
obligations which bear a fixed or variable rate of interest payable at regular
intervals and have a fixed or resettable maturity date. The particular terms
of such securities vary and may include features such as call provisions and
sinking funds.
-- Pay-in-kind debt securities. These pay interest in additional debt
securities rather than cash.
-- Zero-coupon debt securities. These bear no interest obligation but are
issued at a discount from their value at maturity. When held to maturity,
their entire return equals the difference between their issue price and their
maturity value.
-- Zero-fixed-coupon debt securities. These are zero-coupon debt securities
which convert on a specified date to interest-bearing debt securities.
The Fund may invest in debt instruments not producing immediate cash income,
such as zero-coupon securities, when their effective yield premiums over
comparable instruments producing cash income make these investments attractive.
Prices on non-cash-paying instruments may be more sensitive to changes in the
issuer's financial condition, fluctuations in interest rates and market
demand/supply imbalances than cash-paying securities with similar credit
ratings, and thus may be more speculative. In addition, the non-cash interest
income earned on such instruments is included in investment company taxable
income, thereby increasing the minimum required distributions to shareholders
(without providing the corresponding cash flow with which to pay such
distributions). See "Distributions from the Fund." The Adviser will weigh these
concerns against the expected total returns for such instruments.
The Fund may invest in debt securities rated below B by both Moody's and S&P,
common stocks or other equity securities and income bonds on which interest is
not being paid when such investments are consistent with the Fund's investment
objectives or are acquired as part of a unit consisting of a combination of
fixed-income or equity securities. Equity securities as referred to herein do
not include preferred stocks. The Fund will not purchase any such securities
which will cause more than 20% of its total assets to be so invested or which
would cause more than 10% of its total assets to be invested in common stocks,
warrants and options on equity securities. This limitation does not require the
sale of a portfolio security whose rating has been changed.
Debt securities rated below B by both Moody's and S&P include debt obligations
or other securities of companies that are financially troubled, in default or
are in
13
<PAGE> 16
bankruptcy or reorganization ("Deep Discount Securities"). These securities may
be rated C, CI or D by S&P and C by Moody's. Debt obligations of such companies
are usually available at a deep discount from the face value of the instrument.
The Fund will invest in Deep Discount Securities when the Adviser believes that
existing factors are likely to restore the company to a healthy financial
condition. Such factors include a restructuring of debt, management changes,
existence of adequate assets, or other unusual circumstances.
A debt instrument purchased at a deep discount may currently pay a very high
effective yield. In addition, if the financial condition of the issuer improves,
the underlying value of the security may increase, resulting in a capital gain.
If the company defaults on its obligations or remains in default, or if the plan
of reorganization is insufficient for debtholders, the Deep Discount Securities
may stop generating income and lose value or become worthless. The Adviser will
balance the benefits of Deep Discount Securities with their risks. While a
diversified portfolio may reduce the overall impact of a Deep Discount Security
that is in default or loses its value, the risk cannot be eliminated.
RISK FACTORS OF INVESTING IN LOWER RATED DEBT SECURITIES. Past experience may
not provide an accurate indication of future performance of the market for lower
rated 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, the value of lower rated debt securities in the
Fund's portfolio, the Fund's net asset value and the ability of the bonds'
issuers to repay principal and interest, meet projected business goals and
obtain additional financing than on higher rated securities. These circumstances
also may result in a higher incidence of defaults than with respect to higher
rated securities. An investment in this Fund may be considered more speculative
than investment in shares of a fund which invests primarily in higher rated debt
securities.
Prices of lower rated debt securities may be more sensitive to adverse
economic changes or corporate developments than higher rated 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 rated 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. 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 and to pursue litigation to protect the interests of
security holders of its portfolio companies.
Because the market for lower rated securities may be thinner and less active
than for higher rated securities, there may be additional market price
volatility for these securities and limited liquidity in the resale market.
Nonrated securities are usually not as attractive to as many buyers as rated
securities are, a factor which may make
14
<PAGE> 17
nonrated 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 rated 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
nonrated securities, these securities will be valued by a method that the Fund's
Trustees believe accurately reflects fair value. 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.
Special tax considerations are associated with investing in lower rated 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.
While credit ratings are only one factor the Adviser relies on in evaluating
lower rated debt securities, certain risks are associated with using credit
ratings. Credit rating agencies may fail to timely change the credit ratings to
reflect subsequent events; however, the Adviser continuously monitors the
issuers of lower rated debt 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 debt 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.
OTHER INVESTMENTS. The fund may invest up to 35% of its total assets in
securities issued by foreign governments and other foreign issuers which have
similar quality as the securities described above as determined by the Adviser.
Investments in foreign securities present certain risks not ordinarily found in
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. Gener-
15
<PAGE> 18
ally, a significant factor affecting the performance of the Fund's investments
in foreign securities is the fluctuation in the relative values of the
currencies in which such securities are denominated. 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 and, accordingly, their securities
markets may be less liquid than those in the U.S. 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. See "Investment Practices -- Securities of
Foreign Issuers."
In order to hedge against 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 contracts and options on such contracts. See "Investment
Practices -- Using Options, Futures Contracts and Related Options" and the
Statement of Additional Information for discussion of options, futures contracts
and related options.
When market conditions dictate a more "defensive" investment strategy, the
Fund may invest on a temporary basis up to 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, and
repurchase agreements. See "Investment Practices -- Repurchase Agreements."
Under normal market conditions, the yield on these securities will tend to be
lower than the yield on other securities owned by the Fund.
- ------------------------------------------------------------------------------
INVESTMENT PRACTICES
- ------------------------------------------------------------------------------
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 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, exceeds 15% of the
value of its net assets. 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) a possible
decline in the value of the underlying security during the period while the Fund
seeks to enforce its rights thereto, (b) a possible lack of
16
<PAGE> 19
access to income on the underlying security during this period and (c) expenses
of enforcing its rights. See the Statement of Additional Information.
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 SEC exemptive order authorizing this practice, which
conditions are designed to ensure the fair administration of the joint account
and to protect the amounts in that account.
USING OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS. The investment policies
of the Fund permit the Fund to invest in or write options, futures contracts and
related options. The Fund presently expects to utilize options, futures
contracts and options thereon in several different ways, depending upon the
status of the Fund's portfolio and the Adviser's expectations concerning the
securities markets. See the Statement of Additional Information for discussion
of options, futures contracts and related options.
Potential Risks of Options, Futures Contracts and Related Options. The
purchase and sale of options, futures contracts and related options involve
risks different from those involved with direct investments in underlying
securities. While utilization of options, futures contracts and similar
instruments may be advantageous to the Fund, if the Adviser is not successful in
employing such instruments in managing the Fund's investments, the Fund's
performance will be worse than if the Fund did not make such investments. In
addition, the Fund would pay commissions and other costs in connection with such
investments, which may increase the Fund's expenses and reduce its return.
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 described below. The Fund may not purchase or
sell futures contracts or related options for which the
17
<PAGE> 20
aggregate initial margin and premiums exceed 5% of the fair market value of the
Fund's assets.
In order to prevent leverage in connection with the purchase of futures
contracts or call options thereon by the Fund, an amount of cash or liquid
securities equal to the market value of the obligation under the futures
contracts or options (less any related margin deposits) will be maintained in a
segregated account with the Custodian. The Fund may not invest more than 15% of
its net assets in illiquid securities, including certain OTC Options deemed
illiquid and repurchase agreements which have a maturity of longer than seven
days. A more complete discussion of the potential risks involved in transactions
in options, futures contracts and related options is contained in the Statement
of Additional Information.
PORTFOLIO TURNOVER. Although the Fund does not intend to engage in substantial
short-term trading, it may sell portfolio 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 because the Fund desires to preserve
gains or limit losses due to changing economic conditions or the financial
condition of the issuer. 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." Since portfolio changes are deemed appropriate due to
market or other conditions, such turnover rate may be expected to vary from year
to year.
LENDING OF SECURITIES. The Fund may lend its portfolio securities to broker-
dealers and other financial institutions in an amount up to 10% of the total
assets, 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. During the period of the
loan, the Fund receives the income on both the loaned securities and the
collateral and thereby increases its yield after payment of lending fees.
RESTRICTED SECURITIES. The Fund may invest up to 15% of the value of its net
assets in restricted securities (i.e., securities which may not be sold without
registration or an exemption from registration under the Securities Act of 1933)
and in other illiquid securities and repurchase agreements maturing in more than
seven days. Restricted securities are generally purchased at a discount from the
market price of unrestricted securities of the same issuer. Investments in
restricted securities are not 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 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
18
<PAGE> 21
be paid by the Fund. A Fund position in restricted securities might adversely
affect the liquidity and marketability of such securities, and the Fund might
not be able to dispose of its holdings in such securities at reasonable price
levels. Although the Fund may invest up to 15% of its net assets in illiquid
securities and repurchase agreements which have a maturity of longer than seven
days, the Fund shall not invest in such securities in excess of 10% of its net
assets without prior approval of the Trustees.
PORTFOLIO TRANSACTIONS AND BROKERAGE PRACTICES. The Adviser is responsible for
the placement of orders for the purchase and sale of portfolio securities for
the Fund and the negotiation of brokerage commissions on such transactions. Most
transactions made by the Fund are with dealers acting as principals. Brokerage
firms are selected on the basis of their professional capability for the type of
transaction and the value and quality of execution services rendered on a
continuing basis. The Adviser may place portfolio transactions, to the extent
permitted by law, with brokerage firms affiliated with the Fund, the Adviser or
the Distributor and with firms participating in the distribution of shares of
the Fund if it reasonably believes that the quality of the execution and the
commission are comparable to that available from other qualified firms. 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. The information received may be used
by the Adviser in managing the assets of other advisory accounts as well as in
the management of the assets of the Fund.
SECURITIES OF FOREIGN ISSUERS. The Fund may invest up to 35% of its total
assets in securities issued by foreign governments and other foreign issuers.
Such securities may be denominated in U.S. dollars or in currencies other than
U.S. dollars.
The Adviser believes that in many instances such foreign debt securities may
provide higher yields than securities of domestic issuers which have similar
maturities. Such securities may be subject to foreign government taxes which
would reduce the effective yield. Such securities may be less liquid than the
securities of the U.S. corporations, and are certainly less liquid than
securities issued by the U.S. Government or its agencies.
The above-described foreign investments involve certain risks, which should be
considered carefully by an investor in the Fund. These risks include changes in
currency exchange rates, political or economic instability of the issuer or of
the country of issue, the difficulty of predicting international trade patterns
and the possibility of imposition of exchange controls. Such securities may also
be subject to greater fluctuations in price than securities of U.S. corporations
or of the U.S. Government. In addition, there may be less publicly available
information about a foreign company than about a domestic company. Foreign
companies generally are
19
<PAGE> 22
not subject to uniform accounting, auditing and financial reporting standards
comparable to those applicable to domestic companies. There is generally less
government regulation of stock exchanges, brokers and listed companies abroad
than in the United States, 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. 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. Such investments will be made only when the Adviser believes
that higher yields justify the attendant risks.
INVESTMENT RESTRICTIONS. The Fund has adopted certain investment restrictions
which may not be changed without approval by the vote of a majority of the
outstanding voting shares of the Fund (as defined in the Investment Company Act
of 1940, as amended (the "1940 Act").These restrictions provide, among other
things, that the Fund may not:
1. Invest more than 15% 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;
2. With respect to 75% of its assets, invest more than 5% of its assets in
the securities of any one issuer (except the U.S. Government) or purchase
more than 10% of the outstanding voting securities of any one issuer,
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;
3. Invest more than 25% of the value of its total assets in securities of
issuers in any particular industry (except obligations of the U.S.
Government);
- ------------------------------------------------------------------------------
INVESTMENT ADVISORY SERVICES
- ------------------------------------------------------------------------------
THE ADVISER. The Adviser is a wholly-owned subsidiary of Van Kampen American
Capital, Inc. ("Van Kampen American Capital"). Van Kampen American Capital is a
diversified asset management company with more than two million retail investor
accounts, extensive capabilities for managing institutional portfolios, and more
than $60 billion under management or supervision. Van Kampen American Capital's
more than 50 open-end and 37 closed-end funds and more than 2,500 unit
investment trusts are professionally distributed by leading financial advisers
nationwide. Van Kampen American Capital Distributors, Inc., the distributor of
the Fund and the sponsor of the funds mentioned above, is also a
20
<PAGE> 23
wholly-owned subsidiary of Van Kampen American Capital. Van Kampen American
Capital is an indirect wholly-owned subsidiary of Morgan Stanley, Dean Witter,
Discover & Co. The Adviser's principal office is located at One Parkview Plaza,
Oakbrook Terrace, Illinois 60181.
Morgan, Stanley, Dean Witter, Discover & 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 global custody, securities clearance services and securities
lending.
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 on an annual rate applied to average daily net assets of the Fund
as follows:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSETS % PER ANNUM
<S> <C>
- -----------------------------------------------------------------------
First $150 million.................................... 0.625 of 1.00%
Next $150 million..................................... 0.550 of 1.00%
Over $300 million..................................... 0.500 of 1.00%
- -----------------------------------------------------------------------
</TABLE>
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. Operating expenses
paid by the Fund include shareholder 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 as
defined in the 1940 Act of the Adviser, Distributor or Van Kampen American
Capital), and all other business expenses not specifically assumed by the
Adviser. Advisory (management) fee and total operating expense ratios are shown
under the caption "Annual Fund Operating Expenses and Example" herein.
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 to the extent
of, or bearing expenses in excess of, such limitations as they may establish.
21
<PAGE> 24
The Adviser may utilize, at its own expense, credit analysis, research and
trading support services provided by its affiliate, Van Kampen American Capital
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 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. Ellis J. Bigelow has been primarily responsible for the
day-to-day management of the Fund's investment portfolio since 1989. During the
past five years, Ms. Bigelow has been a Senior Vice President of the Adviser.
Since June 1995, Ms. Bigelow has been a Senior Vice President of Advisory Corp.
- ------------------------------------------------------------------------------
ALTERNATIVE SALES ARRANGEMENTS
- ------------------------------------------------------------------------------
The Alternative Sales Arrangements permit an investor to choose the method of
purchasing shares of the Fund that is most beneficial given the amount of the
purchase and the length of time the investor expects to hold the shares.
CLASS A SHARES. Class A shares are sold at net asset value plus an initial
maximum sales charge of up to 4.75% of the offering price (4.99% of the net
amount invested), reduced on investments of $100,000 or more. Investments of $1
million or more are not subject to any sales charge at the time of purchase, but
a CDSC of 1.00% may be imposed on redemptions made within one year of the
purchase. Class A shares are subject to an ongoing service fee at an annual rate
of up to 0.25% of the Fund's aggregate average daily net assets attributable to
the Class A shares. Certain purchases of Class A shares qualify for reduced
initial sales charges. See "Purchase of Shares -- Class A Shares."
CLASS B SHARES. Class B shares are sold at net asset value and are subject to
a deferred sales charge if redeemed within five years of purchase. Class B
shares are subject to an ongoing service fee at an annual rate of up to 0.25% of
the Fund's aggregate average daily net assets attributable to the Class B shares
and an ongoing distribution fee at an annual rate of up to 0.75% of the Fund's
aggregate average daily net assets attributable to the Class B shares. Class B
shares enjoy the benefit of permitting all of the investor's dollars to work
from the time the investment is made. The ongoing distribution fee paid by Class
B shares will cause such shares to have a higher expense ratio and to pay lower
dividends than those related to Class A shares. Class B shares convert
automatically to Class A shares eight years after the end of the calendar month
in which the shareholder's order to purchase was accepted. See "Purchase of
Shares -- Class B Shares."
22
<PAGE> 25
CLASS C SHARES. Class C shares are sold at net asset value and are subject to
a deferred sales charge if redeemed within one year of purchase. Class C shares
are subject to an ongoing service fee at an annual rate of up to 0.25% of the
Fund's aggregate average daily net assets attributable to the Class C shares and
an ongoing distribution fee at an annual rate of up to 0.75% of the Fund's
aggregate average daily net assets attributable to the Class C shares. Class C
shares enjoy the benefit of permitting all of the investor's dollars to work
from the time the investment is made. The ongoing distribution fee paid by Class
C shares will cause such shares to have a higher expense ratio and to pay lower
dividends than those related to Class A shares. See "Purchase of Shares -- Class
C Shares."
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 acquired through the
exchange privilege is determined by reference to the Participating 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 Internal Revenue Code of 1986, as amended
(the "Code") 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.
FACTORS FOR CONSIDERATION. In deciding which class of shares to purchase,
investors should take into consideration their investment goals, present and
anticipated purchase amounts, time horizons and temperaments. Investors should
consider whether, during the anticipated life of their investment in the Fund,
the higher aggregate fees and CDSC on Class B and Class C shares would be less
than the initial sales charge on Class A shares purchased at the same time, and
to what extent such differential would be offset by the higher dividends per
share on Class A shares. To assist investors in making this determination, the
table under the caption "Annual Fund Operating Expenses and Example" sets forth
examples of the
23
<PAGE> 26
charges applicable to each class of shares. In this regard, Class A shares may
be more beneficial to the investor who qualifies for reduced initial sales
charges or purchases at net asset value. It is presently the policy of the
Distributor not to accept any order of $500,000 or more for Class B shares or
any order of $1 million or more for Class C shares as it ordinarily would be
more beneficial for such an investor to purchase Class A shares.
Class A shares are not subject to an ongoing distribution fee and,
accordingly, receive correspondingly higher dividends per share. However,
because initial sales charges are deducted at the time of purchase for accounts
under $1 million, investors in Class A shares do not have all their funds
invested initially and, therefore, initially own fewer shares. Other investors
might determine that it is more advantageous to purchase either Class B shares
or Class C shares and have all their funds invested initially, although
remaining subject to a CDSC. Ongoing distribution fees on Class B shares and
Class C shares may be offset to the extent of the additional funds originally
invested and any return realized on those funds. However, there can be no
assurance as to the return, if any, which will be realized on such additional
funds. For investments held for ten years or more, the relative value upon
liquidation of the three classes tends to favor Class A shares or Class B
shares, rather than Class C shares.
Class A shares may be appropriate for investors who prefer to pay the sales
charge up front, want to take advantage of the reduced sales charges available
on larger investments, wish to maximize their current income from the start,
prefer not to pay redemption charges or have a longer-term investment horizon.
In addition, the check writing privilege is only available for Class A shares
(see "Shareholder Services -- Check Writing Privilege"). Class B shares may be
appropriate for investors who wish to avoid a front-end shares charge, put 100%
of their investment dollars to work immediately, or have a longer-term
investment horizon. Class C shares may be appropriate for investors who wish to
avoid a front-end sales charge, put 100% of their investment dollars to work
immediately, have a shorter-term investment horizon or desire a short CDSC
schedule.
The distribution expenses incurred by the Distributor in connection with the
sale of the shares will be reimbursed, in the case of Class A shares, from the
proceeds of the initial sales charge and, in the case of Class B shares and
Class C shares, from the proceeds of the ongoing distribution fee and any CDSC
incurred upon redemption within five years or one year, respectively, of
purchase. Sales personnel of broker-dealers distributing the Fund's shares and
other persons entitled to receive compensation for selling such shares may
receive differing compensation for selling such shares. INVESTORS SHOULD
UNDERSTAND THAT THE PURPOSE AND FUNCTION OF THE CDSC AND ONGOING DISTRIBUTION
FEE WITH RESPECT TO THE CLASS B SHARES AND CLASS C SHARES ARE THE SAME AS THOSE
OF THE INITIAL SALES CHARGE WITH RESPECT TO CLASS A SHARES. SEE "DISTRIBUTION
AND SERVICE PLANS."
24
<PAGE> 27
GENERAL. Dividends paid by the Fund with respect to Class A shares, Class B
shares and Class C shares will be calculated in the same manner at the same time
on the same day except that the higher distribution fees and transfer agency
costs relating to Class B shares or Class C shares will be borne by the
respective class. See "Distributions from the Fund." Shares of the Fund may be
exchanged, subject to certain limitations, for shares of the same class of
certain other mutual funds advised by the Adviser and its affiliates and
distributed by the Distributor. See "Shareholder Services -- Exchange
Privilege."
- ------------------------------------------------------------------------------
PURCHASE OF SHARES
- ------------------------------------------------------------------------------
The Fund offers three classes of shares to the public on a continuous basis
through the Distributor as principal underwriter, which is located at One
Parkview Plaza, Oakbrook Terrace, Illinois 60181. 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").
The term "dealers" and "brokers" are sometimes referred to herein as "authorized
dealers."
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. 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.
Shares may be purchased on any business day through authorized dealers. Shares
also may be purchased by completing the application accompanying this Prospectus
and forwarding the application, through the authorized dealer, to the
shareholder service agent, ACCESS Investor Services, Inc. ("ACCESS"), a
wholly-owned subsidiary of Van Kampen American Capital. When purchasing shares
of the Fund, investors must specify whether the purchase is for Class A shares,
Class B shares or Class C shares.
Shares are offered at the next determined net asset value per share, plus a
front-end or contingent deferred sales charge depending on the class of shares
chosen by the investor, as shown in the tables herein. Net asset value per share
for each class 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. Net asset value per share for each class is determined
by dividing the value of the Fund's 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.
25
<PAGE> 28
Portfolio securities that are actively traded in the over-the-counter market are
valued at the most recently quoted bid price. Any security for which the primary
market is on an exchange is valued at the last reported sales price on the
exchange where principally traded or at the last reported bid price if there was
no sale reported that day. If no sale or bid price is reported that day, the
security is valued at the most recent sale price. The value of any other
securities or other assets is fair value as determined in good faith 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.
Generally, the net asset values per share of the Class A shares, Class B
shares and Class C shares are expected to be substantially the same. Under
certain circumstances, however, the per share net asset values of the Class A
shares, Class B shares and Class C shares may differ from one another,
reflecting the daily expense accruals of the higher distribution fee and
transfer agency costs applicable with respect to the Class B shares and Class C
shares and the differential in the dividends paid on the classes of shares. The
price paid for shares purchased is based on the next calculation of net asset
value (plus sales charges, where applicable) after an order 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. Orders received by authorized
dealers after the close of the Exchange are priced based on the next close
provided they are received by the Distributor prior to the Distributor's close
of business on such day. It is the responsibility of authorized dealers to
transmit orders received by them to the Distributor so they will be received
prior to such time. Orders of less than $500 are mailed by the authorized dealer
and processed at the offering price next calculated after receipt by ACCESS.
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 B shares
and Class C shares bear the expenses of the deferred sales arrangement and any
expenses (including the higher distribution fee and transfer agency costs)
resulting from such sales arrangement, (ii) generally, each class of shares has
exclusive voting rights with respect to approvals of the Rule 12b-1 distribution
plan 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 net income
attributable to Class B shares and Class C shares and the dividends payable on
Class B shares and Class C shares will be reduced by the amount of the
distribution fee and other expenses associated with such shares. Sales personnel
of authorized dealers distributing the Fund's shares and other persons entitled
to receive compensation for selling such shares may receive differing
compensation for selling Class A shares, Class B shares or Class C shares.
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
26
<PAGE> 29
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 and members
of their families to locations within or outside of the United States 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.
CLASS A SHARES
The public offering price of Class A shares is the next determined net asset
value plus a sales charge, as set forth below.
SALES CHARGE TABLE
<TABLE>
<CAPTION>
REALLOWED
AS % OF AS % OF NET TO DEALERS
SIZE OF OFFERING AMOUNT (AS A % 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 CDSC of
1.00% on redemptions made within one year of the purchase. A commission
will be paid to authorized dealers who initiate and are responsible for
purchases of $1 million or more 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.
27
<PAGE> 30
In addition to the reallowances from the applicable public offering price
described above, the Distributor may, from time to time, pay or allow additional
reallowances or promotional incentives, in the form of cash or other
compensation, to authorized dealers that sell shares of the Fund. Authorized
dealers which are reallowed all or substantially all of the sales charges may be
deemed to be underwriters for purposes of the Securities Act of 1933, as
amended.
The Distributor may also pay financial institutions (which may include banks)
and other industry professionals that provide services to facilitate
transactions in shares of the Fund for their clients a transaction fee up to the
level of the reallowance allowable to authorized dealers described herein. Such
financial institutions, other industry professionals and authorized dealers are
hereinafter referred to as "Service Organizations." 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.
QUANTITY DISCOUNTS
Investors purchasing Class A shares may, under certain circumstances, be
entitled to pay reduced sales charges. The circumstances under which such
investors may pay reduced sales charges are described herein.
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 of 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 the Adviser or Van Kampen American Capital Investment
Advisory Corp. and distributed by the Distributor as determined from time to
time by the Fund's Board of Trustees.
28
<PAGE> 31
Volume Discounts. The size of investment shown in the preceding 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 preceding
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 preceding sales charge
table herein. The size of investment shown in the preceding sales charge table
also 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. If the 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. 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.
Additional information is contained in the application form accompanying this
Prospectus.
OTHER PURCHASE PROGRAMS
Purchasers of Class A shares may be entitled to reduced initial sales charges
in connection with unit investment trust reinvestment programs 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 Programs. 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 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
29
<PAGE> 32
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 ACCESS with appropriate backup data
for each participating investor in a computerized format fully compatible with
ACCESS' 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 monthly basis only, even
if their investments are made more frequently. The Fund reserves the right to
modify or terminate this program at any time.
NAV 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 the Adviser
or Van Kampen American Capital Investment Advisory Corp. and such persons'
families and their beneficial accounts.
(2) Current or retired directors, officers and employees of Morgan Stanley,
Dean Witter, Discover & Co. or 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 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.
30
<PAGE> 33
(4) Registered investment advisers, trust companies and bank trust departments
investing on their own behalf or on behalf of their clients provided that
the aggregate amount invested in the Fund alone, or any combination of
shares of the Fund and shares of other Participating Funds as described
herein under "Purchase of Shares -- Class A Shares -- Volume Discounts,"
during the 13-month period commencing with the first investment pursuant
hereto equals at least $1 million. 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 following such transaction.
(5) Trustees and other fiduciaries purchasing shares for retirement plans of
organizations with retirement plan assets of $3 million or more and which
invest in multiple fund families through national wirehouse alliance
programs.
(6) 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.
(7) Trusts created under pension, profit sharing or other employee benefit
plans qualified under Section 401(a) of 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 American Capital 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
31
<PAGE> 34
$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.
(8) 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 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 CDSC 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 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 ACCESS by the investment
adviser, trust company or bank trust department, provided that ACCESS 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 herein under "Distribution and Service Plans"
on purchases made as described in (3) through (8) 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.
CLASS B SHARES
Class B shares are offered at net asset value. Class B shares which are
redeemed within five years of purchase are subject to a CDSC at the rates set
forth in the following table, charged as a percentage of the dollar amount
subject thereto. The 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
32
<PAGE> 35
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
ordinarily will be more advantageous for an investor making such an investment
to purchase Class A shares.
The amount of the CDSC, 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.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE OF
YEAR SINCE PURCHASE DOLLAR AMOUNT SUBJECT TO CHARGE
- ------------------------------------------------------------------
<S> <C>
First....................................... 4.00%
Second...................................... 4.00%
Third....................................... 3.00%
Fourth...................................... 2.50%
Fifth....................................... 1.50%
Sixth and After............................. None
</TABLE>
- ------------------------------------------------------------------------------
In determining whether a CDSC 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 CDSC, second of shares held for over five years and
third of shares held longest during the five-year period.
To provide an example, assume an investor purchased 100 shares at $10 per
share (at a cost of $1,000) and in the second year after purchase, the net asset
value per share is $12 and, during such time, the investor has acquired 10
additional shares upon dividend reinvestment. If at such time the investor makes
his or her first redemption of 50 shares (proceeds of $600), 10 shares will not
be subject to charge because of dividend reinvestment. With respect to the
remaining 40 shares, the charge is applied only to the original cost of $10 per
share and not to the increase in net asset value of $2 per share. Therefore,
$400 of the $600 redemption proceeds is subject to a deferred sales charge at a
rate of 4.00% (the applicable rate in the second year after purchase).
A commission or transaction fee of 4.00% of the purchase amount will be paid
to authorized dealers at the time of purchase. Additionally, the Distributor
may, from time to time, pay additional promotional incentives in the form of
cash or other compensation, to authorized dealers that sell Class B shares of
the Fund.
33
<PAGE> 36
CLASS C SHARES
Class C shares are offered at net asset value. Class C shares which are
redeemed within the first year of purchase are subject to a CDSC of 1.00%. The
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 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 in an amount of $1 million or more for Class C shares
because it ordinarily will be more advantageous for an investor making such an
investment to purchase Class A shares.
In determining whether a CDSC 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 CDSC and second of shares held for more than one year.
A commission or transaction fee of 1.00% of the purchase amount will be paid
to authorized dealers at the time of purchase. Authorized dealers will also be
paid ongoing commissions 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. Additionally, the Distributor may, from time to time, pay
additional promotional incentives in the form of cash or other compensation to
authorized dealers that sell Class C shares of the Fund.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE
The CDSC is waived on redemptions of Class B shares and Class C shares (i)
following the death or disability (as defined in the Code) of a shareholder,
(ii) in connection with required minimum distributions from an IRA or other
retirement plan, (iii) pursuant to the Fund's systematic withdrawal plan but
limited to 12% annually of the initial value of the account and (iv) effected
pursuant to the right of the Fund to liquidate a shareholder's account as
described herein under "Redemption of Shares." The CDSC 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. See the Statement of Additional Information for further discussion
of waiver provisions.
- ------------------------------------------------------------------------------
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.
34
<PAGE> 37
INVESTMENT ACCOUNT. Each shareholder has an investment account under which the
investor's shares of the Fund are held by ACCESS, the Fund's transfer agent.
ACCESS performs bookkeeping, data processing and administrative services related
to the maintenance of shareholder accounts. Except as described in this
Prospectus, 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
ACCESS 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
transactions 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 ACCESS.
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 American Capital Funds, c/o ACCESS, P.O. Box 418256,
Kansas City, MO 64141-9256, requesting an "affidavit of loss" and obtain a
Surety Bond in a form acceptable to ACCESS. On the date the letter is received,
ACCESS 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.
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 record date. Unless the shareholder instructs otherwise, the
reinvestment plan is automatic. This instruction may be made by telephone by
calling (800) 421-5666 ((800) 421-2833 for the hearing impaired) or in writing
to ACCESS. 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 ACCESS 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 authorized investment dealers.
RETIREMENT PLANS. Eligible investors may establish individual retirement
accounts ("IRAs"); SEP; and pension and profit sharing plans; 401(k) plans; or
Section 403(b)(7) plans in the case of employees of public school systems and
certain non-
35
<PAGE> 38
profit organizations. Documents and forms containing detailed information
regarding these plans are available from the Distributor. Van Kampen American
Capital 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.
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 ACCESS 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 ACCESS.
DIVIDEND DIVERSIFICATION. A shareholder may, upon written request or by
completing the appropriate section of the application form accompanying this
Prospectus or by calling (800) 421-5666 ((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 other
Participating Funds so long as the shareholder 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 as of the payable date of the
distribution.
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 values 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.
36
<PAGE> 39
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 request.
When Class B shares and Class C shares are exchanged among Participating
Funds, the holding period for purposes of computing the CDSC is based upon the
date of the initial purchase of such shares from a Participating Fund (the
"original fund"). Upon redemption from the Participating Funds' complex of
funds, Class B shares and Class C shares are subject to the CDSC schedule
imposed by the original fund. Additional funds may be added from time to time as
determined by the Fund's Board of Trustees as Participating Funds.
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 ACCESS 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 this Prospectus. Van
Kampen American Capital and its subsidiaries, including ACCESS (collectively,
"VKAC"), 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 VKAC nor the Fund will be liable for
following telephone instructions which it reasonably believes to be genuine.
VKAC and the Fund may be liable for any losses due to unauthorized or fraudulent
instructions if reasonable procedures are not followed. 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 file a specific
written 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.
37
<PAGE> 40
A prospectus of any of these mutual 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.
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. See "Shareholder Services -- Retirement Plans."
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 CDSC. 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. 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 taxable gain or loss realized by the shareholder upon redemption of
shares is a taxable event.
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 ACCESS 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 ACCESS. Once the form is properly completed, signed and
returned to the agent, a supply of checks drawn on State Street Bank and Trust
Company ("State Street 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.
38
<PAGE> 41
When a check is presented to State Street 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 ACCESS at the next determined net
asset value. Check writing redemptions represent the sale of Class A shares. Any
gain or loss realized on the sale of shares is a taxable event. See "Redemption
of Shares."
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
State Street Bank. Retirement Plans and accounts that are subject to backup
withholding are not eligible for the privilege. A "stop payment" system is not
available on these checks. See the Statement of Additional Information for
further information regarding the establishment of the privilege.
- ------------------------------------------------------------------------------
REDEMPTION OF SHARES
- ------------------------------------------------------------------------------
REGULAR REDEMPTIONS. Shareholders may redeem for cash some or all of their
shares of the Fund at any time. To do so, a written request in proper form must
be sent directly to ACCESS, P.O. Box 418256, Kansas City, Missouri 64141-9256.
Shareholders may also place redemption requests through an authorized dealer.
Orders received from authorized dealers must be at least $500 unless transmitted
via the FUNDSERV network. The redemption price for such shares is the net asset
value next calculated after an order 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.
As described herein under "Purchase of Shares," redemptions of Class B shares
and Class C shares are subject to a CDSC. In addition, a CDSC of 1.00% may be
imposed on certain redemptions of Class A shares made within one year of
purchase for investment of $1 million or more. The CDSC incurred upon redemption
is paid to the Distributor in reimbursement for distribution-related expenses. A
custodian of a retirement plan account may charge fees based on the custodian's
independent fee schedule.
The request for redemption 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
39
<PAGE> 42
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. For example, although the Fund normally does
not issue certificates for shares, it will do so if a special request has been
made to ACCESS. In the case of shareholders holding certificates, the
certificates for the shares being redeemed 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 ACCESS. Where Van Kampen American Capital Trust
Company serves as IRA custodian, special IRA, 403(b)(7), or Keogh distribution
forms must be obtained from and be forwarded to Van Kampen American Capital
Trust Company, P.O. Box 944, Houston, Texas 77001-0944. Contact the custodian
for information.
In the case of redemption requests sent directly to ACCESS, the redemption
price is the net asset value per share next determined after the request is
received in proper form. Payment for shares redeemed will be made by check
mailed within seven days after acceptance by ACCESS 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. If the shares to be
redeemed have been recently purchased by check, ACCESS may delay mailing a
redemption check until it confirms the purchase check has cleared, which may
take of up to 15 days. A taxable gain or loss will be recognized by the
shareholder upon redemption of shares.
TELEPHONE REDEMPTIONS. In addition to the regular redemption procedures
previously set forth, 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) 421-5666 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. VKAC and the Fund employ procedures considered by them to be
reasonable to confirm that instructions communicated by telephone are genuine.
Such procedures include
40
<PAGE> 43
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 VKAC nor the Fund will be liable for following
telephone instructions which it reasonably believes to be genuine. VKAC and the
Fund may be liable for any losses due to unauthorized or fraudulent instructions
if reasonable procedures are not followed. Telephone redemptions may not be
available if the shareholder cannot reach ACCESS 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 regular redemption procedure previously
described. Requests received by ACCESS prior to 4:00 p.m., New York time, on a
regular business day will be processed at the net asset value per share
determined that day. These privileges are available for all accounts other than
retirement accounts. The telephone redemption privilege is not available for
shares represented by certificates. If an account has multiple owners, ACCESS
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 are expected to be wired on the next business day following the date
of redemption. This service is also not available with respect to shares held in
an individual retirement account (IRA) for which Van Kampen American Capital
Trust Company acts as custodian. The Fund reserves the right at any time to
terminate, limit or otherwise modify this redemption privilege.
GENERAL REDEMPTION INFORMATION. The Fund may redeem any shareholder account
with a net asset 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 is required and the
shareholder is 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.
REDEMPTION UPON DISABILITY. The Fund will waive the CDSC on redemptions
following the 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
41
<PAGE> 44
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 disability before it determines to waive the CDSC on Class
B shares and Class C shares.
In cases of disability, the CDSC on Class B shares and Class C shares will be
waived where the 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 initial determination of disability. This waiver of the CDSC on
Class B shares and Class C shares applies to a total or partial redemption, but
only to redemptions of shares held at the time of the initial determination of
disability.
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 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 CDSC
paid upon such redemption. Such reinstatement is made at the net asset value
(without sales charge except as described under "Shareholder
Services -- Exchange Privilege") next determined after the order is received,
which must be within 180 days after the date of the redemption. Reinstatement at
net asset value is also offered to participants in those eligible retirement
plans held or administered by Van Kampen American Capital Trust Company for
repayment of principal (and interest) on their borrowings on such plans.
- ------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLANS
- ------------------------------------------------------------------------------
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 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 each class. The Distribution Plan and the Service
Plan are being implemented through an agreement with the Distributor and
sub-agreements between the Distributor and brokers, dealers or financial
intermediaries (collectively, "Selling Agreements") that may provide for their
customers or clients certain services or assistance.
CLASS A SHARES. 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
42
<PAGE> 45
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 Fund pays
the Distributor the lesser of the balance of the 0.25% not paid to such brokers,
dealers or financial intermediaries or the amount of the Distributor's actual
distribution-related expense.
CLASS B SHARES. 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. 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. From such amount, the Fund, or the Distributor as agent for
the Fund, pays brokers, dealers or financial intermediaries in connection with
the distribution of the Class C shares up to 0.75% of the Fund's average daily
net assets attributable to Class C shares maintained in the Fund more than one
year by such broker's, dealer's or financial intermediary's customers. The Fund
pays the Distributor the lesser of the balance of 0.75% not paid to such
brokers, dealers or financial intermediaries or the amount of the Distributor's
actual distribution-related expense attributable to the Class C shares. 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.
OTHER INFORMATION. Amounts payable to the Distributor with respect to the
Class A shares under the Distribution Plan in a given year may not fully
reimburse the Distributor for its actual distribution-related expenses during
such year. In such event, with respect to the Class A shares, there is no
carryover of such reimbursement obligations to succeeding years.
The Distributor's actual expenses with respect to Class B shares or Class C
shares for any given year may exceed the amounts payable to the Distributor with
respect to such class of shares under the Distribution Plan, the Service Plan
and payments received pursuant to the CDSC. In such event, with respect to any
such class of shares, any unreimbursed expenses will be carried forward and paid
by the Fund (up to the amount of the actual expenses incurred) in future years
so long as such Distribution Plan is in effect. Except as mandated by applicable
law, the Fund
43
<PAGE> 46
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 or 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, 1997, there were [$ ] million and [$ ] of unreimbursed
distribution-related expenses with respect to Class B shares and Class C shares,
respectively, representing [ %] and [ %] of the Fund's net assets
attributable to Class B shares and Class C shares, respectively. If the
Distribution Plan was terminated or not continued, the Fund would not be
contractually obligated to pay the Distributor for any expenses not previously
reimbursed by the Fund or recovered through CDSCs.
The Distributor will not use the proceeds from the CDSC applicable to a
particular class of shares to defray distribution-related expenses attributable
to any other class of shares. Various federal and state laws prohibit national
banks and some state-chartered commercial banks from underwriting or dealing in
the Fund's shares. In addition, state securities laws on this issue may differ
from the interpretations of federal law, and banks and financial institutions
may be required to register as dealers pursuant to state law. In the unlikely
event that a court were to find that these laws prevent such banks from
providing such services described above, the Fund would seek alternate providers
and expects that shareholders would not experience any disadvantage.
- ------------------------------------------------------------------------------
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.
DIVIDENDS. Interest earned from investments is the Fund's main source of
income. Substantially all of this income, less expenses, is distributed monthly
as dividends to shareholders. Dividends are automatically applied to purchase
additional shares of the Fund at the next determined net asset value unless the
shareholder instructs otherwise. See "Shareholder Services -- Reinvestment
Plan." The per share dividends on Class B shares and Class C shares will 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. When the Fund sells portfolio securities, it may realize
capital gains or losses, depending on whether the prices of the securities sold
are higher or lower than the prices the Fund paid to purchase them. Net realized
capital gains
44
<PAGE> 47
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 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. See "Shareholder Services -- Reinvestment
Plan."
- ------------------------------------------------------------------------------
TAX STATUS
- ------------------------------------------------------------------------------
FEDERAL INCOME TAXATION. The Fund has 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 tax-exempt interest, 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 31 of each year, at least 98% of its ordinary income (not including
tax-exempt income) for such year and at least 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 31 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
45
<PAGE> 48
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.
The Fund's ability to dispose of portfolio securities may be limited by the
requirement for qualification as a regulated investment company that less than
30% of the Fund's annual gross income be derived from the disposition of
securities held for less than three months. Under recently enacted legislation,
this requirement will no longer be applicable to the Fund beginning on July 1,
1998.
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.
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 gains 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 gains dividends), see "Capital Gains Rates Under the 1997 Tax
Act" below. Tax-exempt shareholders not subject to
46
<PAGE> 49
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 31 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.
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.
47
<PAGE> 50
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 under the 1997 Tax Act"
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 gains 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 UNDER THE 1997 TAX ACT. Under the Taxpayer Relief Act of
1997 (the "1997 Tax Act"), the maximum tax rates applicable to net capital gains
recognized by individuals and other non-corporate taxpayers are (i) the same as
ordinary income rates for capital assets held for one year or less, (ii) 28% for
capital assets held for more than one year but not more than 18 months and (iii)
20% for capital assets held for more than 18 months. The maximum long-term
capital gains rate for corporations remains at 35%. Under the 1997 Tax Act, the
Treasury is authorized to issue regulations that address the application of the
new capital gains rates to sales and exchanges by regulated investment companies
and to sales and exchanges of interests in regulated investment companies, but
no such regulations have been issued as of the date hereof. It is expected that
the new tax rates for capital gains under the 1997 Tax Act described above will
apply to distributions of capital gains dividends by regulated investment
companies such as the Fund as well as to sales and exchanges of shares in
regulated investment companies such as the Fund. With respect to capital losses
recognized on dispositions of shares held six months or less where such losses
are treated as long-term capital losses to the extent of prior capital gains
dividends received on such shares (see "Sale of Shares" above), it is unclear
how such capital losses offset the capital gains referred to above. Shareholders
should consult their own tax advisors as to the application of the new capital
gains rates to their particular circumstances.
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.
48
<PAGE> 51
- ------------------------------------------------------------------------------
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 CDSC 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.
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.
49
<PAGE> 52
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.
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 rated
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. Total return figures for Class A shares include the
maximum sales charge of 4.75%; total return figures for Class B shares and Class
C shares include any applicable CDSC. 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.
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 ratings or rankings 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, 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 financial nationally recognized
publications. Such comparative performance information will be stated in the
same terms in which the
50
<PAGE> 53
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 Fund 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.
The Fund may also utilize performance information in hypothetical
illustrations provided in narrative form. These hypotheticals will be
accompanied by the 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 cover of this Prospectus.
- ------------------------------------------------------------------------------
DESCRIPTION OF SHARES OF THE FUND
- ------------------------------------------------------------------------------
The Fund was originally incorporated in Texas on July 11, 1978, and was re-
incorporated by merger into a Maryland corporation on July 2, 1992. The Fund was
reorganized as a Delaware business trust as of August 5, 1995 and adopted its
current name at that time.
The authorized capitalization of the Fund consists of an unlimited number of
shares of beneficial interest, par value $0.01 per share, divided into classes.
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 Fund's Declaration of Trust.
Each class of shares represents an interest in the same assets of the Fund and
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. Except as described herein, there are no conversion,
preemptive or other subscription rights. 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 debt and expenses of the Fund have been paid. Since Class B
shares and Class C shares pay higher distribution fees and transfer agent costs,
the liquidation proceeds to Class B shareholders and Class C shareholders are
likely to be lower than to other shareholders.
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
51
<PAGE> 54
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. More detailed
information concerning the Fund is set forth in the Statement of Additional
Information.
The Fund's Declaration of Trust provides that no Trustee, officer or
shareholder of the Fund shall be held to any personal liability, nor shall
resort be had to their private property for the satisfaction of any obligation
or liability of the Fund but the assets of the Fund only shall be liable.
- ------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- ------------------------------------------------------------------------------
This Prospectus and the Statement of Additional Information do not contain all
the information set forth in the Registration Statement filed by the Fund with
the SEC under the Securities Act of 1933. Copies of the Registration Statement
may be obtained at a reasonable charge from the SEC or may be examined, without
charge, at the office of the SEC in Washington, D.C.
The fiscal year end of the Fund is August 31. The Fund sends to its
shareholders at least semi-annually reports showing the Fund's portfolio and
other information. An Annual Report, containing financial statements audited by
the Fund's independent accountants, is sent to shareholders each year. After the
end of each year, shareholders will receive federal tax information regarding
dividends and capital gains distributions.
52
<PAGE> 55
- ------------------------------------------------------------------------------
APPENDIX -- DESCRIPTION OF BOND RATINGS
- ------------------------------------------------------------------------------
STANDARD & POOR'S RATINGS GROUP--A brief description of the applicable
Standard & Poor's Ratings Group (S&P) rating symbols and their meanings (as
published by S&P follows):
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.
LONG-TERM DEBT--INVESTMENT GRADE
AAA: Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A: Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in the higher rated categories.
BBB: Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
53
<PAGE> 56
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
SPECULATIVE GRADE
BB, B, CCC, CC, C: Debt rated "BB", "B", "CCC", "CC" and "C" is regarded as
having significantly speculative characteristics with respect to capacity to pay
interest and repay principal. "BB" indicates the least degree of speculation and
"C" the highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or large exposures
to adverse conditions.
BB: Debt rated "BB" is less vulnerable to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to inadequate
capacity to meet timely interest and principal payments. The "BB" rating
category is also used for debt subordinated to senior debt that is assigned an
actual or implied "BBB-" rating.
B: Debt rated "B" is more vulnerable to default but currently has the capacity
to meet interest payments and principal repayments. Adverse business, financial,
or economic conditions will likely impair capacity or willingness to pay
interest and repay principal. The "B" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BB" or "BB-"
rating.
CCC: Debt rated "CCC" is currently vulnerable to default, and is dependent
upon favorable business, financial, and economic conditions to meet timely
payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
CC: Debt rated "CC" is currently highly vulnerable to nonpayment. The rating
"CC" is also used for debt subordinated to senior debt that is assigned an
actual or implied "CCC" rating.
C: The "C" rating may be used to cover a situation where a bankruptcy petition
has been filed, but debt service payments are continued. The rating "C"
typically is applied to debt subordinated to senior debt which is assigned an
actual or implied "CCC-" debt rating.
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
54
<PAGE> 57
will be made during such grace period. The 'D' rating also will be used upon the
filing of a bankruptcy petition if debt service payments 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.
NR: Not rated.
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 payment 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 rating or
other standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
MOODY'S INVESTORS SERVICE -- A brief description of the applicable Moody's
Investors Service (Moody's) rating symbols and their meanings (as published by
Moody's Investor Service) follows:
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 edge." 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 AAA securities.
55
<PAGE> 58
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 sometime 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 the numerical modifiers 1, 2, and 3 in each generic
rating classification from AA to B. 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.
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.
56
<PAGE> 59
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 or companies
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.
PREFERRED STOCK RATINGS
Both S&P and Moody's use the same designations for preferred stock as they do
for corporate bonds except in the case of Moody's preferred stock ratings the
initial letter rating is not capitalized. While the descriptions are tailored
for preferred stocks, the relative quality distinctions are comparable to those
described above for corporate bonds.
57
<PAGE> 60
EXISTING SHAREHOLDERS--
FOR INFORMATION ON YOUR
EXISTING ACCOUNT PLEASE CALL
THE FUND'S TOLL-FREE
NUMBER--(800) 341-2911
PROSPECTIVE INVESTORS--CALL
YOUR BROKER OR (800) 421-5666
DEALERS--FOR DEALER
INFORMATION, SELLING
AGREEMENTS, WIRE ORDERS,
OR REDEMPTIONS CALL THE
DISTRIBUTOR'S TOLL-FREE
NUMBER--(800) 421-5666
FOR SHAREHOLDER AND
DEALER INQUIRIES THROUGH
TELECOMMUNICATIONS
DEVICE FOR THE DEAF (TDD)
DIAL (800) 421-2833
FOR AUTOMATED TELEPHONE SERVICES
DIAL (800) 847-2424
VAN KAMPEN AMERICAN CAPITAL
HIGH INCOME CORPORATE
BOND FUND
One Parkview Plaza
Oakbrook Terrace, IL 60181
Investment Adviser
VAN KAMPEN AMERICAN CAPITAL
ASSET MANAGEMENT, INC.
One Parkview Plaza
Oakbrook Terrace, IL 60181
Distributor
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, IL 60181
Transfer Agent
ACCESS INVESTOR SERVICES, INC.
P.O. Box 418256
Kansas City, MO 64141-9256
Attn: Van Kampen American Capital
High Income Corporate Bond Fund
Custodian
STATE STREET BANK AND
TRUST COMPANY
225 Franklin Street, P.O. Box 1713
Boston, MA 02105-1713
Attn: Van Kampen American Capital
High Income Corporate Bond Fund
Legal Counsel
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 West Wacker Drive
Chicago, IL 60606
Independent Accountants
PRICE WATERHOUSE LLP
1201 Louisiana
Suite 2900
Houston, TX 77002
<PAGE> 61
------------------------------------------------------------------------------
HIGH INCOME
CORPORATE BOND FUND
------------------------------------------------------------------------------
P R O S P E C T U S
DECEMBER , 1997
------ A WEALTH OF KNOWLEDGE - A KNOWLEDGE OF WEALTH ------
VAN KAMPEN AMERICAN CAPITAL
------------------------------------------------------------------------
<PAGE> 62
SUBJECT TO COMPLETION -- DATED OCTOBER 30, 1997
STATEMENT OF ADDITIONAL INFORMATION
VAN KAMPEN AMERICAN CAPITAL
HIGH INCOME CORPORATE BOND FUND
Van Kampen American Capital High Income Corporate Bond Fund (the "Fund") is
a diversified, open-end management investment company. This Statement of
Additional Information is not a Prospectus and should be read in conjunction
with the Prospectus (the "Prospectus") dated as of the date of this Statement of
Additional Information. This Statement of Additional Information does not
include all the information 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 American Capital Distributors, Inc. at
One Parkview Plaza, Oakbrook Terrace, Illinois 60181 or (800) 421-5666.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information......................................... B-2
Investment Objectives and Policies.......................... B-2
Options, Futures Contracts and Related Options.............. B-5
Investment Restrictions..................................... B-9
Trustees and Officers....................................... B-11
Legal Counsel............................................... B-19
Investment Advisory Agreement............................... B-19
Distributor................................................. B-20
Distribution and Service Plans.............................. B-20
Transfer Agent.............................................. B-21
Portfolio Turnover.......................................... B-21
Portfolio Transactions and Brokerage........................ B-21
Determination of Net Asset Value............................ B-22
Purchase and Redemption of Shares........................... B-23
Exchange Privilege.......................................... B-26
Check Writing Privilege..................................... B-27
Tax Status of the Fund...................................... B-27
Fund Performance............................................ B-27
Other Information........................................... B-28
Independent Accountants' Report............................. B-
Financial Statements........................................ B-
Notes to Financial Statements............................... B-
</TABLE>
This Statement of Additional Information is dated December , 1997.
<PAGE> 63
GENERAL INFORMATION
Van Kampen American Capital High Income Corporate Bond Fund, formerly known
as American Capital High Yield Investments, Inc. (the "Fund"), was originally
incorporated in Texas on July 11, 1978 and reincorporated in Maryland on July 2,
1992. As of August 5, 1995, the Fund was reorganized as a series of Van Kampen
American Capital High Income Corporate Bond Fund (the "Trust"), a Delaware
business trust.
Van Kampen American Capital Asset Management, Inc. (the "Adviser"), Van
Kampen American Capital Distributors, Inc. (the "Distributor"), and ACCESS
Investor Services, Inc. ("ACCESS") are wholly owned subsidiaries of Van Kampen
American Capital, Inc. ("VKAC"), which is an indirect wholly-owned subsidiary of
Morgan Stanley, Dean Witter, Discover & Co. The principal office of the Fund,
the Adviser, the Distributor and VKAC is located at One Parkview Plaza, Oakbrook
Terrace, Illinois 60181.
Morgan Stanley, Dean Witter, Discover & 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 global custody, securities clearance services and
securities lending.
VKAC offers one of the industry's broadest lines of
investments -- encompassing mutual funds, closed-end funds and unit investment
trusts -- assets which have been entrusted to VKAC in more than 2 million
investor accounts. VKAC has one of the largest research teams (outside of the
rating agencies) in the country.
As of October 6, 1997, 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>
NAME AND ADDRESS AMOUNT OF CLASS PERCENTAGE
OF HOLDER OWNERSHIP OF SHARES OWNERSHIP
---------------- ---------- --------- ----------
<S> <C> <C> <C>
Record Holders Only:
Van Kampen American Capital Trust Company................... 18,198,291 A 24.21%
2800 Post Oak Blvd. 4,259,034 B 13.81%
Houston, TX 77056 319,928 C 6.59%
</TABLE>
Van Kampen American Capital Trust Company acts as custodian for certain employee
benefit plans and independent retirement accounts.
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.
Lower rated and comparable nonrated securities tend to offer higher yields
than higher rated securities with the same maturities because the historical
conditions of the issuers of lower rated securities may not have been as strong
as that of other issuers. The Adviser, however, believes that such 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 condition of issuers
within the same category. For these reasons, the Adviser may rely more on its
own analysis in determining which securities offer the best opportunities for
higher yields without unreasonable risks. Therefore, the achievement of the
Fund's objectives will depend more on the Adviser's analytical and portfolio
management skills than would be the case if greater reliance were placed on
ratings assigned by the rating services. The Adviser's analysis will focus on a
number of factors
B-2
<PAGE> 64
affecting the financial condition of a company; including the strength of its
management; the financial soundness of the company and the outlook of its
industry; the security's responsiveness to changes in interest rates and
business conditions; the cash flow of the company; dividend or interest
coverage; and the fair market value of the company's assets. In addition, the
Adviser evaluates each individual debt security for credit quality and value. In
making portfolio decisions for the Fund, the Adviser will attempt to identify
higher yielding securities of companies whose financial condition has improved
since the issuance of such securities, or is anticipated to improve in the
future.
The Fund may invest up to 20% of its total assets in common stocks or other
equity securities and in non-income producing securities. See "Investment
Objectives and Policies" in the Prospectus.
When market conditions dictate a more "defensive" investment strategy, the
Fund may invest on a temporary basis up to 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, 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 to be
purchased by the Fund.
As noted above, the Fund may invest in securities issued or guaranteed by
the U.S. Government, its agencies or 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.
ADDITIONAL RISKS OF LOWER RATED DEBT SECURITIES
Additional risks of lower rated debt securities include limited liquidity
and secondary market support. As a result, the prices of lower rated 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 rated 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. Reduced liquidity could also create
difficulties in accurately valuing such securities at certain times. 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. The Fund will take such
actions as it considers appropriate in the event of anticipated financial
difficulties, default or bankruptcy of either the issuer or any debt security
owned by the Fund or the underlying source of funds for debt service. Such
action 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 such event. The Fund
incurs additional expenditures in taking protective action with respect to Fund
obligations in default and assets securing such obligations. Investment in lower
rated debt securities are not generally meant for short-term investment.
LENDING OF SECURITIES
Consistent with applicable regulatory requirements, the Fund may lend its
portfolio securities 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
B-3
<PAGE> 65
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.
RESTRICTED SECURITIES.
The Fund may invest up to 15% of the value of its net assets in restricted
securities (i.e., securities which may not be sold without registration or an
exemption from registration under the Securities Act of 1933) and in other
illiquid securities and repurchase agreements maturing in more than seven days.
Restricted securities are generally purchased at a discount from the market
price of unrestricted securities of the same issuer. Investments in restricted
securities are not 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 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. A Fund position in restricted
securities might adversely affect the liquidity and marketability of such
securities, and the Fund might not be able to dispose of its holdings in such
securities at reasonable price levels. Although the Fund may invest up to 15% of
its net assets in illiquid securities and repurchase agreements which have a
maturity of longer than seven days, the Fund shall not invest in such securities
in excess of 10% of its net assets without prior approval of the Trustees. For
purposes hereof, investments by the Fund in securities of other investment
companies are not considered 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.
SECURITIES OF FOREIGN ISSUERS
The Fund may invest up to 35% of its total assets in securities issued by
foreign governments and other foreign issuers. These securities may be
denominated in U.S. dollars or other currencies.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with domestic banks or
broker-dealers. 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, usually not
more than seven days from the date of purchase, thereby determining the yield
during the purchaser's holding period. Repurchase agreements are collateralized
by the underlying debt securities and may be considered to be loans under the
Investment Company Act of 1940, as amended (the "1940 Act"). The Fund will make
payment 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 mark to market daily at not less than the repurchase
price. The underlying securities (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. See "Investment
Practices -- Repurchase Agreements" in the Prospectus for further information.
B-4
<PAGE> 66
BRADY BONDS
The Fund may invest in "Brady Bonds," which are debt restructurings that
provide for the exchange of cash and loans for newly issued bonds. Brady Bonds
recently have been issued by the governments of Costa Rica, Mexico, Nigeria,
Uruguay and Venezuela, and are expected to be issued by Argentina, Brazil and
the Philippines and other emerging market countries. Brady Bonds issued by
Mexico and Venezuela currently are rated below investment grade. Investors
should recognize that Brady Bonds have been issued only recently and,
accordingly, do not have a long payment history. Brady Bonds may be
collateralized or uncollateralized, are issued in various currencies (primarily
the U.S. dollar) and are actively traded in the secondary market for Latin
American debt. The Salomon Brothers Brady Bond Index provides a benchmark that
can be used to compare returns of emerging market Brady Bonds with returns in
other bond markets, e.g., the U.S. bond market.
The Fund may invest in either collateralized or uncollateralized Brady
Bonds. U.S. dollar-denominated, collateralized Brady Bonds, which may be fixed
rate par bonds or floating rate discount bonds, are collateralized in full as to
principal by U.S. Treasury zero coupon bonds having the same maturity as the
Brady Bonds. Interest payments on such bonds generally are collateralized by
cash or securities in an amount that, in the case of fixed rate bonds, is equal
to at least one year of rolling interest payments or, in the case of floating
rate bonds, initially is equal to at least one year of rolling interest payments
based on the applicable interest rate at that time, and is adjusted at regular
intervals thereafter.
OPTIONS, FUTURES CONTRACTS AND RELATED OPTIONS
WRITING CALL AND PUT OPTIONS
Purpose. The principal reason for writing 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 writing program and dividend or interest
income yields on portfolio securities vary as economic and market conditions
change. Actively writing options on portfolio securities is likely to result in
a substantially higher portfolio turnover rate than that of most other
investment companies.
Writing Options. The purchaser of a call option pays a premium to the
writer (i.e., the seller) for the right to buy the underlying security from the
writer at a specified price during a certain period. The Fund would write call
options only on a covered basis, which means that, 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.
The purchaser of a put option pays a premium to the writer (i.e., the
seller) for the right to sell the underlying security to the writer at a
specified price during a certain period. The Fund would write 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, cash
equivalents 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 written 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 write options that are listed on an exchange as well as
options which are privately negotiated in over-the-counter transactions. A Fund
could close out its position as a writer 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, with would not
close out
B-5
<PAGE> 67
its position as a writer, but would provide an asset of equal value to its
obligations under the option written. 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 written, it will be required to maintain the securities subject
to the call or the collateral underlying the put 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 writing a call option, the Fund loses the
potential for gain on the underlying security above the exercise price while the
option is outstanding; by writing a put option a Fund might become obligated to
purchase the underlying security at an exercise price that exceeds the then
current market price.
Each of the exchanges has established limitations governing the maximum
number of call or put options on the same underlying security (whether or not
covered) that may be written by a single investor, whether acting alone or in
concert with others, regardless of whether such options are written on one or
more accounts or through one or more brokers. An exchange may order the
liquidation of positions found to be in violation of those limits, and it may
impose other sanctions or restrictions. These position limits may restrict the
number of options the Fund may be able to write.
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 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.
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 is exempt from
registration as a "commodity pool."
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, cash equivalents or liquid
securities equal to not more than 5% 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
B-6
<PAGE> 68
securities 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 has declined, the position would be less valuable, and
the Fund would be required to make a variation margin payment to the broker.
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
serves 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, the sale of futures contracts
substantially reduces 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
with attendant transaction costs.
In the event of the bankruptcy of a broker through which the Fund engages
in transactions in listed options, futures or related options, the Fund could
experience delays 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.
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 or 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 contract. 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 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 underlying the
futures contract. Second, from the point of view of speculators, the deposit
requirements in the futures markets are less onerous than margin requirements in
the securities markets. Therefore, increased participation by speculators in the
B-7
<PAGE> 69
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 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.
CFTC regulations require, among other things, (i) that futures and related
options be used solely for bona fide hedging purposes (or meet certain
conditions as specified in CFTC regulations) and (ii) that the Fund not enter
into futures and related options for which the aggregate initial margin and
premiums exceed 5% of the fair market value of the Fund's assets. In order to
minimize leverage in connection with the purchase of futures contracts by the
Fund, an amount of cash, cash equivalents 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 purpose as, it could sell a futures contract. The purchase of call
options on futures contracts would be intended to serve the same purpose as the
actual purchase of the futures contract.
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 the underlying security, when the use of
any option on a future would result in a loss to the Fund when the use of a
future would not.
B-8
<PAGE> 70
ADDITIONAL RISKS OF OPTIONS AND FUTURES 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.
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.
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions which cannot be changed
without approval by the vote of a majority of its outstanding shares which is
defined in 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
percentage limitations contained in the restrictions and policies set forth
herein apply at the time of purchase of securities. These restrictions provide
that the Fund shall not:
1. Borrow money, except that the Fund may borrow for temporary purposes in
amounts not exceeding 5% of the market or other fair value (taken at
the lower of cost or current value) of its total assets (not including
the amount borrowed). Secured temporary borrowings may take the form of
reverse repurchase agreements, pursuant to which the Fund would sell
portfolio securities for cash and simultaneously agree to repurchase
such securities at a specified date for the same amount of cash plus an
interest component. Pledge its assets or assign or otherwise encumber
them in excess of 3.25% of its net assets (taken at market value at the
time of pledging) and then only to secure borrowings effected within
the limitations set forth in the preceding sentence. 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.
2. Engage in the underwriting of securities except insofar as the Fund may
be deemed an underwriter under the Securities Act of 1933 in disposing
of a portfolio security.
3. Make short sales of securities, but it may engage in transactions in
options, futures contracts, and related options.
4. Purchase securities on margin, except for such short-term credits as
may be necessary for the clearance of purchases and sales of portfolio
securities, and it may engage in transactions in options, futures
contracts and related options and make margin deposits and payments in
connection therewith.
B-9
<PAGE> 71
5. Purchase or sell real estate, although it may purchase securities of
issuers which engage in real estate operations, securities which are
secured by interests in real estate, or securities representing
interests in real estate.
6. Purchase or sell commodities or commodity futures contracts, except
that the Fund may enter into transactions in futures contracts and
related options.
7. Make loans of money or securities, except (a) by the purchase of debt
obligations in which the Fund may invest consistent with its investment
objectives and policies; (b) by investment in repurchase agreements
(see "Investment Objectives and Policies -- Repurchase Agreements"); or
(c) by lending its portfolio securities, subject to limitations
described elsewhere in this Statement of Additional Information (see
"Investment Objectives and Policies -- Lending of Securities").
8. Purchase oil, gas or other mineral leases, rights or royalty contracts
or exploration or development programs, except that the Fund may invest
in the securities of companies which invest in or sponsor such
programs.
9. The Fund may not 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 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.
10. Invest for the purpose of exercising control or management of another
company, 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.
11. Invest in securities of any company if, to the knowledge of the Fund,
any officer or director of the Fund or of the Adviser owns more than
1/2 of 1% of the outstanding securities of such company, and such
officers and directors who own more than 1/2 of 1% own in the aggregate
more than 5% of the outstanding securities of such company.
12. Invest more than 5% of the market or other fair value of its assets in
warrants, or more than 2% of such value in warrants which are not
listed on the New York or American Stock Exchanges. Warrants attached
to other securities are not subject to these limitations.
13. Invest more than 15% 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.
14. With respect to 75% of its assets, invest more than 5% of its assets in
the securities of any one issuer (except the U.S. Government) or
purchase more than 10% of the outstanding voting securities of any one
issuer, 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.
15. Invest more than 25% of the value of its total assets in securities of
issuers in any particular industry (except obligations of the U.S.
Government).
16. Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit the Fund from (i) making
and collateralizing any permitted borrowings, (ii) making any permitted
loans of its portfolio securities, or (iii) entering into repurchase
agreements, utilizing options, futures contracts, options on futures
contracts and other investment strategies and instruments that would be
considered "senior securities" but for the maintenance by the Fund of a
segregated account with its custodian or some other form of "cover".
B-10
<PAGE> 72
In addition to the foregoing, the Fund has undertaken to a certain state
that at least 30 days prior to any change by the Fund in its investment
objective, the Fund will provide written notice to all of its shareholders in
that state regarding such proposed change.
TRUSTEES AND OFFICERS
The tables below list the trustees and officers of the Trust (of which the
Fund is a separate series) and other executive officers of the Fund's investment
adviser and their principal occupations for the last five years and their
affiliations, if any, with VK/AC Holding, Inc. ("VKAC Holding"), Van Kampen
American Capital, Inc. ("Van Kampen American Capital" or "VKAC"), Van Kampen
American Capital Investment Advisory Corp. ("Advisory Corp."), Van Kampen
American Capital Asset Management, Inc. ("Asset Management"), Van Kampen
American Capital Distributors, Inc., the distributor of the Fund's shares (the
"Distributor") and ACCESS Investors Services Inc., the Fund's transfer agent
("ACCESS"). 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 the Van Kampen American Capital Exchange Fund and the Common Sense
Trust).
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*..................... President and Chief Operating Officer, Individual Asset
Two World Trade Center Management Group, a division of Morgan Stanley, Dean
66th Floor Witter, Discover & Co. Mr. DeMartini is a Director of
New York, NY 10048 InterCapital Funds, Dean Witter Distributors, Inc. and
Date of Birth: 10/12/52 Dean Witter Trust Company. Trustee of the TCW/DW Funds.
Director of the National Healthcare Resources, Inc.
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/Director of each of the funds in the Fund
Complex.
Linda Hutton Heagy........................ Co-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, The
International House Board and the Women's Board of the
University of Chicago. 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.
</TABLE>
B-11
<PAGE> 73
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS OR
NAME, ADDRESS AND AGE EMPLOYMENT IN PAST 5 YEARS
--------------------- --------------------------
<S> <C>
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.
Jerome L. Robinson........................ President, Robinson Technical Products Corporation, a
115 River Road manufacturer and processor of welding alloys, supplies
Edgewater, NJ 07020 and equipment. Director, Pacesetter Software, a software
Date of Birth: 10/10/22 programming company specializing in white collar
productivity. Director, Panasia Bank. Trustee/Director of
each of the funds in the Fund Complex.
Phillip B. Rooney......................... Vice Chairman and Director of The ServiceMaster Company,
One ServiceMaster Way a business and consumer services. Director of Illinois
Downers Grove, IL 60515 Tool Works, Inc., a manufacturing company; the Urban
Date of Birth: 07/08/44 Shopping Centers Inc., a retail mall management company;
and Stone Container Corp., a paper manufacturing company.
Trustee, University of Notre Dame. Formerly, President
and Chief Executive Officer, Waste Management Inc., an
environmental services company, and prior to that
President and Chief Operating Officer, Waste Management
Inc. 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.
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, open-end funds advised by Van Kampen American
Date of Birth: 08/22/39 Capital Management, Inc. and closed-end funds advised by
Advisory Corp. Trustee/Director of each of the funds in
the Fund Complex, open-end funds advised by Van Kampen
American Capital Management, Inc. and closed-end funds
advised by Advisory Corp.
</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 and is an interested
person of Asset Management with respect to certain funds advised by Asset
Management by reason of his firm in the past acting as legal counsel to Asset
Management. Mr. DeMartini is an interested person of the Fund and the Advisers
by reason of his position with Dean Witter Capital and its affiliates.
B-12
<PAGE> 74
OFFICERS
Messrs. McDonnell, Hegel, Nyberg, Wood, Sullivan, Dalmaso, Martin,
Wetherell and Hill are located at One Parkview Plaza, Oakbrook Terrace, IL
60181. The Fund's other officers are located at 2800 Post Oak Blvd., Houston, TX
77056.
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Dennis J. McDonnell......... President President and a Director of VKAC.
Date of Birth: 05/20/42 President, Chief Operating Officer and a
Director of the Advisers. Director or
officer of certain other subsidiaries of
VKAC. Prior to November 1996, Executive
Vice President and a Director of VKAC
Holding. President of each of the funds in
the Fund Complex. President, Chairman of
the Board and Trustee of other investment
companies advised by the Advisers or their
affiliates.
Peter W. Hegel.............. Vice President Executive Vice President of the Advisers.
Date of Birth: 06/25/56 Director of Asset Management. Officer of
certain other subsidiaries of VKAC. Vice
President of each of the funds in the Fund
Complex and certain other investment
companies advised by the Advisers or their
affiliates.
Curtis W. Morell............ Vice President and Chief Senior Vice President of the Advisers, Vice
Date of Birth: 08/04/46 Accounting Officer President and Chief Accounting Officer of
each of the funds in the Fund Complex and
certain other investment companies advised
by the Advisers or their affiliates.
Ronald A. Nyberg............ Vice President and Secretary Executive Vice President, General Counsel
Date of Birth: 07/29/53 and Secretary of VKAC. Executive Vice
President, General Counsel, Assistant
Secretary and a Director of the Advisers
and the Distributor. Executive Vice
President, General Counsel and Assistant
Secretary of ACCESS. Director or officer of
certain other subsidiaries of VKAC.
Director of ICI Mutual Insurance Co., a
provider of insurance to members of the
Investment Company Institute. Prior to
November 1996, Executive Vice President,
General Counsel and Secretary of VKAC
Holding. 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.
</TABLE>
B-13
<PAGE> 75
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Don G. Powell............... Chairman, President, Chief Executive
Date of Birth: 10/19/39 Officer and a Director of VKAC. Chairman,
Chief Executive Officer and a Director of
the Advisers and the Distributor. Chairman
and a Director of ACCESS. Director or
officer of certain other subsidiaries of
VKAC. Chairman of the Board of Governors
and the Executive Committee of the
Investment Company Institute. Prior to
November, 1996, President, Chief Executive
Officer and a Director of VKAC Holding.
Trustee/Director of funds in the Fund
Complex advised by Advisory Corp. and prior
to July 1996, President, Chief Executive
Officer and a Trustee of all funds in the
Fund Complex.
Alan T. Sachtleben.......... Vice President Executive Vice President of the Advisers.
Date of Birth: 04/20/42 Director of Asset Management. Director or
officer of certain other subsidiaries of
VKAC. Vice President of each of the funds
in the Fund Complex and certain other
investment companies advised by the
Advisers or their affiliates.
Paul R. Wolkenberg.......... Vice President Executive Vice President of the VKAC, the
Date of Birth: 11/10/44 Advisers and the Distributor. President,
Chief Executive Officer and a Director of
ACCESS. Director or officer of certain
other subsidiaries of VKAC. 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.......... Vice President and Chief Senior Vice President of the Advisers. Vice
Date of Birth: 01/11/56 Financial Officer President and Chief Financial Officer of
each of the funds in the Fund Complex and
certain other investment companies advised
by the Advisers or their affiliates.
John L. Sullivan............ Treasurer First Vice President of the Advisers.
Date of Birth: 08/20/55 Treasurer of each of the funds in the Fund
Complex and certain other investment
companies advised by the Advisers or their
affiliates.
Tanya M. Loden.............. Controller Vice President of the Advisers. Controller
Date of Birth: 11/19/59 of each of the funds in the Fund Complex
and other investment companies advised by
the Advisers or the affiliates.
Nicholas Dalmaso............ Assistant Secretary Vice President and Assistant Secretary of
Date of Birth: 03/01/65 VKAC. Vice President and Assistant
Secretary of the Advisers and the
Distributor. Officer of certain other
subsidiaries of VKAC. Assistant Secretary
of each of the funds in the Fund Complex
and other investment companies advised by
the Advisers or the affiliates.
</TABLE>
B-14
<PAGE> 76
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND AGE OFFICES WITH FUND DURING PAST 5 YEARS
------------ ----------------- ---------------------
<S> <C> <C>
Huey P. Falgout, Jr......... Assistant Secretary Assistant Vice President and Senior
Date of Birth: 11/15/63 Attorney of VKAC. Assistant Vice President
and Assistant Secretary of the Advisers,
the Distributor and ACCESS. Officer of
certain other subsidiaries of VKAC.
Assistant Secretary of each of the funds in
the Fund Complex and other investment
companies advised by the Advisers or the
affiliates.
Scott E. Martin............. Assistant Secretary Senior Vice President, Deputy General
Date of Birth: 08/20/56 Counsel and Assistant Secretary of VKAC.
Senior Vice President, Deputy General
Counsel and Secretary of the Advisers, the
Distributor and ACCESS. Officer of certain
other subsidiaries of VKAC. Prior to
November 1996, Senior Vice President,
Deputy General Counsel and Assistant
Secretary of VKAC Holding. Assistant
Secretary of each of the funds in the Fund
Complex and other investment companies
advised by the Advisers or the affiliates.
Weston B. Wetherell......... Assistant Secretary Vice President, Associate General Counsel
Date of Birth: 06/15/56 and Assistant Secretary of VKAC, the
Advisers and the Distributor. Officer of
certain other subsidiaries of VKAC.
Assistant Secretary of each of the funds in
the Fund Complex and other investment
companies advised by the Advisers or the
affiliates.
Steven M. Hill.............. Assistant Treasurer Assistant Vice President of the Advisers.
Date of Birth: 10/16/64 Assistant Treasurer of each of the funds in
the Fund Complex and other investment
companies advised by the Advisers or the
affiliates.
M. Robert Sullivan.......... Assistant Controller Assistant Vice President of the Advisers.
Date of Birth: 03/30/33 Assistant Controller of each of the funds
in the Fund Complex and other investment
companies advised by the Advisers or the
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
Morgan Stanley Fund, Inc. (the "VK Funds") and the funds advised by Advisory
Corp. organized as series of the Morgan Stanley Fund, Inc. (the "MS Funds").
Each trustee/director who is not an affiliated person of VKAC, the Advisers, the
Distributor, ACCESS or Morgan Stanley (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 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. As of the date hereof, each
AC Fund and VK Fund 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. As of January 1, 1998, it is anticipated that each fund in the Fund
Complex, except the money market series of the MS Funds, will provide such a
retirement plan to its Non-Affiliated Trustees.
B-15
<PAGE> 77
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. 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 is intended to be
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.
The trustees/directors were subject to a voluntary aggregate compensation
cap with respect to funds in the Fund Complex of $84,000 per Non-Affiliated
Trustee per year (excluding any retirement benefits) for the period July 22,
1995 through December 31, 1996, subject to the net assets and the number of
funds in the Fund Complex as of July 21, 1995 and certain other exceptions. For
the calendar year ended December 31, 1996, certain trustees/directors received
aggregate compensation from the funds in the Fund Complex over $84,000 due to
compensation received but not subject to the cap, including compensation from
new funds added to the Fund Complex after July 22, 1995 and certain special
meetings in 1996. In addition, each of Advisory Corp. or Asset Management, as
the case may be, agreed to reimburse each fund in the Fund
B-16
<PAGE> 78
Complex through December 31, 1996 for any increase in the aggregate compensation
over the aggregate compensation paid by such fund in its 1994 fiscal year,
provided that if a fund did not exist for the entire 1994 fiscal year
appropriate adjustments will be made.
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. Asset Management had reimbursed each AC Fund for the expenses related to
the retirement plan through December 31, 1996.
Additional information regarding compensation and benefits for trustees is
set forth below. As indicated in the notes accompanying the table, the amounts
relate to either the Fund's most recently completed fiscal year or the Fund
Complex' most recently completed calendar year ended December 31, 1996.
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
YEAR FIRST PENSION OR ESTIMATED MAXIMUM BEFORE DEFERRAL
APPOINTED OR AGGREGATE COMPENSATION RETIREMENT BENEFITS ANNUAL BENEFITS FROM FUND
ELECTED TO THE BEFORE DEFERRAL FROM THE ACCRUED AS PART OF FROM THE FUND UPON COMPLEX PAID
NAME(1) BOARD FUND(2) EXPENSES(3) RETIREMENT(4) TO TRUSTEE(5)
------- -------------- ------------------------ ------------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
J. Miles Branagan* 1991 $ $ $ $104,875
Linda Hutton Heagy* 1995 104,875
Dr. Roger Hilsman 1979 103,750
R. Craig Kennedy* 1995 104,875
Donald C. Miller 1995 104,875
Jack E. Nelson* 1995 97,875
Jerome L. Robinson* 1995 101,625
Phillip B. Rooney* 1997 0
Dr. Fernando Sisto* 1979 104,875
Wayne W. Whalen* 1995 104,875
William S. Woodside 1986 104,875
</TABLE>
- ---------------
* Currently a member of the Board of Trustees. Mr. Phillip B. Rooney became a
member of the Board of Trustees effective April 14, 1997 and thus does not
have a full fiscal year of information to report.
(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. Messrs. Hilsman, Miller and Woodside
retired from the Board of Trustees on December 31, 1996. Messrs. DeMartini,
McDonnell and Powell, also trustees of the Fund during all or a portion of
the Fund's last fiscal year, are not included in the compensation table
because they are affiliated persons of the Advisers and are not eligible for
compensation or retirement benefits from the Fund.
B-17
<PAGE> 79
(2) The amounts shown in this column represent the Aggregate Compensation before
Deferral with respect to the Fund's fiscal year ended August 31, 1997. The
following trustees deferred compensation from the Fund during the fiscal
year ended August 31, 1997: Mr. Branagan, $ ; Ms. Heagy, $ ; Mr.
Kennedy, $ ; Mr. Miller, $ ; Mr. Nelson, $ ; Mr. Robinson,
$ ; Dr. Sisto, $ ; and Mr. Whalen, $ . 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, 1997 is as follows: Mr. Branagan, $ ; Dr. Caruso,
$ ; Mr. Gaughan, $ ; Ms. Heagy, $ ; Mr. Kennedy, $ ; Mr.
Lipshire, $ ; Mr. Miller, $ ; Mr. Nelson, $ ; Mr. Rees,
$ ; Mr. Robinson, $ ; Dr. Sisto, $ ; Mr. Vernon, $ ; and
Mr. Whalen, $ . The deferred compensation plan is described above the
Compensation Table.
(3) The amounts shown in this column represent the Retirement Benefits accrued
by the Fund for each trustee during its fiscal year ended August 31, 1997.
The retirement plan is described above the Compensation Table. Amounts
accrued during the Fund's last fiscal year for former trustees not listed
above totalled $ .
(4) For Messrs. Hilsman, Miller and Woodside, this is the actual annual benefits
payable by the Fund in each year of the 10-year period since such trustee's
retirement. For the remaining trustees, this is the estimated maximum annual
benefits payable by the Fund in each year of the 10-year period commencing
in the year of such trustee's retirement from the Fund assuming: the trustee
has 10 or more years of service on the Board of Trustees (including years of
service prior to the adoption of the retirement plan) and retires at or
after attaining the age of 60. Trustees retiring prior to the age of 60 or
with fewer than 10 years of service for the Fund may receive reduced
retirement benefits from the Fund. The actual annual benefit may be less if
the trustee is subject to the Fund Complex retirement benefit cap or if the
trustee is not fully vested at the time of retirement.
(5) The amounts shown in this column represent the aggregate compensation paid
by all 51 operating investment companies in the Fund Complex as of December
31, 1996 before deferral by the trustees under the 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. As
described in the narrative preceding the table, the Fund Complex has
increased in size since December 31, 1996. It is likely the aggregate
compensation from the Fund Complex for the calendar year ending December 31,
1997 will be higher due to the increased size of the Fund Complex during
1997. The trustees recently reviewed and adopted a standardized compensation
and benefits program to become effective January 1, 1998 which program is
described in more detail in the narrative preceding this table. Certain
trustees deferred all or a portion of their aggregate compensation from the
Fund Complex during the calendar year ended December 31, 1996. 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
trustees' Fund Complex compensation cap covered the period July 22, 1995
through December 31, 1996. For the calendar year ended December 31, 1996,
certain trustees received compensation over $84,000 in the aggregate due to
compensation received but not subject to the cap, including compensation
from new funds added to the Fund Complex after July 22, 1995 and certain
special meetings in 1996. The Advisers and their affiliates also serve as
investment adviser for other investment companies; however, with the
exception of Messrs. McDonnell, Powell and Whalen, the 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 $243,375 during the calendar year
ended December 31, 1996.
B-18
<PAGE> 80
As of October 6, 1997, the trustees and officers of the Fund as a group
owned less than 1% of the shares of the Fund.
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom (Illinois).
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. A portion of these
amounts is paid to the Adviser or its parent in reimbursement of personnel,
office space, facilities and equipment costs attributable to the provision of
accounting services to the Fund. The Fund also pays shareholder service agency
fees, 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 fee
payable monthly, computed on average daily net assets of the Fund at the annual
rate of: 0.625% on the first $150 million average net assets; 0.55% on the next
$150 million of average net assets; and 0.50% on the net assets over $300
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 VK/AC
Holding, Inc. in connection with the purchase and sale of portfolio investments
less any direct expenses incurred by such subsidiary of VK/AC Holding, Inc., 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 VK/AC Holding, Inc. to receive in connection with the Fund's
portfolio transactions or other arrangements which may benefit the Fund.
The Advisory Agreement also provides that, in the event the ordinary
business expenses of the Fund for any fiscal year exceed the most restrictive
expense limitation applicable in the states where the Fund's shares are
qualified for sale, 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
(described herein).
Currently, the most restrictive applicable limitations are 2 1/2% of the
first $30 million, 2% of the next $70 million and 1 1/2% of the remaining
average net assets.
B-19
<PAGE> 81
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 30 days' written notice.
During the fiscal years ended August 31, 1995, 1996 and 1997, the Adviser
received $2,650,114, $2,929,197 and $ respectively, in advisory fees from
the Fund. For such periods the Fund paid $107,087, $135,427 and $ ,
respectively, for accounting services.
DISTRIBUTOR
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. 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 sales literature and
advertising. The Distribution and Service Agreement is renewable from year to
year if approved (a) by the Fund's Trustees or by a 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 60 days' written notice.
During the fiscal years ended August 31, 1995, 1996 and 1997, total
underwriting commissions on the sale of shares of the Fund were $580,419,
$839,736 and $ , respectively. Of such totals, the amount retained by the
Distributor was $78,370, $76,236 and $ , respectively. The remainder was
reallowed to dealers. Of such dealer reallowances, $149,907, $176,992 and
$ , respectively, was received by Advantage Capital Corporation, a former
affiliated dealer of the Fund.
DISTRIBUTION AND SERVICE PLANS
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
B-20
<PAGE> 82
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.
For the fiscal year ended August 31, 1997, the Fund's aggregate expenses
under the Class B Plan were $ or % of the Class B shares' average net
assets. Such expenses were paid to reimburse the Distributor for the following
payments $ for commissions and transaction fees paid to financial
intermediaries in respect of sales of Class B shares of the Fund and $ for
fees paid to financial intermediaries for servicing Class B shareholders and
administering the Plans. For the fiscal year ended August 31, 1997, the Fund's
aggregate expenses under the Plans for Class C shares were $ or % of
the Class C shares' average net assets. Such expenses were paid to reimburse the
Distributor for the following payments; $ for commissions and transaction
fees paid to financial intermediaries in respect of sales of Class C shares of
the Fund and $ for fees paid to financial intermediaries for servicing
Class C shareholders and administering the Class C Plan.
TRANSFER AGENT
During the fiscal years ending August 31, 1995, 1996 and 1997, ACCESS,
shareholder service agent and dividend disbursing agent for the Fund, received
fees aggregating $1,107,232, $1,197,009 and $ , respectively for these
services. These services are provided at cost plus a profit.
PORTFOLIO TURNOVER
The 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 for prior
years is shown under "Financial Highlights" in the Prospectus. The turnover rate
will fluctuate over time depending upon the Adviser's investment strategy and
the higher volatility of the market for high yielding fixed-income securities.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser is responsible for decisions to buy and sell securities for the
Fund and for the placement of its portfolio business and the negotiation of any
commissions, if any, paid on such transactions. As most transactions made by the
Fund are principal transactions at net prices, the Fund incurs little or no
brokerage costs. Portfolio securities are normally purchased directly from the
issuer or 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 the spread between the bid and asked price. Sales to dealers are
effected at bid prices.
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 commissions, the Adviser considers
the firm's reliability, the quality of its execution services on a continuing
basis and its financial condition. When more than one firm is believed to meet
these criteria, preference may be given to firms which also provide research
services to the Fund or the Adviser. No specific value can be assigned to such
research services which are furnished without cost to the Adviser. 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
B-21
<PAGE> 83
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.
Consistent with the Rules of Fair Practice of the NASD and subject to
seeking best execution and such other policies as the Trustees may determine,
the Adviser may consider sales of shares of the Fund as a factor in the
selection of firms to execute portfolio transactions for the Fund.
The Adviser places portfolio transactions 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
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.
Prior to December 20, 1994 the Fund placed brokerage transactions with
brokers that were considered affiliated persons of the Adviser's former parent,
The Travelers Inc. Such affiliated persons included Smith Barney Inc. ("Smith
Barney") and Robinson Humphrey, Inc. ("Robinson Humphrey"). Effective December
20, 1994, Smith Barney and Robinson Humphrey ceased to be affiliates of the
Adviser. The negotiated commission paid to an affiliated broker on any
transaction would be comparable to that payable to a non-affiliated broker in a
similar transaction. [The Fund conducted no affiliated brokerage transactions
with Robinson Humphrey during the last fiscal year. During the year ended August
31, 1997, the Fund paid $ in brokerage commissions on transactions
totalling $ to brokers selected primarily on the basis of research
services provided to the Adviser.]
The Adviser's brokerage practices are monitored by the Brokerage Review
Committee comprised of Fund Trustees who are not interested persons (as defined
in the 1940 Act) of the Adviser. [Brokerage commissions paid by the Fund on
portfolio transactions for the fiscal years ended August 31, 1995, 1996 and
1997, totalled $25,938, $0 and $ , respectively.]
DETERMINATION OF NET ASSET VALUE
The net asset value per share is determined as of the close of the New York
Stock Exchange (the "Exchange") (currently 4:00 p.m., New York time) on each
business day on which the Exchange is open.
Such computation is made by dividing the value of the Fund's securities
plus all cash and other assets (including accrued interest) less all liabilities
(including accrued expenses) by the number of shares outstanding. Portfolio
securities that are traded in the over-the-counter market are valued at the most
recently quoted bid price. Any security for which the primary market is on an
exchange is valued at the last reported sales price on the exchange where
principally traded or at the last reported bid price if there was no sale
reported that day. If no sale or bid price is reported that day, the security is
valued at the most recent sale price. Short-term investments with a maturity of
60 days or less when purchased are valued at cost plus interest earned
(amortized cost), which approximates market value. Short-term investments with a
maturity of more than 60 days when purchased are valued based on market
quotations until the remaining days to maturity become less than 61 days. From
such time, until maturity, the investments are valued at amortized cost using
the value of the investment on the 61st day. The value of any other securities
or other assets is fair value as determined in good faith by the Fund's
Trustees.
B-22
<PAGE> 84
The assets belonging to the Class A shares, the Class B shares and the
Class C shares will be invested together in a single portfolio. The net asset
value of each class will be determined separately by subtracting the expenses
and liabilities allocated to that class.
PURCHASE AND REDEMPTION OF SHARES
The following information supplements the section in the Fund's Prospectus
captioned "Purchase of Shares."
PURCHASE OF SHARES
Shares of the Fund are sold in a continuous offering and may be purchased
on any business day through authorized dealers.
ALTERNATIVE SALES ARRANGEMENT
The Fund issues three classes of shares: Class A shares, Class B shares and
Class C shares. The three classes of shares each represent interests in the same
portfolio of investments of the Fund, have the same rights and are identical in
all respects, except that Class B shares and Class C shares bear the expenses of
the deferred sales arrangements, distribution fees, and any expenses (including
higher transfer agency costs) resulting from such sales arrangements, and except
that each class has exclusive voting rights with respect to the Rule 12b-1
distribution plan pursuant to which its distribution fees are paid.
During special promotions, the entire sales charge on Class A shares may be
reallowed to dealers, and at such times dealers may be deemed to be underwriters
for purposes of the Securities Act of 1933.
INVESTMENTS BY MAIL
A shareholder investment account may be opened by completing the
application accompanying the Prospectus and forwarding the application, through
the authorized dealer, to ACCESS, at P.O. Box 419319, Kansas City, Missouri
64141-6319. The account is opened only upon acceptance of the application by
ACCESS. The minimum initial investment of at least $500 per class of shares, in
the form of a check payable to the Fund, must accompany the application. This
minimum may be waived by the Distributor for plans involving continuing
investments. Minimum subsequent investments of at least $25 per class of shares
may be mailed directly to ACCESS. All such investments are made at the public
offering price of Fund shares next computed following receipt of payment by
ACCESS. Confirmations of the opening of an account and of all subsequent
transactions in the account are forwarded by ACCESS to the investor's authorized
dealer.
In processing applications and investments, ACCESS acts as agent for the
investor and for the dealer named thereon, and also as agent for the
Distributor, in accordance with the terms of the Prospectus. If ACCESS ceases to
act as such, a successor company named by the Fund will act in the same
capacities so long as the account remains open.
CUMULATIVE PURCHASE DISCOUNT
The reduced sales charges reflected in the sales charge table as shown in
the Prospectus under "Purchase of Shares -- Sales Charge Table" apply to
purchases of Class A shares of the Fund where the aggregate investment is
$100,000 or more. For purposes of determining eligibility for volume discounts,
spouses and their children under 21 years of age are treated as a single
purchaser, as is a director or other fiduciary of a single trust estate or
single fiduciary account. An aggregate investment includes all shares of the
Fund and all shares of certain other participating Van Kampen American Capital
mutual funds described in the Prospectus (the "Participating Funds"), which have
been previously purchased and are still owned, plus the shares being purchased.
The current offering price is used to determine the value of all such shares.
The same reduction is applicable to purchases under a Letter of Intent as
described in the next paragraph. THE DEALER MUST NOTIFY THE DISTRIBUTOR AT THE
TIME AN ORDER IS PLACED FOR A PURCHASE WHICH WOULD QUALIFY FOR THE REDUCED
CHARGE ON THE BASIS OF PREVIOUS PURCHASES. SIMILAR NOTIFICATION MUST BE MADE IN
WRITING WHEN SUCH AN ORDER IS PLACED BY
B-23
<PAGE> 85
MAIL. The reduced sales charge will not be applied if such notification is not
furnished at the time of the order. The reduced sales charge will also not be
applied should a review of the records of the Distributor or ACCESS fail to
confirm the investor's representations concerning his holdings.
LETTER OF INTENT
Purchases of Class A shares of the Participating Funds described above
under "Cumulative Purchase Discount," made pursuant to the Letter of Intent and
still owned are also included in determining the applicable quantity discount. A
Letter of Intent permits an investor to establish a total investment goal to be
achieved by any number of investments over a 13-month period. Each investment
made during the period will receive the reduced sales charge applicable to the
amount represented by the goal as if it were a single investment. Escrowed
shares totaling 5% of the dollar amount of the Letter of Intent are held by
ACCESS in the name of the shareholder. The effective date of a Letter of Intent
may be back-dated up to 90 days in order that any investments made during this
90-day period, valued at the investor's cost, can become subject to the Letter
of Intent. The Letter of Intent does not obligate the investor to purchase the
indicated amount. In the event the Letter of Intent goal is not achieved within
the 13-month period, the investor is required to pay the difference between
sales charges otherwise applicable to the purchases made during this period and
sales charges actually paid. Such payment may be made directly to the
Distributor or, if not paid, the Distributor will liquidate sufficient escrowed
shares to obtain such difference. If the goal is exceeded in an amount which
qualifies for a lower sales charge, a price adjustment is made by refunding to
the investor in shares of the Fund, the amount of excess sales charge, if any,
paid during the 13-month period.
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.
CONTINGENT DEFERRED SALES CHARGE-CLASS A
For certain full service participant directed profit sharing and money
purchase plans and qualified 401(k) Retirement Plans and for investments in the
amount of $1,000,000 or more of Class A shares of the Fund ("Qualified
Purchaser"), there is no front-end sales charge, but a contingent deferred sales
charge ("CDSC-Class A") of 1.00% may be imposed in the event of certain
redemptions within one year of the purchase. If a CDSC-Class A is imposed upon
redemption, the amount of the CDSC-Class A will be equal to the lesser of 1.00%
of the net asset value of the shares at the time of purchase, or 1.00% of the
net asset value of the shares at the time of redemption.
The CDSC-Class A will be imposed only if a Qualified Purchaser redeems an
amount which causes the value of the account to fall below the total dollar
amount of purchase payments made by the Qualified Purchaser without an initial
sales charge during the one-year period prior to the redemption. The CDSC-Class
A will be waived in connection with redemptions by certain Qualified Purchasers
(e.g., in retirement plans qualified under Section 401(a) of the Internal
Revenue Code, as amended (the "Code") and deferred compensation plans under
Section 457 of the Code) required to obtain funds to pay distributions to
beneficiaries pursuant to the terms of the plans. Such payments include, but are
not limited to, death, disability, retirement or separation from service. No
CDSC-Class A will be imposed on exchanges between funds. 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
B-24
<PAGE> 86
determining whether a CDSC-Class A is payable, it is assumed that shares held
the longest are the first to be redeemed.
Cumulative Purchase Discounts and Letters of Intent apply to the net asset
value privilege. Also, in order to establish an amount of $1,000,000 or more, a
Qualified Purchaser may aggregate shares of the Participating Funds described in
the Prospectus.
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.
WAIVER OF CLASS B AND CLASS C CONTINGENT DEFERRED SALES CHARGE ("CDSC-CLASS B
AND C")
The CDSC-Class B and C is waived on redemptions of Class B shares and Class
C shares in the circumstances described below:
(a) Redemption Upon Disability or Death
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 disability or death, 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 partial redemption,
but only to redemptions of shares held at the time of the death or initial
determination of disability.
(b) 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 of American Capital
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.
(c) 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
B-25
<PAGE> 87
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.
(d) Involuntary Redemptions of Shares in Accounts that Do Not Have the
Required Minimum Balance
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.
(e)Reinvestment of Redemption Proceeds in Shares of the Same Fund Within
120 Days After Redemption
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 120 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.
(f) 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.
EXCHANGE PRIVILEGE
The following supplements the discussion of "Shareholder Services-Exchange
Privilege" in the Prospectus:
By use of the exchange privilege, the investor authorizes ACCESS to act on
telephonic, telegraphic or written exchange instructions from any person
representing himself to be the investor or the agent of the investor and
believed by ACCESS to be genuine. Van Kampen American Capital and its
subsidiaries, including ACCESS, 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 American Capital, ACCESS nor the Fund will be liable for following
telephone instructions which it reasonably believes to be genuine. Van Kampen
American Capital, ACCESS and the Fund may be liable for any losses due to
unauthorized or fraudulent instructions if reasonable procedures are not
followed.
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.
B-26
<PAGE> 88
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 mutual 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.
CHECK WRITING PRIVILEGE
To establish the check writing privilege for Class A shares, a shareholder
must complete the appropriate section of the application and the Authorization
for Redemption form and return both documents to ACCESS before checks will be
issued. All signatures on the authorization card must be guaranteed if any of
the signators are persons not referenced in the account registration or if more
than 30 days have elapsed since ACCESS established the account on its records.
Moreover, if the shareholder is a corporation, partnership, trust, fiduciary,
executor or administrator, the appropriate documents appointing authorized
signers (corporate resolutions, partnerships or trust agreements) must accompany
the authorization card. The documents must be certified in original form, and
the certificates must be dated within 60 days of their receipt by ACCESS.
The privilege does not carry over to accounts established through exchanges
or transfers. It must be requested separately for each fund account.
TAX STATUS OF THE FUND
The Trust and any each of its series, including the Fund, will be treated
as separate corporations for federal income tax purposes. The Fund has qualified
intends to continue to qualify each year to be treated as a regulated investment
company under the Code. If the Fund so qualifies and distributes each year to
its shareholders at least 90% of its net investment income (including tax-exempt
interest, 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) in each year, 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.
FUND PERFORMANCE
The Fund's average annual total return (computed in the manner described in
the Prospectus) for Class A shares of the Fund for (i) the one year period ended
August 31, 1997 was %, (ii) the five year period ended August 31, 1997 was
% and (iii) the ten year period ended August 31, 1997 was %. The
Fund's average annual total return (computed in the manner described in the
Prospectus) for Class B shares of the Fund for (i) the one year period ended
August 31, 1997 was %, (ii) the five year period ended August 31, 1997 was
% and (iii) the five year, two month period since July 2, 1992, the
commencement of distribution for Class B shares of the Fund, through August 31,
1997 was %. The average annual total return (computed in the manner
described in the Prospectus) for Class C shares of the Fund for (i) the one year
period ended August 31, 1997 was % and (ii) the four year, 1 1/2 month
period since July 6, 1993, the commencement of distribution for Class C shares
of the Fund, through August 31, 1997 was %. 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, 1997 was %,
% and %, respectively. The yield for Class A
B-27
<PAGE> 89
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
Franklin Street, Boston, Massachusetts 02110, as Custodian.
SHAREHOLDER REPORTS -- Semiannual statements are furnished to shareholders, and
annually such statements are audited by the independent accountants.
INDEPENDENT ACCOUNTANTS -- Price Waterhouse LLP, 1201 Louisiana, Suite 2900,
Houston, Texas 77002, the independent accountants for the Fund, performs an
annual audit of the Fund's financial statements.
B-28
<PAGE> 90
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements++
Included in the Prospectus:
Financial Highlights
Included in the Statement of Additional Information:
Independent Accountants' Report
Financial Statements
Notes to Financial Statements
(b) Exhibits
<TABLE>
<C> <S>
1.1 -- First Amended and Restated Agreement and Declaration of
Trust incorporated herein by reference to Form N-1A of
Registrant's Registration No. 2-62115, Post-Effective
Amendment No. 36, filed on December 22, 1995.
1.2 -- Certificate of Amendment incorporated herein by reference
to Form N-1A of Registrant's Registration No. 2-62115,
Post-Effective Amendment No. 36, filed on December 22,
1995.
1.3 -- Certificate of Designation incorporated herein by
reference to Form N-1A of Registrant's Registration No.
2-62115, Post-Effective Amendment No. 36, filed on
December 22, 1995.
2 -- Amended and Restated Bylaws incorporated herein by
reference to Form N-1A of Registrant's Registration No.
2-62115, Post-Effective Amendment No. 36, filed on
December 22, 1995.
3 -- Inapplicable.
4.1 -- Specimen Class A Share Certificate incorporated herein by
reference to Form N-1A of Registrant's Registration No.
2-62115, Post-Effective Amendment No. 36, filed on
December 22, 1995.
4.2 -- Specimen Class B Share Certificate incorporated herein by
reference to Form N-1A of Registrant's Registration No.
2-62115, Post-Effective Amendment No. 36, filed on
December 22, 1995.
4.3 -- Specimen Class C Share Certificate incorporated herein by
reference to Form N-1A of Registrant's Registration No.
2-62115, Post-Effective Amendment No. 36, filed on
December 22, 1995.
5 -- Investment Advisory Agreement.++
6.1 -- Distribution and Service Agreement.++
6.2 -- Form of Dealer Agreement incorporated herein by reference
to Form N-1A of Registrant's Registration No. 2-62115,
Post-Effective Amendment No. 38, filed on December 26,
1996.
6.3 -- Form of Broker Fully Disclosed Selling Agreement
incorporated herein by reference to Form N-1A of
Registrant's Registration No. 2-62115, Post-Effective
Amendment No. 38, filed on December 26, 1996.
6.4 -- Form of Bank Fully Disclosed Selling Agreement
incorporated herein by reference to Form N-1A of
Registrant's Registration No. 2-62115, Post-Effective
Amendment No. 38, filed on December 26, 1996.
7 -- Inapplicable.
8.1 -- Custodian Contract.++
8.2 -- Transfer Agency and Servicing Agreement.++
9 -- Data Access Services Agreement incorporated herein by
reference to Form N-1A of Registrant's Registration No.
2-62115, Post-Effective Amendment No. 38, filed on
December 26, 1996.
10 -- Opinion of Counsel incorporated herein by reference to
Form N-1A of Registrant's Registration No. 2-62115,
Post-Effective Amendment No. 38, filed on December 26,
1996.
11 -- Consent of Independent Accountants.++
12 -- Inapplicable.
13 -- Inapplicable.
</TABLE>
C-1
<PAGE> 91
14.1 -- Individual Retirement Account Brochure with Application
incorporated herein by reference to Exhibit 14.1 to Form
N-1A of Van Kampen American Capital Reserve Fund,
Registration No. 2-50870, Post Effective Amendment No.
31, filed on September 23, 1993.
14.2 -- 403(b)(7) Custodial Account incorporated herein by
reference to Exhibit 14.2 to Form N-1A of Van Kampen
American Capital Reserve Fund, Registration No. 2-50870,
Post Effective Amendment No. 30, filed on September 24,
1992.
14.3 -- ORP 403(b)(7) Custodial Account incorporated herein by
reference to Exhibit 14.3 to Form N-1A of Van Kampen
American Capital Reserve Fund, Registration No. 2-50870,
Post Effective Amendment No. 30, filed on September 24,
1992.
14.4 -- Retirement Plans for the Small Business-Forms Package and
Plan Documents incorporated herein by reference to
Exhibit 14.9 to Form N-1A of Van Kampen American Capital
Emerging Growth Fund, Post Effective Amendment No. 44,
Registration No. 2-33214 filed on December 21, 1990.
14.5 -- Prototype Profit Sharing/Money Purchase Plan and Trust
incorporated herein by reference to Exhibit 14.5 to Form
N-1A of Van Kampen American Capital Growth and Income
Fund, Registration No. 2-21657, Post Effective Amendment
No. 61, filed on March 26, 1991.
14.6 -- Prototype 401(k) Plan and Trust incorporated herein by
reference to Exhibit 14.6 to Form N-1A of Van Kampen
American Capital Growth and Income Fund, Registration No.
2-21657, Post Effective Amendment No. 61, filed on March
26, 1991.
14.7 -- Salary Reduction Simplified Employee Pension Plan
incorporated herein by reference (Exhibit 14.7 to Form
N-1A of Van Kampen American Capital World Portfolio
Series Trust, Registration No. 33-37879, Post Effective
Amendment No. 9, filed on September 24, 1993).
14.8 -- Simplified Employee Pension Plan Brochure with
Application incorporated herein by reference (Exhibit
14.8 to Form N-1A of Van Kampen American Capital Growth
and Income Fund, Registration No. 2-21657, Post Effective
Amendment No. 69, filed March 24, 1994).
15.1 -- Plan of Distribution pursuant to Rule 12b-1 incorporated
herein by reference to Form N-1A of Registrant's
Registration No. 2-62115, Post-Effective Amendment No.
38, filed on December 26, 1996.
15.2 -- Service Plan incorporated herein by reference to Form
N-1A of Registrant's Registration No. 2-62115,
Post-Effective Amendment No. 38, filed on December 26,
1996.
15.3 -- Form of Shareholder Assistance Agreement incorporated
herein by reference to Form N-1A of Registrant's
Registration No. 2-62115, Post-Effective Amendment No.
38, filed on December 26, 1996.
15.4 -- Form of Administrative Services Agreement incorporated
herein by reference to Form N-1A of Registrant's
Registration No. 2-62115, Post-Effective Amendment No.
38, filed on December 26, 1996.
16 -- Computation of Performance Information.++
17.1 -- List of Certain Investment Companies in Response to Item
29(a).++
17.2 -- List of Officers and Directors of Van Kampen American
Capital Distributors, Inc. in Response to Item 29(b).++
18 -- Amended Multi-Class Plan.++
19 -- Power of Attorney.+
27 -- Financial Data Schedules.++
- -------------------------
+ Filed herewith.
++ To be filed by further amendment.
C-2
<PAGE> 92
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
AS OF OCTOBER 6, 1997
<TABLE>
<CAPTION>
(1) (2)
TITLE OF CLASS NUMBER OF RECORD HOLDERS
-------------- ------------------------
<C> <C>
Shares of Beneficial Interest, $0.01 par value
Class A shares 27,376
Class B shares 11,184
Class C shares 1,405
</TABLE>
ITEM 27. 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 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
C-3
<PAGE> 93
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 28. 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 the
Adviser, reference is made to the Adviser's current Form ADV (File No.
801-18161) filed under the Investment Advisers Act of 1940, as amended,
incorporated herein by reference.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) The sole principal underwriter is Van Kampen American Capital
Distributors, Inc., which acts as principal underwriter for certain investment
companies and unit investment trusts set forth in Exhibit 17.1 incorporated by
reference herein.
(b) Van Kampen American Capital Distributors, Inc. is an affiliated person
of an affiliated person of Registrant and is the only principal underwriter for
Registrant. The name, principal business address and positions and offices with
Van Kampen American Capital Distributors, Inc. of each of the directors and
officers thereof are set forth in Exhibit 17.2. 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.
ITEM 30. LOCATION OF BOOKS 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 One Parkview Plaza,
Oakbrook Terrace, Illinois 60181. ACCESS 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 One Parkview Plaza, Oakbrook Terrace,
Illinois 60181; and (iii) by the Distributor, the principal underwriter, will be
maintained at its offices located at One Parkview Plaza, Oakbrook Terrace,
Illinois 60181.
ITEM 31. MANAGEMENT SERVICES.
There are no management related services contracts not discussed in Part A.
ITEM 32. 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.
C-4
<PAGE> 94
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, Van Kampen American Capital High
Income Corporate Bond Fund, has duly caused this Amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Oakbrook Terrace, and State of Illinois, on the 29th
day of October, 1997.
VAN KAMPEN AMERICAN CAPITAL
HIGH INCOME CORPORATE BOND FUND
By /s/ RONALD A. NYBERG
-------------------------------------------
(Ronald A. Nyberg, Vice President and
Secretary)
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to this Registration Statement has been signed on October 29, 1997 by the
following persons in the capacities indicated:
Principal Executive Officer:
<TABLE>
<C> <S>
/s/ DENNIS J. MCDONNELL* President
- -----------------------------------------------------
(Dennis J. McDonnell)
Principal Financial Officer:
/s/ EDWARD C. WOOD III* Vice President and Chief Financial
- ----------------------------------------------------- Officer
(Edward C. Wood III)
Trustees:
/s/ J. MILES BRANAGAN* Trustee
- -----------------------------------------------------
(J. Miles Branagan)
/s/ LINDA HUTTON HEAGY* Trustee
- -----------------------------------------------------
(Linda Hutton Heagy)
/s/ RICHARD M. DeMARTINI Trustee
- -----------------------------------------------------
(Richard M. DeMartini)
/s/ R. CRAIG KENNEDY* Trustee
- -----------------------------------------------------
(R. Craig Kennedy)
/s/ JACK E. NELSON* Trustee
- -----------------------------------------------------
(Jack E. Nelson)
/s/ JEROME L. ROBINSON* Trustee
- -----------------------------------------------------
(Jerome L. Robinson)
/s/ PHILLIP B. ROONEY Trustee
- -----------------------------------------------------
(Phillip B. Rooney)
/s/ FERNANDO SISTO* Trustee
- -----------------------------------------------------
(Fernando Sisto)
/s/ WAYNE W. WHALEN* Trustee
- -----------------------------------------------------
(Wayne W. Whalen)
</TABLE>
* Signed pursuant to a power of attorney.
/s/ RONALD A. NYBERG October 29, 1997
- --------------------------------------
Ronald A. Nyberg
Attorney-in-Fact
<PAGE> 95
VAN KAMPEN AMERICAN CAPITAL HIGH INCOME CORPORATE BOND FUND
INDEX TO EXHIBITS TO POST-EFFECTIVE AMENDMENT NO. 39 TO FORM N-1A
AS SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION ON
OCTOBER 30, 1996
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C>
19 -- Power of Attorney.
</TABLE>
<PAGE> 1
EXHIBIT (19)
POWER OF ATTORNEY
The undersigned, being officers and trustees of each of the Van Kampen
American Capital Open End Trusts (with the exception of Don G. Powell), as
indicated on Schedule 1 attached hereto and incorporated by reference, each a
Delaware business trust, except for the Van Kampen American Capital
Pennsylvania Tax Free Income Fund, being a Pennsylvania business trust
(individually, a "Trust"), do hereby, in the capacities shown below,
individually appoint Dennis J. McDonnell and Ronald A. Nyberg, each of
Oakbrook Terrace, Illinois, and each of them, as the agents and
attorneys-in-fact with full power of substitution and resubstitution, for each
of the undersigned, to execute and deliver, for and on behalf of the
undersigned, any and all amendments to the Registration Statement filed by
each Trust with the Securities and Exchange Commission pursuant to the
provisions of the Securities Act of 1933 and the Investment Company Act of
1940.
This Power of Attorney may be executed in multiple counterparts, each of
which shall be deemed an original, but which taken together shall constitute
one instrument.
Dated: July 24, 1997
Signature Title
--------- -----
/s/ J. Miles Branagan Trustee
- ---------------------------
J. Miles Branagan
/s/ Richard M. DeMartini Trustee
- ---------------------------
Richard M. DeMartini
/s/ Linda Hutton Heagy Trustee
- ---------------------------
Linda Hutton Heagy
/s/ R. Craig Kennedy Trustee
- ---------------------------
R. Craig Kennedy
/s/ Jack E. Nelson Trustee
- ---------------------------
Jack E. Nelson
/s/ Don G. Powell Trustee (For Former Van
- --------------------------- Kampen Funds only)
Don G. Powell
/s/ Jerome L. Robinson Trustee
- ---------------------------
Jerome L. Robinson
/s/ Phillip B. Rooney Trustee
- ---------------------------
Phillip B. Rooney
/s/ Fernando Sisto, Sc.D. Trustee
- ---------------------------
Fernando Sisto, Sc.D.
/s/ Wayne W. Whalen Trustee and Chairman
- ---------------------------
Wayne W. Whalen
/s/ Edward C. Wood III Vice President and
- --------------------------- Chief Financial Officer
Edward C. Wood III
/s/ Dennis J. McDonnell President
- ---------------------------
Dennis J. McDonnell
<PAGE> 2
SCHEDULE 1
I. FUNDS ADVISED BY VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.
("INVESTMENT ADVISORY CORP.") (COLLECTIVELY, THE "FORMER VAN KAMPEN FUNDS"):
Van Kampen American Capital U.S. Government Trust ("U.S. Government Trust")
on behalf of its series
Van Kampen American Capital U.S. Government Fund ("U.S. Government Fund")
Van Kampen American Capital Tax Free Trust ("Tax Free Trust")
on behalf of its series
Van Kampen American Capital Insured Tax Free Income Fund ("Insured Tax Free
Income Fund")
Van Kampen American Capital Tax Free High Income Fund ("Tax Free High Income
Fund")
Van Kampen American Capital California Insured Tax Free Fund ("California
Insured Tax Free Fund")
Van Kampen American Capital Municipal Income Fund ("Municipal Income Fund")
Van Kampen American Capital Intermediate Term Municipal Income Fund
("Intermediate Term Municipal Income Fund") (f/k/a Limited Term Municipal
Income Fund)
Van Kampen American Capital Florida Insured Tax Free Income Fund ("Florida
Insured Tax Free Income Fund")
Van Kampen American Capital New Jersey Tax Free Income Fund ("New Jersey Tax
Free Income Fund")
Van Kampen American Capital New York Tax Free Income Fund ("New York Tax Free
Income Fund")
Van Kampen American Capital California Tax Free Income Fund ("California Tax
Free Income Fund")
Van Kampen American Capital Michigan Tax Free Income Fund ("Michigan Tax Free
Income Fund")
Van Kampen American Capital Missouri Tax Free Income Fund ("Missouri Tax Free
Income Fund")
Van Kampen American Capital Ohio Tax Free Income Fund ("Ohio Tax Free Income
Fund")
Van Kampen American Capital Trust ("VKAC Trust")
on behalf of its series
Van Kampen American Capital High Yield Fund ("VKAC High Yield Fund")
Van Kampen American Capital Short-Term Global Income Fund ("Short-Term Global
Income Fund")
Van Kampen American Capital Strategic Income Fund ("Strategic Income Fund")
Van Kampen American Capital Equity Trust ("Equity Trust")
on behalf of its series
Van Kampen American Capital Utility Fund ("Utility Fund")
Van Kampen American Capital Value Fund ("Value Fund")
Van Kampen American Capital Great American Companies Fund ("Great American
Companies Fund")
Van Kampen American Capital Growth Fund ("Growth Fund")
Van Kampen American Capital Prospector Fund ("Prospector Fund")
Van Kampen American Capital Pennsylvania Tax Free Income Fund
("Pennsylvania Tax Free Income Fund")
Van Kampen American Capital Tax Free Money Fund ("Tax Free Money Fund")
<PAGE> 3
II. FUNDS ADVISED BY VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC.
("ASSET MANAGEMENT, INC.") (COLLECTIVELY, THE "FORMER AMERICAN CAPITAL FUNDS"):
Van Kampen American Capital Comstock Fund ("Comstock Fund")
Van Kampen American Capital Corporate Bond Fund ("Corporate Bond Fund")
Van Kampen American Capital Emerging Growth Fund ("Emerging Growth Fund")
Van Kampen American Capital Enterprise Fund ("Enterprise Fund")
Van Kampen American Capital Equity Income Fund ("Equity Income Fund")
Van Kampen American Capital Limited Maturity Government Fund ("Limited
Maturity Government Fund")
Van Kampen American Capital Global Managed Assets Fund ("Global Managed Assets
Fund")
Van Kampen American Capital Government Securities Fund ("Government Securities
Fund")
Van Kampen American Capital Government Target Fund ("Government Target Fund")
Van Kampen American Capital Growth and Income Fund ("Growth and Income Fund")
Van Kampen American Capital Harbor Fund ("Harbor Fund")
Van Kampen American Capital High Income Corporate Bond Fund ("High Income
Corporate Bond Fund")
Van Kampen American Capital Life Investment Trust ("Life Investment Trust" or
"LIT") on behalf of its Series
Enterprise Portfolio ("LIT Enterprise Portfolio")
Domestic Income Portfolio ("LIT Domestic Income Portfolio")
Emerging Growth Portfolio ("LIT Emerging Growth Portfolio")
Global Equity Portfolio ("LIT Global Equity Portfolio")
Government Portfolio ("LIT Government Portfolio")
Asset Allocation Portfolio ("LIT Asset Allocation Portfolio")
Money Market Portfolio ("LIT Money Market Portfolio")
Morgan Stanley Real Estate Securities Portfolio ("LIT Morgan Stanley Real
Estate Securities Portfolio")
Growth and Income Portfolio ("LIT Growth and Income Portfolio")
Strategic Stock Portfolio ("LIT Strategic Stock Portfolio")
Van Kampen American Capital Pace Fund ("Pace Fund")
Van Kampen American Capital Real Estate Securities Fund ("Real Estate
Securities Fund")
Van Kampen American Capital Reserve Fund ("Reserve Fund")
Van Kampen American Capital Small Capitalization Fund ("Small Capitalization
Fund")
Van Kampen American Capital Tax-Exempt Trust ("Tax-Exempt Trust")
on behalf of its Series
Van Kampen American Capital High Yield Municipal Fund ("High Yield
Municipal Fund")
Van Kampen American Capital U.S. Government Trust for Income ("U.S.
Government Trust for Income")
Van Kampen American Capital World Portfolio Series Trust ("World Portfolio
Series Trust") on behalf of its Series
Van Kampen American Capital Global Equity Fund ("Global Equity Fund")
Van Kampen American Capital Global Government Securities Fund ("Global
Government Securities Fund")
